Auditing – Advantages And Limitations

Advantages of Auditing 

1. 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
2. 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.
3. 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.
4. 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 checking all the transactions.
5. 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.
6. As per law – The audited final accounts should be prepared as per the rules and guidelines laid down by law.
7. 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.
8. 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.
9. Advice to concern – Auditor can also advise the client about internal control, taxation, finance, accounting system etc.

Limitations of Auditing

1. 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.
2. 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.
3. 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.
4. Audit cannot assure about profitability or efficiency of management – Even though the accounts are audited it doesn’t that the user can take granted the future profitability or prospects of concern as audit don’t comment on efficiency of the management.
5. 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.