written by | April 15, 2022

Understanding Auditing, its Objectives, and Advantages

Auditing is an in-depth study of a commercial enterprise’s financial statements. An organisation can conduct an audit by a qualified internal finance department or an outside third party. Some organisations hire the services of government bodies like the Internal Revenue Service to perform the audits. All audits are conducted by individuals who possess the requisite skills.

These individuals examine all the details listed in the books of accounts of the organisation. They assess the financial statements based on various details made available to them. These could be in physical invoices, verbal explanations, other forms of evidence that justify the same, and various related documents. Such details assist the auditors in understanding the accuracy and genuineness of all the transactions. It also helps them detect fraudulent transactions in the accounting records and suspicious financial statements. With their expertise in the subject matter, they submit an impartial submission of their reports.

Did you know?

Many established enterprises have formed scheming associations with audit firms of great repute to avoid paying taxes.

What is Auditing?

All commercial organisations undergo a process of auditing every financial year. A team of auditors analyses the books of accounts. The process also involves a physical examination of all the inventory that has been used, is used and is in storage. The auditing team also explores and understands if the various divisions maintain timely documents of all transactions. The auditors try to detect discrepancies and do their valuations based on the evidence they gather or seek. They submit their findings to the concerned authorities with their respective viewpoints.

The general advantages of auditing are varied. Some of these include:

  • The auditing team helps reveal that the organisation complies with all the necessary regulations of the industry concerning its various obligations. It establishes the creditworthiness of the organisation in the industry.
  • The auditors' unbiased study of the financial statements helps organisations implement their various suggestions in enhancing the growth and development plans healthily, and it boosts the efficiency of the organisations.
  • Skilled auditors can detect fraudulent transactions in any organisation and suggest solutions. Such detections help the organisations to prevent them from occurring again.
  • Auditing aids organisations to resort to improvised budgeting and planning processes in the future.

Also Read: What is Trial Balance - Meaning, Features and Purpose

Audit Definition by Different Authors

The process of certifying the authenticity of the various financial statements of an organisation is better known as auditing. Many renowned professionals have defined auditing from their perspective. Given below are the thoughts of a few authors renowned for their respective inputs:

According to Standard Audit Practices-I, auditing examines a commercial business that could be big or small. It is conducted by a team of skilled professionals who put forth their cumulative assessment after a thorough study of the books of accounts.

According to the Institute of Chartered Accountants of India, the main objective of an audit is a study of all the financial and non-financial performances of an organisation and to evaluate all its financial records and the details thereof. The auditing process is to gather as much evidence to assess the financial records to opine on their respective opinions and judgements.

Objectives of Auditing

Objectives of auditing can be subdivided into the following types:

Primary Objectives of Auditing

These include:

  • The main purpose involves understanding the genuineness of the organisation's financial statements.
  • An examination of the internal records of all departments.
  • Determination of the transactions from a revenue and capital perspective.
  • Making an assessment of the current assets and liabilities and their total value.      
  • Validating if the organisation’s internal finance department has been adhering to the correct policies

Secondary Objectives of Auditing

These include:

  • To notice careless errors, which are quite probable in lack of information. Some of these include errors of exclusion, while others include compensation, standards as well as errors of omission.
  • To perceive if any organisation member has practised fraud for their benefit. It could be incorrect utilisation of funds or maintenance of wrong records. Auditors work towards understanding such fraudulent activities to prevent them from occurring again.
  • The auditing process involves the investigation of the accurate valuation of the inventories held by an organisation. It also protects the organisation from inaccurate valuations made by wrongdoers in their interests.

Also Read: GST audit- When Are You Likely To Be Audited By Tax Officers?

Specific Objectives of Auditing

These include:

  • Examination of all the journal entries and their verification in detail. The auditors will request all types of proof to authenticate such entries.
  • The auditing team will seek clarity on all the liabilities and debts which the organisation claims it has to make. All the obligation claims made by the enterprise will be investigated and validated.
  • An auditing team authenticates whether the value of the assets in the organisation's balance sheet is correctly recorded, i.e. as per its original price at the time of acquisition.
  • Auditing is conducted based on separate financial statements. These include the equity statement that the Proprietor of partners owns, the cash flows, the income statement, and the balance sheet. The auditors then assess and present their submissions of the inadequacy of the disclosures, if any.

What Are the Advantages and Disadvantages of Auditing?


  • The process of auditing helps to prevent fraud in the organisations
  • It helps the organisations to play more practically for the coming financial year
  • It helps organisations to budget wisely and appropriately
  • It helps to improve the performance of the enterprise


  • The auditing team has to include skilled personnel. If the team lacks expertise, the auditing is not effective.
  • Auditing is more appropriate for large-scale enterprises and not feasible for small scale businesses.
  • Studying and validating every trading activity poses a huge challenge and is not possible always.
  • Auditing teams are vulnerable to bribes, and there are instances where they have been threatened to fudge their findings.


Auditing is indispensable to most large-scale organisations to help them detect frauds and discrepancies in their financial transactions. It also helps to establish an organisation's credit rating that adheres to the norms established by the industry.

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Q: What are the big four auditing firms in India?


  • Deloitte
  • PwC (Pricewaterhouse Coopers)
  • Ernst & Young
  • KPMG (Klynveld Peat Marwick Goerdeler)

Q: What is the main purpose of an audit?


The main purpose is to understand if an organisation has been recording all its financial transactions honestly and accurately and is not resorting to any fraudulent methods.

Q: What are the various types of audits?


There are three types of audits:

Internal – Conducted by a team of skilled internal personnel of a company

External – Conducted by third parties

Government – Conducted by government bodies

Q: What is auditing?


It involves the auditing team making a detailed examination of all the financial records and books of accounts. It helps auditors understand if all the organisation divisions have been correctly recording accurate details of every transaction.

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