Explain auditor responsibilities and internal versus external audit
Describe the independent examination of statements and distinguish an external opinion from an organisation's internal control work.
Cambridge International AS & A Level Accounting 9706, 2026–2028 syllabus, Version 2. These lessons cover the nine named IAS at the main-provisions level described in Cambridge teacher guidance, the stated ethical principles, audit and stewardship. Practice is self-checked, not an official Cambridge grade. Full timed Papers 1–4 and human subject-teacher review remain outstanding.
Before you begin
- Use the Topic 1.5 and 3.1 statement skills: identify the reporting period, distinguish profit from cash, and explain how a reporting choice affects users of financial statements.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
Which is the main focus of internal audit?
What you will learn
- Explain the auditor's role and responsibilities at syllabus level
- Compare external and internal audit
- Recognise that an audit provides assurance rather than a guarantee
An external audit gives an independent opinion
An external auditor examines financial statements and supporting evidence to obtain sufficient appropriate evidence for an opinion on whether the statements present a true and fair view in accordance with the reporting framework. The auditor considers material misstatement, including risk from error or fraud, and reports to shareholders under the applicable requirements.
An audit is conducted with professional judgement and sampling; it cannot examine every transaction or guarantee that all fraud, error or business failure will be found. Directors prepare the statements and maintain relevant records and controls. The auditor's opinion does not transfer those responsibilities to the auditor.
Internal audit serves management and governance
Internal audit is arranged within or for an organisation to review risk management, controls and processes and to recommend improvements. Internal auditors may be employees or externally provided; the function should have appropriate independence from the activities it reviews.
External audit is an independent examination for external reporting and shareholders, while internal audit has a broader ongoing focus on the organisation's systems and risks. Their scope, reporting line and intended users differ. Internal audit does not replace an external audit where one is required.
Pause and explain
What does an external auditor's opinion provide?
Worked example
A company discovers a material inventory error after receiving an unqualified audit opinion. Explain whether this proves that the auditor guaranteed there were no errors and identify each party's main role.
Show the worked solution
- An audit gives reasonable assurance and an opinion based on evidence; it is not a guarantee that every error is found.
- Directors remain responsible for preparing the statements and maintaining records and controls.
- The external auditor is responsible for examining evidence and expressing an independent opinion; the error should be assessed under the applicable reporting and audit requirements.
Answer The error does not by itself show that the auditor guaranteed perfect statements. Directors prepare the accounts; the external auditor independently examines evidence and reports an opinion.
Try a topic test
Choose Easy, Normal or Difficult. Save your answers and open worked review after finishing.
Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
An audit committee asks why it should keep an internal audit function when an external auditor already visits annually. Give two distinct benefits.
Give me a hint
Compare ongoing internal process review with the external financial-statement opinion.
Compare my reasoning
- Internal audit can review risks and controls throughout the year and identify process weaknesses for management and governance.
- It may examine operational and compliance processes beyond the external auditor's financial-statement opinion.
- External audit still provides an independent opinion for external reporting; the two functions have different purposes.
Internal audit supports ongoing control and risk improvement; external audit gives an independent opinion on the statements. One function does not replace the other.
Look for these in your work
- Ongoing control review
- Broader internal scope
- External role distinguished
An external auditor tests a sample of purchase invoices and finds no exceptions. What can be concluded, and what cannot be concluded?
Give me a hint
State what the evidence supports without extending a sample to a guarantee.
Compare my reasoning
- The tested sample produced no exceptions under the procedures performed.
- The result may support the auditor's assessment but does not prove every purchase is correct.
- The auditor should consider sample design, materiality, other evidence and identified risks before reaching an opinion.
The test provides evidence about the sampled items and procedures. It cannot prove that no error or fraud exists in all purchases or elsewhere in the statements.
Look for these in your work
- Sample result stated accurately
- Limitation identified
- Further evidence considered
Management asks the external auditor to choose accounting policies, post year-end adjustments and then audit those same statements. Explain the independence and responsibility concerns.
Give me a hint
Separate management's preparation role from the auditor's independent examination role.
Compare my reasoning
- Management should select and apply the accounting policies and prepare the statements.
- If the auditor makes management decisions or posts entries, self-review and independence threats can arise.
- The auditor can discuss findings and require supported corrections under the engagement, but must preserve an independent opinion and follow applicable safeguards.
Management owns preparation and policy choices. An auditor performing management work and then auditing it risks self-review and independence; retain clear responsibility boundaries and apply professional safeguards.
Look for these in your work
- Management responsibility preserved
- Self-review threat named
- Independence safeguarded
Common mistakes
- Saying auditors prepare or own the company's statements
- Treating an audit as a guarantee against fraud or failure
- Assuming an internal auditor must be an employee
What can you explain now?
Who is primarily responsible for preparing a company's financial statements?
Compare with the explanation
The directors or management under the applicable reporting framework
The auditor examines and reports on the statements; preparation remains management's responsibility.
After trying it yourself, choose your next review. This is your self-assessment.
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Make it stick
Give one purpose of internal audit, one purpose of external audit and one limit of an audit opinion.
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.