Question $3[8$ marks$]$

Auditors provide reasonable and not absolute assurance. What are the limitations to the auditors providing absolute assurance. From the below fact patterns, identify the type of limitation is evident. Explain your answer clearly:

$3\mathrm{.}1$ An auditor is conducting an audit of a large retail company, XYZ Ltd$.,$ which has thousands of transactions every month. In accordance with the audit firm$$s audit methodology, the auditors randomly selects $120$ revenue transactions to test to the sales invoices and inspect the support to confirm whether the sales are recorded accurately and exist. Based on the sample, the auditor concludes that the financial statements are fairly presented.

$3\mathrm{.}2$ ABC Manufacturing Ltd$.$ is undergoing an audit, and one of the key areas is the valuation of inventory. The company has a large stock of raw materials and finished goods, some of which are obsolete. The auditor needs to use judgment to determine the adequacy of the provision for obsolete stock, as it requires estimates based on management$$s assumptions. The auditor obtain an understanding the estimation process, the company policy for determining the inventory obsolescence provision, checked the calculation for consistency with prior year and industry knowledge. Further the auditor tested the assumptions used in estimating the provision. This includes assessing the basis of expected sales prices, the likelihood of items being sold, and the level of inventory marked as obsolete.

$3\mathrm{.}3$ During the audit of a large software company, GHI Ltd$.,$ the auditors follow standard procedures and perform detailed testing of the company$$s revenue recognition policies. However, the company$$s management is involved in a scheme to recognize fictitious revenue by recording sales that were never completed. The fraudulent transactions are structured in such a way that they are difficult to detect through regular audit procedures.

$3\mathrm{.}4$ Even with well$-$designed internal controls, no system is perfect. Internal controls can be bypassed, weakened over time, or fail due to changing circumstances. Auditors can only test the effectiveness of controls at a point in time and cannot guarantee that the system will operate effectively indefinitely. Auto Hire Ltd$.$ may have automated controls to prevent double bookings. However, a software bug or unforeseen situation could bypass these controls, and the auditor cannot test every possible scenario to absolutely confirm the system$$s resilience against all errors or fraud.