Advantages Of An Audit
We have seen that the need for an external audit in the case of companies arises primarily from the
existence of split-up of ownership from control. There are however, certain advantages in having financial statements audited even where no statutory requirement exists for such an audit in the case of a sole-tradership, partnership, or non-profit organizations for example.
These advantages can be summarized as follows:
a) Disputes between management may be more easily settled. For instance, a partnership which has
complicated profit sharing arrangements may require an independent examination of those accounts to ensure, as far as possible, an accurate assessment and distribution of the profits.
b) Major changes in ownership may be facilitated if past accounts contain an independent audit report,
for instance, where two sole traders merge their business to form a new partnership.
c) Application to lenders/financial institutions for finance may be strengthened by the submission of
audited accounts. However do remember that a bank, for instance, is likely to be far more concerned about the future of the business and available security, than by the past historical accounts, audited or otherwise.
d) The audit is likely to involve an in depth examination of the business and so may enable the auditor
to give more constrictive advice to management on improving the efficiency of the business.
Disadvantages Of An Audit
Like most thing in life, audits are not entirely without their disadvantages. There are two main points to
make here:
a) The audit fee! Clearly the services of an auditor must be paid for. It is for this reason that few
partnerships and even fewer sole traders are likely to have their accounts audited.
b) The audit involves the client’s staff and management in giving time to providing information to the auditor. Professional auditors should therefore plan their audit carefully to minimize the disruption which their work will cause.
We have seen that the need for an external audit in the case of companies arises primarily from the
existence of split-up of ownership from control. There are however, certain advantages in having financial statements audited even where no statutory requirement exists for such an audit in the case of a sole-tradership, partnership, or non-profit organizations for example.
These advantages can be summarized as follows:
a) Disputes between management may be more easily settled. For instance, a partnership which has
complicated profit sharing arrangements may require an independent examination of those accounts to ensure, as far as possible, an accurate assessment and distribution of the profits.
b) Major changes in ownership may be facilitated if past accounts contain an independent audit report,
for instance, where two sole traders merge their business to form a new partnership.
c) Application to lenders/financial institutions for finance may be strengthened by the submission of
audited accounts. However do remember that a bank, for instance, is likely to be far more concerned about the future of the business and available security, than by the past historical accounts, audited or otherwise.
d) The audit is likely to involve an in depth examination of the business and so may enable the auditor
to give more constrictive advice to management on improving the efficiency of the business.
Disadvantages Of An Audit
Like most thing in life, audits are not entirely without their disadvantages. There are two main points to
make here:
a) The audit fee! Clearly the services of an auditor must be paid for. It is for this reason that few
partnerships and even fewer sole traders are likely to have their accounts audited.
b) The audit involves the client’s staff and management in giving time to providing information to the auditor. Professional auditors should therefore plan their audit carefully to minimize the disruption which their work will cause.
