Question

Explain auditing objective and limitations

Answer 1

Audit in spite of having valuable advantages has a number of vital limitations, namely:
1. Vital aspects like finances, business ethics, managerial efficiency and effectiveness are not dealt with by audit.
2 clever manipulation of books and records, etc, are not disclosed by audit.
3. Since audit of books does not tell the whole story additional information, clarification and explanation is to be sought to form an audit opinion.
4. Audited accounts may not mirror correct position due to faulty judgement of the auditor.
5. Audited accounts may lack authenticity as the external evidence may not be wholly reliable.
6. Audit techniques employed for collection of evidence may not be consistent with the nature of businesses.
7. Audit does not provide proof of certain representations.
8. Certain organisations cannot bear the cost of audit examination.
9. Since auditor is not expert in all fields he may rely upon the opinion of other experts e.g. engineers, architects, values, legal advisors.
10. Though under the law shareholders appoint auditors but in fact the directors appoint them, so there is no independence of auditors.
11. The explanation and information given by the client may not be correct and may affect the audit opinion.
12. Accounts are prepared on a number of judgements depending on such factors which may not remain constant.

objects of Auditing
Ans: The following chart exhibits at a glance the objects (or purposes) of auditing.

The objects (or purposes) of auditing can be classified into two broad parts:
1. Primary a. Opinion Reporting on financial statements.
2. Secondary b. Detection and prevention of errors.
c. Detection and prevention of fraud.