The fact that audit is compulsory by law, in certain cases by itself should show that there must be some positive utility in it. The chief utility of audit lies in reliable financial statements on the basis of which the state of affairs may be easy to understand. Apart from this obvious utility, there are other advantages of audit. Some or all of these are of considerable value even to those enterprises and organisations where audit is not compulsory, these advantages are given below :
- It safeguards the financial interest of persons who are not associated with the management of the entity, whether they are partners or shareholders.
- It acts as a moral check on the employees from committing defalcations or embezzlement.
- Audited statements of account are helpful in settling liability for taxes, negotiating loans and for determining the purchase consideration for a business.
- These are also useful for settling trade disputes for higher wages or bonus as well as claims in respect of damage suffered by property, by fire or some other calamity.
- An audit can also help in the detection of wastages and losses to show the different ways by which these might be checked, especially those that occur due to the absence or inadequacy of internal checks or internal control measures.
- Audit ascertains whether the necessary books of account and allied records have been properly kept and helps the client in making good deficiencies or inadequacies in this respect.
- As an appraisal function, audit reviews the existence and operations of various controls in the
organisations and reports weaknesses, inadequacies, etc., in them.
- Audited accounts are of great help in the settlement of accounts at the time of admission or death of partner.
- Government may require audited and certified statement before it gives assistance or issues a licence for a particular trade.