ADVANTAGES AND INHERENT LIMITATION OF THE AUDIT

Ø   ADVANTAGES AND INHERENT LIMITATION OF THE AUDIT
CHAPTER 1

Ø   AUDITING

Ø  BENEFITS OF AUDIT

• MANAGEMENT:-

1. HELPS IN DETECTING AND PREVENTING ERRORS AND FRAUDS
2. KEEPS THE ACCOUNTANT AND STAFF VIGILANT AND ALERT
3. PROFESSIONAL ADVICE FROM THE AUDITORS
4. FACILITATES COMPARISON

• FOR THE BUSINESSMEN AND SHAREHOLDERS:-

1. HELPS IN GETTING VALUATION OF HIS BUSINESS TO SOLE TRADERS ON THE BASIS OF AUDITED ACCOUNTS
2. ALSO HELPFUL IN PARTNERSHIP FIRMS FOR THE VALUATION OF THEIR FIRM AND SETTLING DISPUTE
3. INFORM THE FINANCIAL PERFORMANCE TO THE SHAREHOLDERS OF THE COMPANY
4. FACILITATES IN VALUATION OF THE SHARES ON THE BASIS OF THE AUDITED FINANCIAL STATEMENTS

• TO THE GOVERNMENT:-

1. DETERMINATION OF THE TAX LIABILITY
2. EVIDENCE IN THE COURT
3. AUDITED ACCOUNTS HELP IN FRAMING SUITABLE POLICIES FOR INDUSTRIES

·         FOR CREDITORS:-

• HELPS IN JUDGING THE CREDIT WORTHINESS IN GRANTING SHORT TERM AND LING TERM CREDIT

·         FOR OTHERS:-

1. THEY ARE USEFUL FOR SETTING TRADE DISPUTES FOR HIGHER WAGES/OR BONUS
2. CAN BE USED BY INSURANCE COMPANIES TO SETTLE THEIR CLAIMS ON ACCOUNT OF LOSS BY FIRE
3. HELPS IN THE MATTER OF AMALGAMATION AND MERGER

• INHERENT LIMITATIONS OF AUDIT

1. THE OPINION EXPRESSED BY AUDITOR IS NEITHER AN ASSURANCE AS TO FUTURE VIABILITY OF THE ENTERPRISE NOR THE EFFICIENCY OR EFFECTIVENESS WITH WHICH MANAGEMENT HAS CONDUCTED THE AFFAIRS OF THE ENTERPRISE
2. AUDITOR’S WORK INVOLVES EXERCISE OF JUDGMENT E.G IN DECIDING THE EXTENT OF AUDIT PROCEDURES TO BE FOLLOWED
3. THE AUDIT EVIDENCE OBTAINED BY AN AUDITOR IS GENERALLY PERSUASIVE IN NATURE RATHER THAN CONCLUSIVE
4. INHERENT LIMITATION OF INTERNAL CONTROL SYSTEM ALSO CONTRIBUTE TO INHERENT LIMITATION OF AUDIT
5. ALSO LIKELIHOOD THAT SOME MATERIAL MISSTATEMENT OF THE FINANCIAL INFORMATION RESULTING FROM FRAUD AND ERROR IF EITHER EXISTS MAY NOT BE DETECTED.

• OTHER LIMITATIONS

1. IS CONSIDERED A MECHANICAL WORK. AUDITORS MAY NOT FRAME AUDIT PROGRAMMES FROM THE VIEW POINT OF PARTICULAR SITUATION
2. VERY DIFFICULT TO VERIFY CERTAIN ITEMS THAT IS STOCK IN TRADE
3. DEPENDENCE OF AUDITORS ON THE OPINION OF EXPERTS IN REGARD TO SOME TECHNICAL MATTERS
4. SUCCESS OF AUDIT DEPENDS ON THE SINCERITY WITH WHICH AUDITOR PERFORMS HIS DUTY