Auditing of economic statements is generally carried out by audit companies based on the engagement that request by the entity. The entity wants its monetary statements audited annually someday based on the law or generally based on their own requirements.
A big corporation is normally required by law and small enterprise with low turnover and staffs is often exempted from the audit. This is to reduce costs since the professional charge like the audit charge is generally high.
There are lots of customers of the audited report and financial statements. Those together with workers, management’s workforce, the board of directors, shareholders, clients, suppliers, banks, creditors and authorities authority.
Audit of monetary statements has quite a lot of advantages and limitation of auditing to the entity, right here they are:
Limitation of auditing:
The complexity of enterprise and system may sometime limited auditor from acquiring the completed view on entity critical internal controls. Auditors is probably not able to perform the proper risk assessment.
Management intention and override controls are generally could not detect by auditors. For instance, internal management is reliable only if individuals working within the entity follow and have the proper to execute their roles. However, if management overrides the management, auditors is probably not able to detect the fraud risks or errors.
Materiality based is what auditor uses to carry out its assessment and sampling. Meaning some sensitive fraud risks with the insignificant amounts that probably out of auditor scope could not be detected by auditors.
Fraud detection shouldn’t be an auditor’s responsibility. This is what stated in the audit engagement and audit standards. This typically completely different from the entity’s administration expectations. Auditors ought to carry out fraud risks evaluation, however the fraud risk detection and prevention is not their primary 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 found nothing materially misstated. Nonetheless, the conclusion here relies on their sampling. Audit sampling may not cover the fabric errors or fraud, particularly auditors who lead or carry out the critical risk areas do not have enough skin poor health and experience.
Time constraints can have an effect on the quality of audit works and reports. This happens when auditors have a whole lot of purchasers readily available on the identical time, and they couldn’t handle 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 industry that they are auditing. Nevertheless, 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; nevertheless, the fraud might occur in others period outside the scope.
Independence and conflict of curiosity of audit team members can enhance the risks of poor audit quality and audit reports. If the battle of curiosity shouldn’t be minimized to the settle forable degree 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 info is essential for key stakeholders like buyers, bankers, BoD, as well as the administration team. Audit of economic statements may make sure that the quality of economic info that flows to these group of people are true and fair. And the key decision that they make through the use of audited financial data will likely be in the best opinion.
Compliance with the law of country or territory that the entity is working in may 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 might significantly have an effect on the entity.
The auditor will assist shareholders to evaluate the financial statements on their behalf. This could reduce the shareholder’s double on the administration team. Auditors have higher skills than shareholders in this area.
The audit of monetary statements might assist improve management’s integrity, especially when the result of the audit proves that the monetary statements are true and fair view.
Auditors have expertise in each inside management and monetary reporting. Have an auditor audit on an entity’s monetary information could help the management workforce to access the experience this hold by the audit firm.
Improve inside controls: auditors could help to evaluate the accounting system, procedure, folks, and process of the entity. It’s going to assist the entity to improve its key internal control that could minimize fraud risks and errors.
Protects Fraud and Error may management couldn’t detect.
Trust from other organizations: Creditors, banks, and authorities writerity.