Hollinger International

Reasonable assurance

I. Auditing standards for “reasonable assurance” and compare the accuracy of Ms. Stitt’s description of that concept in her testimony.

A. Auditing standards (AU 230) indicates that a reasonable assurance is a high, but not absolute, level of assurance that the financial statements are free of material misstatements. The concept of reasonable indicates auditor is not an insurer or guarantor of the correctness of the financial statements. For this reason, audit conducted according to auditing standards may fail to detect all material misstatements. Failure to detect all material misstatements for 3 reasons:

1. Audit evidence is collected on sample basis. Sample testing inevitable include some risk of not uncovering a material misstatement.

2. Complex accounting estimates. Estimates can be affected by future events. Therefore, auditors need to collect evidence that is persuasive, rather than convincing.

3. Fraudulent financial statements. Fraudulently prepared financial statements are difficult to detect, especially when there is collusion among management.

B. In her testimony, Ms. Stitt defined reasonable assurance as “it is not necessarily defined in the standard but it is considered to be a lower level of assurance than absolute assurance due to the nature of audit evidence and the characteristics of fraud.”

II. Describe professional standards requirements related to collecting “sufficient appropriate audit evidence.”

C. The third auditing standards of field work require the auditor to obtain sufficient appropriate audit evidence by performing audit procedures to afford a reasonable basis for a financial statement audit opinion. Audit evidence needs to be both appropriate and sufficient. Appropriateness of evidence measures to the quality of evidence, meaning how reliable and relevant the evidence is in meeting audit objectives. Sufficiency of evidence refers to the quantity of evidence...