Explain how auditors distinguish their responsibility from those of the directors in respect of financial statements

The auditors distinguish their responsibilities from those of the directors in respect of the financial statements by including a statement of directors‘ responsibilities in the report.

Appropriate wording of this statement follows below: –

‗Company law requires the directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the entity as at the end of the financial year and of the profit or loss of the entity for that year. In preparing those financial statements, the directors are required to:

(i) Select suitable accounting policies and apply them consistently.
(ii) Make judgments and estimates that are reasonable and prudent.
(iii) State whether applicable accounting standards have been followed.
(iv) Prepare the financial statements on the gong concern basis unless it is inappropriate to presume that the entity will continue in business.

The directors are responsible for keeping proper accounting records which should disclose with reasonable accuracy at any time the financial position of the company and comply with the Company‘s Act and also take reasonable steps for the prevention and detection of fraud and other irregularities. They are also responsible for safeguarding the assets of the company.

  • Auditors are required to form an opinion as to whether:-
    Proper accounting records have been kept by the company.
  • Proper returns adequate for their audit have been received from branches not visited by them.
  • The company‘s balance sheet and its profit and loss account are in agreement with the accounting records and returns
  •  Such information and explanations as auditors think necessary for the performance of their duties have been received from the company‘s officers
  • The auditors report is consistent with the financial statements

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