It is the responsibility of management to apply accounting standards when commun

Question

It is the responsibility of management to apply accounting standards when communicating with investors and creditors through financial statements. Another group, auditors, serves as an independent intermediary to help ensure that management has in fact appropriately applied GAAP iin preparing the company's financial statements. Auditors examint (audit) financial statements to express a professional, independent opinion. The opinion reflects the auditors' assessment of the statements' fairness, which is determined by the extent to which they are prepared in compliance with GAAP.

Some feel that it is impossible for an auditor to give an independent opinion on a company's financial statements because the auditors' fees for performing the audit are paid by the company. In addition to the audit fee, quite often the auditor performs other services for the company such as preparing the company's income tax returns.

How might an auditor's ethics be challenged while performing an audit?

Explanation / Answer

Solution-

An auditor’s ethics may be challenged during an audit because they are receiving payment from client, so they may feel an obligation to the client. An auditor may also be pressured by a client or even their firm to issue an unqualified opinion. However, an auditor must also consider their duty to the investors and creditors that rely on the accuracy of financial statements.

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