Management Audit - Meaning, Definition, Objectives, Types & Example

10/12/24, 1:06 PM Management Audit: Meaning, Definition, Objectives, Types & Example
Management Audit
Management Audit is a systematic examination of the decisions

and actions of the management. It involves the review of
managerial aspects like organizational objective, policies,
procedures, structure, control and system to check the
efficiency or performance of the management over the
activities of the company.
Package inclusions:
Economic function
Corporate Structure
Health of Earnings
Service to Stockholders
Research and Development
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Directorate Analysis
Fiscal Policies
Production Efficiency
Sales Vigor
Executive Evaluation
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Management Audit Services

There are three basic evaluation methods for any work activity. They
are inspection auditing, compliance auditing, and management
auditing. Inspection auditing measures a process output against
specific characteristics. Whereas, management audit focuses on
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results by evaluating the effectiveness and suitability of controls. It
does this by challenging the underlying rules, methods, and
procedures specified.
Management audits that are performed internally are compliance

audits plus a cause and effect analysis. When management audits
are completed accurately, it proves to be the most useful of all the
evaluation methods because they result in change.
Management audit is considered as the systematic examination,

analysis as well as appraisal of management's overall performance.
This can be said to be a proper investigation of the management
using an objective and comprehensive examination. The
examination is done on the organization structure, departments,
plans, policies, and methods relating to process, operation, and
controls also including its human resources.

What is a Management Audit?
A management audit is an essential tool that is used to determine

the efficiency, functions and accomplishments and achievements of
the company. It is also an independent and systematic analysis
that evaluates the company's overall activities and performances.
The main objective of this type of audit is to identify errors in the

management activities and also suggest possible changes if
needed. It guides the management in managing the operations
most efficiently and productively.
In other words, a management audit performs the evaluation and

assessment of the management system and information in different
departments of the company. It also reviews the system and
subsystem, authorization, accountability, procedure, quality of
generated data, quality of personnel, etc.
What is the Objective of Management

Audit?
The primary objectives of the Management Audit are as follows:
To ensure that human resources and physical facilities are

utilized in an optimized way.
To show the deficiencies in the policies, objectives, planning,

and procedures.
To suggest better operation methods.
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To check the weak points in the organizational structure and
internal control system and also by suggesting improvements.
To assist the management by providing early signs of

problems, ways, and means to avoid the same.
What is the Scope of Management Audit?

There is no limitation on the scope of a management audit. The area
where review needs to be done depends on the objectives of the
business. Hence, the scope of management audit includes:
The practicability, suitability, and present compliance of the

entity with its designated objects and aims.
The present reputation of the organization with respect to the

 general public and also within its own commercial or industrial
field.
Clarifying the amount of rate of return on investor's capital,
whether it is inadequate, adequate, or above average.
Relation of the organization with its own shareholders and also

with the investing public in general.
The ratios of operating returns and also the rate of return on

capital projects.
In an organization checking the relationship between the

management and its staff.
The aim of the management at different levels such as the

superior, middle level, and operational levels.
Financial controls and policies relating to the production, sales,

and distribution in other functions of the business.
What is the Procedure to Conduct

Management Audit?
The following procedure can be followed for conducting
Management Audit:
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Collection of Information
Management auditors need information for the purpose of

appraisal of various managerial aspects. They must prepare a
questionnaire for collecting all relevant information. The questions
will cover information concerned with the planning process,
objectives, organization, procedures, control systems, functional
areas etc. The questions must be framed in such a manner that it
 provides all information in every aspect.
Examination of Information
The management auditors must carefully investigate the gathered

information. They may also require in reaching certain conclusions.
The information must be carefully assessed to ascertain the original
position of the organization.
Authentication of Information
The management auditor can gather information from different

persons. The information that is collected must be authenticated
from the persons supplying it. The supplier of the information must
put their signatures to verify the information.
Confirmation of Information
The management auditor must confirm the information that is

supplied by different sources. The can also counter-check the
information received from other sources. They can do this by
questioning another person in written form or orally. This step is
crucial as it will help in reaching conclusions.
Observation
The management auditor will observe some activities himself. He

can prepare organization charts, flow charts, etc. himself after
making all the observations. This will provide him with insight into the
activities undertaken.
Comparison of Information
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The information that is collected by the auditor must be compared
with the objects and standards that are set before. Sometimes,
information is compared with the previous year's information. This
provides an appropriate idea of the performance of the enterprise.
It helps in assessing the comparative performance of the business.
What is the Type of Information Required

For Management Audit?
For conducting a management audit, the auditor requires every type
of information about the organization. The information related to
these matters must be collected to arrive at real conclusions:
Objectives
Know the main objectives of the company.
Explain the sub-division of objectives between the different

levels of management.
Definition of objectives in quantitative and physical terms.
Look at the system to review the objectives as per the changed

situation.
Translation of objectives into policies and performances.
The management must be clear of the objectives.
Planning
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The organization must have a proper system of planning.
Look if the given plans are for the t term or long term.
The plans must be related to the objectives of the enterprise.
Achievement of current targets.
Change of plans if needed.
Procedure for framing of budgets.
A number of persons associated in the framing of budgets.
Budgets conveyed to the management or not.
The commitment of the functional managers to the targets.
 Organization
The concerned party must have a well-defined organization
chart.
The hierarchy of the organization must be presented to the

auditor.
A number of reporting managers.
Effectiveness of the organization to achieve business targets.
Employees' efficiency to benefit the organization.
Control
Types of controls used in the business.
Controls must be related to plans.
Quantity of controls.
Controls must be appropriately conveyed to the various levels

of management.
Controls must be reviewed periodically.
Functional Areas
Management audit requires detailed information about the real
performance of different functions.
Purchase: Methods of purchase or the quantities procured

problems in procurement or method of dealing with defaulting
suppliers etc.
Production: Policy schedules of production or actual amount
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produced at different times. Changes in the production
schedule or number of days taken in production or frequency
of accidents, input-output ratios, the ideal time are made,
production control procedure, etc.
Distribution: Organization of the sales department, budgeted

sales, actual performances or incentives offered for Sales
promotional efforts, the effectiveness of distribution channels,
etc.
Personnel: Personnel policy, applicable method of recruitment

and training, cost of manpower development, the promotion
policy or appraisal method, records of workers maintained,
labor welfare activities, working hours lost, etc.
Finance and Accounting: Financial Structure that is followed, or

sources of raising funds, the effectiveness of methods of raising
 finances, the extent of working capital needs, financial controls
followed, the system of accounting, internal check system
developed, the system of costing followed, the activeness of
cost control devices, etc.
The management auditor may need more information on analysis

other than the information mentioned above.
What are the Short Comings of

Management Audit?
The shortcoming in a Management Audit are as follows:
There can be weaknesses amongst the members of the Board

of Directors.
The managers and director not being aware of the objectives

of the organization. The extent to which the objectives are
achieved, failure to define the objectives, and also the
responsibilities of its managers.
Taking inadequate steps for providing finance.
Lack of technical skills in managers.
Retaining the authority of the managers for matters that have

been delegated.
Lack of clear and identified management style in the

organization.
Lack of proper staff or management training.
Manager's failure in measuring and assessing the performance

of their subordinates.
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Lack of management information system.
Inefficient enforcement procedures and too much wastage of

time in the enforcement of such processes.
The failures revealed in management audit must be studied clearly

in detail. The management must ascertain the real causes and also
the proper remedial action to eliminate such shortcomings.
What is the Difference Between Financial

Audit and Management Audit?
The primary difference between a financial audit and management
Audit is as follows:

Manageme
S.No Areas Financial Audit
Audit
Evaluation
Recording of 12 past
months' performanc
expenses and to know the
1. Meaning
also showing exactness o
the financial procedures
position. objectives
and policie
Here the
period is
2. Period No time lim
usually 12
months.
Here the
Auditors
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audits for a
Here the past specific
financial period the
records are manageme
audited and performanc
3. Scope and reports
then reported
that the of the defec
accounts are and
genuine. suggestion
for
improveme
 4. Compulsion It is There is no
compulsory for compulsion
certain types to perform
of companies,
such as trust this type of

and audit.
commercial
companies.
The report is The report i

Who is it
submitted to submitted t
5. reported
the owners the
to?
(shareholders). manageme
What is the Difference Between Cost

Audit and Management Audit?
The difference between the cost audit and management audit is
explained below:
S.No Manageme
Areas Cost Audit
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Audit
Review of th
past
manageria
Cost Audit is performanc
done with the is made to
1. internal check
Meaning whether the
efficiency of
the organizatio
organization. is working a
per its
objectives.

Cost Audit is
compulsory for This is not
2. manufacturers, compulsory
Compulsion
mining, and for any
producers and organizatio
processing.
This is
Here the
3. performed for
period can
Period the accounting
more than
period of the
one year.
organization.
Here the au
can be
performed
an
Chartered
independe
4. Who can Accountants
consultant
audit? can perform
and not
cost audit.
necessarily
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Chartered
Accountan
The report
must be The report
To whom
5. submitted to must be
report must
the Central submitted t
be
Government the
submitted?
and its copy to manageme
the company.
The report No time lim

6. Period of must be for
Report submitted in a submission
specific period. the report.
How TAP GLOBAL will Provide

Management Audit Services?
Our internal and management audits primary focus is on:
A crucial evaluation of the internal control methods adopted

by the organizations and also suggesting specific areas for
strengthening.
Review the existing business processes, practices, and policies

for suggesting best practices.
Review of the risk management framework and also its

effectiveness. Also providing the best suggestions for
strengthening the same.
A constructive review of the operations by looking at the client's

needs.
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Identifying and recommending the areas of cost reduction,
revenue optimization, etc.
Assisting in meeting the client's requirements with regard to

corporate governance.
How can TAP GLOBAL Help You?
Fill The Get a Submit Track Get

Form Callback Document Progress Deliverables
Frequently Asked Questions


What do you mean by a management audit?
A management audit is an assessment of the organization's
management, its strategies and resources. A management
audit evaluates whether the management team is working in

the interests of shareholders, employees, and the company's
reputation.
What are the Objectives of Management Audit?
The following are the objectives of management audit:
To identify the weaknesses and inefficiencies of management

in different functional areas, such as production, sales, finance
etc.
To analyze different ways to overcome the inefficiencies or

weaknesses.
To critically review the organizations structure.
To evaluate the ways for improving the management

efficiency and to select the best are some of the objectives of
management audit.
What are the features of management audit?

An effective audit management system possesses the
following key features:
Manages complete audit lifecycle including audit planning,
Audit plans,
Checklists,
Field data collection,
Development of audit reports, and
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Corrective and preventive action recommendations.
What is a management system audit?

A management system audit is an audit conducted on a
management system. A quality management system audit
evaluates an existing quality management program to
determine its conformance to company policies, contract
commitments, and regulatory requirements.
Who can do a management audit?

Management Audit requires a review of all aspects of
management. One person cannot be an expert in every field of
management, so there must be a team to conduct
Management audit. The team of auditors shall include on
account, an industrial engineer, an operations research
 specialist, a social scientist etc.
How do you conduct a management audit?

There are four proper specified steps to conduct a
management audit:
Audit Planning and Preparation.
Audit Execution and Fieldwork.
Audit Reporting and Review.
Corrective and Preventive Action.

What is management audit report?
Management auditing involves the capturing of essential
notes, interviews and photo evidence to check if the protocols
are meeting company's objectives. Audits can be edited online,
and reports are generated instantly.
What is a management letter?

A management letter is an auditor's letter addressed to the
client. It is a letter written by company's management that
confirms the accuracy of an audit.
What does a management letter contain?

The requisites of a management representation letter are: All
risks, uncertainties, liens, encumbrances, unrecorded and
recorded transactions, legal violations, contingent liabilities,
and unasserted claims or assessments that have been
adequately recorded and disclosed
How do you respond to a management letter?

The management letter must be responded in the following
ways:
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Provide specific actions that management commits to take to
correct the finding.
Make your response clear and concise.
Exclude information that is not pertinent to the finding or its

corrective action plan.
Identify specific positions, if applicable, responsible for the

implementation.
Why are management audits required in an

organization?
The purpose of a management audit is not to appraise
individual executive performance but to evaluate the
management team in its effectiveness to work in the interests
of shareholders, maintain a good relationship with employees,
and to uphold reputational standards.

What are the advantages of management audit?
The advantages of management audit are as follows:
It helps in decision-making areas such as make or buy, closing

down of a unit, acquisition of a business, etc.
It helps in the smooth operation of an organization.
It examines the functions of management.
It also identifies the strength and weakness in the

management process.
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10/12/24, 1:06 PM Management Audit: Meaning, Definition, Objectives, Types & Example

Management Audit is a systematic examination of the decisions

Research and Development

Management Audit Services

Management audits that are performed internally are compliance

Management audit is considered as the systematic examination,

A management audit is an essential tool that is used to determine

The main objective of this type of audit is to identify errors in the

In other words, a management audit performs the evaluation and

What is the Objective of Management

To ensure that human resources and physical facilities are

To show the deficiencies in the policies, objectives, planning,

To suggest better operation methods.

To assist the management by providing early signs of

What is the Scope of Management Audit?

The practicability, suitability, and present compliance of the

The present reputation of the organization with respect to the

Clarifying the amount of rate of return on investor's capital,

whether it is inadequate, adequate, or above average.

Relation of the organization with its own shareholders and also

The ratios of operating returns and also the rate of return on

In an organization checking the relationship between the

The aim of the management at different levels such as the

Financial controls and policies relating to the production, sales,

What is the Procedure to Conduct

Management auditors need information for the purpose of

The management auditors must carefully investigate the gathered

The management auditor can gather information from different

The management auditor must confirm the information that is

The management auditor will observe some activities himself. He

What is the Type of Information Required

Explain the sub-division of objectives between the different

Definition of objectives in quantitative and physical terms.

Look at the system to review the objectives as per the changed

Translation of objectives into policies and performances.

The management must be clear of the objectives.

The plans must be related to the objectives of the enterprise.

Achievement of current targets.

Change of plans if needed.

Procedure for framing of budgets.

A number of persons associated in the framing of budgets.

Budgets conveyed to the management or not.

The commitment of the functional managers to the targets.

The hierarchy of the organization must be presented to the

A number of reporting managers.

Effectiveness of the organization to achieve business targets.

Employees' efficiency to benefit the organization.

Controls must be related to plans.

Controls must be appropriately conveyed to the various levels

Controls must be reviewed periodically.

Purchase: Methods of purchase or the quantities procured

Production: Policy schedules of production or actual amount

Distribution: Organization of the sales department, budgeted

Personnel: Personnel policy, applicable method of recruitment

Finance and Accounting: Financial Structure that is followed, or

The management auditor may need more information on analysis

What are the Short Comings of

There can be weaknesses amongst the members of the Board

The managers and director not being aware of the objectives