What Is The Importance Of Audit, And Its Advantages & Disadvantages?

Auditing is the analysis of the financial accounts/records, by a qualified accountant, and procedures of a firm or organisation. This is essential in order to gain a fair perspective on the company's financial statements. With auditing, potential investors and creditors can look at the financial statements to decide whether to invest in a business or not. Auditing is important as it also protects the public from scams and corrupt business procedures.

The advantages for a business audit are:
1. Gain a strong sense of internal control.
2. Identify key areas for improvement in your company.
3. Test out the performance of new technology.
4. Evaluate threats, economy, efficacy and quality.
5. Realise fraudulent occurrences in the business.
6. Analyse and understand your firms' financial data.
7. The public are protected from corruption.

The disadvantages of a business audit are:
1. It does not take into account the productivity and the skills of the employees of the business.
2. The financial data is never current and does not reveal much about the present financial position of a company.
3. Different accountants use different techniques, therefore it would be hard to compare audits between companies who have used different accountants.
4. For smaller companies, hiring an accountant/firm to carry out an audit can be costly.
5. A bad audit can discourage investment.
6. Can be time consuming to answer the auditor's questions and the business may not work to maximum capacity.

Auditing fails to check planned frauds. The management can play tricks to manipulate the accounts in order to conceal their inefficiencies. The frauds committed in such circumstances are not disclosed. The audited accounts can not show true and fair view. Auditing is based on many certificates taken from management and other persons. These certificates may not disclose true information. Auditing may fail to provide desired result.

When certificates provide wrong information, the financial statements can not show correct position. Auditing fails to disclose correct information. The background of entries may not be clear to the audit staff. The management may not provide correct clarifications. The auditor is bound to present his report even if the clarification is not true. The auditing fails to help many persons who rely on audit report. The auditing does not show cent per cent true picture.

The auditor is concerned with the facts and figures shown in the books of accounts. When figures have been manipulated, the auditing fails to disclose true picture. The purpose of audit fails when it is unable to depict real scene of business affairs. The auditing fails to present correct view. There are limitations of accounting. So accounting figures are not facts. These are based on opinion. Moreover the auditor has to make judgement on various matters.

Carrying out an audit is essential because for public listed companies it is important that an audit is carried out to ensure that the companies are using fair policies prescribed by law and the public’s money is in safe hands. The basic advantage of an audit is that it makes it easier to compare different companies as the auditors express their opinions about the fairness of procedures. Of a company is given a good opinion then it means that it is following the law. It also helps in following certain standards. An audit will keep the managers from trying to indulge in fraudulent practices as it is a means of accountability. It testifies to reliability and integrity of the results. The only disadvantage of an audit can be the costs involved because you have to pay the auditors and also ensure that you maintain detailed records of all the transactions which involve a lot of costs.