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Limitation and advantages of an audit of financial statements

 

Auditing of economic statements is normally carried out by audit firms based mostly on the engagement that request by the entity. The entity wants its financial statements audited yearly someday based on the law or sometimes based mostly on their own requirements.

 

 

A big company is normally 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 price like the audit price is normally high.

 

 

There are many customers of the audited report and financial statements. Those including employees, management’s staff, the board of directors, shareholders, customers, suppliers, banks, creditors and government creatority.

 

 

Audit of financial statements has quite a lot of advantages and limitation of auditing to the entity, here they're:

 

 

Limitation of auditing:

 

The advancedity of business and system could sometime limited auditor from obtaining the completed view on entity critical inner controls. Auditors might not be able to perform the right risk assessment.

 

Administration intention and override controls are generally couldn't detect by auditors. For example, inside management is reliable only if people working within the entity comply with and have the right to execute their roles. Nevertheless, if management overrides the control, auditors will not be able to detect the fraud risks or errors.

 

Materialsity based mostly is what auditor makes use of to perform its review and sampling. That 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 generally completely 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 major responsibility within the audit engagement. Public and management think fraud detection is the auditor’s responsibility.

 

Auditors will conclude that there are no material misstatements found if, after their testing, they discovered nothing materially misstated. Nonetheless, the conclusion right here relies on their sampling. Audit sampling won't cover the material errors or fraud, especially auditors who lead or carry out the critical risk areas don't have sufficient skin poor health and experience.

 

Time constraints can affect the quality of audit works and reports. This happens when auditors have a number of shoppers on hand at 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 sufficient experience not only in auditing skills but also within the industry that they're 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 would possibly occur in others interval outside the scope.

 

Independence and conflict of curiosity of audit workforce members can increase the risks of poor audit quality and audit reports. If the battle of curiosity is not minimized to the acceptable level as required by ISA 500, then the audit report won't be delivered at the quality that it should be.

 

 

Advantages of auditing:

 

Quality of economic information is essential for key stakeholders like traders, bankers, BoD, as well because the administration team. Audit of financial statements may ensure that the quality of monetary info that flows to those group of people are true and fair. And the key resolution that they make by using audited financial info might 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 yearly by qualified auditors after which submit to relevance authorities body might assist 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 assessment the financial 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 monetary statements may help improve administration’s integrity, particularly when the results of the audit proves that the financial statements are true and truthful view.

 

Auditors have expertise in each inner control and monetary reporting. Have an auditor audit on an entity’s monetary data may help the management group to access the experience this hold by the audit firm.

 

Improve internal controls: auditors may assist to assessment the accounting system, procedure, individuals, and process of the entity. It can assist the entity to improve its key inner control that could reduce fraud risks and errors.

 

Protects Fraud and Error may administration could not detect.

 

Trust from other organizations: Creditors, banks, and authorities creatority.

Sito web: https://fastlanepro.hk/audit-report/

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