Economic Benefits of Auditing
Economic benefits must accrue from audits to justify such costs. Auditing such as examination of the books accounts and a bachelor of business as well enables the auditor to satisfy himself that the balance sheet is properly down up. It is the process of reviewing and investigating any aspect of a business, whether financial or nonfinancial. It is an official examination and verification of accounts and records, especially of financial accounts.
Among the economic benefits of financial audits are the following:
(a) Access to Capital Markets: As noted previously, public companies must satisfy statutory audit requirements under the federal securing acts in order to register securities and have them traded in the securities market.
(b) Lower Cost of Capital: Small companies often have financial statement audits to obtain bank loans or more favorable borrowing terms. Because of the reduced information risk associated with audits financial statement.
(c) Deterrent to Inefficiency and fraud: Research has demonstrated that when employees know that an independent audit is to be the mode, they take care to make fewer errors in performing the accounting function and are less likely to misappropriate company assets.
(d) Control and Operational Improvement: Based on observations made during a financial statement audit, the independent auditor can often make suggestions to improve controls and achieve greater operating efficiencies within the client’s organization.
However, audited statements help to assure the efficiency of the financial markets by deterring the prior dissemination of inaccurate information or limiting its life.