Challenges of Audit in Different Industries

Fact

• Different industries have different risk profiles, regulations and business models, so each industry presents unique audit challenges. The Bonadio Group+4eCampusOntario Pressbooks+4crowe.com+4

Examples by Industry

1. Banking / Financial Institutions

   • Challenges:

     • Complex financial instruments (derivatives, structured products).
     • Heavy regulation and capital adequacy requirements.
     • Estimation of loan loss provisions (credit risk).

   • Auditors must understand banking regulations, models for expected credit loss, and IT systems.

2. Manufacturing

   • Challenges:

     • Inventory valuation and existence (lots of items, movement, obsolescence). crowe.com
     • Overheads allocation and cost of goods sold.

   • Auditors may need to attend stock counts in multiple warehouses and test costing systems.

3. Construction / Property Development

   • Challenges:

     • Long-term contracts, percentage-of-completion revenue recognition. madrasaccountancy.com+1
     • Estimating costs to complete, variations, claims and liquidated damages.

   • Risk of premature revenue recognition or under-estimation of costs.

4. Digital / Technology / Platform Businesses

   • Challenges:

     • Valuation of intangible assets (software, platforms, goodwill).
     • Complex revenue recognition (subscriptions, in-app purchases, multi-element contracts).
     • Cybersecurity and data privacy. tax.thomsonreuters.com+1

Example

• A construction company recognises 80% of contract revenue, but the project is only 60% complete in physical terms.
• Auditor must challenge management’s estimates, verify costs incurred, and may need engineering experts.
• This is an example of industry-specific challenge requiring strong judgement and scepticism.