Question 1 (8 Marks)

You are an audit manager at JKF Chartered Accountants. In a conversation with John, who is the JKF of a potential audit client, you find that John believes that audit can always guarantee the company will succeed. John also believes that company managers lie to auditors to protect themselves, while auditor usually do not trust management. Please answer the following three questions from John:

(a) Explain the difference between an audit engagement and a review engagement, and why an audit is not a guarantee the company will succeed.

(b) Explain why an auditor cannot offer absolute assurance.

(c) What is professional scepticism and how it is not the same as assuming that managers are always trying to deceive auditors.