Cost Audit Programme: Subject Matter and Aspect

After reading this article you will learn about Cost Audit Programme:- 1. Subject Matter of Cost Audit Programme 2. Aspects of Cost Audit Programme.

Subject Matter of Cost Audit Programme:

Cost audit programme is a detailed plan of:


(i) Audit work to be performed,

(ii) Procedures to be followed in verification of each item in the cost statements,

(iii) Allocation of work to audit staff, and

(iv) Estimated time duration for the completion of work.

There should be two types of cost audit programmes:

(1) General:


Containing standardised instructions in respect of internal control, auditing procedures and follow-up, co-ordination plan of specific audit programmes, interviews with the company officials, etc.

(2) Specific:

Designed to cover all functional areas as per the company’s organisation profile and in accordance with the relevant cost accounting records rules. This part should be developed, as far as practicable, for each broad section of the total audit work and should identify the suitable staff and time necessary. The principal auditor should chalk out this programme.

Aspects of Cost Audit Programme:

A cost audit programme should be based on the concept of ‘materiality’. An item is considered ‘material’ if there is reason to believe that knowledge of it would influence the decision.


The questions of ‘materiality’ arise in the circumstances like:

(i) When mistakes are discovered in the cost records such as calculation of depreciation, valuation of WIP and stock etc.;

(ii) When disclosure of non-recurring or unusual items of income or expenditure, or prior adjustment is necessary; and

(iii) When any item of income, expenditure or asset is of such amount that, apart from statutory requirements, it is necessary to disclose it separately.


In audit parlance, the concept of ‘materiality’ would mean that a transaction or a method adopted should not be considered in isolation but always in relation to the effect it will have on the total final results, say, cost of production.

To a cost auditor, an item is considered material if non-disclosure of that item distorts the results of the business operation. For example, the reported profit may vary due to different methods of stock valuation and depreciation charges.

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