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An auditor cannot obtain absolute assurance because there are inherent limitations in an audit that
affect the auditor’s ability to detect material misstatements. These limitations result from factors such
as:
i. The use of testing;
ii. The inherent limitations of any accounting and internal controls system (for example, the
possibility of collusion);
iii. The fact that most audit evidence is persuasive rather than conclusive.

Also, the work undertaken by the auditor to form an opinion is permeated by judgment, in particular
regarding:
i. the gathering of audit evidence, for example, in deciding the nature, timing and extent of audit
procedures; and
ii. the drawing of conclusions based on the audit evidence gathered, for example, assessing the
reasonableness of the estimates made by management in preparing the financial statements.

Further, other limitations may affect the persuasiveness of evidence available to draw conclusions on
particular financial statement assertions (for example, transactions between related parties).

7. Explain the concept of true and fair presentation.

External auditors give an opinion on whether the financial statements prepared by management give a
true and fair view. This is not an opinion of absolute correctness. 'True' and 'fair' are not defined in law
or audit guidance, but the following definitions are generally accepted.

True: Information is factual and conforms with reality. In addition the information conforms with
required standards and law. The financial statements have been correctly extracted from the books and
records.

Fair: Information is free from discrimination and bias and in compliance with expected standards and
rules. The accounts should reflect the commercial substance of the company's underlying transactions.

8. State the objective of:

 A review engagement
 An audit engagement
Explain how the differing objective of the two engagements affects the level of assurance given.

The objective of a review engagement is to enable a practitioner to state whether, on the basis of
procedures which do not provide all the evidence that would be required in an audit, anything has come
to the practitioner's attention that causes the practitioner to believe that the financial statements are
not prepared, in all material respects, in accordance with an applicable financial reporting framework.

Review engagements – where an opinion is being provided, the practitioner gathers sufficient evidence
to be satisfied that the subject matter is plausible; in this case negative assurance is given whereby the
practitioner confirms that nothing has come to their attention which indicates that the subject matter
contains material misstatements