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IAI Actuarial Core Principles · Business Finance · Construction and features of company accounts and reports

Which of the following is the best explanation of why company accounts are audited by an independent auditor?

Audit exists to give users confidence through an independent opinion on whether the accounts present a true and fair view under the applicable framework. It does not guarantee solvency, judge business decisions, replace the directors' duty to prepare accounts, or certify total absence of error.

  1. ATo add credibility by giving an independent opinion on whether the accounts give a true and fair view in accordance with the reporting frameworkCorrect
  2. BTo guarantee that the company will not become insolvent
  3. CTo ensure that the directors' decisions during the year were commercially wise
  4. DTo prepare the accounts on behalf of the directors
  5. To certify that no errors of any size exist in the accounts

Explanation

Audit gives users an independent opinion on true and fair presentation under the framework. It is not a guarantee of solvency, not an assessment of business judgement, and directors remain responsible for preparing accounts. Audit works on materiality, so it cannot certify absence of all errors.

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