Meaning , significance and process of management audit

1. Management Audit
Systematic examination, analysis and appraisal of
management’s overall performance
 Himani Panwar
 Jaswant Singh Panwar
 Kundan

2. Contents
• Meaning and Definition of Management Audit
• Aims and Objectives of Management Audit
• Difference between Cost Audit and Management Audit
• Process of Management Audit
• Scope of Management Audit
• Advantages & Disadvantages of Management Audit
• Operational Aspects of Management Audit

3. Meaning and Definition of Management Audit
Management Audit is a form of appraisal of the total performance of the
management by means of an objective and comprehensive examination of the
organizational structure, its components, its plans and policies, methods of
process or operations and controls and its use of physical and human resource.
According to Churchil and Cyert, “Management audit is performed with the
object of examining the efficacy of the information control system,
management and management procedures towards the achievement of
enterprise goals.”

4. Aims and Objectives of Management Audit
• Improve efficiency of the
management.
• Ensure optimum utilization of
resources.
• Point out deficiencies.
• Suggest improved methods of
operations.
• Find out weak points in internal
control system.
• Help management by providing
early signals of sickness.
• Anticipate problems and suggest
remedies.
• Appraise managerial performance.
• Evaluate plans and policies.
• Facilitates performance evaluation
of human resources at every level.

5. Difference between Cost Audit and Management Audit
BASIS COST AUDIT MANAGEMENT AUDIT
Meaning It is a verification of cost records to
measure the internal efficiency of a
business.
It is intended to develop the relationships
with the outside world and internal efficiency
of a business.
Objectives The cost auditor checks the cost
accounting records.
The management auditor investigates
objectives and actions of the management.
Requisite Qualification The cost auditor should be a person
with the requisite qualification to
conduct the cost audit.
The management auditor may be a person
having good knowledge of the management
control, production planning and control etc.
Statutory Obligation The cost audit is made compulsory
and statutory in many organizations.
The management audit is not a statutory
obligation for any concern.
Tenure It is a program of one year and the
report is to be submitted every year.
It covers a wide area having its scope of all
the management activities.
Auditor Only independent Chartered
Accountant or Cost Accountant can
perform the work of cost audit.
It can be conducted by any independent
person having good knowledge of
management.
Report To submit a report under cost audit,
the time limit is fixed by the statute
under which it is conducted.
No time limit can be fixed for submission of
the report under management audit.

6. Process of Management Audit

7. SUGGESTIONS AND REVIEW
EVALUATION OF PERFORMANCE
Evaluation of the organization structure
BREAK-DOWN THE OBJECTIVES
IDENTIFY THE OBJECTIVES

8. Scope of Management Audit
• Evaluate the efficiency management- Management audit evaluate
and appraise the efficiency of the management at all levels.
• Implementation of principles and policies of the management-
Management audit review whether principles and policies formulated
by the management have been successfully implemented or not.

9. • Management Appraisal- Management audit evaluates the performance of the
management and if find efficient, appraise the management.
• Recommend suggestions for improvement – It gives suggestions for
improvement in the areas e.g. Production, sales, purchase, finance, HR,
administrations etc.
Scope of Management Audit (cont.)

10. Advantages of Management Audit
• Management audit helps in decision making areas such as make or
buy, closing down of an unit, acquisition of a business, etc.
• Management audit suggest ways to utilize the resources of the
organization effectively.
• It helps in setting up an organizational framework to implements the
plans.

11. Disadvantages of Management Audit
• Management audit involves high cost and it is suitable only to big
organizations.
• The management auditor may lack independence and may simply
take instructions from the top management.

12. Operational Aspects of Management Audit
• Objectives and aims of organization :- The management auditor
should study the aims and objectives of the organization.
• Production:- Beyond the area of financial accounting the
management auditor should have a through knowledge of production
techniques and various plans and systems like costing system.

13. Operational Aspects of Management Audit(cont.)
3. Sales and distribution:- The auditor is concerned with the basic
requirement of selling section. In a business information must be
obtain as to sales on the market as a whole and the effect of
changing in price, or manufacring over a period of time.
4. Operations:- He should ascertain whether there are defects in the
working in the organization in regard to the manufacring process
and how the system can improved to ensure maximum production.