Auditor responsibilities - Duties of auditors

Learning Outcomes

Upon completing this article, you will be able to explain the formal duties of auditors in a statutory audit. You will understand the key reporting requirements, the nature of specific statutory obligations, and how auditors assess compliance and accuracy in financial statements. You will also distinguish between auditor and director responsibilities, essential for ACCA FAU exam questions.

ACCA Foundations in Audit (FAU) Syllabus

For ACCA Foundations in Audit (FAU), you are required to understand what is expected of auditors under law and professional practice. In particular, revision should focus on:

• The statutory duties of external auditors
• The overall responsibility to provide an opinion on the financial statements' truth and fairness
• The requirement to check compliance with legal and regulatory standards
• Auditor duties related to reviewing other financial information accompanying audited financial statements (e.g., directors’ reports)
• The importance of confirming that auditors receive all necessary explanations and information
• The distinction between auditor duties and rights

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. The auditor’s primary duty under statutory audit is to:
   1. Prepare the company’s accounts
   2. Guarantee company profitability
   3. Express an opinion on the truth and fairness of the financial statements
   4. Make company policy decisions
2. Which of the following is NOT generally a duty of the auditor?
   1. To check proper accounting records have been kept
   2. To ensure compliance with reporting requirements
   3. To approve company expenditure
   4. To confirm receipt of all necessary information from management
3. Under statutory audit, auditors are required to obtain sufficient audit evidence to:
   1. Eliminate all errors
   2. Express an absolute guarantee of accuracy
   3. Provide reasonable assurance about truth and fairness
   4. Confirm all internal controls are perfectly designed

4. Why must auditors review the consistency of other financial information provided with audited statements (such as the directors’ report)?

Introduction

Understanding the duties of auditors is fundamental for external audit engagements. These responsibilities are set by law as well as professional standards. Auditors are required to independently examine the financial statements and related information and report to members or shareholders on whether these statements give a true and fair view. The nature and scope of these duties affect how auditors plan, perform, and report on their work. For FAU candidates, a thorough understanding of these duties is essential for both written and objective test questions.

Key Term: auditor’s duty
The statutory and professional obligations imposed on an auditor to perform specific functions during an audit, such as reporting on the truth and fairness of financial statements.

KEY DUTIES OF THE AUDITOR

Auditors are entrusted with responsibilities to safeguard the interests of those relying on audited accounts. The main duties include:

1. Duty to Report on Financial Statements

The principal obligation is to form and express an opinion on whether the financial statements give a true and fair view of the company’s financial position and performance, and whether they have been prepared in accordance with legal and regulatory requirements. This opinion is communicated through the auditor’s report addressed to the members or shareholders.

2. Duty to Review Other Statutory Information

Auditors are expected to check the consistency of other information issued alongside audited accounts—such as directors’ or trustees’ reports—with the audited financial statements. If inconsistencies are detected, auditors must bring these to the members’ attention in their report.

3. Duty to Assess Proper Accounting Records

Auditors must determine whether proper accounting records have been maintained. This includes checking that the records are complete, accurate, and sufficient to support the preparation of the financial statements, and that all necessary documentation exists to verify transactions.

Key Term: proper accounting records
Complete, accurate, and up-to-date records that adequately support the amounts and disclosures in the financial statements.

4. Duty to Obtain Essential Explanations and Information

Auditors are required to obtain all information and explanations necessary for the conduct of the audit. If the company’s officers or management fail to provide satisfactory information, this must be reported.

Key Term: sufficient appropriate audit evidence
Information collected by the auditor that is adequate in quantity and quality to support the audit opinion.

5. Duty Relating to Compliance and Legal Matters

Auditors should consider whether the company has complied with certain legal requirements, such as those regarding the disclosure of directors’ remuneration or loans, and whether any material irregularities have occurred that ought to be brought to the attention of the members.

6. Duty to Maintain Professional Skepticism

Throughout the audit, auditors must maintain a questioning attitude and be alert to any circumstances suggesting possible misstatement, error, or fraud. Although detecting fraud is not a primary responsibility, any material misstatements arising from fraud must be reported if they affect the truth and fairness of the accounts.

Worked Example 1.1

The auditors of Alpha Ltd are conducting their year-end audit. They notice a significant transaction disclosed only in the directors’ report, not in the notes to the financial statements. What should the auditors do?

Answer:

• The auditors must assess the consistency between the directors’ report and the audited financial statements.
• If a material inconsistency is found, they should request management to correct it. If not corrected, the auditors are required to modify their report to inform the members of this inconsistency.

Worked Example 1.2

During an audit, Beta Ltd’s management refuses to provide invoices supporting several large purchases. How does this affect the auditor’s responsibilities?

Answer:

• The auditor has a duty to obtain sufficient appropriate audit evidence.
• If explanations or documents are withheld, the auditor must report this fact and consider modifying the audit opinion due to a limitation on the audit scope.

Exam Warning

A frequent mistake is to assume that an auditor’s duty is to guarantee the accuracy of the accounts or to detect all fraud. In fact, the auditor’s responsibility is to report on whether the financial statements are true and fair, based on sufficient evidence, not to guarantee completeness or accuracy in every respect.

Summary

Auditors are required to carry out specific duties defined by law and standards. These include reporting on the truth and fairness of financial statements, ensuring proper records and explanations are available, and addressing legal and consistent reporting matters. Understanding each duty—and how failure to fulfill it impacts the auditor’s report—is essential for ACCA exam success.

Key Point Checklist

This article has covered the following key knowledge points:

• The main statutory and professional duties of an external auditor
• The fundamental responsibility to report on the truth and fairness of financial statements
• The need to review the consistency of accompanying reports and information
• The requirement to check for proper accounting records and explanations
• Auditors’ role in confirming legal and regulatory compliance
• The difference between auditor duties and directors’ responsibilities

Key Terms and Concepts

• auditor’s duty
• proper accounting records
• sufficient appropriate audit evidence