Auditing

Auditing is the systematic act of examining, verifying and reviewing the accounting records and statement by an independent person considering their accuracy, reliability and effectiveness to provide the true and fair result of the operation. It is the intelligent and critical test of correctness, sufficiency and reliability of accounting data and statements. It is the act of checking, verifying the records, books of account and financial statement of the entity. It is to ascertain the correctness of the records and verify whether the financial statements truly represent the actual working results and financial position of the organization.

The following are the main definitions of auditing:

“Auditing is being concerned with the verification of accounting data, with determining the accuracy and reliability of accounting statements and reports.” - R. K. Mautz

“Auditing is a systematic examination of the books and records of a business or other organization, in order to ascertain or verify, and to report upon, the facts regarding financial operations and the results thereof.” – Montgomery

“An audit is an examination of such records to establish their reliability and the reliability of statements drawn from them.” – A. W. Hanson

Importance and Advantages of Auditing

The following are the main importance and advantages of auditing:

1. Credibility

   

   
   Auditing lends credibility to the financial statements prepared by a business. It helps to make decisions relating to business activities. Thus, it facilitates the operations of the modern financial system.
   
   
2. Correctness
   Auditing helps to correct accounting records, statements and reports as the auditor verifies and examines them properly.
   
   
3. Detection and prevention of frauds and errors
   An auditor's main duty is to detect and prevent the frauds and error by checking the account of documents, records, books and statements.
   
   
4. Alert the staff
   An auditor alert the staff to make all records, books of account and statements up-to-date. Besides, it exercises a moral influence over the staff the act honestly and loyally.
   
   
5. Comparison

   

   
   An auditor instructs an accountant in the same way which helps to compare books of account of the current year with the accounting of previous year. So, comparing the accounts will help to detect frauds and error.
   
   
6. Evidence
   If in any case the audited accounts can be presented as an evidence to tax authorities for a fair assessment of tax, and to the court of law in a case of any business dispute.
   
   
7. Settlement of disputes
   The audited accounts help to settle the accounts among partners in a partnership firm at the time of profit distribution, introducing a new partner and retirement or death of an existing partner.
   
   
8. Confidence

   

   
   Since, auditing helps to detect frauds and error and helps to settle disputes which helpto build confidence among a large number of investors, workers, customers and the public in general.
   
   
9. Increase goodwill
   It shows the profitability and financial position of an organization which creates faith of public over the organization. Thus, auditing helps to increase goodwill of the organization.