Auditing of economic statements is generally carried out by audit corporations based mostly on the engagement that request by the entity. The entity wants its financial statements audited annually someday based on the law or generally based on their own requirements.
A big company is generally required by law and small enterprise 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 fee is often high.
There are a lot of customers of the audited report and financial statements. Those together with staff, management’s team, the board of directors, shareholders, clients, suppliers, banks, creditors and authorities writerity.
Audit of monetary statements has a whole lot of advantages and limitation of auditing to the entity, right here they are:
Limitation of auditing:
The complexity of enterprise and system could sometime limited auditor from obtaining the finished view on entity critical inner controls. Auditors may not be able to carry out the correct risk assessment.
Management intention and override controls are sometimes couldn’t detect by auditors. For instance, inner management is reliable only if individuals working within the entity observe and have the proper to execute their roles. Nevertheless, if administration overrides the management, auditors may not be able to detect the fraud risks or errors.
Materiality based mostly is what auditor uses to carry out its review and sampling. Which means some sensitive fraud risks with the insignificant amounts that probably out of auditor scope couldn’t 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 totally different from the entity’s management expectations. Auditors should perform fraud risks assessment, however the fraud risk detection and prevention just isn’t their main responsibility in the audit engagement. Public and management think fraud detection is the auditor’s responsibility.
Auditors will conclude that there are no material misstatements found if, after their testing, they found nothing materially misstated. However, the conclusion here relies on their sampling. Audit sampling won’t cover the fabric errors or fraud, particularly auditors who lead or perform the critical risk areas do not have sufficient skill and experience.
Time constraints can affect the quality of audit works and reports. This happens when auditors have a lot of purchasers readily available on the same time, they usually 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 expertise not only in auditing skills but additionally in the trade that they are auditing. Nevertheless, 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; nonetheless, the fraud may occur in others period outside the scope.
Independence and battle of curiosity of audit team members can enhance the risks of poor audit quality and audit reports. If the conflict of curiosity is just not minimized to the settle forable degree as required by ISA 500, then the audit report will not be delivered at the quality that it should be.
Advantages of auditing:
Quality of monetary information is essential for key stakeholders like investors, bankers, BoD, as well because the administration team. Audit of monetary statements might make sure that the quality of monetary data that flows to those group of persons are true and fair. And the key resolution that they make by using audited financial information will likely 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 financial statements audit annually by certified auditors and then submit to relevance authorities body could help the entity comply with statutory audit requirement. And avoid any penalty that could significantly have an effect on the entity.
The auditor will help shareholders to review the financial statements on their behalf. This could reduce the shareholder’s double on the administration team. Auditors have better skills than shareholders in this area.
The audit of economic statements could assist improve administration’s integrity, particularly when the results of the audit proves that the financial statements are true and fair view.
Auditors have experience in both inside control and financial reporting. Have an auditor audit on an entity’s monetary info could help the management crew to access the expertise this hold by the audit firm.
Improve inside controls: auditors might help to overview the accounting system, procedure, people, and process of the entity. It would assist the entity to improve its key inside control that could minimize fraud risks and errors.
Protects Fraud and Error might management could not detect.
Trust from other organizations: Creditors, banks, and authorities authority.