Reasonable assurance
The term ‘reasonable assurance’ is central to an independent audit, as certain
degree of judgement has to be exercised in the conduct of the audit. The level
of assurance which the auditor provides when reporting on financial statements
may be regarded as reasonable in the particular context but cannot be taken to
be absolute.
The auditor exercises judgement in the conduct of his work, especially on:
(a) The gathering of evidence, particularly in deciding the nature, timing
and extent of audit procedures; and
(b) The drawing of conclusions based on the evidence gathered; particularly
assessing the reasonableness of the estimates made by the directors in
preparing the financial statements.
Due to the inherent limitations of any audit, the extent to which the risks that
auditors take by giving inappropriate opinions on financial statements can be
reduced or restricted. The limitations include those that may result from:
(a) Inability of the auditor to examine all items within an account balance
or class of transactions as it may not be cost effective to do so;
(b) Inherent limitations which may be embedded in any accounting control
system;
(c) The possibility of management override, collusion or misrepresentation
for fraudulent purposes; and
(d) Audit evidence, in certain cases, being persuasive rather than conclusive.
At the planning stage of an audit, the auditor should take cognisance of the
possibility that material mis-statement may exist and should plan to perform
the audit with that possibility in mind. In this regard, the auditor examines
critically and with professional scepticism the information and explanations
provided, and not assume that they are necessarily correct.
Auditors, in addition to audit risk, are exposed to loss or injury to their
professional practice from litigation, adverse publicity or other events arising
in connection with the financial statements that they have audited and reported
upon. The audit risk and exposure are present even where the auditors have
performed their assignments in accordance with the auditing standards and
reported appropriately on those financial statements.
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