List of Top 10 Audit Purposes
- To Achieve Transparency in Business Operations and Drive Accountability
- To Develop a Practice of Having Audit Trail for Each Transaction
- To Have Independent and Fair Opinion on How Business Works and Deliver Results
- To Ascertain the Quality of Financial Statements
- Deliver 360 Feedback on the Business Process Operations
- To Attract New and Potential Investors or Stakeholders for Business
- Improve overall business efficiency and build a relationship of trust among internal stakeholders
- To Meet Legal, Regulatory and Compliance Requirements of the Business
- To Keep-Up with the Competition and Everchanging Dynamic Environment
The primary purpose of the audit involves independent and unbiased verification of all the material information of financial and non-financial nature. Ascertain that they are in line with what is reported by the management. It can be very scientific and required as per the compliance requirements of the stakeholders who are involved with the business.
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Below is the list of audit purposes.
#1 – To Achieve Transparency in Business Operations and Drive Accountability
- The business maintains financial records of all the transactions it is involved in. With the increasing complexity of the business, these transactions may increase to an extent wherein it would be hard to maintain any paper trail or audit trailAudit TrailThe audit trail is the chronological record bearing the documentary evidence to certify the source of financial data of the company. It even traces the series of activities undertaken by the business in a certain period to ensure data accuracy. for the same. Lack of information would result in a business preparing an understated financial statementFinancial StatementFinancial statements are written reports prepared by a company's management to present the company's financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels..
- Misrepresentation of information can result in the preparation of overstated and misleading financial statements. Therefore, to handle the problem of understatement or overstatement or to prevent misrepresentation and frauds, the audit process was developed as a part of comprehensive and transparent corporate governanceCorporate GovernanceCorporate governance is a set of rules or practices through which an entity is directed and controlled to increase shareholders wealth by increasing the economic value and is concerned about its relations with various entity stakeholders..
#2 – To Develop a Practice of Having Audit Trail for Each Transaction
- The audit is, therefore, performed to develop an audit trail of every financial transaction.
- It ensures that every financial number reported concerning the income earned and expense incurred by the business is accurate, and no material information is skipped or omitted.
- The auditor, therefore, would perform a careful examination of the evidence presented, records, vouchers, and material documents and ascertain that they match with the numbers presented in the book of accounts or the financial statements.
#3 – To Have Independent and Fair Opinion on How Business Works and Deliver Results
- The auditors would therefore collect, gather samples, and perform testing of all the evidence to frame an opinion. Apart from independent advice, the audit process tries to catch hold of an operational inefficiency arising in day to day production. The qualified auditor would then give apt recommendations on how the business can improve productivity and efficiency.
#4 – To Ascertain the Quality of Financial Statements
- The process of the audit also determines the quality of the financial statements. Therefore, the auditorAuditorAn auditor is a professional appointed by an enterprise for an independent analysis of their accounting records and financial statements. An auditor issues a report about the accuracy and reliability of financial statements based on the country's local operating laws. would specifically highlight and share his unbiased opinion on the quality of the financial statements.
#5 – Deliver 360 Feedback on the Business Process Operations
- The process of the audit also involves the verification and review of performances and operations related to the non-financial data and information.
- The preliminary process of audit attempts to understand how the funds are utilized and allocated by the business.
- They give an unbiased report to the top management of the business. This report would then become an input for decision making for the management itself.
#6 – To Attract New and Potential Investors or Stakeholders for Business
- Additionally, if the business plans for future growth and investments in high growth projects, they would require some additional external financing. The external financing can be procured either through equity and through debt. The stakeholders who finance in the form of equity ask for audited statements. Such stakeholders know that audited statements ensure that the business shares quality and accurate financial statements.
- They would utilize the audited financial statements to compute and analyze the return on equity offered by the business. Similarly, the stakeholders who finance debt also ask for audited statements to see whether the business performance shared by the business matches with the auditor’s opinion and how well the business serviced its existing financial statements. In short, the purpose of getting financial statements audited ensures that the business has easy access to external finance as auditing raises the trust level between the business and its prospective stakeholders.
#7 – Improve overall business efficiency and build a relationship of trust among internal stakeholders
- The financial statements are also audited to raise trust levels with the internal stakeholders as well. The employees of the business itself can access the audited financial statements. The employees usually try to understand how the company is doing financially and its impact on their position in the organization. It can be utilized by the existing shareholders as well to determine the return on equityReturn On EquityReturn on Equity (ROE) represents financial performance of a company. It is calculated as the net income divided by the shareholders equity. ROE signifies the efficiency in which the company is using assets to make profit. as committed by the business. The process of auditing ensures that there is absolute transparency as to how business functions and maintains financial records.
#8 – To Meet Legal, Regulatory and Compliance Requirements of the Business
- The auditing is also required to meet up with the legal and regulatory requirements established by the government. The process of auditing also ensures comprehensive risk management and fraud detection methods.
#9 – To Keep-Up with the Competition and Everchanging Dynamic Environment
The auditing also ensures that the business can retain its competitive edge over its competitors when operating in a dynamic and everchanging industry.
#10 – Role of Technology Driving Audit
As technology progressed and attained a new level, it has ensured that the process of audit is a part of it as a supplemental and supporting activity. The digitalization of financial transactions has ensured that a digital audit trail replaces manual paper trails. Each digital audit trail would cover the time of booking, time of receipt, amount of transactions, and the parties involved in that transaction with a unique reference number ensuring an enhanced transparency level.
This article has been a guide to the purpose of an audit. Here we discuss the list of different goals like how an audit is performed. You may learn more about financing from the following articles –