Meaning of Auditing
Auditing simply refers to the evaluation of business books of accounts & vouchers. It is done to make sure whether all the financial transactions are accurately recorded. Auditing aims at finding out the errors from books of accounts of the business.
It aims at the prevention of frauds. This examination is totally unbiased & conducted by an independent person. The person doing auditing should be qualified for the job to perform it with accuracy. This can be performed either by internal employees of a business or the person who are external to business.
Auditing is conducted continuously at regular intervals by the auditor. However, auditing is not mandatory for all businesses. Auditing is of 2 types: Voluntary audit & the one required by law. purpose of auditing are below.
Objectives of Auditing
Accounts and statements verification
Evaluating the fairness & accuracy of books of accounts is the primary objective of Auditing. It checks each & every financial transaction thoroughly. It detects and prevents any frauds in the books of accounts. The auditor is provided with free hands to audit the books of accounts & is independent of business.
Checking Accounting Policies
Every business or organisation needs to follow some accounting policies. Books of accounts are prepared according to these accounting policies. If a business has an effective accounting system, its efficiency can be increased. It is the duty of the auditor to check the accounting policies of business & express his independent opinion.
Error and Fraud detection
Auditing helps in easy finding of errors & frauds from the books of accounts. It is the duty of management to avoid & check errors & frauds. However, sometimes it becomes difficult for management to find out the errors.
It is through auditing that helps managers to find out errors & frauds. After this managers take corrective steps against these errors or frauds.
Improves Quality of Business processes
Auditing helps management in finding out the errors & frauds. Management can take corrective measures against these errors. Steps are taken so that they are not repeated again. This way it improves the quality of business process & improves its efficiency. Also the employees of business work properly due to the threat of auditing.
Assurance to investors
Auditing assures that each & every figure represented in the financial statement is correct. It helps in evaluating every figure of business books of accounts. Financial statements after being audited are considered trustworthy by investors. Investors are fully assured by these financial statements.
Checking Assets and liabilities
Auditing thoroughly evaluates the financial statements of the business. It helps in confirming the true value of assets & liabilities of the organisation. This helps in determining true financial position of the business. After that accordingly, proper plans can be made to achieve targets & goals.