Management audit is a process of examining the performance and managerial efficiency in the organization. It evaluates the performance of all levels of management and helps to find out the deficiencies and defects. It provides proper suggestions and guidance for maintaining better organizational structure that helps to achieve organizational goals and objectives. Financial audit is a process of analyzing the financial affairs of the firm. It helps to detect the errors and frauds in the book of accounts. It reports the financial performance (profit or loss and financial position) of the business. It is helpful for the management to make future financial plans and policies.
Difference Between Management Audit And Financial Audit
The major dissimilarities or difference between management audit and financial audit can be highlighted as follows:
1. Introduction
Management Audit: It is an act of evaluating and analyzing the efficiency of each level of management such as decision making power, employee relation and competencies of management.
Financial Audit: It is an act of examining and analyzing company's financial aspects such as financial statements, vouchers and books of accounts to ensure the accuracy and validity.
2. Nature
Management Audit: It is qualitative in nature because it evaluates non-financial aspects of the firm.
Financial Audit: It evaluates only financial aspects of the business. So, it is quantitative in nature.
3. Compulsion
Management Audit: It is not compulsory to conduct management audit.
Financial Audit: Every manufacturing and mining companies should conduct financial audit.
4. Objective
Management Audit: The main objective of management audit is to measure effectiveness, quality of decision making and executive performance of management.
Financial Audit: The main objective of financial audit is to ensure arithmetical accuracy and fairness of books of accounts of the company.
5. Useful For
Management Audit: It is useful for top level management and proprietors to measure actual performance with predetermined standards.
Financial Audit: It is useful for shareholders and investors to know the financial position of the company.
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6. Performed By
Management Audit: It is performed by a team of employee and independent consultant appointed by the management.
Financial Audit: It is performed by a professional chartered accountant.
7. Conducting Period
Management Audit: It can be conducted at any time as per the need or wish of the company.
Financial Audit: It is conducted at the end of accounting period after the preparation of financial statements.
Management Audit Vs Financial Audit (Comparison Chart)
Basis
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Management Audit
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Financial Audit
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Introduction
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Act of evaluating performance of each level of management
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Act of evaluating the correctness of the books of accounts of the firm
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Nature
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Qualitative
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Quantitative
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Compulsory Or Not
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Not compulsory
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It is compulsory
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Objective
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To measure the strength or weakness of management
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To ensure the arithmetic accuracy of the books of accounts
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Useful For
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Management or proprietors
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Shareholders or investors
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Conducted By
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Team of employees and consultant
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Professional chartered accountant
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Period
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As per the need of the company
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At the end of accounting period.
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Distinction Between Management Audit And Financial Audit In Short:
- Management audit evaluates the operational efficiency, but financial audit evaluates the financial records of the business.
- Management audit finds out the weakness and deficiencies of organizational procedures and processes, financial audit detects the errors and frauds in the accounting process.
- Management audit can be performed as per the wish of the top level management. But Financial audit should be conducted after the preparation of financial statements at the end of the financial year.
