Advantages and Disadvantages of Audit Procedure
Audit procedures are a set of activities and tasks used to provide assurance that an entity is operating in a manner that meets set standards.
It will consider the implications of using audit procedures in an entity’s operations and how they can benefit or hinder the entity’s objectives.
Key Takeaways
- Audit procedures provide assurance of accurate financial reporting.
- They offer transparency into company processes.
- Audit procedures protect the public interest.
- They identify trends and weaknesses in management processes, providing opportunities for system improvements and process optimization.
Audit Procedure
Audit procedures are used to obtain audit evidence and assess the accuracy of financial reporting. This process includes inspection, observation, external confirmation, re-performance, re-calculation, analytical procedure, and inquiry. Audit procedures are important for auditors as it affects the auditor’s report and ensures that the financial reporting is accurate. Audit procedures also provide a pillar for a company’s audit in a financial year, as it includes risk assessment procedures and tests of controls.
The implementation of effective audit procedures is essential as it makes audit evidence easily traceable. Knowledge and expertise are needed for successful implementation, as audit procedures are subjective in nature due to different organizational planning. The advantages of audit procedures include the assurance it gives to stakeholders that the financial reporting is accurate. Disadvantages include the cost incurred in implementing audit procedures, as well as the potential for the process to be biased.
Type of Audit Procedure
Verifying financial statements through various methods, such as inspection, observation, confirmation, recalculation, and reperformance, is an important part of the auditing process. Each type of audit procedure has its own set of advantages and disadvantages.
| Type of Audit Procedure | Advantages | Disadvantages |
|---|---|---|
| Inspection | It provides a detailed review of documents and records | It is time-consuming and may be too detailed for some types of audits |
| Observation | It can be applied to any process | It is subjective and may be biased |
| Confirmation | It provides a high level of assurance to auditors | It is more expensive and may be difficult to obtain responses |
| Recalculation | It is less expensive and more efficient | It is only effective in verifying mathematical accuracy |
| Reperformance | It provides a more detailed review of the process | It is more expensive and time-consuming |
Overall, understanding the advantages and disadvantages of each type of audit procedure is essential for completing an effective audit.
Advantage of Audit Procedure
Comparing and contrasting different methods of verification can provide insight into their respective benefits and drawbacks. Audit procedures offer a number of advantages when it comes to safeguarding the public interest, identifying trends and issues, improving systems and processes, and monitoring financial health.
Advantages of Audit Procedure:
- Compliance with Policies:
- Ensures compliance with established policies and procedures.
- Provides transparency into company processes.
- Helps protect the public interest.
- Identify Trends and Issues:
- Identifies trends and weaknesses in management processes.
- Allows for system improvements and process optimization.
- Helps find areas of opportunity for business performance enhancement.
- Monitor Financial Health:
- Enhances credibility by providing financial transparency.
- Helps reduce fraudulent activities.
- Allows for accurate budgeting and planning.
Disadvantage of Audit Procedure
Performing audit tasks can often be time-consuming and cumbersome for auditors. In organizations with large transactions, re-performing tasks or recalculating can be difficult, as it requires double-checking of figures and numerous calculations.
Even in small organizations, it can be challenging to follow all assertions and to obtain all the required information. Additionally, some organizations may not allow auditors to conduct external confirmations, which can be essential in obtaining reliable information.
Furthermore, accountants may have difficulty understanding the logic of audit procedures, which can be a source of practical problems for auditors. Ultimately, these issues can create a considerable amount of stress and time-pressure during an audit, leading to potential errors and omissions that could affect the outcome of the audit.
Conclusion
Auditing is an important process for providing assurance that an organization’s financial statements are reliable and accurate. Different types of audit procedures allow auditors to gain reasonable assurance that the financial statements are presented fairly and that any material misstatements are identified.
The advantages of audit procedures include increased accuracy and reliability of financial statements, improved internal control and compliance with applicable laws and regulations. However, audit procedures can be costly and time consuming, and may not be effective for identifying certain types of misstatements.
In conclusion, despite the potential disadvantages, audit procedures remain a necessary and important tool to ensure the accuracy and reliability of financial statements.