Management Audit

What Is a Management Audit?

A management audit is an analysis and assessment of the competencies and capacities of a company's management in carrying out corporate objectives. The purpose of a management audit isn't to evaluate individual executive performance however to assess the management team in its effectiveness to work in the interests of shareholders, keep up with great relations with employees, and uphold reputational standards. It is important to stress that the management audit evaluates the overall management of the company, not the performance of individual managers.

How a Management Audit Works

A company's board of directors doesn't have a conventional management audit committee. All things being equal, board individuals sit on the compensation committee and survey the performance of individual executives utilizing quantitative data (organic sales, EBIT edges, segment edges, operating cash flows, and EPS) and unquantifiable or immaterial components (e.g., efforts toward acquisition integration).

The board of directors will hire an independent consultant to conduct a management audit. The scope of the audit might be narrow, yet generally speaking, it is extensive including many key parts of the obligations of a management team. A management audit could address such inquiries as the accompanying:

• What organizational structure has been set up by management? Are there clear lines of reporting or is there confusion?
• What are the policies and procedures of the finance group, and is it generally in compliance?
• How effective are current risk management measures?
• What is the state of relations among the employees of the organization?
• How does management put together its annual budget?
• Are the company's IT systems stayed up with the latest?
• Is the management group receptive to shareholders?
• How effective is labor force enlistment and retention? Are there training programs to keep skills current among employees?
• Is management taking care of its business to guarantee the company is a "great corporate resident"?
• Is management decisively directing the company toward its financial targets?

Fast Fact

Management audits are frequently conducted before mergers, restructurings, liquidations, and succession planning; they can recognize shortcomings in a company's management.

Contingent upon the scope of the exercise, a management audit could require weeks or months. The audit result would look like a report card with high checks in areas where the management team succeeds and lower marks where improvements could be made. The board would think about these suggestions and constrain changes, any place essential, similarly that the management team runs the company.

Executing a Management Audit

The goal of a management audit is to distinguish the shortcomings of the management team. The audit is most frequently carried out on a companywide basis yet it can likewise be isolated to certain business segments. The goal is consistently to figure out how effective management is and where it can get to the next level.

Areas that a management audit will cover however are not limited to incorporate human resources, marketing, research and development (R&D), budgeting, operations, finance, data systems, and corporate structure.

The management audit will comprise of meetings with management and employees, an analysis of financial statements and performance, a study of a company's policies and procedures, an evaluation of training programs, the hiring system, and numerous different areas inside an organization.

At the point when the audit is complete, the outside audit company won't just give its discoveries however will most frequently give a whole plan to the board of directors to execute so the company can operate at an optimal level.

Rather than a internal audit, which is carried out by the internal audit department of a company, a management audit is conducted by outside companies with specific mastery. Notable companies that conduct management audits incorporate McKinsey and Company, Bain and Company, and the Boston Consulting Group.

Highlights

• When a management audit is complete, the outer audit company will give a whole plan to the board of directors to execute to effect change.
• A management audit is an assessment of how well an organization's management team is applying its strategies and resources.
• A management audit doesn't assess individual managers yet rather the overall management of the company in its ability to accomplish its goals.
• A management audit assesses whether the management team is working in the interests of shareholders, employees, and the company's reputation.
• The board of directors will hire independent consultants to conduct the management audit as opposed to utilize the company's internal audit team.