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CA Intermediate · Auditing and Ethics · Nature, Objective and Scope of Audit

Rohan & Co. completed the audit of Bharat Components Ltd and obtained sufficient appropriate evidence, yet the partner states the opinion gives a guarantee that no misstatement exists in the financial statements. Which statement correctly describes the assurance obtained?

An audit provides reasonable assurance, which is high but not absolute. Inherent limitations such as testing, use of judgement, persuasive rather than conclusive evidence and possible collusion prevent a guarantee. Limited assurance belongs to review engagements, not to a statutory audit of financial statements.

  1. AAbsolute assurance, because sufficient appropriate evidence was obtained
  2. BReasonable assurance, a high but not absolute level, because of inherent limitations such as testing, judgement and possible collusionCorrect
  3. CLimited assurance, as in a review engagement
  4. DNo assurance, since the audit only checks arithmetical accuracy

Explanation

SA 200 states an auditor obtains reasonable assurance, a high level but not absolute, due to inherent limitations like sampling, judgement, persuasive rather than conclusive evidence and possible collusion. Limited assurance applies to review engagements, not an audit.

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