ACCA Advanced Audit and Assurance (AAA) Practice Exam

What level of assurance does a reasonable assurance engagement provide?

1. High but not absolute level of assurance

2. Absolute certainty in financial statements

3. No assurance provided

4. Only a theoretical understanding of fair value

The correct answer is: High but not absolute level of assurance

A reasonable assurance engagement provides a high but not absolute level of assurance. This means that the auditor has performed their procedures and evaluated the evidence obtained to form an opinion, which reduces the risk of material misstatement in the financial statements to a low level. However, it does not guarantee that the financial statements are free from all errors or fraud, nor does it imply absolute certainty. This is a critical distinction in audit practice since absolute assurance is typically not achievable due to inherent limitations such as the use of judgment in audit procedures and the realities of financial reporting. In contrast, asserting absolute certainty in financial statements suggests an unrealistic outcome that is unattainable in the context of an audit. Additionally, stating that no assurance is provided implies that there is no evaluation or opinion rendered, which contradicts the essence of a reasonable assurance engagement, where the auditor actively seeks to reduce risks associated with financial statement misstatements. Lastly, a theoretical understanding of fair value does not pertain to the level of assurance provided by an engagement; rather, it could reflect an academic perspective, which is not what an assurance engagement sets out to achieve.