Jalan Puyuh Pty. Ltd is a newly incorporated company that has approached your firm to be the auditors of the company. While you were discussing the terms of the engagement with the prospective client, the managing director commented,

"Why is that your audit report states that you only obtain reasonable assurance for your audit work. Aren't you supposed to absolutely sure that the financial statements are true and fair?"

Required:

a.The managing director's view that the audit should provide absolute assurance on the financial statements is an example of the 'expectation gap' between audit objectives and users' expectations. Do you believe this is a reasonable expectation? Give reasons for your answer.

(15 marks)

b.Apart from the above example related to absolute assurance, what are other examples or areas of the 'expectation gap'?

(10 marks)