WallStreetMojo

WallStreetMojo

WallStreetMojo

MENUMENU
  • Free Tutorials
  • Certification Courses
  • 250+ Courses All In One Bundle
  • Login
Home » Accounting Tutorials » Accounting Fundamentals » Management Audit

Management Audit

Management Audit Definition

Management audit means ‘an Audit of Management’ wherein various tools are used to assess the performance and progress of the management towards the process of best decision making. The focus here is the ‘Quality of decision making’ of an management instead of focusing on the operational aspects.

Objectives of Management Audit

Objectives of Management Audit

#1 – Establishing Proper Strategies

The team must ensure the ability of the management whether it has proper strategies to obtain the required information for better decision making, again the team also ensures whether the collected data is sufficient to achieve the objectives of the organization without hassles. Usually, the strategies are the key to achieve the goals of any kind of establishment.

#2 – Implementation of Required Internal Control

Audit Team should verify the effectiveness of the Internal Control of the organization to overcome the deficiencies of the management. If the Implemented Internal Controls are not effective enough, it will lead to unnecessary problems in the process.

Example: In a reimbursement policy of a company, first, an accountant verifies the documents, and then the Senior Accountant will review the same documents. Finally, the cashier pays the cash, which ensures a triple check on the transaction. Here the internal control is so strong that it avoids any manipulation of cash.

#3 – On-time Report Generation

  • The management Audit team should confirm whether the management placed proper control to generate and provide the reports on time.
  • Report generation will be called as an essential tool for the identification of errors. Sometimes it will also act as a whistleblower to control the greater mistakes during the process.
  • Generally, the reports of the audit should improve the efficiency of the management for the betterment regularly.

Management Audit Plan and Execution

The following are the steps for the planning and execution –

Management-Audit

#1 – Appointment of Proper Personnel

In the process of audit, a proper person should be appointed for executing the plan under a management audit. Proper in the sense that he must be professionally qualified, knowledgeable, and experienced to perform the audit plan without ambiguities.

#2 – Drafting Audit Programme

  • Collection of required documents
  • Assessment of policies and procedures
  • Monitoring the Strategy
  • Inspection of Books and other supporting documents
  • Investigate with available Information
  • Inquiries with staffs/team
  • Observing the internal control
  • Test check of the transactions and its results
  • Scientific method evaluation and review (If necessary)
  • Preparing the reports with solutions

#3 – Training Programme

Proper training must be provided to the team before executing the audit.

Popular Course in this category
Sale
All in One Financial Analyst Bundle (250+ Courses, 40+ Projects)
4.9 (1,067 ratings)
250+ Courses | 40+ Projects | 1000+ Hours | Full Lifetime Access | Certificate of Completion
View Course

Example: Management Audit on Construction industries required a specific type of evaluation skills and technics which must be provided before the execution.

#4 – Time Concern

Every plan of the audit program must be executed on a proper timeline to get the exact results of it.

Example: Observing the manufacturing process can result in the identification of normal and abnormal wastage, which should be executed during the process.

#5 – Frequencies of Audit

An audit should be conducted frequently to odd out the mistakes occurring during the decision making process.

Frequencies may be decided based on the nature of business and also to be considered with the duration of understanding of business and its transactions

#6 – Reports with Solutions

  • Usually, the audit report consists of the errors which interrupt the management to make the proper decision making.
  • The team should provide their findings along with the required solutions to overcome the issues.
  • Every report should provide a detailed analysis of its repercussions in the future.

Example

M/s ICI information technology services face a lot of trouble in finishing off their projects on time, and they incurred huge losses due to the delay in the management decisions and related process. They have appointed an auditor recently to do the audit on the management and their decision-making process.

Based on the audit, the following are the findings:

  • No Proper internal control in the management to finalize the projects on time;
  • No proper communication with clients to finalize the projects on time;
  • No coordination between management and teams to complete projects.
  • No proper report generation software for internal control;

The above findings to be cleared out to get good feedback in the future.

Advantages

  • Proper Strategy Preparation and formation to achieve the objectives.
  • Proper Placement of Internal Controls for effective decision making;
  • Improvisation on the management decision-making process;
  • To overcome the deficiencies of the management.
  • Deployment of proper human resources.
  • Rectification of Errors with the least cost or less damage;
  • Avoid abnormal wastage of resources such as men, materials, money & machine.
  • Timely results without delay.

Difficulties in Conducting Management Audit

  • Lack of Investments and Technology – Generally, the suggestions may involve high investments on 4M resources such as Men, Machinery, Material, or Money, which will be an issue for most of the organization. Sometimes the classical process may require to change with a technological update. Still, the management or the staff of the organization may have trouble to undergo the new or required updates.
  • Lack of Management support for the change – The Management of the organization may have some trouble changing from their classical process to the latest one for many reasons.
  • Staff Behaviour is a problem sometimes to execute the audit plan because they may resist providing the actual information for the audit at the time of discussions, interviews, or inquiries. They use to feel that their mistakes will come out during the audit process if they provide all the necessary details for the audit.
  • Tackle with top management – It is also an issue in certain situations where the senior management will be against the audit process.

Conclusion

Audit report findings and recommendations should yield better results for the organization, the same way findings also to be reported in better terms, which should avoid further conflicts by the management. The recommendations of the findings can be executed with a mutual understanding between the audit team and top management for the success of the establishment.

In the end, the success of the audit will be based on the participative and friendly approach rather than focusing only on harassing the staff or management for their mistakes.

Recommended Articles

This has been a guide to Management Audit and its definition. Here we discuss how management plans and execute the audit along with its objectives and example. You can learn more from the following article –

  • Audit Risk Meaning
  • Internal Audit
  • Audit Committee
  • Audit Objectives
  • Expanded Accounting Equation
0 Shares
Share
Tweet
Share
Primary Sidebar
Footer
COMPANY
About
Reviews
Contact
Privacy
Terms of Service
RESOURCES
Blog
Free Courses
Free Tutorials
Investment Banking Tutorials
Financial Modeling Tutorials
Excel Tutorials
Accounting Tutorials
Financial Statement Analysis
COURSES
All Courses
Financial Analyst All in One Course
Investment Banking Course
Financial Modeling Course
Private Equity Course
Venture Capital Course
Excel All in One Course

Copyright © 2021. CFA Institute Does Not Endorse, Promote, Or Warrant The Accuracy Or Quality Of WallStreetMojo. CFA® And Chartered Financial Analyst® Are Registered Trademarks Owned By CFA Institute.
Return to top

WallStreetMojo

Free Investment Banking Course

IB Excel Templates, Accounting, Valuation, Financial Modeling, Video Tutorials

* Please provide your correct email id. Login details for this Free course will be emailed to you

Book Your One Instructor : One Learner Free Class
Let’s Get Started
Please select the batch
Saturday - Sunday 9 am IST to 5 pm IST
Saturday - Sunday 9 am IST to 5 pm IST

This website or its third-party tools use cookies, which are necessary to its functioning and required to achieve the purposes illustrated in the cookie policy. By closing this banner, scrolling this page, clicking a link or continuing to browse otherwise, you agree to our Privacy Policy

Login

Forgot Password?

WallStreetMojo

Free Accounting Course

You will Learn Basics of Accounting in Just 1 Hour, Guaranteed!

* Please provide your correct email id. Login details for this Free course will be emailed to you

New Year Offer - All in One Financial Analyst Bundle (250+ Courses, 40+ Projects) View More