Auditing – Need And Importance

The word, audit, has been derived from the Latin word “Audire” meaning to hear. Auditing is a formal examination of accounting books, documents and vouchers of a business concern in order to verify the profit and loss and the financial position of a business. It’s a systematic check or assessment of financial records of a business, department or organization to establish accuracy or efficiency or effectiveness.

The need of audit arises due to the fact that a business enterprise needs to ensure the correctness of all accounts pertaining to the business. It is also important to ascertain whether or not, the

financial statements, profit and loss account and balance sheet have been prepared in a way as to show the summary of the flow of transactions for the whole period and the true picture and position of a business enterprise. Besides, in order to ensure the accuracy or the efficiency of the records, detection and prevention of errors is vitally important. Hence, audit, under its main objectives and subsidiary objectives fulfills the purpose.

Audit is an effective tool of Management, as internal audit is conducted in order to ensure the policies are being followed. It enables to make valuable suggestions for improvement and to formulate future policies of a business. Audit also helps management to review the policies from time to time.
Since audit

involves a detailed verification of accounting records, it helps greatly to discover errors or frauds while it promotes a moral check on the employees through which their efficiency may also be determined. To its more positive form, audit can motivate the employee to maintain the efficiency leading to increase their performance level. Aside from these, it is with the help of audit that misappropriation of goods and manipulation of records may be identified.

Audit is of great importance to gain confidence in investors of a joint stock company. Since the audited statements are very much useful, the investors can ensure whether or not they need to invest capital.

Written by:
K.A.Fareed (Fareed Siddiqui)
Writer, Trainer, Author, Vba/Vb Developer
BBA; MBA-Finance; M.Phil-Financial Management; (PhD-Management)
MA-English; M.Phil-English
Pursuing CMA-USA
Individual Member of Institute of Management Consultants of India

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Article Written By FAREED SIDDIQUI

I am an Individual Member of Institute of Management Consultants of India. I am a Professional with a high creative capability based on Business, Management, Financial Accounting, Management Accounting, Finance and Management Consulting Field. I impart part time training and development programs. I write professional articles on business & management, business English and Software Engineering.

Last updated on 09-07-2016 127 0

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