Cost audit is a very important tool that can be used by the management to understand the present situation of the business and will also help in ensuring that the business is adhering to the procedures which are to be followed.
In this article, we will try to explain at what time the management should conduct an Audit of the business.
- Creating a Budget of the Company
Creating a budget is one of the primary activities which the management of a company should conduct. In this activity, the management decides an estimated amount that should be spent during the course of the business activity. The simplest method of creating a budget is to refer to the previous period of business and to check which business activity has used up how many funds. This will provide a fair account of the funds required for an activity.
The management can also spend less or more depending upon the result it wants to reach and this will also help in limiting the funds spent on a particular activity. This will help the management to maintain a specific spending budget for the business.
- To identify Benchmarks
Setting up benchmarks will allow the management to compare the present performance of the business with it which will, in turn, assist the management to understand if the business organization is performing according to the estimated projections made. The management needs to constantly review the revenue made by the business and whether it is in profit or in the loss.
- To create a future plan for the business
As described in the earlier point, creating and maintaining benchmarks is very important to keep a track of the present condition of the business. If after the comparison the business witnesses that it is not on track, then the management can prepare a plan for the future. The management will take into consideration all the deviations and accordingly create a path following which the business can reach a particular result.
After the comparison, the management will be also able to predict any future problems which can be faced by a business and methods which can be followed to tackle such problems.
- Judicious use of the resources and cost-cutting
Every company requires some or the other resources to conduct work and it is very important to use them judiciously. Such use of the resources will help control the cost incurred by the business which will, in turn, increase the profitability of the business. This move will also help the management to plan and spread out the overhead costs so that it does not become a burden for the business.
- Pricing the Products or Services
After conducting the cost audit, the management will be in a better position to price the product or services being produced by the company. This will be done taking into consideration the current business environment as well as the competitors of the business.
- Assigning responsibility to the respective departments
One of the biggest problems which every company faces is that when a problem happens then every department tries to blame the responsibility to some other department. This way nobody gets the blame. In a cost audit, the responsibility can be pinned to a specific department and this will allow the management to question the department if the problem is caused due to it.
These are the six different times at which a business should conduct a Cost Audit. There can be many more times in which cost audit can be conducted and it depends upon the company and the management.
If you are looking to conduct a cost audit for your business in the United Arab Emirates then JAXA Chartered Accountants can help you in this matter. The experts at JAXA will understand the working of the business and accordingly provide a customized solution. JAXA also provides various other services such as Accounting Services, VAT and TAX related services, Payroll Services and many other services. For more details on the services provided, feel free to Contact Us. We will be happy to assist you in your business journey.