Advantages and Disadvantages of Cost Audit

Advantages and Disadvantages of Cost Audit
Advantages and Disadvantages of Cost Audit

Advantages of Cost Audit

Advantages of Cost Audit

(a) To the Management :

(i) Proper audit of cost accounts helps in revealing errors. frauds and  inconsistencies.

(ii) Cost audit brings reliability in cost reports on the basis of which important decisions are taken.

(iii) By concerete suggestions cost audit can being about improvement in systems and procedures.

(iv) Cost audit can improve the cost accounting method as an effective tool in cost control.

(v) Audited cost accounts facilitate inter firm comparison.

(b) To the Cost Accountant :

(i) Cost audit acts as a check on the performance of the Cost Depariment staff as regards accuracy. This is a great benefit to the Cost Accountant

(ii) The external cost auditor with his varied kowledge and experience can help the Cost Accountant in the matter of improvement of costing methods and cost reporting.

(iii) The mere fact that the cost accounts will be audited raises the importance of the cost accounts and the Cost Accountant in the entire organization.

(c) To the Statutory Auditor : 

Cost audit system builds the confidence of the statutory auditor on certain data and this reiieves him of the necessity of detailed checking of those data.

(d) To the Shareholders :

(i) By pointing out inefficiencies. cost saving ways, etc. the cost auditor helps in the improvement of performance and profitability of the entire organization. This benefits the shareholders immensely.

(ii) The shareholders can rely on the valuation placed on different categories of inventory certified by the management and reported through the financial statements, when those have been checked by the cost auditor.

(e) To the Customers :

(i) When customers purchase on cost plus basis, cost audit enables them to check the cost of product purchased.

(ii) When there is an escalation clause in sale contract. the customer can verify the increase in cost through cost audit before agreeing to the addition to original price.

(f) To the Government :

(i) The Government can have some reliable basis to fix prices of commodities in a price control scheme through audited cost data.

(ii) An audit of cost structure of an industry enables the Government to take decision on tariff protection.

(iii) In certain cases audited cost data may help the authorities in. fixing up tax or duty on the cost of finished products.

Disadvantages of Cost Audit

Disadvantages of Cost Audit – Cost audit is said to have the following disadvantages:

(i) When the financial accounts are audited, audit of cost accounts is unneccessary.

(ii) If the cost accounts are prepared or maintained by a qualified cost accountant, there can be no reason for getting such cost accounts by another qualified cost accountant.

(iii) Cost audit may create unnecessary hindrance in day-to-day office work.

(iv) The cost auditor may be a qualified person, but he may not be always right in his judgement. Hence the opinion of the cost auditor may not always be correct.

(v) Cost audit involves cost and this may not suit small organizations.

Related Links –

Meaning of Cost Accounting | Nature and Scope of Cost Accounting

Cost Accounting | Purpose or Functions of Cost Accounting

Advantages and Disadvantages of Cost Accounting

Difference between Cost Accounting and Management Accounting

What is Cost Concepts and Different Terms of Costs

What is concept of Cost Audit | Objective and Scope of Cost Audit


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