Profilo

Registrato: 3 anni, 1 mese fa

Limitation and advantages of an audit of financial statements

 

Auditing of financial statements is normally performed by audit corporations based on the engagement that request by the entity. The entity needs its financial statements audited annually someday based mostly on the law or typically primarily 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 prices because the professional price like the audit fee is often high.

 

 

There are many users of the audited report and monetary statements. These including employees, administration’s team, the board of directors, shareholders, prospects, suppliers, banks, creditors and government authority.

 

 

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

 

 

Limitation of auditing:

 

The complexity of enterprise and system may someday limited auditor from acquiring the finished view on entity critical inside controls. Auditors is probably not able to perform the correct risk assessment.

 

Administration intention and override controls are sometimes could not detect by auditors. For example, inner management is reliable only if folks working in the entity observe and have the correct to execute their roles. Nevertheless, if management overrides the management, auditors might not be able to detect the fraud risks or errors.

 

Materialsity based mostly is what auditor makes use of to perform its review and sampling. That means some sensitive fraud risks with the insignificant amounts that probably out of auditor scope couldn't be detected by auditors.

 

Fraud detection is just not an auditor’s responsibility. This is what acknowledged within the audit engagement and audit standards. This typically totally different from the entity’s management expectations. Auditors should carry out fraud risks evaluation, however the fraud risk detection and prevention shouldn't be their primary responsibility in the audit engagement. Public and management 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. Nonetheless, the conclusion here relies on their sampling. Audit sampling won't cover the fabric errors or fraud, especially auditors who lead or carry out the critical risk areas wouldn't have sufficient skailing and experience.

 

Time constraints can have an effect on the quality of audit works and reports. This occurs when auditors have loads of purchasers on hand on the similar time, and so they 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 expertise not only in auditing skills but also in the trade 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 financial statements over the interval that they are auditing; nonetheless, the fraud may occur in others interval outside the scope.

 

Independence and conflict of curiosity of audit team members can increase the risks of poor audit quality and audit reports. If the conflict of curiosity shouldn't be minimized to the settle forable stage as required by ISA 500, then the audit report is not going to be delivered at the quality that it ought to be.

 

 

Advantages of auditing:

 

Quality of financial data is essential for key stakeholders like buyers, bankers, BoD, as well because the management team. Audit of financial statements may make sure that the quality of financial information that flows to those group of people are true and fair. And the key decision that they make through the use of audited financial information can be in 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 yearly by qualified auditors and then submit to relevance government body could assist the entity comply with statutory audit requirement. And keep away from any penalty that would significantly affect the entity.

 

The auditor will help shareholders to overview the monetary 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 economic statements could assist improve management’s integrity, particularly when the result of the audit proves that the monetary statements are true and truthful view.

 

Auditors have expertise in each inside control and financial reporting. Have an auditor audit on an entity’s financial info may help the management team to access the expertise this hold by the audit firm.

 

Improve inner controls: auditors may assist to evaluation the accounting system, procedure, individuals, and process of the entity. It would help the entity to improve its key inner management that might minimize fraud risks and errors.

 

Protects Fraud and Error might management couldn't detect.

 

Trust from other organizations: Creditors, banks, and government creatority.

Sito web: https://fastlanepro.hk/audit-report/

---

Forum

Topic aperti: 0

Risposte create: 0

Ruolo forum: Partecipante