Read this article to find out how can a Internal Cost Auditor Enrich the Performance of Audit Function.

The independent statutory cost auditor, because of his professional expertise and experience in public practice, can genuinely render assistance in an advisory capacity in connection with the introduction and subsequent operation and continuance of an internal audit system in a manufacturing business entity.

Familiarity with different industries makes a cost auditor capable of passing on a share of his knowledge to the development of an internal (cost) audit system and that of an ‘internal check’ system particularly with respect to cost accounting system and records, including the checks inherent in inter-linking and inter-locking the various cost proformae prescribed under the relevant Cost Accounting Records Rules.

The internal auditor, if additionally entrusted with the task of internal cost audit as a part of his operational audit assignment, can enlarge the scope and enrich the performance of his audit function.


Internal Auditor’s Assistance:

In carrying out his duties and discharging his audit responsibilities, the Cost Auditor may also derive much assistance from the Internal Auditor’s intimate knowledge of the accounting system and technical knowledge of the business, particularly in connection with the various processes of manufacture, key points of controls, stocks-in-process, physical existence of fixed assets, depreciation charges, inter-connection between various operational activities, the ascertainment of liabilities, the adequacy and effectiveness of financial as well as non- financial controls and the risks and chances of fraud or misappropriation, and also inter­company transactions.

Mutual Assistance:

Where an organisation has an internal audit department, the management usually delegates to it some of its supervisory functions. This particular function constitutes a separate component having been undertaken ‘by specially assigned staff with the objective of determining whether other internal controls are well-designed and properly operated’.


While the statutory cost auditor has sole responsibility for ‘his report and for the determination of the nature, timing and extent of auditing procedures’, much of the work of internal audit in this direction (i.e. related controls) may be useful to him in his examination of the cost and financial information.

Where the statutory cost auditor can conclude that the internal auditor has adequately covered part of the work which the cost auditor would do otherwise, he may be able to reduce the extent of his examination of details keeping in view the ‘time-constraints’ of his cost audit work.

Having decided in principle to use the work of the internal auditor, the cost auditor can ascertain the internal auditor’s tentative plan for the year and discuss with him about possible areas ‘where he believes he could use the internal auditor’s work’.

They should agree in advance on the aspects like—audit time-table, audit coverage, compliance tests, methods of sample selection, documentation of the audit work done, and procedures of review and reporting. Such advance planning of audit would enable the internal auditor to refrain from carrying out work which the cost auditor considers he must make in any event.


Examples of specific ways in which the work of the two auditors may be coordinated are:

(i) Whether the system of internal check is operating satisfactorily and in assessing the general reliability of the cost accounting records,

(ii) The programme on matters, such as cash verification, visits to branches and associated manufacturing units, verification of fixed assets, either by the internal auditor alone or jointly with the cost auditor, and

(iii) The programme at the end of the accounting period on matters, such as the verification of closing stocks, closing work-in-progress, closing capital jobs-in- progress, the confirmation of stocks lying with go-downs elsewhere, and the preparation of audit working schedules required by the cost auditor as his evidential records.


Thus, timing of liaison and co-ordination between the two auditors would ensure more credibility to the facts presented in the cost accounts of the company although obligations are entirely different.