Management Audit helps management in setting sound and effective targets. It is the method of evaluating the total efficiency of the management from the top level to the lowest level. It was originally developed as a tool for investment appraisal. It is popularly known as operational management or efficiency Auditor.
Functions of Management Audit
Management audit is a difficult and complex task. It performs the following functions:
1. Management audit identifies the objectives of an organization if such objectives are not set up. It furnishes guidance in the development of format and related instructions pertaining to revenue and expense budgets for each responsibility center.
2. It allocates the overall objectives of an organization in small parts. It reviews or gives guidance in the preparation of complete statements of the performance standards and yardsticks for measurement applicable to each major decisions or performance area.
3. It reviews the structure of organization and asset of the organization and decides whether goals can be obtained or not. It critically examines and refines the units of measurement commonly applied in each major performance or decision area.
4. It examines all the scope of work and liability centers. In this regard, the auditor should help management in pinning down and inter-relating the performance standards and measurements with the operating responsibilities of each person affected.
5. It evaluates whether the management team is working in the interests of shareholders, employees, and the company’s reputation.
Management audit provides valuable suggestions to the management after the evaluation of all the above facts. The board of directors will hire independent consultants to conduct the management audit.