Advantages and Limitations of Audit

Advantages of Auditing

Assurance of true and fair accounts

An audit provides an assurance to the investors, government, lenders, creditors, owners, management etc.  That the final account presented shows the true and fair picture of the profit and losses and financial position of the concern

True and fair balance sheet

The user of final accounts can be sure that the assets and liabilities disclose true and fair view of financial position of the concern, it’s neither more nor less, and it’s free from window dressing or secret reserve.

True and fair profit and loss account
The user of final accounts should be sure that the profit and loss account show true amount of profit or less as it is.

Tally with books of accounts
The audited final accounts should tally with the books of accounts of the concern. So it can be easy to calculate the taxable income without going through all the transactions.

As per law
The audited final accounts should be prepared as per the rules and guidelines laid down by law.

Disclose all material facts
The audited final accounts should disclose all material facts, thus users can rely on them for making useful decisions of lending, investing etc.

Detection of errors and frauds
It is assumed that the audited final accounts are free from errors and frauds, the auditor with his expertise knowledge would detect the errors and fraud so as to show the true figure of final accounts.

Moral check on employees
Auditing techniques such as verification, vouching of cash, assets, stock etc. act as a moral check on the employees, this forces them to keep the accounts up-to-date and free from errors and frauds.

Advice to concern
Auditor can also advise the client about internal control, taxation, finance, accounting system etc.

LIMITATIONS OF AUDITING

All transactions cannot be checked
It is not possible for an auditor to check each and every transaction; he has to check them on sample basis

Evidence is not conclusive
Audit evidence is not conclusive in nature the confirmation of debtors is not conclusive evidence that all amount will be collected, the conclusions are persuasive rather than conclusive.

Not easy to detect some frauds
It’s not easy for an auditor to detect the deeply laid frauds which involves acts designed to conceal them such as forgery, false explanation, and not recording transaction and so on.

Audit cannot assure about profitability or efficiency of management
Even though the accounts are audited it doesn’t mean that the user can take granted the future profitability or prospects of concern as audit don’t comment on efficiency of the management.

Rely on experts
The auditor has to rely on experts like lawyers, engineers, valuers etc. for estimation of contingent liability and valuation of fixed assets.

About Falguni Paleja

FALGUNI PALEJA SYBAF student from Nirmala memorial foundation college kandivali (E)
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