Limitation of Auditing

When we were young we used to give exams and our exam sheets were checked by examiner; in the same way the accounting records of the company are checked by the auditor and auditing is equivalent to exam checking in the sense that it checks for accuracy and correctness of accounting records maintained by the company. However there are some limitations of auditing, let’s look at some of them –

  1. The outcome of auditing is to a large extent dependent on the auditor personal capability and honesty and if the auditor is bias towards the company then accuracy of auditing is not guaranteed.
  2. Auditing is done only once in a year and therefore if some error or fraud is found chances are culprit may have gone or damage may be beyond repair and therefore it is not a full proof way of checking accuracy of accounting records.
  3. Auditor goes to company for few days only and due to lack of time it is not possible to check each and every transaction and therefore auditor usually checks few transactions and therefore chances of error going unnoticed increases.
  4. Auditing does not guarantee detection of every fraud and therefore even if financial statements are audited then also one cannot say with 100 percent assurance that all financial statements are true and present correct picture about the company.
  5. Auditing is limited to checking of accounting records only and therefore it does not help in increasing the efficiency or effectiveness of the company, also it does not help in increasing the profitability and that is the reason why many people consider it as waste of money and manpower resources.

As one can see from the above that there are many limitations of audit, however above limitations does not make auditing a futile exercise because auditing has many advantages also and that is the reason why it is mandatory for companies to present audited results to its shareholders and outsiders of the company.

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