Limitation And Advantages Of An Audit Of Economic Statements

Limitation And Advantages Of An Audit Of Economic Statements

Auditing of economic statements is often performed by audit corporations based mostly on the engagement that request by the entity. The entity needs its monetary statements audited yearly someday primarily based on the law or typically based on their own requirements.

A big company is generally required by law and small business with low turnover and staffs is generally exempted from the audit. This is to reduce costs for the reason that professional fee like the audit fee is often high.

There are numerous customers of the audited report and monetary statements. Those including staff, administration’s workforce, the board of directors, shareholders, clients, suppliers, banks, creditors and government writerity.

Audit of financial statements has numerous advantages and limitation of auditing to the entity, right here they're:

Limitation of auditing:
The advancedity of enterprise and system could someday limited auditor from obtaining the finished view on entity critical inside controls. Auditors will not be able to carry out the proper risk assessment.
Management intention and override controls are typically couldn't detect by auditors. For instance, inside control is reliable only if people working within the entity observe and have the precise to execute their roles. Nonetheless, if administration overrides the management, auditors might not be able to detect the fraud risks or errors.
Materialsity primarily based is what auditor uses to carry out its overview and sampling. Which means some sensitive fraud risks with the insignificant amounts that probably out of auditor scope couldn't be detected by auditors.
Fraud detection will not be an auditor’s responsibility. This is what acknowledged within the audit engagement and audit standards. This typically different from the entity’s management expectations. Auditors ought to carry out fraud risks assessment, however the fraud risk detection and prevention shouldn't be their major responsibility within the audit engagement. Public and administration think fraud detection is the auditor’s responsibility.
Auditors will conclude that there aren't any material misstatements discovered if, after their testing, they discovered nothing materially misstated. Nevertheless, the conclusion here relies on their sampling. Audit sampling won't cover the material errors or fraud, especially auditors who lead or perform the critical risk areas do not need sufficient skill and experience.
Time constraints can affect the quality of audit works and reports. This happens when auditors have a lot of clients on hand at the similar time, they usually could not handle their tasks that the quality that had set.
Auditor’s qualification is essential for the quality of the audit report. Some auditors have sufficient expertise not only in auditing skills but in addition within the industry that they are auditing. However, a few of them don’t. Poor auditor’s qualifications will lead to poor quality of audit reports.
Scope of the audit is cover only the monetary statements over the interval that they're auditing; nevertheless, the fraud would possibly occur in others interval outside the scope.
Independence and battle of curiosity of audit workforce members can increase the risks of poor audit quality and audit reports. If the conflict of curiosity shouldn't be minimized to the acceptable stage as required by ISA 500, then the audit report won't be delivered on the quality that it should be.

Advantages of auditing:
Quality of monetary information is essential for key stakeholders like buyers, bankers, BoD, as well as the management team. Audit of monetary statements may be certain that the quality of monetary info that flows to those group of individuals are true and fair. And the key choice that they make through the use of audited financial info will be in one of the best opinion.
Compliance with the law of country or territory that the entity is operating in could be very important. Have their financial statements audit annually by qualified auditors and then submit to relevance authorities body might assist the entity comply with statutory audit requirement. And avoid any penalty that could significantly affect the entity.
The auditor will help shareholders to overview the financial statements on their behalf. This might reduce the shareholder’s double on the management team. Auditors have higher skills than shareholders in this area.
The audit of financial statements may help improve management’s integrity, especially when the results of the audit proves that the financial statements are true and honest view.
Auditors have expertise in each inner management and financial reporting. Have an auditor audit on an entity’s financial information may help the management team to access the experience this hold by the audit firm.
Improve inner controls: auditors may assist to assessment the accounting system, procedure, folks, and process of the entity. It can assist the entity to improve its key inner management that would reduce fraud risks and errors.
Protects Fraud and Error may administration couldn't detect.
Trust from other organizations: Creditors, banks, and government creatority.
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