Management Audit

True Tamplin

Written by True Tamplin, BSc, CEPF®
Updated on June 22, 2021

What is Management Audit?

In Management Audit the evaluation of managerial abilities and techniques is carried out. The various plans prepared by management, its policies, programs, procedures their Audit is management Audit. It is popularly known as operational management or efficiency Auditor. The Accounting kept for managerial purpose are called Management Accounting, similarly, the detailed study by the management of various aspects of business are known as Management Audit.
All levels of management efficiency and effective evaluation is Management Audit. Here Auditor studies from top to bottom every aspect of a business to justify the healthy management, Administration and organization.

Objectives of Management Audit

The main objectives are as under:
(i) Has the organization achieved its main objectives?
(ii) Has the organization followed all the latest Rules and Regulation of Industrial Development and Regulation Act?
(iii) Is the organisational structure of the organization satisfactory?
(iv) Is recruitment or selection according to management policies?
(v) Is the morale of employees 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 position of return on capital employed in other competitive companies?
(ix) What is the total share of the organization is marketing system?
(x) What is the relationship of the organization with external sources of the trade organizations?

Difference between Financial and Management Audit

The main difference between financial Audit and management Audit is as:

(1). Meaning

Financial Audit: Financial Audit means recording of 12 months expenses and showing financial position.
Management Audit: While Management Audit means the evaluation of past performance so as to know the exactness of procedures, policies and objectives.

(2). Period

Financial Audit: Here the period generally 12 months Accounting Accuracy is tested.
Management Audit: No time limit.

(3). Scope

Financial Audit: Here past financial records are audited and reported that the accounts are true and fair.
Management Audit: Here the Auditors audits for a specific period the management performance and reports of the defects and suggestions for improvement.

(4). Compulsion

Financial Audit: It is compulsory for certain types of companies such as trust and commercial companies.
Management Audit: Here no such compulsion.

(5). To whom reports

Financial Audit: Here the Audit Report is submitted to owners (shareholders)
Management Audit: Here the report is submitted to management.

Difference between Cost Audit and Management Audit

(1). Meaning

Cost Audit: The cost audit is done to know the internal efficiency of the organisation.
Management Audit: Here review of past managerial performance is made so as know that these are according to objectives/policies.

(2). Compulsion

Cost Audit: The cost audit is compulsory for producers, processing, manufacturers and mining.
Management Audit: In reality, the management audit is not compulsory for any organization.

(3). Period

Cost Audit: The cost audit is done for the accounting period of the organisation.
Management Audit: Here the period can be more than a year.

(4). Who can Audit

Cost Audit: Any charted accountant can do cost audit.
Management Audit: Here the audit can be by any independent person need not that he may be charted accountant.

(5). To whom the report is submitted

Cost Audit: Here the report is submitted to the central government and its copy to the company.
Management Audit: Here the report is submitted to the management.

(6). Period of Report

Cost Audit: The report must be submitted in a specific period.
Management Audit: Here no time limit for report submission.

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