Home > Free Essays > Business > Accounting > How Auditing Affects the Operation of a Business

How Auditing Affects the Operation of a Business Research Paper

Exclusively available on IvyPanda Available only on IvyPanda
Updated: Dec 30th, 2021

Introduction

An audit refers to a planned, organized and documented process that provides a business or an organization with a means to evaluate its performance. It provides the business or the organization with information concerning the quality of its products, customer services and management. This information is important in either improving or supporting its operations in order to get desired outcomes. Business auditing refers to the process of going for business logic and objects. Auditing is carried out for various reasons such as to evaluate the tasks done weekly, monthly or yearly. There are various types of audits which include the operational audit, financial audit and compliance audit (Gardiner & Harrington, 2001). The operational audit analyzes the business activities to assess its performance in order to come up with ideas on how to improve resources. The financial audit analyzes financial records and operations related to finance in order to determine where the records follow the acceptable principles of accounting. The compliance audit aims to analyze whether the established policies are followed in running the business (Simmons, 1995).

Main body

Auditing aims to increase the value and to improve operations of an organization. It also helps the organization to work on the objective by providing an organized approach to assess and work on managing risks, improving and controlling the process of governance. Auditing presents several impacts in business operations which are observed in terms of effectiveness, responsibilities and in the setting of goals a business.

Auditing gives a business a way of evaluating how effective its operations are. This is because the information presented after auditing can be used to compare past and present operations. For profit making organizations, it provides the business with an idea of whether it is making profits or losses. Auditing is also a means of carrying out business operations in a transparent manner since the records of accounts are included. This ensures that no fraudulent practices are carried out (Robertson & Frederick, 2001).

Apart from providing accountability, auditing also provides a means to proof the reliability and integrity of operations and financial information carried out in a business. This is because a thorough evaluation is carried out in all departments of the business. It also ensures the effectiveness of business operations by providing information on any risk that may be facing the business in terms of governance, information, and operation information. Alerting the management on the risks that the business may be exposed to gives the business the confidence to pursue goals as the risks are managed or avoided (Shah, 2007).

The main area of auditing in many businesses is financial department. However, there are other non-financial aspects that go hand in hand with the evaluation of the financial department. These include the evaluation of performance management, ethics in the organization, governance process, and the communication department (Internal Audit Report, 2009). The assessment done during auditing looks at how adequate and effective the above mentioned departments are in achieving the goals of the business. Thereafter, the areas that are identified to be wanting are rectified and those that found effective are improved or supported. Auditing ends up enabling the business to be effective since there is controlled operations. It assures the management on accuracy and reliability of any financial information and reports in the business. It also provide a reliable source of information on the safety of assets, maximized use of resources, proper use of policies in the business and it also provide a framework when setting any objective in the business (Nosworthy, 2001).

Responsibilities

Auditing provides a means of controlled operations, in a business; it ensures that resources are efficiently and reasonably utilized. This means that operation values are established and any deviation from the set standards is acknowledged, examined and passed to persons responsible in order for corrections to be done. Auditing thus plays a major role in ensuring that responsibilities are properly handled. It also helps the managers to find out if the controls over operations in the organization are carried out according to the policies set to achieve goals. This is done through the report given by the auditors which includes any factors that may be inhibiting the business from achieving the set goals. Once the factors inhibiting achievement of the goals are identified, they are analyzed and corrective measures are put in place (Cascarino & Esch, 2007).

Monitoring of activities helps to verify the progress of the business towards the goals. This calls for commitment of the personnel involved in the various departments and eventually responsibilities are assured in the process. Auditing follows four major steps: planning, collecting evidence, examining evidence and finally issuing the report. It can thus be an effective tool in detecting any vices in a business such as corruption or fraudulence. This can be detected if there is documentary evidence that is missing because during auditing recorded information is used to assess the past activities carried out. It thus act as a tool to emphasize responsibilities since every personnel in the business is accountable to certain areas in the final report of audit (Taylor & Glazen, 2000).

Desired outcome

One main objective in carrying out auditing is to come up with an opinion of whether the available operating systems are sufficient and reasonable in assuring achievement of the desired outcome. Auditing helps to discourage abuse or misuse of the resources in a business or an organization. This is through encouraging accounting of any operation carried out in day to day activities of the business (Cutt & Murray, 2000).

Auditing plays the role of ensuring that the suggested rules and regulations are practiced thus it acts as the device to evaluate compliance of the activities with the guidelines. Generally, auditing is very critical in sustaining and ensuring implementation and success of the business policies. The final report provided by the auditor(s) acts as a precedent in the activities or actions that would follow. For instance, if the report shows a down trend of the business in terms of utilization of resources, this calls for serious steps being taken in the affected department while if there is improvement in the performance, a means of supporting this is provided (Ampomah & Collier, 2007).

Conclusion

Auditing is a major component in a business that aims to achieve certain set goals. The auditing report plays a major role in making decisions concerning the operation of the business such as whether to lend money, extend credit or to increase the stock. The role of auditing is to examine the links involved in the business activities through a systematic order and ensuring that there are no hindrances in achieving the goals of the business.

References

Ampomah, S. & Collier, P. (2007). Management accounting-risk and control strategy. New York: NY. Butterworth-Heinemann.

Cascarino, R. & Esch, S. (2007). Internal Auditing: business & Economics. New York: NY. Juta and Company Ltd.

Cutt, J. & Murray, V. (2000). Accountability and efficiency evaluation in non-profit organizations. London. Routledge.

Gardiner, K. & Harrington, M. (2001). Occupational hygiene. London. Wiley-Blackwell.

Internal Audit Report (2009). Audit of Business Continuity Plans. Canada. Canada boarder services agency.

Nosworthy, B. (2001). Role of the Auditor General in Public Accountability. New York: NY. Universal Publishers.

Robertson, C. & Frederick G. (2001). Auditing. Plano, TX: Business Publications.

Shah, A. (2007). Performance accountability and combating corruption. London. World Bank Publications.

Simmons, M. (1995). Internal Audit Objectives: A Comparison of the Standards with the Integrated Framework for Internal Control. United States.CIA CFE.

Taylor, D & Glazen, G. (2000). Auditing: Integrated Concepts and Procedures. 7th. Ed. New York: NY. John Wiley & Sons.

This research paper on How Auditing Affects the Operation of a Business was written and submitted by your fellow student. You are free to use it for research and reference purposes in order to write your own paper; however, you must cite it accordingly.
Removal Request
If you are the copyright owner of this paper and no longer wish to have your work published on IvyPanda.
Request the removal

Need a custom Research Paper sample written from scratch by
professional specifically for you?

801 certified writers online

Cite This paper
Select a referencing style:

Reference

IvyPanda. (2021, December 30). How Auditing Affects the Operation of a Business. https://ivypanda.com/essays/how-auditing-affects-the-operation-of-a-business/

Reference

IvyPanda. (2021, December 30). How Auditing Affects the Operation of a Business. Retrieved from https://ivypanda.com/essays/how-auditing-affects-the-operation-of-a-business/

Work Cited

"How Auditing Affects the Operation of a Business." IvyPanda, 30 Dec. 2021, ivypanda.com/essays/how-auditing-affects-the-operation-of-a-business/.

1. IvyPanda. "How Auditing Affects the Operation of a Business." December 30, 2021. https://ivypanda.com/essays/how-auditing-affects-the-operation-of-a-business/.


Bibliography


IvyPanda. "How Auditing Affects the Operation of a Business." December 30, 2021. https://ivypanda.com/essays/how-auditing-affects-the-operation-of-a-business/.

References

IvyPanda. 2021. "How Auditing Affects the Operation of a Business." December 30, 2021. https://ivypanda.com/essays/how-auditing-affects-the-operation-of-a-business/.

References

IvyPanda. (2021) 'How Auditing Affects the Operation of a Business'. 30 December.

Powered by CiteTotal, essay referencing maker
More related papers