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Benefits and Limitations of Audits.

Audits provide several key benefits: they boost confidence for various stakeholders by adding credibility and transparency to financial statements; they help identify areas for improved processes and controls; and they facilitate tax determination, valuation of shares/bonds, and comparability over time. However, audits also have disadvantages: auditors require subjective judgment which doesn't allow for examining all items; internal controls have limitations; and audits disrupt client work and require substantial time and attention from staff.

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148 views1 page

Benefits and Limitations of Audits.

Audits provide several key benefits: they boost confidence for various stakeholders by adding credibility and transparency to financial statements; they help identify areas for improved processes and controls; and they facilitate tax determination, valuation of shares/bonds, and comparability over time. However, audits also have disadvantages: auditors require subjective judgment which doesn't allow for examining all items; internal controls have limitations; and audits disrupt client work and require substantial time and attention from staff.

Uploaded by

mujuni brianmju
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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The following are the benefits of audits:

Audits give confidence to many stakeholders of a company these are people interested in the financial
statements of the company. Shareholders, directors, creditors, employees. The tax authorities and the
public. Managers have control over assets in which other parties have an interest.

Audit adds credibility to the financial statements. Managers or directors are accountable to the
shareholders and they give their credibility in the forms of financial statements, if an auditor expresses
an opinion on those financial statements then their credibility is improved.

A rigorous audit process will, almost invariably, also identify insights about some areas where
management may improve their controls or processes. In certain circumstances the auditor may be
required to communicate control deficiencies to management and those charged with governance.
These communications add value to the company and enhance the overall quality of business processes.

Audited accounts are used by tax authorities to determine the true tax position of the enterprise.

Audits are important when valuing shares and bonds.

Audited financial statements ease comparability between two firms or within the financial periods.

Audits make it more effective for management to make decisions.

The following are the disadvantages of audits:

Audits are not purely objective. There is some subjective judgement left to the auditor to draw
conclusions.

Not all items in the financial statements are checked.

There are inherent limitations of internal control systems that is collusion, potential human error, by
pass of controls.

The audit report is criticized for not being clear on the position of the auditor with regards to fraud.

It disrupts the clients’ work especially if the exercise is done more often.

It requires the attention of staff and management, taking their time. An audit should therefore be
planned well in advance so that he minimizes the disturbances of the client work.

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