Advantages of Auditing
It is of great importance to get accounts audited in a proprietary concern to see that business is running efficiently, in a partnership firm to ensure healthy relations among partners and especially to decide questions like valuation of goodwill at the time of entry, retirement and death of a partner and in joint stock company in which shareholders invest their money and presume their capital intact if accounts of such a company are audited by some qualified auditor. Audit is made compulsory also under the companies Act.
The advantages of audit can be grouped into the following categories :
A. for Business itself :
1. The accounts of a business and its financial position can be examined by an independent and qualified auditor.
2. Quick discovery of errors and frauds—Errors and frauds are located very easily and at early stage. Therefore, chances of their repetition are reduced to the minimum.
3. Moral check on the Employees—Through auditing, the staff maintaining accounts become more alert and careful in keeping future accounts up-to-date.
4. Loans and credit can easily be obtained from banks and other money lenders on the basis of properly audited accounts.
5. The business itself enjoys better reputation due to audited accounts.
6. In case of Advice to the management—regular audit, the auditor can come into close touch with the working of the business & thus, can give suggestions the management to improve it in case he is asked to do so.
7. Audit is useful in case of a business managed by some agent or representative of its owner.
8. Uniformity in accounts if the accounts have been prepared on a uniform basis, accounts of one year can be compared with other years and if there is any discrepancy, the cause may be enquired into.
B. For the owners of Business
1. If the business is owned by a sale trader, he can rely well on the audited and on his accounts clerks who are responsible for maintaining accounts.
2. In case of partnership firm, its partners can utilize the audited accounts to settle their disputes in regard to adjustment of capital and valuation of goodwill at the time of admission, retirement and death of a partner.
3. In case of a joint stock company. Shareholders living at distant places can rely on audited accounts and can be sure of their investment being sage with the company.
4. In case of a trust, its trustees can easily make their position clear before others by getting the accounts audited by an dutside auditor.
C. For others
1. Filling of Income Tax Return—Income Tax authorities generally accept the profit & loss account that has been prepared by a qualified auditor and they do not go into details of accounts.
2. Settlement of Insurance claim—In case of fire, flood and the like unexpected happenings, the insurare company may settle the claim for loss or damages on the basis of audited accounts of the previous year.
3. Sales Tax payments—The audited books of accounts may generally be accepted by the sales tax authorities.
4. Payment of wealth-tax, expenditure-tax etc.—The taxation authorities can also rely on audited accounts for the purpose of imposing wealth tax, expenditure-tax etc.
5. Actions against Bankruptcy and insolvency—The audited accounts of a business can be produced in support of a legal case before the court. It forms a basis to determine action in bankruptcy and insolvency cases.
6. Future trends of the business—The future trends of the business can be assessed with certainty from the audited books of accounts.
