Cost Audit means the checking and verification of the cost accountancy books, records, statements, reports and other data related to the cost of a product or service being provided by a business unit.

Such verification is done not only for the entries made in the cost accounting books but to see that the various resources are used by the company with maximum efficiency and the cost of production and cost of sales is kept to the minimum.

Cost audit is not a postmortem examination like financial audit. Cost auditor verifies the correctness of costs and if there is any inefficiency due to which additional costs have been incurred in the process of production, the cost auditor in his observations draws attention to such inefficiency and suggests measures to be used for eliminating such inefficiency.

While doing cost audit, the auditor also checks whether the cost accounting books and records have been prepared by following the accepted cost accounting principles and costing system adopted by the business unit. Cost audit, thus is the verification of correctness of cost accounts and of the adherence to the cost accounting plan.