Audit and its advantages

Auditing is the analysis of the financial accounts/records, by a qualified accountant, and procedures of a firm or organisation. This is essential in order to gain a fair perspective on the company's financial statements. With auditing, potential investors and creditors can look at the financial statements to decide whether to invest in a business or not. Auditing is important as it also protects the public from scams and corrupt business procedures.

ADVANTAGES TO BUSINESS

Advantages of audit for the business are:

1. Satisfaction of Owner

It is because of audit that the owner will be satisfied about the business operations and working of its various departments.


2. Detection and Prevention of Errors

The errors whether committed innocently or deliberately are discovered by the process of audit and its presence prevents their occurrence in the future. No one will try to commit an error or fraud as the accounts are subject to audit and hence they will have a fear of being detected.

3. Verification of Books

Another advantage of audit is the verification. of the books of accounts, which helps in maintaining the records up to date at all times.

4. Independent Opinion

Auditing is very useful in obtaining the independent opinion of the auditor about business condition. If the accounts are audited by an independent auditor, the report of the auditor will be true and fair in all respects and it will be of extreme importance for the management of the company.

5. Detection and Prevention of Frauds

Just like errors, frauds are discovered by audit and its presence minimizes future possibility if not eliminated totally.

6. Moral Check

The process of audit will establish a check on the minds of the staff working in the business and they will not be able to commit any irregularity, as they will have a fear and will also be aware that the accounts will be examined in the near future and that action would be taken against them if any irregularity is discovered. Thus the audit prevents the happening of any irregularity before it starts and the staff hence becomes more active and responsible. The fear of their getting caught act as a moral check on the staff of the company.


7. Protection of the Rights and Interests of Shareholders

Audit helps in protecting the interests of shareholders in case of joint stock company. Audit gives assurance to the shareholders that the accounts of the company are being maintained properly and their interest will not suffer under any circumstances.

8. Reliance by Outsiders

Outsiders like creditors, debenture holders and banks etc. will rely on the business accounts if they are audited by an independent authority (external auditor).

9. Loan Facility

Money can be borrowed easily on the basis of audited balance sheet from financial institutions. If accounts are audited the true picture will be visible to banks and it will be easy for them to issue loans as early as possible.

10. Easy Valuation

It becomes easier to evaluate property etc. if the accounts are audited when the business is disposed off and as a result no dispute whatsoever will arise.

11. Upto Date Record

Due to the fear of audit the work of accounting always remains upto date and correct in all respects.

12. Reliance by Partners

If a new partner is to be inducted in the business, the audited balance sheet will be a good base to estimate the value of good will. Moreover, the audited accounts of a company by an independent person will minimize the chances of misunderstanding among the partners.

13. Reliance by Shareholders

In case of joint stock company, the shareholders have no hand in the actual running of the business because the management was in the hands of the directors. So the shareholders are assured in the presence of the process of audit that the directors have not taken any undue advantage of their status and position.

ADVANTAGES TO THE PUBLIC

Advantages of audit for the public are given below:

1. Safety from Exploitation

The interest of the public and shareholders is safe and guaranteed in the presence of audit. Otherwise they may have been exploited by the management. This is the main reason for which the audit has been made mandatory for public limited companies.

2. Facility for Prospective Investor

The prospective investor can easily analyze the position of the company gaining through the audited financial statements of the company and can make the decision to invest or not in the company.

3. Satisfaction about Business Operations

In the presence of audit, the public in general and the owner of the business in particular receive the reliable statement of accounts, indicating the true financial position of the concern and they can collect result from it and feel satisfaction about it in every respect.

ADVANTAGES TO THE STATE

Advantages of audit to the state are as under:

1. Privatization of Industries

If the nationalized industries are running in losses, the government may denationalize them after going through the audited accounts of such industries.

2. Easy Assessment of Tax

In the presence of audited accounts the assessment of tax becomes very easy because the tax is imposed on the basis of audited accounts.

3. Quick Recovery of Taxes

As the assessment orders can easily be made it will lead to early recovery of taxes.

4. Leading to Economic Progress

The joint stock companies play a vital role in giving a boost to the economic progress of a country. The successful operation of the companies would have not been possible without the presence of audit. So we can easily say that presence of audit leads to economic progress of the country.