Auditing has become a standard practice in all business organisations, whether business, social, industries or trading companies. The business owner and its management are separate, so auditing has become crucial to detecting and preventing fraud.
Following are the points that help audit your business:
Audit helps out in detecting and preventing errors and fraud Detecting errors and frauds is an auditor’s primary duty to prevent such errors and frauds and avoid scams. Therefore, even though audits are not mandatory, all organisations conduct audits on their books.
Audit helps to maintain accounts regularly Accounts that are not maintained correctly raise questions to an auditor. Audit, therefore, adds moral pressure to maintain accounts correctly.
Audit helps to get compensation The insurance company compensates business owners who have suffered losses in their property based on the auditor’s audited valuation report. Therefore, the information will help them to receive compensation.
Audit helps to obtain a loan Financial institutions provide loans based on audited financial statements. A business organisation may obtain a loan based on its last five years of audited financial statements. Hence, an organisation must make audit a condition of borrowing.
Audit facilitates the sale of business Its auditor values a company’s assets. Valuing assets and liabilities allows a business to be sold. It enables a business to determine its price.
Audit helps to assess tax Accordingly, tax authorities assess taxes based on profits calculated by the auditor; similarly, sales tax authorities determine taxes based on sales in the audited statement.
Audit facilitates comparing different data An auditor instructs an accountant, in the same way, to help detect errors and frauds by comparing the accounts of the current year with those of the previous year. Again, comparing versions of the current year with those of the last year will help detect errors and frauds for the organisation.
Audit helps to adjust the account of a deceased partner The auditor performs a valuation of all assets and liabilities of the company while auditing the books of accounts. Such a valuation helps to clear the amount owed to deceased partners.
Audit helps to present a proof An auditor may present the audited report as proof if a lawsuit is filed against them for negligence. In this way, it helps present evidence in such cases.
Audit provides information about profit or loss A businessman wants to know if his business has made money or lost money after some time. After auditing the books, the business owner can determine how much profit or loss the company has made.
Audit helps to prepare a plan The audited statements remain true and correct. These accounts help with planning for the future.
Audit helps to increase goodwill Thus, auditing increases the goodwill of an organisation by showing its financial position and profitability to the public, thus increasing faith in the organisation.
Audit helps to amalgamate the company Sometimes, companies of the same type can merge. First, the auditor evaluates the company’s assets and liabilities that will be combined. Then, the company’s purchaser will accept the business organisation based on the audit.
How does an auditor work? The audit helps to evaluate whether or not a company’s financial statements are materially correct. It also considers the standards, evidence, and assumptions used to conduct the audit. As a result, a CPA audit performed by an accounting firm can help you work more efficiently, protect your company from employee theft, and improve your accounting records’ accuracy.
An auditor reports on the below points:
Financial statements An audit determines whether the information in financial statements is accurate and free from material misstatement. In this context, the term “material” refers to errors or omissions that are large enough to influence the reader’s opinion of the financial statements. An audit is designed to identify financial statement errors.
Regulatory requirements Accounting rules must be followed when preparing financial statements. While for-profit businesses in the United States must follow Generally Accepted Accounting Principles (GAAP), governmental and not-for-profit organisations follow different accounting rules. An audit opinion states that the financial statements were prepared according to specific standards.
Internal controls Additionally, auditors must assess the effectiveness of internal controls in most audits. These controls are enacted to ensure that the financial statements are accurate and that assets are not stolen. If there are weaknesses in any controls, the auditor must disclose them.
In a nutshell, your audit should be viewed as a quality control mechanism to improve the efficiency of your business. Audits are time-consuming and expensive, but they are usually worth it in the long run for your business. Further, directors of the company will be able to see the opportunities and risks that exist within the organisation and in the broader marketplace.
At AJSH, we assist our clients in dealing with internal audits; government audits of various corporate matters (company incorporation), statutory audits, ROC compliance, company winding-up) in India by providing them adequate support and guidance from our end. If you have any questions or wish to know more about how auditing would be helpful for business, kindly contact us.
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