You are auditing the financial statements of JEN Ltd., a manufacturing company. During a meeting, Mr. Jai CEO questions the auditor's ability to…

In conducting audit of financial statements, objectives of auditor in accordance with SA-200 "Overall Objectives of the Independent auditor and the conduct of an audit in accordance with Standards on Auditing” are: (i) To obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, thereby enabling the auditor to express an opinion on whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework; and (ii) To report on the financial statements, and communicate as required by the SAs, in accordance with the auditor's findings. Audit of financial statements is carried out by the auditor with professional competence and skills in accordance with Standards on Auditing. Audit procedures are applied in accordance with SAs, audit evidence is obtained and evaluated. On basis of that, conclusions are drawn, and opinion is formed. It leads to high level of assurance which is called as reasonable assurance, but it is not absolute assurance. It may be noted that absolute assurance is a complete assurance or a guarantee that financial statements are free from material misstatements. However, reasonable assurance is not a complete guarantee. Although it is a high-level of assurance, but it is not complete assurance. Misstatements in financial statements can occur due to fraud or error or both. The auditor seeks to obtain reasonable assurance whether financial statements as a whole are free from material misstatements caused by fraud or error. In the given case, Mr. Jai, CEO of JEN Ltd., questions the auditor's ability to detect all material misstatements and insists that auditor should provide absolute assurance. As per SA 200, the auditor's objective is to obtain reasonable assurance. Therefore, contention of the CEO Mr. Jai is not correct.