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Are auditors allowed to prepare financial statements?

According to international standard on auditing 200 the auditor need to maintain his independence to undertake audit assignment. To maintain his independence audit is prohibited from undertaking management decision of the client including preparing his financial statements since this can lead to self-review threat fundamental principal of accountants code of ethics.

To ensure that auditor is not involved in the management decision which may include preparing financial statement the auditor must clearly indicate in his contract with client (engagement letter) that preparation of the financial statement is the responsibility of client management.

In the case client used the same auditing firm in helping in compiling it’s financial statement and auditing the auditing firm should ensure that it use different team in auditing the financial statement in order to minimise review threat which may occur if they use same team to compile and audit the financial statements.

To sum up, it is not allowed for the same auditor’s to compile and audit the financial statements since it can lead to self review threat.

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