Management Audit: Concept and Scope

After reading this article you will learn about Management Audit:- 1. Management Audit Concept 2. Management Audit Scope.

Management Audit Concept:

Management audit may be defined as the systematic and dispassionate examination, analysis and appraisal of management’s overall performance. It takes into account both financial and non-financial factors including economic environment, their effect on the administration and goals of the business organisation.

It is essentially a procedure or a form of appraisal of the total performance of the management by means of an objective and comprehensive examination of the organisation structure, its components such as a department, its plans and policies, methods of process or operation and controls, and its use of physical facilities and human resources.

Thus management audit signifies critical assessment of management of the enterprise from the broadest possible point of view. The thrust of this audit is, therefore, on evaluation, with appropriate analysis for improvement on contribution towards industrial development.

In this regard, George A. Terry states:

“The periodic assessment of a company’s managerial planning, organising, actuating, and controlling compared to what might be called the norm of successful operation is the essential meaning of management audit. It reviews the company’s past, present and future. The areas the company covers are examined with a view to determine whether the company is achieving maximum results out of its endeavors.”

Such an audit may be undertaken by the management itself, or it may be carried out with the help of management consultants. In the same way, while a comprehensive management audit may be recommended, companies may even apply it independently to some specific sections or areas of the organisation. For example, production efficiency or investment appraisal may well be the subject-matter of management audit.

Management audit may even be used to provide guidance on critical assessment of capital budgeting or profit performance, forecasting and planning activities on long-term and short-term basis. Management audit is thus concerned with evaluation and appraisal of the control system and information system in various segments of the organisation.

Management Audit Scope:

The scope of management audit can be better understood if it is possible to relate each of the aspects or processes of management to an audit scrutiny that may be carried out. It was originally developed as a tool for investment appraisal.

However, since the process of management are the same in all organised sectors, this concept has gradually been extended to cover virtually all kinds and sizes of organisations, and the principles of management audit remain valid irrespective of the nature of an enterprise. It now covers all aspects of the business economic, physical, tangible, quantitative or qualitative, financial and personnel.

The scope of management audit can be widened to appraise in detail the systems and sub­systems, procedures, job separation, authorisation, work-quantity studies, accountability, quality of personnel, quality of information generation etc. However it should be made clear that management audit is a measure of control designed to improve performance, eliminate inefficiencies and increase effectiveness and profits.

Management audit is now widely practiced to evaluate management’s objectives, the extent to which they have been achieved and company policies and procedures complied with, especially in large scale business organisations.

On this basis, some people argue that the objectives of an organisation are determined by management and that management audit is only to report the extent to which objectives are attained. However, it can well be argued that the jurisdiction of management audit needs to be extended further with the right and responsibility.

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