Advantages of auditing
Descriptions
- ADVANTAGES OF AUDIT
On account of various advantages of audit, the accounts of sole traders and partnership firms and other institutions are is not compulsory by law. The following are some of the advantages of audit:
1. Audit enables the businessman to ascertain the correctness of accounts The report of auditor states t e Profit and Loss Account shows true profit or loss and that Balance Sheet reflects the true and fair state of affairs of the business.
2. Errors and frauds, if any, can be located at an early stage and the steps can be taken to prevent their recurrence.
3. Audit acts as a moral check on the employees of business. It makes the employees vigilant and regular in their work.
4. Audit of partnership accounts creates confidence in the partners interse. Disputes, if any, in regard to correctness of accounts are settled. Audited accounts give a clear a new partner or what amount should be paid to the retiring partner on his retirement from the firm.
5. Audit of joint stock companies is made compulsory under the Companies Act, 1956. The advantages of such audit are manifold. Firstly, the shareholders are assured that their capital is properly utilised by the directors for the purpose of business of the company. Secondly, if there is any mis-application or unauthorised utilisation of their funds, the same is brought to their notice.
6. If the business is to be sold or is to be taken over by another unit, audited accounts provide considerable help in fixation of purchase price of the business. The true value of assets and liabilities are reflected in auditęd accounts.
7. Engagement of auditor helps the management, since advice of auditor on certain technical points is readily available. The business policy can be properly formulated in compliance with law if the properly utilised.
8. Audited accounts are accepted to be true by the income tax and sales tax authorities. The waste of time and labour by detailed scrutiny of accounts can be avoided if the audited accounts are thus relied upon.
9. In getting credit facilities from banks and other financial institutions the audited accounts arc useful.
10. The settlement of insurance claim becomes easier if the accounts are audited.
11. The settlement of dispute in respect of increase in wages, bonus etc is made easier if the accounts are duly audited by a qualified auditors.
12. Legal authorities are assured of proper compliance with the legal requirements by business units.
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