Cost effectiveness and competitiveness are critical to the success and sustainability of businesses. In developing economies like India, owing to the pressure on resources, effective and judicious use of them is a major challenge and the survival and growth of an organization largely depends on its ability to optimally utilize resources in the most cost effective way. Cost Audits focus on performance evaluation and identification of errors and irregularities in any system which eventually lead to wastage of valuable and scarce resources. They help improve performance and productivity by detecting and reducing deviations from standards, both visible and invisible losses, inefficiencies, wastages, time overruns etc. Cost Accounting not only deals with items of cost and expenses with respect to operations but also provides important post profit or loss analysis results and indicators to identify the reasons behind the results. Application of Cost Audit has several advantages for the incumbent organization and also for other interested groups. The most significant ones are enumerated below:
- Reduced costs and wastages for the organization
- Accurate and reliable information for management and other stakeholders
- Price competitiveness of products & services
- Appropriate and adequate information and data for the financial analysts
- Tools for prohibiting unethical practices in industries
- Reduced work-load for the regulatory bodies
Considering the significance of cost effectiveness and audit for various stakeholders, CII, in association with The Institute of Cost Accountants of India, prepared a knowledge report entitled “Cost Effectiveness through Cost Audit” which was released in a seminar on “Improving Cost Effectiveness through Cost Audit” organised by CII on 18 November, 2014 at Haldia. The study provides a detailed account of the benefits of cost audits for the management and the related parties, the government, the regulators, the economy as well as the consumers and the society.
In addition, the report address key challenges that an organization can face when adopting such a mechanism. Expert accountants and regulators have shared their opinions and ideas on various aspects related to the process of cost audits by way of this report. The document also contains case studies to elucidate the process of cost audits and various related aspects further. Also included are illustrations on linkages between cost records and cost audit, the impact of cost audits on direct and indirect taxation, etc.