Cost Audit is an audit of efficiency of minute details of expenditure while the work in progress,

and not a post mortem examination. Cost Audit is mainly a preventive measure, a guide for

management policy and decisions, in addition to being the barometer of performance. A cost

audit represents the verification of cost accounts and checking on the adherence to cost

accounting plan. Cost audit ascertains the accuracy of cost accounting records to ensure that

they are in conformity with cost accounting principles, plans, procedures and objectives.

Definition

Cost audit can be defined as verification of correctness of cost accounts and a check on

adherence to the cost accounting principles, plans and procedures. 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.

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."

The Institute of Cost & Management UK defined cost audits as "the verification of the

correctness of cost accounts and a check on the adherence to the cost accounting plan."

According to Smith and Day, a cost audit involves "detailed checking of the costing system

techniques, and accounts to verify their correctness and to ensure adherence to the objective

of cost accounting."

In the words of R. W. Dobson, "cost audit is the verification of the correctness of cost accounts

and of the adherence to the cost accountancy plans."

Based on these definitions, cost audit refers to the detailed verification of the correctness of

costing techniques, costing systems, and cost accounts. In any manufacturing or service firm, it

is crucial to calculate the correct cost of services to charge customers.