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ACCA Applied Knowledge · Financial Accounting · Duties and responsibilities of those charged with governance

The directors of Kestrel Co are preparing the year-end financial statements. Which of the following statements about the directors' responsibilities regarding internal control is correct?

Directors are responsible for designing, implementing and maintaining internal control that enables financial statements to be prepared free from material misstatement, whether due to fraud or error. This responsibility applies to all companies and is not transferred to the auditor by the audit.

  1. ADirectors are responsible for designing and maintaining internal control sufficient to allow preparation of financial statements free from material misstatementCorrect
  2. BDirectors are responsible for internal control only if the company is listed
  3. CResponsibility for internal control passes to the external auditor once an audit is performed
  4. DInternal control is the responsibility of shareholders because they own the company

Explanation

Directors must maintain internal control that supports reliable financial reporting and safeguards assets, whether the company is listed or not. An audit does not transfer this responsibility, since the auditor only considers controls to plan the audit and reports its opinion.

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