What is one of the limitations of reasonable assurance in auditing?

One of the key limitations of reasonable assurance in auditing is that it does not involve testing all transactions. This is because auditing, by its nature, is a sampling process. Auditors typically examine a subset of transactions, which allows them to form an opinion on the financial statements without the need to review every single transaction. This sampling approach is based on the premise that the transactions tested are representative of the overall population.

The limitation arises because the reliance on sampling means that there is always a possibility that some material misstatements could exist in the unexamined transactions. As a result, while reasonable assurance indicates a high level of confidence in the accuracy of the financial statements, it does not provide an absolute guarantee that all errors or fraud are detected. Understanding this limitation is crucial for stakeholders relying on audit reports, as it clarifies the level of assurance provided by auditors.