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

Under the Companies Act, 2013 an auditor of Lotus Retail Ltd. is asked by a director whether the auditor's duty is to prepare the financial statements, since the company has no accountant. Which statement is correct?

Preparation of financial statements is the responsibility of management and those charged with governance, including the board. The auditor's responsibility is only to form and express an opinion on them. This division of responsibility applies regardless of the company's size.

  1. AThe auditor must prepare the financial statements as part of the statutory audit
  2. BPreparing financial statements is the responsibility of management and those charged with governance; the auditor only forms an opinion on themCorrect
  3. CThe auditor shares equal responsibility for preparing and auditing them
  4. DThe auditor prepares them only if the company is small

Explanation

Under the SAs and the Companies Act, the board is responsible for preparing financial statements that give a true and fair view. The auditor's responsibility is to express an opinion on them. Size of company does not shift this.

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