Photo AI
Explain the role of the independent auditor - NSC Accounting - Question 3 - 2016 - Paper 1
Question 3
Explain the role of the independent auditor. The independent auditor plays a crucial role in ensuring the accuracy and fairness of a company's financial statements.... show full transcript
Worked Solution & Example Answer:Explain the role of the independent auditor - NSC Accounting - Question 3 - 2016 - Paper 1
Step 1
2.1 Explain the role of the independent auditor.
Answer
The independent auditor plays a crucial role in verifying the accuracy and fairness of a company's financial statements. They assess the validity of financial records, ensuring compliance with relevant accounting standards and regulations. Their primary responsibility is to provide an unbiased opinion on whether the financial statements reflect a true and fair view of the company's financial position and performance.
Additionally, the independent auditor enhances the credibility of the company, fostering trust among stakeholders, which is vital for attracting investment. By identifying weaknesses in financial controls, auditors also help businesses improve their internal processes, ensuring greater accountability and accuracy in financial reporting.
Step 2
2.2 Did Gunuz Ltd receive a qualified, unqualified or a disclaimer audit opinion? Explain your choice.
Answer
Gunuz Ltd received an unqualified audit opinion. This indicates that the financial statements present a true and fair view of the company's financial position, except for the marketing expense in the income statement, which was not verified. The independent auditors expressed their opinion based on the information available, confirming that no material misstatements were present, allowing stakeholders to rely on the financial statements.
Step 3
2.3 Provide TWO consequences for the auditor if she agreed to this request.
Answer
If the auditor agreed to the request to omit the marketing expenses:
-
Loss of Independence and Credibility: The auditor's impartiality may be compromised, leading to a lack of trust from stakeholders and potentially damaging their professional reputation.
-
Legal Liability: By not adhering to professional standards, the auditor risks legal repercussions if the omission leads to misinterpretation of the financial statements, requiring disclosures or corrections in the future, which could also impact audit firm’s license to operate.