Auditing of monetary statements is normally carried out by audit corporations based on the engagement that request by the entity. The entity wants its monetary statements audited annually someday based mostly on the law or sometimes based on their own requirements.
A big company is often required by law and small enterprise with low turnover and staffs is normally exempted from the audit. This is to reduce costs for the reason that professional charge like the audit payment is normally high.
There are a lot of customers of the audited report and financial statements. These including staff, administration’s workforce, the board of directors, shareholders, customers, suppliers, banks, creditors and authorities authority.
Audit of monetary statements has loads of advantages and limitation of auditing to the entity, here they are:
Limitation of auditing:
The advancedity of enterprise and system could someday limited auditor from acquiring the finished view on entity critical inner controls. Auditors will not be able to perform the proper risk assessment.
Administration intention and override controls are generally couldn’t detect by auditors. For instance, inner control is reliable only if folks working in the entity follow and have the precise to execute their roles. Nevertheless, if administration overrides the management, auditors is probably not able to detect the fraud risks or errors.
Materiality based mostly is what auditor uses to perform its overview 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 shouldn’t be an auditor’s responsibility. This is what said in the audit engagement and audit standards. This generally totally different from the entity’s management expectations. Auditors should carry out fraud risks evaluation, however the fraud risk detection and prevention shouldn’t be their primary responsibility within the audit engagement. Public and management think fraud detection is the auditor’s responsibility.
Auditors will conclude that there aren’t any materials misstatements found if, after their testing, they discovered nothing materially misstated. However, the conclusion right here relies on their sampling. Audit sampling might not cover the fabric errors or fraud, particularly auditors who lead or carry out the critical risk areas don’t have enough skill and experience.
Time constraints can have an effect on the quality of audit works and reports. This happens when auditors have a number of shoppers on hand on the similar 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 additionally 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 financial statements over the interval that they’re auditing; however, the fraud would possibly occur in others period 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 conflict of interest is not minimized to the acceptable level as required by ISA 500, then the audit report will not be delivered on the quality that it ought to be.
Advantages of auditing:
Quality of financial data is essential for key stakeholders like buyers, bankers, BoD, as well as the administration team. Audit of monetary statements may make sure that the quality of economic data that flows to these group of persons are true and fair. And the key resolution that they make through the use of audited monetary info can be in one of the best 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 and then submit to relevance government body may assist the entity comply with statutory audit requirement. And avoid any penalty that would significantly affect the entity.
The auditor will assist shareholders to overview the monetary 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 economic statements might help improve management’s integrity, particularly when the result of the audit proves that the financial statements are true and truthful view.
Auditors have expertise in each inner management and monetary reporting. Have an auditor audit on an entity’s monetary info might assist the management group to access the experience this hold by the audit firm.
Improve inner controls: auditors may assist to evaluation the accounting system, procedure, folks, and process of the entity. It is going to assist the entity to improve its key inside control that would decrease fraud risks and errors.
Protects Fraud and Error might administration could not detect.
Trust from different organizations: Creditors, banks, and authorities writerity.