Auditing of economic statements is often carried out by audit firms primarily based on the engagement that request by the entity. The entity needs its monetary statements audited yearly someday based on the law or typically primarily based on their own requirements.
A big corporation is normally required by law and small enterprise with low turnover and staffs is generally exempted from the audit. This is to reduce prices because the professional fee like the audit charge is generally high.
There are a lot of customers of the audited report and financial statements. These including staff, management’s staff, the board of directors, shareholders, customers, suppliers, banks, creditors and government writerity.
Audit of economic statements has a number of advantages and limitation of auditing to the entity, right here they’re:
Limitation of auditing:
The advancedity of business and system could sometime limited auditor from obtaining the finished view on entity critical internal controls. Auditors is probably not able to carry out the correct risk assessment.
Management intention and override controls are sometimes couldn’t detect by auditors. For example, inner management is reliable only if folks working within the entity observe and have the precise to execute their roles. However, if management overrides the control, auditors will not be able to detect the fraud risks or errors.
Materialsity based is what auditor makes use of to carry out its evaluation 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 just isn’t an auditor’s responsibility. This is what stated within the audit engagement and audit standards. This sometimes different from the entity’s management expectations. Auditors ought to carry out fraud risks assessment, however the fraud risk detection and prevention will not be their main responsibility in the audit engagement. Public and management think fraud detection is the auditor’s responsibility.
Auditors will conclude that there are not any material misstatements found if, after their testing, they discovered nothing materially misstated. However, the conclusion right here is based on their sampling. Audit sampling may not cover the material errors or fraud, especially auditors who lead or carry out the critical risk areas do not have enough skill and experience.
Time constraints can affect the quality of audit works and reports. This occurs when auditors have a lot of clients on hand at 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 sufficient experience not only in auditing skills but also within the business 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 interval that they’re auditing; nonetheless, the fraud might happen 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 conflict of interest isn’t minimized to the acceptable degree as required by ISA 500, then the audit report is not going to be delivered on the quality that it should be.
Advantages of auditing:
Quality of financial info is essential for key stakeholders like investors, bankers, BoD, as well because the administration team. Audit of monetary statements might ensure that the quality of economic information that flows to these group of individuals are true and fair. And the key decision that they make by utilizing audited financial info shall 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 certified auditors and then submit to relevance authorities body could help the entity comply with statutory audit requirement. And keep away from any penalty that could significantly affect the entity.
The auditor will help shareholders to evaluation the financial 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 could assist improve administration’s integrity, especially when the result of the audit proves that the monetary statements are true and fair view.
Auditors have experience in each inside control and monetary reporting. Have an auditor audit on an entity’s monetary data might assist the administration workforce to access the experience this hold by the audit firm.
Improve internal controls: auditors may help to review the accounting system, procedure, people, and process of the entity. It should help the entity to improve its key inside management that could reduce fraud risks and errors.
Protects Fraud and Error might administration could not detect.
Trust from other organizations: Creditors, banks, and authorities writerity.