Auditing of monetary statements is normally performed by audit firms based on the engagement that request by the entity. The entity needs its monetary statements audited yearly sometime based on the law or generally 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 costs since the professional payment like the audit price is normally high.
There are various customers of the audited report and monetary statements. These including employees, administration’s workforce, the board of directors, shareholders, prospects, suppliers, banks, creditors and authorities writerity.
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 enterprise and system may someday limited auditor from acquiring the completed view on entity critical inside controls. Auditors will not be able to carry out the correct risk assessment.
Management intention and override controls are typically could not detect by auditors. For instance, internal management is reliable only if individuals working within 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 review 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 will not be an auditor’s responsibility. This is what said within the audit engagement and audit standards. This generally totally different from the entity’s management expectations. Auditors should perform fraud risks assessment, but the fraud risk detection and prevention just isn’t their main responsibility within the audit engagement. Public and management think fraud detection is the auditor’s responsibility.
Auditors will conclude that there aren’t any material misstatements discovered if, after their testing, they found nothing materially misstated. However, the conclusion here is based on their sampling. Audit sampling may not cover the material errors or fraud, particularly auditors who lead or perform the critical risk areas shouldn’t have sufficient skailing and experience.
Time constraints can affect the quality of audit works and reports. This happens when auditors have a variety of clients readily available on the same time, and so they couldn’t manage 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 within the trade 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 period that they are auditing; however, the fraud would possibly happen in others period outside the scope.
Independence and conflict of interest of audit team members can increase the risks of poor audit quality and audit reports. If the battle of curiosity isn’t minimized to the settle forable degree as required by ISA 500, then the audit report is not going to be delivered on the quality that it should be.
Advantages of auditing:
Quality of monetary information is essential for key stakeholders like traders, bankers, BoD, as well because the management team. Audit of economic statements might be certain that the quality of financial information that flows to these group of individuals are true and fair. And the key decision that they make through the use of audited monetary data can be in the best opinion.
Compliance with the law of country or territory that the entity is operating in could be very important. Have their monetary statements audit yearly by certified auditors after which submit to relevance government body may assist the entity comply with statutory audit requirement. And keep away from any penalty that could significantly have an effect on the entity.
The auditor will assist shareholders to assessment the monetary statements on their behalf. This could reduce the shareholder’s double on the management team. Auditors have better skills than shareholders in this area.
The audit of economic statements might assist improve management’s integrity, especially when the result of the audit proves that the financial statements are true and truthful view.
Auditors have expertise in both inside control and monetary reporting. Have an auditor audit on an entity’s monetary data could help the management team to access the experience this hold by the audit firm.
Improve inside controls: auditors might assist to evaluation the accounting system, procedure, people, and process of the entity. It should assist the entity to improve its key inner management that could minimize fraud risks and errors.
Protects Fraud and Error may administration could not detect.
Trust from different organizations: Creditors, banks, and authorities writerity.