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

Sundaram & Co., Chartered Accountants, are appointed auditors of Kaveri Textiles Ltd. During the audit, the engagement partner notes that the financial statements are the responsibility of the company's directors, and that the audit does not relieve them of this. Which statement best reflects the auditor's position on the preparation of the financial statements?

The directors and management are responsible for preparing the financial statements, while the auditor's role is limited to forming and expressing an opinion on whether they give a true and fair view. The audit does not transfer preparation responsibility to the auditor, whatever the company's staffing position.

  1. AThe auditor is responsible for preparing the financial statements and the directors only approve them
  2. BThe directors are responsible for preparing the financial statements, and the auditor's responsibility is to express an opinion on themCorrect
  3. CBoth the directors and the auditor jointly prepare the statements and share equal responsibility for their content
  4. DThe auditor is responsible for preparing them only if the company has no internal accounts staff

Explanation

Under SA 200 and the Companies Act, management and those charged with governance prepare the financial statements. The auditor's responsibility is to form and express an opinion on them. Option A reverses the roles; the audit does not shift preparation responsibility to the auditor.

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