Advantages of Audit

Advantages of Audit: Irrespective of the fact whether audit is compulsory, statutory or voluntary, it has a number of advantages for every individual and various type of organization. Through audited accounts the shareholders of a company are assured that the funds invested by them are safe and they are being used only for the purpose for which they were raised and collected.

In the form of company organization there is a divorce between owners and management. Shareholders are so scattered that they have no direct control on the day-to-day administration of the company. That is why audit is compulsory in case of company by an independent qualified person. It helps the business, investors and other interested parties in so many ways that the benefits drawn are more than the expenditure incurred.

Advantages of audit for business

1. Detection of frauds and errors:

The very fact that the work of account department is subject to further checks. Auditing work provide this remedy to keep the accounts free from errors and frauds.

2. Borrowing is made easy:

Audited accounts presents a true and fair financial picture of the company they are always helpful for the management in procuring loan or credit facility from outside sources.

3. Advisory services:

The auditor is competent to render expert advice in the matters of accounts and finance of the undertaking especially where the same auditor audits account for many years. With his intimate knowledge of the business he can serve as the best friend of the business for consultation on all major decisions. Thus he may give advice if asked for though it is not his professional duty.

4. Moral check on employees:

The moral check of auditing is that it keeps the employees always on their toes and helps to minimise error and frauds. Due to the fear of audit, the staff of the client always keeps the accounts regular accurate and up-to-date. The employees will not commit fraud as they are always in fear of being caught.

5. Reliable for tax purpose:

Audited accounts are considered more reliable for taxation purpose, i.e, sales tax income tax and other taxes.

6. Improvement in internal control system:

Before the conduct of actual audit work auditor evaluates the internal control system and if there are any loop holes the auditor points it out and suggest suitable remedial measures to make the system fool proof.

7. Purchase price of business:

If the business has to be sold the purchase price can easily determined due to audited account.

8. Insurance claim for loss:

Audited accounts help the companies to settle the claim of loss sustained by the company from the insurance company.

9. Goodwill/reputation of business:

Against the audited account repute of the business is established and client of business trust on audited account with further verification.

10. Moral check for high values:

Due to fear of audit a moral check for high values is imposed on the employees. Therefore they keep their work up-to-date and become more vigilant in the performance of their work.

Advantages of audit for owners of business:

1. Helpful to settle the disputes:

If any conflict is arises it will become easier in the presence of audited accounts and the matter can be resolved.

2. Beneficial for the family of deceased person:

The family of a deceased person can rely on audited accounts because it presents true and fair view of financial statement on the basis of audited account they can easily resolve their accounts.

3. Owner not running business himself:

In case the business is being managed by an agent or representative of the owner, auditing helps him in knowing the true financial position.

4. Partnership concern:

In case of partnership, the partners can rely on the audited account to settle their disputes, e.g., with regard to adjustment of capital and valuation of goodwill at the time of admission retirement and death of a partner.

5. Company:

In case of Joint Stock Company where there is a divorce between ownership and management auditing ensures the shareholder a true and fair reporting of the financial position of the company.

6. Trust:

In case of a trust the beneficiaries can secure their positions through auditing.

7. Exploitation:

The audit is conducted to safeguard the interest of shareholder otherwise management may exploit them therefore audit is compulsory for public Ltd. Co.

Advantages of audit for general public:

1. Help for employee to demand better salary

The audited accounts are helpful for employee to demand for higher salary and other fringe benefit from their employer on the basis of audited result.

2. Helpful in decision-making:

The audited accounts are helpful for investor in decision-making by using the audited account to calculate the real value of shares.

3. Protection to creditors:

The creditors provide finance and goods to his client and if accounts are audited it facilitate the creditors to assess the financial position of the client for decision-making for credit facility.

4. Investment opportunity:

The audited accounts exhibit true and fair view of the state of affairs and investor learn the profitability ratio and avail the opportunity of investment in a better earning institution.

5. Insurance companies

In the event of claim for loss of property an insurance company can trust on the audited accounts. The danger of undue influence of the lost properties is minimized.

6. Financial institutions

Financial institution before extended a loan can take comparatively more reliable decisions on the basis of audited accounts.

7. Determination of purchase consideration:

For the determination of purchase consideration the valuation as determined by the audited balance sheet is considered suitable Besides the valuation of assets and the verification of various liabilities the goodwill is also valued along with the valuation of the share of the concerned companies.

Advantages of audit for government

1. Early recovery of tax revenue:

Due to audited account the tax department easily made the assessment order, which leads to early recovery of tax revenue for the government.

2. Rate of economic growth:

Due to audited accounts of the business enterprises a true and fair view exhibited and government can check the economic growth rate of various concerns.

3. Acquisition of private business:

The government can acquire certain units, which are not working for the welfare and prosperity of general public. The purchase price of such units can be easily settled on the basis of audited account.

4. Privatization of units running under the control of government:

Certain businesses are running under control of government and if these units are running at a loss the government may privatise these sick units. The sale price of these units can be easily settled on the basis of audited accounts.

5. Assessment of tax:

Due to audited account by an independent auditor the record becomes more reliable therefore tax department pass the assessment order with further inquiry.

6. Excise duty:

The audited account will help in checking the evasion of excise duty of manufacturing concern.