A management audit is an analysis and assessment of competencies and capabilities of a company's management to carry out corporate objectives. 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 good relations with employees and uphold reputational standards.
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.
The objectives of a management audit are to (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.
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.
1. Evaluate the Efficiency of the Management: Management· audit evaluates and appraises the efficiency of the management at all levels.
2. 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.
3. Find Variances: It detects the variances in efficiency with the standards set by the management.
4. Analyze the Reasons for Variances: Management audit analyze the reasons for inefficiencies of the management for not fulfilling the targets.
5. 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:
1. Verifying the Efficiency: Management audit aims at to assess the efficiency at all levels of management and implementation of policies.
2. 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.
3. 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.
4. 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.
5. 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.
6. 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 OF MANAGEMENT AUDIT
- Evaluates Efficiency of the Management -
- Scrutiny of the Plans, Policies and Procedure -
- Helps for Correction of Plans, Policies and Procedure -
- Aids for Decision Making -
- Helps to Get Loan -
- Helps to Get Subsidy -
- Helps to Increase Profitability -