Difference Between Financial Audit and Management Audit

Running a business is tough. However, the key issue remains in examining company records, procedures and applications accuracy, integrity, and completeness, commonly referred to as audits. In any mention of the term audit, the ideology that comes to many people is financial audits. There, however, exist many different types of audits geared towards achieving various results, such as cost audits, internal audits, efficiency audits and management audits, just to name a few. All these are different in terms of the way they are carried out as well as the expected results.

What is Financial Audit?

This is a type of audit that focuses on the analysis and verification of the financial affairs of an organization through the analysis of financial records over a given period of time. Among the users of financial audits reports include shareholders, employees, investors and the government, especially for tax purposes.

While a financial audit is aimed at detecting frauds and errors in financial reporting, it also reports the actual performance in regards to financial performance. It also ensures that an organizations accounting principles are in line with the set standards. Economically, a financial audit ensures sound economic decisions are made by investors as well as shareholders. Also, it is mandatory for financial audits to be conducted by a qualified accountant. It should be noted that financial audits are statutory for all limited companies. 

What is Management Audit?

This is an audit aimed at examining the efficiency and adequacy of an organization’s operating procedures. Although it is carried out as per desires and needs of a firm, a management audit is important in examining procedures, systems & policies and identifying the weak areas, while also giving recommendations. It’s also used in the planning for future operations and evaluating performance in all operational areas.

Among the audit areas under management audits include procedures audit, personnel audit, marketing audit, performance audit, system audit, and commercial audit, just to name a few. It is carried out by a management team within the organization. Although it’s essential for any organization, a management audit is not a statutory requirement.

Similarities between Financial Audit and Management Audit

• Both are aimed at examining certain areas of operation in an organization and identifying the weak areas.

Differences between Financial Audit and Management Audit

Definition

Financial audit refers to a type of audit that focuses on the analysis and verification of the financial affairs of an organization through the analysis of financial records over a given period of time. On the other hand, management audit refers to an audit aimed at examining the efficiency and adequacy of an organizations operating procedures.

Statutory/non statutory

While a financial audit is a statutory requirement, a management audit is not a statutory requirement.

Importance

A financial audit is aimed at detecting frauds and errors in financial reporting, reporting the actual performance in regards to financial performance, ensuring organizations’ accounting principles are in line with the set standards and giving a sound economic position of an organization. On the other hand, a management audit is aimed at examining procedures, systems and policies and identifying the weak areas, giving recommendations for future operation plans while also evaluating performance in all operational areas.

Party conducting the audit

A financial audit is carried out by a qualified chartered accountant while a management audit is carried out by a management team within the organization.

Interval

While financial audits are carried out at the end of each financial year, management audits are conducted as per organizations timelines.

Financial Audit vs. Management Audit: Comparison Table

Summary of Financial Audit vs. Management Audit

Both financial and management audits serve different purposes in an organization. While financial audits focuses on the analysis and verification of the financial affairs of an organization through the analysis of financial records over a given period of time, management audits examines the efficiency and adequacy of an organizations operating procedures. It is essential for an organization to carry out these audits so as to avoid making poor business decisions and also prevent any unethical practices and operations.

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