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A management audit is an independent look at the things managers do at different levels of management to figure out what they do, how well they do it, and what they have accomplished. A cost audit, on the other hand, is the process of confirming the cost of production based on the records that a company keeps of how much it spends on materials, labor, and other costs.
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‘Independent’ means that the opinion that an auditor expresses is not subordinate to the wishes of the party that appointed him. So, he does not follow the instructions of any such party while giving his opinion on the examination performed.
In this content, we will enlighten you on all the points of difference between a cost audit and a management audit.
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BASIS FOR COMPARISON | COST AUDIT | MANAGEMENT AUDIT |
Meaning | A cost audit is a thorough check and examination of the cost statements, data, records, and systems to make sure they are correct. | Management Audit means that the whole company is looked at to evaluate its policies, plans, and management structure to see how well they work. |
Is it mandatory? | Yes, it is required for some types of businesses to do a cost audit. | No, companies don’t have to do a management audit if they don’t want to. |
Auditor’s Qualification | The person must be a practicing CMA. | Any independent expert, management consultant, or the company’s own internal auditor. |
Periodicity | Every financial year, it is done. | It takes place over more than one fiscal year. |
Audit Report Submission | There is a set amount of time in which the report must be turned in. | The management audit report doesn’t have to be turned in by a certain date. |
Accountability | The shareholders and the central government are responsible to the auditor. | The auditor is answerable to the company’s management. |
Objective | To figure out how reliable cost information is. | To look at how well management works so that it can be made better. |
Base | Cost statements | Managerial Activities |
Audit Techniques | Data about materials, labour, and costs are looked at and analysed. | Finds out how well the procedures and internal control systems are working and how reliable they are. |
Focuses on | Accuracy of the costing system and figuring out how much something really costs to make. | Evaluation of management’s plans and actions. |
A cost audit entails having a third party examine the cost books, statements, records, and other documents to make sure that the production costs are accurately and fairly represented. It means figuring out how well the cost accounting system works. It consists of:
Standards on Cost Auditing tells the auditor how to do his or her job and what the auditor is responsible for when it comes to cost reporting at every step of the auditing process. The report on the cost audit is sent to both the Board of Directors and the Central Government.
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A Cost Audit can be done by a practicing Cost Accountant who has been chosen by the Board of Directors. In addition, the cost auditor must follow the Standards on Cost Auditing (SCA). He or she checks to see if:
Management auditing is the process of evaluating how well management functions are being done in a systematic and independent way. In this step, the policies, procedures, operations, and programs that are part of the internal control system are looked at with a critical eye. It is a part of the internal audit, or a longer version of it.
Specifically, a management audit is an evaluation of the systems that a company’s management chooses to use and puts in place. It looks for problems with the company’s internal control and ways to make the company run better.
Its goal is to figure out how well the management is doing so that the business’s activities can be regulated, which makes it easier to reach the organization’s goals on time. Its goal is to make management work better.
You must be wondering, Why is a management audit conducted?
A company is owned by a large number of shareholders, but its operations are run by a small number of people who own a small amount of its equity. So, management audits by an independent authority are mostly done because ownership is spread out and management is set.
It is done with the hopes of:
The company is not required by law to do a Management Audit. So, the law doesn’t say that the auditor has to have these specific skills. So, the company’s board decides who will be a management auditor.
So, a management audit can be done by any expert or management consultant who is not part of the Board of Directors. But management audits can also be done by the company’s internal auditors.
Management The auditor has to give the report to the owners or managers of the company. There are no rules about how the report should be given. The auditor can make the report look however he wants and include whatever information he thinks is important. The report includes the auditor’s thoughts on things like:
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So far, we know what the two types of audits are and who does them. Now, we’ll look at how cost audits and management audits are different.
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To sum up, we could say that the goal of a cost audit is to make sure that the cost accounting data is correct, while the goal of a management audit is to look at how management works.
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