Friday, November 9, 2012

Auditing operating cost- understanding cost drivers

Auditing operating costs is generally not a simple process. A very good audit process involves auditor to develop an intensive understanding with the nature with the cost,determination of fixed / variable costs, fully grasp the cost drivers with the costs (in particular for variable costs),fully grasp the linkage amongst the costs plus the revenues.
Auditing operating cost

Important assertion of auditing an operating cost will be to assure that the cost recorded is comprehensive (i.e. completeness).

Initially of all, we will need to know the nature with the costs (i.e. what form of costs, when was the costs incurred, could be the individual amount incurred important, and so forth). Soon after create the understanding with the nature with the costs, we will need to know no matter if the costs is usually a fixed costs, or variable costs.

Then, we will need to know the cost driver with the costs. This process is in particular significant for variable costs aspect. Auditor will need to know what would be the components that drive the cost (as an illustration, transportation cost may very well be important to a trading property). The cost driver for transportation cost could be the amount of company activities / amount of deliveries completed

Auditor can analyze the company's record on amount of deliveries completed for the year, and evaluate our expectation for the cost variation. As an instance, though amount of deliveries go up, we are going to count on total transportation cost to raise. A very good understanding with the cost drivers let the auditor to possess comprehensive understanding with the costs/ and create a very good audit tactic to analyze the cost variation.

Related Post