Advantages of Cost Audit

The important advantages of cost audit are briefly discussed as follows:

Advantages of Cost Audit to the Management

1.      It provides necessary information for prompt decision decisions.

2.      It helps management to regulate production.

3.      Errors, omission, fraud, and mistakes can be detected and prevented due to the effective auditing of cost accounts.

4.      It reduces the cost of production through plugging loopholes relating to wastage of material, labor, and overheads.

5.      It can fix the responsibility of an individual wherever irregularities or wastage are found.

6.      It improves the efficiency of the organization as a whole and costing system in particular by constant review, revision, and checking or routine procedures and methods.

7.      It helps in comparing actual results with budgeted results and points out the areas where management action is more needed.

8.      It also enables comparison among different units of the factory to find out the profitability of the different units.

9.      It exercises a moral influence on employees, which keeps them efficient and alert.

10.  It ensures that the cost accounts have been maintained under the principles of costing employed in the industry concerned.

11.  It ensures effective internal control.

12.  It helps to increase the overall efficiency of productivity.

13.  Inefficiency can be eliminated by suitable corrective actions.

14.  It facilitates cost control and cost reduction.

15.  It assists in the valuation of stock of materials, works in progress, and finished goods.

16.  It ensures maximum utilization of available resources,

17.  It enables the management to choose economic methods of operations and thus earn profits to satisfy the shareholders and the investing public.

18.  It enables the management to chalk out the future policy based on the report by the cost auditor, especially regarding labor, raw material, plant, etc. to maximize production and reduce the cost of production.

19.  It tests the effectiveness of cost control techniques and to evaluate their advantages to the enterprise.

Advantages of Cost Audit to the Shareholders

1.      It ensures that proper records are maintained as to purchases, utilization of materials, and expenses incurred on various items i.e., wages and overheads, etc. It also makes sure that the industrial unit has been working efficiently and economically.

2.      It enables shareholders to determine whether or not they are getting a fair return on their investments. It reflects managerial efficiency or inefficiency.

3.      It ensures a true picture of the company’s state of affairs. It reveals whether resources like plant and machinery are properly utilized or not.

4.      It creates an image of the creditworthiness of the concern.

Advantages of Cost Audit to the Society

1.      It tells the true cost of production. From this, the consumer may know whether the market price of the article is fair or not. The consumer is saved from exploitation.

2.      It improves the efficiency of industrial units and thereby assists in the economic progress of the nation.

3.      Since the price increase by the industry is not allowed without justification as to an increase in the cost of production, consumers can maintain their standard of living.

Advantages of Cost Audit to the Government

1.      It assists the tariff board in deciding whether tariff protection should be extended to a particular industry or not.

2.      It helps to ascertain whether any particular industry should be given any subsidy to develop that industry.

3.      It provides reliable data to the government for fixing up the selling prices of the various commodities.

4.      It helps in fixing contract prices in a cost-plus contract.

5.      It determines whether differential pricing within the industry is desirable.

6.      It helps the government to take necessary measures to improve the efficiency of sick industrial units.

7.      It can reveal the fraudulent intentions of the management.

8.      Cost statements may be helpful to authorities in imposing tax or duty at the cost of finished products.

9.      It facilitates settlement of trade disputes of the companies.

10.  It imposes an automatic check on inflation.

11.  It assists the Tariff Board to consider the extension or removal of protection.