Cost Audit vs Management Audit: Difference and Comparison

The Cost and Management audit are used to determine an organisation’s performance and cost.

A cost Audit is a validation and compliance of cost accounts and related procedures.

Management audit evaluates the significance and usefulness of control by disputing underlying principles, methods, and procedures.

Key Takeaways

1. Cost audits focus on examining a company’s cost structure and financial efficiency, while management audits evaluate the effectiveness of management practices.
2. Cost accountants perform cost audits, whereas management consultants or internal audit teams conduct management audits.
3. Cost audits assess cost records and accounting systems, while management audits review organizational structure, policies, and decision-making processes.

Cost Audit vs Management Audit

A cost Audit is the assessment of books of account and vouchers to verify or confirm their accuracy. This is different from the Management Audit, and the Management Audit is a type of assessment in which the overall accomplishment of the establishment is evaluated through an objective and detailed inspection by an independent administration.

The statutory requirement for companies to perform Cost Audits is compulsory in an organization, whereas Management Audit does not require any statutory requirements to perform.

In Cost Audit, there is a stipulated time deadline for submission of the report, whereas, in Management Audit, there is no time limit for submission of the report.

Comparison Table

Parameter of comparison	Cost Audit	Management Audit
Periodicity	It is executed every economic year	It is conducted for more than one financial year
Objective	It is used to discern the reliability of cost knowledge	To improve management efficiency and operation
Auditors Qualification	The person must be a certified management accountant	He/She can be an independent expert or internal auditor of an organization
Method of submission	The report is submitted to the central government with a copy to the organization	The report is submitted to the top management
Scope	The scope is narrow to activities relating to a particular commodity	The scope is wide as it includes the assessment and inspection of all the decisions taken by the firm

What is Cost Audit?

 A cost Audit is the accurate and organized verification of cost records and accounts.

The exact calculation of the cost of a product is referred to as a cost audit.

Initially, the audit scope was limited to only analyzing authorized transactions, but recently, it has been broadened to other fields, including Cost Audit.

Unlike the Management Audit, the measuring grid for Cost Audit is quantitative data. The board of directors seeks prior permission from the central government to appoint a cost auditor.

The Cost Auditor enjoys all the privileges and rights of a financial auditor. Price determination, Internal control, and efficiency are very important and valuable to Cost Audit.

There are three main types of Cost Audit: Compulsory cost audit, Cost Audit for management and control, and Cost Audit on behalf of labour forces.

A compulsory Cost Audit is conducted in adherence to the legal and regulatory body.

Cost Audit for Management and control is conducted willingly by the organization to keep a check on the efficiency of the organisation’s day-to-day operations.

Cost Audit on behalf of labour forces is used to decide the basis of salaries, incentives, and dividends.

The objectives of a Cost Audit include; detecting instances of fraud and error, verifying the arithmetical accuracy of the cost book, Increasing the effectiveness of internal control, and maintaining accounts according to cost principles.

What is Management Audit?

Management Audit evaluates the significance and usefulness of control by disputing underlying principles, methods, and procedures.

It is mainly concerned with the nonfinancial data to audit in the organization, which includes planning, performance management, and risk management.

It is carried out or conducted by an independent consultant or an employee of the company as a team rather than an individual.

Management Audit aims to maintain the satisfactory functioning of the general administration in an organization. This means that it helps to review the quality of the organization effectively.

T.G Rose was the first individual to introduce the concept of management Audit as a logical system to assess the quality of management.

Management Audit is dependent on cost and financial audit for successful implementation and it is also based on the discretion of the company board to choose who is to be appointed as a Management Audit.

Objectives of Management Audit include; Critically reviewing the organization’s structure, increasing the level of performance and service quality, Evaluating ways for improving management efficiency, and identifying various weaknesses present in the company.

There are ten categories of Management Audit, which include Directorate analysis, the health of earnings, economic function, Corporate structure, service to stockholders, fiscal policies, research and development, production, efficiency, sales vigour, and executive evaluation.

Main Differences Between Cost Audit and Management Audit

1. Statutory audit is compulsory for Cost Audit in an organization since there can be chances of huge contrasts, but there’s no requirement for the statutory audit of management Audit.
2. Cost Audit is exclusively based on quantitative data, while Management Audit is based on both qualitative and quantitative data.
3. There is a prescribed time limit within which the Cost Audit report must be submitted, whereas there is no time limit for the submission of the management audit report.
4. The basis for conducting a cost audit is the cost statement, whereas the Mangerial function and activities of an organization form the basis of conducting a management audit.
5. Cost audit is expected to be undertaken year after year, and it is performed for every financial year, whereas In management audit, there is no time frame and can be conducted when the need emerges.

References

1. https://journals.aom.org/doi/abs/10.5465/ambpp.1962.5068300
2. https://search.proquest.com/openview/0c8c21dd9bd57d8135222cd08a33350c/1.pdf?pq-origsite=gscholar&cbl=41064
3. https://research.usc.edu.au/esploro/outputs/journalArticle/Cost-Audit-and-Its-Excellences-What/99450910402621

Last Updated : 28 July, 2023