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Chapter 16
6.4 The purposes of external audit
International Standards on Auditing (ISAs) state that the overall objectives of the
external auditor are:
to obtain reasonable assurance about whether the financial statements as a
whole are free from material misstatement, whether due to fraud or error
to express an opinion on whether the financial statements are prepared, in all
material respects, in accordance with an applicable financial reporting
framework.
6.5 Advantages and disadvantages of an external audit
Advantages Disadvantages
Disputes between management The audit fee!
may be more easily settled e.g. a
partnership which has The audit involves the client’s
complicated profit-sharing staff and management giving
arrangements may require an time to providing information to
independent examination of the auditor.
those accounts to ensure
accurate assessment and
division of those profits.
Major changes in ownership may
be facilitated if past accounts
contain an unqualified audit
report, for instance, where two
sole traders merge their
businesses.
Applications to third parties for
finance may be enhanced by
audited accounts.
The audit is likely to involve an
in-depth examination of the
business and may enable the
auditor to give constructive
advice to management on
improving the efficiency of the
business.
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