## Uses and Advantages of Audit

Audit serves multiple stakeholders, not just the entity being audited.

### For Shareholders (Companies)

Shareholders may not be involved in daily affairs. Financial statements are prepared by management (directors). Audit provides an independent mechanism to ensure financial information is qualitative and reliable.

### For Employees — Internal Discipline

Audit acts as a moral check on employees, deterring fraud due to the fear of being discovered.

### For Government Authorities

Audited financial statements help authorities determine tax liabilities.

### For Lenders and Bankers

Audited statements can be relied upon for credit decisions — whether to lend or not to a particular entity.

### Other Uses

Use	Detail
Fraud/Error Detection	An audit may detect fraud or error or both
Control Review	Reviews existence and operation of internal controls
Deficiency Identification	Points out control weaknesses

Worked example

### Example 1

A bank requires XYZ Ltd to submit audited financial statements before sanctioning a ₹5 crore term loan. The audited statements give the bank confidence about reliability of financial information — illustrating the credit decision use of audit.

### Example 2

During an audit, the auditor discovers that a cashier has been siphoning small amounts over 12 months. The fear of discovery had not been sufficient deterrent here, but the audit ultimately fulfilled its fraud detection and moral check function.

⚠️ Common exam mistakes

Confusing 'uses of audit' with 'advantages of auditing standards' — uses focus on stakeholder benefits, not procedural benefits.
Stating audit 'guarantees' detection of fraud — audit may detect fraud, but detection is not guaranteed (this connects to inherent limitations).
Forgetting the moral check / deterrence function — audit deters fraud, not only detects it.

Reference:

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