Lecture notes
Objects of audit and benefits of audit
- Module
- Accounting
- Institution
- Kensington College Of Business
Audit important and benefits
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THE OBJECTIVE OF AN AUDITThe objective of an audit is to form an independent opinion on the financial
statements of the audited entity. The opinion includes whether the financial
statements show a true and fair view, and have been properly prepared in accordance
with accounting standards.
A misconception is that auditors are required to identify all misstatements.
However, they are responsible for identifying material misstatements, not all
misstatement
Additionally, the auditor performs a detailed review of the financial statements,
including disclosures, to check they comply with accounting standards and company
law.
After all the work has been completed the audit opinion is communicated in a
standard report which is included in the financial statements of the audited
entity. Any weaknesses the auditor has identified in internal controls will also be
communicated to management.
AN EXTERNAL AUDIT IMPROVES INTERNAL SYSTEMS AND CONTROLS
Auditors do not just focus on the numbers but will gain an understanding of the
businesses overall systems and controls environment. This will enable them to
identify deficiencies in the accounting systems or controls for which
recommendations can be made, making your business more efficient and less prone to
fraud or error.
AN EXTERNAL AUDIT PROVIDES CREDIBILITY
Having your financial statements verified by an external auditor can lead to more
credibility in the business marketplace than those that have not. Should you be
seeking to raise finance or sell your business in the future, providing audited
accounts gives security that your accounts are free from material error or
malpractice, making you more likely to be successful in achieving your goals.
AN EXTERNAL AUDIT GIVES SHAREHOLDERS CONFIDENCE
Many business are run by a small board of directors on behalf of the shareholders
who can be remote and have little involvement in the day to day operations. An
independent review of the financial statements can provide transparency to the
shareholders that the company is being run within their best interests and can
highlight any issues that have occurred which may not have been brought to their
attention.
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