ACCA Audit and Assurance (F8) Practice Exam

What does "reasonable assurance" imply in auditing?

1. It guarantees correctness

2. It ensures completeness of financial statements

3. It provides assurance within a reasonable margin of error

4. It is absolute assurance

The correct answer is: It provides assurance within a reasonable margin of error

In the context of auditing, "reasonable assurance" signifies that the auditor has conducted sufficient and appropriate audit procedures to obtain a level of confidence that the financial statements are free from material misstatement. This concept acknowledges that while the auditor aims to reduce risk to an acceptable level, it does not eliminate all risk. Thus, the assurance provided is within a reasonable margin of error, meaning that there is still a possibility that a material misstatement could exist, but it is deemed low enough that it does not significantly impact the reliability of the financial statements. The term contrasts with absolute assurance, which is unattainable in practice because it would require complete certainty regarding the accuracy of financial information. Instead, reasonable assurance is a balanced approach that reflects the inherent limitations of audits, including factors such as the use of judgment in evaluating evidence, the need for sampling, and the possibility of human error. This understanding is essential for both auditors and users of financial statements to appreciate the level of confidence provided through the audit process.