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Inherent limitations of audit

These are the inherenrt limitations of audit

1

The Nature of Financial Reporting

2

The Nature of Audit Procedures

3

Timeliness of Financial Reporting and the Balance between Benefit and Cost:

4

Other Matters that Affect the Limitations of an Audit

 

Follwoings are limitation of audit

1

The Nature of Financial Reporting

 

The Nature of Financial Reporting: The preparation of financial statements involves judgment by management in applying the requirements of the entity's applicable financial reporting framework to the facts and circumstances of the entity. In addition, many financial statement items involve subjective decisions or assessments or a degree of uncertainty, and there may be a range of acceptable interpretations or judgments that may be made.

 

2

The Nature of Audit Procedures

 

There are practical and legal limitationson the auditor's ability to obtain audit evidence. For example:

(i)There is the possibility that management or others may not provide, intentionally or unintentionally, the complete information that is relevant to the preparation and presentation of the financial statements or that has been requested by the auditor.

(ii)Fraud may involve sophisticated and carefully organised schemes designed to conceal it. Therefore, audit procedures used to gather audit evidence may be ineffective for detecting an intentional misstatement that involves, for example, collusion to falsify documentation which may cause the auditor to believe that audit evidence is valid when it is not. The auditor is neither trained as nor expected to be an expert in the authentication of documents.

(iii)An audit is not an official investigation into alleged wrongdoing .Accordingly , the auditor is not given specific legal powers .

3

Timeliness of Financial Reporting and the Balance between Benefit and Cost:

Timeliness of Financial Reporting and the Balance between Benefit and Cost: The matter of difficulty, time, or cost involved is not in itself a valid basis for the auditor to ommit an audit procedure for which there is no alternative.

 

4

Other Matters that affect the Limitations of an Audit:

In the case of certain subjectmatters limitation so theauditor’sabilitytodetectmaterialmisstatements are particularly signiïŹcant.Such assertions or subject mattersinclude:

 

1. Fraud, particularly fraud involving senior management orcollusion.

 

2. Dubios transaction with realted party .

3.The occurrence of non-compliance with laws andregulations.

4.Future events or conditions that may cause an entity to cease to continue as a going concern.

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