Reasonable AssuranceReasonable Assurance

Reasonable Assurance

24 The auditor shall obtain reasonable assurance as to whether the financial report taken as a whole is free from material misstatement, whether due to fraud or error, when conducting an audit in accordance with Auditing Standards.

25 Reasonable assurance is a concept relating to the accumulation of the audit evidence necessary for the auditor to conclude that there are no material misstatements in the financial report taken as a whole. Reasonable assurance relates to the whole audit process.

26 An auditor cannot obtain absolute assurance because there are inherent limitations in an audit that affect the auditor’s ability to detect material misstatements. These limitations result from factors such as the following:

• the use of testing;
• the inherent limitations of internal control (for example, the possibility of management override or collusion); and
• the fact that most audit evidence is persuasive rather than conclusive.

27 Also, the work undertaken by the auditor to form an audit opinion is permeated by judgement, in particular regarding:

• the gathering of audit evidence, for example, in deciding the nature, timing and extent of audit procedures; and
• the drawing of conclusions based on the audit evidence gathered, for example, assessing the reasonableness of the estimates made by management and those charged with governance in preparing the financial report.

28 Further, other limitations may affect the persuasiveness of audit evidence available to draw conclusions on particular assertions[3] (for example, transactions between related parties). In these cases, certain Auditing Standards identify specified audit procedures which will, because of the nature of the particular assertions, provide sufficient appropriate audit evidence in the absence of:

(a) unusual circumstances which increase the risk of material misstatement beyond that which would ordinarily be expected; or

(b) any indication that a material misstatement has occurred.

29 Accordingly, because of the factors described above, an audit is not a guarantee that the financial report is free from material misstatement, because absolute assurance is not attainable. Further, an audit opinion does not assure the future viability of the entity nor the efficiency or effectiveness with which management and those charged with governance have conducted the affairs of the entity.