What Is an Audit And Why Is It Important

A critical analysis of the financial records and statements of a business is called an audit, and is a common practice in both governmental and private organizations. An auditor or a financial accountant thoroughly analyses the financial records of a company before releasing the audit report. Certified public accounting firms are used to conduct these audits and are expected to be completely objective and unbiased.

Auditing is considered to be an extremely important part of modern-day business, helping organizations keep a check on their internal systems alongside presenting investors with a clear and accurate picture of a company’s financial health.

Instructions

  • 1

    Functions

    Business is all about credibility and no sensible businessman would want to deal with a company which does not possess a credible reputation in the market. A good opinion from a reputable auditing firm can reflect positively on a company's standing in the field. This is primarily the reason why audits are done by outside firms. Audit reports can be accessed by employees, business partners, financial institutions, banks, customers, material providers and others. It is only through an audit that a company can catch accounting errors.

  • 2

    Structure of auditing

    Audits are usually done at the end of the fourth quarter of a fiscal year, reviewing how the business was operated in the previous 12 months. The nature of the business, the way it is being administered and the industry regulations are taken into account while auditing. The internal control systems of a company are a thoroughly examined by the auditors to test their accuracy.

  • 3

    Goals of a company

    Every organization or a company sets different goals for itself, which are assessed and revised each year. An audit report plays a crucial role in achieving those goals and helps the top management take steps in the right direction.

  • 4

    Time management

    Auditors also examine the time taken to complete projects because if a company is taking more time to complete a project, it naturally means that more resources have been spent. Therefore, an efficient audit report helps the management evaluate the performance of their company and how they need to improve.

  • 5

    Vendor assessment

    While running a business, you often have to deal with third parties. Through an audit, you can scientifically assess the performance and the credibility of the vendors.

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