Financial Accounting · Stakeholders' needs

Statutory Duties of Directors and Auditors in ACCA FA

Updated 11 October 2026 · Fact-checked

Directors are responsible for keeping accounting records and preparing financial statements that give a true and fair view. The external auditor is independent. The auditor checks those statements and gives an opinion on whether they are free from material misstatement and follow the reporting framework. The auditor does not prepare them.

Understand Statutory Duties of Directors and Auditors

A company is owned by shareholders but run by directors. Shareholders cannot watch every transaction. They need to trust the financial statements they receive. Two duties exist to build that trust.

The first duty sits with the directors. They must make sure proper accounting records are kept. They must prepare financial statements that follow the applicable framework, such as IFRS Accounting Standards, and present fairly the company's position and performance. They also must maintain internal controls that help prevent and detect fraud and error. Directors can delegate the work to finance staff, but they remain responsible.

The second duty sits with the external auditor. The auditor is a qualified professional who is independent of the company. Shareholders usually appoint the auditor. The auditor examines the financial statements and the evidence behind them, then gives an opinion in the audit report.

The key point is the split. Directors prepare. Auditors report. The audit adds credibility, but it does not guarantee that the statements are perfect or that no fraud exists. Auditors work to reasonable assurance, not absolute assurance, and they focus on material items.

The audit report typically states the opinion, the basis for that opinion, and the separate responsibilities of directors and auditors. Local law sets the exact detail, so in ACCA exams focus on the principles.

Key formulas to remember

Directors' responsibility: Directors = keep records + prepare financial statements + maintain internal control; Directors remain responsible even if they delegate the work to staff.
Auditor's responsibility: Auditor = independent examination + opinion on the financial statements; The auditor expresses an opinion. The auditor does not prepare the statements.
Level of assurance: Audit gives reasonable assurance, not absolute assurance; Audits test evidence and focus on material misstatement, so they cannot guarantee that no error or fraud exists.
Standard of presentation: Opinion: true and fair view (or presents fairly) in accordance with the framework; Both phrases are used in practice. Exam answers should link the opinion to the reporting framework, such as IFRS.

How to solve Statutory Duties of Directors and Auditors questions

Use this method for any question on who is responsible for what, or what an audit report says.

1Read the question and identify whether it asks about directors, auditors or both.
2If it is about preparing, record keeping or internal control, think directors.
3If it is about independence, examination or giving an opinion, think auditor.
4Check wording such as 'prepare' against 'report on' or 'give an opinion on'. These point to different parties.
5Watch for words like 'guarantee' or 'ensure no fraud'. An audit gives reasonable assurance, so these are usually wrong.
6For audit report questions, recall the parts: opinion, basis for opinion, and responsibilities of directors and auditors.
7Eliminate options that swap the roles, then choose the one that matches the exact duty.

Quickest way: Prepare versus opine

When to use it: Use this for multiple choice and multiple response questions where options mix up directors and auditors.

Ask: who produces the statements? Directors.
Ask: who gives an independent opinion? The auditor.
Cross out any option where the auditor prepares the statements or the directors audit them.
Cross out options that promise certainty, such as 'guarantees accuracy'.
For multiple response, select only the statements that fit the stated number of correct answers.

Common mistakes in Statutory Duties of Directors and Auditors

Saying the auditor prepares the financial statements.
Students link audit with accounts and assume the auditor does the work.
Fix: Remember that directors prepare and the auditor checks and reports. Independence would be lost if the auditor prepared what they audit.
Believing an audit guarantees the accounts are correct.
The word 'opinion' is confused with 'certificate of accuracy'.
Fix: An audit gives reasonable assurance that the statements are free from material misstatement. It is not a guarantee.
Thinking the auditor's main job is to detect all fraud.
News stories blame auditors for fraud.
Fix: Directors are responsible for preventing and detecting fraud through internal control. The auditor plans to detect material misstatement, including that caused by fraud, but cannot guarantee it.
Forgetting that directors remain responsible when they delegate to the finance team.
Students treat delegation as transferring responsibility.
Fix: Delegation transfers the task, not the responsibility. The directors still answer for the statements.
Missing that the audit report separates the responsibilities of directors and auditors.
Students only remember the opinion paragraph.
Fix: Learn the three parts: opinion, basis for opinion, and responsibilities of each party.

Worked examples

Example 1

Which ONE of the following is a responsibility of the external auditor? A) Preparing the financial statements. B) Maintaining the accounting records. C) Expressing an opinion on the financial statements. D) Designing the internal control system.

Show the solution

Option A is a director duty, as directors prepare the statements.
Option B is a director duty, as directors ensure records are kept.
Option D is a director duty, as directors maintain internal control.
Option C matches the auditor's role of giving an independent opinion.

Answer: C

Example 2

A student writes: 'The audit report guarantees that the financial statements contain no errors.' Explain whether this is correct.

Show the solution

State what the audit report contains: an opinion on whether the statements give a true and fair view in line with the reporting framework.
Explain the level of assurance: the auditor gives reasonable assurance, not absolute assurance.
Explain why: auditors test evidence and focus on material misstatement, so small errors may remain and some misstatement may go undetected.
Add the responsibility split: directors prepare the statements and keep internal controls. The audit does not replace this.

Answer: The statement is incorrect. An audit report gives an opinion with reasonable assurance that the statements are free from material misstatement. It does not guarantee that there are no errors.

Exam tips

Match the verb to the party: prepare, keep and maintain point to directors. Examine and give an opinion point to the auditor.
Be wary of absolute words such as 'guarantee', 'ensure' or 'all'. They are usually in wrong options.
In multiple response questions, read how many answers to select before you choose.
Remember independence. Any option suggesting the auditor prepares the accounts they audit is almost certainly wrong.
Learn the audit report layout: opinion, basis for opinion, and responsibilities of directors and auditors.

Practice questions from Stakeholders' needs

Statutory Duties of Directors and Auditors in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Statutory Duties of Directors and Auditors: frequently asked questions

Who is responsible for preparing the financial statements?

The directors are responsible. They may delegate the work to finance staff, but they remain accountable. The auditor only reports on the statements.

What does an audit report say?

It gives the auditor's opinion on whether the financial statements give a true and fair view in line with the framework. It explains the basis for that opinion and sets out the separate responsibilities of directors and auditors.

What is the difference between directors' and auditors' responsibilities?

Directors keep records, prepare the statements and maintain internal control. The auditor independently examines the statements and expresses an opinion. One produces, the other checks and reports.

Does the auditor have to find every fraud?

No. The auditor gives reasonable assurance that the statements are free from material misstatement, whether from fraud or error. Preventing and detecting fraud is mainly the directors' responsibility through internal control.