Auditing Management Audit – tryspring

By | May 9, 2019

Auditing – Management Audit

Management audit is a new concept in auditing. Area of Management
audit is beyond conventional audit; it reviews all aspects of
management. It is an audit of overall performance of management.
It covers planning, organizing, co-ordination and control, etc.
Management audit detects and diagnoses the problem and suggests
various means to avoid and solve the problems.

Need of Management Audit

These days, reports on matters of policies and their
implementation is very important to improve the efficiency of the
management. Management Auditors advise the management on various
matters related to performance of various departments as well as
of the organization as a whole. Management Auditors may or may
not be any finance and accountancy person. Management Auditors
evaluate the actual performance by comparing it with
predetermined standards. Auditors reveal any kind of defect and
irregularities in the working of management. It can be said
management audit helps in improving the performance and
efficiency of management.

Objectives of Management Audit

  • It helps management in setting sound and effective targets.

  • To suggest management to obtain desired results and to reveal
    any defect and irregularities in the process of management.

  • Management audit help in effective discharge of their duties.

  • To help in co-ordination of various department.

  • To help in training of personnel and marketing strategies.

  • To compare input with outputs.

  • To ensure strong relations with outsiders.

  • To ensure most efficient internal organization.

Advantages of Management Audit

  • It is helpful in making plan, objectives and policies of the
    management.

  • It is helpful to efficiently achieve the set objectives of
    the management by coordinating with the personnel.

  • It is very helpful to create strong communication system with
    outsiders and within the various departments.

  • It is helpful to evaluate the performance of management.

  • To establish good relations with employees.

  • To elaborate duties, rights and liabilities of staff members
    and to make market strategies.

  • It is helpful in preparation of budgets of organizations.

  • It is helpful in preparation of budgets.

  • It is helpful in resource management.

Appointment of Management Auditors

This team has experts with expertise in different fields of
Management. Management audit team coordinates with the other
levels of management and runs a smooth audit process. It is a
team of experts with full knowledge about management science.
Most of the team members have practical working experience of
being a part of management. Such experience helps them handle
actual work situations in a better way.

Qualities of Auditor

Following are a few important qualities of a Management Auditor −

  • Good knowledge and experience of Managerial functions.

  • An Auditor should have good knowledge of the financial
    statements analysis techniques.

  • Knowledge of social accounting.

  • Knowledge of human resource accounting.

  • Good knowledge about economics and business laws, etc.

  • Understanding about the working of organization and its
    problems.

  • An Auditor should have sound knowledge of preparation and
    understanding about financial statements.

  • He should know and understand the objectives of organization
    very well.

  • He should understand about planning, budgets, rules and
    procedures to be applied in management.

  • He should be well-versed with the entire production process.

  • He should have enough knowledge and experience to understand
    the reason behind the lack of co-ordination between different
    departments.

  • He should have the quality to give practical and achievable
    solutions instead of providing bookish suggestions.

Scope of Work of Management Audit

It is not possible to define complete working of management audit
and the scope of work and the areas covered by management audit.
Following are a few important areas covered by Management Audit −

  • Administration
  • Sales Management
  • Purchase Management
  • Distribution Management
  • Stores and Inventories Management
  • Production Management
  • Personnel Management
  • Finance and Accounts Management
  • Management Information System
  • Advertisement and Sales promotion

Management Audit Program

Audit Program means the planning of the outlines for the whole
process and procedures of management audit from the beginning to
the end. Following examples depict the outline of an Audit
Program −

  • Study about the organizational structure.

  • Study to see whether the principles of a good organization
    have been followed or not.

  • Detailed discussion with the top management about the
    objectives and the plans.

  • Study of current policies adopted to achieve the desired
    objectives and also to study if there is any chance to
    improve them for better results.

  • To decide the area of improvement whether it is planning or
    its implementation or both.

  • Recommendations for improvements.

  • To study whether the control system of an organization is
    adequate and effective.

  • Study of the manufacturing process to locate the factors
    which are hindering the maximization of production.

  • Study of personnel departments about policies, training,
    motivational schemes adopted currently for employees of the
    organization and what can be done further to improve the
    relations between employees and department.

  • Study about the optimum utilization of the space available
    and also of the physical equipment.

Audit Report

The report submitted by an Auditor should give true and correct
assessment of the working of the organization and should contain
suggestions for improvements as required in management policies,
procedures or any other area. He should not hesitate in
criticizing the management but on the other hand his report
should not be merely condemning in nature. Although there is no
fixed Management Auditor Report as per statute but still an
Auditor should cover the following areas in his report −

  • An Auditor should also see whether the relations between
    staff members and the management is healthy or nor. He should
    also highlight the areas of weakness and the suggestions for
    improvement, if any.

  • About Methods and procedures of production.

  • About operating efficiency.

  • About rate of return on investment.

  • About return to shareholders whether adequate or not.

Criticism of Management Audit

In spite of the various advantages of management audit in modern
business world, it has faced criticism too

  • According to managers and accountant it is just a vague
    concept which serves no material purpose at all.

  • Management Auditors usually pin point shortcomings of
    managers in action, therefore they hesitate to take
    initiative.

  • Normal practice of managers is to keep their record up to
    date instead of improving efficiency and reducing costs.

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