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

While auditing Himalaya Foods Ltd., CA Rohan obtains evidence and concludes that the audit is planned to obtain reasonable assurance. The company's CFO asks whether the audit gives an absolute guarantee that no misstatement exists. What is the correct audit response under SA 200?

An audit gives reasonable assurance, which is high but not absolute. Inherent limitations such as selective testing, use of judgement, limits of internal control and evidence being persuasive rather than conclusive prevent absolute assurance. Limited assurance belongs to review engagements, not audits.

  1. AYes, because the auditor examines every transaction, so absolute assurance is obtained
  2. BNo, reasonable assurance is a high but not absolute level of assurance, because of inherent limitations such as testing, judgement and persuasive rather than conclusive evidenceCorrect
  3. CNo, because the audit provides only limited assurance as in a review engagement
  4. DYes, if the auditor has issued an unmodified opinion, assurance becomes absolute

Explanation

SA 200 states that reasonable assurance is a high level but not absolute, owing to inherent limitations like sampling, judgement, internal control limits and evidence being persuasive rather than conclusive. Limited assurance applies to review engagements, not an audit, so option C is wrong.

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