LIMITATIONS OF AUDIT

Besides having various benefits, there are some inherent limitations of auditing. These are as follows :

(i) Higher Cost Burden: Due to Higher Cost Burden, the auditor limits his scope of work to selective testing or sampling thus in depth checking of books of accounts is not possible.

(ii) Based on test checks: Generally an auditing exercise is based on test checking. Inferring a result on the basis of test check always need not to be true.

(iii) Insufficient Time: Generally an auditor needs to release the report up to a specified timeline. Sometime this timeline become a constraint for an auditor in carrying out the auditing exercise effectively. This time constraint may affect the amount of evidence that can be obtained concerning events and transactions after the balance sheet date that may have an effect on the financial statements. Moreover, there is a relatively short time period available for resolving uncertainties existing at the financial statement date

(iv) Inconclusiveness of Evidences: The evidences obtained by an auditor are persuasive rather than conclusive. For example, an architect’s certificate of valuation for a newly constructed building of a client may not be conclusive evidence of the correct value of building.

(v) Based on Estimates: Estimates are an inherent part of the accounting process, and no one, including auditors, can foresee the outcome of uncertainties. Estimate range from the allowance for doubtful accounts and an inventory obsolescence reserve to impairment tests of fixed assets and goodwill. An audit cannot add exactness and certainty to financial statements when these factors do not exist.

(vi) Based on the Information provided by the Management: The audit opinion is based on the information provided by the management . Hence, outsiders cannot fully rely on the auditor’s report.