The Fundamental Principle of Performance

The performance principle is grounded in the auditor's responsibility to obtain reasonable assurance that financial statements are free from material misstatements, whether due to fraud or error. This involves a systematic approach and adherence to several key activities to ensure audit quality.

Key Elements of the Performance Principle

1. Planning and Supervision

The performance principle begins with thorough planning and supervision. Auditors must prepare a written audit plan that outlines the procedures necessary to collect sufficient and appropriate evidence. Planning involves obtaining an understanding of the client’s business and industry, which helps auditors identify potential areas of risk. Supervision ensures that all audit team members work effectively and consistently with the established plan.

4. Audit Evidence

Auditors are required to gather sufficient and appropriate evidence to support their conclusions. Evidence must be both relevant and reliable to reduce detection risk effectively. This involves selecting audit procedures and evaluating their outcomes to substantiate the fairness of financial statements.

Reasonable Assurance

The concept of reasonable assurance underpins the performance principle. While it is not an absolute guarantee that all material misstatements will be detected, auditors are expected to provide a high level of assurance through systematic procedures and critical evaluation.