Question

Auditing and Assurance Services

Explain to a non-accountant how the audit of financial statements is worth the cost of the audit fee that for a large client can often amount to very significant sums of money.

Answer 1

The above statement signifies an importance of auditing for any organization. The fact is that audit is compulsory by law, and there is some positive utility in it. Apart from obvious utility, there are some more audit benefits of both financial as well as non-financial nature. These benefits are important also for those enterprises and organizations where auditing is not compulsory:

• Financial interest of persons who are not associated with the managemetn are safeguard.
• Audit process acts as a moral check on employees from committing defalcations or embezzlements.
• Audited financial statements of accounts are helpful in setting liability for taxes, negotiating loans and determining purchase consideration of a business.
• Audit helps in detection of losses abd damages to demonstrate different ways by which these can be checked, especially in those cases where internal checks are not found.
• Audit procedure reviewsthe existence and operations of various controls in the organization and reports weakness, inadequacy etc.
• Governemtn may require audited and certificated financial statements before giving assistance or license for a particular trade.

Therefore, the audit of financial statements is worth the cost of the audit fee that for a large client can often amount to very significant sums of money.