Auditing of economic statements is often performed by audit firms based mostly on the engagement that request by the entity. The entity needs its monetary statements audited yearly sometime based mostly on the law or typically primarily based on their own requirements.
A big company is often required by law and small business with low turnover and staffs is generally exempted from the audit. This is to reduce prices because the professional price like the audit payment is normally high.
There are a lot of customers of the audited report and financial statements. These including employees, administration’s team, the board of directors, shareholders, customers, suppliers, banks, creditors and authorities writerity.
Audit of monetary statements has a whole lot of advantages and limitation of auditing to the entity, here they’re:
Limitation of auditing:
The advancedity of enterprise and system may someday limited auditor from acquiring the finished view on entity critical internal controls. Auditors is probably not able to carry out the proper risk assessment.
Administration intention and override controls are typically couldn’t detect by auditors. For example, inner management is reliable only if folks working within the entity follow and have the precise to execute their roles. Nonetheless, if administration overrides the management, auditors might not be able to detect the fraud risks or errors.
Materiality based mostly is what auditor makes use of to carry out its assessment and sampling. That means some sensitive fraud risks with the insignificant amounts that probably out of auditor scope couldn’t 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 generally different from the entity’s management expectations. Auditors ought to perform fraud risks evaluation, 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 aren’t any material misstatements found if, after their testing, they discovered nothing materially misstated. Nonetheless, the conclusion right here is predicated on their sampling. Audit sampling may not cover the material errors or fraud, particularly auditors who lead or carry out the critical risk areas wouldn’t have enough skunwell and experience.
Time constraints can have an effect on the quality of audit works and reports. This occurs when auditors have a lot of shoppers readily available at the identical time, and 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 expertise not only in auditing skills but in addition in the trade that they are auditing. Nevertheless, a few 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 may occur in others interval outside the scope.
Independence and battle of curiosity of audit crew members can enhance the risks of poor audit quality and audit reports. If the battle of interest isn’t 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 economic statements may ensure that the quality of financial information that flows to those group of individuals are true and fair. And the key determination that they make through the use of audited financial information can be in the very best 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 qualified auditors and then submit to relevance authorities body might help the entity comply with statutory audit requirement. And avoid any penalty that might significantly affect the entity.
The auditor will assist shareholders to evaluate the monetary statements on their behalf. This might reduce the shareholder’s double on the management team. Auditors have higher skills than shareholders in this area.
The audit of monetary statements may help improve management’s integrity, particularly when the result of the audit proves that the financial statements are true and fair view.
Auditors have expertise in each inner control and financial reporting. Have an auditor audit on an entity’s financial data might help the administration staff to access the expertise this hold by the audit firm.
Improve internal controls: auditors could help to assessment the accounting system, procedure, people, and process of the entity. It is going to help the entity to improve its key internal management that would minimize fraud risks and errors.
Protects Fraud and Error may administration could not detect.
Trust from other organizations: Creditors, banks, and authorities writerity.