Audit Scope Limitation
Overview
In an audit, scope limitation is a situation where auditors cannot obtain sufficient appropriate evidence to make a conclusion on certain account balances, transactions, or events. When such a circumstance occurs auditors usually try to perform alternative procedures to obtain audit evidence.
In case sufficient appropriate evidence can be obtained with alternative procedures, there will be no modification to the audit opinion. On the other hand, if alternative procedures still cannot solve the issues, auditors will need to modify the audit opinion.
Auditors may come across the scope limitation due to various reasons such as the nature and timing of the audit, uncontrollable event, or those limitations imposed by the client’s management.
Scope limitation and audit opinion
Usually, when there is a scope limitation that prevents auditors from obtaining sufficient appropriate audit evidence, a modified audit opinion is usually given. Specifically, based on the severity of the situation, auditors will give either one of the two opinions below:
- qualified opinion
- disclaimer of opinion
For example, if the effect of missing of the audit evidence is deemed material but not pervasive in nature, only a qualified opinion will be given. On the other hand, if such an effect is deemed both material and pervasive, the disclaimer of opinion will be given instead.
Reasons for audit scope limitation
Audit scope limitation may occur due to:
- circumstance beyond the control of the client
- nature and timing of the audit
- client-impose limitation
Scope limitation due to circumstance beyond the control of the client
This is an uncontrollable situation that the scope limitation occurs. For example, audit evidence such as supporting documents had been destroyed due to the unexpected fire that happened in the office area.
Likewise, auditors won’t be able to obtain evidence on the transactions related to the lost supporting documents. In this case, the scope limitation occurs due to the circumstance beyond the control of anyone.
Scope limitation due to the nature and timing of the audit
This is the case where scope limitation occurs due to the nature and timing of the audit itself. For example, auditors may be appointed too late to be able to observe the year-end inventory count. Likewise, auditors won’t be able to obtain audit evidence about inventory’s existence through inventory count.
In this case, the scope limitation may not occur if the auditor’s appointment were to happen before the year-end inventory count. However, this doesn’t mean that it is the fault of auditors or the client.
Client-impose limitation
This is a situation where the client imposes the limitation to the auditors’ work resulting in the audit scope limitation. In this case, the client intentionally prevents auditors from obtaining audit evidence on certain matters.
For example, the client may prevent auditors from sending confirmation letters to its customers regarding the account receivable balances. Likewise, auditors won’t be able to obtain sufficient appropriate audit evidence about the existence of accounts receivable.
Audit scope limitation that occurs due to the client’s intention of preventing auditors from obtaining evidence is usually a serious matter. When such circumstance occurs, auditors may consider withdrawal of the audit work.
