Auditor’s roles when auditing a company’s financial statements

Auditor’s roles when auditing a company’s financial statements:

1) Purpose & scope

• Provide independent, reasonable assurance that the financial statements are free from material misstatement (due to error or fraud) and prepared under the applicable framework (e.g., MFRS/MPERS) and law (e.g., Companies Act 2016).
• Act in the public interest with integrity, objectivity, and professional scepticism.

2) Planning the audit

• Engagement acceptance: confirm independence, ethics, and competence; agree terms in an engagement letter.
• Materiality: set overall and performance materiality to focus work.
• Understand the entity & environment: industry, strategy, processes, and internal control.
• Risk assessment: identify and assess risks of material misstatement, including fraud risks.

3) Responding to risks & obtaining evidence

• Design audit procedures proportional to risk (tests of controls and/or substantive procedures).
• Use analytical procedures, sampling, inspection/observation, recalculation/reperformance, and confirmations.
• Evaluate accounting policies, significant estimates (bias/management override), and fair values.
• Consider IT controls, related parties, revenue recognition, inventory, credit losses, etc., as relevant.
• For group audits, direct, perform, or evaluate component auditor work.
• Engage experts where needed (e.g., valuations, actuaries).

4) Specific evaluations

• Going concern: assess the company’s ability to continue for at least 12 months; evaluate management’s plans and disclosures.
• Subsequent events: perform procedures up to the auditor’s report date.
• Compliance & NOCLAR: consider non-compliance with laws/regulations and respond appropriately.
• Other information (e.g., annual report): read and consider consistency with the audited financials.

5) Communication

• With those charged with governance (TCWG): discuss scope, significant risks, planned approach, uncorrected misstatements, deficiencies in internal control, and qualitative aspects of accounting practices.
• With management: request written representations and discuss findings, adjustments, and control issues.

6) Forming the opinion & reporting

• Conclude whether the financial statements are presented fairly, in all material respects.

• Issue the auditor’s report:

  • Unmodified (clean) opinion if appropriate.
  • Modified opinions when needed: qualified, adverse, or disclaimer.
  • Include Key Audit Matters (KAMs) for listed entities.
  • Add Emphasis/Other Matter paragraphs where relevant.

• Address any statutory or regulatory reporting responsibilities (e.g., on records kept, dividends legality, etc., where required).

7) Quality, ethics, and documentation

• Maintain independence and comply with ethical requirements (MIA By-Laws).
• Apply quality management at firm (ISQM 1/2) and engagement level (ISA 220).
• Document procedures, evidence, and conclusions sufficiently for an experienced auditor to understand what was done and why.

8) What auditors do not do

• They do not prepare the financial statements—management does.
• They do not provide absolute assurance or guarantee future viability/performance.
• They are not responsible for preventing fraud, but must design procedures to detect material misstatements, including those from fraud.

Short notes for exam

Key exam bullets

• Reasonable assurance ≠ absolute assurance: high but not guaranteed; inherent limitations (sampling, judgment, time/cost, fraud concealment).
• Material misstatement: misstatements that could influence users’ economic decisions; consider size + nature + circumstances.
• Fraud vs error: intent distinguishes fraud; auditor designs procedures to address fraud risk (management override, revenue recognition).
• Applicable framework: criteria against which the FS are evaluated (MFRS/MPERS + Companies Act 2016).
• Auditor’s opinion: unmodified, qualified, adverse, or disclaimer—based on evidence sufficiency/appropriateness and effects of misstatements.
• Public interest / shareholders: audit improves credibility, reduces information asymmetry, and supports governance & stewardship.

Mini-mnemonic (write at the top of your answer)
R-M-O-F → Reasonable assurance • Material misstatement (fraud/error) • Opinion • Framework

3-sentence model answer

“The main objective of a financial statement audit is to obtain reasonable assurance that the financial statements as a whole are free from material misstatement, whether due to fraud or error. On this basis, the auditor expresses an opinion on whether the statements are prepared, in all material respects, in accordance with the applicable financial reporting framework. By enhancing the credibility of the financial information, the audit safeguards shareholders’ interests and supports sound decision-making.”