Limitations of Audit and Objects of Auditing


Audit in spite of having valuable advantages has a number of vital limitations, namely:
1.         Vital aspects like finances, business ethics, managerial efficiency and effectiveness are not dealt with by audit.
2           clever manipulation of books and records, etc, are not disclosed by audit.
3.         Since audit of books does not tell the whole story additional information, clarification and explanation is to be sought to form an audit opinion.
4.         Audited accounts may not mirror correct position due to faulty judgement of the auditor.
5.         Audited accounts may lack authenticity as the external evidence may not be wholly reliable.
6.         Audit techniques employed for collection of evidence may not be consistent with the nature of businesses.
7.         Audit does not provide proof of certain representations.
8.         Certain organisations cannot bear the cost of audit examination.
9.         Since auditor is not expert in all fields he may rely upon the opinion of other experts e.g. engineers, architects, values, legal advisors.
10.       Though under the law shareholders appoint auditors but in fact the directors appoint them, so there is no independence of auditors.
11.       The explanation and information given by the client may not be correct and may affect the audit opinion.
12.       Accounts are prepared on a number of judgements depending on such factors which may not remain constant.

objects of Auditing [B. Com]
Ans:     The following chart exhibits at a glance the objects (or purposes) of auditing.

The objects (or purposes) of auditing can be classified into two broad parts:
1. Primary        a. Opinion Reporting on financial statements.
2. Secondary    b. Detection and prevention of errors.
                        c. Detection and prevention of fraud.

(a) Opinion as regards financial statements:
According to ISA-1, the objective of an audit of financial statements is to enable the auditor to express an opinion whether the financial statements are prepared in all material respects, in accordance with an identified financial reporting framework. Section 255 of the Companies Ordinance requires a company auditor to state whether in his opinion – (a) the balance sheet gives a true and fair view of the state of company’s affairs as at the end of the financial year; and (b) the profit and loss account gives a true and fair view of the profit or loss for the financial year. In other words the main purpose of auditing is the expression of auditors opinion, adherence to accounting principles, consistency and conformity thereto and the fairness with which the statements present the financial position and operating results.

(b) Detection and Prevention of Errors:
One of the incidental objective is to detect the errors occurring in the books and records of the enterprise. Whatever be the nature of error it is bound to affect either the trading results or the financial position or both. Consequently, the financial statements would not reflect true and fair position. Detection of errors can be achieved by a thorough examination of all the entries and financial records.
Prevention of errors must follow detection of errors. This can be achieved by instituting both physical and moral check. The knowledge of the fact that accounts will be audited will put moral influence over client’s staff and they will be more cautious and careful in their work. This will prevent errors to a great extent.
ISA11 provides standard, guidance and auditor’s responsibilities to consider the risk of material misstatement resulting from errors.

(c) Detection and Prevention of Fraud
Detection of fraud is another important object of auditing. The auditor should keep in mind the possibility of frauds while auditing. If he suspects its existence he must probe unto its roots and unearth or discover it.
Prevention of fraud can be achieved by a system of internal check. If such system is defective, suggestion be made for its improvement. Auditing itself indirectly exercises moral influence over the fraudulent intentions by creating a fear of being found out. In addition method of internal check introduced through auditing limits the possibilities of fraud.

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