The Importance Of Auditing And The Advantage And...

Introduction This report explains what auditing means the purpose of auditing and the advantage and the disadvantages of auditing. Also explains what Expectation Gap means and how different people have different views on it, looking at what auditors consider their responsibilities are and what are the expectations. Also looking at the history of the expectation gap and the different definitions people came up with over the years. The Definition of Audit Auditor is an independent qualified accountants opinion on whether the financial statements of an entity are true and fair. Auditors have a necessary part in providing the public with the accurate information and making sure the financial report is true and fair. The definition of an†¦show more content†¦Purpose of this Auditing Auditing is a Legal Requirement that all Limited companies must do in the UK. It is also a contractual requirement for example a bank agreement. Its also very good for commercial pragmatism if you are looking for investors this will provide a good credibility and makes it easier so people too invest in your company. The tax authorities use audited financial statements to control that companies have done their tax returns accurately. Managers at the company use audited financial statements to re-evaluate the risks facing the company and what has to be done to handle these risks. Financial institutions use audited financial statements to assist potential borrowers of the risks and the liquidity of the company. The three justifications of audit are the information hypothesis, agency theory and the insurance hypothesis. The information hypothesis suggests that information becomes more reliable when audited and therefore more useful in decision-making. Agency theory suggests that audit is justified because it has no relation to the business (independent party) unlike the managers. Insurance hypothesis is theShow MoreRelatedAuditing as a profession as evolved drastically over decades and as time has passed auditing1000 Words   |  4 PagesAuditing as a profession as evolved drastically over decades and as time has passed auditing activities has expanded from performing specific assurance activities for management, to assisting and advising management with their specific business activities. The Institute of Internal Auditors define internal auditing as ‘†Ã¢â‚¬ ¦an independent, objective assurance and consulting activity designed to add value and improve an organisations operations. 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