Starting and uplifting a business to its greatest level requires 360-degree vision so that all important things are done regularly, efficiently, and most importantly, accurately. Business is not all about money; it's about finances, and when we talk about finances, the topic becomes huge. An organisation's financials pave the path to success or failure, and in the modern world, they lay the foundation for investors' and customers' trust.
And to ensure that everything is perfect financially a business requires auditing. Accounting without auditing is worthless, and in most cases, it leads to severe legal issues or the complete downfall of an organization. Today, in this blog from Excellence Audit & Accounting Service - one of the best audit firm in Oman, we will discuss the importance of auditing and its impact on an organisation's overall growth and reputation. Simply put, we are going to burst the biggest myth about auditing, which is that auditing is required to remain safe from legal issues only. So, let's dig deep into it.
What is Auditing?
Auditing is a practice or process to check and verify the financials of an organiations. This means that auditing is done to check, analyze, and cross-verify everything the company claims. Auditing not only improves the quality of accounting but also discovers the best way to remain untouched by legal and government authorities. Auditing encompasses everything related to finance, including cash flows, balance sheets, transactions, assets, and whatnot. It helps find a company's real worth and financial health, including its profitability.Types of Auditing
Before knowing the importance of auditing, let's understand the types of auditing so that there is no confusion left. Now, when it comes to types of auditing, the fundamentals and core objectives are the same in every type. The only difference is who is performing the auditing and what the motive behind it is. On that basis, there are three types of auditing, which are explained below.● Internal Auditing
Internal auditing is very important and common in every organization. Mistakes are often common when dealing with a company's financials, where a lot of transactions and money are involved. So, every organization has an internal auditing team that checks and analyses the work done by the accounting team. Sometimes, internal auditing is done by the same accounting team, and in the case of large organisations, there are specialized internal audit teams for regular internal auditing. This auditing ensures everything is done accurately, and if there are any flaws or mistakes, the company can quickly resolve them.● External Auditing
Almost every large-scale and popular company opts for external auditing, and this is really very important for their growth and reputation. External agencies or teams do external auditing. In simple words, the company's employees are not involved in auditing. This makes the auditing unbiased, highly accurate, and most importantly, effective. Most companies go for external auditing after multiple internal audits so that few issues arise.● Government Auditing
Government auditing or commonly known as Statutory Audit is rare and is only practiced by the government if they find anything suspicious in the information provided or claimed by the company. Some companies provide misleading data in order to get relief from taxes and benefit from the government's supportive schemes. In such cases, the government organizes audits in order to find the truth regarding the company's financials.● Benefits of Auditing
Auditing is not a part of daily business operations, but it has an impact on every operation. There are multiple benefits of auditing. Some of them are as follows.● Financial Health
Auditing provides the real and accurate financial condition of an organization. From total expenditure to cash inflow and the company's debt to credit, auditing helps make future strategies. In case of any emergency or opposing situations, auditing provided confidence regarding the company's survival and stability.● Safety from Legal Issues
An organization is connected to multiple organisations and individuals. Thus, everyone connected with the organization has interests. Now, if anyone believes his interests are in danger, the company may face legal action against him. With auditing, a company can win everyone's trust. This leads to safety from legal issues. The same applies to the government also. If the government believes an organisation is fair to it, it will support the organisation in multiple ways.● Optimal Utilization of resources
Auditing is directly connected with financials, but its results are directly connected to business operations. With auditing, a company can discover what's missing and what's wasted. Simply put, it becomes easy to discover the optimal funding for every operation and task. We can not ignore the fact that auditing helps improve the cashflows.● Customer's & Shareholder's Trust
When a company shares its auditing data, the whole market follows it. Everyone takes an interest in the company's audit, from customers to stakeholders and retail investors to competitors. So auditing builds a company's image, and investors', stakeholders', and customers' trust reaches an all-time high. This ultimately results in the company's growth.Importance of Regular Audits For Business
Now that we know the benefits of auditing, one question remains: Is there any need for regular audits? Yes, this is a very important question because most companies prefer annual audits, and some even prefer more than that. Well, annual audits are optimal and recommended. However, regular audits can improve the organisation's efficiency, profitability, and transparency with its stakeholders. Regular audits mean internal auditing every quarter or half yearly. Let's go through the importance of regular audits.- ● Continuous improvement in accounting
- ● Increased accuracy and efficiency
- ● Getting important insights for business expansion
- ● Strengthens customers' and shareholders' trust
- ● Cash flow stability
- ● Monitoring of assets and liabilities
- ● Useful metrics regarding taxes