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MANAGEMENT AUDIT

MANAGEMENT AUDIT Presented by H . B . Hamad BBA-YR-3. TUNGUU hamadbakar68@hotmail.com (ZIFA-CHWAKA) 1
MANAGEMENT AUDIT Presented by H . B . Hamad BBA-YR-3. TUNGUU hamadbakar68@hotmail.com (ZIFA-CHWAKA) 1
MANAGEMENT AUDIT Presented by H . B . Hamad BBA-YR-3. TUNGUU hamadbakar68@hotmail.com (ZIFA-CHWAKA) 1

Presented by H . B . Hamad

BBA-YR-3.

TUNGUU

hamadbakar68@hotmail.com

(ZIFA-CHWAKA)

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Introduction

Introduction  Management audit is a tool of mgt control  It is like a periodical
Introduction  Management audit is a tool of mgt control  It is like a periodical

Management audit is a tool of mgt

control It is like a periodical medical check of the business to ensure sound and healthy growth of the business.

It covers every activity of the

business operation. ( planning, organization and controlling)

X-ray

of business

X-ray of business hamadbakar68@hotmail.com (ZIFA-CHWAKA) 3
X-ray of business hamadbakar68@hotmail.com (ZIFA-CHWAKA) 3
X-ray of business hamadbakar68@hotmail.com (ZIFA-CHWAKA) 3
X-ray of business hamadbakar68@hotmail.com (ZIFA-CHWAKA) 3
X-ray of business hamadbakar68@hotmail.com (ZIFA-CHWAKA) 3
X-ray of business hamadbakar68@hotmail.com (ZIFA-CHWAKA) 3
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Introduction (con’t)

Introduction (con’t )  Mgt audit is forward looking and dynamic in its nature.  It
Introduction (con’t )  Mgt audit is forward looking and dynamic in its nature.  It

Mgt audit is forward looking and

dynamic in its nature.

It is result oriented rather than

procedural

It is both preventive and curative (healing)

It detecting and diagnosing the existing troubles

It suggests ways and means to avoid

possible danger

Introduction (con’t)

Introduction ( con’t)  It is not concerned with post-mortem of the business activity, it is
Introduction ( con’t)  It is not concerned with post-mortem of the business activity, it is

It is not concerned with post-mortem

of the business activity, it is future

looking

Mgt auditor works as friend, guide

and philosopher to the business and not like a spy

Mgt auditor has:

To evaluate the effectiveness of the corporate structureto the business and not like a spy  Mgt auditor has: Corporation and coordination btw

Corporation and coordination btw different executives ofhas: To evaluate the effectiveness of the corporate structure the business . hamadbakar68@hotmail.com (ZIFA-CHWAKA) 6

the business.

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Introduction (con’t)

Introduction (con’t)  Mgt auditor has:  To check economical utilization of the funds of the
Introduction (con’t)  Mgt auditor has:  To check economical utilization of the funds of the

Mgt auditor has:

To check economical utilization of the

funds of the business

Check marketing and manpower mgt policies of the business

To check contribution and well-being

of the society.

Definitions

Definitions A mgt audit is a comprehensive examination of an organization in order to assess efficient
Definitions A mgt audit is a comprehensive examination of an organization in order to assess efficient

A mgt audit is a comprehensive examination

of an organization in order to assess efficient use of:

resources and program effectiveness.

to see how well the business is meeting its standards.

may address the organizational structure,

finances, or general management and may be broad or narrow in scope

Definitions con’t

Definitions con’t  The mgt audit focuses on results, evaluating the effectiveness and suitability of controls
Definitions con’t  The mgt audit focuses on results, evaluating the effectiveness and suitability of controls

The mgt audit focuses on results,

evaluating the effectiveness and suitability

of controls by challenging underlying rules,

procedures and methods.

Mgt audits, which are generally performed

internally, are compliance audits plus cause-and-effect analysis.

When performed correctly, they are

potentially the most useful of the evaluation methods, because they result in

change

Definitions con’t

Definitions con’t  Compliance audits check on the implementation of written manuals, procedures and work
Definitions con’t  Compliance audits check on the implementation of written manuals, procedures and work

Compliance audits check on the

implementation of written manuals, procedures and work instructions.

The application of a compliance audit

results in stability and assurance that rules are being followed

Definitions con;t

Definitions con;t 1. The mgt auditor is principally concerned with the examination of management’s ability to
Definitions con;t 1. The mgt auditor is principally concerned with the examination of management’s ability to

1. The mgt auditor is principally

concerned with the examination of management’s ability to supervise

the activities of the client, including

its dynamism and flexibility with the changing operating environment, taking advantage of opportunities arising in the course of business

operations.

Definitions con’t

Definitions con’t Management audit typically assesses a broad range of management functions:  decision-making and
Definitions con’t Management audit typically assesses a broad range of management functions:  decision-making and

Management audit typically assesses a

broad range of management functions:

decision-making and evaluation processes,

policy-making,

resource allocation,

communication procedures, and

goal setting and verification.

The audit can also examine the business’s work environment, improvement process, and

relationship with the community.

Definitions con’t

Definitions con’t  Social audit is independent appraisals of corporate performance in the social sphere with
Definitions con’t  Social audit is independent appraisals of corporate performance in the social sphere with

Social audit is independent appraisals of

corporate performance in the social sphere with a view to testy the correctness of

published statement of reports regarding its

social activities.

Social audit provides for the protection of

the interest of the various stakeholders of

the society- consumers, employees, investors and in fact all those who are affected by decisions of the company

Objectives of the mgt audit

Objectives of the mgt audit  The objective of mgt auditing is to 1. appraise, evaluate,
Objectives of the mgt audit  The objective of mgt auditing is to 1. appraise, evaluate,

The objective of mgt auditing is to

1. appraise, evaluate, and advise clients on how best they should operate their business, including the means to get competitive

advantages over competitors and the ability

for the client to capture new opportunities.

a complete surgery of the client and a critical

study of the operating environment.

The auditor’s competence may be dictated by the background training and education receive and the fundament philosophy of the audit

firm it self

Objectives con’t

Objectives con’t  Objectives of the mgt audit are:  Appraise  Evaluate  Advice They
Objectives con’t  Objectives of the mgt audit are:  Appraise  Evaluate  Advice They

Objectives of the mgt audit are:

Appraise

Evaluate

Advice

They can be seen into primary and

secondary objectives

Objectives con’t

Objectives con’t  Primary objectives.  Appraisal of plans and client objectives.  Appraisal of client’s
Objectives con’t  Primary objectives.  Appraisal of plans and client objectives.  Appraisal of client’s

Primary objectives.

Appraisal of plans and client objectives.

Appraisal of client’s origination

structure.

Evaluation and assessment of client’s performance and Appraisal of client’s controls of

operations.

Objectives con’t

Objectives con’t  Secondary objectives .  Advising a client on social welfare values in what
Objectives con’t  Secondary objectives .  Advising a client on social welfare values in what

Secondary objectives.

Advising a client on social welfare values in what may be termed as social audit.

This type of audit involves the examination of the

client’s role in the development of social values and

the welfare of the society within the vicinity. It covers evaluation of client’s programme for disposal and management of waste, prevention of pollution and environmental degradation, care for the handicapped,

contribution towards alleviation of health, poverty, illiteracy, and social hazards

Mgt audit process

Mgt audit process 1. Identifying management objectives 2. Determining current facts & conditions that
Mgt audit process 1. Identifying management objectives 2. Determining current facts & conditions that

1.

Identifying management objectives

2.

Determining current facts & conditions that reflect these objectives

3.

Defining problems & pointing out

improvement opportunities

4.

Presenting findings to the board of

director.

Distinction btw statutory and

management audit

Distinction btw statutory and management audit   statutory management Nature audit Legally compulsory old
Distinction btw statutory and management audit   statutory management Nature audit Legally compulsory old
 

statutory

management

Nature

audit Legally compulsory old and well developed, usual regular and continuous, needs absolute precision,

is Voluntary and contractual, new and developing, periodical, depending upon needs of management,

immediate benefit to

needs relative precision in

business

the long run.

Objective

Check on management to certify truth and fairness or records.

Aid to management to review organizational structure and control

procedures

Need

Legal requirement

mgt audit, Arises out of

business exigencies

Distinction btw statutory and

management audit….

 

statutory

management

 

Accountability

Answerable to

Answerable to

shareholders

management

Independence

Outside the circle of management

Operates from within the circle of management

Qualification

Accountant expert,

an all rounder,

independent and honest CPA

knowledge and expertise, any one with good commonsense

report

 

there is no standard

 

The report of stat.

format for reporting

audit is always brief and in a standardized format.

management audit. The report is always detailed and

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Management consultancy

Management consultancy  Examination of business healthy by specialist. i.e independent auditor with the view of
Management consultancy  Examination of business healthy by specialist. i.e independent auditor with the view of

Examination of business healthy by

specialist. i.e independent auditor with the view of making

recommendations to facilitate and to

promote its more efficient working. It concern with specific problem in business Does not cover the entire mgt area

Management consultancy ( con’t)

Management consultancy ( con’t) MGT AUDIT  Institutional or individual oriented  Overall review of all
Management consultancy ( con’t) MGT AUDIT  Institutional or individual oriented  Overall review of all

MGT AUDIT

Institutional or individual oriented

Overall review of

all managerial policies,

procedures and

actions

MGT CON’Y

Problem oriented.

Dealing with

specific problems

and their solutions.

Casual and adhoc

External experts.

Periodical but

regular

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Internal experts

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Approaches of mgt consultancy

Approaches of mgt consultancy 1. Purchase of expertise model 2. Doctor-Patient model 3. Process consultation model
Approaches of mgt consultancy 1. Purchase of expertise model 2. Doctor-Patient model 3. Process consultation model

1. Purchase of expertise model

2. Doctor-Patient model

3. Process consultation model

Source:Mhilu,2002. p. 312-313

Purchase of expertise model

Purchase of expertise model  The client defines the need and conclude that the organization has
Purchase of expertise model  The client defines the need and conclude that the organization has

The client defines the need and

conclude that the organization has neither the resources nor the time to

fulfill the need.

This approach can work well if:

Client has correctly diagnosed its needs

Client has correctly communicated those needs to the auditor

The client has accurately assessed the ability of the

auditor to provide the required services.

Doctor-Patient model

Doctor-Patient model  The auditor is brought into the organization to find out what is wrong
Doctor-Patient model  The auditor is brought into the organization to find out what is wrong

The auditor is brought into the

organization to find out what is wrong with which part of the organization

and then prescribes the remedial

measures.

The client has accurately identified what is the problematic part

of org.

The client accurately reveals information about the sickness

The client accept and believes in the diagnosis that the auditor has arrived at.

The client(patient) accepts and implement what the auditor recommends

Process consultation model

Process consultation model  The auditor intends to give the client insight into what is going
Process consultation model  The auditor intends to give the client insight into what is going

The auditor intends to give the client

insight into what is going on around her and within the organization and btw the

client and other organization.

Then the client will be able to figure out what should be done.

This is like a counseling aimed at

improving the business operation taking into account the external environments

Objectives of mgt audit

Objectives of mgt audit Appraisal of objectives and plans Depends on the auditor’s experience but the
Objectives of mgt audit Appraisal of objectives and plans Depends on the auditor’s experience but the

Appraisal of objectives and plans

Depends on the auditor’s experience but the following used a yardstick.

Evaluating objectives.

Objectives are clear and

understandable?

No major part of objectives omitted?

Are in due to coy’s responsibility to

shareholder, employees, community

and government.

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Objectives of mgt audit

Objectives of mgt audit Evaluating plans  Are the plans compatible with the related objectives 
Objectives of mgt audit Evaluating plans  Are the plans compatible with the related objectives 

Evaluating plans

Are the plans compatible with the

related objectives

Improve coordination btw various objectives

Anticipate trouble spots

Flexible to allow changes to be accommodated

Objectives of mgt audit

Objectives of mgt audit Appraisal of client’s organization structure  The coy’s organization structure is part
Objectives of mgt audit Appraisal of client’s organization structure  The coy’s organization structure is part

Appraisal of client’s organization

structure The coy’s organization structure is part of the means by which mgt controls the enterprise's operation.

It include assignment of duties and

responsibilities and delegation of authority.

Objective of mgt audit

Objective of mgt audit Appraisal of client’s organization plan  Is it in harmony with the
Objective of mgt audit Appraisal of client’s organization plan  Is it in harmony with the

Appraisal of client’s organization plan

Is it in harmony with the objectives of

the company, division , department

or unit.

Established lines of responsibility

from top to bottom

Spans of mgt

Objectives of mgt audit

Objectives of mgt audit Evaluating and assessment of client’s performance It depends on auditor experience on
Objectives of mgt audit Evaluating and assessment of client’s performance It depends on auditor experience on

Evaluating and assessment of client’s

performance

It depends on auditor experience on client

operation,

He can hire outside expert if the nature of operation in outside his scope

But mostly he will pay attention on:

Personnel, workload, productivity, quality, cost

Evaluating and assessment of

client’s performance

Evaluating and assessment of client’s performance  Personnel: Apply qualitative approaches to work force Thing like:
Evaluating and assessment of client’s performance  Personnel: Apply qualitative approaches to work force Thing like:

Personnel:

Apply qualitative approaches to work

force

Thing like: no. of employee, personnel turnover, total regular hours worked,

total overtime hours, ratio of regular

hours to overtime hours, ratio of direct to indirect employees

Evaluating and assessment of

client’s performance

Evaluating and assessment of client’s performance  Work load: Auditor check on volume of work handled,
Evaluating and assessment of client’s performance  Work load: Auditor check on volume of work handled,

Work load:

Auditor check on volume of work

handled, volume of new work, the

amount of completed work, Kind of qualitative data to use:

Order received, stores requisitions,

payroll checks prepared etc

Evaluating and assessment of

client’s performance

Evaluating and assessment of client’s performance  Productivity: Auditor uses quantitative measurements to relate
Evaluating and assessment of client’s performance  Productivity: Auditor uses quantitative measurements to relate

Productivity:

Auditor uses quantitative measurements

to relate unit produce to work done.

Man-hours per customer job, etc

Evaluating and assessment of

client’s performance

Evaluating and assessment of client’s performance  Quality: Auditor used quantitative approaches to determine how
Evaluating and assessment of client’s performance  Quality: Auditor used quantitative approaches to determine how

Quality:

Auditor used quantitative approaches to

determine how well the job done

Data used: no. of complain from customers, no. of error per customer

bill produced. No of typing error per

100 words. No of rejections

Evaluating and assessment of

client’s performance

Evaluating and assessment of client’s performance  Costs: Needed for decision making Data used: labour costs,
Evaluating and assessment of client’s performance  Costs: Needed for decision making Data used: labour costs,

Costs:

Needed for decision making

Data used: labour costs, materials

costs, administration costs,

It depends on auditor's intelligence on

how to look data cost in relation to

management

Appraisal of controls

Appraisal of controls Examine and report directly on the control in uses Checks controls deficiency resulting
Appraisal of controls Examine and report directly on the control in uses Checks controls deficiency resulting

Examine and report directly on theAppraisal of controls control in uses Checks controls deficiency resulting improper accumulation of the data Improve

control in uses

Checks controls deficiency resulting improper accumulation of the datacontrols Examine and report directly on the control in uses Improve controls better reports in future

Improve controls better reports indeficiency resulting improper accumulation of the data future Targeting long-time rage mgt controls

future

Targeting long-time rage mgt controlsimproper accumulation of the data Improve controls better reports in future hamadbakar68@hotmail.com (ZIFA-CHWAKA) 39

Corporate analysis

Corporate analysis To check both competition and risk on business environmental changes What are the factor
Corporate analysis To check both competition and risk on business environmental changes What are the factor

To check both competition and risk on

business environmental changes What are the factor give client competitive edge over its rivals

Client’s policies in giving value to

customers

Used techniques: industry analysis, environment situation and SWOT

Corporate analysis

Corporate analysis Examine competition in the industry, bargaining power of client’s suppliers, bargaining power of
Corporate analysis Examine competition in the industry, bargaining power of client’s suppliers, bargaining power of

Examine competition in the industry,

bargaining power of client’s suppliers, bargaining power of buyers, threat of

new entrance and substitutes.

Corporate analysis

Corporate analysis  Environmental analysis: Examine client’s policy of responsiveness to the political, economical,
Corporate analysis  Environmental analysis: Examine client’s policy of responsiveness to the political, economical,

Environmental analysis:

Examine client’s policy of

responsiveness to the political,

economical, social and technological

situation exiting at present.

Corporate analysis

Corporate analysis  SWOT analysis:  Is technique to pinpoint strength and weakness in the client’s
Corporate analysis  SWOT analysis:  Is technique to pinpoint strength and weakness in the client’s

SWOT analysis:

Is technique to pinpoint strength and weakness in the client’s internal

operating capabilities and search for

new business opportunities and the related threats.

Selection of new strategic to take,

depends on environmental, SWOT and financial modeling

Plan for mgt audit

Plan for mgt audit  Organizational approach  Functional approach hamadbakar68@hotmail.com (ZIFA-CHWAKA) 44
Plan for mgt audit  Organizational approach  Functional approach hamadbakar68@hotmail.com (ZIFA-CHWAKA) 44

Organizational approach

Functional approach

Steps in mgt audit

Steps in mgt audit  Familiarization  Verification  Evaluation and recommendations  reporting
Steps in mgt audit  Familiarization  Verification  Evaluation and recommendations  reporting

Familiarization

Verification

Evaluation and recommendations

reporting

end

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