MANAGEMENT AUDIT

INTRODUCTION
• A systematic assessment of methods and policies of
an organization's management in the administration
and the use of resources, tactical and strategic
planning, and employee and organizational
improvement.
• Management audit is audit of the management. It is
similar to operational audit in several aspects.
However, management audit concentrates more on
the inefficiencies and weaknesses of the
management.
 DEFINITION
• Analysis and assessment of competencies and
capabilities of a company's management in
order to evaluate their effectiveness,
especially with regard to the strategic
objectives and policies of the business. The
objective of a management audit is not to
appraise individual executive performance,
but to evaluate the management team in
relation to their competition.
 OBJECTIVES
(1) establish the current level of effectiveness,
(2) suggest improvements, and
(3) lay down standards for future performance.
Management auditors (employees of the
company or independent consultants) do not
appraise individual performance, but may
critically evaluate the senior executives as a
management team. See also performance audit.
 IMPORTANCE
• Management audit set up policies and objectives in view of
changing environment, competitors strategies, change in
technology, consumers preferences etc.
• It provides scope to business to interact openly with the
environment and maximize the benefit of environmental
opportunities
• It helps management in improving its performance in
execution of policies
• It helps management in utilizing its resources efficiently
that is it helps to find out weather the lone amount have
been properly utilized or not.
 QUALIFICATION
• Qualities of an auditor cover two aspects
namely;
– Technical qualifications
– Personal qualities
 TECHNICAL QUALIFICATIONS
• Professional qualification in accounting [CA]
• Standard of accounting & auditing practices
• Member of recognized professional body like
Institute Of Chartered Accountants Of India
 PERSONAL QUALIFICATIONS
• He must have an enquiring mind & analytical
approach to his work
• He must be alert & should posses common sense
in abundance.
• He must not be influenced by others i:e must
posses a firm character
• He must have integrity. People should have faith
in his work
• He must be methodical in his work
 CONT..
• He should not disclose client’s affairs to others without necessary
permission
• He should not be unnecessarily suspicious though he has to be
skeptical
• He should be tactful & pragmatic in approach in dealing with the
clients & their officers or staff
• He should be courteous with his own staff & should be conscious of
their capabilities & limitations
• He must be able to maintain poise, dignity & courtesy in dealing
with others
• He should be independent & must not compromise his
independence for any material or social gain.
 DUTIES
• Examines financial statements to be sure that they are
accurate and comply with laws and regulations
• Computes taxes owed, prepares tax returns, and ensures that
taxes are paid properly and on time
• Inspects account books and accounting systems for efficiency
and use of accepted accounting procedures
• Organizes and maintains financial records
• Assesses financial operations and makes best-practices
recommendations to management
• Suggests ways to reduce costs, enhance revenues, and
improve profits
APPROACH OF MANAGEMENT AUDIT
PRELIMINARIES OF MANAGEMENT AUDIT
ADVANTAGES OF MANAGEMENT AUDIT
1. Management audit helps in decision making areas such as make or
buy, closing down of an unit, acquisition of a business, etc.
2. It also helps in assessing the efficiency of the executives. It serves
as a moral check on the executives.
3. Management audit suggests ways to utilize the resources of the
organization effectively.
4. Management audit helps in rehabilitation of sick units.
5. Management audit report is jointly reported by experts & on
various fields.
6. The opinions and suggestions of a group of experts on the
functioning of the organization are possible only through
management audit.
DISADVANTAGES OF MANAGEMENT AUDIT

1. Management audit involves high cost and it is

suitable only to big organizations.
2. Management audit may create a fear in the
minds of the executives and may curb their
initiative and innovation.
3. The management auditor may lack
independence and may simply take
instructions from the top management.
MANAGEMENT AUDIT VS STATUTORY AUDIT