Advantages Of Audit |Inherent Limitations of Audit

Today we will discuss the Advantages and Inherent Limitations of Audit Now as we already know that different entities have different sizes and legal structures and are regulated by different laws or statutes or internal rules & regulations and hence have statutory and non-statutory requirements, etc.

For instance, there is no law that governs the registration of a proprietorship concern Whereas in the case of a partnership, company, or LLP, or any other form of entity, we do have various laws/statutes. So these laws/statutes decide if an audit is a compulsory requirement for an entity or not. Now irrespective of audit being compulsory or voluntary It has various advantages that are listed above.
Advantages Of Audit |Inherent Limitations of Audit

Advantages Of Audit

  1. an Auditor is a person who has no direct or indirect connection with the entity and hence provides an independent opinion. Therefore audit report serves as an assurance for every person who is directly/indirectly connected to the entity that his money is not being misused.

  2. Coming to the next advantage, Audit instills a fear in the minds of employees that they should not get involved in any kind of embezzlement, defalcation (i.e. misappropriation of funds), or any other fraudulent act. Because if they indulge in any such fraud then Auditor while conducting an audit can track it down and disclose the fraud in front of management.

  3. Coming to the next advantage now, Usually, entities often have various claims like taxation claims or claims under Factories Act or claim under any bonus or any claim under trade union or there can be a variety of acts applicable on an entity under which there are certain liabilities or claims. So during the settlement of all these, the entity requires a copy of audited financial statements because the auditor ensures that all the financial and other reporting by an entity has been done properly.

  4. Moving on to the next advantage, Now, whenever an external auditor conducts an audit then it is the responsibility of the management to provide him all the necessary data, all the necessary books of accounts, all the necessary auxiliary records

So what's an auxiliary record? It means supportive records incidental records, which the entity gives to the auditor in order to form a valid opinion. So this responsibility on part of an entity creates pressure on it to properly present all the information to the auditor. And if this information has to be presented properly, then its careful maintenance is an obvious precursor. So the entity, owing to this pressure, properly maintains all the books of accounts and other auxiliary records.

5. Other advantages are like: The functioning of the internal control team of an entity, i.e. internal checks performed in most of the entities, can be benchmarked for quality by looking into the independent Auditor's report. As we know that it is practically not possible for management (or Those Charged With Governance) to continuously keep a close watch and supervise the people working at the functional level. So when Auditor presents his independent report, then it helps the management to gauge whether the internal control team is properly carrying out its job.

6. A couple of more advantages of the audit are At the time of granting a loan to an entity, Banks or Financial Institutions generally rely on the latest audit reports issued by an independent auditor because it is assumed that reporting in financial statements are deemed to be true and fair once an independent auditor has duly checked and validated them in his audit report. And many times various authorities like SEBI, RBI, IRDA also require entities to periodically present the latest audited financial reports.

Tags: disadvantages of audit, advantages of audit, benefits of audit,  inherent limitation of audit,  drawback of audit, Auditing,


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