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A CMA’s Perspective-Green Audit verses Cost Audit and Financial Audit

A CMA’s Perspective-Green Audit verses Cost Audit and Financial Audit

A CMA’s Perspective-Green Audit verses Cost Audit and Financial Audit – This article is aimed at highlighting the views of a Cost & Management Accountant (CMA) about A CMA’s Perspective-Green Audit verses Cost Audit and Financial Audit.

A CMA’s Perspective-Green Audit verses Cost Audit and Financial Audit

Green Audit

A CMA’s Perspective-Green Audit verses Cost Audit and Financial Audit – Biodiversity is a ‘variation, variety and number’ of living organisms on this ecosystem or on the Earth. It is about the Earth’s eco-system such as mountains, hills, deserts, oceans, forests and other environments where species evolve and live including human-beings, animals, birds etc.

The meaning of Green is eco-friendly or not damaging the environment. GREEN can be acronymically called as Global Readiness in Ensuring Ecological Neutrality. Green Audit is an audit of ‘ecological system’ of a particular habitat within a given period with an objective of assessing the biodiversity.

Eco system’ means a dynamic complex of plant, animal and micro-organism communities and their non-living environment interacting as a functional unit. (Article 2 of Convention on Biodiversity, United Nations, 1992).

Eco-system imbalances occur due to uncontrollable occurrences’ viz., Earthquakes, Floods, Tsunami, Volcanic Eruptions, Wild-fire, Hurricanes etc and controllable factors viz., changes in economic activities, industrialization, rapid change in science and technology, changes in social and cultural habits of human-beings etc. This in-turn brings undesirable changes in ecological system.

As a result of the above, it is important to ensure the sustainable use of components of the biodiversity. Measuring, accounting and auditing the components of the biodiversity are indispensable to ensure sustainability. The audit of ecological system of a particular habitat to ensure sustainable use of components of biodiversity is called Green Audit. Green Audit is a subset of Management Audit. However, the former the former primarily focuses on ‘ecological components’ and the later focuses on ‘economic resources’.

Green Accounting can be defined as ‘systematic identification, quantification, recording, reporting and analysis of components of ecological diversity and expressing the same in financial or social terms.’

Green Audit can be treated as a subset of Management Audit; Cost and Management Accountants (CMAs) with their multi-disciplinary and techno-commercial skills are the apt professionals to conduct Green Audit with the help of environmental specialists.


There is no standard accounting policy or methodology unlike Financial and Cost Audit

Collection of data may be cumbersome and expensive

Awareness by the business groups and public is limited

It is a long term exercise hence auditing in short term may not yield desired results

It is difficult to quantify the entire data in financial terms as most of them are intangible

Cost Audit

To ascertain and report the cost of each product, process, job, operation or service rendered with a view to determine the selling price and to facilitate audit of the same

Products or services are classified as ‘contributory’ or ‘non-contributory’ based on their contribution per unit by using ‘marginal costing’ methodology.

Direct material consumed is allocated to cost centers or cost units. Indirect material consumed is apportioned to each cost center or unit that produces a product, generates an activity or renders a service and absorbed as a factory or administration overhead as the case may be.

To ensure that cost statements are complied with the respective Cost Accounting Record Rules (CARR) and are prepared in accordance with Generally Accepted Cost Accounting Policies (GACAP), Cost Accounting Standards  (CAS)

Financial Audit

Reporting the financial position and financial performance of a business entity through financial statements and facilitate audit of the same.

Products or services are classified as ‘profitable’ or ‘non-profitable’ based on their Average Revenue per Unit (ARPU) by using ‘absorption (full) costing’ methodology.

Selling and distribution expenses viz., sales men salary, commission, travel, advertisement etc are charged to Income Statement as selling expenses.
There no separate accounting of these costs as these are part of respective general ledger accounts viz., Salaries, repairs & maintenance, electricity etc.

Ecological imbalance and economic growth are two different aspects. Ensuring reduction in ecological imbalance without denting economic growth thereby balancing between ecological imbalance and economic growth is an authentic challenge. The key objective of Green Audit is to ensure equilibrium between economic growth and sustainable use of components of biodiversity.

Recommended Read :

Basic concepts of CMA data and statements

Should CA CS CMA be recognized as degree of an University?

Difference between Financial Audit and Cost Audit

Financial AuditCost Audit
1. Financial audit is mandatory for all companies  registered under Companies Act, 1956.Only in case of companies involved into manufacture or mining business and required to maintain Cost Accounts as per Section 209.
2. The financial audit is done to report on the financial data, consisting of a statement of balance sheet and profit and loss to ensure fairness of business perspectives.Cost audit is done to certify after careful examination or checking of reports on expenditure made on production of intended items.
3. Financial Auditor is appointed by shareholders.Cost Auditor is appointed by the board of directors with the previous approval of the Central Government.
4. Financial audit is mandatory to be conducted every year.Cost Audit is conducted in a year in which audit is required by the government.
5. Financial audit is done or conducted as per the demand of the shareholders.Cost audit is done when government or industrial organization proposes to make an audit.
6. Financial auditor has to check or examine carefully and in detail the exact value of closing the stock for the purpose of balance sheet.In cost, audit the auditor has to see whether there is sufficient stock maintaining in order to fulfill the needs of the business concern.
7. The financial auditors have to give their remarks about the exact expenditures shown on the record.The cost auditors have to give their remarks about how correctly or wisely the decisions have been taken in production of items.
8. The finance auditor submits the report in annual general meeting organized by shareholders.Cost auditor submits the report to the company and central government within 180 days from the end of financial year.

A CMA’s Perspective-Green Audit verses Cost Audit and Financial Audit

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