Importance and advantages of audit
Audit is an
examination of financial statements with a view to express an opinion on the
fairness with which they present financial position, results of operations and
changes in financial positions in conformity with generally accepted accounting
principles.
In view of the
above nature of audit its importance may be listed below:
a. detection of
fraud.
b. detection of
errors.
c. vigilance
over personnel.
d. reliance by
third parties on audited accounts.
e. reliance by
owners on audited accounts.
f. improvement
of internal control.
g. legal
obligations.
Audit detects
and prevents fraud by employees by limiting the temptation to perpetrate fraud.
Sound system of audit detects errors and provides effective internal control.
Due to fear of audit the employees become regular, vigilant and keep the books
and record up to date and accurate. Audited statements are considered reliable
for tax, claims, borrowing, and proposed sale. The joint owners of business
rely on audited accounts. Internal control is improved in view of weaknesses
pinpointed by auditor.
Advantages of audit:
(a) For the
enterprise. (b) For owners of enterprise. (c) For other.
(a) Advantages for Enterprise :
1. Accounting staff, is regular, careful,
and systematic in work.
2. Errors and fraud are detected promptly
as audit exercises moral check.
3. Enterprise can
obtain loan and credit without difficulty as audited accounts are reliable
basis.
4. Liability or income-tax, sales-tax etc,
can be easily determined.
5. In case of sale of business purchase
consideration can be reasonably determined.
6. Disputes with employees for higher
wages and other benefits can be mutually satisfactorily settled.
7. Insurance claims can be determined more
speedily.
8. Remedial steps may be taken to improve
internal check and internal control.
9. Maintenance of statutory records is
ensured.
10. Enterprise can
benefit from the professional competence and experience of the auditor.
(b) Advantages
to Owners:
1. Owners of Proprietary business: By securing
audited accounts becomes satisfied that there are no errors and fraud.
2. Partnership: Audited accounts serve as
an evidence of proper management and provide a solid basis for admission,
retirement or death of a partner.
3. Companies: Shareholders, through
audited financial statements become satisfied that their investment is safe.
4. Trusts, Co-operative Societies: Prove
to the beneficiaries that their interest is being properly and effective
safeguarded.
(c) Advantages
to Others:
Audited
financial statements are relied upon by outsider for a number of purposes.
(a) Banks: Largely rely on audited financial
statements for making decision as to grant of loans, overdrafts etc.
(b) Insurance Companies: Depend on audited
statements to settle claims for damages or loss of business assets.
(c) Tax-authorities: Unquestionably accept
audited financial statements for determining tax liability.
Comments
Post a Comment