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Limitation and advantages of an audit of economic statements

 

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

 

 

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

 

 

There are various customers of the audited report and monetary statements. Those including employees, administration’s staff, the board of directors, shareholders, prospects, suppliers, banks, creditors and government creatority.

 

 

Audit of monetary statements has a number of advantages and limitation of auditing to the entity, here they are:

 

 

Limitation of auditing:

 

The complexity of enterprise and system could someday limited auditor from acquiring the finished view on entity critical inner controls. Auditors may not be able to carry out the right risk assessment.

 

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

 

Materiality based mostly is what auditor makes use of to perform its review and sampling. Meaning 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 generally totally different from the entity’s administration expectations. Auditors should perform fraud risks assessment, however the fraud risk detection and prevention shouldn't be their main 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 discovered if, after their testing, they discovered nothing materially misstated. Nonetheless, the conclusion here relies on their sampling. Audit sampling won't cover the fabric errors or fraud, particularly auditors who lead or carry out the critical risk areas shouldn't have sufficient skailing and experience.

 

Time constraints can affect the quality of audit works and reports. This happens when auditors have plenty of purchasers readily available at the same time, and so they 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 experience not only in auditing skills but in addition in the business that they are 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 are auditing; however, the fraud may occur in others interval outside the scope.

 

Independence and battle of curiosity of audit workforce members can enhance the risks of poor audit quality and audit reports. If the battle of curiosity is just not minimized to the settle forable level as required by ISA 500, then the audit report will not be delivered on the quality that it ought to be.

 

 

Advantages of auditing:

 

Quality of monetary information is essential for key stakeholders like traders, bankers, BoD, as well as the management team. Audit of monetary statements may be certain that the quality of monetary information that flows to those group of persons are true and fair. And the key decision that they make by using audited financial info might be in the perfect opinion.

 

Compliance with the law of country or territory that the entity is working in is very important. Have their monetary statements audit yearly by certified auditors and then submit to relevance government body could help the entity comply with statutory audit requirement. And keep away from any penalty that might significantly have an effect on the entity.

 

The auditor will help shareholders to evaluation 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 financial statements may help improve management’s integrity, especially when the result of the audit proves that the monetary statements are true and honest view.

 

Auditors have experience in both inside control and financial reporting. Have an auditor audit on an entity’s monetary data may assist the administration crew to access the experience this hold by the audit firm.

 

Improve internal controls: auditors may help to overview the accounting system, procedure, people, and process of the entity. It is going to assist the entity to improve its key inner management that might decrease fraud risks and errors.

 

Protects Fraud and Error may administration couldn't detect.

 

Trust from other organizations: Creditors, banks, and authorities authority.

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

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