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Cost Audit.....
Cost Audit.....
Qualifications
1. An auditor must be a cost accountant within the meaning of cost and works accountants act 1956.
2. However after the amendment in the companies act a chartered accountant possessing the prescribed qualifications has been permitted for doing cost audit only for such period as notified by central government
Disqualifications
According to companies act (sec -226):1. Body corporate . 2. Officer or employer. 3. Partner. 4. Specified number of cost audits.
Advantage to management
Helps to control on different elements of cost Helps in decision making Helps in reducing price Helps in budgetary control
ADVANTAGES TO SHAREHOLDERS
To know the efficiency or inefficiency of management To know about the utilization of resources To know about the productivity of material, labour and machine Fair return on investment
VOUCHING : Inspection by the auditor of a documentary evidence supporting and substantiating a transaction
CHECKING AND TICKING : Check marks or tick marks are used for calculations posting etc TEST CHECKING : Auditor has to check a small part of work on the basis of random sampling WORKING PAPERS : Working papers include copy of office manual , copies of important decisions and procedures etc AUDIT NOTES : Auditor has to make a note in the course of audit and he wil seek clarifications from the officials QUESTIONNAIRES :Auditors should make questions about important elements of cost.
Financial position of the company of current and previous year Sales of product and fixation of selling price Special expense allocated to production process Cost of raw material Cost of power , steam and fuel Abnormal features related to production process Stores and spare part of the company Depreciation policy and its implementation
CASE STUDY : Raheja Construction High-Rise Office Building - Cost Plus Contract A contract compliance audit was performed for the shell construction of a high-rise office building which had been constructed under the terms of a cost plus a fixed fee contract. The contractor had billed approximately $80 million for the completed construction work. Our audit identified overstatements of reimbursable costs by the contractor in excess of $1.3 million.
The primary overcharges concerned nonreimbursable overtime premium, owned equipment charges, non-expendable equipment purchases, charges for corrective work, etc. Owner's representatives negotiated the exceptions with the contractor before making final payment resulting in a cost savings of approximately $700,000.
Approximately $50 million in construction costs were audited in connection with a cost plus with a guaranteed maximum contract for the construction of a resort hotel. The audit identified approximately $900,000 in potential overcharges due to overstatements of reimbursable costs, etc.
Management negotiated a settlement with the contractor which resulted in a savings in excess of $300,000. Overcharges resulted from improper computations of payroll taxes and insurance, duplicate charges for vacation, improper handling of backcharges, etc.
Conclusion
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