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

Which of the following is the primary purpose of an external audit of a company's financial statements?

The primary purpose of an external audit is to give an independent opinion on whether the financial statements give a true and fair view in accordance with the applicable reporting framework. It does not prepare the accounts, guarantee solvency or ensure all fraud is detected.

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

Explanation

The auditor gives an independent opinion on whether the statements give a true and fair view (or are fairly presented) under the applicable framework such as IFRS. Fraud prevention and preparation of the statements are management responsibilities. An audit gives reasonable, not absolute, assurance, and does not guarantee solvency.

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