Question

The level of assurance provided by an external audit is absolute. Is this statement true or false? Explain?

Answer 1

The level of assurance provided by an external audit is absolute.

This statement is False.

The level of assurance provided by an external audit is of high nature and is known as Reasonable Assurance. Although Reasonable Insurance is of high nature, it cannot be considered as Absolute in nature.

Reasonable Assurance is achieved by obtaining Sufficient Appropriate Audit Evidence to reduce Audit Risk to acceptably low level. While conducting an audit of financial statements, an external auditor obtains reasonable assurance whether the financial statements are free from material misstatement or not. While obtaining sufficient appropriate audit evidence, Sampling Techniques are used. There is a possibility that a material statement will be missed in such Sampling Techniques. Reasonable assurance allows an external auditor to form an opinion on whether the financial statements are presented fairly, considering all material aspects and in accordance with Generally Accepted Accounting Principles.