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CA Intermediate · Auditing and Ethics · Risk Assessment and Internal Control

Under the Companies Act, 2013, the auditor of a listed company, Bharat Foods Ltd, is reporting on internal financial controls. Which statement correctly describes the auditor's responsibility?

The auditor must report in the audit report on whether the company has adequate internal financial controls over financial reporting and whether they operate effectively. Designing and implementing those controls is the responsibility of management and the board, and the auditor's reporting is mandatory, not optional.

  1. AThe auditor reports on whether the company has adequate internal financial controls with respect to financial statements and their operating effectiveness, in the audit reportCorrect
  2. BThe auditor designs and implements the internal financial controls for the company
  3. CThe auditor reports on internal financial controls only if the board requests it
  4. DThe auditor reports only on controls relating to cash and bank balances

Explanation

Section 143(3)(i) requires the auditor's report to state whether the company has adequate internal financial controls with respect to financial statements in place and their operating effectiveness. Designing and implementing controls is management's responsibility. The reporting is mandatory, not on request, and covers financial reporting controls broadly, not only cash.

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