Auditing of economic statements is often performed by audit corporations based mostly on the engagement that request by the entity. The entity needs its monetary statements audited yearly someday based mostly on the law or sometimes based mostly on their own requirements.
A big company is generally required by law and small business with low turnover and staffs is normally exempted from the audit. This is to reduce costs because the professional charge like the audit payment is normally high.
There are many users of the audited report and monetary statements. Those together with employees, administration’s staff, the board of directors, shareholders, clients, suppliers, banks, creditors and government authority.
Audit of financial statements has a lot of advantages and limitation of auditing to the entity, here they’re:
Limitation of auditing:
The complexity of business and system might sometime limited auditor from acquiring the completed view on entity critical inner controls. Auditors is probably not able to carry out the correct risk assessment.
Administration intention and override controls are generally could not detect by auditors. For example, inner management is reliable only if individuals working in the entity follow and have the proper to execute their roles. Nonetheless, if management overrides the management, auditors will not be able to detect the fraud risks or errors.
Materiality based is what auditor uses to carry out its evaluate and sampling. That means 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 stated within the audit engagement and audit standards. This sometimes different from the entity’s management expectations. Auditors should carry out fraud risks evaluation, however the fraud risk detection and prevention just isn’t their primary responsibility in the audit engagement. Public and management think fraud detection is the auditor’s responsibility.
Auditors will conclude that there are no materials misstatements discovered if, after their testing, they discovered nothing materially misstated. However, the conclusion here relies on their sampling. Audit sampling might not cover the material errors or fraud, especially auditors who lead or perform the critical risk areas wouldn’t have sufficient skill and experience.
Time constraints can have an effect on the quality of audit works and reports. This happens when auditors have lots of shoppers on hand 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 enough experience not only in auditing skills but also in the industry 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 interval that they’re auditing; however, the fraud may occur in others interval outside the scope.
Independence and conflict of curiosity of audit workforce members can improve the risks of poor audit quality and audit reports. If the battle of curiosity shouldn’t be minimized to the settle forable stage as required by ISA 500, then the audit report is not going to be delivered at the quality that it should be.
Advantages of auditing:
Quality of financial information is essential for key stakeholders like traders, bankers, BoD, as well because the management team. Audit of financial statements may be certain that the quality of economic data that flows to those group of people are true and fair. And the key decision that they make by utilizing audited financial data will probably be in the most effective opinion.
Compliance with the law of country or territory that the entity is working in may be very important. Have their monetary statements audit annually by certified auditors and then submit to relevance authorities body could assist the entity comply with statutory audit requirement. And keep away from any penalty that would significantly have an effect on the entity.
The auditor will assist shareholders to evaluation the monetary statements on their behalf. This may reduce the shareholder’s double on the administration team. Auditors have better skills than shareholders in this area.
The audit of economic statements might help improve administration’s integrity, especially when the result of the audit proves that the financial statements are true and truthful view.
Auditors have expertise in each internal control and monetary reporting. Have an auditor audit on an entity’s monetary data may help the administration group to access the expertise this hold by the audit firm.
Improve internal controls: auditors might help to review the accounting system, procedure, individuals, and process of the entity. It can help the entity to improve its key inner management that might minimize fraud risks and errors.
Protects Fraud and Error may management couldn’t detect.
Trust from other organizations: Creditors, banks, and government writerity.