1.21 What is an audit? Required If an audit is none of the above, what is an audit designed to achieve? The primary objective of an audit is to express an opinion as to whether the financial report is prepared, in all material respects, in accordance with an identified financial reporting framework. An auditor is setting out to achieve enhanced credibility of information disclosed to increase reliability for the users of the financial statements. A definition from the Committee on Basic Auditing is as follows: A systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested users. The auditor only considers going concern to the extent that it is met so that the accounts can be prepared on a going concern basis. The auditor (unlike the directors) makes no positive assertion about the going concern of the company.
1.22 Level of assurance Required (a) Why is it impossible for an auditor to provide absolute assurance regarding subject matter on which they express their opinion? (b) Explain what type of assurance an auditor should provide in a financial statement audit. (a) It is impossible for the auditor to provide absolute assurance because there are so many judgements in the audit process. The auditor makes a judgement about the risks of material misstatement and then designs procedures accordingly. These procedures use sampling (discussed later in the text) which will always provide some sort of error rate. Even if there was no constraint on cost or time the auditor could not provide absolute assurance because he or she may misinterpret evidence and because there are so many account balances that are the product of significant professional judgement. (b) The auditor is required to and should provide a high level of assurance in a financial statement audit