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ATTY.

RHENEIR P. MORA, CPA


MANAGING PARTNER
R. P. MORA & CO.

Historical background
Records of auditing activity in early Babylonian

times (around 3,000 BC).


Ancient China, Greece and Rome.

The Latin meaning of the word 'auditor' was a

'hearer or listener' because in Rome auditors heard


taxpayers.

Modern auditing dates


to beginning of the
modern corporation

By the audit process, the auditor enhances the usefulness


and value of the nancial statements, and also
increases the credibility of other non-audited
information released by management.

The func5on of audi5ng is to lend credibility


to the nancial statements
Is the company a going concern?
Is it free of fraud?
Is it managed properly?
Is there integrity in its database?
Do directors have proper and adequate

information to make decisions?


Are there adequate controls?
What eect do the company's products and by-
products have on the environment?
Can an unfortunate mistake bring this
company to its knees?

Philippine Financial Repor5ng Standards


Philippine Financial Reporting Standards (PFRS) are

the standards that are applied for nancial


accounting.
PFRS were formerly called Philippine Accounting
Standards (PAS)
The Philippine Accounting Standards Board (PASB)
has accounting standard setting responsibilities for
PFRS.

Advantages of Philippine Standards


of Audi5ng (PSA)
worldwide
increases condence in non-domestic investment
consistent
international investors comprehend nancial
statements from dierent countries
high quality
Non-national standards encourage better quality, less
political inuence

Audi5ng and Assurance Standards Board (AASB) Issues:

Philippine Standards on Auditing (PSAs) as the standards to be

applied by auditors in reporting on historical nancial


information.
Philippine Standards on Assurance Engagements (PSAEs) as
the standards to be applied by practitioners in assurance
engagements dealing with information other than historical
nancial information
Philippine Standards on Quality Control (PSQCs) as the
standards to be applied for all services falling under the
Standards of the AASB, and
Philippine Standards on Related Services (PSRSs) as the
standards to be applied on related services, as it considers
appropriate
Philippine Standards on Review Engagements (PSREs) as the
standards to be applied to the review of historical nancial
information.

PSAs
100-999 Philippine Standards on Auditing (PSAs)
100-199 Introductory Matters
120 Framework of International Standards on
Auditing
200-299 General Principles And Responsibilities
200 Objective and General Principles Governing an
Audit of Financial Statements
210 Terms of Audit Engagements
220 Quality Control for Audit Work
230 Documentation (ED)

PSAs
240 The Auditors Responsibility to Consider Fraud and Error in
an Audit of Financial Statements
250 Consideration of Laws and Regulations in an Audit of
Financial Statements
260 The Auditors Communication with Those Charged with
Governance
300-499 Risk Assessment And Response To Assessed Risks
300 Planning
310 Knowledge of the Business
315 Understanding the Entity and Its Environment and Assessing
the Risks of Material Misstatement
320 Materiality in the Identication and Evaluation of
Misstatements
330 The Auditors Procedures in Response to Assessed Risks

PSAs
400 Risk Assessments and Internal Control
401 Auditing in a Computer Information Systems
Environment
402 Audit Considerations Relating to Entities Using
Service Organizations
500-599 Audit Evidence
500 Audit Evidence
500R Audit Evidence
501 Audit EvidenceAdditional Considerations for
Specic Items
505 External Conrmations

PSAs
510 Initial EngagementsOpening Balances
520 Analytical Procedures
530 Audit Sampling and Other Selective Testing Procedures
540 Auditing Accounting Estimates and Related Disclosures
(Other than Those Involving Fair Value Measurements and
Disclosures)
545 Auditing Fair Value Measurements and Disclosures
550 Related Parties
560 Subsequent Events
570 Going Concern
580 Management Representations

PSAs

600-699 Using Work Of Others


600 The Audit of Group Financial Statements
610 Considering the Work of Internal Auditing
620 Using the Work of an Expert
700-799 Audit Conclusions And Reporting
700 The Auditors Report on Financial Statements
701 The Independent Auditors Report on Other Historical Financial
Information
705 Modications to the Opinion in the Independent Auditors
Report
706 Emphasis of Matter Paragraphs and Other Matters Paragraphs in
the Independent Auditors Report
710 Comparatives
720 Other Information in Documents Containing Audited Financial
Statements
800-899 Specialized Areas
800 The Independent Auditors Report on Summary Audited
Financial Statements

2000-2699 Philippine Standards on Review Engagements

(PSREs)
2400 Engagements to Review Financial Statements (Previously PSA
910)
2410 Review of Interim Financial Information Performed by the
Independent Auditor of the Entity
3000-3699 Philippine Standards on Assurance Engagements
(PSAEs)
3000 Assurance Engagements (Previously PSAE 100)
3000R Assurance Engagements Other Than Audits or Reviews of
Historical Financial Information
3400 The Examination of Prospective Financial Information
(Previously PSA 810)
4000-4699 Philippine Standards on Related Services (PSRSs)
4400 Engagements to Perform Agreed-upon Procedures Regarding
Financial Information (Previously PSA 920)
4410 Engagements to Compile Financial
Information (Previously PSA 930)

PSA 200 states the objective of an audit of nancial


statements is to enable the auditor to express an
opinion whether the nancial statements are
prepared, in all material respects, in accordance
with an identied nancial reporting framework.
Terms used 'give a true and fair view' or present
fairly, in all material respects
equivalent terms?

Audit Deni5on

An audit is a systematic process of objectively


obtaining and evaluating evidence regarding
assertions about economic actions and events to
ascertain the degree of correspondence between
these assertions and established criteria and
communicating the results to interested users.
American Accounting Association

General Principles Governing an


Audit of Financial Statements
An auditor should comply with the Code of Ethics for

Professional Accountants issued by IFAC.


An auditor should conduct an audit in accordance with
International Standards on Auditing.

General Principles Governing an Audit of Financial


Statements

Scope of an audit - the audit procedures deemed

necessary to achieve the objective of the audit.


Certain inherent limitations in an audit aect the
auditors ability to detect material misstatements.
Test and sampling
Internal control
Audit evidence
Audit process permeated by judgment

Management is responsible for the nancial

statements, accounting, and internal control.

Business Risk and Audit Risk


Companies, depending on the nature

of their operations and industry, the


regulatory environment in which they
operate, and their size and complexity,
they face a variety of business risks.
The risk that causes the greatest
concern by the auditor is the risk that
the auditor expresses an inappropriate
audit opinion when the nancial
statements are materially misstated
(known as audit risk). The auditor
should plan and perform the audit to
reduce audit risk to an acceptably low
level that is consistent with the
objective of an audit. (ISA 200)

TYPES OF AUDIT

Audit of nancial statements

Examine nancial statements, determine if they give a


true and fair view or fairly present the nancial
statements.

Operational Audit
A study of a specic unit of an organization for the
purpose of measuring its performance.

Compliance Audit
A review of an organizations procedures and
nancial records performed to determine whether
the organization is following specic procedures,
rules, or regulations set out by some higher
authority.

Types of Auditors
Internal auditors are employed by individual

companies to investigate and appraise the


eectiveness of company operations for management.
Independent auditors are typically certied either
by a professional organization or government agency.

Planning

Fieldwork

Audit Report
Audit Follow Up

AUDIT
PROCESS

Planning

Fieldwork

Audit Report

Announcement
Letter

Transaction
Testing

Initial Meeting

Advice & Informal Exit Conference


Communications

Preliminary
Survey
Internal
Control Review
Audit Program

Audit
Summary
Working
Papers

Audit Follow-Up

Discussion Draft Follow-up


Review

Formal Draft
Final Report
Client Response
Client Comments

Follow-up
Report
Audit Annual
Report to the
Board

Audit Planning
The audit process is similar for most engagements

and normally consists of four stages: Planning


(sometimes called Survey or Preliminary Review),
Fieldwork, Audit Report, and Follow-up Review.
Client involvement is critical at each stage of the audit
process. As in any special project, an audit results in a
certain amount of time being diverted from your
department's usual routine. One of the key objectives
is to minimize this time and avoid disrupting ongoing
activities.

Planning
During the planning portion of the audit, the auditor

noties the client of the audit, discusses the scope


and objectives of the examination in a formal meeting
with organization management, gathers information
on important processes, evaluates existing controls,
and plans the remaining audit steps.

Management Asser5ons
and Audit Objec5ves
The audit starts with the nancial statements

prepared by the client and the claims or


assertions. that the client makes about these
numbers.
It is the auditor's job to validate management's
assertions. In order to do so, the auditor will identify
audit objectives, which can be regarded as the
auditor's counterpart of management assertions.

Management
asser5ons

Management assertions
are implied or expressed
representations by
management about classes
of transactions and related
accounts in the nancial
statements. An example of
a management assertion is
that the companys
nancial statements are
prepared based on
international nancial
reporting standards.

Asser5ons about classes of transac5ons and


events for the period under audit
Occurrence. Transaction and events that have

been recorded have occurred and pertain to the


entity.
Completeness All transactions and events that
should have been recorded have been recorded..
Accuracy - Amounts and other data relating to
recorded transactions and events have been
recorded appropriately.
Cutoff - Transactions and events have been
recorded in the correct accounting period.
Classification - Transactions and events have
been recorded in the proper accounts.

Asser5ons about account balances at the period end.

Existence:- Assets, liabilities and equity interests

exist.
Rights and obligations:- An entity holds or
controls the rights to assets, and liabilities are the
obligations of the entity.
CompletenessAll assets, liabilities and equity
interests that should have been recorded have
been recorded
Valuation and allocation Assets, liabilities, and
equity interests are included in the financial
statements at appropriate amounts and any
resulting valuation or allocation adjustments are
appropriately recorded.

Asser5ons about presenta5on and disclosure

vOccurrence and rights and obligations

Disclosed events, transactions, and other matters


have occurred and pertain to the entity.
vCompletenessAll disclosures that should have
been included in the financial statements have
been included..
vClassification and understandabilityFinancial
information is appropriately presented and
described, and disclosures are clearly expressed.
vAccuracy and valuationFinancial and other
information are disclosed fairly and at appropriate
amounts.

Phase 1: Planning
Stages in Planning of Audit
1. Engagement

This could be a request from the authority or a routine


audit.
Appointment of audit team: The appointed team

(by Audit Executive) should do the following: Conduct team first meeting
Document preparations for audit
Set engagement objectives (audit objective)
Determine the scope of audit.
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Phase 1: Planning
2. Conduct in oce review

Review documents (criteria) related to the client (laws,

regulations, guideline etc.)


Advantages of in-oce review

Gain good understanding of the client


Help to establish audit risk and materiality of issues (relevant criteria).
Help to identify criteria and establish compliance requirements
Clarify audit objectives (operating objectives).
Enable the team to prepare relevant questions to the client during
entrance meeting.
Help the team to understand well the criteria (what is to be done; by
whom and when).

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Phase 1: Planning.
3. Contact and meeting client

Clients needs to be notied on the audit at least 5 (ve)

working days before entrance meeting.


Notication should be formal (eg. Engagement letter)
Contents of engagement letter
Letter reference
Date of letter Source of audit (Annual plan, Management

request etc.)
General audit objective
Names of audit team and team leader
Ocial contacts of team leader
Time and location of entrance.
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Phase 1: Planning.
4. Entrance Conference

Should be conducted prior to preliminary survey


Head of Internal audit should meet with key personnel of

the client
Points to be discussed in entrance meeting

Scope and objective of audit


Emphasize that the purpose of audit is to add value to the organization.
Determine who will be the contract person from the client (it should
not be the director or person of too high level).
Brief overview of the process from preliminary survey to reporting.
Tentative audit event timeline estimated dates of eldwork, interim
meeting, exit meeting, audit report (draft and nal) and follow-up
audits.

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Entrance Conference
How audit ndings will be handled (resolution of minor ndings;
agreement on the action plan to implement the audit
recommendations etc.)
Collective review of draft report.
Method of distribution of nal audit report.
Identication of areas of special concern by client (Note: Do not get
involved in functional or operational activities of the client).
Working hours, access to records, available work area, clients work
deadline requirements (i.e. Auditor should t into the clients oce
routine with minimal disruption to client).
Arrange for tour of the facility for familiarization.
Arrangement for auditors to meet other personnel who will be working
with during audit.

Note: Eective Communication at the beginning of audit


engagement will signicantly inuence the atmosphere in
which the entire audit is conducted.
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Phase 1: Planning.
5. Preliminary survey

This refers to the process for gathering information without


detailed verication on the activity being examined (audited)
Why Preliminary Survey

To understand well the activity under review.


Identify signicant areas that worth special emphasis.
Obtain relevant information for use in actual audit.
Determine whether further audit is necessary (nature, timing and extent of
detailed audit work).


Note: i) No eldwork should be started unless preliminary
survey has been conducted.
Survey work may be more extensive for activities that are
audited for the rst time than for areas that were audited
previously.
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Preliminary survey

Phases of Preliminary Survey


i. Familiarization
Obtaining signicant back ground information and
practical working knowledge of applicable laws,
regulations policies, and procedures, management and
nancial controls, organizations statues and stang;
and unusual challenges faced.
Documents to be reviewed includes; previous audit
reports/programs, working papers, laws, regulations,
operating manuals, organization charts, nancial
statements, ow charts, budget, operating reports etc.
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Phases of Preliminary
Survey..
ii) Identification of
potential areas for
improvement
Identifying areas for audit emphasis (risk area). These
include:

Areas identified/documented in risk. Register.


Area of high possibility of fraud or mis management
Where there is large volumes of transactions.
Where management has expressed concerns.
Where prior audit disclosed major weakness/deficiencies.


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Phases of Preliminary
Survey..

iii) Confirmation: Getting evidences from third


parties where necessary.
(iv) Planning the detailed audit

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Preparation of audit program in areas that worth for further


audit
Audit program should be recorded
It basically show, what is to be done; by when; by who; for how
long and how will it be done.
This is a link between preliminary survey and field work.

39


Announcement Letter: The client is informed of the
audit
through an announcement or engagement letter
from the Internal Audit Director.


Initial Meeting: the client describes the unit or

system to be reviewed, the organization, available


resources (personnel, facilities, equipment, funds),
and other relevant information.


Preliminary Survey: In this phase the auditor

gathers relevant information about the unit in order


to obtain a general overview of operations.


Internal Control Review: The auditor will review

the unit's internal control structure, a process which


is usually time-consuming.


Audit Program

Preparation of the audit program concludes the

preliminary review phase. This program outlines the


eldwork necessary to achieve the audit objectives.

Mechanics for preparation of Audit Program


Setting of Audit Objective: Start from operating objectives

followed by operating procedures eg.


Operating objective: To ensure procurement of right goods/
service at right, right price, at right time and right quantity and
quality).
Operating Procedure: On requisition, the ordering dept
should clearly spell out the goods/service to be procured proper
specification).
Audit Objective: To ascertain whether the procurement of
goods/services was done properly to ensure right goods/service,
right price, right time and right quality and quantity.
Determine the scope of Audit Program (objective of Internal
Control System) and key risk from the same.
Develop audit objective from operating objective/target;
requirement of the law (legislative requirements) terms of
reference in special audit assignment [see item (i) above].

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Benefits/Advantages of Audit Program


Set a systematic approach to audit. Gives specific steps

to be taken by auditor.
Provide precise instruction to obtain precise audit
information.
Provide for more focused audit hence serve time for
audit engagement.
As a bases of or duty/assignment to audit assistants.
Help the supervisor to monitor the audit
Provide summary of work to be done.

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Phase 2: Field work (Evidence Gathering)


Is the systematic process of gathering evidence about

entitys operations, evaluating it and found out


whether those operations meet the acceptable
standards.
Here auditor perform the procedures as in the audit
program by doing the following: Concentration on transaction testing and informal

communication.
Determine and evaluate whether internal controls are
operating properly and in manner described by
management.
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Evidence
Defn: Refers to all matters that supports a point/
position assumed by auditor
Qualities of an evidence
Evidence must be: Suffient ie. Adequate and convincing.
Competent ie. Reliable and best attainable.
Relevant ie. Supporting the observations and

recommendations; consistent with objectives.


Useful ie. Help the organization to meets its objective.
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Evidence.
Types of evidence
Physical - direct inspection/observation documented
as memoranda, charts, maps, photographs etc.
Documentary - created information eg. Accounting
records, invoices, letters contracts etc.
Testimonial - responses to inquires interview (needs
to be confirmed).
Analytical - analysis or verification of information
computations, comparisons of operations; standards,
law/regulations, and evaluation of physical or
documentary information.

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Field work Audit Checklist


Before going to eldwork the audit team should ensure
to have the following:-
Audit program (each team member should have a
copy).
Responsibility of each team member (segregation of
duties).
That audit client is aware in advance.
Adequate working tools (working papers, folders,
stationery, calculator, laptop, camera etc.).
Copies of relevant laws, regulation, standards, etc.
relating to the audit area.
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Documentation of the fieldwork results


The field results (step of activities) will be recorded in

the audit working paper.


The reference should be made in the working paper
with the audit program to maintain consistency.
The working papers are used to arrive to the audit
finding.

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AUDIT EVIDENCE &


DOCUMENTATION

Eviden5al MaMer
Evidential matter supporting nancial statements
consists of:
Underlying accounting data
Corroborating evidence (supporting information)

Eviden5al MaMer
Appropriate

Sucient

Reliable

Amount of evidence

Relevant

Professional judgment

Sucient Audit Evidence


Inuenced by:
Competence of evidence
Risks involved
Materiality and tolerable error
Experience

Appropriate Evidence
Relevant
Satises audit objective
Timely
Reliability is inuenced by:
Independence of source
How the evidence is obtained
Condition of internal control

Audit Workflow

55

Audit
Methodology
Audit
Work
Flow

P
R
E
L
I
M
I
N
A
R
Y

F
I
N
A
L

Planning and
Risk
Assessment

Understand the business including the IT environment


Evaluation of entity level controls and fraud assessment
Perform risk assessment and evaluation procedures
Determine audit approach and plan audit strategy

Evaluation of
Controls

Understand significant processes and perform walkthrough


Evaluate design and implementation of controls
Test and conclude on operating effectiveness of controls

Anticipation
and Resolution
of Audit Issues

Team discussion of accounting and auditing issues


Brain storming session with the Company on the identification and
resolution of issues`

Perform
Substantive Test

Determine substantive procedures


Perform substantive procedures
Conclude on procedures performed

General Audit
Procedures

Fraud assessment procedures


Going concern assessment
Subsequent events review
Laws and regulations, litigations and claims

Conclude the Audit

Perform completion procedures


Perform overall review of financial statements
Obtain management representation
Form an audit opinion

Planning and Risk Assessment

Engagement acceptance and con5nuance


Understand the business
Understand IT environment
Planning materiality
En5ty level control and fraud assessment
Iden5ca5on of signicant account and processes
Understanding and evalua5on of IT general controls
Understanding of signicant process and walkthrough
Audit planning memorandum
Combined risk assessment
Audit planning discussion

Control Evalua6on
Test of the design and opera5ng eec5veness of control
Nature of test of control
Timing of test of control
Extent of test of control

Conclude on opera5ng eec5veness of control


Control devia5ons discovered during the tes5ng
Control deciencies
Documen5ng control deciency

Substan6ve Procedures
Test of Details
Analy5cal Review Procedures
Other Substan5ve Procedures

General Audit Procedures

Fraud
Going concern assessment
Subsequent events
Laws and regula5ons
Li5ga5ons and claims
Related par5es

Conclude the Audit


Overall review of nancial statements
Management representa5ons
Perform overall evalua5on of:
Procedures performed on each signicant accounts
Signicant ndings and issues
Reassessment of materiality
Changes in audit strategy and planned procedures
Audit dierences

Ethical and independence issues

Form an audit opinion

SUBSTANTIVE PROCEDURES ASSETS

Cash and Cash Equivalents


Obtain bank conrmations for all accounts, including
the accounts closed during the year
Examine client's bank reconciliation
Test proper cut o of cash receipts and cash
disbursements
Test appropriate valuation

Cash and Cash Equivalents


Bank conrmation
Bank reconciliation
Bank statement
Cash book
General ledger

Cash and Cash Equivalents


Bank Reconciliation

Balance per Bank xxx

Add:
Deposit in Transit x


(Less)
Outstanding Checks (x)

Balance per book xx

Bank
Statement
Bank
Confirmation
Post Year-End
Bank
Statement
Cash Book
Post Year-End
Bank
Statement
Cash Book
General
Ledger

SUBSTANTIVE PROCEDURES ASSETS

Accounts Receivable - Trade


Agree subledger to general ledger control account
Verify existence through conrmation or subsequent
cash receipts.
Perform roll-forward procedures, as necessary
Perform analytical procedures

SUBSTANTIVE PROCEDURES ASSETS

Accounts Receivable Trade (cont)


Evaluate adequacy of the allowance for impairment of
receivables
Evaluate the adequacy of other adjustments to
accounts receivables
Test valuation of balances in foreign currencies
Inquire about or review list of credit balances and
investigate large items.

SUBSTANTIVE PROCEDURES ASSETS

Inventories
Observe the taking of physical inventories
If signicant, conrm inventories held by others at
the physical inventory date
Review the reconciliation of physical inventory
compilation with the GL account and records
Perform roll-forward procedures, as necessary
Perform cut o procedures
Perform valuation and NRV testing

Physical Inventory Observation


Review industry observation instructions obtained

from client.
Review the physical inventory work program
Attend physical inventory:
Plant tour
Test counts

Physical Inventory Observation Checklist and memo


Conclusion

QUANTITY

UNIT COST

TOTAL COST

UC

TC

Countsheet
Location

Description

Qty

X1

Cheddar Cheese

600

X2

Cream Cheese

400

X3

Cheddar Cheese

300

(completeness)

Qty

Inventory by
Location Report
Location

Description

Total

Cost

Cost
24,000,000

Qty

Cheddar Cheese

600

X3

Cheddar Cheese

300
6000

Cream Cheese

Unit

_________

X1

X2

Priced Out
Inventory Listing

400

(accuracy)

G/L

Inventory cut-o procedures


In order to ensure that the books and records are

complete, the paperwork associated with the above


must all be processed by the same count date.

Inventory Obsolescence Review


The identication and valuation of inventory items
that are:
Excess
Slow moving
Obsolete
Defective
Expired
Replaced or reproduced for
less than the cost or current
carrying amount

SUBSTANTIVE PROCEDURES ASSETS

Investments, including investments in aliates


Verify the existence through conrmation or
examination of evidence of ownership
Review minutes of meetings, agreements and
conrmation replies
Perform valuation procedures through inspection of
market quotations
Perform impairment testing

SUBSTANTIVE PROCEDURES ASSETS

Property, Plant and Equipment


Obtain a schedule of property, plant and equipment, including

capitalized leases
Examine invoices, authorizations, leases and other data for additions
and disposals
Review and examine support for rentals under operating leases
Test reasonableness of depreciation, depletion and amortization
Assess possible indications of impairment

SUBSTANTIVE PROCEDURES ASSETS

Intangibles, including Goodwill


Obtain a schedule of intangibles, including goodwill,
and test the bases on which additions, amortization
and disposals are recorded.
Assess possible indications of impairment
Impairment testing for goodwill (e.g. review of
discounted cashows)

SUBSTANTIVE PROCEDURES - LIABILITIES

Accounts Payable - Trade


Agree subledger to general ledger control account
Review subledger for unusual items
Test proper cut-o
Review subsequent events and analytic procedures
Test valuation of balances in foreign currencies

SUBSTANTIVE PROCEDURES - LIABILITIES

Income Taxes, Deferred Taxes and Related Income Statement


Accounts
Test reconciliation of the current year book/local GAAP/statutory and
taxable income
Test computations of provisions for current and deferred income taxes
Review movements of income tax accounts
Determine whether provision should be made for tax positions or
other tax contingencies
Test intercompany and other related party transactions

SUBSTANTIVE PROCEDURES - LIABILITIES

Provisions, Accrued Liabilities and Deferred


Income
Review the schedule of provisions, accrued liabilities
and deferred income and agree amounts to the
general ledger accounts
Test if provisions, accrued liabilities and deferred
income were recorded at appropriate or reasonable
amounts
Review lawyers conrmation, minutes and other
documents for completeness of recorded liabilities
Search for unrecorded reserves/accruals (i.e. review
contracts, invoices, payments)

SUBSTANTIVE PROCEDURES - LIABILITIES

Notes Payable, Long-term debt & Leases


Obtain conrmations from banks or other debt holders
Inspect documents and authorization (i.e. loan documents, minutes,
lines of credit)
Test compliance with loan covenants
Identify liens, security interests, and assets pledged as collateral for
debt. Ensure proper disclosure

SUBSTANTIVE PROCEDURES - LIABILITIES

Notes Payable, Long-term debt & Leases


Review subsequent events (i.e. renancing transactions)
Test reasonableness of interest expense
Review summary of lease and rent contracts and test correct
presentation (e.g., operating or nance lease) in the nancial
statements
Test reasonableness of rent expense

SUBSTANTIVE PROCEDURES INCOME STATEMENT ACCOUNTS

Revenue
Perform analytical review procedures
Inquire of sales and marketing personnel for any
unusual transactions, or similar items
Review of the terms of sales agreements (i.e. returns,
sales incentives)
Identify unusual items

SUBSTANTIVE PROCEDURES INCOME STATEMENT ACCOUNTS

Other Income
Review contents of miscellaneous income and identify
unusual transactions
Test interest and dividend income
Determine that the changes in the value of
investments is properly recorded

SUBSTANTIVE PROCEDURES INCOME STATEMENT ACCOUNTS

Cost of Sales And Expenses


Obtain details of expenses and analyze in comparison of prior period /
and or budget
Test reasonableness of major expense accounts i.e. payroll,
depreciation, interest
Verify through a review of lawyers fees that all lawyers and in-house
legal counsels, who handle signicant litigation or other claims, have
been covered in the lawyers' conrmation work
Review signicant other taxes, e.g., property taxes, for correctness and
proper cuto.

Purpose of Audit Documenta5on


Documentation occurs throughout the Audit
The Engagement Team
Conducts testing
Obtains sucient appropriate evidence
Provides opinion

Reasons for Documenta5on


Supports compliance with PSA
Provides the principal support for our audit

opinion
Aids us in the conduct and supervision of the
engagement
Facilitates communication

We Document
What we did
What we found
Where we found it
What we concluded

GOAL OF DOCUMENTATION
Quality and Eciency



Volume

EXTENT OF WORKING PAPER DOCUMENTATION

PSA 230
The auditor should prepare the audit documentation so as to enable an
experienced auditor, having no previous connection with the audit, to
understand:
(a) The nature, timing, and extent of the audit procedures performed to
comply with PSAs and applicable legal and regulatory
requirements;
(b) The results of the audit procedures and the audit evidence obtained;
and
(c) Significant matters arising during the audit and the conclusions
reached
thereon.

Audit Files

Continuing Audit Files

Current Workpaper Files


Permanent File
Brings together all the materials which may continue

to be of interest to this and future audits.


Contents of a Continuing Audit File

General information about the client


Minutes, contracts, and regulations
Accounting policies and procedures
Material relating to the formation of the company
Historical analyses of accounts
Income tax information

Current Workpaper File


Brings together all of the current audit work

performed and conclusions reached in the current-


year audit
Contents of Current Workpaper File:

Working Trial Balance


Lead Schedules
Detailed Schedules
Planning document
Audit Program
Schedules prepared by clients

Safeguarding Working Papers


All professionals are responsible for safeguarding

audit working papers to prevent their loss or use by


an unauthorized person.
Secure working papers and computers in a locked
area at the clients oce.
Be careful not to leave condential data on the screen
of the computers for unauthorized persons view.
Consider security matters when transporting working
papers and computer to the clients location.

Elements of an Eec5ve Work


Program
Responds to risks in the planning process
Acts as a substitute for practice aids in lower risk

areas.
May serve as a vehicle to communicate time
expectations
Includes client procedures
Incorporates any general notes
Documents results of work done
Reinforces what work to do and how to do it

Contents of the Work Program


Company procedures and background information
Audit objectives
Audit procedures
Performance and results of work (including general

explanatory notes)
Conclusions

Current Working Paper File


FINANCIAL
STATEMENT

Working
Trial
Balance

Assets

Lead
Schedules

Cash

LEAD
SCHEDULES &
SUBSTANTI VE
TEST

Detail
Schedules &
Memoranda

Liabilities &
Shareholders
Statement

Accounts
Payable

Profit & Loss

Sales

Workpaper Hierarchical Structure


Financial Statements
(Liabilities & Equity)

(Assets)

(Profit & Loss)

(CASH)

(Notes
Payable)

(Selling,
General &
Admin Costs)

(Accounts
Receivable)

M
(Accruals)

L
(Accounts
Payable)

(Inventory)

(PPE)

D
(Prepaid)

V
U
(Sales)

(Cost of
Sales)

L
(Accounts Payable
Lead Schedule)

L1
(Reconciliation of
Payables Listing to
General Ledger)

L2
(Listings of Trade
Payables)

L3.1
(Agreed
Replies)

L3
(Trade Payables
Circularization
Control)

L3.2
(Disagreed
Replies)

L3.3
(Nonreply
Work)

Techniques for Documen5ng


Work
Indexing
Cross Referencing
Tick Marks
General Notes
Lettered Explanations
Conclusions
Disclosures

Cross-Referencing
Two-types of cross-referencing:
Internal
External
Cross-referencing should be in red pencil

Tick marks
Symbols used to refer to an explanation of work

completed
Explain that work was done in a specic way
Eliminate the need to write repetitive explanations
Normally include description of evidence examined,
ndings and results and unusual items noted and how
they were resolved.

Tick marks
! - agrees with support document
C - conrmed
- all formula and calculations have been tested
i - immaterial balance, accept as reasonable, NFA
PY - agrees to prior period working papers
TB - agrees to trial balance
GL - agrees to general ledger
- discussed with client

Example of a General Note


Example: General note on review of subsequent

payments:
Note 1 Reviewed cash payments book and all bank
statements until Feb 15, last eldwork day. One
omission noted. A payment on Jan 8 to Tokyo oce
was not accrued. This is the subject of an Audit
Dierence. No other above sdcope omissions.

LeMered Explana5ons
Document and explain exceptions and unusual items
Can be documented in the workprogram or

workpaper
Should be in red pencil

Types of Conclusions
1
Conclusions on
the nancial
statements taken
as a whole

Explicit
conclusions
dealing with
fraud and going
concern

Conclusions on
passed
adjustments and
reclassications

Conclusions on
resolution of
signicant
audit issues

Audit Dierence
A dierence between the amount, classication, or

presentation of a nancial statement element,


account, or other item and the amount, classication,
or presentation that we believe would be required
under PFRS
Omission of a nancial statement amount, account,
or item required under PFRS.

Essen5al Documenta5on Features


Indexing
Cross-referencing
Tick marks
General Notes
Lettered Explanations
Signed Conclusions
Completed Work Program
Signature and Date on Workpaper
Headings

Outline
v Purposes and Uses of Working Papers
v Working Papers Includes
v Permanent File Index
v Current File Index
v Audit Documentation
v Matters Aecting the Form & Content

of Working Papers
v Types of Audit Evidence

Purposes and Uses of


Working Papers
Serve as basic tools to assist the auditor in the

conduct of the audit.


Support the auditors opinion on the nancial
statements.
Substantiate the competence of the auditors
examination.
Serve as guides in subsequent audits.
Aid in giving advice on tax and business matters
Provide a basis for evaluation of sta members
performance.
9/6/14

10
9

WORKING PAPERS ORDINARILY INCLUDE:


Information concerning the legal and organizational

structure of the entity.


Extracts or copies of important legal documents,
agreements and minutes.
Information concerning the industry, economic
environment and legislative environment within
which the entity operates.

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110

Evidence of the planning process including audit

programs and any changes thereto.


Evidence of the auditors understanding of the
accounting and internal control systems.
Evidence of inherent and control risk assessments
and any revisions thereof.
Evidence of the auditors consideration of the work
of internal auditing and conclusions reached.
Analyses of transactions and balances.

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Analyses of signicant ratios and trends.


A record of the nature, timing and extent of audit

procedures performed and the results of such


procedures.
Evidence that the work performed by assistants
was supervised and reviewed.
An indication as to who performed the audit
procedures and when they were performed.
Details of procedures applied regarding
components of business whose nancial
statements are audited by another auditor.

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Copies of communications with other auditors,

experts and other third parties.


Letters of representation received from the entity.
Conclusions reached by the auditor concerning
signicant aspects of the audit, including how
exceptions and unusual matters, if any, disclosed
by the auditors procedures were resolved or
treated.
Copies of the nancial statements and auditors
report.

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113

Permanent File Index


I.
II.
III.

Information About the Clients Business


Internal Control System Documentation
Organization and Equity Capital

9/6/14

Articles of Incorporation
By-Laws
Minutes or Resolution of Continuing
Interest
114

Permanent File Index


(Cont.)
IV.

Financing and Other Signicant Agreements and


Contracts

V.

Other Information of Continuing Relevance

9/6/14

Bank and Other Financing Agreement


Bond Indentures, Mortgages and Trust Agreements
Certicates of Registration with Govt. or Regulatory
Bodies
Tax Information

115

Current Index File


I.
II.

Auditors Report, Financial Statements and


General Matters
Planning and Administration
PA Initial Planning Audit Program
PA1 Initial Planning Memorandum

III.

9/6/14

Compliance Test Documentation

116

Current Index File (Cont.)


Substantive Tests

IV.

WORKING TRIAL BALANCES


AND ADJUSTMENTS
ST Substantive Test Program Summary
WBS Working Balance Sheet
WPL Working Prot and Loss
TB Trial Balance
AJE/RJE Summary of Adjusting/Reclassifying Journal Entries
PJE Summary of Passed Journal Entries

9/6/14

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Current Index File (Cont.)


ASSETS (Single Capital Letters)
A Cash
B Trade Receivables
C Other Receivables
D Inventories
E
Prepayments
F
Investments
G Property, Plant and Equipment
H Deferred Charges
I
Intangible Assets
J
Other Assets


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Current Index File (Cont.)


LIABILITIES (Double Capital Letters)
AA Notes Payable and Bank Loans
BB Accounts Payable
CC Acceptances Payable and Related Accounts
DD Accrued Liabilities
EE Income Taxes
FF Other Current Liabilities
GG Long-Term Debt
HH Other Non-Current Liabilities
II Contingent Liabilities and Commitments
JJ
Stockholders, Partners or Proprietors Equity
KK Retained Earnings
9/6/14

119

Current Index File (Cont.)


INCOME AND EXPENSES (Two-Digit Numbers)
10 Sales
20 Cost of Sales
30 Selling Expenses
40 Administrative Expenses
50 (60 or 70) Other Groupings of Expense Accounts
80 Other Income or Expenses

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PSA 210
ON AUDIT DOCUMENTATION
Section 2.
The auditor should document matters which are
important in providing evidence to support the
audit opinion and evidence that the audit was
carried out in accordance with Philippine
Standards on Auditing.
Section 5.
The auditor should prepare working papers
which are suciently complete and detailed to
provide an overall understanding of the audit.
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121

MaMers Aec5ng the Form and Contents of


Working Papers
Nature of the engagement.
Form of the auditors report.
Nature and complexity of the business.
Nature and condition of the entitys accounting

and internal control systems.


Need in the particular circumstances for
direction, supervision and review of work
performed by assistants.
Specic audit methodology and technology used
in the course of the audit.
9/6/14

122

Types of Audit Evidence


Physical Examination
Third-Party Statements or Conrmation
Client Statements or Representations
Authoritative Documentations
Observation
Clerical Accuracy
Comparison & Data Relationships

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123

PHYSICAL EXAMINATION
Description Of General Auditing Procedures

COUNTING OF INVENTORY, CASH, SECURITIES,


UNMATURED PROMISSORY NOTES

- To establish existence and, where applicable,
ownership and condition of assets

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124

THIRD-PARTY STATEMENTS OR
CONFIRMATIONS
OBTAINING CONFIRMATION DIRECTLY OR
DETAILS OF ACCOUNT BALANCES

- To verify validity and accuracy of balances and other
information with outside parties.

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125

CLIENT STATEMENTS OR REPRESENTATIONS


OBTAINING CLIENTS REPRESENTATION LETTER,
EXPLANATIONS TO MANY DIVERSE QUESTIONS
RAISED DURING THE AUDIT

- To obtain knowledge and understanding about the
client and its circumstances.

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126

AUTHORITATIVE DOCUMENTATION
EXAMINING (OR VOUCHING) PAID CHECKS,
VENDORS PRUCHASE ORDERS, RECEIVING
REPORTS, TITLES, CONTRACTS AND OTHER
DOCUMENTARY MATERIALS.

- To verify the validity and propriety of accounting
treatment of transactions and account balances
and compliance with internal controls.

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OBSERVATION
OBSERVING THE TAKING OF PHYSICAL
INVENTORIES BY CLIENT PERSONNEL OR THE
ACTUAL OPERATION OF INTERNAL CONTROL

- To determine compliance with prescribed procedures.

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128

CLERICAL ACCURACY
RECHECKING CLERICAL DETERMINATION BY
CLIENT

- To verify the accuracy of computations and transfers
of information made by client.

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COMPARISON AND DATA RELATIONSHIPS


COMPARING CURRENT PERIOD ACCOUNT
BALANCES OR OPERATING DATA WITH SIMILAR
INFORMATION FOR PRIOR PERIODS AND
INVESTIGATING UNUSUAL DATA
RELATIONSHIPS.

-To disclose and determine the reasons for signicant
changes.

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130

Working Paper
Organization Chart
Continuing
Audit
File

Current
Working
Paper File
Evidential Matter
(Test of Controls)

Risk
Assessment
& Planning

Job
Administration

Work
Of
Others

Lead
Schedules
&
Substantive
Work

Financial
Reporting

Transaction
Processing
Cycles

Transaction
Processing
Cycles

Financial
Reporting

Account Level
Evidential Matter
(Substantive Testing)

Working
Trial
Balances

Lead
Schedules
and
Lead
Substantive
Work Schedules

Detail
Schedules
and
Memoranda

Assets

Liabilities
&
Equity

Prot
& Loss

Indexing

If there are two or more pages comprising a given schedule, the pages are
marked to indicate both the particular page and the number of total pages
(see B-5 above).
Detailed work of an account balance could be supported by several tiers of
supporting schedules using fractional indexing (see B-9 above)

Examples
ANAK NG JUETENG, INC.
Analysis of Reserved for Doubtful Accounts
Audit: 12-31-04


2003
2004 _
Balance Beginning of Year
P130,089
1 P151,691
Write-os

( 71,087) ( 2
62,439)
Provision

92,689 83,994_
Balance End of Year
1 P151,691
P173,246


=========
=========
B
B
DETAIL OF CURRENT WRITE-OFF
Date Customer
Amount _
4-21-04

Lion King

P 25,081
4-29-04

Jose Pedal

5,377
5-18-04

Atty. Ong

17,341
5-20-04

Sec. Bunye Original
10,093

Various amounts under P1,000
4,547_


2004 Write-Os
2 P 62,439




==========
Examined write-o form approved by the controller noting agreement of date, customer and amount all
write-os over P1,000.
Accumulated write-os under P1,000 from detail maintained by the credit manager noting agreement.
Traced to Prior Year Audit Working Papers noting agreement.
Footed by QCB & Co. and agrees.

B-9
PBC

Examples
ANAK NG JUETENG, INC.
List of Outstanding Checks
Audit: 12-31-04
Amount _
P 991.90
15,000.00
2,001.03
12,576.13
2,790.29
1,745.75
8,941.86
49,810.73
15,439.75
4,989.51
5,533.64
P122,410.43
==========

A-4
PBC
NOTE 1> Reviewed the list of outstanding checks noting no unusual or
signicant items except for &
A aBs discussed below.

B
P25,962.90
=========

Examined cancelled checks returned by bank


together with the December 2005 bank statement,
noted in order.
Examined check register and noted that these were
not acknowledged received by the payee in
December 2004.
Footed by QCB & Co. and agrees.

Per review of the vendor invoices and receiving reports, this


check is for lumber and supplies purchased for the additions to
the building site. See extracts from the board of directors
meeting minutes at XX for further discussion.

Per discussion with Gen. Garcia, Comptroller, these checks dated


12/30/04 were not released to the vendors until 1/2/05 as all
authorized check signers were on vacation. Based on the dates
these checks cleared the bank per our review on the January
2005 bank statement, this explanation is reasonable. Thus the
following adjustment is proposed to properly state cash and
accounts payable at 12/31/04:

PAJE <1>

Cash

Accounts Payable

P25,962.90

P25,962.90

Exit Meeting
This is the meeting between audit team and the client

at the end of eldwork.


The objective of the meeting is to share and discuss
the key noted ndings.
It is the important forum for audit team to get
conrmation on the obtained/noted ndings;
responses from the management and the tentative
corrective actions/action plans.
The minutes of the meeting should be well
documented and signed by both parties and these
forms parties of the working papers.
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135

Filling of 5 Attribute form/sheet


This is the sheet/form where audit findings are recorded.
It is a key tool for ensuring effective report writing.
Summary of contents of the form include: Audit objective: The purpose of audit
Attributes of the findings: Condition, criteria, cause
effect and recommendation.
Client personnel with who discussed: Name, title, dept, date
of discussion, and name of auditor.
Comments by client personnel: Relevant comments made by
client personnel with whom the finding was discussed.

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136

Phase 3: Reporting
This refers to the communication between the Auditor

and the Client on the results of the audit engagement


(It is the product of audit engagement).
It is the most visible output that provides feedback to
the client and other stakeholders on the result of
engagement.
It is an opportunity for audit showing how it can add
value to the organization.
It provide the management with the opinion on the
adequacy of internal controls systems.
9/6/14

137

AUDIT REPORT
.

Audit Step : To communicate the results of the audit to management


A.

Act.
Hrs.

Write report introduction, background & scope.


Consolidate conclusion summaries into a report, x-ref
SS
E
C
Write memo for less significant items.
PRO

T
I
Submit report for review & clear review notes.
AUD
Set up the Exit Conference and distribute Draft Report
Conduct Exit Conference to brief on the audit results and request a date for completion of the
corrective action plan. (Note: If any material changes to the audit report are identified,
establish the date for revised report to be issued.)

Obtain Corrective Action Plan


1.
2.

C.

Est.
Hrs.

Prepare a Draft Report:


1.
2.
3.
4.
5.
6.

B.

W/P
No.

Analyze the Corrective Action Plan for adequacy and document.


Advise agency management of any apparent inadequacies in the Corrective Action
Plan & resolve.

Prepare a Final Report:


1.
2.
3.

Add the revised Corrective Action Plan to the Draft Report to prepare the Final Report.
Submit report for review & clear review notes.
Distribute the final report.

REPORTING: Date Completed April 4, 2010

_____69_____Total Hours:


Discussion Dra=
the auditor drafts the
At the conclusion of eldwork,

report. Audit's goal is to complete the audit and issue a


draft audit report within 30 days after the completion of
eldwork.
Audit management reviews the audit working papers
and the discussion draft before it is presented to the
client for comment. This discussion draft is submitted
to the client for review before the exit conference.


Exit Conference

Internal Audit meets with the unit's management

team to discuss the ndings, recommendations, and


text of the discussion draft. At this meeting, the client
comments on the draft and the group works to reach
an agreement on the audit ndings.

Exit Conference
Is an opportunity for the auditor, department management, process owners, and
other to review and validate audit outcomes.
The Exit Conference should accomplish the following:

1) Present observations and determine if the current operating context might
aect past transactions.

2) Conrm facts, observations, and conclusions, e.g., that the ndings are accurate.

3) Validate the cause leading to ndings and present recommendations.

4) Estimate the eect of the ndings on operations or its risk management.

5) Solicit draft management comments on the audit ndings and determine if
alternative recommendations adequately eliminate the cause of ndings.

6) Dene the timeline for issuing the nal audit report and implementing
recommendations.

Audit Finding
Audit Findings

Reconciliation Supervisory Review (Urgent)


During our sample review of account reconciliations, it was noted
that many account reconciliations were not being reviewed by the
supervisor in Item Processing and Deposit Operations.

Recommendation
We recommend management review all accounts at least monthly.

Action Plan

The Supervisor of the Item Processing Department was advised of this


requirement and has implemented changes as requested.
The Deposit Operations Manager will sign and review all account
reconciliations. A secondary signature by the balancing associate and/
or supervisor will also be implemented. This procedure is currently in
place.

Exit Conference Checklist


Procedure
Set the date, time, and location of the exit meeting.
The agenda should include the following:
Accomplishment of the audit objectives (theirs and ours).
Discussion of potential audit ndings and
recommendations.
Discussion of when managements response
will be due.
Audit reporting process.
Follow up process.
Document results of the exit meeting.

Exit Conference
This section of the report summarizes the pertinent
information regarding the Audit Exit Conference. It
includes:
The date the conference was held.

The persons in attendance and their titles.

A statement that a summary of the Findings and


Recommendations was discussed.

Audit Exit Conference WP


Audit Location (Faculty Division)---------------------------------------------------------------------------------------------

Audit Date---------------------------------------------------------------------------------------------------------------------------

Lead Auditor------------------------------------------------------------------------------------------------------------------------

Audit team Member--------------------------------------------------------------------------------------------------------------

The main purpose of this meeting is to immediately present audit observations to the senior management in a timely manner at the
end of the audit and in such a manner so as to ensure that they clearly understand the results of the audit.

List Observations:


The lead auditor should present observations, taking into account their
perceived signicance and identifying key non-conformance areas.

Key Non-conformances:


The lead auditor should present the audit teams conclusions .

Proposed Audit Score:



Audi tee response to observations, non-conformances and audit score proposed by the auditor.

JOSE


Formal Dra=
The auditor then prepares
a formal draft, taking into

account any revisions resulting from the exit


conference and other discussions. This report is
issued to the audited requesting a written response to
any audit ndings and recommendations.
When the changes have been reviewed
by audit management and the client,
the nal report is issued.

AUDIT REPORT

Our principal product is the nal report in which we


present the audit ndings and discuss
recommendations for improvements. Once the
eldwork is completed, Internal Audit will draft a report
to include the result of the audit including
recommendations for improvement. After the draft
report is completed, it will be forwarded to department
management for review and discussion at a scheduled
exit conference.

Quality of the Internal Audit report


Internal Audit Report must be:-
Accurate - ie. Free from errors and distortions (purpose
clearly communicated).
Objective - ie. Fair, impartial and unbiased.
Clear - ie. Easy to understood and logical.
Concise - ie. Straight to the point without unnecessary
details.
Constructive - ie. Help the client to improve its
performance (practical solution).
Complete - ie. Should include all the relevant facts.
Timely - ie. Well timed to enable timely decision on
proposed recommendations.
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148

Format of Internal Audit Report

The standard audit report should have the following key sections
Executive Summary: showing all aspects of the report but in a
nutshell. It should be able to give the snapshot of the whole report,
but it should not too much summarized to lose the meaning.
Introduction: Show the background information on area under
the audit, establishment, objective, function etc. (The mandate of
the internal audit in auditing such area).
Objectives: Show the audit focus, expected output (what it will
achieves (could generals and specific ones).
Scope of Audit: description of auditable areas, timing (period
covered and when the audit conducted).
Compliance statement: describe that the audit activity was
conducted In accordance with professional practice of auditing
standards (whether local, international or both).

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149

Format of Internal Audit Report


Approach or Methodology use: describe the criteria followed; standards used;

work done in testing; documents used (reviewed) etc.


Findings and Recommendations: For each finding, describe the condition;
criteria; cause and effect/impact. Recommendations should address the cause to
improve operations, and is shown in a separate sub-paragraph.
Conclusion/Summary:
This show the auditors evaluation of the effect of the findings on the activity audited (The

overall implications).
Should focus on audit objectives and any qualifications.
Can also focus on clients accomplishment in relation to previous findings, compliance and
achievements of operations (Here the auditor can show the noted strengths of the client).

Compliance plan: Agreement between auditor and client on the implementation

of the auditors recommendations as part of management responses. It show area


of improvement, responsible person, action to be taken and time frame, name and
signature of both parties (client & auditor). [where possible the compliance plan can
be signed between Head of Internal Audit and the Head of audited entity].
Acknowledgement: General statement to show the appreciation for cooperation/
assistance extended by client to the audit team during time of audit (Note: it should
not mention specific individuals).

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150

Format of Internal Audit Report


Signature: Signed after the audit examination

completed. Should be signed by the authorized


internal auditor and showing his/her name after his/
her signature.
Appendixes: Any relevant information that clarifies
the finding/ observation can be shown as appendix to
the report. This must be cross-referenced in the report
by number or letters (eg. Appendix 1 or Appendix A)

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151

Phase 4: Audit follow-up


Sometime referred as Recommendation Audit.
It assumes all steps like any other audit engagement.
The objective is to review and verify the
Implementation of audit recommendation.
It is the last phase of audit engagement. However The
Audit Engagement is completed/closed when all
recommendation has been fully implemented.

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152

Report Issuance Control Sheet


Spelling and Grammar Check

Performed by: ______PABLO____________________

Quality Assurance Review (QAR)
Performed by: ______VILMARI__________________

Approval of nal draft with responses Director of Audits: ___AMANDA_________________



Engagement Manager: ___JOSE ____________________

Check all reports (original and all copies). Verify the following:

1. They contain all pages, in the appropriate order __________
2 All copies are straight and legible; and

__________
3. The signature page has been signed.

__________

Report Distribution*:

President






Client Management






Chief Business Ocer





Director of Internal Audit






Chancellor







Vice Chancellor for Academic Aairs





Executive Vice Chancellor for Health Aairs





Executive Vice Chancellor for Business Aairs





Institution Compliance Ocer





Others (list)



Reading File (unbound hard copy stamped and placed in Reading File)



Unbound hard copy provided to Oce Associate


* As determined by type of audit and institution where engagement is conducted (Academic, Medical, or System Administration).
Compliance Ocer should be included in report distribution if engagement involves a compliance issue.

Engagement Distribution Timeline:

Last Day of Fieldwork (MM/DD/YYYY)

_____________

Report Issuance Date


_____________

Days between Last Day of Fieldwork and Report Issuance. _____________


Final Report

A`er audited management has been given an

opportunity to respond to the Preliminary Dra`, the Final


Dra` Report is presented to the Accountability Oversight
CommiMee for approval. Upon approval of the Final
Dra` the Final Report is issued.
Auditor distributes the nal report the Chief Financial
Ocer, the Chief Accountant, the President, the Board of
Directors, and other appropriate members of senior
management. Final Reports are considered public
informa5on and will be available to anyone.


Independent Auditors' Report

To the Board of Directors and Shareholders



I have audited the accompanying nancial statements of ABC CO., INC., which comprise the statements of nancial posi5on as at December 31, 2013 and
2012, and the statements of comprehensive income, statements of changes in equity and statements of cash ows for the years then ended, and
notes, comprising a summary of signicant accoun5ng policies and other explanatory informa5on.

Managements Responsibility for the Financial Statements

Management is responsible for the prepara5on and fair presenta5on of these nancial statements in accordance with Philippine Financial Repor5ng
Standards (PFRS), and for such internal control as management determines is necessary to enable the prepara5on of nancial statements that are
free from material misstatement, whether due to fraud or error.

Auditors Responsibility

My responsibility is to express an opinion on these nancial statements based on my audit. I conducted my audit in accordance with Philippine Standards
on Audi5ng. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance
whether the nancial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the nancial statements. The procedures
selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the nancial statements, whether due
to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the en5tys prepara5on and fair presenta5on
of the nancial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the eec5veness of the en5tys internal control. An audit also includes evalua5ng the appropriateness of accoun5ng policies used and
the reasonableness of accoun5ng es5mates made by management, as well as evalua5ng the overall presenta5on of the nancial statements.

I believe that the audit evidence I have obtained is sucient and appropriate to provide a basis for my audit opinion.

Opinion

In my opinion, the nancial statements referred to above present fairly, in all material respects, the nancial posi5on of ABC CO., INC. as of December 31,
2013, and their nancial performance and its cash ows for the years then ended in accordance with the PFRS.


Client Response
to respond to the audit
The client has the opportunity

ndings prior to issuance of the nal report which can be


included or attached to our nal report.
In the response, the client should explain how report
ndings will be resolved and include an implementation
timetable. In some cases, managers may choose to
respond with a decision not to implement an audit
recommendation and to accept the
risks associated with an audit nding.


Client Response Example


Client Response (1) - Treasury balances are reconciled

monthly. Treasury activity is reconciled daily. Dierences are


isolated to the period of October 1, 2012 and prior, and have
been controlled since that date. Adjusting entries are made
with proper documentation and review.
Moving the function to a private sector nancial institution
has been discussed and poses two major obstacles. The rst
obstacle is the negotiability of a private sector check versus a
Treasury check. This would obviously cause problems for
account holders in remote locations as Treasury checks are
readily negotiated at local merchants. A private sector
nancial institutions checks would not be as negotiable. The
second obstacle is the nancial resources required to obtain
the services of a private sector institution.


Client Comments
Audit's self-evaluation
Finally, as part of Internal

program, we ask clients to comment on Internal


Audit's performance. This feedback has proven to be
very benecial to us, and we have made changes in
our procedures as a result of clients' suggestions.

Client Comment Example


"I would highly recommend Schmidt & Associates to any
credit union currently searching for a quality auditing
rm. I have been very impressed with the scope of the
audits and the level of detail employed by representatives
of the rm during their monthly and quarter contacts.
Furthermore, I always receive prompt attention whenever
I have questions regarding regulatory or compliance
issues."

Greg Kidwell
Members First Credit Union
Columbus, Ohio
11,000 Members, $38 Million in Assets

Audit Follow up
Depending on the nature of the audit or the audit

ndings, the Follow-Up procedure may formal or


informal.

Audit
Approximately one year of the nal report, Internal
Audit will perform a follow-up review to verify the
resolution of the report ndings.
FOLLOW UP REVIEW
FOLLOW UP REPORT
AUDIT ANNUAL REPORT TO THE BOARD

Followed up review
The actions taken to resolve the audit report ndings

may be tested to ensure that the desired results were


achieved.

Followed up Report
To resolve the original report ndings.
Unresolved ndings will include a brief description of

the nding, the original audit recommendation, the


client response, the current condition, and the
continued exposure to the board of company.

Audit Annual Report

Memorandum to the senior manager that noties them that

audit activities are underway and describes the follow-up process.


This memo should include:
timeframes for the project,
a copy of the outstanding ndings relating to areas reporting.
a request that they distribute the ndings to these areas and ask
the managers to provide Internal Audit with the information
requested,
a statement that these comments were previously distributed as
part of an audit report or close-out letter
notication that the results will be reported to Board of Trustees.
The Announce Memo report Findings Access database provides
sample wording for the notication memo.
The notication memo should be sent

Thank You for Your AMen5on


Any Questions?