i) Reasonable assurance is provided in a report where the auditor has obtained sufficient evidence to feel confident to give reasonable assurance that the information is free from material error. A normal audit opinion (giving reasonable assurance) takes a positive form of words, e.g., ‘In our opinion, the financial statements present fairly, in all material respects, (or give a true and fair view of) the financial position of…’

Advantages of reasonable assurance:

• The bank will place more reliance on the forecast as it has been subject to review by an independent professional. The level of comfort given will be less than that of an audit, but forecast information cannot be verified to the same degree as historical information, so the limited assurance is the best that could be expected in the circumstances.
• Reasonable assurance requires a lower level of work than a full scope audit, so it will be cheaper for the company.

The elements of an assurance engagement are:

• The three-party relationship
• Appropriate subject matter
• Suitable criteria
• Appropriate evidence
• A conclusion

ii) The intended decision by the Managing Director is not well-founded. The bank’s request for a reasonable assurance report is not an indication that the Finance Manager has acted improperly. It simply reflects the bank’s need for an independent professional’s assurance on the reliability of the forecast. Therefore, there is no reason for questioning the Finance Manager’s integrity based on this request. (2 marks)