why the need for auditing in companies?

Answer 1

It's supposed to keep companies in check, making sure our retirement and pension funds are intact, to ensure that the directors have carried out their duties, putting the co. before personal interests, etc, but as can be seen from Enron, Worldcom, Parmalat, etc, it's not foolproof. Having said that, with the stricter auditing standards and guidelines put in place after Enron, hopefully, we won't see such bad cases impacting the public. For small companies with no public interest, I don't think they need to be audited. The threat of a tax audit by the tax authorities should be enough to keep them on their toes.

Answer 2

An audit is an examination by Certified Professional Accountants designed to provide the highest level of assurance that the company's financial statements follow generally accepted accounting principles.

Unaudited financial statements are prepared by the company's employees, who have a clear motive for making the statements look more favorable than they really should be. As such, unaudited financial statements are not worth much to most people.

An audit of the financial statements by an independent accounting firm assures all users to the accuracy and completeness of the financial statements. Audited financial statements can be definitely be relied upon, and are comparable to other companies' audited financial statements.