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CA Intermediate · Auditing and Ethics · Nature, Objective and Scope of Audit

While auditing Kaveri Agro Foods Ltd., CA Meera discovers that the management had not kept a few supporting records because of a system migration. The management argues that since the auditor signs the report, the auditor is responsible for preparing the financial statements and for the internal controls needed to prevent such lapses. What is the correct position under SA 200 and the Companies Act, 2013?

Management is responsible for preparing the financial statements and for maintaining the internal control needed for that purpose. The auditor's responsibility is limited to forming and expressing an opinion on those financial statements based on the audit conducted under the Standards on Auditing.

  1. AThe auditor is responsible for designing internal controls, while management only approves the financial statements
  2. BThe auditor and management share equal responsibility for preparing the financial statements
  3. CManagement is responsible for preparing the financial statements and maintaining internal control, while the auditor is responsible for expressing an opinion on themCorrect
  4. DThe auditor is responsible for preparing the financial statements if the company has no internal audit function

Explanation

Preparation of financial statements and the internal control needed for it are management's and those charged with governance's responsibilities. The auditor's responsibility is to express an opinion on the financial statements after conducting the audit in accordance with SAs. Shared responsibility for preparation is wrong because the auditor's role would then be compromised.

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