© 2019 JETIR February 2019, Volume 6, Issue 2 www.jetir.

org (ISSN-2349-5162)

Management Audit as a Facilitator for Managerial

Decision Making:
A Review
Authors: Sahajdeep Kaur, Joel Chacko Roy, Nirmal Dominic, Rinu Benny, Sriraksha Karanth K U, Tissa Maria Joshy, Jinsu Ann
Markose, Divya Mariam George, Vaishnavi Tiwari – Research Scholar’s, CHRIST (Deemed to be University)

Guided by : Dr. Kavitha Jayakumar, Associate Professor, CHRIST (Deemed to be University)

Abstract: Management audit is a comprehensive review of all or one of the aspects of management thereby guiding the
management make better decisions. This study is undertaken with an aim to understand how management audit helps
the management in making important decision. It also reviews the evolution and improvements in management audit
over an extensive stretch of time. The appropriate answer is explored through an exhaustive review of literature with
the aim of distinguishing possible research gap and proposing future scope for study. After a thorough research of the
existing literature, it can be concluded that there lacks a literature which focuses on the practical and empirical aspects
of the management audit. The benefits in decision making are discussed from a theoretical aspect but no actual scenario
is taken into consideration for finding the actual benefit to the management. The suggestions for further research are
also provided.

Keywords: Management Audit, Decision making, Auditing, Review.

Introduction

Management audit is a comprehensive review of all or one of the aspects of management. In the process of management
audit, the management auditor is appointed to conduct a detailed diagnosis of the management activities in order to
ascertain whether sound management prevails. The scope of audit is expanded in management audit. The scope goes
beyond the verification of financial statements or compliance with policies or standards. The focus of such audit is
future-oriented in which the auditor critically analyses the overall effectiveness of the management by giving attention
to various qualitative as well as quantitative aspects like target achievement, resource allocation, leadership, market
share, management structure, productivity, employee empowerment etc.

Auditing in this century has widened its scope of operations. Now, it is not confined to accounting records alone but
also to its internal system which will help in evaluating the organization’s efficiency. This is done to identify the weak
areas of the organization and to inform the management about those weak points. The management will suggest ways
to overcome those weak areas which will help the organization accelerate its overall development. This concept is now
termed as management audit. Although management Audit is not a new area in the field of auditing, yet there are no
fixed procedures or regulations established by the various councils and institutes governing audit. Management audit
deals with a very dynamic environment in which the process has to be modified according to each circumstance under
which the audit is being conducted. Therefore, a fixed approach will not serve the purpose of the audit.

Management audit helps in ascertaining the soundness of the management by analysing its internal effectiveness and
external relations. As a result, the management is guided to make better decisions vis-à-vis the overall improvement of
the business organisations with the help of management audit. The ultimate goal of the entire process is to ensure that
the business organisation is working on the goals and objectives for which it was established.

This study is undertaken with an aim to understand how management audit helps the management in making important
decision related to the weak areas of the business organisation. The study also attempts to check the extent to which the
management audit is beneficial. This purpose is achieved by exploring the past research conducted in the field of
management audit and related aspects. The vast literature is reviewed in a chronological order to find out the
improvements and developments in management audit and how it evolved over an extensive stretch of time.

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Review of Literature

(Churchill, 1966) emphasised the importance of management audit wherein the management audit is given a name of
‘service to management’ where the auditor has to find weak areas and make suggestions to improvise. Management
audit focuses more on the managerial matter rather than the precision of financial statements and the adherence to the
rules and policies. The management auditor looks at the efficiency and effectiveness with which management is
performing and executing its goals and objectives. (Churchill & Cyert, 1966) The qualification and competency of the
auditor plays an important role in assessing the management as the management audit does not have a standard criteria
of evaluation. There is possibility that the management may become rule-bound and vigilant due to the conduct of
management audit. This may or may not result in a more efficient and effective managerial functions. (Robertson, 1969)
provided a theoretical structure to conduct management audit independent of the other audits like the financial audit.
The structure mainly focused on the necessary information required for the effective and fruitful management audit. It
generated 8 hypothesis which largely stressed upon factors like verifiability of information, availability of unbiased
data, rational management in the organisation and the management auditor’s obligation to produce reliable outcomes
etc.

The audit team group, the concept of audit, the methods followed under audit and the reporting factors have significant
importance in a management audit. It is stated that the management audit is an inexpensive way and can be conducted
with and without the assistance of the external assistance. Management audit is implemented as a tool, in order to
improve the quality and reduce cost. It should be structured and formalized. Although management auditing can be
defined in various ways, (Lloyd, 1982) intended to reduce the uncertainties surrounding the approach. Peer contact,
reviews, employee and citizen attitude surveys are important components of a management audit. They assist the
jurisdiction in obtaining the perceptions of employees and citizens about the unit. The development and use of checklists
facilitate the audit process. The audit should identify strengths as well as weaknesses, resulting in a balanced accounting
of the organization.

The terms “operational” , “performance” and “management” audit are often used interchangeably. These terms take
their meaning based on the circumstance in which they are conducted. In countries like the United States and United
Kingdom, the conduct of management audit arises from a legal requirement whereas in other countries like India the
performance audit is conducted along the same lines for the management to get additional control over the firm’s
activities. Management auditors can activate change in the organisation through their audit performance (Lane, 1983).

To know whether management audit is useful to a utility, one should know about management audit. The process of
management auditing involves orientation, fact finding, analysis, development of conclusion, recommendation,
presentation and report preparation. It is the management’s responsibility to ensure the organization is managed well
and messages are communicated properly. The probability of this is high in the future of water utility whether voluntary
or mandates. The main use of management audit to water utility is that it helps to gain public confidence by avoiding
mismanagement in the utility and to improve company management by listening to the suggestion by all.
The task of management auditor is to provide recommendations for improvement whereas the management is
responsible for the follow-up on the particular areas of improvement. The regulatory imposition to conduct management
audit may not bring results as constructive as of a voluntary audit. In the audit by choice, it is perceived that the
management is genuinely looking out for suggestions to improve performance. Thus, more constructive feedback and
recommendations will be provided by the employees of the organisation (Conley, 1985).

According to (Most, 1987), components of a comprehensive management audit may be embraced by the mnemonic
FRAME, as follows:

F: Financial controls — verification of the books, records and other documents, and the financial statements, for the
period examined.

R: Reporting requirements — verification of compliance with legal, professional and other regulations.

A: Audit planning — review and evaluation of the system of internal control, including internal auditing.

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M: Management — review and evaluation of the quality and rationality of management decisions to employ human,
material and financial resources, in the light of stated goals and objectives.

E: EDP — review and evaluation of the system of electronic data processing and related controls.

Management audit supports the financial audit in order to conduct effectual audit. The various decisions taken by the
management definitely influence the financial statement. Thus, it becomes necessary for the auditors to know the
circumstance and environment of the business organisation in which the management takes its decisions. (Batra, 1997)
suggested management audit as a tool to improve the performances of a public enterprise. This tool can be introduced
by articulating the objective, mission and the expected result along with the method of performance evaluation. Only
when management audit is adopted as a strategy to sustain the arduous journey, the public sector enterprises can lead
themselves towards profitability. As the management of the public sector is not efficient, it affects the overall
operational and financial performance of the economy.

(Packard, 2000) applied an integrated approach to management audit. The audit process is used as a teaching tool for
students. Through the process, the students can critically analyse and understand managerial perspectives of an
organisation. Such an approach is of great value to the HR agencies wherein the students, with some education and
training in the field, may be able to perform the work of a consultant and become an invaluable resource to an agency.
It suggested that organisations may not require expert advisor if the role is restricted only to perform a SWOT analysis
for the organisations. Students, after training, can act as change agents and help the organisations to develop and
improvise their activities. This way, the organisations could save its cost incurred on external consultancy fees.

(JOSHY, 2001) determines the benefits of the use of management auditing and the extent of which the practices of
management accounting has been followed by the medium and large manufacturing companies in India. The paper
compares the management practices of India and Australia. This study mainly focuses on how extensively the traditional
and new management accounting are followed by the Indian manufacturing companies. The study conducted reveals
that Indian companies mainly depend on the traditional techniques of management accounting. The use of newly
developed practices were low and also slow. The study suggest that size has a major impact in determining use of
practices which are newly developed. Other factors include the traditional values or unchanging behaviour of the Indian
management, autocratic style of leadership and orientation which are long term. Indian companies mainly focuses on
the tools to control cost like standard costing, variance analysis at production stage and budgeting. It also shows the
indication that many of the companies started planning to mainly focus on the target costing. There are some similarities
with the practices of the India and Australia The difference is mainly due to the cultural values.

In an empirical study (Brender, 2015), it was found that most managers in Switzerland are not familiar with the concept
and purpose of management audit. It is often thought of in connection with other managerial activities, which are not
management audits. The management audit is considered like any other individual or team performance reviews.
(Brender, 2015) finds out the factors that influence the management audit into corporate governance. The author have
used semi-directed interviews, conducted over a three-year by consulting professionals of social control and auditing
backgrounds. It is observed that there are 3 factors that influence the management audit they are the degree of acceptance
of the tools and needs of management audits, the national culture and values embodied within the follow and also
the degree of company governance maturity.
(Gallo, Píchová, Šenková, Matušíková, & Mitríková, 2017)There are numerous studies about management audit and
various techniques used for procuring information about audit in evaluating the management. The modification in the
model 7S by McKinsey is examined. It was modified by the responses by the interviews done with the experts in
auditing field who mainly focus on management audit issues and managers dealing in management auditing. From the
management audit internal analysis, SWOT analysis, 7S model and IFE matrix was considered the way to assess the
corporate governance. From the above three, 7S model was selected as the basis or best tool. 7S Model includes
structure, system, style, group, skill, strategy and shared values. These are the evaluation indicators based on the survey
from the respondents. Management should analysis its management system if they want to be stable and to be robust.
This paper describes that use of the 7S Model is the best way to assess the corporate governance in the current state. It
can be used without modification or by the requests and needs of the company.

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Conclusion
The aim of the paper is to investigate how management audit really facilitates the managerial decision making. The
appropriate answer is explored through an exhaustive review of literature with the aim of distinguishing possible
research gap and proposing future scope for study. After a thorough research of the existing literature, it can be
concluded that there exist numerous study focusing on the various theoretical aspects of management audit, how it
originated, the benefits to the management in making decisions. The term ‘ management audit’ has evolved over the
time length. It has been modified and improvised to enable the management for getting the best benefits out of the
process at a low cost. There lacks a literature which focuses on the practical and empirical aspects of the management
audit. The benefits in decision making are discussed from a theoretical aspect but no recent scenario is taken into
consideration for finding the actual benefit to the management. The techniques of management audit are discussed but
their application in the real business world has not been researched upon.

Suggestions for future research

An empirical study considering the opinion of the managers, board of directors and other key administrators can be
conducted in various countries. A comparative analysis between the countries based on the opinion in different countries
can be conducted in which countries which have legal requirement for management audit and countries which do not
have a legal imposition for the same. Based on the findings, a model can be developed in order to improve the techniques
of management audit to facilitate better decision making for the management.

References:
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the memorandum of understanding (MOU) system in India. Managerial Auditing Journal, 12(3), 148-155.
Brender, N. (2015). The management audit as a tool to foster corporate governance: an inquiry in Switzerland.
Managerial Auditing Journal, Vol. 30 .
Churchill, N. C. (1966). Audit Recommendations and Management Auditing: A Case Study and Some Remarks.
Journal of Accounting Research, 128-151. Retrieved from https://www.jstor.org/stable/2490175
Churchill, N. C., & Cyert, R. M. (1966, February). An experiment in management auditing. Journal of Accountancy,
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Gallo, P., Píchová, R., Šenková, A., Matušíková, D., & Mitríková, J. (2017). TECHNIQUES AND ANALYSIS OF
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Packard, T. (2000). The management audit as a teaching tool in social work administration. Journal of social work
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