Management
Audit
Management
audit is a method of independent and systematic evaluation of the management
activities at .all levels of management to ascertain the functions, efficiency
and achievement of' the management (i.e. policies) as compared to standards set
by the company.
According to
L. R. Howard, "Management audit is an investigation of business from the
highest level downward in order to ascertain whether sound management prevails
throughout, thus facilitating the most effective relationship with outside
world and smooth running of internal organization."
As per
Taylor and Perry; "Management auditing is a method to evaluate the
efficiency of management at all levels throughout the organization, or more
specifically, it comprises the investigation of a business by an independent
body from the highest executive level downwards, in order to ascertain whether
sound management prevails through and to report as to its efficiency or
otherwise with recommendations to ensure its effectiveness where such is not
the case."
Scope of management audit: The scope of management audit is
much wider than financial audit because
management audit evaluates not only financial audit but also other aspects of
the business. It is the method of evaluating the total efficiency of the management
from the top level to the lowest level. Therefore,
the main scope of management audit is:
(i) Evaluate
the efficiency of the management: Management· audit evaluates and appraise the
efficiency of the management at all levels.
(ii)
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.
(iii) Find
variances: It detects the variances in efficiency with the standards set by the
management. .
(iv) Analyze
the reasons for variances: Management audit analyze the reasons for
inefficiencies of the management for not fulfilling the targets.
(v)
Recommend suggestions for improvement: It gives suggestions for improvement in
the areas e.g. production, sales, purchase, finance, human resources,
administration etc.
Objectives of management audit: Management audit is the total
audit of the management i.e. reviews how the policies of the management have
been implemented and its efficiency to execute the policy. Therefore, the scope
is much greater than financial audit, as it examines the all aspects of the
management. Management audit has some objectives. These are discussed below:
(i)
Verifying the efficiency: Management audit aims at to asses the efficiency at
all levels of management and implementation of policies.
(ii) Gives
suggestion for increase in efficiency: Management audit highlights the
inefficiencies in different areas of management and gives his valuable
suggestions and means to improve the efficiencies.
(iii) Asses
the effectiveness of Planning and policies: Management audit examine and
evaluates the plans and policies and judge whether planning and policies are
properly implemented.
(iv) Helps
to increase profitability: Management audit helps the management to increase
profitability by giving remedies to maximize the organization's resources in an
efficient way.
(v) Helps to
co-ordinate activities: Management audit detects the interrelationship among
the activities, evaluates the authority and responsibility and gives valuable
suggestions for improvement of co- ordination among the activities and the
employees. .
(vi) Gives
valuable advice: By scanning the management efficiency and detecting the weak
spots of different levels of management, the management auditor gives valuable
advice to the top management regarding different policies and future course of
action
ADVANTAGES OR IMPORTANCE OF MANAGEM'ENT AUDIT:
There are
several advantages of conducting management audit of an organization. When an
organization grows in its volume and activities, there is a need for management
audit for evaluating efficiency and effectiveness of the management at all
levels of the organization. The advantages and importance of management audit
are discussed below:
(i)
Evaluates efficiency of the management: Management audit is a method of
independent and 'systematic evaluation of the management activities at all
levels of management to ascertain the functions, efficiency and achievement of
the management (i.e. policies) as compared to standards set by the company.
(ii)
Scrutiny of the plans, policies and procedure: Management audit helps to
determine how the management has implemented their plans, policies and
procedure to reach the organizations goal.
(iii) Helps
for correction of plans, policies and procedure: Through management audit, it
is possible to change or revise the plans, policies and procedure as per needs
of the company.
(iv) Aids
for decision making: Management audit asses the ability of the managers to take
important decisions and helps them to rectify the defects.
(v) Helps to
get loan: Financial institutions who gives huge loan to the organizations are
interested to know the efficiency of the management and the profitability.
Management audit certainly gives a guide to them.
(vi) Helps
to get subsidy: Before granting subsidy by the government, to any entity they
are interested to know the efficiency and functioning of the management.
Management audit helps in this matter.
(vii) Helps
to increase profitability: Management audit helps the management to increase
profitability by giving remedies to maximize the organization's resources in an
efficient way.
LIMITATIONS OF MANAGEMENT AUDIT:
(i)
The management audit is audit of the management, by the management,
and for the management. The management auditors are selected by the management
itself. Such auditors may or may not be able to handle the job assigned to
them.
(ii)
The management auditors are generally familiar with the organization
and the staff and employees. The personal aspects cannot be overlooked in such
audits. Some may use this audit to level the score with someone while other may
utilize it to favour someone.
(iii)
They are more likely to take the facts for granted and may not probe
into depth to investigate the matter any further.
(iv) Time
and cost constraints may limit the scope, operation and extent of such audits.
(v)
The management audit team as selected by the management may not look,
act and work as a team. Conflicting interests, attitude and inclination may
jeopardize the entire objective of the audit.
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