Auditing of economic statements is normally performed by audit companies based mostly on the engagement that request by the entity. The entity needs its monetary statements audited yearly someday based mostly on the law or sometimes primarily based on their own requirements.
A big company is often required by law and small business with low turnover and staffs is normally exempted from the audit. This is to reduce costs because the professional price like the audit fee is generally high.
There are lots of users of the audited report and monetary statements. Those including employees, administration’s group, the board of directors, shareholders, clients, suppliers, banks, creditors and authorities authority.
Audit of monetary statements has a whole lot of advantages and limitation of auditing to the entity, here they’re:
Limitation of auditing:
The complicatedity of enterprise and system might sometime limited auditor from acquiring the completed view on entity critical internal controls. Auditors will not be able to perform the proper risk assessment.
Management intention and override controls are generally couldn’t detect by auditors. For example, internal management is reliable only if people working in the entity comply with and have the correct to execute their roles. Nevertheless, if administration overrides the control, auditors is probably not able to detect the fraud risks or errors.
Materiality based is what auditor makes use of to perform its evaluate 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 isn’t an auditor’s responsibility. This is what stated in the audit engagement and audit standards. This typically totally different from the entity’s administration expectations. Auditors should carry out fraud risks evaluation, but the fraud risk detection and prevention is not 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. Nonetheless, the conclusion here relies on their sampling. Audit sampling might not cover the material errors or fraud, particularly auditors who lead or perform the critical risk areas don’t have sufficient skin poor health and experience.
Time constraints can affect the quality of audit works and reports. This occurs when auditors have a whole lot of shoppers on hand on the same time, they usually 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 enough expertise not only in auditing skills but in addition in the trade that they are auditing. However, 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 monetary statements over the period that they’re auditing; nevertheless, the fraud would possibly happen in others period outside the scope.
Independence and battle of interest of audit workforce members can enhance the risks of poor audit quality and audit reports. If the battle of curiosity isn’t minimized to the settle forable stage as required by ISA 500, then the audit report won’t be delivered at the quality that it should be.
Advantages of auditing:
Quality of economic data is essential for key stakeholders like traders, bankers, BoD, as well as the administration team. Audit of monetary statements may ensure that the quality of economic data that flows to these group of individuals are true and fair. And the key choice that they make through the use of audited monetary data will be in the perfect opinion.
Compliance with the law of country or territory that the entity is operating in could be very important. Have their monetary statements audit annually by certified auditors and then submit to relevance government body might help the entity comply with statutory audit requirement. And avoid any penalty that could significantly affect the entity.
The auditor will assist shareholders to evaluation the monetary statements on their behalf. This might reduce the shareholder’s double on the administration team. Auditors have better skills than shareholders in this area.
The audit of financial statements could assist improve management’s integrity, particularly when the result of the audit proves that the monetary statements are true and honest view.
Auditors have expertise in both inside control and monetary reporting. Have an auditor audit on an entity’s monetary info could assist the administration team to access the expertise this hold by the audit firm.
Improve inside controls: auditors may help to assessment the accounting system, procedure, folks, and process of the entity. It is going to assist the entity to improve its key inner management that could reduce fraud risks and errors.
Protects Fraud and Error could administration could not detect.
Trust from other organizations: Creditors, banks, and government writerity.