Limitations of a Financial Statements Audit
A financial statement audit made by GAAS is subject to several inherent limitations.
One constraint is that the auditor works within fairly’ restrictive economic limits. To be useful, the audit must be at a reasonable cost and within a reasonable length of time.
The limitation on cost results in selective testing, or sampling, of the accounting records supporting data. The time constraint may affect the amount of evidence that can be obtained concerning events and transactions after the balance sheet date that may affect the financial statements.
Another significant limitation is the established accounting framework for the preparation of financial statements.
Alternative principles are often permitted under GAAP, estimates are an inherent part of the accounting process, and no one including auditors can foresee the outcome of uncertainties.
Despite these limitations, a financial statement audit adds credibility to the financial statements.