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CMA Final · Cost and Management Audit · Basics of Management Audit

A management auditor reviewing a manufacturing company finds that a plant meets its production targets and complies with all policies, but the targets were set far below installed capacity, leaving resources idle. Which conclusion is most consistent with management audit objectives?

The auditor should report that effectiveness is questionable. Management audit asks whether objectives and resource use are optimal, not just whether targets and policies were met. Targets set far below installed capacity with idle resources point to weak planning and underutilisation, which deserve an adverse comment and improvement recommendations.

  1. ANo adverse finding is needed because targets and policies were fully met
  2. BThe audit should be limited to confirming policy compliance since that is the auditor's only duty
  3. CThe matter belongs only to the statutory auditor as it affects the profit figure
  4. DThe auditor should report that effectiveness is questionable because objectives were set below potential, indicating poor utilisation of resourcesCorrect

Explanation

Management audit tests whether objectives and resources are used optimally, not merely whether stated targets and policies were met. Low targets and idle capacity signal weak planning and underutilisation, so the auditor should report on effectiveness. Option A confuses compliance with performance; options B and C wrongly narrow the scope.

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