AUDIT ADVANTAGES TO BUSINESS

Advantages of audit for the business are: 1. Satisfaction of Owner It is because of audit that the owner will be satisfied about the business operations and working of its various departments. 2. Detection and Prevention of Errors The errors whether committed innocently or deliberately are discovered by the process of audit and its presence prevents their occurrence in the future. No one will try to commit an error or fraud as the accounts are subject to audit and hence they will have a fear of being detected. 3. Verification of Books Another advantage of audit is the verification. Of the books of accounts, which helps in maintaining the records up to date at all times. 4. Independent Opinion Auditing is very useful in obtaining the independent opinion of the auditor about business condition. If the accounts are audited by an independent auditor, the report of the auditor will be true and fair in all respects and it will be of extreme importance for the management of the company. 5. Detection and Prevention of Frauds Just like errors, frauds are discovered by audit and its presence minimizes future possibility if not eliminated totally. 6. Moral Check The process of audit will establish a check on the minds of the staff working in the business and they will not be able to commit any irregularity, as they will have a fear and will also be aware that the accounts will be examined in the near future and that action would be taken against them if any irregularity is discovered. Thus the audit prevents the happening of any irregularity before it starts and the staff hence becomes more active and responsible. The fear of their getting caught act as a moral check on the staff of the company. 7. Protection of the Rights and Interests of Shareholders Audit helps in protecting the interests of shareholders in case of joint stock company. Audit gives assurance to the shareholders that the accounts of the company are being maintained properly and their interest will not suffer under any circumstances. 8. Reliance by Outsiders Outsiders like creditors, debenture holders and banks etc. Will rely on the business accounts if they are audited by an independent authority (external auditor). 9. Loan Facility Money can be borrowed easily on the basis of audited balance sheet from financial institutions. If

accounts are audited the true picture will be visible to banks and it will be easy for them to issue loans as early as possible. 10. Easy Valuation It becomes easier to evaluate property etc. If the accounts are audited when the business is disposed off and as a result no dispute whatsoever will arise. 11. Upto Date Record Due to the fear of audit the work of accounting always remains upto date and correct in all respects. 12. Reliance by Partners If a new partner is to be inducted in the business, the audited balance sheet will be a good base to estimate the value of good will. Moreover, the audited accounts of a company by an independent person will minimize the chances of misunderstanding among the partners. 13. Reliance by Shareholders In case of joint stock company, the shareholders have no hand in the actual running of the business because the management was in the hands of the directors. So the shareholders are assured in the presence of the process of audit that the directors have not taken any undue advantage of their status and position.

ADVANTAGES TO THE PUBLIC

Advantages of audit for the public are given below: 1. Safety from Exploitation The interest of the public and shareholders is safe and guaranteed in the presence of audit. Otherwise they may have been exploited by the management. This is the main reason for which the audit has been made mandatory for public limited companies. 2. Facility for Prospective Investor The prospective investor can easily analyze the position of the company gaining through the audited financial statements of the company and can make the decision to invest or not in the company. 3. Satisfaction about Business Operations In the presence of audit, the public in general and the owner of the business in particular receive the reliable statement of accounts, indicating the true financial position of the concern and they can collect result from it and feel satisfaction about it in every respect.

ADVANTAGES TO THE STATE

Advantages of audit to the state are as under:

1. Privatization of Industries If the nationalized industries are running in losses, the government may denationalize them after going through the audited accounts of such industries. 2. Easy Assessment of Tax In the presence of audited accounts the assessment of tax becomes very easy because the tax is imposed on the basis of audited accounts. 3. Quick Recovery of Taxes As the assessment orders can easily be made it will lead to early recovery of taxes. 4. Leading to Economic Progress The joint stock companies play a vital role in giving a boost to the economic progress of a country. The successful operation of the companies would have not been possible without the presence of audit. So we can easily say that presence of audit leads to economic progress of the country.

Disadvantages:
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.