Difference Between Cost Audit and Financial Audit

Every business transaction is under the scrutiny of an auditor.

An auditor of every organization, institution or government organization is supposed to concentrate on financial accounts and cost structure items.

Cost audit and financial audit are both accounting systems.

Auditing is a physical inspection or examination of an organization or institution’s financial records or books of accounts done by an auditor.

All organizations or institutions, whether they make a profit or not, should have financial records audited every year.

While practising, it is a little tricky to differentiate between cost and financial audits.

Auditing ensures that financial records are correct and submitted to shareholders, the board of directors, and the government.

Key Takeaways

1. A cost audit examines a company’s cost accounting records and processes to verify their accuracy and compliance with applicable regulations. In contrast, a financial audit is an independent evaluation of a company’s financial statements to ensure accuracy, reliability, and compliance with accounting standards.
2. Cost audits focus on assessing the efficiency of a company’s cost management, seeking opportunities for cost reduction and improved profitability. In contrast, financial audits concentrate on the overall accuracy and reliability of financial reporting.
3. Cost audits are typically performed by specialized cost auditors, while certified public or chartered accountants conduct financial audits.

Cost Audit vs Financial Audit

The difference between a cost audit and a financial audit is that the cost audit gives a clear report of expenditure that was done during the production of planned items. At the same time, a financial audit is a report of profit and loss and a balance sheet to declare the true nature of the business.

Cost auditing is an auditing process of cost records. It is only for manufacturing and mining companies.

An auditor examines a company’s cost statement, accounts, and books on the purchase and use of materials, resources, labour costs, and so on.

Financial auditing is a process of examination or inspection of financial statements or records of an individual organization for taxation, disclosure, and records purposes.

---

 

Comparison Table

Parameters of Comparison	ClickFunnels	Kajabi
Type of product	Any type	Digital products
Main purpose	Sales funnelling and automation	Sales and contents delivery management
Customer Relationship management	Superior and complete with almost all features	Limited in some areas and is not cost-effective for startups.
Domains	Custom domains are cheaper	Custom domains are limited and expensive

---

 

What is Cost Audit?

Cost auditing is auditing the costs incurred in a financial year.

A cost audit is done by an experienced cost accountant who is an auditor to ascertain the entire costs of manufacturing the items the organization has planned to produce.

The board of directors appoints the cost accountant with the central government’s approval.

The report on costing must be submitted to the central government and the board of directors within 180 days after completing the financial year.

The cost audit examines or inspects cost records, statements, or expenditure accounts on planned items. It includes the purchase of materials, resources, labour, and production of products by the company.

The cost audit report confirms the fair view of a business and the appropriate transaction of the organization.

The cost report includes the all necessary data required by law in a particular format.

There are three types of Cost audits. They are

1. An efficiency audit is the measurement and utilization of the economic resources in the most profitable way as planned by the corporate.
2. The propriety audit is the financial and expenditure of action and plans of the organisation’s management. The auditor should make sure that the authority approves the planned cost.
3. A statutory audit is compulsory an organization has to maintain a book of transactions; the aim of this audit is the government should make sure of the relationship between the price and costs.

Conducting the cost audit helps the management, shareholders, and the government with proper information about the cost.

It helps to control costs and finds out if any fraudulent activities have taken place.

 

What is Financial Audit?

Financial auditing is a thorough examination of financial statements for disclosure.

It is compulsory for all the organizations registered under the companies act 1956, whether it is making a profit.

The financial auditing is audited by the practice charted accountant, who the company’s shareholders appointed.

Irrespective of structure or size and whether the organization is making a profit, every year, auditing has to be done by the auditor, and the report has to be submitted to the shareholders during the annual general meeting of the company.

Auditing purposes are that auditors confirm the statement or transaction maintained by the company is transparent and appropriate. They ascertain that

1. The account entries are prepared in the account books as per the format.
2. The transactions and statements support the evidence that the organization provides.
3. The transaction or statements are provided or maintained and are easily understandable.
4. While preparing account books, no transaction is manipulated or misguided.

There are some basic procedures for financial audits. They are

1. Audit Planning is a plan for collecting data on the organization’s financial status using different methods. And auditors should plan for risk assessment keeping the company’s weaknesses in mind.
2. Internal Control is the next step that involves internal controls, where the auditor inspects the procedure of financial accounts and records to state the organization’s financial status.
3. Testing involves the examination of internal controls and whether it is working or not. The auditor looks more into the financial procedure and more information to avoid or find errors.
4. Reporting is the final step in the financial audit, the auditor report in stimulated format whether the company is following the financial standard.

---

Main Differences Between Cost Audit and Financial Audit

1. The main difference between a cost audit and a financial audit is that a cost audit reports the costs, while a financial audit reports the company’s status in terms of profit and loss.
2.  Cost audit is compulsory for all manufacturing and mining companies as per Sec 209, and financial audit is compulsory for all companies registered under the companies act 1956.
3. The board of directors appoints the auditor with the central government’s approval for cost auditing. While for financial audits, an auditor is appointed by the company’s shareholders.
4. The cost audit report must be submitted within 180 days of the financial year’s completion. At the same time, the financial audit is presented during the annual general body meeting of the company every year.
5. Cost auditing is conducted when a report is required by the government a year by a practising cost accountant. Financial auditing is mandated every year by practising a charted accountant.

References

1. https://www.emerald.com/insight/content/doi/10.1108/11766090610659733/full/html
2. https://www.sciencedirect.com/science/article/pii/S2213297X1400024X