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CA Intermediate · Auditing and Ethics · Nature, Objective and Scope of Audit

CA Farhan is auditing Lakshya Pharma Ltd, an unlisted company, and tells the board that his audit includes forming an opinion on whether the company's financial statements give a true and fair view. The finance head asks what the audit does NOT include. Which statement is correct?

The audit opinion covers whether the financial statements are prepared, in all material respects, under the applicable framework. It is not a guarantee of exact accuracy, nor an assurance of the company's future viability or management's efficiency, and the auditor does not write the books being audited.

  1. AThe auditor guarantees the accuracy of every figure in the financial statements
  2. BThe auditor certifies the future viability of the company and the efficiency of management
  3. CThe auditor expresses an opinion on whether the financial statements are prepared, in all material respects, in accordance with the applicable framework; this is not an assurance on the future viability of the entity or management's efficiencyCorrect
  4. DThe auditor prepares the books of account and then audits them to save time

Explanation

Under SA 200 the auditor's opinion relates to whether the financial statements are prepared in all material respects per the applicable framework. SA 700 notes that such an opinion is not an assurance about the entity's future viability or the efficiency or effectiveness of management's affairs. Guaranteeing accuracy is wrong because assurance is reasonable and materiality-based, and preparing the books would be a self-review threat.

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