Auditing of economic statements is often performed by audit companies primarily based on the engagement that request by the entity. The entity needs its financial statements audited annually someday based on the law or sometimes based mostly on their own requirements.
A big company is often required by law and small enterprise with low turnover and staffs is often exempted from the audit. This is to reduce prices because the professional price like the audit price is normally high.
There are lots of customers of the audited report and financial statements. These together with employees, administration’s workforce, the board of directors, shareholders, prospects, suppliers, banks, creditors and authorities writerity.
Audit of economic statements has numerous advantages and limitation of auditing to the entity, right here they are:
Limitation of auditing:
The complexity of business and system might someday limited auditor from acquiring the finished view on entity critical inner controls. Auditors is probably not able to carry out the right risk assessment.
Administration intention and override controls are typically couldn’t detect by auditors. For example, inside management is reliable only if individuals working in the entity comply with and have the best to execute their roles. Nonetheless, if management overrides the management, auditors might not be able to detect the fraud risks or errors.
Materialsity based is what auditor makes use of to carry out its review and sampling. Meaning some sensitive fraud risks with the insignificant quantities that probably out of auditor scope could not be detected by auditors.
Fraud detection shouldn’t be an auditor’s responsibility. This is what acknowledged in the audit engagement and audit standards. This typically different from the entity’s administration expectations. Auditors should perform fraud risks assessment, but the fraud risk detection and prevention just isn’t their major responsibility in the audit engagement. Public and administration think fraud detection is the auditor’s responsibility.
Auditors will conclude that there are no material misstatements discovered if, after their testing, they discovered nothing materially misstated. However, the conclusion here is based on their sampling. Audit sampling may not cover the fabric errors or fraud, particularly auditors who lead or perform the critical risk areas shouldn’t have enough skill and experience.
Time constraints can affect the quality of audit works and reports. This happens when auditors have plenty of shoppers readily available at the similar 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 enough experience not only in auditing skills but additionally within 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 monetary statements over the interval that they are auditing; nonetheless, the fraud might occur in others period outside the scope.
Independence and conflict of curiosity of audit workforce members can enhance the risks of poor audit quality and audit reports. If the conflict of curiosity just isn’t minimized to the acceptable stage as required by ISA 500, then the audit report will not be delivered at the quality that it ought to be.
Advantages of auditing:
Quality of monetary information is essential for key stakeholders like investors, bankers, BoD, as well as the management team. Audit of financial statements might be sure that the quality of financial info that flows to those group of persons are true and fair. And the key determination that they make by using audited financial info can 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 annually by certified auditors and then submit to relevance government body may help the entity comply with statutory audit requirement. And avoid any penalty that would significantly affect the entity.
The auditor will assist shareholders to evaluation the monetary statements on their behalf. This may reduce the shareholder’s double on the management 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 honest view.
Auditors have experience in both internal control and financial reporting. Have an auditor audit on an entity’s financial information might help the administration team to access the expertise this hold by the audit firm.
Improve internal controls: auditors could help to review the accounting system, procedure, individuals, and process of the entity. It would help the entity to improve its key inner control that would reduce fraud risks and errors.
Protects Fraud and Error could administration couldn’t detect.
Trust from other organizations: Creditors, banks, and authorities authority.