Unfortunately, auditing is not necessary for effective financial reporting. Do you agree with this statement? In 250 words, defend your position.
Auditing is a means of evaluating the effectiveness of a company’s internal controls. Maintaining an effective system of internal controls is vital for achieving a company’s business objectives, obtaining reliable financial reporting on its operations. Both internal and independent auditors contribute to a company’s audit system in different but important ways.
I would disagree with this statement. An auditor main job is conducting detailed analyses of the inflow and outflow of cash, the amounts the company owes and the value of the company’s assets. They also review the value of the company’s resources when they were acquired, their optimum use and details of the taxes paid by the company. There are many other importance’s of the auditing as well:-
Risk of Misstatement
Auditors assess the risk of material misstatement in a company’s financial reports. Without a system of internal controls or an audit system, a company would not be able to create reliable financial reports for internal or external purposes.
Fraud Prevention
An audit serves an important role for companies in fraud prevention. Recurring analysis of a company’s operations and maintaining rigorous systems of internal controls can prevent and detect various forms of fraud and other accounting irregularities.
·Managing the Cost of Capital
The cost of capital is important for every company, regardless of its size. Cost of capital is largely comprised of the risk associated with an investment, and if an investment has more risk, an investor will require a higher rate of return to invest.
If auditing is not there in the company than the misuse of resources will be higher and company will not able to grow or survive in the long run.