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Limitation and advantages of an audit of economic statements

 

Auditing of monetary statements is normally carried out by audit companies primarily based on the engagement that request by the entity. The entity needs its financial statements audited yearly someday primarily based on the law or sometimes based on their own requirements.

 

 

A big corporation is often required by law and small enterprise with low turnover and staffs is generally exempted from the audit. This is to reduce prices since the professional payment like the audit fee is often high.

 

 

There are various customers of the audited report and monetary statements. These including employees, administration’s group, the board of directors, shareholders, clients, suppliers, banks, creditors and authorities writerity.

 

 

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

 

 

Limitation of auditing:

 

The complexity of business and system might sometime limited auditor from acquiring the completed view on entity critical inside controls. Auditors might not be able to carry out the right risk assessment.

 

Administration intention and override controls are sometimes could not detect by auditors. For instance, inside management is reliable only if people working in the entity comply with and have the suitable to execute their roles. However, if administration overrides the control, auditors might not be able to detect the fraud risks or errors.

 

Materiality based is what auditor makes use of to perform its evaluate and sampling. That means some sensitive fraud risks with the insignificant amounts that probably out of auditor scope could not be detected by auditors.

 

Fraud detection is not an auditor’s responsibility. This is what said within the audit engagement and audit standards. This typically totally different from the entity’s management expectations. Auditors ought to perform fraud risks evaluation, but the fraud risk detection and prevention isn't their main responsibility within the audit engagement. Public and administration think fraud detection is the auditor’s responsibility.

 

Auditors will conclude that there are not any materials misstatements discovered if, after their testing, they found 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 shouldn't have enough skin poor health and experience.

 

Time constraints can have an effect on the quality of audit works and reports. This happens when auditors have loads of clients available on the identical time, they usually could not manage their tasks that the quality that had set.

 

Auditor’s qualification is essential for the quality of the audit report. Some auditors have enough experience not only in auditing skills but additionally in the business that they're auditing. Nonetheless, some of them don’t. Poor auditor’s qualifications will lead to poor quality of audit reports.

 

Scope of the audit is cover only the financial statements over the period that they're auditing; however, the fraud might happen in others period outside the scope.

 

Independence and conflict of interest of audit staff members can enhance the risks of poor audit quality and audit reports. If the conflict of interest is not minimized to the settle forable degree 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 economic information is essential for key stakeholders like investors, bankers, BoD, as well as the administration team. Audit of monetary statements could ensure that the quality of financial info that flows to those group of individuals are true and fair. And the key decision that they make by using audited financial info can be in the very best opinion.

 

Compliance with the law of country or territory that the entity is working in is very important. Have their monetary statements audit annually by qualified auditors after which submit to relevance government body may assist the entity comply with statutory audit requirement. And avoid any penalty that would significantly have an effect on the entity.

 

The auditor will assist shareholders to evaluation the financial statements on their behalf. This might reduce the shareholder’s double on the management team. Auditors have better skills than shareholders in this area.

 

The audit of monetary statements might help improve administration’s integrity, especially when the results of the audit proves that the monetary statements are true and fair view.

 

Auditors have experience in each inner control and monetary reporting. Have an auditor audit on an entity’s financial data may assist the management workforce to access the experience this hold by the audit firm.

 

Improve inside controls: auditors might assist to overview the accounting system, procedure, people, and process of the entity. It will help the entity to improve its key internal control that could minimize fraud risks and errors.

 

Protects Fraud and Error could management couldn't detect.

 

Trust from different organizations: Creditors, banks, and authorities writerity.

Website: https://fastlanepro.hk/audit-report/

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