Why does auditing matter?

Quick note: what we’re talking about in this section is the benefits of auditing if it works as most people think it should. In practice, sometimes this is not the case. See auditing failure. 

Right, now we’ve got that out the way: there are a few reasons good auditing matters. Perhaps most importantly, double-checking company books makes it more likely that anything that is incorrect (deliberately or mistakenly) will be spotted. Having someone who is not connected to the company do the checking should make such catches even more likely, because independent third parties shouldn’t have a favourable bias towards the company or an incentive to cheat to make the accounts look better than they are. 

But there’s more to it than that. Even when the books are completely correct, by adding another layer of oversight auditing adds transparency to the workings of a business. That helps build trust in companies and their operations. All of which matters, because how a company does business can impact a lot of people, including its staff, its customers, its shareholders, and even the society, government and economy of the country it resides in. When it comes to a company’s overall financial health, knowing the lay of the land and being confident that any problems will be detected early allows stakeholders to make better economic decisions for themselves. For example, if you knew the company you worked for was losing a lot of money, you might start dusting off your resume and delaying big spending splurges so that if you’re laid off you’ve protected yourself financially. 

An additional function audits could have is to provide stakeholder groups with relevant information about the way a company does business. For example, customers and shareholders may not wish to give their money to a company that is pouring a lot of toxic sludge into rivers or otherwise performs poorly on environmental metrics.