explain in details, auditing and its importanceSolutionANSWER.pdf
- 1. explain in details, auditing and its importance Solution ANSWER: Auditing refers to evaluating the effectiveness of a company's internal controls. An audit is an assessment of an individual, process, system, firm, organization, institution, company, project, or product. Audits are carried out to check and verify the reliability of any given information and give an evaluation of the internal control of the system. When auditing is done, it monitors the control system and expresses an opinion on the subject that is in the question, afterwards gives its reports to the senior management. Importance: --Pursue goals: An effective auditing system is a important because it facilitates to pursue for the attainment of several corporate purposes. It helps to prevent and identify irregular transaction, measure the performance of the corporate, maintain adequate business records and to enhance the productivity. --Reliability of Information: A thorough company audit of the statements by a qualified public accounting firm will satisfy majority questions about the reliability of its financial statements. These will the serve the purpose of various kinds of entities such as banks, finance companies, suppliers, insurance companies and investors --Prevents debilitating misstatements: Without an effective auditing system, a company is incapable to create reliable financial reports for interior or external purposes. Thus would be difficult to know how to allocate its resources and would be unable to know which of its divisions or product lines are profitable and which are not. Thus, an auditing system is important in preventing debilitating misstatements in a company’s records and reports. --Fraud Prevention: Auditing serves vital role for companies in the prevention of fraud. Recurring analysis of the operations and maintaining rigorous systems in the company can prevent and detect various forms of accounting irregularities and other fraud activities. Audit professionals helps in the design and modification of the control systems the purpose of which includes, among other things, prevention of fraud. -- Cost of Capital: Effective audit systems can decrease the several forms of risk in an enterprise, including its information risk (the risk of material misstatement in financial reporting), the risk of suboptimal management due to insufficient information on its operations and also the risk of fraud and misappropriation of assets.