Auditors or practitioners conduct audit and other assurance engagements under certain limitations which are commonly known as Inherent limitations of an audit (assurance) engagement. It is these limitations that restricts the auditor to gain absolute assurance i.e. financial statements are absolutely free of misstatements.
International Standards on Auditing ISAs because of these limitations recognize that it will be too difficult for an auditor to provide assurance with absolution that financial statements are free from material misstatements due to fraud or error. In other words, auditor cannot completely eliminate the audit risk. Therefore, ISAs require auditor to gain reasonable assurance.
Although audit risk cannot be reduced to zero or no absolute assurance can be obtained but still auditor can reduce the the effects of inherent limitations to greater extent and obtain higher level of assurance i.e. reasonable assurance by taking following necessary steps which are as below:
- Always plan the audit so that audit procedures cannot be carried out in efficient manner.
- Place more attention to those areas where auditor expects greater risk o material misstatement either due to fraud or error and where auditor is satisfied and expects lesser risk auditor can relax the procedures thus focusing more on risk affected areas to conduct effective audit.
- Properly applying sampling techniques to keep the audit efficient yet effective
- Application of multiple audit procedures on the same area to get sufficient appropriate audit evidence with greater assurance and satisfaction.
- In absence of conclusive evidence, confirming or corroborating the persuasive evidence by applying audit procedures of different nature
- Setting appropriate materiality and performance materiality levels
- Conducting audit engagement with due care and professional skepticism
- Gathering sufficient appropriate evidence and appropriately interpreting results on the basis of evidence gathered to form reasonable conclusions to base opinion
- Staying objective in forming opinion and interpreting results of audit procedures
- Strictly following the professional codes of ethics and maintaining independence requirement which conducing audit engagement.