This article will help you to differentiate between Cost Audit and Financial Audit.
Difference # Cost Audit:
1. The entire emphasis is on micro-aspects, the aggregates being considered for checks.
2. It is an examination of day-to-day operation, in so far as the cost records are designed in accordance with the cost accounting rules and maintained by the company.
3. It includes efficiency audit and propriety audit,—thus it extends its coverage to the examination of other operating factors.
4. It depends on critical review and checking of the production process, control systems and analysis of cost components of materials, labour and overheads for compilation of cost statements.
5. It acts as a control device for the avoidance of profiteering motive.
6. Here, the statutory cost statements are examined fully so as to ascertain the cost of each process, operation and each product—quality wise.
7. It may lead to the performance/productivity/efficiency audit of systems and sub-systems of an industry.
8. Its application is limited to notified industries only.
9. It ensures thorough checking and examination of the cost records.
10. It serves the interest of the management and of the Government.
11. It aids both the company and Govt. for fixation of prices of products.
12. It is industry-oriented, basically product oriented.
13. It is conducted under Section 233B of the Companies Act, 1956.
1. The cost auditor is appointed by the shareholders in an Annual General Meeting of a company.
2. The cost auditor submits his report to the Central Government with a copy to the company.
3. The statute imposes penalty and prosecution for any delay on the part of a cost auditor to submit his report.
4. The cost auditor is a cost accountant in practice.
C. Audit Report:
1. The cost audit report is submitted by a cost auditor to the Central Government with a copy to the company.
2. The format of the report is prescribed statutorily in the Cost Audit (report) Rules, 1996. It is divided into parts: Statutory affirmations in certificate and Reporting in an Annexure and Proforma.
3. It certifies the true and fair view of the cost of production and marketing of the ‘product’ only of a company.
4. The report highlights the areas of cost reduction and company’s performance, and contains auditor’s suggestions for improvement.
5. The report is treated as a confidential document both by the Government and the company. The information contents arc not disclosed either to the shareholders or to the public.
Difference # Financial Audit:
1. The entire emphasis is on macro-aspect, the individual transactions being scrutinized for check of the aggregates.
2. It is an examination of the books of account after the close of the year.
3. It is concerned with the examination of transactions recorded in the books of account.
4. It reviews the procedures and internal checks, and scrutinizes individual transactions for the purpose of verification of Profit & Loss Account and Balance Sheet.
5. It is not concerned with the avoidance of profiteering motive.
6. It does not do so. It indicates the financial position and overall performance of the business, regardless of its performance in various segments.
7. It does not possess these characteristics.
8. It is applicable to all classes of companies and industries irrespective of size and nature of operations.
9. Its checks and examinations arc limited to ‘test’ or on ‘sample’.
10. It serves the interest of the shareholders.
11. It does not possess that scope.
12. It is organisation-oriented.
13. It is conducted under Sections 224-232 of the Companies Act, 1956.
1. The financial auditor is appointed by the shareholders in the general meeting.
2. The financial auditor reports to the share – holders of the company. His report is to be placed before the annual general meeting.
3. Such a provision is absent so far as the financial auditor is concerned.
4. The financial auditor is a chartered accountant in practice.
C. Audit Report:
1. The financial audit report is submitted by a financial auditor to the company (as a part of the audited Balance Sheet and Profit & Loss Account) for being placed before the annual general meeting.
2. The format is basically in the form of statutory affirmations in certificate in accordance with the Companies Act, and Manufacturing & Other Companies (Auditor’s Report) Order, 1988.
3. It certifies the true and fair view of the state of affairs of the business of a company as a whole.
4. Such scope is very limited in a financial audit report.
5. The report is disclosed to the shareholders and even to the general public.