Minimization and not elimination of errors – Due to time and cost constants, the auditors uses selective testing to examine the transactions. Consequently, there may be material misstatements resulting in errors and fraud that remain undetected. It is also not possible for the auditors to uncover a carefully laid scheme of fraud. Thus auditing only reduces and does not eliminate the possibility of existence of errors and fraud in books of account and financial statements.
Inconclusiveness of evidence – the evidence obtained by an auditor is persuasive rather than conclusive. Therefore, an auditor can only draw reasonable conclusions from such evidence.
Exercise of judgment – The nature, timing and extent of audit procedure to be performed is matter of professional judgment of the auditor. In addition, the auditor exercise judgment to ascertain the reasonableness of various estimates made by the management and not reached through the scientific process.
Inherent limitations of internal control system- These also contribute to the inherent limitations of audit. This arises due to:
Potential human error
Possibility of collusion
Possibility that a person responsible for exercising controls could abuse the authority
Possibility that procedure may become inadequate due to changes in entity’s business and economic environment.