Objectives, Advantages and Limitations of Auditing in a Globalized

Business world
There are two main objectives of auditing. The primary objective
and the secondary or incidental objective.
a. Primary objective as per Section 227 of the Companies Act 1956, the primary
duty (objective) of the auditor is to report to the owners whether the balance sheet
gives a true and fair view of the Companys state of affairs and the profit and loss A/c
gives a correct figure of profit of loss for the financial year.
b. Secondary objective it is also called the incidental objective as it is incidental to
the satisfaction of the main objective. The incidental objectives of auditing are:
i. Detection and prevention of Frauds, and
ii. Detection and prevention of Errors.
Detection of material frauds and errors as an incidental objective of independent
financial auditing flows from the main objective of determining whether or not the
financial statements give a true and fair view. As the Statement on auditing Practices
issued by the Institute of Chartered Accountants of India states, an auditor should
bear in mind the possibility of the existence of frauds or errors in the accounts under
audit since they may cause the financial position to be misstated.

Fraud refers to intentional misrepresentation of financial information with the

intention to deceive. Frauds can take place in the form of manipulation of accounts,
misappropriation of cash and misappropriation of goods. It is of great importance for
the auditor to detect any frauds, and prevent their recurrence. Errors refer to
unintentional mistake in the financial information arising on account of ignorance of
accounting principles i.e. principle errors, or error arising out of negligence of
accounting staff i.e. clerical errors.

When we speak of the objective, we rationalize the thinking process,

to formulate a set of attainable goals, with reference to the circumstances,
feasibility and constraints. In money matters, frauds
and errors are common place of occurrence. Apart from this, the
statements of account have their own purpose and use of
portraying the financial state of affairs.
The objective of audit, naturally, should be to see that what the statements of
account convey is true and not misleading and that such errors and frauds
do not exist as to distort what the accounts should really convey. Till recently
, the principal emphasis was on arithmetical accuracy adequate attention was
not paid to appropriate application of accounting principles and disclosure, for
ensuring preparation of accounting statement in such a way as to enable the
reader of the accounting statement to form a correct view of the state of affairs.
Quite a few managements took advantage of the situation and manipulated profit or
loss and assets and liabilities to highlight or conceal affairs according to their own
design. This state of affairs came up for consideration in the Royal Mail Steam
Packet Companys Case as a result of which the Companies Acts of England and
India were amended in 1948 and 1956 respectively to require the auditor to state
inter alia whether the statements of account are true and fair. This is what we can
take as the present day audit objective. The implication of the substitution of true
and fair needs to be understood. There has been a shift of emphasis from
arithmetical accuracy to the question of reliability to the financial statements. A
statement may be reliable even though there are some errors or even frauds,

provided they are not so big as to vitiate the picture. The word correct was
somewhat misplaced as the accounting largely consists of estimates.
However, one should not infer that the detection of errors and frauds is no longer an
audit objective; it is indeed an audit objective because statements of account drawn
up from books containing serious mistakes and fraudulent entries cannot be
considered as a true and fair statement. To establish whether the financial statement
show a true and fair state of affairs, the auditors must carry out a process of
examination and verification and, if errors and frauds exist they would come to his
notice in the ordinary course of checking.
But detection of errors of frauds is not the primary aim of audit; the primary aim is
the establishment of a degree of reliability of the annual statements of account.
If there remains a deep laid fraud in the accounts, which in the normal course of
examination of accounts may not come to light, it will not be construed as failure of
audit, provided the auditor was not negligent in the carrying out his normal work. This
principle was established as early as in 1896 in the leading case in Re-Kingston
Cotton Mills Co.

Advantages of audit

A. Businessman's point
of view
B. Investor's point of viewC. Other Advantages.

.Detections of
errors and
frauds
1 .Protects interest

1
. Evaluate financial status

Loan from
banks

2.

2
.Listing of shares

Builds
reputation

3.

3
.Proper valuation of . Settlements of claims
investments

Proper
valuation of
assets

Good security

Moral check

44.Evidence in court

5.

Government
acceptance

5
. 5.Settlement of accounts

6.

Update
accounts

5
. 6.Facilitates calculation of
purchase consideration.

Suggestions
for
improvement

8.

77.Facilitates taxation

Useful for
agency

Limitations of auditing
At this stage, it must be clear that the objective of an audit of financial statements is
to enable an auditor to express an opinion on such financial statements. In fact, it is
the auditors opinion which helps determination of the true and fair view of the
financial position and operating results of an enterprise. It is very significant to note
that the AAS-2 makes it a subtle point that such an opinion expresses by the auditor
is neither an assurance as to the future viability of the enterprise nor the efficiency or
effectiveness with which management has conducted affairs of the enterprise.
Further, the process of auditing is such that it suffers from certain inherent
limitations, i.e., the limitation which cannot be overcome irrespective of the nature
and extent of an audit procedure. It is very important to understand these inherent
limitations of an audit since understanding of the same would only provide clarity as
to the overall objectives of an audit. The inherent limitations are:

I. First of all, auditors work involve exercise of judgment, for example, in

deciding the extent of audit procedures and in assessing the reasonableness
of the judgment and estimates made by the management in preparing the
financial statements. Further much of the evidence available to the auditor can
enable him to draw only reasonable conclusions there from. The audit
evidence obtained by an auditor is generally persuasive in nature rather than

conclusive in nature. Because of these factors, the auditor can only express
an opinion. Therefore, absolute certainty in auditing is rarely attainable. There
is also likelihood that some material misstatements of the financial information
resulting from fraud or error, if either exists, may not be detected.
AI. The entire audit process is generally dependent upon the existence of an
effective system of internal control. Further, it is clearly evident that there
always be some risk of an internal control system failing to operate as
designed. No doubt, internal control system also suffers from certain inherent
limitations. Any system of internal control may be ineffective against fraud
involving collusion among employees or fraud committed by management.
Certain levels of management may be in a position to override controls; for
example, by directing subordinates to records transactions incorrectly or to
conceal them, or by suppressing information relating to transactions. Such
inherent limitations of internal controls system also contribute to inherent
limitations of an audit.

Generally following are the Limitations of auditing

1. Non-detection of errors/frauds: - Auditor may not be able to detect certain frauds

which are committed with malafide intentions.
2. Dependence on explanation by others:- Auditor has to depend on the explanation
and information given by the responsible officers of the company. Audit report is
affected adversely if the explanation and information prove to be false.
3. Dependence on opinions of others:- Auditor has to rely on the views
or opinions given by different experts viz Lawyers, Solicitors, Engineers,
Architects etc. he can not be an expert in all the fields

4. Conflict with others: - Auditor may have differences of opinion with the
accountants, management, engineers etc. In such a case personal judgement
plays an important role. It differs from person to person.
5. Effect of inflation : - Financial statements may not disclose true picture even after

audit due to inflationary trends.

6. Corrupt practices to influence the auditors :- The management may use corrupt
practices to influence the auditors and get a favourable report about the state of
affairs of the organisation.
7. No assurance :- Auditor cannot give any assurance about future profitability and
prospects of the company.

8. Inherent limitations of the financial statements :- Financial statements do not

reflect current values of the assets and liabilities. Many items are based on
personal judgement of the owners. Certain non-monetary facts cannot be
measured. Audited statements due to these limitations cannot exhibit true
position.
9. Detailed checking not possible: Auditor cannot check each and every transaction .He may be required to do test
checking.
Disadvantages of auditing
1. Frauds by management
Auditing fails to check planned frauds. The management can play tricks to
manipulate the accounts in order to conceal their inefficiencies. The audited
accounts could not show the true view.
2. Wrong certificate
Auditing is based on many certificates taken from management and other persons.
Auditing may fail to provide the desired results when certificates provide wrong
information.
3. Misleading clarification
Auditing fails to disclose correct information. The management may not provide
correct clarification. The auditor is bound to present his report even of the
clarification is not true.
4. The true picture is not revealed in case of manipulation of figures
The auditing does not present true picture. Auditing fails to disclose true picture
when figures have been manipulated.
5. Incorrect view
Auditing fails to present correct view. There are limitations of accounting so figures
are not facts. These figures are based on opinion. Thus auditing is unable to disclose
correct view.

6. Auditing is not related to management policies

Auditing is not concerned with the management policies. The auditor cannot guide
management for better use of capital. He is unable to suggest what should have
been done.
7. Absence of honesty
Honesty and independence are highly essential traits. The auditor must certify what
is true. The absence of honesty and independence means failure of audit purpose.
8. Bias of auditor
Auditing fails to present fair view due to bias of an auditor. An auditor should be
indepenedent.
9. High cost
An audit is completed at a cost. Repetitive audits can be costly for an organization
and if the audit is not done properly it cannot be determined whether the nature of
the transactions are legitimate or not.
10. Past action
Auditing is nothing more than checking of past activities. It is not concerned with
present or future. The audit fees increase the cost of business. Such cost does not
help to improve market standing of enterprise
Effective business strategies are created with the expectation to bridge the gap
between reality and vision, caution and opportunity. The true test of these strategies
and the tactics employed to inform and implement them, is whether they stand up to:

the toil of daily business

increased competiveness

shifting economic and environmental landscapes

times of dramatic and unanticipated change

cyber-attacks and sabotage

Unfortunately, when crafting and executing strategy, most organisations do not have
the foresight to predict the:

Trials and tribulations they will encounter in achieving their goals.

Value they will create, protect, enhance or destroy when operationalising their
strategy.
The extensive range of services offered includes:

Security, Privacy and Resiliency

Forensic

Data Analytics

Governance, risk and Oversight

Technology Assurance and Advisory

Nature of Job Software License Compliance

The reviews are conducted in the form of an audit for clients like Microsoft,
IBM or through consulting assignments for the end user of the software.
The work involves scanning the IT infrastructure of the end user for traces of
software comparing it vis- a -vis the licenses and coming up with a shortfall
summary.

This activity is carried out by the software vendor as an anti- piracy drive to
protect its intellectual property right for the use of genuine software products.
On the other hand Deloitte also conducts consulting assignments for
customers where it provides recommendations to the client to optimize its
budget for software and minimize risk for financial losses.

Revenue of the company

Deloitte is the oldest and largest among the big 4 auditors in the world with
prestigious companies like Price Water coopers, KPMG, Ernst n Young
Turnover of the company was $34.2 billion US $ as of 31 st May 2014 In its fifth
consecutive year of growth, Deloitte saw accelerated demand for its range of
services in all regions of the world. The organizations aggregate revenues
represent growth of 6.5 percent in local currency, or 5.7 percent in U.S.
dollars. Growth was led by Consulting, which experienced double-digit growth

(10.3 percent in local currency), followed by Tax & Legal (7.7 percent in local
currency).
Financial Advisory and Enterprise Risk Services also experienced strong
growth with 6.8 percent and 4.2 percent (in local currency), respectively. Audit
experienced growth of 2.5 percent in local currency, reflecting growth even
after accounting for the networks significant investment in quality around its
audit service.
Deloittes growth reflects its commitment to providing clients with high quality
services through a multi-disciplinary model, delivering innovative solutions
from strategy to implementation. Increasing client needs stemming from
globalization and changes in business models, technology, and regulations
are expected to drive further opportunities in the year ahead. The network is
also steadfastly committed to the growth and development of its people, with
more than 63,000 professionals receiving training via its Deloitte University
curricula in the past fiscal year.

Job satisfaction
The company provides dynamic opportunities to its employees in the fields of
Risk Advisory services. The client interaction coupled with people friendly
culture provides with high job satisfaction.
There is not strict hierarchy and the organizational structure is flat so people
in the upper management are very accessible. The training and activities
within the organization is a big plus to enhance skills in any area.
The mentoring methodology followed at the Deloitte is unique because the
person who offers counselling is not the employee's boss and the thus the
feedback is given as an outsider and people are open to receive the feedback
more objectively.
The pay and perks are good when compared to the other companies in the
Indian sector. The knowledge forums and repositories are and add-on to all
the above mentioned benefits.
Competition is stiff and people often override the rules of the book in order to
be in the spotlight. The work culture of Deloitte is a little laid back and people
need to a little proactive. I guess most of the professionals feel tired because
of the stringent deadlines they operate within but these timelines are not
shown in the books

Problems during audit

Scope of the audit: It is sometimes difficult to decide which entities to

cover and target in a vast audit .It is not possible to audit everything.

Hostile client: Some of the clients may not be as helpful as one might
think .The client may have manipulated the figures or the nature of
transactions might be illegal, hence the hostile nature of client.

Travelling: The dynamic job has a downside of lot of travelling. For

instance if an audit has to be done for a firm in Mumbai and the auditor
is in Kochi , the auditor has to travel to ensure the audit takes place on
time. Frequent travelling can be tiring for any employee.

Timelines: Due to the short timelines and aggressive targets one might
sometimes come under pressure. The auditor has to complete a fixed
number of firms by a given time period, this leads to lot of pressure
towards the end of each quarter, as the target given are very high.

Adhoc problems : One deals with problems on a daily basis and

sometimes some of these needs ingenious solutions