An audit is important since it provides an objective and impartial view of an organization’s financial performance. A statutory audit is also a legal requirement. A year-end audit is critical to decision-making. Audit results provide questions about whether your internal controls and processes in place are robust enough.
An audit examines the evidence supporting the amounts and disclosures of an organization’s financial statements. It also includes inspecting the accounting principles and significant estimates done by management.
Here are some benefits of having an audit:
- Improves internal systems and controls. The auditors will have an understanding of the business overall. Deficiencies may be identified wherein recommendations will be made, making your systems and controls less prone to fraud and error.
- It provides credibility. Having an external auditor verify your statements can lead to more credibility in the marketplace. Providing audited accounts grants security that your company is free from malpractice.
- It gives confidence to shareholders. An audit provides transparency to the shareholders that the company is run within the best interests in mind. Issues that arose during the audit can also be brought to their attention.
- It’s an investment. It is a handy tool for external funders and potential donors to safeguard assets and streamline the financial reporting process. The cost involved in conducting an audit can be viewed as an investment to help guarantee that best practices are being followed.
- It provides objective insight. The auditor does not have operational responsibility to achieve an objective insight. He assists management and stakeholders by identifying and prioritizing risks through a risk assessment. This will identify any gaps in the situation and allow for a remediation plan to take place.
- Improves efficiency of operations. Policies and procedures are reviewed, ensuring that you are doing what these documents say you need to do. The processes will also be known if they are acceptable enough in mitigating risks. This review will also provide recommendations to improve the efficiency and effectiveness of the processes. This will allow your organization to be dependent on processes, not on people.
- It ensures compliance with laws and regulations. An internal audit provides peace of mind when preparing for an external audit. You can avoid costly fines associated with non-compliance.
Auditing has the following essentials:
- A critical review of the books of accounts of the organization.
- The auditor is a qualified independent practitioner.
- Carried out with vouchers, documents, information, and explanations.
- Examination of the auditor of the business’ financial accounts and their validity.
There is a well-known saying that “where the function of the accountant ends, the audit begins to determine the true and fair picture of such accounts.”
The auditor conducts reviews of financial statements and records to confirm publicly held companies meet the legal requirements under US laws. They can protect the public from investing in companies that use corrupt business practices with false financial statements.
Auditing helps spot financial risks, like too much debt, reliance on a few customers for company revenue, opportunities for fraud in purchasing, or expense embezzlement.