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

CA Nisha is auditing Bharat Steels Ltd. Management has asked her to also prepare the financial statements and decide which accounting policies to adopt, saying this will save time. Which statement correctly reflects the position regarding responsibilities?

She should decline. Preparing financial statements, selecting accounting policies and maintaining internal control are management's responsibilities, while the auditor's responsibility is to form and express an opinion on them. Taking over management's role would create self-review and management threats to independence.

  1. AShe may do so, because the auditor is ultimately responsible for the financial statements
  2. BShe may do so if the audit fee is reduced
  3. CShe should not accept, because preparing the financial statements and choosing accounting policies is management's responsibility, and the auditor's responsibility is to express an opinion on themCorrect
  4. DShe should accept the policies but avoid preparing statements, as the auditor is responsible for selecting the policies

Explanation

Under SA 200 and SA 210, management is responsible for preparing financial statements and selecting policies and the auditor expresses an opinion. Taking on management's role would threaten independence. Option D is wrong because policy selection is also management's responsibility.

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