Cost Assignment
Cost Assignment
Cost Assignment
COST AUDIT
SUBMITTED TO:
MOURI DEY
ASSOCIATE PROFESSOR
DEPARTMENT OF ACCOUNTING,
UNIVERSITY OF CHITTAGONG
SUBMITTED BY:
MD. ALAUDDIN ALI
ID: 19301100
UNIVERSITY OF CHITTAGONG
Features:
The basic features of cost audit include the following:
1. Independent Evaluation: Cost audit is conducted by an independent and qualified
professional, often a cost auditor or a team of cost auditors, who are not directly
employed by the company.
2. Examination of Cost Accounting Systems: Cost audit involves a comprehensive review
of the cost accounting systems and procedures followed by the organization. This
includes an assessment of the methods used for cost allocation, inventory valuation, cost
control, and other cost-related processes.
3. Compliance with Cost Accounting Standards: Cost audit ensures compliance with
relevant cost accounting standards and regulations. The auditor examines whether the
cost accounting practices are in line with the prescribed standards and guidelines
established by the regulatory authorities.
4. Verification of Cost Statements: The cost auditor verifies the accuracy and reliability of
the cost statements prepared by the company. This includes verifying the integrity of cost
data, calculations, and financial information reported in the cost statements.
5. Identification of Deviations and Inefficiencies: Cost audit aims to identify deviations
from standard cost accounting practices, ineffective cost control measures, and areas of
cost inefficiencies within the organization.
6. Reporting and Recommendations: After conducting the audit, the cost auditor prepares
a detailed report highlighting the findings, observations, and recommendations. This
report serves as a valuable resource for management, providing insights into cost
management practices, potential risks, and opportunities for improvement.
7. Statutory Requirement: In some jurisdictions, cost audit is mandated by law for
specific industries or companies meeting certain criteria. In such cases, organizations are
legally obligated to undergo periodic cost audits and report the findings to relevant
regulatory authorities.
Scope:
The scope of cost audit encompasses various aspects related to an organization's cost
accounting practices and systems:
1. Examination of Cost Accounting Records: Cost audit involves a detailed review and
examination of the cost accounting records maintained by the organization. This includes
analyzing cost ledgers, cost sheets, work orders, inventory records, and other relevant
documents.
2. Cost Accounting System Evaluation: The cost auditor assesses the organization's cost
accounting system to determine its effectiveness, compliance with standards, and
accuracy in capturing and allocating costs. This evaluation includes analyzing cost
allocation methods, cost apportionment techniques, and overhead allocation practices.
3. Compliance with Cost Accounting Standards: Cost audit ensures compliance with
relevant cost accounting standards and regulations. The auditor verifies whether the
organization is following the prescribed cost accounting principles and guidelines
established by regulatory authorities or professional bodies.
4. Cost Control and Efficiency Analysis: The cost auditor examines the organization's
cost control measures and assesses their effectiveness. This includes analyzing cost
reduction initiatives, efficiency improvement programs, cost variance analysis, and cost-
performance trends.
5. Pricing and Product Profitability: Cost audit may include an evaluation of the pricing
strategies and methodologies used by the organization. The auditor analyzes the
relationship between costs and selling prices to assess product profitability and pricing
accuracy.
6. Inventory Valuation and Management: The cost auditor reviews the organization's
inventory valuation methods to ensure compliance with accounting standards. This
includes assessing the methods of determining costs of inventory (FIFO, LIFO, etc.) and
evaluating the adequacy of inventory management practices to minimize carrying costs or
obsolescence.
7. Financial Reporting and Disclosures: Cost audit may involve a review of the financial
statements and disclosures related to cost accounting information. The auditor verifies the
accuracy and adequacy of cost-related disclosures provided in financial reports, ensuring
transparency and compliance with reporting standards.
8. Compliance with Legal Requirements: In jurisdictions where cost audit is mandated by
law, the cost auditor examines the organization's compliance with legal requirements,
reporting obligations, and disclosure provisions specific to cost audit.
Objective:
The objective of cost audit is to provide an independent and systematic evaluation of an
organization's cost accounting records, systems, and processes. It aims to ensure that
costs are accurately recorded, allocated, and reported in accordance with applicable laws,
regulations, and accounting standards. The primary objectives of cost audit are as
follows:
1. Compliance: The cost audit ensures compliance with relevant laws and regulations
related to cost accounting. It helps verify that the organization is following the prescribed
accounting principles and practices for cost determination, allocation, and reporting.
2. Accuracy: The cost audit aims to verify the accuracy and reliability of the
organization's cost accounting records. It ensures that costs are properly recorded,
classified, and allocated to various products, services, or cost centers. This helps in
determining the true cost of production, facilitating effective decision-making, and
providing accurate financial information to stakeholders.
3. Efficiency: Cost audit evaluates the efficiency and effectiveness of the organization's
cost accounting systems and processes. It identifies areas of inefficiency, wastage, or
excessive costs and provides recommendations for improvement. This helps in
optimizing costs, enhancing operational efficiency, and improving overall financial
performance.
4. Cost Control: The cost audit helps in assessing the organization's cost control measures
and identifying opportunities for cost reduction or cost-saving initiatives. It examines cost
variances, compares actual costs with budgeted costs, and identifies areas where costs can
be minimized without compromising quality or performance.
5. Pricing and Profitability: Cost audit assists in evaluating the pricing strategies of the
organization and determining the profitability of different products, services, or business
segments. It helps in setting appropriate prices, analyzing cost-profit relationships, and
identifying opportunities for enhancing profitability.
6. Management Decision-making: The cost audit provides valuable information and
insights to management for effective decision-making. It helps management in evaluating
the financial viability of new projects or investments, assessing the impact of cost
changes on profitability, and making informed decisions related to cost control, pricing,
resource allocation, and product mix.
7. Transparency and Accountability: Cost audit promotes transparency and accountability
in cost accounting practices. It verifies that costs are accurately reported to stakeholders,
including shareholders, regulators, and customers. This helps in building trust, ensuring
compliance, and maintaining the organization's reputation.
1. Conflict of Interest: Cost auditors should not have any conflicts of interest that may
compromise their objectivity or independence. They should not have any financial or
personal relationships with the audited organization that could influence their judgment
or impair their ability to provide an unbiased assessment.
2. Legal Restrictions: Cost auditors may be disqualified if they have been convicted of
any criminal offense or have been found guilty of professional misconduct by a
regulatory authority. They should comply with all applicable laws and regulations related
to auditing and professional ethics.
3. Lack of Competence: Cost auditors should possess the necessary knowledge, skills,
and experience to perform their duties effectively. If they lack the required qualifications
or fail to meet the professional standards, they may be disqualified from conducting cost
audits.
4. Non-compliance with Professional Standards: Cost auditors should adhere to the
professional standards and guidelines set by relevant regulatory bodies or professional
institutes. If they fail to comply with these standards or engage in unethical behavior,
they may be disqualified from conducting cost audits.
5. Bias or Prejudice: Cost auditors should approach their work with objectivity and
impartiality. If they have any personal or professional biases that may affect their ability
to provide an unbiased assessment, they may be disqualified from conducting cost audits.
It is important for organizations to carefully select cost auditors who meet the necessary
qualifications and do not have any disqualifications that could compromise the integrity
and credibility of the audit process.
There are a number of problems involved in Cost audit in Bangladesh. These challenges
are related to the Lack of Capacity Building and Institutional Development, Application
or Adoption of Cost Accounting Standard, existing Law sometimes contrary to Cost
accounting Standard, Speedy adoption of cost accounting standard suffers from lack of
technical and financial resources, Lack of awareness, understanding and application skill
by prepares and auditors.
These challenges may be overcome by Capacity Building and Institutional Development,
Adoption of cost accounting standard and enhancing technical and financial resources,
increase resources, knowledge, technical skill and competency of regulatory agencies that
means working together with Financial Reporting Council (FRC) to monitor/compliance
with standard.