Question

“Accounting is a necessity to business but auditing is a luxury” Comment on the statement

Answer 1

A perception that accounting is necessary prevails, while auditing is not so. Accountancy, in other words, is a must, whereas auditing is a luxury.

Explanation:

Accountancy was properly treated as a requirement. For this argument, the following arguments can be put forward:

1. An entrepreneur can't recall all his business dealings. Its memory is too small to keep every aspect of daily transactions in mind. The right documentation of these transactions are thus important.
2. Accountancy also helps to know how many transactions have happened in a given time frame and what kind. Accountancy is inevitable to analyse the actual impact of each transaction.
3. For a certain amount of time one needs to hold accurate records for sales and acquisitions. This transactions and sales figures will potentially help us decide whether the company is worth profiting or losing.
4. Details on different forms of revenue and spending is accessible by accounting.
5. A comparative benefit or loss analysis may be carried out over various years. In addition, accounting allows disciplinary action to be taken by determining where revenue leakage or undue spending exists.
6. Content frequently demonstrates what the firm owns and owes, that is to say, an idea of the company's assets and liabilities. It therefore provides a good idea of the market situation.
7. There is also the prospect of a retrospective analysis of various types of liabilities and assets over the different years. Therefore, accountancy reveals the reasons for capital rise or decline.
8. Proper accounts show the capital return spent in the firm.
9. If the company is to be sold or bought by some other unit, an accountancy challenge occurs in order to determine the worth of the goodwill of the organisation on a given date.
10. Evaluation of income tax liabilities, sales tax etc. With Accountancy 's support is possible.

The following points have been put out in favour of those who argue that auditing is luxury:

1. The businessman is the owner, the director and the accountant for a small company. He himself has bought and sold the same amount of goods. Therefore, it is not necessary to audit such enterprises' accounts In addition, the audit is also costly.
2. The owner receives huge income in certain industries, but the trade can be highly restricted in such industries e.g. jewellery. The businessman will write the accounts here himself and thus auditing is unnecessary.
3. Where the auditing job is to be delegated to the competent auditors, their expenses are clearly more onerous to the small entrepreneur. In such cases, in comparison to the costs of the audit, the benefit of the audit is minor.
4. Until an entrepreneur himself authors the books of accounting, theft or deception are not feasible. Audit is not required under these circumstances
5. Separate information, reports and registers, etc. shall be required by the auditors during the audit work. It disrupts the everyday work of businesses, which leads to wasting of workers' time and adversely affects their productivity.
6. Frauds and errors exist in certain cases, despite the auditor checking and validating the accounts. The courts have also found that the auditor is not responsible for not finding frauds and mistakes, provided he demonstrates fair care and ability. Where this is the position and the auditor does not promise the completeness of the accounts,  then there is no meaning of audit. This implies that audit is a luxury.

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In which year accounting separated from auditing? - Brainly.in

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