Benefits and Limitations of an Audit
Not what you're looking for?
A fellow business student questions the benefits of an audit as follows:
"Why should a company hire auditors? As far as I can tell auditors of public companies charge millions of dollars in audit fees, and it is not clear to me that management receives any benefit for this expenditure. It is just money down the drain. It is also not clear to me that auditors accomplish anything. We have seen a number of material restatements of financial statements. Why should a company pay for audits that are ineffective? I think auditors are just a drain on society."
a. Explain the economic benefits provided by a financial statement audit.
b. Explain the inherent limitations that might prevent auditors from finding every potential material misstatement in financial statements.
Purchase this Solution
Solution Summary
The solution discusses the benefits and limitations of an audit.
Solution Preview
Explain the economic benefits provided by a financial statement audit.
Audits need be seen from the economic benefits they provide organizations with. While audits are carried out for taxation purposes, they are also occasionally requested for by management for internal operational purposes. Audits are known to help a company's efficiency improve and thus enhance profitability and economic performance by helping the management to have a clearer comprehension of their internal working and financial systems. The economic benefits associated with external stakeholders is that by carrying out an audit, they become more assured that any inherent risks in doing business ...
Purchase this Solution
Free BrainMass Quizzes
Business Ethics Awareness Strategy
This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.
Organizational Behavior (OB)
The organizational behavior (OB) quiz will help you better understand organizational behavior through the lens of managers including workforce diversity.
Introduction to Finance
This quiz test introductory finance topics.
Understanding the Accounting Equation
These 10 questions help a new student of accounting to understand the basic premise of accounting and how it is applied to the business world.
Organizational Leadership Quiz
This quiz prepares a person to do well when it comes to studying organizational leadership in their studies.