A Firm's Financial Audit: What You Need to Know

Explanation

It is not a financial audit function to check on the reasonableness of the risks undertaken by the institution.

The purpose of a financial audit is to provide an independent and objective assessment of a firm's financial statements and reporting processes. It is conducted by external auditors who review the company's financial records, internal controls, and procedures to ensure the accuracy and reliability of the financial information presented.

Now, let's analyze each answer choice in relation to the purpose of a financial audit:

A. The company is managing its risks within the guidelines specified in its charter. This statement refers to risk management, which is not the primary focus of a financial audit. While auditors may identify risks during the audit process, their main objective is to assess the accuracy and completeness of financial reporting, rather than evaluating risk management practices. Therefore, this choice is generally not a direct objective of a financial audit.

B. There are adequate controls and checks in place in its accounting systems. This statement aligns with one of the main objectives of a financial audit. Auditors review the company's internal controls and accounting systems to ensure that appropriate checks and balances are in place. This helps to mitigate the risk of errors, fraud, and misstatements in financial reporting.

C. There are no material errors or omissions in its financial reports. This statement accurately reflects one of the primary objectives of a financial audit. Auditors thoroughly examine the company's financial statements to identify any material errors, omissions, or misstatements that could impact the accuracy and reliability of the financial information presented to stakeholders.

D. The management is not misstating its performance. This statement is also an important objective of a financial audit. Auditors assess whether the management has accurately represented the company's financial performance, ensuring that the financial statements provide a true and fair view of the company's financial position, results of operations, and cash flows.

Based on the analysis above, the correct answer is A. The company is managing its risks within the guidelines specified in its charter. While risk management is an important aspect of overall corporate governance, it is not the primary objective of a financial audit. The main focus of a financial audit is to evaluate the accuracy, completeness, and reliability of the financial statements and to ensure that the management has not misstated the company's performance.