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Friday, September 18, 2020

Difference between Financial Audit and Management Audit | Auditing Important Topics | Auditing and Assurance

Difference Between Financial Audit and Management Audit

Present business world is very competitive. In order to survive in the market, not only innovative ideas are necessary but also proper maintenance and verification of accounts is necessary so that business man will be fully aware of their operating efficiency and financial position. There are various types of audit which are conducted by management as per their need but in common parlance “Audit” means “Financial Audit” which is compulsory for every company registered under the Indian Companies Act’ 2013.

What is Financial Audit?

Financial audit is the scientific and systematic examination of the books, accounts, vouchers and other financial records that will help the auditor to give opinion regarding true and fair view of the state of affairs of the business and to verify that profit and loss account reflects a true and fair view of profit or loss for the financial year. Financial audit is compulsory in Case of companies registered under Companies Act, 2013.

What is Management Audit?

Management audit is a method of independent and systematic evaluation of the management activities at .all levels of management to ascertain the functions, efficiency and achievement of' the management (i.e. policies) as compared to standards set by the company.

According to L. R. Howard, "Management audit is an investigation of business from the highest level downward in order to ascertain whether sound management prevails throughout, thus facilitating the most effective relationship with outside world and smooth running of internal organization."

From the above explanation, we got the following differences between Financial Audit and Management Audit.:

Financial Audit

Management Audit

Financial audit is the scientific and systematic examination of the books, accounts, vouchers and other financial records that will help the auditor to give opinion regarding true and fair view of the state of affairs of the business and to verify that profit and loss account reflects a true and fair view of profit or loss for the financial year.

Management audit is a method of independent and systematic evaluation of the management activities at all levels of management to ascertain the functions, efficiency and achievement of the management (i.e. policies) as compared to standards set by the company.

 The scope of financial audit is given in the company's act, 2013. This audit is only relating to financial transactions, so its scope is limited.

 The scope of management audit is to assess the efficiency of the employees at all levels of management which is related to production, marketing, finance, human resources, sales etc, so its scope is larger than financial audit.

The person who conducts financial audit must have professional qualification, knowledge, skill, ability and expertise in the field of financial accounting except in some cases where he may not be a Chartered Accountant.

The person who conducts management audit should have a strong background in different subjects and expertise in different fields in addition to financial matters.

Financial' audit generally starts after the close of the financial year and after' making all accounts ready.

Management audit may be conducted at any time depends on the needs and circumstances.

Financial auditor gives opinion regarding true and fair view of the financial position of the organisation.

Management auditor makes assessment of the overall efficiency at all levels of management and gives suggestions for improvement.

Financial audit is compulsory in Case of companies registered under Companies Act, 2013.

Management audit is not compulsory. It depends upon the need of management.

 

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