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Why external audit is reasonable assurance engagement? After the audit ,if it is found that financial statements is plausible, will auditor still termed it as reasonable assistance?
thanks
Audits are mostly conducted on sample basis, and due to other limitations of scope External Audits are termed as reasonable assurance..
Go through the process of external audits, you will be more clear about it..
Its a similar concept to the concept of being proved guilty beyond a reasonable doubt of a crime in court. Absolute evidence of guilt beyond all doubt is not realistic and arguably impossible to establish. In a similar fashion absolute assurance can not be given in auditing.
When an external auditor provides reasonable assurance on the financial statements, it means that a high level of assurance can be placed on the financial statements being materially misstated or not.
Auditors will never use the term guarantee or provide a 100% opinion, because if you think about it in reality this would be completed unrealistic, why?
1. Auditors do not have the time to test every single transaction that takes place
2. Auditors when conducting their audit use a lot of judgement.
3. The samples chosen to test could be incorrect or not appropriate.There are many reasons as to why a 100% guarantee can not be placed, hence why the term REASONABLE ASSURANCE is used – which says YES or NO that the financial statements have or have not been materially misstated.
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