Financial Accounting · The context and purpose of financial statements for external reporting

Duties and Responsibilities of Those Charged with Governance

Updated 11 October 2026 · Fact-checked

Those charged with governance, usually the directors, must keep proper accounting records, prepare financial statements that give a true and fair view, and safeguard assets. Auditors are independent. They give an opinion on whether the statements are free from material misstatement. They do not prepare the statements or run the company.

Understand Duties and Responsibilities of Those Charged with Governance

A company is owned by shareholders but run by directors. Shareholders cannot check every transaction, so they rely on financial statements. Those statements need to be reliable. That is why responsibilities are split between two groups.

Those charged with governance are the people responsible for overseeing the entity's direction and accountability. In a company this means the directors. They are responsible for the financial statements. This includes keeping adequate accounting records, choosing suitable accounting policies, making reasonable estimates, and applying IFRS Accounting Standards. They must also set up internal controls that help prevent and detect fraud and error, and safeguard the entity's assets.

Auditors are independent of the directors. They are appointed (normally by the shareholders) to examine the financial statements and give an audit opinion. They collect evidence, test the records and controls, and judge whether the statements are free from material material misstatement and present a true and fair view (or present fairly, in all material respects). An item is material if leaving it out or getting it wrong could change the decisions of users.

The audit opinion adds credibility. It does not guarantee accuracy. Auditors use testing and judgement, so they give reasonable assurance, not absolute assurance. The audit also does not prove the company is well run or will survive.

The audit report is addressed to the shareholders. An unmodified (clean) opinion says the statements give a true and fair view. A modified opinion is given when there are material misstatements or the auditor cannot get enough evidence. Remember the split: directors prepare, auditors opine.

Key formulas to remember

Directors' responsibility: Directors = prepare the financial statements + keep records + maintain internal control; Responsibility stays with the directors even if they hire accountants to help.
Auditors' responsibility: Auditors = give an independent opinion on the financial statements; Based on evidence. They give reasonable assurance, not a guarantee.
Unmodified opinion: Unmodified = true and fair view, no material misstatement; Also called a clean opinion.
Modified opinion: Modified = material misstatement or insufficient evidence; Includes qualified, adverse and disclaimer of opinion. Know the clean versus modified idea at this level.
Materiality: Material = could influence users' economic decisions; Judged by size and nature, not by a fixed percentage.

How to solve Duties and Responsibilities of Those Charged with Governance questions

Use this method for any question on who is responsible for what, or what the audit opinion means.

1Read the question and decide whether it asks about directors, auditors, or the difference between them.
2Identify the action in the statement: preparing, recording, controlling or safeguarding points to directors; examining, testing, reporting or opining points to auditors.
3Check for the words independent, opinion or assurance. These point to the auditor.
4Check for the words true and fair, material and reasonable assurance, and match them to the opinion.
5For multiple response questions, select exactly the number asked and reject any option that says the auditor prepares the statements or guarantees accuracy.
6Re-read your choice against the question wording before you submit.

Quickest way: Prepare versus opine

When to use it: Use this on any multiple choice or multiple response question comparing directors and auditors.

Ask: does this action create the financial statements or control the business? If yes, it is the directors.
Ask: does this action check the statements and report on them independently? If yes, it is the auditors.
Cross out options with absolute words such as guarantees, ensures or prevents all fraud.
Choose the option left.

Common mistakes in Duties and Responsibilities of Those Charged with Governance

Saying the auditors prepare the financial statements.
Students link auditors with accounts in general.
Fix: Remember directors prepare, auditors give an opinion. Auditors only check.
Thinking the audit opinion guarantees the statements are 100% accurate.
The word 'true' sounds like perfect accuracy.
Fix: Audits give reasonable assurance, using testing and judgement, and focus on material misstatement.
Believing auditors are responsible for preventing and detecting fraud.
Students assume the checker is the protector.
Fix: Directors design and run internal controls to prevent and detect fraud. Auditors plan to detect material misstatement, including from fraud, but do not carry primary responsibility.
Thinking the directors are no longer responsible if an audit is carried out.
Students think the audit shifts the duty.
Fix: The audit does not remove directors' responsibility. The audit is a check on their work.
Assuming a clean opinion means the company is a good investment or will not fail.
Confusing reliability of the statements with business performance.
Fix: The opinion covers only whether the statements are free from material misstatement and give a true and fair view.

Worked examples

Example 1

Which ONE of the following is the responsibility of the directors rather than the external auditors? A) Giving an independent opinion on the financial statements B) Maintaining internal controls over the accounting system C) Reporting to shareholders on whether the statements give a true and fair view D) Testing a sample of transactions for evidence

Show the solution

Identify the action in each option.
A, C and D are all auditor actions: opining, reporting an opinion and testing evidence.
B is about designing and running controls. That is a management duty, so it belongs to the directors.

Answer: B

Example 2

A student says: 'An unmodified audit opinion guarantees that the financial statements contain no errors.' Explain whether this is correct.

Show the solution

State what an unmodified opinion means: the auditor concludes the statements give a true and fair view and are free from material misstatement.
Note the key word material. Small errors that would not affect users' decisions may remain.
Note that the auditor tests evidence and uses judgement, so gives reasonable assurance, not absolute assurance.
Conclude the statement is incorrect.

Answer: Not correct. An unmodified opinion gives reasonable assurance that the statements are free from material misstatement. It does not guarantee there are no errors.

Exam tips

Link each verb to a party: prepare, record and control mean directors; examine, test and opine mean auditors.
Treat absolute words such as guarantees, ensures or certifies with suspicion in options about the audit.
In multiple response questions, select exactly the stated number of options. Count before you submit.
Know the terms true and fair, material and reasonable assurance, and the difference between clean and modified opinions in one line each.
Do not spend long on these questions. They are usually quick marks if you know the split.

Practice questions from The context and purpose of financial statements for external reporting

Duties and Responsibilities of Those Charged with Governance in other exams

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

Duties and Responsibilities of Those Charged with Governance: frequently asked questions

What are the responsibilities of directors for financial statements in ACCA FA?

Directors must keep proper accounting records and prepare financial statements that give a true and fair view under IFRS Accounting Standards. They must also maintain internal controls and safeguard assets. This responsibility remains even when the company is audited.

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

Directors prepare the financial statements and run the controls. Auditors are independent and give an opinion on whether the statements are free from material misstatement. Auditors do not prepare the statements.

What is an audit report in ACCA FA?

It is the auditor's written opinion on the financial statements, addressed to the shareholders. A clean report says the statements give a true and fair view. A modified report says there is a material problem or lack of evidence.

Who are those charged with governance?

They are the people with responsibility for overseeing the entity's strategic direction and accountability. In a company, this is normally the board of directors.