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CMA Intermediate · Corporate Accounting and Auditing · Nature, Scope, Objectives and Significance of Auditing

Which of the following is a primary objective of an independent financial statement audit?

An audit aims to give reasonable assurance that the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to report on them. It gives no absolute guarantee, does not ensure future solvency and does not involve preparing the accounts.

  1. ATo guarantee that the company will remain solvent in future years
  2. BTo provide reasonable assurance that the financial statements as a whole are free from material misstatement and to report on themCorrect
  3. CTo prepare the financial statements on behalf of the directors
  4. DTo detect every error and fraud, however small, in the books of the company

Explanation

The auditor gives reasonable assurance, not absolute assurance, that the statements are free from material misstatement, whether from fraud or error, and reports accordingly. The audit does not guarantee solvency, nor does it aim to find every small error. Preparation of the statements remains the responsibility of management.

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