ACCA Advanced Audit and Assurance (AAA) Practice Exam

What type of assurance does an audit traditionally provide on financial statements?

1. A guarantee of perfect accuracy

2. A limited review with few assertions

3. High assurance regarding truth and fairness

4. A negative assurance based on intuition

The correct answer is: High assurance regarding truth and fairness

An audit traditionally provides high assurance regarding the truth and fairness of financial statements. This high assurance is rooted in the thorough examination of financial records and internal controls, enabling auditors to express an opinion on whether the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework. This opinion reflects the auditor's assessment that there is a reasonable basis for the statement, considering both the accuracy of the numbers reported and the appropriateness of the accounting policies used. The level of assurance derived from an audit is higher than that of a review or compilation, indicating a robust and detailed examination process. High assurance signifies to users of the financial statements that they can rely on the information presented, which is a fundamental purpose of an audit. Other considerations, such as guarantees of perfect accuracy, are unrealistic in any audit situation since audits do not provide absolute assurance due to inherent limitations, including the use of sampling and the potential for human error. Moreover, a limited review typically involves a lower level of assurance than a full audit does, and negative assurance is not applied in the context of an audit, where positive assurance is the standard expectation. Thus, high assurance regarding truth and fairness is the correct understanding of what an audit provides on financial statements.