Auditing of monetary statements is generally carried out by audit firms based mostly on the engagement that request by the entity. The entity needs its financial statements audited annually sometime based on the law or sometimes primarily based on their own requirements.
A big corporation is often required by law and small business with low turnover and staffs is often exempted from the audit. This is to reduce costs since the professional payment like the audit fee is normally high.
There are many customers of the audited report and monetary statements. These together with staff, administration’s team, the board of directors, shareholders, clients, suppliers, banks, creditors and government creatority.
Audit of economic statements has loads of advantages and limitation of auditing to the entity, right here they’re:
Limitation of auditing:
The advancedity of enterprise and system may sometime limited auditor from acquiring the completed view on entity critical internal controls. Auditors is probably not able to perform the right risk assessment.
Administration intention and override controls are sometimes could not detect by auditors. For example, inside control is reliable only if individuals working in the entity follow and have the correct to execute their roles. However, if management overrides the control, auditors is probably not able to detect the fraud risks or errors.
Materiality based mostly is what auditor uses to carry out its review and sampling. Meaning some sensitive fraud risks with the insignificant amounts that probably out of auditor scope couldn’t be detected by auditors.
Fraud detection is not an auditor’s responsibility. This is what stated within the audit engagement and audit standards. This typically different from the entity’s management expectations. Auditors ought to perform fraud risks evaluation, but the fraud risk detection and prevention is just not their major responsibility within the audit engagement. Public and management think fraud detection is the auditor’s responsibility.
Auditors will conclude that there are not any material misstatements found if, after their testing, they discovered nothing materially misstated. However, the conclusion here is predicated on their sampling. Audit sampling may not cover the fabric errors or fraud, especially auditors who lead or carry out the critical risk areas don’t have enough 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 shoppers readily available at the same time, and so they could not manage their tasks that the quality that had set.
Auditor’s qualification is essential for the quality of the audit report. Some auditors have enough experience not only in auditing skills but in addition in the industry 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 financial statements over the period that they are auditing; nonetheless, the fraud may happen in others interval outside the scope.
Independence and conflict of interest of audit group members can enhance the risks of poor audit quality and audit reports. If the conflict of interest shouldn’t be minimized to the acceptable stage as required by ISA 500, then the audit report will not be delivered on the quality that it should be.
Advantages of auditing:
Quality of financial info is essential for key stakeholders like traders, bankers, BoD, as well because the management team. Audit of monetary statements might ensure that the quality of economic data that flows to these group of people are true and fair. And the key decision that they make by using audited monetary data can be in the perfect opinion.
Compliance with the law of country or territory that the entity is operating in may be very important. Have their financial statements audit yearly by qualified auditors and then submit to relevance authorities body could 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 financial statements on their behalf. This could reduce the shareholder’s double on the management team. Auditors have higher skills than shareholders in this area.
The audit of monetary statements may assist improve management’s integrity, particularly when the results of the audit proves that the monetary 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 info could assist the management group to access the expertise this hold by the audit firm.
Improve internal controls: auditors may help to review the accounting system, procedure, folks, and process of the entity. It would help the entity to improve its key internal control that would minimize fraud risks and errors.
Protects Fraud and Error could management could not detect.
Trust from other organizations: Creditors, banks, and authorities creatority.