CFA Level I · CFA Level I Exam · Introduction to Financial Statement Analysis
An analyst reads that the auditor's report on a company's financial statements expresses reasonable assurance. This statement is best interpreted to mean that the auditor:
Reasonable assurance means the auditor believes the financial statements are free of material misstatement, whether from fraud or error, but accepts that some risk remains. It is high but not absolute assurance, because audits rely on sampling and judgment rather than testing every transaction.
- Aguarantees that no fraud or error exists in the statements.
- Bhas examined every transaction recorded during the period.
- Cbelieves the statements are free of material misstatement, though with some risk remaining.Correct
Explanation
Reasonable assurance is a high but not absolute level of assurance. Audits use sampling and judgment, so a guarantee or a review of every transaction is not implied.
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