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MANAGEMENT AUDIT Other names Operational audit Organizational audit Technical audit Efficiency audit Meaning Examination of managements operation Supervision of activities of the client Dynamism and flexibility of changing environment Opportunities grasping 1 Sako Mayrick - APT

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Post on 22-Jan-2015




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Management audit is a total surgery of an organisation. It diverts from the traditional financial audit and focuses on the objectives, plans, organisational structure and the right business strategy. It is of interest to the practioners and students to understanding of technical issues covering the business operation. It actually focuses on the Value for Money Audit Methodology.


    • Other names
    • Operational audit
    • Organizational audit
    • Technical audit
    • Efficiency audit
  • Meaning
    • Examination of managements operation
      • Supervision of activities of the client
      • Dynamism and flexibility of changing environment
      • Opportunities grasping


  • It considers
    • Policies and procedures in operation
    • Future plans
    • Previous trends
    • Discharge of fiduciary responsibility
    • Responsiveness to stakeholders interests
    • Use of resources
    • Opportunities
    • Furtherance of organizational objectives
    • Efficiency, economy and effectiveness of operations

Sako Mayrick - APT 3. Management audit

  • Objectives
    • Appraisal of Plans and clients objectives
    • Appraisal of clients organizational structure
    • Evaluation and assessment of clients performance
    • Appraisal of clients control of operations

Sako Mayrick - APT 4. Management Audit appraisal of objectives and plans

  • Evaluating of objectives
    • SMART
    • Sufficient and reasonable
      • Reflects company responsibilities
      • Compatible
      • Communicated
      • Easily understood
      • Rigid

Sako Mayrick - APT 5. Management Audit appraisal of objectives and plans

  • Evaluating plans
    • Compatible with objectives
    • Anticipates trouble spots
    • Flexiblefor efficiency
    • Permits delegation of responsibility
    • Supports uniformity
    • Communicated
    • measurable

Sako Mayrick - APT 6. Management Audit appraisal of clients Organisational Structure

  • It is a means formanagement control of operations
  • Includes assignment of duties and responsibilities together with delegation
  • Organisation structure in harmony with objectives
  • Structure comensurate with responsibility
  • Spans of management
  • Unity of command
  • Proper balance of functions
  • Simple and economical

Sako Mayrick - APT 7. Objectives of MA Evaluation and Assessment of clientsperformance

  • Possibility of getting an expert support
  • Issue is to measure efficiency, economy and effectiveness
  • Issues
    • Personnel- staffing, turnover, qualification of employees, working conditions, overtime
    • Workload -volume of work,customers, payroll check, productivity levels, backlog, critical maintenance
    • Productivity - units expended/units produced, past performance, mechanization , man-hour per customer,
    • Quality expectation/performance,improvement, work methods
    • Cost-labor costs, material costs, administrative costs, equipment costs, trends, necessity of activities. Forecast, variance, cost conscious,

Sako Mayrick - APT 8. Objectives of MA Appraisal of Control

  • Administrative controls of operations to accomplish management objectives or plans of operation
  • Information and assurance to management on adequacy and effectiveness of controls, not only at the time of audit but also for the future
  • The purpose is not cost control but procedural compliance
  • For example, procurement system

Sako Mayrick - APT 9. MA Corporate Analysis

  • Study of clients business in view of both competition and changing business environment.
  • Clients exploration of strategic core assets for competitive edge e.g. brand name, technology, research and development, financial and capital structure, product costing and pricing policies, managerial skills, production systems and communication
  • Synergy of the above
  • Competitive edge over rivals

Sako Mayrick - APT 10. MA Corporate Analysis

  • Value chain analysis how the policies giver value to the customers e.g. marketing , logistics; cost and marketing strategies
  • Examine high input cost of marketing strategies to determine grey areas
  • Examine pricing policy for value adding to customers, margins for covering operational costs
  • Analysis of overall clients business strategy, SWOC analysis and environmentalf analysis

Sako Mayrick - APT 11. MA Corporate Analysis Industry Analysis

  • Competition in the industry, bargaining power of clients suppliers, buyers,
  • Threat of new entrants,
  • Threat of substitutes
  • Purpose is to determine level of competitiveness of rivalry and competitors

Sako Mayrick - APT 12. MA Corporate Analysis Environmental Analysis

  • PEST analysis
    • Trade barriers,
    • Business trends recession, boom and per capital incomes, market demand and supply conditions
    • Price sensitivity
    • Product taste, branding, relationship with local society
    • Technological analysis modern technology and impact on current business.

Sako Mayrick - APT 13. MA Corporate Analysis SWOT Analysis

  • SW Internal operating capabilities
    • Competitive edge
    • Minimizing weaknesses
  • OT- External
    • Entrepreneurship skills
    • Threats are killer missions therefore clients must have strategies e.g. interpersonal skills to manage uncertainties
  • SWOC and PEST Analysis results into new strategydevelopment through financial modeling (NPV, IRR and cash flow)
  • The new strategy must be able to change with changes of environment.

Sako Mayrick - APT 14. MA - Approaches

  • Organizational approach
    • Administrative structures
    • Framework of the organization staffing, reporting , personnel evaluation, budgets
    • Microcosm picture of company structure and study it from many angles
    • Concentration of administrative activities ratherthan product
  • Functional approach
    • Following up major activities from inception to conclusion,
    • Less concerned with adminstration
    • It is more complex with long and devious trail

Sako Mayrick - APT 15. MA - Steps

    • Familiarization
      • Discussions with knowledgeable people about the organization activities, performance evaluation, reporting
      • Walkthrough the departments or follow function
      • Objectives and their implementation
      • Examine organizational structure
      • Review of policies and procedures
      • Review of records generated
      • Performance appraisals
    • Familiarization leads to development of workable audit program

Sako Mayrick - APT 16. MA - Steps

    • Verification
      • Controls functioning through sample transaction
        • Internal checks
        • Documented vs Actual controls
        • Standards of performance
    • Evaluation and Recommendations
      • Audit tests of initial survery
      • Recommendations based on facts not feeling
      • Consider all factors affecting operation
        • Effectiveness of operation
        • Deviations form procedures
        • Structure of accounts, records and repors

Sako Mayrick - APT 17. MA - Steps

    • Evaluation and Recommendations
      • Risks and loss
      • Technical issues to be recommended to management
    • Reporting
      • No reservations
      • Minor matters should be cleared through discussion
      • Lower matters to be discussed with the lowest cadre in mgt
      • The auditor should note that the responsibility of correcting defects ultimately rests with operating management.

Sako Mayrick - APT 18. Past Examination May 2010

  • Management audits involve the investigation of the entire management to ascertain the decision making process of the top management and such it is kind of overhaul of the companys top management to ascertain attitudes towards the internal control system and also personal relations with employees and their ability to manage an efficient and viable company.
  • (a) Explain the conditions under which these audits are ideal(4 marks)
  • (b) Explain the advantages of Management audits(8 marks)
  • (c) Describe the disadvantages of Management audits (8 mark) (Total =20 marks)

Sako Mayrick - APT