11 Advantages of Auditing – Best Study Notes for 2022 Exams

11 Advantages of Auditing

11 Advantages of Auditing - Best Study Notes for 2022 Exams
11 Advantages of Auditing – Best Study Notes for 2022 Exams

In this article, we are going to discuss regarding benefits or advantages of auditing. You can find the answer of following answers regarding auditing that is:-

What are the advantages of audits for business?

What are an audit and its importance?

What is the importance of auditing?

Definition of Auditing

  1. “Audit is the examination of the facts and books, accounts, certificates or documents of a business, with a view to ascertaining whether the balance sheet has been properly prepared or not, to show the true nature of the financial affairs of the business. ” – R G Williams
  2. 2. “Audit means the examination or examination of the balance sheet of the business and the books of account etc. in such a manner that the auditor satisfies himself that the balance sheet of the business prepared from the books of account is properly prepared according to the purpose assigned to him and the financial position of the business is Understands the reality and in the right way. Similarly, he examines the profit and loss statement of the business as well as the true and actuality of the relevant period and whether the profit or loss is shown or not, and if the auditor is not satisfied in any matter, the auditor submits the relevant report.” – Spicer and Pegler

Benefits – Advantages of Auditing

(1) The actual financial position of the business is understood as :

Due to accounting, constant efforts are made to keep the books of accounts accurate and up-to-date. The annual accounts of the industry and business are prepared from these books of accounts. The auditor properly examines the books of accounts and certifies that they are correct. Similarly, the auditor has to state his opinion in his report as to whether the profit and loss account shows the correct profit or loss and whether the balance sheet also shows the true and correct situation. It is the first advantage of Auditing.

(2) Importance of audit in providing necessary information :

Auditing makes the staff responsible for writing accounts prompt, alert, and vigilant. Hence the books of accounts are kept up-to-date and properly written and as a result, the management or the auditor can get the necessary accounting information without delay when required. It is the second advantage of Auditing.

(3) Mistakes are Recovered:

If any mistakes have been made while writing the accruals-expenditures, or accounts, they are noticed immediately during the audit. Also, if it is fraudulent, it is exposed. Similarly, because they know that they are being audited, the concerned employees do not usually dare to cheat, they also take care to write the accounts properly. In short, auditing creates a kind of deterrence on accounting staff, preventing accounting errors, fraud, or fraud. It is the third advantage of Auditing.

(4) Remedy of Defects and Shortcomings in Accounting System:

As the books of accounts are checked properly due to auditing, the accountant tries to write all the accounts correctly and carefully, but even after doing all this, if there are any defects, the auditor points out those defects and defects. It also gives guidance on following the correct method. Therefore, the standard of work of the accounting department is raised. It is the fourth advantage of Auditing.

(5) Loans may be obtained :

Business needs credit for many things. Banks or non-banking financial institutions provide such loans. Banks and other lending institutions rely more on the audited accounts, profit and loss statements, and balance sheets of the enterprise while giving loans and can decide whether to give loans or not and how much to give if they are to be given. That is, on the basis of audited books of account, it becomes easier for industries and businesses to get loans. It is the fifth advantage of Auditing.

(6) Assistance in raising capital :

Many times, established industries require capital for expansion and new projects. Such capital is raised by selling shares or debentures. At that time, the organizations publish profit and loss statements, and balance sheets for a few years to potential investors. Such statements are audited and the auditor’s certificate is published accordingly. Investors can also consider them and decide whether to invest or not. It is the sixth advantage of Auditing.

(7) Adds to the reputation of the business:

Auditing is also very important in terms of enhancing the importance of the business; Because they are correct by checking the accounts of the business-industrial organization. Also, the auditor gives a certificate that the profit and loss statement, and balance sheet, ‘show a fair and true picture of the organization; Therefore, people associated with such an organization develop a kind of trust in the affairs of that organization. And adds to the reputation of the organization. It is the seventh advantage of Auditing.

(8) Numerical moment helps to present some evidence in court

Audited documents can be produced as evidence in case of future disputes in court for some reason. It is the eighth advantage of Auditing.

(9) Easiness for taxation

Income tax officials and other tax authorities levy taxes on the basis of audited profit and loss sheets and balance sheets i.e. they quickly believe the profit or loss of the business as it has been audited. It is the ninth advantage of Auditing.

(10) To reassure shareholders

The auditor is appointed by the shareholders i.e. after the audit report is submitted to the shareholders as the auditor is the representative of the shareholders. Auditing is beneficial in ensuring the safety of shareholders’ investments. It is the tenth advantage of Auditing.

(11) To get compensation on time

In case of any industrial dispute, the audited balance sheet can be referred to as evidence in court and if any amount is due from the insurance company or any other person, this audited balance sheet can be used as evidence for timely payment of compensation. It is the eleventh advantage of Auditing.

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