Sunday, June 14, 2020

Difference Between Management Audit And Financial Audit

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.
difference-management-financial-audit

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

Management Audit
Financial Audit
Introduction

Act of evaluating performance of each level of management
Act of evaluating the correctness of the books of accounts of the firm
Nature

Qualitative
Quantitative
Compulsory Or Not 
Not compulsory
It is compulsory
Objective

To measure the strength or weakness of management
To ensure the arithmetic accuracy of the books of accounts
Useful For

Management or proprietors 
Shareholders or investors
Conducted By

Team of employees and consultant
Professional chartered accountant
Period

As per the need of the company
At the end of accounting period.

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.