Cost Audit is the core field for a practicing Cost & Management Accountant. Institute of ICAI-CMA has recently started MCBT (Mandatory Capacity Building Training). But unfortunately, most of the new practicing Cost & Management Accountant are not aware of the practical approach to conduct the Cost Audit in any industry due to lack of industry experience. My article is dedicated to them for their knowledge and enrichment.
COST AUDIT -INTRODUCTION
Basics of Cost Audit
a) Visit of Factory/office/ working place (Production Cost Centers) to inspect various statutory records.
b) Visit of Service Cost Centers, Workshop, Hospital, Administrative office etc. for assessment of functionality, methodology adopted and role of each service unit towards production, Cost incurred in each service unit and treatment in Cost.
c) Discussion with Head of the Departments to assess the weaknesses and strengths of the company, functionality and methodology adopted in the company, their roles in their functional areas etc.
d) Obtaining their suggestion for optimum performance of man, machine and overall company performance.
e) Collection of Quantitative data
f) Verification and Examination of Cost Records
g) Analysis of Cost data, Physical Data & Trend analysis
h) Verification & Examination of Annexure to Cost Audit report
h) Consolidation of Annexure to Cost Audit Report in case of Lead Auditor
Collection of Physical & Cost Data/ Information/Statement:
1. Physical copy of audited P & L A/C and Balance Sheet along with Cost Centre wise trial balance
2. Groupings of financial codes duly tallied with trial balance
3. List of fore closed contracts
4. Hindrance Register maintained for civil contracts, Transportation and other contractual works
5. Certified Copy of installed Capacity Assessment done by Engineering or concerned department
6. Statutory Records relating to production, dispatch and closing stock
7. Internal Audit Report on Cost Records
8. Monthly MIS Report, if any containing all data relating to production, machine utilization, dispatch and other physical data
9. Cost Centre wise consumption of utilities with norms vis a vis previous year
10. Cost Centre wise capacity available and utilization with respective norms as indicated in Director’s Report vis a vis previous year
11. Mandays lost due to strike or abnormal situation
12. Month wise Power analysis statement indicating penalty levied, contract demand and recorded demand, power factor for industrial and domestic both current year vis a vis previous year
13. Computation of Activity wise Depreciation
14. Year wise break up of incentive credited in sales account and any other expenses or income not related to the year under report
15. Year wise break up of credit notes issued and incentive earned during the year under audit
16. Variance analysis with budget and previous year in budget heads with justification
17. Cost Finance Reconciliation Statements with specific reasons of variation in Budget head
18. Cost Accounting Policy of the Company
Analysis of Cost and physical data
a) Comparison of Capacity utilization of machines and mines with previous year and with similar mines
b) Comparison of Specific Consumption of HSD Oil, Power etc with previous year and with similar mines
c) Comparison of various Cost Elements with previous year and with similar mines
d) Comparison of Powder Factor, Detonator Factor with previous year and with similar mines in case of Mining Industries
e) Co relate Cost Element with corresponding quantitative data
f) other analysis as required during audit
Trend analysis of past 5 years in respect of major Cost Elements so as to assess the extent of Cost Control in vogue and to identify any abnormality if any.
Major Area on which comments to be made
1. Violation of Cost Accounting Standards
2. Adequacy of Internal audit on Cost Records
3. Record Keeping system and ascertainment of True Cost of Production
4. Cost Centre wise Productivity of Man and machine
5. Cost Centre wise Machine availability and utilization performances
6. Profitability of Cost Centre
7. Cost Centre Wise Capacity Utilization
8. Performance of Ongoing Projects, Projects having time over run and cost over run
9. Performance of Controllable Cost
10. Comments on Correctness of Sales billing
11. Overall Performance of the mine
12. Compliance of Cost Accounting Standards
13. Review of Internal audit Report, Internal Control and Internal Check System
14. Variance analysis
15. Other relevant points which may crop up during audit
Cost Audit is not only for ascertainment of True Cost of Production/Service or to certify statutory requirements, but also for value addition to the Companies overall performances by pinpointing inefficiencies and wasteful expenditure. If a Cost Auditor works aiming to this, the Company as well us our profession will be benefitted.
About the Author: CMA Alokesh Dutta, B.Sc., FCMA – A Practicing Cost & Management Accountant having more than 30 years Industry Experience. | Email : email@example.com