Cost Audit:

Cost audit is an examination of cost accounting records and verification of the facts to ascertain that the cost of the product under reference has been arrived at in accordance with principles of Cost Accounting and evaluation of adequacy of proper Cost Accounting Records and their maintenance. The cost audit is performed by an independent, professionally qualified Cost and Management Accountant or Chartered Accountant. Cost audit is carried out to evaluate cost performance of the entity for which Cost Accounting Records have been prescribed by the Securities and Exchange Commission of Pakistan (SECP). The Cost Auditor, therefore, carries out such tests and makes such inquiries which enable him to give a professional, independent, unprejudiced opinion on the cost performance of the entity, as reflected in the cost information provided in the schedules and annexure which are prepared by the entity in accordance with the cost accounting records maintained.

Legal Provisions:

The Companies Ordinance 1984 while providing for the books of accounts to be kept by a company under Section 230, makes an additional provision in sub-section (1) (e) of that Section which reads: “in the case of company engaged in production, processing, manufacturing or mining activities, such particulars relating to utilization of material or labor or to other inputs or items of cost as may be prescribed, if such class of companies is required by the Authority by a general or special order to include such particulars in the books of accounts”.

The Companies Ordinance 1984 provides for Audit of Cost Accounts vide Section 258 which reads:-

“Where any company or class of companies is required under clause (e) of subsection (1) of Section 230 to include in its books of accounts the particulars referred to therein, the Federal Government may direct that an audit of cost accounts of the company shall be conducted in such manner and with such stipulations as may be specified in the order by an auditor who is a chartered accountant within the meaning of the Chartered Accountants Ordinance,1961 (X of 1961), or a cost and management accountant within the meaning of the Cost and Management Accountants Act, 1966 (XIV of 1966); and such auditor shall have the same powers, duties and liabilities as an auditor of a company and such other powers, duties and liabilities as may be prescribed.”

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