Difference between Financial Audit and Cost Audit
Introduction
Present business world is very competitive. In order to survive in the market, not only innovative ideas are necessary but also proper maintenance and verification of accounts is necessary so that business man will be fully aware of their operating efficiency and financial position. There are various types of audit which are conducted by management as per their need but in common parlance “Audit” means “Financial Audit” which is compulsory for every company registered under the Indian Companies Act’ 2013.
What is Financial Audit?
Financial audit is the scientific
and systematic examination of the books, accounts, vouchers and other financial
records that will help the auditor to give opinion regarding true and fair view
of the state of affairs of the business and to verify that profit and loss
account reflects a true and fair view of profit or loss for the financial year.
Financial audit is compulsory in Case of companies registered under Companies
Act, 2013.
What is Cost Audit?
It
is an audit
process for verifying the
cost of manufacture or production of any article, on the basis of accounts as
regards utilisation of material or labour or other items of costs, maintained
by the company. In simple words the term cost audit means a systematic
and accurate verification of the cost accounts and records and checking of
adherence to the objectives of the cost accounting.
As
per ICWA London’ “cost audit is the verification of the correctness of cost
accounts and of the adherence to the cost accounting plan.”
The
ICWAI defines cost audit as " system of audit introduced by the government
of India for the review, examination and appraisal of the cost accounting
records and attendant information required to be maintained by specified industries"
Difference between Financial Audit and cost Audit
|
Financial Audit |
Cost Audit |
|
Financial audit
is the audit of financial accounts of an organization, at the end of the
financial year to reflect true and fair view of accounts. |
Cost audit is
the audit of cost accounting records of an organization to reflect true cost
of a product or service and pricing. |
|
Financial audit
is compulsory for every company as per company's act, 2013. |
Cost audit is
not compulsory except in certain' cases i.e. companies' carrying. on business
of manufacturing or mining and where the Central government has directed to
maintain cost accounts in certain industries. |
|
The purpose of
financial audit are to find out whether financial accounts are properly
maintained and whether reflects true and fair view of the state of affairs of
the company. |
The objects of
cost audit are to examine the cost accounting records, verify it and to give
report regarding efficiency or inefficiency in cost of production and
detailed analysis of cost data's. |
|
In this audit
all types of financial transactions are examined. |
In case of cost
audit, only expenses related to costs i.e. material, labour, overheads, and
stores are thoroughly checked. |
|
Financial audit
is primarily conducted to protect the interest of the shareholders. |
Cost audit is
primarily conducted to protect the interest of the management, customers,
government and of the society. |
|
The first
auditor of a company is appointed by the board of directors and subsequent
auditors are appointed by' the shareholders in the annual general meeting
except in certain cases. |
Cost auditors
are always appointed by the board of directors with the previous approval of
the Central government. |
|
A financial
auditor does not check the cost records in detail where manipulation can be
mad |
A cost auditor
examines the cost records in detail to find the errors and also to find
manipulations in the cost accounts. |
|
At the end of
audit work the financial auditor sends his audit report to the management of
the company. |
At the end of
cost audit the cost auditor sends his audit report to the company as well as
to the Company Law Board. |
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