Explain the importance of audit to a limited liability company

Auditing and Assurance Revision Questions and Answers

Importance of audit to a limited company

• An audit protects the interests of the shareholders who are separated from the management of the company. This is especially the case for minority shareholders who have little say in the management of their company.
• An audit being an independent examination of the financial statements gives credibility to the financial statements. The various users can therefore place reliance on them;
• The audit ensures that the directors have fulfilled their statutory obligations and acts as a precaution against frauds on the part of employees.
• The auditors experience will enable him to make recommendations on ways of improving the accounting, internal control system and in the standards of the company‘s reporting to its members.
• An audit ensures that the financial statements are prepared in accordance with the generally accepted accounting standards. This improves the comparability of the financial statements.



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