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CMA Intermediate · Business Laws and Ethics · Internal Financial Control for Financial Reporting

Which statement correctly distinguishes the auditor's role from the management's role regarding internal financial controls of a company?

Management and the board establish and maintain internal financial controls, while the auditor only reports on whether an adequate IFC system exists and operates effectively. The auditor does not design or implement the controls, so responsibility for building them rests with the company.

  1. AThe auditor designs and implements the controls; management only reports on them
  2. BManagement establishes and maintains the controls, while the auditor reports on whether adequate IFC exist and operate effectivelyCorrect
  3. CBoth are equally responsible for designing the controls
  4. DNeither has any responsibility if the company is small

Explanation

The board and management are responsible for laying down and operating internal financial controls. The auditor's duty is to report on whether the company has adequate IFC system with respect to financial statements and whether they operated effectively. The auditor does not design them.

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