Why Management Audit is Necessary

The question why is management audit necessary is clearly a very practical question. It is necessary for the covetable purpose it serves, for attainment of its accomplished objectives for the benefit of the, business. Every science developed because our needs required so. it is a need-based normative discipline in auditing by imbibing the managerial behaviour—to check whether the public funds were utilized according to the pre-determined rational and economic objectives of the company.

It poses some questions about the potentialities and capabilities of persons with whom the fund of the business has been husbanded—the managers. The question is—Are they competent enough? Are they honest towards achieving objectives of enterprise? Are they aware of the facts that the monetary resources employed yield adequate return? Anything which questions the capabilities of persons who are at the helm of affairs of a business enterprise, comes under the review of management audit.

That is, management audit is not concerned with the profit and loss figures of a company, it concentrates upon the performance of management whether the performance is according to standard laid down by the management team. Because, in the present situations, the ownership of companies is widely spread over many shareholders, a large number who hold a small proportion of equity capital, such shareholders should see the prospect of the ownership of the company by varied views. The typical statements on revenue and financial position are too inadequate to reflect the real efficiency of the management. These statements contain such information which are capable of financial quantification. But the factors of top importance, primarily the efficiency, the structure of management, the system of controls, etc. cannot be quantified in monetary terms and, therefore, are not revealed in these statements. Management audit goes into the root.

It can well assess the weaknesses or deficiencies of management or the loopholes in management process and suggest remedial or reformative measures. Management audit is never punitive but reformative. It has been argued that since management decisions will be subject to a critical review by an independent management auditor, management audit would act as a deterrent to the initiative and innovative drive of the managers and thus would serve no useful purpose. The argument is untenable. The purpose of management audit is not `fault-finding’ and bringing the managers to book. A Management auditor is appointed not to criticise management polices and decisions. His duty is essentially to make a review of the Performance of management and, if any discrepancy is found between Performance and targets determined, suggest ways and means for improvement. Management audit is thus a tool in the hands of management for making improvement in managerial performance. It makes managers result-oriented and hence cannot curb initiative and dynamism of management.

Updated: July 24, 2019 — 7:06 am

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