What is cost audit? What are its objectives? State the advantages and limitations of cost audit.

In a cost audit, the books of account and vouchers are examined to evaluate their accuracy. The exact calculation of the cost of a product is called a cost audit.

In the context of accounting, an audit is the systematic examination of the books, vouchers, and records of a business to enable the auditor to report whether the accounts are properly drawn up (i.e., so as to exhibit a true and fair view of the company’s state of affairs).

Initially, the scope of audits was limited to verifying official transactions. However, more recently, it has been extended to other fields, including cost audit. Cost audits seek to verify the correctness of cost records or cost accounts.

The Institute of Cost & Works Accountants of India defines a cost audit as follows: “An audit of efficiency of minute details of expenditure … Cost audit is mainly a preventive measure, a guide for management policy and decision … and a barometer of performance.”

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