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

Sundaram Textiles Ltd's management insists that the auditor, CA Raghavan, should also prepare the company's financial statements because the finance team is short-staffed. Raghavan wants to know the basic position regarding responsibility for the financial statements under the Standards on Auditing. What is the correct position?

Management and those charged with governance are responsible for preparing the financial statements, while the auditor's role is only to form and express an opinion on them. The auditor's signature on the report does not transfer preparation responsibility, and sharing it would compromise independence.

  1. AResponsibility for preparing the financial statements rests with management and those charged with governance; the auditor only expresses an opinion on themCorrect
  2. BResponsibility for preparing the financial statements rests with the auditor, since the auditor signs the report
  3. CResponsibility for preparing the financial statements is shared equally between management and the auditor
  4. DResponsibility for preparing the financial statements rests with the auditor if the company has no internal audit function

Explanation

Under SA 200 and the premise of an audit, management is responsible for preparing financial statements in accordance with the applicable framework. The auditor's responsibility is to express an opinion on them. Sharing or shifting the responsibility to the auditor is wrong and would also impair independence.

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