CFA Practice Question

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CFA Practice Question

The audit committee should ensure that external auditors ______

I. have authority over the audit of the entire corporate group, including foreign subsidiaries and affiliated companies.
II. are independent of management influence.
III. prepare the financial statements in accordance with generally accepted accounting principles (GAAP).
IV. conduct the audit in accordance with generally accepted auditing standards (GAAS).
Correct Answer: I, II and IV

III. The external auditors don't prepare the financial statements.

User Contributed Comments 7

User Comment
danlan They are auditors and not accountants.
PhiWong What about the final sign off of the audit firm say, "In confirmity of GAAP." Part of the audit is financial audit to see if management records assets, liabilities and P&L components according to GAAP's boundaries.
ostrich I think they may not know about LCM if their is a conflict of interest for example.
julescruis Auditors check the financial statements for material misstatements and material misstatements can include divergences with applicable accounting standards. However, they NEVER prepare financial statements as that would affect their independance. They would audit themselves in a way.
group Preparation of financial statements is the responsibility of management and not the auditors. Their responsiblity is simply to audit the financial statements and give their opinion in compliance with the US GAAP.
HolzGe1 at least in theory :)
ascruggs92 Danlan, auditors are accountants, that's why their opinions are trusted when they say financial statements meet GAAP standards.

III is wrong only because they do not prepare the statements
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