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Advantages of Auditing
It is compulsory for all the organizations registered under the companies act must be audited. There are advantages in auditing the accounts even when there is no legal obligation for doing so. Some of the advantages are listed below:
Audited accounts are readily accepted in Government authorities like income Tax Dept., Sales Tax dept., Land Revenue departments, banks etc.
By auditing the accounts Errors and frauds can be detected and rectified in time.
- Audited accounts carry greater authority than the accounts which have not been audited.
- For obtaining loans from financial institutions like Banks, LIC, HUDCO, HDFC, IFCI, etc., previous years’ audited accounts evaluated for determining the capability of returning the loan.
- Regular audit of accounts create fear among the employees in the accounts department and exercise a great moral influence on clients’ staff thereby restraining them from committing frauds and errors.
- Audited accounts facilitate settlement of claims on the retirement/death of a partner.
- In the event of loss of property by fire or on happening of the event insured against, Audited accounts help in the early settlement of claims from the insurance company.
- In the case of a joint Stock Company where ownership is separated from management, an audit of accounts ensures the shareholders that accounts have been properly maintained, funds are utilized for the right purpose, and the management has not taken any undue advantage of their position.
- Determine the value of the business in the event of purchase or sales of the business, audited account will be treated as the base for the evaluation.
The audit of accounts by a qualified auditor also thereby helps the management to understand the financial position of the business and also it will help the management to take a decision on various matters like report in the internal control system of the organization or setting up of an internal audit department etc.
If the accounts have been audited by an independent person, disputes between the management and labor unions on payment of bonus and higher wages can be settled amicably.
- In the event of the admission of a new partner, audited accounts will facilitate the formation of terms and conditions for joining the new partner. The Last Three years audited accounts and balance sheet will give a general idea about the growth and financial position of the business to the new partner.
- Loans and Credit can easily be obtained from banks and other money-lenders on the basis of properly audited accounts.
- 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.
