Q1) Define auditing and explain the advantages of auditing.
The general definition of an audit is a planned and documented activity performed by qualified personnel to determine by investigation, examination, or evaluation of objective evidence, the adequacy and compliance with established procedures, or applicable documents, and the effectiveness of implementation. The term may refer to audits in accounting, internal controls, quality management, project management, water management, and energy conservation.
Auditing is defined as a systematic and independent examination of data, statements, records, operations and performances (financial or otherwise) of an enterprise for a stated purpose. In any auditing the auditor perceives and recognizes the propositions before him for examination, collects evidence, evaluates the same and on this basis formulates his judgment which is communicated through his audit report.
It is compulsory for all the organizations registered under the companies act must be audited. There are advantages in auditing the accounts even when there is no legal obligation for doing so. Some of the advantages are listed below:
1. Audit Helps To Detect And Prevent Errors And Frauds
An auditor's main duty is to detect errors and frauds, preventing such errors and frauds and taking care to avoid such frauds. Thus, even though all organizations do not have compulsion to audit, they make audit of all the books of accounts.
2. Audit Helps To Maintain Account Regularly
An auditor raises questions if accounts are not maintained properly. So, audit gives moral pressure on maintaining accounts regularly.
3. Audit Helps To Get Compensation
If there is any loss in the property of business, insurance company provides compensation on the basis of audited statement of valuation made my the auditor. So, it helps to get compensation.
4. Audit Helps To Obtain Loan