Various types of Audits and their comparison Particulars Financial Audit Cost Audit Efficiency Audit Internal Audit

Management Audit

1 Definition

involves the examination and verification of financial statements prepared by a company by an outside chartered accounting firm

involves the verification of cost records and cost accounts

efficiency audit concerns whether the capital employed is being used efficiently. the main purpose is to ensure that (i) there is optimum utilisation of capital, and (ii) investment is channelised in most profitable lines

in addition to the outside accounting, most large organisations have an internal audit carried out by their internal audit department.

management audit is a comprehensive and constructive review of management methods and performances

Tasks carried 2 out under the audit

assessment of the Statutory audit: review, following: (a) examining and examine and appraise the (i) (i)return on capital, verifying financial cost accounting records, (ii) (ii)capacity utilisation, statements (b) additional information (iii) optimum appraising the required to be maintained for utilisation of men, procudures for specific industries; Nonmachines, and collecting, recording, statutory audit: review, materials, (iv) export and reporting examine and appraise the performance and financial information cost accounting records as import substitution, required by the management (v) liquidity position, (vi) payback period

assessment of the following: (i) Objectives Audit -setting of objectives, (ii) procedures audit, (iii) system audit, (iv) organisation audit, (v) review, examine, personnel audit, (vi) appraise, and recommend the following operations audit, (vii) : (i) internal controls, (ii) commercial audit purchases, imports, compliance with established policies, (iii) exports, (viii) marketing extent to which company audit, (ix) accounts and assets are safeguarded, financial audit, (x) performance audit (iv) improvement in operations not statutory not statutory

statutory for all Statutory/ Non- limited companies to 3 undergo financial statutory audit outside Chartered Who carries out Accountant 4 appointed by the the audit? shareholders

cost audit could be statutory or voluntary

not statutory

may be carried out by an cost audit team from management audit team internal audit team from outside cost accounting firm within the from within the within the organisation or an internal cost accountant organisation organisation

the accounts have to be in line with the Any specific accounting standards points for 5 as prescribed by the carrying out the Institute of Acartered audit Accountants of India (ICAI)

Non-statutory cost audit is carried out to help the management in understanding the costs in great detail and thereby help in framing policies for cost reduction or pricing of the products. Statutory cost audit is a form of statutory compliance; this also often helps to compare the company's costs with that of the industry.

internal aiudit brings out many irregularities that happen within the organisation, which may not come to be noticed Efficiency audit forms by outsiders. The internal an important part of auditor, who is an management control employee of the company systems with many years of experience in the set-up, is in a better position to identify any malpractices going on in the organisation.

management audit forms an important part of management control systems

Enhances the credibility of financial How does the reports, increases audit benefit the 6 relaibility and company or usefulness for making others? economic decisions by invetors, creditors, analysts. prepared by the company

Benefits are mainly to the management, which indirectly get translated into benefits for the employees, investors, creditors and analysts. However, the cost audit details are not available to employees, investors, creditors, analysts, as in the case of financial audit

Benefits are mainly to the management, which indirectly get translated into benefits for the employees, investors, creditors and analysts.

management audit does a comprehensive assessment internal audit helps the of the organisation and company in cleansing any helps the management to malpractices or any identify and rectify any internal deficiencies in shortcomings in the overall the current operations management of the company

Any other points?

Alongwith the financial statements of the company is appended the Auditor's Report, which quailifies any irregularities and mentions them in the 'Notes to Accounts'.

cost audit is mainly a preventive measure, and acts as a guide to management policy decision (while financial audit indicates the position of the accounts as they are)

Efficiency audit forms an important part of management control systems

internal audit brings out many internal issues of the organisation, and is an ongoing process of improvising the internal systems in a company

management audit forms an important part of management control systems

8 Any failures?

Not likely since the nonstatutory cost audit is carried out at the instance of the Yes. Glaring failures management. Statutory audit are Enron (auditor also does not receive the kind Arthur Andersen), of attention which the Satyam (auditor PwC) financial audit receive. Hence, failures, if any, do not receive the attention as in financial audits.

not applicable since efficiency audit is carried out at the behest of the management to help them in checking out the efficiency of utilisation of capital

not applicable since internal audit is carried out at the behest of the management to help them in checking out malpractices within the orgaisation.

not applicable since management audit is carried out at the behest of the management to help them in making a comprehensive assessment of the management