Cost audit is a process of examining the cost records and statements to ensure the accuracy and to evaluate the operational efficiency of the company. It analyzes cost records, accounts and cost documents that helps to identify the areas of improvement.
Financial audit is a process of examining and verifying the financial transactions recorded on the company's books of accounts and financial statements. It helps to ensure the accuracy, reliability and validity of firms's financial records such as vouchers, financial documents and records.
Difference Between Cost Audit And Financial Audit
The main dissimilarities or difference between cost audit and financial audit can be highlighted as follows:
1. Introduction
Cost Audit: It is the act of examining cost aspects (cost records and cost statements) of the firm in order to ensure the accuracy.
Financial Audit: It is the act of examining financial aspects (financial statements, books of accounts and vouchers) in order to ensure the correctness and validity of transactions.
2. Performed By
Cost Audit: Auditing task is performed by a competent cost accountant appointed by the management or board of directors.
Financial Audit: Auditing task is performed by a professional chartered accountant appointed by investors or shareholders.
3. Objectives
Cost Audit: The main purpose of conducting cost audit is to verify cost records and to analyze operational efficiency of the firm.
Financial Audit: The main purpose of conducting financial audit is to ensure the correctness and fairness of financial statements and other books of accounts.
4. Compulsion
Cost Audit: All companies should conduct cost audit because it is compulsory for all types of organizations.
Financial Audit: It is compulsory for manufacturing companies only.
5. Useful For
Cost Audit: It is useful for the management.
Financial Audit: It is useful for shareholders or investors.
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6. Submission Of Report
Cost Audit: Report of cost audit is submitted to the board of directors.
Financial Audit: Report of financial audit is submitted to the shareholders at annual general meet.
7. Suggestion
Cost Audit: It is forward-looking in nature. So, it provides suggestions for future by analyzing past performance.
Financial Audit. it is known as postmortem audit because it only evaluates past activities but does not provide any suggestion for future.
Cost Audit Vs Financial Audit (Comparison Chart)
Basis
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Cost Audit
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Financial Audit
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Introduction
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Act of examining cost aspects of the firm
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Act of examining financial aspects of the firm
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Performed By
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Cost Accountant
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Chartered Accountant
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Compulsory
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For all types of companies
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Only for manufacturing companies
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Useful For
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Management
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Investors
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Submission Of Report
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To the board of directors
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To the shareholders
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Purpose
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To analyze operational efficiency
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To ensure fairness and correctness of financial records
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Provide Suggestions?
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Yes
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No
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Distinction Between Cost Audit And Financial Audit In Short
- Cost audit is concerned with the verification of cost records and cost statements of the firm, but financial audit is concerned with the financial aspects such as financial statement and books of accounts of the firm.
- Cost audit can be conducted by a cost accountant. But financial audit is conducted by a chartered accountant.
- Cost audit analysis the operational efficiency of the organization. On the other side, financial audit examines the correctness of the books of accounts.
- Report of cost audit is useful for the management to identify the area of improvement. Report provided by financial audit is useful for investors and shareholders to know the financial strength of the company
