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

Which statement best describes the basic nature of an audit of financial statements?

An audit is an independent examination of an entity's financial statements, ending in the auditor's opinion on whether they give a true and fair view. It is not bookkeeping, which is management's job, nor a guarantee against fraud, since it provides only reasonable assurance.

  1. AAn independent examination of financial statements to enable the auditor to express an opinion on whether they give a true and fair viewCorrect
  2. BPreparation of the books of account and financial statements on behalf of the management
  3. CA guarantee given by the auditor that no fraud exists in the entity
  4. DA process of fixing responsibility for errors on individual accountants

Explanation

An audit is an independent examination of financial statements leading to an opinion on true and fair view. Preparing books is the management's duty, not the auditor's. An audit gives reasonable, not absolute, assurance, so it cannot guarantee that no fraud exists.

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