Question

Once an audit has been completed, what purpose does it serve? Why are the audit report findings important? What is the role of recommendations?

Answer 1

Audit is nothing but an independent and systematic examination of statutory records, books of accounts, documents and vouchers of an organization. This mainly performed or conducted to ascertain how far the financial statements as well as non-financial disclosures present a true and fair view of the concern. Audit is an activity that attempts to ensure that the books of accounts are properly maintained by the concern as required by law.

Academics have started identifying an "Audit Society" .Since, auditing has become an ubiquitous phenomenon in the corporate as well as the public sector. It is an individual that perceives and recognises the propositions before them for examination. Auditor obtains evidence and formulates an opinion on the basis of his judgement which is communicated through their audit report.

Third party assurance is provided by the auditor on every subject matter. There are many other areas which are commonly audited such as Secretarial & Compliance Audit, Internal Controls, Quality Management, Project Management, Water Management, and Energy Conservation.

In case Small Business owners, the thought of a financial audit is formality. The financial position and organization of a business can be revealed by auditor. Through this, Small Businesses can receive tremendous benefits from better understanding their financial position. Financial audits are also beneficial in highlighting areas of success or concern in a business and help the management team find greater pathways to future success.

Following are the Benefits of Legal and Financial Audit

• Better rate of securing financing
• Preparation for business growth
• Lower interest rates on business loans
• Identifying business weaknesses to avoid future tax penalties

Financial review leads greater familiarity to business owner of how the business operates, uses cash and assumes risk.  

Importance of Legal and Financial Audit for Small Businesses in India

Evaluation of effectiveness of the company’s internal controls is a work performed in audit. There are ways to maintain effective system of internal controls which is vital for achieving a company’s business objectives. This also includes obtaining reliable financial reporting on its operations, prevention of fraud and misappropriation of its assets, and minimizing its cost of capital. Auditors contribute in Both internal as well as independent audit system in different but important ways.

Objective of audit is to pursue and attain its various corporate objectives. Company should follow audit system. There are various forms needed in Business processes to facilitate supervision and monitoring, prevent and detect irregular transactions, measure ongoing performance, maintain adequate business records and to promote operational productivity. It also enables further investigation by management if it is warranted under the circumstances.

Risk of Misstatement is assessed by the Auditor in a Company’s financial reports. Company would not be able to create reliable financial reports for internal or external purposes or system of internal controls. It is not easy to allocate resources to know which of its segments or product lines are profitable. Management of affairs and also it would not have the ability to tell the status of its assets and liabilities and would be rendered undependable in the marketplace due to its inability to consistently produce its goods and services in a reliable fashion.

Fraud Prevention can be obtained internal audit as it serves an important role for companies. Maintenance of rigorous systems of internal controls can prevent and detect various forms of fraud and other accounting irregularities. It can also in analyzing company’s operations. Deterrence is one of the important part of fraud prevention. In case a company is known to have an active and diligent audit system in place, by reputation alone it may prevent an employee or vendor from attempting a scheme to defraud the company.

Cost of Capital is a n important aspect for every company taking size into consideration. It largely comprises of the risk associated with an investment and in case the investment is at more risk then there is a requirement of higher rate of returns. Strong audit systems has the ability to reduce various forms of risk in an enterprise which also risk of information. Learning experience for any start-up business owner or management team.

Role of Recommendations

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• Personal recommendations are the number one driver of consumer purchase decisions at every stage in the purchase cycle across 10 product categories studied, from banking to vacation travel and from subscription entertainment to retail categories, such as apparel and personal are products.
• Recommendations are the #1 factor across all stages of the purchase cycle, from becoming initially aware of a product right on through to the actual purchase decision. Other areas, such as advertising or online sources of information, are important for one or another phase but not throughout. And none are as important as recommendations. For example, advertising is important during the awareness building phase, while online activity, such as price comparison websites, social media, or ratings and review sites are important during the phase where consumers are deciding among several options.