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

While auditing Kaveri Foods Pvt Ltd, auditor CA Rohan obtains sufficient appropriate evidence and concludes that the financial statements are free from material misstatement. A director asks whether this means the auditor guarantees there is no error at all in the books. What is the correct response under SA 200?

The auditor provides reasonable assurance, which is a high level but not absolute. Inherent limitations like testing on a sample basis, use of judgment, limits of internal control and evidence being persuasive rather than conclusive mean audit risk can never be eliminated entirely.

  1. AYes, the auditor gives absolute assurance that there are no errors
  2. BNo, the auditor obtains reasonable assurance, not absolute assurance, because of inherent limitations of an auditCorrect
  3. CNo, the auditor gives limited assurance as in a review engagement
  4. DYes, because sufficient appropriate evidence removes all audit risk

Explanation

An audit provides reasonable assurance, a high but not absolute level. Inherent limitations such as sampling, judgment, and persuasive rather than conclusive evidence mean the risk cannot be reduced to zero. Limited assurance applies to review engagements, so option C is wrong.

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