Auditing of economic statements is often carried out by audit firms 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 company is generally required by law and small business with low turnover and staffs is often exempted from the audit. This is to reduce costs because the professional payment like the audit fee is normally high.
There are various users of the audited report and monetary statements. These including employees, management’s team, the board of directors, shareholders, customers, suppliers, banks, creditors and government authority.
Audit of financial statements has loads 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 obtaining the completed view on entity critical internal controls. Auditors will not be able to perform the proper risk assessment.
Administration intention and override controls are typically couldn’t detect by auditors. For instance, inner management is reliable only if people working within the entity follow and have the best to execute their roles. Nevertheless, if management overrides the management, auditors might not be able to detect the fraud risks or errors.
Materiality based mostly is what auditor uses to perform its evaluation and sampling. Meaning some sensitive fraud risks with the insignificant quantities that probably out of auditor scope couldn’t be detected by auditors.
Fraud detection isn’t an auditor’s responsibility. This is what said within the audit engagement and audit standards. This sometimes different from the entity’s administration expectations. Auditors ought to carry out fraud risks evaluation, however the fraud risk detection and prevention just isn’t their primary responsibility in the audit engagement. Public and administration think fraud detection is the auditor’s responsibility.
Auditors will conclude that there are not any material misstatements found if, after their testing, they found nothing materially misstated. However, the conclusion right 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 do not have sufficient skin poor health and experience.
Time constraints can have an effect on the quality of audit works and reports. This happens when auditors have quite a lot of clients readily available on the same time, and so they 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 experience not only in auditing skills but in addition in 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’re auditing; nevertheless, the fraud might happen in others interval outside the scope.
Independence and conflict of curiosity of audit group members can increase the risks of poor audit quality and audit reports. If the battle of interest will not be minimized to the settle forable degree as required by ISA 500, then the audit report won’t 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 management team. Audit of monetary statements might make sure that the quality of monetary info that flows to these group of individuals are true and fair. And the key choice that they make by utilizing audited financial information will be in the perfect opinion.
Compliance with the law of country or territory that the entity is working in could be very important. Have their monetary statements audit yearly by certified auditors and then submit to relevance authorities body might help the entity comply with statutory audit requirement. And keep away from any penalty that might significantly affect the entity.
The auditor will help shareholders to evaluation the monetary statements on their behalf. This may reduce the shareholder’s double on the administration team. Auditors have higher skills than shareholders in this area.
The audit of monetary statements may help improve administration’s integrity, particularly when the results of the audit proves that the financial statements are true and honest view.
Auditors have expertise in both internal management and financial reporting. Have an auditor audit on an entity’s monetary information may assist the administration staff to access the experience this hold by the audit firm.
Improve inner controls: auditors might help to review the accounting system, procedure, folks, and process of the entity. It should help the entity to improve its key internal management that might reduce fraud risks and errors.
Protects Fraud and Error could management could not detect.
Trust from other organizations: Creditors, banks, and government creatority.