STANDING ADVISORY GROUP MEETING

1666 K Street, NW Washington, 20006 Telephone: (202) 207-9100 Facsimile: (202)862-8430 This paper was developed by the staff of the Office of the Chief Auditor to foster discussion among the members of the SAG. It is not a statement of the Board; nor does it necessarily reflect the views of the Board or PCAOB staff. STANDING ADVISORY GROUP MEETING REASONABLE ASSURANCE OCTOBER 5-6, 2005 Introduction The Board's interim auditing standards1/ require auditors to obtain reasonable assurance that the financial statements are free of material misstatements to support their unqualified opinion on the financial statements. This briefing paper discusses the concept of reasonable assurance and provides information to consider in deciding whether that concept is articulated with sufficient clarity and whether the standard of reasonable assurance is an appropriate level of auditor responsibility for the detection of material misstatements and for evaluating other areas of auditor performance.

characteristics of fraud. Therefore, an audit conducted in accordance with generally accepted auditing standards may not detect a material misstatement. (AU sec. 230.10) Thus, the interim auditing standards convey the idea that reasonable assurance is less than absolute assurance, but they do not explicitly define reasonable assurance;

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