Introduction
Auditing standards are formulated under the council of Institute of Chartered Accountants (ICAI) only to make sure that the information that is delivered in the financial statements is of high quality and authentic. The few formulated standards are in par with the international standards issued by the International Auditing and Assurance Board (IAASB). Similarly, accounting standards are a common set of principles, procedures and standards which makes the basis of financial accounting practices and policies. With the help of these standards the transparency and quality of the financial reports are maintained in all the countries.
- Understanding Audit and Accounting Standards
Financial Auditing is the way in which an individual or an organisation’s financial records are examined to determine whether they are of high quality and accurate in accordance to the accepted accounting standards, regulations and law. There are external auditors and internal auditors who carry out different parts of the process as assigned to them, usually taking place in an Audit Firm to protect the business from thefts and frauds. Auditing also includes planning where the overall audit strategy and an audit plan are developed. The accounting standards are related to every aspect of an individual or organisation’s assets, liabilities, revenues, expenses and shareholders’ equity. Big and small organisations as well as individuals count on accounting standards to ensure that the information provided to them is authentic and relevant.
- Importance of Audit and Accounting Standards
When an organisation or a business is run by several people where a number of transactions are bound to take place by every individual involved in it, accounting standards are used in every business that comes with a set of principles, guidelines and a set of measures to help the entity understand the profits or losses and keep a record of all the transactions made. There are several reasons that make Accounting Standards important like,
- Comparing:
The most important factor about accounting standards is that it presents all the financial records of the entity. Every government or non-government organisations make use of these accounting standards to compare their position in the market with that of the similar entities around them. With this, both the external and internal observers get to weigh the state of an entity in comparison to other entities.
- Transparency:
The accounting standards are important because of another factor which makes it universally accepted and used without any doubts. It brings transparency within the governing bodies of the organisation. The set of rules, procedures and accounting principles are all selected and used by everyone collectively that assures the transparency in the financial records of the organisation. Such transparency is mostly valuable for the government organisations like public trade companies.
- Accuracy:
The accounting standards are implemented in business organisations to provide the most relevant and accurate financial records. When everyone who is involved with the entity follows the same set of rules and accounting principles, they are bound to stick to them and provide accurate and relevant information without finding and resorting to loopholes within the system.
The importance of Audit has a long list of reasons why it should be carried out regularly. Here are some of the most important ones like,
- Provides the entity with detailed overview: Once the external or internal auditors are done with auditing and managing the financial records, they will hand over the records to the organisation for them to evaluate on how the business is running. The small mistakes that might have got overlooked by the business owners can be identified through auditing.
- Increased Reliability: With regular auditing of a small or big business organisation, there is going to be more reliability in the records when there is a lot of transactions and investors getting involved. There will be regular records of all the finances which provide the company with an accurate and relevant record of everything to assure that the business is running as planned. With auditing, reliable financial statements can be received which saves the business from risks and unforeseen expenses.