What is Cost Audit Programme? Need, Specimen

What is Cost Audit Programme?

Cost audit programme is a detailed plan prepared by the cost audit showing how various stages of the cost audit work are to be completed by the cost audit staff, the procedure to be followed by them for doing cost audit work assigned to them, the extent to which the examination and verification of the cost data should be carried out by them and in how much time the cost audit work should be completed by them.

It is thus a plan which

• shows the distribution of the cost audit work among the cost audit staff
• which work is assigned to a person or group of persons in the staff
• how the work of checking and verification of the cost data is expected to be done by the cost audit staff and
• time-schedule in which each part of the cost audit should be completed by them.
  
  With the help of the cost audit programme the work of the cost audit is done properly and systematically.

Need for preparation of cost audit programme

Cost audit work of a company is a voluminous work and it cannot be completed by a cost auditor alone. He needs assistance from many persons who are known as audit staff.

These persons are appointed by the cost auditor as audit clerks and they are required to do the examination, checking and verification of recording done by the costing department’s employees.

The need for preparation of cost audit programme arises due to following reasons:

• Each cost audit clerk or a group of cost audit clerks can be allotted a specific part of the cost audit work. So they know definitely which work is to be done by them. This helps in avoiding confusion and ambiguity in the cost audit work.
  
  
  
• A cost audit programme is in written form and each person involved in cost audit work knows the procedure which is to be followed by him while performing cost audit work.
  
  In case of doubt that person can approach the cost auditor and obtain explanation to clarify his doubts.
  
  
  
• There are different types of work to be performed and they need a certain skill, experience and competency on the part of the audit clerks.
  
  Considering this requirement, the cost auditor can select the audit clerks for each type of audit work. This helps in performing cost audit work efficiently.
  
  
  
• The time needed for performing part of audit work is not same. Simple type of work needs less time for completion while the work involving more and careful checking needs a longer time.
  
  The cost auditor while preparing the cost audit programme considers this and allows sufficient time for completion of each part of the work.
  
  
  
• The work of cost audit is required to be completed and the cost audit report is to be sumbitted by the cost auditor to the Central Government within a certain time limit as specified in the Cost Accounting Record Rules and Cost Audit Report Rules.
  
  The cost audit programme gives a time table for completing the cost audit work and the cost auditor is able to prepare and submit his cost audit report within the time limit.
  
  
• The cost auditor can use the cost audit programme to see whether the various stages of cost audit are being completed as per the plan or not. If he finds that the actual work is lagging behind, he can take appropriate and timely action to set the things right and can complete the entire work of cost audit in the planned time.
  
  
• The cost audit clerks prepare the necessary notes, records and reports for the cost audit work completed by them. They sign these documents and submit them to the cost auditor.
  
  These documents become the evidence of the cost audit work done by them and the cost auditor can fix the responsibility of the audit clerks on the basis of them.

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Cost Audit Programme Specimen

S.No	Particular	Person Responsible	No of Days	Extent of checking to be done
1	Cost Accounting System	Mr. A	12 Hrs.	Systems for stores, labour, utilities, overheads, depreciation, technical know-how, inter unit and inter company transactions, pollution control expenses, HRD expenses, sales realisation, export exp. and export incentives, treatment of by product, captive consumption and its accounting, variance calculation and its treatment, capitalisation of expenses, inventory valuation.
2	Quantitative details	Mr. B.	30 Hrs.	Capacity, production, sales, captive consumption, closing stock of materials, work-in-process and finished goods, linked up with excise records, etc.
3	Raw Materials purchased and consumed	Mr. C & D	10 days	Invoices, material requisition notes material issue notes, closing stock quantity and value.
4	Indirect materials tools, appliances	Mr. E	2 days	Sample physical checking of some major items, excess-shortage.
5	Salaries and wages	Mr. G & H	4 days	Random checking of gate time keeping, sample checking of leave register, checking of wage sheets and salary books, absenteeism, overtime payments, record of payment to casual workers-100% checking, idle time records and payment for idle time.
6	Direct expenses	Mr. J	8 Hrs.	Vouchers for direct expenses – 100% checking.
7	Depreciation	Mr. A	1 day	Rates, amounts charged to each asset, cost centrewise checking – 100% recordings to be checked.
8	Factory overheads	Mr. B.	20 Hrs.	Major items to be checked checking dependent upon items checked by internal auditor and financial auditors.
9	Office and administration overheads	Mr. E	10 Hrs.	Sample checking of items of over head
10	Selling and distribution overheads	Mr. E	18 Hrs.	Some major items to be checked on sample basis.
11	Expenses on export sales and export incentives received	Mr. E	8 Hrs.	100% checking, to be linked up with excise records and documents.
12	Inter unit and inter company transactions	Mr. A	2 days	Checking of related records 100% checking.
13	Services used-steam water, electricity, internal transportation, etc.	Mr. J	15 Hrs.	100% vouching for 4 months including beginning and closing months
14	Expenses for pollution control, technical know-how, royalty, etc.	Mr. G.	12 Hrs.	100% checking of vouchers.
15	Production and Sales details	Mr. H	15 Hrs.	100% checking with sales and excise records.
16	Abnormal items	Mr. E.	6 Hrs.	Check the transactions and basis used for determination and treatment given.
17	Financial position and ratio analysis	Mr. A	2 days	Comparison of the financial statements for past two years and calculate financial ratio’s
18	Cost sheets and reconciliation with financial statements	Mr. J and Mr. G	25 hrs.	100% checking of cost sheets and comparison for two years records.
19	Draft cost audit report, annexures to be attached and comments to be made	Cost Auditor	–	–

According to the available time, the existence of internal control system in the company and availability of the staff for the cost audit work, the cost auditor may make necessary changes in the specimen cost audit programme given above.

He may reduce the extent of checking of some items and may rely on sample checking but while doing this he increases the risk for himself because the documents not checked may contain some errors or frauds committed by the staff of the cost accounting department of the company and so cost calculation shown by them will not be accurate.

The cost auditor should, by using his experience, decide certain areas where the chances of errors and frauds committed are more and he should instruct his audit clerks to be more alert and cautious while checking and verifying the recording done and documents prepared by the employees of the company in such areas. He may instruct them to do 100% checking if there is cause to be suspicious about the recording.