November 18, 2020 Last updated March 18th, 2022 752 Reads share

Why Accounting and Auditing Play a Substantial Role in Today’s Business?

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The main motive of every business organization in the world is to maximize its revenue or profit by adapting all the available courses of action. In fact, the competition among different organizations is gradually increasing, which makes it harder for a business to survive in the global market for a long period without adequate profit. Hence, each one of them is trying to maximize the revenue by making changes within the organization and upgrading the business.

The two major tasks which have a straight impact on the profit and working of an organization are Accounting and Auditing. Now, obviously, everyone will have a curiosity to know how effective accounting and auditing increase the revenue of a firm?

Accounting is the fundamental part of every organization, irrespective of the nature and type of activities carried out by it. Over the years, like many other countries, UAE has also emerged as a leading business center inviting businesses from across the globe to set up commercial operations in the country. For example, a good number of audit firms in Dubai provide assurance of business financial information. The recording, analyzing, and summarizing of all the transactions help to know the firm’s credit-worthiness and financial position. Even though we are known to the importance of accounting, we must know in what ways it’s helpful to an organization.

Suppose, there is a person who owns a business firm, before commencing the business, he brought some amount as capital and purchased some furniture on a credit basis. But he neglected to record the entry of the furniture as he did not give due importance to accounting. Similarly, he was not aware of recording the depreciation of the furniture. Since he ignored to record these transactions, which brought imbalance between assets and liabilities, the amount of the purchase of furniture was a liability as well as the depreciation of the furniture was to be deducted from the asset, but he ignored, as a result, the asset instead of decreasing, increased. Similarly, he sold some goods to a vendor for credit but after some time he was proved to be insolvent and was considered as bad-debt. But again he repeated the same mistakes of ignoring the accounting principles. He did not even create a provision for the bad-debt account and didn’t deduct it from the debtors, which again affected the assets. So instead of decreasing the assets, it increased.

Isn’t it dreadful to imagine a situation without proper accounting? If the person mentioned, adopted a proper accounting, he could have avoided the error. So in order to avoid making further mistakes, a firm must have a perfect accounting system.

How Accounting Helps the Company?

Every company is involved in many financial transactions each day, which should be recorded. If the company ignores even a minute transaction, it may have a drastic effect on profit. So this implies that all the firms should maintain a proper record of transactions. Accounting provides the firm with a clear picture of all activities performed by the firm. Suppose if the sales manager wants to clarify the total sales of the month then he can go through the sales book to know the total sale. Similarly, if the top-level managers want to know about the liabilities of the firm, then, they can check the balance sheet to get an idea regarding it. Hence, it is very clear that accounting is an important part of the firm which makes the organization follow its objectives more smoothly.

Auditing services help balance the company’s finances, by conducting deep analysis will identify the financial problem of the business and prevent fraud within the company.

How Do Accounting and Auditing Go Hand in Hand?

Accounting and Auditing are closely interrelated. As we know that accounting refers to recording and summarizing all transactions. Similarly, auditing means evaluation and rectification of errors in accounting as well as the plans and policies of the company. Suppose a firm sent a cheque of a particular amount to a bank for collecting, but it was not cleared by the bank so far, still, the firm entered the amount in the cash book believing that it was received. But exactly it was not, which resulted in a difference between two books, of the firm and the bank.

Outsourced accounting services and auditing will have enhanced time management abilities. Proper auditing can help the firm by rectifying these errors and maintaining all the records accurately. Not only that but it helps to avoid any such circumstances through proper auditing. Auditing makes sure that every firm follows the preset standards and works according to principles. Suppose, if a firm doesn’t follow the imprest system of petty cash books to maintain the petty expenses, then it may promote many fraudulent malpractices. So in order to avoid such malpractices, the auditors examine whether the firm follows the imprest system.

Likewise if a firm purchases some assets such as machinery, furniture, etc which may rear out with the usage, it is mandatory to maintain a depreciation account, also there are various methods to allocate this depreciation. Such as the straight-line method, written down value method, etc. here an auditor will assist you to choose an appropriate method and maintain the depreciation account accurately.

Businesswoman checking bills using magnifying glass -DepositPhotos

Pranab Bhandari

Pranab Bhandari

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