Importance of Auditing

The importance of auditing can be judged from the fact that even those organizations which are not covered by the companies Act get their financial statements audited. It has become a necessity for every commercial and even non-commercial organization. The importance of auditing can be summed in following points:

Audited accounts help a sole trader in knowing the value of the business for the purpose of sale.
Dispute over the correctness of profits can be avoided.
Shareholders, who do not know about the day-to-day administration of the company, can judge the performance of management from audited accounts.
It helps management in detecting and preventing errors and frauds.
Management gets advice on financial affairs from the auditors.
Long and short term creditors depend on audited financial statements while taking decisions to grant credit to business houses.
Taxation authorities depend on audited statements in assessing the income tax, sales tax and wealth tax liability of the business.
Audited accounts are useful for the government while granting subsidies etc.
It can be used by insurance companies to settle the claims arising on account of loss by fire.
Audited accounts serve as a basis for calculating purchase consideration in case of

amalgamation and absorption.

It safeguards the interests of the workers because audited accounts are useful for

settling trade disputes for higher wages or bonus

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Financial statements & analysis

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