Causes of Audit Failure

Audit Failure
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Institutional Affiliation
Audit Failure
In modern society, auditing is promoted as a technology that enables stakeholders to control, manage and prevent risks. Usually, companies are required by law to submit an audit report at the end of a financial year. An audit failure can significantly harm the company, and hence an auditor needs to carry out an audit comprehensively. The focus of the present paper is to discuss the failure to gather sufficient information as an auditing issue, its effect, the auditor's role, and the psychological factor that leads to audit failure. An audit failure occurs when there is a severe distortion of the finances reflected on the audit reports. An auditor is responsible for gathering the required information during an audit to ensure that they write a well-informed report. Failure to compile all the financial statements for an organization or business can result in severe errors during the auditing process (Leaver et al., 2020). Therefore, to avoid distortion in the audit, an auditor must ensure they gather sufficient information and avoid professional skepticism by dedicating adequate time for scrutinizing evidence.
Causes
A lack of professional skepticism is one of the chief contributors to audit failures. In general, auditors. In general, those engaged in accounting editing require having an attitude that questions all data and assets availed. It is paramount for auditors to remain alert and confrontational, especially in situations that hint at possible motive/intention of fraudulent activities and erratic data entries. An auditor should have behavior that critically analyzes everything that requires being counter-checked without fearing to disappoint or provoke those being audited. Nevertheless, remaining thorough in due diligence is challenging considering that experience in the career contributes significantly to skill advancement. Moreover, human beings are cunning and increasingly innovating ways to manipulate evidence and conceal what they deem fit to remain secret for personal gains. Ergo, new auditors are more prone to audit mistakes leading to audit failure as they lack the professional skepticism skill as opposed to seasoned auditors. However, the level of skepticism is inversely related to the level of audit efficiency, whereby a high level of skepticism leads to low levels of audit efficiency as it takes more time (Nelson, 2009).
Additionally, the application of professional skepticism is often constrained by limitations such as a fixed time budget. The auditor often might be willing to apply an appropriate level of skepticism, but because of time constraints, they are not able to do so. They are often required to rush through the audit, and sufficient time is not allowed for the auditors to practice professional skepticism by asking the appropriate questions. In addition to knowing the business well, professional skepticism is aimed at identifying any motives for fraud that the management of the organization may hold. In many instances, management colludes to commit fraud, and this can be well covered, making it difficult to identify it through the usual audit. By applying professional skepticism, there are increased chances of pinpoint fraud cases and consequently reduced audit failure instances. Therefore, it is essential to allocate sufficient time to carry out an audit (Nelson, 2009). Professional skepticism should be exercised by an auditor when carrying out an audit.
Also, an auditor's self-esteem can result in audit failure. An auditor with low self-esteem will give in to intimidation, which can hinder their ability to gather all the required information about a company. This will result in an audit failure since the auditor will not have all the credible information required for an audit (Leaver et al., 2020). Therefore, an auditor's psychological condition can result in audit failure.
Effect
Notably, audit failure can cause adverse effects to both the company and the auditor. Inability to gather sufficient information can lead to imprisonment for the auditor and penalties for the company. This can cause a company's financial problems and distortion of its public image and reputation (Leaver et al., 2020). As such, auditors should avoid audit failures. Also, an auditor has a critical role in ensuring an effective audit. An auditor is responsible for gathering all the financial reports to compile a comprehensive report. Additionally, an auditor should explain to company officials the importance of submitting all the necessary information (Leaver et al., 2020). Hence, auditors have a role in ensuring an effective audit.