21 Advantages and Disadvantages of Auditing

Auditing has become an essential task in modern business organizations. Audits are conducted by all types of organizations, including businesses, social groups, industries, and trading companies.

Owners and management of businesses are typically separated today. As a result, auditing is essential for detecting and preventing fraud. Here are some advantages and disadvantages of Auditing

The benefits of conducting an audit with an impartial and experienced auditor can be judged from three perspectives. Namely:

• (A) from the point of view of the organization;
• (B) from the owner
• (C) from the third party.

From the viewpoint of the institution

1. Proper Accounting: When the system of regular audits is in place, the employees of the accounting department try to perform their duties with care and caution. As a result, the work of accounting is completed on time and accurately. Apart from that, with the introduction of a continuous audit system, it is possible to complete the audit work more quickly.
2. Detection and prevention of error and fraud: One of the major advantages of audit Appropriate auditing measures are very helpful in detecting errors or frauds in accounting and taking steps to prevent recurrence in the future.
3. Disclosure of true and fair view: With a proper audit, it is possible to get a true and fair picture of the organisation’s financial condition on time.
4. Increase of consciousness: Having a regular audit system puts a strain on the accounting staff. This increases their awareness of responsibility for their work
5. Obtaining auditor’s advice: With a continuous audit system in place, the auditor has a clear idea of ​​the financial nature of the organization. Therefore, if necessary, his valuable advice is available to improve accounting.
6. Increase in the reliability of accounts: Because the audited accounts are relatively reliable, the accounting information gives the users confidence in the accuracy and correctness of the accounts of the organization (audited) and internal systems and controls.
7. Easy to borrow: Obtaining loans from various banks and other financial institutions with the help of audited accounts
8. Dependable Document: The audited account can be conveniently used as an acceptable document for assessment of income tax or sales tax, collection of compensation from the insurance company, raising of capital, valuation of shares, determination of purchase consideration at the time of purchase, and sale of the business, etc.

In addition, another advantage of Audit increase the reputation of the organization concerned and helps to set future goal. The employer maintains a good relationship.

From the viewpoint of the proprietor

The owner of the organization can enjoy various benefits if there is a system of regular audits. Like,

1. To the sole proprietor: In the case of a sole proprietorship, the business owner can be sure of the honesty and accuracy of the accounting staff. Apart from that, in the 134045case of assessment of income tax, sales tax, property tax, etc., the audited account can be submitted to the concerned authority as a reliable document or proof.
2. To the partners: Tested accounts are used to determine the reputation of a new partner or the retirement of a partner, etc., or to settle disputes between the partners.
3. To the shareholders: Through the directors, it is possible to verify whether the capital invested by the shareholders is being properly utilized or whether their interests are being properly protected.
4. To the non-profit-seeking concern: Non-profit organizations like schools, colleges, hospitals, thugs, religious institutions, etc. are run mainly with government grants or public funds. It is possible to know whether the money is being used properly for public service. In addition, if the accounts are not audited, such institutions are deprived of government grants.

From the viewpoint of the third party

The benefits that third parties involved with the audited entity may enjoy as a result of the audit are:

1. The insurance institution: Insurance companies have the advantage of settling insurance claims based on audited accounts.
2. Banks and other institutions: It is easier for banks and other entities to determine the amount and rationale of lending to a person or entity based on the audited accounts of that person or entity.
3. The Government: The government can rely on its audited accounts to determine the amount of income tax, sales tax, property tax, etc. of a taxpayer. In some cases to evaluate the income or assets of an individual or a business entity, Government authorities or courts often take audits of accounts as evidence.

Disadvantages of an Audit

1. Costly: Organizations are financially disadvantaged due to the auditing process because it requires a huge expenditure to prepare for an audit and examine all financial statements. Auditing experts charge businesses a high fee for their service.
2. Assurance of accuracy: with proper care and skill after completing the work the error or fraud can remain. This is why auditors can’t always be held responsible. 
3. The managerial inefficiencies: The auditor cannot intervene in any way. Since he is an outsider, he has no power over internal systems and controls. His responsibility does not include advising the organization on management or ensuring that the organization is generating profit or running smoothly. So, even if the accounts are examined with sufficient care and efficiency, many errors may still occur in management and control. Organizations may not be responsible for these errors. Thus the auditing process does not reveal the managerial inefficiency of the directors. 
4. Availability of correct information is not possible: Other than that, there are some issues (such as – relational assessment) that are very complex and technical, which is impossible for the auditor to know. For these matters, he must rely on the opinion and credentials of the responsible employee who bought him. Even if the auditor makes every effort, the real purpose of the audit could not be met if employees give inaccurate information. However, the auditor cannot conduct audits with a sceptical mindset or distrust all employees.
5. Getting expected service is not possible: Due to the increasing complexity of the business at present, the auditor can’t examine all the details of the organization in detail. The work has to be done with some amount of risk. Therefore, it is not always possible to get the desired service from him.
6. Unsuitable for small concerns: For small organizations with limited transactions, auditing may not be useful. As auditing is a very costly and time-consuming process it may not be suitable for small businesses. It is possible to evaluate accounts without an audit program.

Table for Advantages and Disadvantages of Auditing

Auditing conclusion

When an auditor executes an audit he finds out disputes and frauds after the accounts are made so an auditor can not directly prevent miscalculations or fraud but can help the organization or individual to take precautions in the future.

As the Action is already taken. Therefore, an audit is generally called a kind of post-mortem audit.

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Apart from that, various parties associated with the organization also get benefits from auditing. Therefore, an audit is very important for people from all walks of life. That is why it is imperative to have the accounts audited scientifically with an impartial and qualified auditor.

FAQs Auditing Advantages and Disadvantages