Auditor is required to obtain sufficient appropriate audit evidence as it helps auditor reduce audit risk to appropriate level which leads to positive expression of auditor’s opinion in auditor’s report. Although auditor puts every effort in obtaining sufficient appropriate audit evidence, however, this is not always the case and under specific circumstances he may not be able to collect evidence of required quantity and quality.
The inability of the auditor to gather sufficient appropriate audit evidence is technically termed as limitation on scope of auditor’s work or limitation on the scope of audit i.e. auditor has been restricted to perform his effectively and in the absence of evidence auditor is not able to reach conclusions and without relevant conclusions auditor cannot form audit opinion.
Such limitations may result from the following situations:
- limitations imposed or forced by management. Either before audit engagement in the engagement letter or during the audit engagement by restricting the auditor in performing audit procedures or at the end of auditor’s report by not letting him report on financial statement or at any point in time thus obstructing auditor’s work. Examples include restricting auditor to reperform certain management functions, keeping auditor from obtaining confirmations from entity’s clients, suppliers, banks etc.
- limitations imposed by circumstances beyond entity’s control. For example act of nature, strikes, accident, destruction of financial records by fire, loss of financial data due to system breakdown or corruption or hack attack
- limitations imposed by the nature and timing of audit procedures. For example evaluation of dangerous or classified goods, substantive procedures alone do not provide sufficient appropriate audit evidence when tests of controls are also unreliable and auditor has no alternative procedures to be applied or simply auditor cannot apply his procedures as time has passed e.g. inventory count has already been conducted and auditor didn’t attended it.
However, limitation on scope of audit does not equate inability to perform certain audit procedure where auditor can obtain sufficient appropriate audit evidence by applying alternative audit procedure. Auditor most of the time able to substitute one procedure with the other if one is not working. For example if record is lost auditor can obtain external confirmations from third parties. It will be a limitation on scope of audit if management restricts auditor from obtaining external confirmation in these circumstances. In short, inability is relative and must be assessed on case to case basis.