Page 262 - DCOM204_AUDITING_THEORY

Auditing Theory

Notes 12.3.11 Management Audit & Report — Presentation Transcript

According to William P. Leonard, “A comprehensive and constructive examination of an organizational
structure of a company, institution or branch of government, or of any component thereof, such as a division
or department and its use of human and physical facilities” According to Leslie. R. Howard, “Management
audit is an investigation of business from highest level downward in order to ascertain whether sound
management prevails throughout, thus facilitating the most effective relationship with the outside world
and the most efficient organization and smooth running internally.”
1. Business managed efficiently: Improvements and recommendations. Plans and
programmes executed. Increasing managerial efficiency. Effective and efficient discharge
of duties and responsibilities. Assess whether it can achieve the overall business objectives
or not.
2. Scope: The present organizational structure is reviewed in relation to current and
prospective demand of business and study must related to aims and objectives of enterprise.
It includes the study of present return on investor capital. Whether the return is adequate,
fair of poor. Management audit also requires the study of relationship of business with
shareholders and investing public in general the performance of the concern should be
compared with that of the other firms in the same field. By comparing the different ratios
we can get the comparative position of the business. The aims, objectives, duties should
also be kept in mind of the auditor. Financial planning and control also is a part of the
management audit. The reviews of the production and sales function are also an important
part of the management audit.
3. Types of information required for management audit: Objectives Planning Organization
Control Functional areas, Purchase Methods of purchase, quantities procured , problems
on procurement and discount earned etc; Production policy schedules of production, actual
quantity produced at different levels , variances in production schedule, input-output
ratios, ideal time etc; Distribution organization of sales department, budgeted sales, actual
performance, incentives offered for sales, promotional offers, effectiveness of distribution
channels etc; Personnel policy, method of recruiting and training, cost of man power,
promotion policy, appraisal policy , labor welfare activities. Finance and accounting
financial structure followed, sources of raising funds, effectiveness of raising finances,
extent of working capital needs, financial controls followed, systems of accounting,
effectiveness of cost control devices;

12.3.12 Management Reporting

“A good business report is a communication that contains factual information, organized and presented in
clear, correct and coherent language.”
—Johnson and savage.

Essentials of Effective Reporting Good Form and Content

The report should be given proper title, headings, sub-headings and paragraph divisions.
Simplicity The report should be presented in a simple, unambiguous and clear language.
Promptness in submitting a report is an essential element of a good report. The reports should
be sent at the earliest and should not be delayed.
1. Relevancy: The reports should be presented only to the persons who need them. Sometimes
the reports are sent to various departments and the secrecy will not be maintained and
expenditure will be more. Consistency There should be a consistency in the preparation of
reports. The comparability of reports will be possible only if they are consistent.

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