Question

All of the following are limitations of an audit EXCEPT?

1) Auditors may not have access to all relevant information.
2) Samples are representative of all items available for testing.
3) Judgment is often required when arriving at accounting estimates or determining accounting methods.
4) Fraud perpetrators often conceal evidence.

Answer 1

The statement 'Samples are representative of all items available for testing' is not a limitation of an audit; it's an assumption, whereas limited access to information, judgment requirements, and fraud concealment are actual audit limitations.

Step-by-step explanation:

The question pertains to identifying which statement is not a limitation of an audit. The answer is 2) Samples are representative of all items available for testing. This statement is actually an assumption that auditors make when performing an audit, rather than a limitation. In reality, although auditors strive to ensure their samples are reflective of the entire data set, the nature of sampling inherently means there's a risk the samples might not be perfectly representative. However, this risk is managed through careful sample selection and is not considered a limitation. In contrast, limitations such as limited access to information, the requirement for judgment in accounting, and the concealment of evidence by fraud perpetrators are challenges auditors face that can constrain the effectiveness of an audit.

Examples of these limitations can be seen in case studies with control-related challenges and measuring biases, as well as the complexities introduced by imperfect information affecting transactions in the business world. Further, another relevant limitation not mentioned would be the potential inaccuracy of responses in surveys, highlighting a broader issue with data reliability in various research and audit contexts.

Answer 2

The correct answer is option 2) Samples are representative of all items available for testing. This answer explains why this option is incorrect and discusses the other limitations of an audit.

Step-by-step explanation:

The correct answer for this question is option 2) Samples are representative of all items available for testing. This is because samples may not always accurately represent the entire population or all items available for testing. This could lead to inaccurate results and conclusions.

For example, let's say an auditor is tasked with auditing a company's inventory. They select a sample of items to test and determine the value of the inventory based on the results of that sample. However, if the sample is not truly representative of the entire inventory, the auditor may have an inaccurate understanding of the overall value of the inventory. On the other hand, options 1), 3), and 4) are all limitations of an audit. Auditors may not have access to all relevant information, which could limit their ability to fully understand and evaluate the financial statements and records. Judgment is often required when arriving at accounting estimates or determining accounting methods, which introduces subjectivity and potential biases. Fraud perpetrators often conceal evidence, making it difficult for auditors to detect and uncover fraudulent activities.