Accounting auditors' opinions and their significance

¶ … inherent limitations of an audit and what an auditor recognizes this absence of absolute accuracy.

Limitations of an Audit:

There are many inherent limitations to an audit. The main reason for this is that the resource in terms of money and time required for achieving 100% accuracy in is more than the benefit that would come out of the audit. And even if one tried to achieve the 100% accuracy level, it would still not be possible due to other limitations.

The auditor also looks and checks the presentation of the financial statements and checks to see that they are in conformity with the generally accepted accounting principles of the region. The financial statements include the balance sheet, the income statement, the cash flow statement, and all the adjoining notes. The auditor guarantees that the financial statements are free from all material error, but not from immaterial error.

The auditor is not in the end responsible for the accounts and to make sure that they are free from error or any fraud. The International Federation of Accountants (IFAC) state in the International Standard on Auditing 200, titled "Objective and General Principles Governing an Audit of Financial Statements" that "the objective of an audit of financial statements is to enable the auditor to express an opinion whether the financial statements are prepared, in all material respects, in accordance with the identified financial reporting framework. This ISA further states, "although the auditor's opinion enhances the credibility of the financial statements, the user cannot assume that the opinion is an assurance as to the future viability of the entity nor the efficiency or effectiveness with which the management has conducted the affair of the entity.

Even if the auditor tried his best to achieve 100% accuracy, there are also inherent limitations of an audit, which will keep him from doing so. According to ISA 240, the inherent limitations of an audit are as follows:

Most of the audit evidence used is persuasive rather than conclusive. Also, because testing is used rather than 100% checking, and also there are imperfections in the internal control system of a company.

There is also a higher risk that fraud goes undetected. This is because the perpetrator of the fraud is also likely to take steps to cover it up. Also, if there was collusion by many people, ant they take steps to cover it up, then it is even more difficult to detect.

The risk of an auditor not discovering such fraud is higher the higher up the person perpetrating the fraud is in the company.