Lesson 1 of 0
In Progress

1.10 Inherent limitations of an audit

These inherent limitations of an audit mean that an audit cannot provide absolute assurance on the financial statements and that there is a risk that material misstatements may not be detected. These limitations include:

  • Materiality: An audit can only provide reasonable assurance on the financial statements, and the auditor may not detect all material misstatements.
  • Fraud: The auditor cannot guarantee that fraud will be detected, and the likelihood of detecting fraud is reduced if the fraud is well-concealed.
  • Sampling: Auditors often use sampling to test a portion of the financial statements rather than testing the entire population. This increases the risk of auditing errors and the possibility that material misstatements may not be detected.
  • Incomplete or Unreliable Information: If the information provided is incomplete or unreliable, the auditor’s conclusions may be affected.
  • Timing: An audit is performed at a specific point in time and may not reflect changes in the financial statements after the audit has been completed.
  • Dependence on Management: The auditor may not be able to detect material misstatements if the internal controls are inadequate or if management is engaged in fraudulent activities.
  • Human Error: The audit process is performed by human beings and is subject to human error.