Cost audits help to ensure transparency, efficiency, and proper management of all costs in an organization. These audits must be applied and used due to the changing structure of global business and economic turmoil. The term "cost audit" is an attempt to provide accountability and ensure that cost statements reflect the true and fair view of expenses made by the organization. Therefore, let us know about the meaning, applicability and provision of cost audit.
What is the Meaning of Cost Audit?
It examines the record of expenses and other data to guide an assessment of costs that takes non-benefit place in the account. Ensuring stakeholders, like the investors, the board, and the administrative authorities, that the expenses of data disclosed by a business is reliable and adheres to pertinent standards and guidelines is its main objective. This includes:
- Verifying the accuracy of the cost data, reports, statements, and accounts in the cost accounting records
- Examining these documents to make sure they adhere to plans, procedures, goals, and cost accounting principles.
The cost auditor should use reconciliation, vouching, and other techniques to confirm the accuracy of the data.
Objectives of Cost Auditing
- This is to identify excessive losses and make sure that the costing system calculates the true and reasonable cost of production.
- Ensuring that only the most important contents are included in production and sales costs and that those factors are used efficiently.
- To verify the accuracy of cost records.
- To find mistakes in the expense account.
- To lessen the financial auditor's workload, internal auditing should be organized with an emphasis on expenses.
- To check whether the business has accurate cost books and records, as mandated by law or as a matter of managerial choice.
- To verify that the basic cost accounting principles or associated clauses that apply to the implementation of specific legislative standards are appropriately applied in the maintenance of cost accounts.
Applicability of Cost Auditing
As per Companies (Cost Records and Audit) Rules, 2014, cost auditing is mandatory for:
- Every business listed in Rule 3's item (A) whose annual revenue in the fiscal year prior was at least Rs 50 crores.
- Each business listed in item (A) of Rule 3 whose total revenue from individual goods or services for which Rule 3 requires cost records to be kept is at least Rs 25 crore.
- Every business listed in Rule 3 item (B) whose annual revenue in the fiscal year prior was at least Rs 100 crores.
- Every business listed in Rule 3 item (B) whose total revenue from all of the separate goods and services for which rule 3 requires cost records to be kept is at least Rs 35 crore.
Cost auditing is not mandatory under Rule 3 for:
- Whose export-related foreign exchange earnings exceed 75% of its total sales; or
- Which is a Special Economic Zone business; or
- Which provides power sector services and produces energy through captive generating plants.
Provisions for Cost Auditing
Norms as per theCompanies (Cost Records and Audit) Rules of 2014:
- Within 180 days of the start of the fiscal year, an expense reviewer will be assigned by the class of organizations mentioned in Rule 3 and the most severe cut-off points outlined in Rule 4.
- As stated in sub-rule (1A), the expense evaluator's consent to such an appointment and a declaration from them will be sought prior to such an arrangement.
- According to sub-rule (1), the expense inspector will provide an endorsement that the person or organization generally satisfies the requirements for the arrangement and is therefore not ineligible under the Cost & Works Accountants Act, 1959 and the principles mentioned therein.
- The person or organization satisfies the requirements listed in Section 141 of the Demonstration; the suggested structure adheres to the power's specifications as much as possible.
- The declaration's list of reasons against the assigned cost evaluator or review organization with competent issues of direct is accurate and legitimate.
Form CRA 2 Submission and Other Cost Auditor Norms:
- According to subrule (1), every business must submit form CRA 2 to the appropriate authority notifying them of the auditor's appointment within the allotted time frame:
- either within 30 days of the board meeting where the decision was made, or
- within 180 days of the fiscal year's start, whichever comes first, via form CRA 2 and the required fee.
- Each appointed cost auditor must continue to perform their duties for 180 days after the fiscal year ends or until they provide the cost audit report for the fiscal year for which they were hired.
- But with the provison that the board may decide to remove the cost auditor before the end of his term after providing a fair hearing and recording the reasons in writing;
- With the additional caveat that the relevant Board Resolution must be attached to the CRA 2 form that is to be submitted in order to share information on the appointment of a different cost auditor;
- Additionally, it should be noted that failure to comply with this sub-rule will prevent the cost auditor from leaving their position with the organization.
Norms for Notifying Vacancies and Submitting CRA 2, CRA 3, and CRA 4 Forms:
- Any casual opening for the expense examiner due to retirement, or death will be filled within 30 days of the occurrence of such an opening. Within 30 days of such an arrangement, the organization will suggest the authority utilizing the CRA 2 structure.
- Before board-approved chief accept them for accommodation at the expense evaluator to report later, the Bodies will verify that the expense explanations and other pertinent details are to be added with the expense review report.
- In the CRA structure, each cost examiner who completes an expense record review will include their understanding, if any, in the expense review report.
- Within 180 days following the end of the fiscal year to which the data pertains, each cost reviewer will provide the Bodies with their verified report. Such claims will be investigated by the Bodies, particularly the underground insect reservation that is mentioned.
- Each organization covered by the rules will collaborate with the authority using the CRA 4 structure in the suggested way and costs within 30 days of receiving a duplicate review report.
Conclusion
Cost audit gives management useful information on controlling output, operating in an efficient manner, reducing operating costs, and reworking cost accounting strategies.
In India, the Companies Act of 2013 and the Cost Records and Audit Rules of 2014 provide a framework for cost audits targeted at industrial sectors that face economic development challenges in connection with public interest. It is a potent weapon in ensuring operational efficiency and cost control, and compliance with statutory requirements. It helps organizations in optimizing resource use, improving decision-making, and increasing transparency.
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