Management Audit

True Tamplin

Written by True Tamplin, BSc, CEPF®
Updated on October 8, 2021

Management Audit: Definition

In a management audit, managerial abilities and techniques are evaluated. This often includes auditing the various plans that have been prepared by management, along with its policies, programs, and procedures.

The individual who performs a management audit is popularly known as an operational management auditor or efficiency auditor.

Accounting that is performed for managerial purposes is known as management accounting. Also, a detailed analysis by management of various aspects of the business is known as a management audit.

All levels of management efficiency and effective evaluation are covered in a management audit. Here, the auditor studies every aspect of a business, from top to bottom, to justify the health of management, the administration, and the organization.

Objectives of Management Audit

The main objectives of a management audit are the following:

(i) Has the organization achieved its main objectives?
(ii) Has the organization followed all the latest rules and regulations?
(iii) Is the organizational structure satisfactory?
(iv) Do recruitment and selection take place according to management policies?
(v) Is employee morale high?
(vi) Is a two-way system of communication effective?
(vii) Is the management information system (MIS) effective?
(viii) Is the return on capital employed reasonable? What is the return on capital employed in other similar companies?
(ix) What is the total market share of the organization?
(x) What is the relationship of the organization to external sources of trade organizations?

Difference Between Financial and Management Audit

The main differences between a financial audit and a management audit are summarized below.

1. Purpose

Financial Audit: A financial audit involves recording 12 months of expenses and showing the firm’s financial position.
Management Audit: A management audit involves evaluating past performance so as to determine the status and effectiveness of procedures, policies, and objectives.

2. Period

Financial Audit: The period is generally 12 months.
Management Audit: No time limit.

3. Scope

Financial Audit: Past financial records are audited to ensure that the accounts are true and fair.
Management Audit: Management performance is audited for a specific period, after which the auditor reports on the defects and suggestions for improvement.

4. Compulsory

Financial Audit: Compulsory for some companies, including trusts and commercial ventures.
Management Audit: Not compulsory for any organization.

5. Reporting

Financial Audit: The audit report is submitted to the business owners (shareholders)
Management Audit: The audit report is submitted to management.

Difference Between Cost Audit and Management Audit

This section highlights the main differences between a cost audit and management audit.

1. Purpose

Cost AuditPerformed to discover the organization’s internal efficiency.
Management Audit: A review of past managerial performance is undertaken to ensure that managers are following objectives and policies.

2. Compulsory

Cost Audit: Compulsory for producers, processors, manufacturers, and miners.
Management Audit: Not compulsory for any organization.

3. Period

Cost Audit: Lasts for the accounting period of the organization.
Management Audit: The period is usually more than a year.

4. Auditor

Cost Audit: Any charted accountant can perform a cost audit.
Management Audit: An independent person (not necessarily a charted accountant) can perform a management audit.

5. Submission

Cost Audit: The report is submitted to the central government and a copy is given to the company.
Management Audit: The report is submitted to the organization’s management.

6. Time Limit

Cost Audit: Cost audit reports must be submitted within a specified period.
Management Audit: There is no time limit for report submission.

True Tamplin, BSc, CEPF®

About the Author
True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True contributes to his own finance dictionary, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, his interview on CBS, or check out his speaker profile on the CFA Institute website.

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