Practice prompt · Q:financial-reporting-environment-and-framework/institution-role-001

Separate institutional reporting roles

Distinguish management's responsibility for financial statements from the auditor's role.

Updated Sep 6, 2026 Review due Nov 7, 2026

Practice

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The controller of a private manufacturing company says, "Our auditor approved the policy, so it complies with generally accepted accounting principles." Which response correctly explains who is responsible for the accounting?

Choose the best answer. a Management remains responsible for the statements and must support the policy with applicable accounting guidance. b The auditor becomes responsible for preparing the statements once the audit begins. c A textbook becomes authoritative when both management and the auditor agree with its explanation. d The conceptual framework overrides a Codification requirement whenever management believes another answer would be more useful.

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Answer: a

Management remains responsible for the financial statements. An auditor's agreement with a policy does not replace support from applicable accounting guidance.