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Introduction to assurance

3.3 Benefits of an audit

 Higher quality information which is more reliable, giving investors faith in and
improving the reputation of the market.

 Independent scrutiny and verification may be valuable to management.

 Reduces the risk of management bias, fraud and error by acting as a deterrent.
An audit may also detect bias, fraud and error.

 Enhances the credibility of the financial statements, e.g. for tax authorities or
lenders.

 Deficiencies in the internal control system may be highlighted by the auditor.

3.4 Limitations of an audit

 Financial statements include subjective estimates and other judgmental
matters.

 Internal controls may be relied on which have their own inherent limitations.

 Representations from management and other client generated evidence are
less reliable than independent evidence or evidence obtained directly by the
auditor.

 Evidence is often persuasive not conclusive.

 Do not test all transactions and balances. Auditors test on a sample basis.

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