Auditing is an independent examination of an entity’s historical financial information by a professional accountant with the objective of forming an opinion on the said historical financial information.
Assurance refers to a high degree of confidence. Parties engage professionals in assurance engagements in order to be satisfied that the subject matter is as purported to be. Auditing provides a high (but not absolute) level of assurance i.e. reasonable assurance.
Having the books of accounts of an entity checked by an independent professional adds to their credibility.
The users of the audited financial statements who value this credibility to a larger degree include:
- Government and the revenue authorities
- Service providers e.g. insurance companies and financial institutions
- Other stakeholders e.g. investors, suppliers and clients.
Some of the benefits of external/statutory audits include:
- It increases credibility of the financial statements
- It confirms to management that they have performed their statutory duties correctly
- It provides feedback on the effectiveness of internal controls
It fosters good relations with other service providers especially lenders, financial institutions and insurance companies.