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Users of an issuer’s financial statements demand independent audits because
A. Users demand assurance that fraud does not exist.
B. Management may not be objective in reporting.
C. Users expect auditors to correct management errors.
D. Management relies on the auditor to improve internal control.
Answer (B) is correct.
DISCUSSION: Management and financial statement users may have an adversarial relationship because their interests in the firm are different. The independent auditor provides assurance that the financial statements are not biased for or against any interest.
Answer (A) is incorrect. The independent auditor is ultimately concerned with the fair presentation of the financial statements, not only the detection of fraud. However, the auditor should obtain reasonable assurance that material misstatements are detected. Answer (C) is incorrect. Management is responsible for error correction. Answer (D) is incorrect. Poorly designed internal control is not necessarily inconsistent with a fair presentation of the financial statements. However, AS 2201 issued by the Public Company Accounting Oversight Board (PCAOB) requires an auditor’s opinion on internal control in conjunction with the opinion on the financial statements of issuers.
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