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

Sunrise Textiles Ltd's management asks its auditor, CA Mehta, to confirm that the company's financial statements are 'accurate to the last rupee' and free from all errors. Which response is most appropriate under the Standards on Auditing?

The auditor should decline, because an audit provides reasonable assurance, not absolute assurance. Inherent limitations such as sampling, judgment, and persuasive rather than conclusive evidence mean that all errors cannot be ruled out. The opinion concerns material misstatement, whether caused by fraud or error, not accuracy to the last rupee.

  1. AAgree, since the auditor must verify every transaction to give an opinion
  2. BDecline, since an audit gives reasonable assurance, not absolute assurance, that the statements are free from material misstatementCorrect
  3. CAgree, provided the audit fee is increased for the extra work
  4. DDecline, since the auditor is responsible only for detecting fraud and not errors

Explanation

SA 200 states that an audit provides reasonable assurance, which is high but not absolute, because of inherent limitations such as testing, judgment and the nature of evidence. Option A is wrong because auditors use sampling and do not verify every transaction. Option D is wrong because the auditor is concerned with material misstatements from both fraud and error.

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