Audit Pro 411 How the Auditing can help companies?

How Auditing can help companies? 

Auditing is a means of evaluating the inefficiency of a company's internal controls. Retaining an effective system of internal controls is vital for the Company's aim, gaining trustworthy financial reporting on its operations, precluding fraud and misuse of its assets, and lessening its cost of capital.

One of the biggest advantages of auditing is that it offers assurances to the owners, investors, shareholders etc. The owners of the business will be assured about the accuracy of their books of accounts.

Internal audit serves an important role for companies in fraud prevention. Recurring analysis of a company's operations and maintaining rigorous systems of internal controls can prevent and detect various forms of fraud and other accounting irregularities.

Auditing is an independent examination of financial statements of an entity, whether profit-oriented or not, irrespective of its size or legal form, when such an examination is conducted with a view to expressing an opinion thereon.

Auditing is necessary because of the following factors.
  1. Management can ensure the general reliability of the accounting system.
  2. It discourages employees from committing fraud as it acts as a morale check on them.
  3. Bankers can place reliance on audited financial statements while making the decision about the creditworthiness of loan applicants.
  4. Even after providing a loan, the audited financial statements of borrowers help the lender to judge the recoverability of their funds.
  5. Audited financial statements enhance the reliability of computation of income earned by the entity, thus helps in determining income tax.
  6. For owners, they get a real picture of profit earned or loss incurred during the period.
  7. In case of any arbitration, audited financial statements help in settling claims.
  8. In case of loss or damage to property by fire, theft, etc. audited financial statements help the insurer to settle the claim.
  9. On the basis of past years' audited financial statements, the prospective investors can devise expected profit trends for deciding whether to invest in the entity or not.

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