Cost audit provides numerous benefits to the management, society, shareholders and the government. The advantages are as under:
Advantages to Management
- Management gets reliable data for its day-to-day operations like price fixing, control, decision-making, etc.
- A close and continuous check on all wastages will be kept through a proper system of reporting to management.
- Inefficiencies in the working of the company will be brought to light to facilitate corrective action.
- Management by exception becomes possible through allocation of responsibilities to individual managers.
- The system of budgetary control and standard costing will be greatly facilitated.
- A reliable check on the valuation of closing stock and work-in-progress can be established.
- It helps in the detection of errors and fraud.
Advantages to Society
- Cost audit is often introduced for the purpose of fixation of prices. The prices so fixed are based on the Audit Cost data and so the consumers are saved from exploitation.
- Since price increase by some industries is not allowed without proper justification like increase in cost of production, inflation through price hikes can be controlled and consumers can maintain their standard of living.
Advantages to Shareholder
Cost audit ensures that proper records are kept as to purchases and utilization of materials and expenses incurred on wages, etc. It also makes sure that the valuation of closing stocks and work-in-progress is on a fair basis. Thus the shareholders are assured of a fair return on their investment.
Advantages to Government
- Where the Government enters into a cost-plus contract, cost audit helps government to fix the price of the contract at a reasonable level.
- Cost audit helps in the fixation of ceiling prices of essential commodities and thus undue profiteering is checked.
- Cost audit enables the government to focus its attention on inefficient units.
- Cost audit enables the government to decide in favor of giving protection to certain industries.
- Cost audit facilitates settlement of trade disputes brought to the government.
- Cost audit and consequent management action can create a healthy competition among the various units in an industry. This imposes an automatic check on inflation.