Audit of Accounts of Sole Proprietor
Sole Proprietor or trader is a person who solely owns, manages and controls a business.
Sole proprietor decides upon auditing the accounts and decides upon the scope of audit and appointment of auditor. There is no legal compulsion for audit of accounts of a sole proprietor but usually business concerns get audited especially when the volume of transaction is large. Before conduct of audit, the auditor should obtain an agreement from the proprietor stating the scope, conduct and any specific instructions of audit. The rights and duties of an auditor will depend upon the terms of agreement with the client. In future when the auditor is charged for negligence, he can protect himself by producing the agreement of audit.
The sole proprietor gets several benefits from audited accounts; some of them are as follows:
1. Accuracy of Accounts: Audited accounts reveal the truthness and correctness of transactions and provide an assurance that accounts are properly maintained.
2. Detection and Prevention of Errors and Frauds: It helps in detecting and preventing errors and frauds in the books of accounts.
3. Provides Assurance of Proper Accounting: The trader is assured that his incomes are properly accounted and expenditures are properly vouched.
4. Discovery of Defalcations: He is also assured of not being defrauded by any of his employees or agents, as the defalcations are discovered by the auditor.
5. Helps in Comparing Accounts: The presentation of accounts on a uniform basis helps comparison of various classes of expenditure from year to year. In case the expenditure crosses the budgeted targets, causes for the same may be ascertained and remedial measures may be taken.
6. Relied by Statutory Authorities: The audited accounts are the reliable document of sole proprietor for income tax and wealth tax purposes.
7. Helps in Settlement of Claims: Audited accounts may also facilitate the settlement of various kinds of claims.
8. Moral Check on Employees: It enables to have a moral check among employees especially among dishonest staffs.