Cost audit establishes the accuracy of cost accounts and will assist in the prevention of errors and frauds. It provides necessary information for prompt decision decisions. It helps management to regulate production. It exercises moral influence on employees which keeps them efficient and alert. It ensures maximum utilization of available resources. It tests the effectiveness of cost control techniques and to evaluate their advantages to the enterprise.
Advantages of Cost Audit to the Society
- Cost audit 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 the exploitation.
- Cost audit enables the Government to keep a check on undue profiteering by the manufacturers and avoids non-natural price rise due to monopolistic tendencies.
- It improves the efficiency of industrial units and thereby assists in the economic progress of the nation. It will help in reducing the cost of production because a close check will be maintained on all wastages relating to materials, labor, and overheads. Wastages will be promptly reported to management so that there may not be a recurrence of those wastages.
- Since the price increase by the industry is not allowed without justification as to increase in the cost of production, consumers can maintain their standard of living. It enables the Government to fix the prices of essential commodities. This protects the interests of society.
- It is helpful in ascertaining cost claims submitted to the Government under the cost-plus contract. Government departments like Railways, Defence Supplies, Directorate General Supplies, and Disposals, etc. are making use of cost audit reports for the determination of cost claims.
Cost audit promotes a better understanding between persons at the helm of affairs and persons at the bottom. The cost data audited by the cost auditor will prove useful for settling trade disputes for wages, bonus, share in profit, etc.