Question

Which of the following is not a reason why auditors provide reasonable assurance, and not absolute assurance?

a. The nature of financial reporting.
b. The nature of auditor independence standards.
c. The nature of audit procedures.
d. The need to conduct an audit within a reasonable period of time at a reasonable cost.

Answer 1

Auditors provide reasonable assurance, not absolute assurance, due to inherent limitations, the concept of materiality, and the need for efficiency in time and cost.

Step-by-step explanation:

Auditors provide reasonable assurance, not absolute assurance, for several reasons. One reason is inherent limitations. It is simply not possible for auditors to obtain absolute assurance due to the nature of auditing. Auditors rely on sampling methods and testing procedures, which inherently have limitations and cannot guarantee 100% accuracy.

Another reason is the concept of materiality. Auditors focus on identifying and reporting material misstatements, which are errors or omissions that can potentially impact the decisions made by users of the financial statements. Absolute assurance is often not necessary because users can still make informed decisions with reasonable assurance that the financial statements are free from material misstatements.

Lastly, there is a need to conduct audits within a reasonable period of time at a reasonable cost. Auditing is a complex and time-consuming process. Conducting audits with absolute assurance would require significantly more resources and time, making it impractical and costly for most organizations. By providing reasonable assurance, auditors are able to strike a balance between cost and benefit.