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

Rao Engineering Ltd. management asks its auditor to add a paragraph in the audit report certifying that the company will remain profitable and well run in future. Which is the correct response of the auditor based on the objective of audit?

The auditor should decline. The objective of an audit is to express an opinion on whether the financial statements are prepared, in all material respects, under the applicable financial reporting framework. It does not extend to guaranteeing future profitability or certifying management efficiency.

  1. AAgree, since the auditor gives assurance on overall management efficiency
  2. BAgree, if the board passes a resolution
  3. CDecline, since the audit objective is to express an opinion on whether the financial statements are prepared in all material respects in accordance with the applicable framework, not to certify future prospects or management efficiencyCorrect
  4. DDecline, only because the AGM has not approved the request

Explanation

The auditor's opinion covers whether financial statements give a true and fair view per the framework. Assurance on future viability or efficiency of management is not part of this objective. A board resolution cannot widen it.

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