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 sometime based on the law or typically primarily based on their own requirements.
A big company is normally 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 fee like the audit charge is often high.
There are many users of the audited report and monetary statements. These including staff, administration’s group, the board of directors, shareholders, customers, suppliers, banks, creditors and authorities creatority.
Audit of economic statements has quite a lot of advantages and limitation of auditing to the entity, right here they’re:
Limitation of auditing:
The complicatedity of business and system may someday limited auditor from obtaining the completed view on entity critical inside controls. Auditors might not be able to perform the right risk assessment.
Administration intention and override controls are sometimes could not detect by auditors. For instance, inside control is reliable only if individuals working within the entity comply with and have the proper to execute their roles. Nonetheless, if administration overrides the management, auditors will not be able to detect the fraud risks or errors.
Materialsity based is what auditor makes use of to perform its assessment and sampling. Which means some sensitive fraud risks with the insignificant quantities that probably out of auditor scope couldn’t be detected by auditors.
Fraud detection isn’t an auditor’s responsibility. This is what said within the audit engagement and audit standards. This sometimes totally different from the entity’s administration expectations. Auditors should carry out fraud risks assessment, however the fraud risk detection and prevention will not be 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 material misstatements discovered if, after their testing, they found nothing materially misstated. However, the conclusion right here is predicated on their sampling. Audit sampling won’t cover the material errors or fraud, particularly auditors who lead or perform the critical risk areas don’t have enough skill and experience.
Time constraints can affect the quality of audit works and reports. This happens when auditors have numerous purchasers 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 sufficient experience not only in auditing skills but in addition within the business that they’re 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 might occur in others period outside the scope.
Independence and conflict of interest of audit crew members can enhance the risks of poor audit quality and audit reports. If the battle of interest isn’t minimized to the settle forable stage 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 monetary info is essential for key stakeholders like buyers, bankers, BoD, as well as the administration team. Audit of monetary statements may be certain that the quality of financial information that flows to those group of people are true and fair. And the key determination that they make by utilizing audited financial information will probably be in the most effective 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 qualified auditors and then submit to relevance government body may help the entity comply with statutory audit requirement. And keep away from any penalty that could significantly have an effect on the entity.
The auditor will assist shareholders to evaluate 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 economic statements might assist improve administration’s integrity, especially when the results of the audit proves that the monetary statements are true and honest view.
Auditors have expertise in both inside management and monetary reporting. Have an auditor audit on an entity’s monetary information could help the administration workforce to access the expertise this hold by the audit firm.
Improve internal controls: auditors could assist to overview the accounting system, procedure, people, and process of the entity. It should assist the entity to improve its key inside control that might minimize fraud risks and errors.
Protects Fraud and Error could administration could not detect.
Trust from different organizations: Creditors, banks, and government authority.