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MANAGEMENT AUDIT

DEFINITION
William.p.leonard A comprehensive and constructive examination of an organizational structure of a company ,institution or branch of government ,or of any component thereof , such as a division or department and its use of human and physical facilities Leslie.R.Howard Management audit is an investigation of business from highest level downward in order to ascertain whether sound management prevails throughout, thus facilitating the most effective relationship with the outside world and the most efficient organization and smooth running internally

Objectives
Business managed efficiently.

Improvements and recommendations.


Plans and programmes executed. Increasing managerial efficiency. Effective and efficient discharge of duties and

responsibilities. Assess whether it can achieve the overall business objectives or not.

scope
1.

The present organisational structure is reviewed in relation to current and prospective demand of business and study must related to aims and objectives of enterprise.

2.

It includes the study of present return on investor capital. Whether the return is adequate, fair of poor.
Management audit also requires the study of relationship of business with shareholders and investing public in general

3.

4.The performance of the concern should be compared with that of the other firms in the same field. By comparing the different ratios we can get the comparative position of the business. 5.The aims, objectives, duties should also be kept in mind of the auditor. 6.Financial planning and control also is a part of the management audit. 7. The reviews of the production and sales function is also a important part of the management audit.

Types of information required for management audit


Objectives

Planning
Organisation Control Functional areas

Functional areas
Purchase

Methods of purchase, quantities procured , problems on procurement and discount earned etc;
Production

policy schedules of production, actual quantity produced at different levels , variances in production schedule, input-output ratios, ideal time etc;

Distribution

organisation of sales department, budgeted sales, actual performance, incentives offered for sales, promotional offers, effectiveness of distribution channels etc; Personnel personnel policy, method of recruiting and training, cost of man power, promotion policy, appraisal policy , labour welfare activities.

Finance and accounting

financial structure followed, sources of raising funds, effectiveness of raising finances, extent of working capital needs, financial controls followed, systems of accounting, effectiveness of cost control devices;

Management reporting
Meaning

A good business report is a communication that contains factual information , organised and presented in clear, correct and coherent language. -Johnson and savage.

Essentials of effective reporting


Good form and content

The report should be given proper title, headings, sub-headings and paragraph divisions. Simplicity The report should be presented in a simple, unambiguous and clear language. Promptness Promptness in submitting a report is an essential element of a good report. The reports should be sent at the earliest and should not be delayed.

Relevancy

The reports should be presented only to the persons who need them. Sometimes the reports are sent to various departments and the secrecy will not be maintained and expenditure will be more. Consistency There should be a consistency in the preparation of reports . The comparability of reports will be possible only if they are consistent.

Accuracy

The reports should be reasonably accurate. A report sometimes will be approximated but approximation should not be done up to the level where information loses its form and utility. Controllability The report should be addressed to appropriate persons in respective responsibility centres and its variance should be mentioned.

Cost Consideration

The cost of preparing and presenting the report should also be considered and it should not exceed the advantage derived from such reports. Comparability This reporting system is meant to help management in taking correct decisions and improving operational efficiency of organisation. This information helps in finding out deviations or variances.

Frequency of reports

Along with promptness, the frequency of reporting is also significant. The timing of reporting will depend upon the nature of information and its purpose. These reports are prepared for appropriate persons.

Stakeholders Expectations
The audit has a clearly identied (and statutory)

purpose which is to provide an independent opinion to the shareholders on the truth and fairness of the nancial statements that are prepared by the board of directors. However, we need to reconcile this statement with reality which is that the world is far more complex. However, in recognizing this the paper does not presume that a whole host of stakeholders should be able to rely on nancial statements.

Continued.
Organizations have a variety of stakeholders and

any of these stakeholders can have expectations of audit. While audit rms, regulators, standard setters and audited entities have stakeholders and need to nd ways of managing their expectations, this paper focuses purely on stakeholders in the context of audited entities.

Interest of other Stakeholders


Audit affects a wide variety of people (we refer to

them as stakeholders of organizations in this paper) who have different expectations. For example, we know that shareholders want the audit to serve and protect their interests in the organizations they own but:
directors may want auditors to support them in

discharging their responsibilities; managers may want auditors to understand their organizations and add value by providing business advice and helping them to access nance at reduced cost;

Continued.
audit regulators may want auditors to be accountable

for meeting clear standards of performance and maintaining audit quality; regulators of organizations may see the audit as providing comfort that organizations are complying with their rules and regulations; creditors and lenders may see the audit as providing comfort that organizations will continue to be able to pay for goods and services or nance; audit rms may want auditing to provide challenging and rewarding work for auditors so that they can attract the brightest and best; and

Continued.
employees may want the audit to provide some

comfort about job security and the future direction of the organization. The audit might be seen as one way of seeking some comfort over this.

Thank you