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Correction
Management prepares the financial statements and owns the company's internal control over financial reporting. An independent auditor examines evidence and expresses an opinion under the applicable audit requirements. The opinion does not transfer management's responsibilities or promise that every amount is correct.
Separate the two records
If an audited statement later proves wrong, examine at least two questions. First, how did management's reporting process create, approve, record, review, and disclose the amount? Second, did the auditor plan and perform the engagement as required and obtain sufficient evidence for the opinion? Evidence of a preparation failure does not automatically prove an audit failure, and an audit failure does not make the auditor the preparer.
Independence depends on this separation. An auditor who makes management's decision or authorizes a transaction may later have to evaluate the auditor's own work. Personal honesty does not cure an incompatible role.
Check your answer
For each claim, name the actor and verb. Management prepares and controls; the board oversees; the auditor audits and opines. The oversight body oversees covered auditors, and the regulator administers and enforces applicable rules. State the opinion's actual scope before drawing a conclusion from it.
When this mistake may appear
- Audited statements contain a material error.
- A reader describes the auditor as the company accountant.
Your work may contain this mistake if:
- Says the auditor prepared or owns the financial statements.
- Treats an audit opinion as a guarantee that every amount is correct.
- Assigns management's internal-control duties to the external auditor.