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ACCA Applied Knowledge · Financial Accounting · The context and purpose of financial statements for external reporting

Which of the following best describes the purpose of the external audit of a company's financial statements?

The external audit exists to give an independent opinion on whether the financial statements give a true and fair view under the applicable framework. It does not prevent all fraud, does not involve preparing the statements, and gives no guarantee of the company's future viability.

  1. ATo detect and prevent all fraud within the company
  2. BTo prepare the financial statements on behalf of the directors
  3. CTo give an independent opinion on whether the financial statements give a true and fair view in accordance with the applicable frameworkCorrect
  4. DTo guarantee the future financial viability of the company

Explanation

The auditor provides an independent opinion on whether the financial statements are presented fairly, in all material respects, under the applicable reporting framework. The audit does not guarantee fraud will be detected or that the company will survive, and preparation of the statements is a directors' responsibility.

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