One of the primary reasons for audit is to comply with the statutory requirements and regulations. Non-compliance with statutory regulations may result in hefty fines, loss of business, and a bad reputation in the industry.
The credibility of Financial Statements
Auditors independently verify that the financial statements of an organization are a true and fair representation of its current situation. This provides credibility to shareholders, customers, lenders, etc.
Moreover, it also increases the credibility of an organization in the marketplace. Organizations with audited financial statements are relatively in a better place to attract potential investors
Enhances Confidence of Shareholders
Many organizations are managed by a group of directors on behalf of the shareholders who can be remote and have no involvement in day-to-day operations.
An unbiased opinion on the financial statements increases the confidence of the shareholders that the company is being managed in accordance with their best interests. Moreover, the audit can also highlight any issue that the management may have concealed from the shareholders.
Assessment and Improvement in Internal Controls
Auditors also develop an understanding of the overall system and control environment of an organization. This allows them to identify any deficiency in the internal controls and accordingly suggest improvements in the system. This allows an organization to effectively achieve its objectives.
Fraud & Error
Fraud is the intentional concealment of facts while error is an unintentional misstatement. During the process of auditing, fraud and errors are discovered. Moreover, auditors assist in designing internal control systems to prevent fraud. It creates a fear of being detected.
One of the other advantages of auditing is that the staff and the workers of the company do not try to steal or defraud the company. They are under constant scrutiny since they know that the accounts will be audited.
Any irregularities can be identified during such an audit, and they will be caught eventually. This helps the staff in being honest and responsible at all times.
Planning & Budgeting
An audit confirms the accuracy of an organization’s financial statements by analyzing its financial transactions. This critical examination, coupled with the auditor’s financial expertise, can then be used by business owners for better financial planning, budgeting, and financial decision-making for the future.
Tax authorities assess income tax on the basis of profit calculated by the auditor. Similarly, sales tax is assessed on the basis of sales shown in the audited financial statements.
Besides taxation authorities, all other government authorities also rely on audited financial statements; even the courts accept these as evidence when the situation calls for.
One of the jobs of an auditor is to value all the assets and liabilities of the company. This allows the management of the company to know its actual worth. Similarly, it provides reliable information to prospective buyers about the financial condition of the company.
An audit would bring out even the smallest details of the company and conducting an audit means that the company has nothing to hide and is clean which will ultimately boost the goodwill of the company.
In case there is any loss to the property of the business, the insurance company provides compensation on the basis of a valuation statement certified by the auditor.
The points mentioned above make it very clear that there are numerous benefits that a company can avail by conducting an audit. Even though auditing requires significant time and financial resources, however, its advantages outweigh the cost.
Without an audit of the company, it would be very challenging to determine the exact financial picture of the company and pinpoint any flaw in the workings of the entity.