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IAI Actuarial Core Principles · Business Finance · Regulation of financial reporting of incorporated entities

Which statement best describes the main purpose of an external audit of a company's financial statements?

The external audit exists to give an independent opinion on whether the financial statements present a true and fair view under the applicable reporting framework. It is not a guarantee of solvency, a fraud-proof check, or a strategy review, and the directors still prepare the statements.

  1. ATo guarantee that the company will not become insolvent
  2. BTo give an independent opinion on whether the financial statements give a true and fair view in accordance with the applicable reporting frameworkCorrect
  3. CTo detect every fraud committed by employees during the year
  4. DTo prepare the financial statements on behalf of the directors
  5. To certify that the company's strategy is commercially sound

Explanation

An audit is an independent examination that results in an opinion on whether the financial statements give a true and fair view under the applicable framework. It does not guarantee solvency, find every fraud or assess strategy. Preparing the statements remains the directors' responsibility.

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