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Limitation and advantages of an audit of financial statements

 

Auditing of economic statements is normally carried out by audit companies primarily based on the engagement that request by the entity. The entity wants its financial statements audited annually sometime based on the law or typically primarily based on their own requirements.

 

 

A big corporation is normally required by law and small business with low turnover and staffs is normally exempted from the audit. This is to reduce prices for the reason that professional charge like the audit payment is normally high.

 

 

There are a lot of users of the audited report and monetary statements. Those together with staff, administration’s staff, the board of directors, shareholders, clients, suppliers, banks, creditors and government writerity.

 

 

Audit of financial statements has a whole lot of advantages and limitation of auditing to the entity, here they are:

 

 

Limitation of auditing:

 

The complicatedity of enterprise and system may sometime limited auditor from obtaining the completed view on entity critical internal 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 folks working within the entity observe and have the correct to execute their roles. Nevertheless, if administration overrides the control, auditors may not be able to detect the fraud risks or errors.

 

Materiality primarily based is what auditor uses to perform its review and sampling. Which means some sensitive fraud risks with the insignificant amounts that probably out of auditor scope could not be detected by auditors.

 

Fraud detection just isn't an auditor’s responsibility. This is what acknowledged within the audit engagement and audit standards. This generally completely different from the entity’s management expectations. Auditors ought to perform fraud risks assessment, however the fraud risk detection and prevention will not be their major responsibility in the audit engagement. Public and administration think fraud detection is the auditor’s responsibility.

 

Auditors will conclude that there aren't any material misstatements found if, after their testing, they discovered nothing materially misstated. Nonetheless, the conclusion right here is predicated on their sampling. Audit sampling may not cover the material errors or fraud, particularly auditors who lead or perform the critical risk areas should not have enough skill and experience.

 

Time constraints can have an effect on the quality of audit works and reports. This happens when auditors have a lot of shoppers available at the identical time, and so they couldn't manage their tasks that the quality that had set.

 

Auditor’s qualification is essential for the quality of the audit report. Some auditors have sufficient experience not only in auditing skills but also within the industry that they're 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 period that they're auditing; however, the fraud would possibly happen in others period outside the scope.

 

Independence and conflict of curiosity of audit workforce members can enhance the risks of poor audit quality and audit reports. If the conflict of curiosity will not be 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 traders, bankers, BoD, as well because the administration team. Audit of monetary statements may be sure that the quality of economic data that flows to those group of persons are true and fair. And the key resolution that they make through the use of audited monetary information can be in the most effective opinion.

 

Compliance with the law of country or territory that the entity is working in may be very important. Have their monetary statements audit annually by qualified auditors after which submit to relevance government body might help the entity comply with statutory audit requirement. And keep away from any penalty that could significantly affect the entity.

 

The auditor will help shareholders to assessment the monetary statements on their behalf. This might reduce the shareholder’s double on the administration team. Auditors have higher skills than shareholders in this area.

 

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

 

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

 

Improve internal controls: auditors might assist to evaluate the accounting system, procedure, individuals, and process of the entity. It can assist the entity to improve its key inner management that could decrease fraud risks and errors.

 

Protects Fraud and Error might administration couldn't detect.

 

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

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

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