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

Mehta & Co., Chartered Accountants, are auditing Sundaram Textiles Ltd. During planning, a junior team member suggests that, because the company's management has prepared the financial statements, the auditor's report should state that the auditor has prepared them. Which statement correctly reflects the division of responsibilities under the Standards on Auditing?

Management prepares the financial statements and maintains internal control, while the auditor's responsibility is to form and express an opinion on them. The auditor does not prepare the statements, since that would impair independence and misstate the premise on which the audit is conducted under SA 200.

  1. AThe auditor is responsible for preparing the financial statements and the management for expressing the opinion
  2. BManagement is responsible for preparing the financial statements and the auditor is responsible for expressing an opinion on themCorrect
  3. CBoth management and the auditor are jointly responsible for preparing the financial statements
  4. DThose charged with governance are responsible for expressing the opinion and the auditor for preparing the statements

Explanation

Under SA 200 and SA 210, management has the primary responsibility for preparing financial statements and maintaining internal control. The auditor's responsibility is to express an opinion on them. The first option reverses the roles, so it is wrong.

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