The latest developments which are visible in the field of auditing have made all the more conscious to prepare the auditor to adopt the techniques and procedures so as to enable him to probe more deeply and intelligently into the internal organization of a business concern than heretofore.
He is confined to examine whether the balance sheet and the profit and loss account have been properly drawn up as per the provisions of the Companies Act and that they exhibit a true and fair view of the state of affairs of the company. He can do all this as his duty of conventional routine and nothing more.
But the statutory auditor is not expected to go into the question whether the policies which have been laid down by the management are being carried out in their proper perspective and in the right direction.
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He has not to advise and suggest the management the ways and means through which the profits of the concern can be maximized and wastes avoided. Thus, he is not required to point out the changes and improvements in the system of running the business which may produce better results in future. He has no legal right to do all this.
It is very often argued that the internal auditor is bestowed with the task stated above. But in practice he is confined only to the financial aspect for the prevention and detection of errors and fraud or misappropriations and manipulations.
Undoubtedly, all the activities and operations, major or minor in nature, of the business have financial implications. For this, the financial auditing cannot serve the purpose. It cannot cover the management auditing as the management audit can prevent financial loss before it occurs, whilst the financial audit can only establish the fact that a loss has been made.
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Today, the business has become so large and complicated that most of the unhealthy situations are attributable to the basic defects of the organization. The firms of professional accountants are being called upon to render management consultancy services; the object of management consultancy services is to improve the operations of an organization. The presence of management service amounts to a practical guarantee that the work will be satisfactory. It has to offer recommendations and its job is over.
Thus, management audit is a new concept and goes beyond the conventional audit. It is actually a comprehensive and a critical review of all aspects of Management. It is concerned with the appraisal of the efficiency of Management. It can be said to be an expansion of internal audit and the idea has developed recently.