Audit of Sole Trading Concerns – Guidelines to Auditors
Auditing the accounts of sole trading concerns is not mandatory and there is no legal compulsion. But now-a-days it has become customary to have the accounts of sole trading concerns audited, especially those traders whose area of operations and the volume of business are very large. Sole trader will decide about the scope of audit and appointment of auditor.
The auditing work will depend upon the agreement of audit and the specific instructions given by the proprietor. Such an auditor must get clear and unambiguous instructions in writing by his client as to what he has to do and how he has to proceed. In future if auditor is held responsible for negligence, he can protect himself by producing the agreement of audit.
In case of sole trading concerns, sometimes auditor is appointed to prepare the accounts; sometimes he is asked to audit the accounts. Therefore, it is very important that he must know his exact duty and the nature of the work he is called upon to do. If he is called upon to perform the full audit, he must see that the accounts are properly prepared and that the Balance Sheet is correct. To sum up, he must act strictly as per the instructions of his employer.
Advantages of Audit to a Sole Trader
The sole traders get the following benefits from the audited accounts:
1. The trader is assured of his accounts being properly maintained and his expenditures properly vouched.
2. He is also assured of not being defrauded by any of his employees or agents. He can also come to know if any frauds committed by any of his employees.
3. Audited accounts are considered reliable for income tax purposes, wealth tax purposes, estate duty, and other claims.
4. Audited accounts may become the basis for settlement of final accounts.
5. Comparing of figures of different periods is made possible.