CMA Intermediate · Corporate Accounting and Auditing · Nature, Scope, Objectives and Significance of Auditing
An auditor of Sundaram Textiles Ltd. plans and performs the audit to obtain reasonable assurance. Which description of 'reasonable assurance' is correct?
Reasonable assurance is a high, but not absolute, level of assurance. Inherent limitations such as sampling, judgment, internal control limits and possible collusion mean an audit cannot guarantee that all misstatements or frauds are detected, unlike the lower limited assurance of a review.
- AA high but not absolute level of assuranceCorrect
- BAbsolute assurance that no misstatement exists
- CA low level of assurance equal to a review engagement
- DA level of assurance that guarantees detection of all fraud
Explanation
Reasonable assurance is a high level of assurance, but not absolute, because of inherent limitations such as sampling, judgment, and the possibility of collusion. Absolute assurance is not attainable in an audit. A review gives limited assurance, which is lower.
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