The Importance Of Audit Systems in Businesses and Organisations
Audits are independent and systematic evaluation or examination of statutory records, documents, books of accounts including vouchers of organisations or businesses. They are conducted or performed to determine if the non-financial disclosures and financial statements present a true and fair view of the business’s financial status. It is an activity that attempts to ensure that books of accounts are properly recorded and maintained as required by law.
Auditors obtain evidence and formulate opinions based on the evidence and educated judgment that is communicated through an audit report. The areas which are commonly audited include Secretarial & Compliance Audit, Quality Management, Internal Controls, Water Management, Project Management, and Energy Conservation. For small businesses, a financial audit is usually done. Through financial audits, businesses can have a better understanding of their financial position. It helps auditors highlight areas of success or concern in a small business. Audits also help the management team find pathways toward future success.
Auditing evaluates the effectiveness of the internal controls of a company. Keeping an effective system of internal controls is important in achieving the business objectives of a business. Obtaining reliable financial information on a business’s operations, preventing or avoiding fraud and misappropriation or misuse of assets and minimising costs are very important in the operations of a business. It is very important that independent and internal auditors contribute to the audit systems of a company in different but significant ways.
Audits enables the pursuit of business objectives. Effective audit systems are important for a business because it allows it to pursue or follow and achieve its various corporate objectives. Most business processes need different kinds of internal control to facilitate the monitoring and supervision of activities and processes, measure ongoing performance, detect and prevent irregular transactions, maintain business reports or records and promote productivity. Internal auditors review the designs of informally proposed improvements and internal controls. They also document irregularities for further investigation by management if necessary.
Auditors assess risks of misstatement. Auditors assess the risk of making material misstatements in a business’s financial reports. Without an audit system or internal controls, a company will not be able to create reliable financial reports for external or internal purposes. It will not be able to determine how to allocate its resources and is unable to know which segments or product lines are profitable or not.
A business will also not be able to manage its affairs, because it does not have the ability to tell the status of its assets and liabilities. The business would also be rendered undependable in the marketplace because of its inability to produce goods or services in a dependable or reliable fashion or manner. Audit systems are vital in preventing incapacitating misstatements in company reports and records.
The risks of misstatement are usually assessed by the auditor through the financial reports. Companies will not be able to create financial reports for external or internal purposes or internal control systems. With misstatements in financial records, it will not be easy to allocate resources to segments or product lines that are profitable. It will also not be easy to manage affairs and tell the status of assets and liabilities. The business might also be considered undependable in the marketplace because of its inability to produce goods and services in a reliable manner.
Audits help in fraud prevention and detection. Internal audit helps prevent fraud in businesses. Regular analysis of the operations of a company and maintaining rigorous internal control systems help in detecting and preventing various kinds of fraud and accounting irregularities.
Professionals providing audit services help design and modify internal control systems for the purpose of fraud prevention. Deterrence is part of fraud prevention. A company that has a functioning and thorough audit system in place may prevent employees or vendors from attempting schemes to defraud the company.
Audits help reduce the cost of capital. Strong audit systems can reduce or help decrease various forms of risks in businesses including the risk of material misstatement in financial reports. It also helps reduce the risk of misuse of assets, fraud and low quality management because of insufficient or lack of information on operations.
Strong audit systems are able to reduce various forms of risk in a business which also risk important information. This is an important learning experience for any start-up business owners or management teams.
Kingston Knight Audit are the Auditor Melbourne experts to contact when dealing with your trust account audit, SMSF Audit, financial statement audit, and internal audit requirements. Contact us today, Kingston & Knight Audit offers a free telephone consultation to establish how we can best help you achieve the assurance and compliance you require.