What is Financial Auditing and its Advantages : A Brief Introduction

Presently financial auditing is an essential fact for any company or business.  The primary objective of financial audit is to prioritize transparency in the organization.  An attempt is made to uncover illegal tendencies in the organization through auditing.  Auditing is a process by which every party involved in a business, entrepreneurs, personnel, consumers, government etc. is all benefited and the organization moves smoothly towards achieving its objectives.  However, for better auditing, qualified auditors are required. Online accounting courses are especially important for auditors.  Let us know in detail about all the dimensions of financial auditing.

What is Financial Audit?

There are many financial statements for any business or enterprise.  All data on purchases, sales, cash flows underline the need for a well-planned and systematic financial audit.  So that illegal activities in the organization can be caught.  Financial audit is the process of impartial examination and evaluation of financial statements.  The purpose of which is to ensure that the financial statements are properly presented and generally accepted accounting principles are followed and that resources are used in accordance with the rules passed in the organization.  The most important objective of financial audit is also to know whether there is any apprehension of misuse of resources in the organization.  Efficient audit of any organization enhances the reputation of the organization.

What are The Basic Functions of Auditing?

 There are three basic functions of auditing:

 1. Verification of financial statements so that they are maintained properly.

2. To check whether due compliance of the rules and policies of the organization was ensured or not.

3. During the audit, it is seen that where errors have occurred in financial transactions, where frauds have taken place, where illegal activities have been conducted?

Also read: Accounting Vs. Auditing- What’s The Difference?

What are The Types of Financial Auditing?

There are mainly two types of financial auditing:

1. External Audit:

External audit of the organization is done by impartial auditors.  In this, the financial statements of the company are examined and reviewed.  The main purpose of external audit is to verify the correctness of the financial statements of the company.  In addition, external auditors also check whether the financial statements are in accordance with the company's accepted accounting standards.  External auditors are also able to objectively evaluate processes and controls.  External audits are extremely important for the stakeholders of the company.

2.Internal Audit:

Internal financial audit is done by the employees of the organization only.  These auditors report directly to management and this report is used internally.  In this audit, the auditors assess their own operations and processes, so they are less likely to be objective.

Advantages of Financial Audit of a Company:

1. Accurate company information:

Financial audit of any company gives accurate information about the company.  Brings out the accurate financial picture of the company and also highlights its defects.  This benefits every aspect of the company.  As the size of the company increases.  By the way, the complexity of the financial audit of the company also goes on increasing.  Therefore, it is necessary that the financial audit is done by expert and professional auditors. Online accounting courses prove to be extremely helpful to become a professional auditor.

2. Help With Future Planning:

The company is audited at regular intervals through financial audit.  All data is evaluated with a close eye.  The accurate basis of all financial statements introduces management to the true position of the company.  On the basis of which the company gets a lot of help in terms of making future plans.  Specific information is available regarding the budget of the company.

3. Timely Information of Any Illegal Move:

The most important advantage of a company's financial audit is that every financial statement is scrutinized during the audit.  Due to which information about fraud and illegal activities in the company becomes available.  Once aware of this information, the management becomes alert and activates its monitoring machinery.  This makes it possible to check illegal activities in the organization.  Due to which the organization benefits immensely.

4. Able to Identify Compliance Defects:

During the audit, the auditor takes into account the accounting standards and also sees whether the local laws are being duly complied with by the company.  In this way, an attempt is made to avoid future hazards to the company by uncovering defects in compliance with local regulations during audits.

5. Control and Effective:

Auditors also critically evaluate procedures and control systems when reviewing a company's financial statements.  Also, suggest measures to make the compliance and control of processes in the company more effective by highlighting the defects.

6. Facility to Get Loan:

Generally every company and enterprise needs to get loan etc. for future plans at times.  One has to approach banks and other financial institutions for loans.  Financial audits reveal the true nature of the company.  On the basis of which banks or other financial institutions can easily decide on the question of loan approval.  It is better that every company maintains the financial records of at least the last five years along with audit reports.

7. Help in Getting an Insurance Claim:

Sometimes insurance claims are made by the company in respect of accidental accidents.  As such, the financial audit data proves to be a strong basis for estimating valid insurance compensation.  A company's financial audit can help the insurance company understand whether the company is citing the correct amount in damages.

8. Help Maintain Continuity:

During the financial audit, the auditor must see whether the rules set by the company itself are being followed in the company or not.  In such a situation, when the management comes to know about the shortcomings, then every effort is made to improve it.  The advantage of this is that due to improvement, it saves time in future audit, then continuous improvement in the organization helps in maintaining continuity.

9. Help with Profit or Loss Assessment:

During the company's financial audit The audit also presents some findings as a summary while reviewing the company's financial statements.  On the basis of this conclusion, the high officials or entrepreneurs of the company are able to take necessary decisions in relation to furthering or strengthening the company.

10. Assistance in Determination of Total Tax:

The profit calculated by the auditors during the financial audit is considered final.  Based on this calculated profit of the company, the tax officers of the government easily assess the taxes of the company.

11. Not Only Pointing to Misconduct, But Also Evidence:

During the financial audit of a company, auditors not only point out malpractices but also present strong evidence on the basis of which the company's managers are able to conduct their proceedings on a sound basis.

12. Boosts The Morale of Stakeholders:

During the financial audit of a company, auditors bring to light even the smallest details of the company and make it clear that the company has nothing to hide.  This fact of transparency gives confidence to the stakeholders associated with the company and boosts their morale.  Investors also get a pleasant signal that the company is clean.  Hence they are also attracted to invest in the company.  Shareholders are also able to resolve their queries on the basis of audit.

13. Increase The Efficiency of Workers:

Society also benefits from the financial audit of the company.  An accurate audit ensures full utilization of economic resources.  Consumers benefit from reduction in prices of goods and services based on accurate and reliable data.  Due to which the demand for the company's product increases.  Increase in workers' bonus and wages increase the efficiency of workers thereby benefiting the company.

14. Benefits of Government Efforts:

Through a systematic audit, the government gets accurate information about the economic environment from which the government determines the profile of industrial development.  Companies also benefit from the policies of the government.

15. Easy Closing:

A proper valuation of the company is of particular importance when the need for winding up or sale of the company is felt for any reason.  An audit of a company's financial statements also determines the exact value of the company's assets and liabilities.  This makes it easier for the company to find buyers and negotiate with them.

It is generally believed that managers have a narrow view of auditing.  But the experience gained at the level of companies presupposes the usefulness of audit.  Audit is the basis of guidance for the stakeholders of the company.  Accurate auditing lays the foundation for a bright future for the companies.