Both auditing and accounting are concerned with financial statements. Which of the following

 Options:

a) Auditing uses the theory of evidence to verify the financial information made available by Accountancy b) Auditing lends credibility dimension and quality dimension to the financial statements prepared by the accountant. c) Auditor should have through knowledge of accounting concepts and convention to enable him to express an opinion on financial statements d) All of the above.

The Correct Answer Is:

b) Auditing lends credibility dimension and quality dimension to the financial statements prepared by the accountant.

Correct Answer Explanation:b) Auditing lends credibility dimension and quality dimension to the financial statements prepared by the accountant.

Auditing and accounting are closely related fields within the realm of finance, both focusing on financial statements. The correct option, (b) “Auditing lends credibility dimension and quality dimension to the financial statements prepared by the accountant,” is accurate due to the distinct roles of auditing and accounting in the financial reporting process.

Auditing involves an independent examination of financial information to provide assurance regarding its reliability and adherence to accounting standards. The role of auditors is crucial in adding credibility to financial statements by assessing the accuracy and fairness of the information presented.

Here’s a detailed explanation of why option (b) is correct:

Option (b) is correct because auditing plays a vital role in enhancing the quality and credibility of financial statements. When an accountant prepares financial statements, they utilize accounting principles and practices to compile this information.

However, the role of auditing is to independently review these statements. Auditors assess the accuracy, completeness, and compliance of these statements with accounting standards, providing an objective evaluation.

This evaluation process adds a credibility dimension to the financial statements by ensuring they are free from material misstatements or errors.

Now, let’s delve into why the other options are not entirely accurate:

a) “Auditing uses the theory of evidence to verify the financial information made available by Accountancy.”

While auditing does utilize evidence and various audit procedures to verify financial information, this statement presents a somewhat narrow view. Auditing is not solely reliant on evidence but also on professional judgment, skepticism, and comprehensive analysis.

Moreover, auditing doesn’t just verify what’s provided by accountancy; it assesses the reliability and accuracy of the financial information itself.

c) “Auditor should have thorough knowledge of accounting concepts and convention to enable him to express an opinion on financial statements.”

This statement is partially correct as auditors indeed require a solid understanding of accounting principles and conventions to perform their duties effectively. However, auditing involves more than just assessing financial statements based on accounting knowledge.

It encompasses specific audit methodologies, risk assessment, and professional skepticism beyond the realm of accounting principles.

d) “All of the above.”

While elements of each statement are true, not all of them collectively capture the comprehensive nature of auditing’s role in enhancing the quality and credibility of financial statements. Auditing involves not only using evidence and accounting knowledge but also assessing and enhancing the overall quality of financial reporting.

In summary, auditing serves to provide assurance regarding the reliability and accuracy of financial statements, lending credibility and enhancing their quality.

While accounting lays the foundation for financial reporting, auditing adds an independent and objective evaluation, ensuring that the statements are trustworthy for various stakeholders.

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