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

Lotus Retail Ltd's auditor, CA Anand, notes that management has set a performance bonus for the sales head based on reported profit. Management states that the auditor's duty is to prepare the financial statements and the auditor should fix the errors found in the books. Which statement best reflects the allocation of responsibility in an audit under SA 200 and SA 210?

Management, with those charged with governance, is responsible for preparing the financial statements and maintaining the internal control needed for it. The auditor's responsibility is only to form and express an opinion on those statements based on the audit.

  1. AThe auditor is responsible for preparing the financial statements, while management is responsible only for providing records
  2. BManagement is responsible for preparing the financial statements and maintaining internal control, while the auditor is responsible for forming and expressing an opinion on themCorrect
  3. CResponsibility for preparation is shared equally by management and auditor, since both sign the statements
  4. DThose charged with governance alone are responsible for the opinion, as the auditor only reports facts

Explanation

The premise of an audit is that management prepares the financial statements in accordance with the applicable framework and maintains internal control; the auditor expresses an opinion on them. Option A reverses the roles. Option C is wrong since signing does not make the auditor a preparer. Option D misstates who forms the opinion.

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