Auditing theory
61. Completeness
Criteria are sufficiently complete when
relevant factors that could affect the conclusions in
the context of the engagement circumstances are
not omitted.
62. Reliability
Reliable criteria allow reasonably consistent
evaluation or measurement of the subject matter
including, where relevant, presentation and
disclosure, when used in similar circumstances by
similarly qualified practitioners.
63. Neutrality
Neutral criteria contribute to conclusions
that are free from bias.
64. Understandability
Understandable criteria contribute to
conclusions that are clear; comprehensive, and not
subject to significantly different interpretations.
***
65. Ways of How Criteria Are Made Available to
Intended Users
a. Publicly
b. Through inclusion in a clear manner in
the presentation of the subject matter
information
c. Through inclusion in a clear manner in
the assurance report
d. By general understanding (e.g., criterion
for measuring time in hours and
minutes)
66. Audit Evidence
It is all the information used by the auditor in
arriving at the conclusions on which the audit
opinion is based and includes the information
contained in the accounting records underlying the
financial statements and other information.
67. Sufficient Appropriate Evidence
The practitioner plans and performs an
assurance engagement with an attitude of
professional skepticism to obtain sufficient
appropriate evidence about whether the subject
matter information is free of material misstatement.
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68. Professional Skepticism
An attitude of professional skepticism
means the practitioner makes a critical
assessment, with a questioning mind, of the validity
of evidence obtained and is alert to evidence that
contradicts or brings into question the reliability of
documents or representations by the responsible
party.
69. Sufficiency of Evidence
Sufficiency is the measure of the quantity of
evidence.
70. Appropriateness of Evidence
Appropriateness is the measure of the
quality of evidence; that is, its relevance and
reliability.
71. Relationship between the Quantity of Evidence
Needed and the Risk of the Subject Matter
Information Being Materially Misstated
The greater the risk, the more evidence is
likely to be required (direct relationship).
71. Relationship between the Quantity of Evidence
Needed and the Quality of Such Evidence
The higher the quality of audit evidence, the
less may be required. However, merely obtaining
more evidence may not compensate for its poor
quality (interrelated).
72. Generalizations about the Reliability of
Evidence
a. Evidence is more reliable when it is
obtained from independent sources
outside the entity.
b. Evidence that is generated internally is
more reliable when the related controls
are effective.
c. Evidence obtained directly by the
practitioner (e.g., observation) is more
reliable than evidence obtained
indirectly or by inference (e.g., inquiry).
d. Evidence is more reliable when it exists
in documentary form (e.g., written record
vs. oral representation).
e. Evidence provided by original
documents is more reliable than
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Auditing theory
evidence provided by photocopies or
facsimiles.
73. Corroboration of Evidence
The practitioner ordinarily obtains more
assurance from consistent evidence obtained from
different sources or of a different nature that from
items of evidence considered individually. In
addition, obtaining evidence from different sources
or of a different nature may indicate that an
individual item of evidence is not reliable.
74. Materiality
It is the threshold above which missing or
incorrect information in the financial statements is
considered to have an impact on the decision
making of users.
75. Relationship between the Quantity of Evidence
Needed and Materiality
The higher the materiality level, the lower the
audit risk and vice versa (inverse relationship).
76. Relationship between the Quantity of Evidence
Collected Assurance Engagement Risk
It is the risk that the practitioner expresses
an inappropriate conclusion when the subject
matter information is materially misstated. The
lesser evidence collected, the higher the assurance
engagement risk and vice versa.
77. Written Assurance Report
The practitioner provides a written report
containing a conclusion that conveys the
assurance obtained about the subject matter
information.
Specific Examples of Non-Assurance
Engagements
79. Agreed-upon Procedures Services
It is a type of engagement in which the party
engaging the professional accountant or the
intended user determines the procedures to be
performed and the professional accountant
provides a report of factual findings as a result of
undertaking those procedures.
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80. Compilation of Financial or Other Information
Its objective is for the CPA to use accounting
expertise, as opposed to auditing expertise, to
collect, classify and summarize financial
information (preparation of financial statements).
81. Tax Services
A CPA is considered qualified to prepare
corporate and individual tax returns for both audit
and non-audit clients.
82. Management Consulting / Advisory Services
It refers to the work done by professional
accountants which focuses on advising companies
on the best ways to manage and operate their
business.
83. Accounting and Data Processing or Information
Technology System Services
Services under these items include doing
manual or automated bookkeeping, journalizing
and posting adjusting entries or preparing (or
compiling) financial statements. Also, other
businesses have begun to see “outsourcing: as an
alternative for information system, tax, stock and
transfer agency and internal auditing.
84. Reports on Non-Assurance Engagements
Reports on these types of engagements
must be clearly distinguished from reports on
assurance engagements. So as not to confuse the
users, a report that is not an assurance report
avoids the following:
a. Implying compliance with the
Framework, PSAs, PSREs and PSAEs;
b. Inappropriately using the words
“assurance”, “audit” or review”; and
c. Including a statement that could
reasonably be mistaken for a
conclusion designed to enhance the
degree of confidence of intended users
about the outcome of the evaluation or
measurement of a subject matter
against criteria.
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85. Summary of Reports Provided by Different 88. Expectation Gap
Types of Engagements It is the gap between what auditors attempt
to do in an audit and the user’s expectations of the
a. Audit – Positive assurance on audit.
assertion(s)
b. Review – Negative assurance on
assertion(s)
c. Agreed-Upon Procedures – Factual 89. Auditing
findings on procedures It is a systematic process by which a
d. Compilation – Identification of competent, independent person objectively obtains
information compiled and evaluates evidence regarding assertions about
economic actions and events to ascertain the
86. Conversion of an Assurance Engagement to a degree of correspondence between those
Non-Assurance Engagement assertions and established criteria and
Having accepted an assurance engagement, communicating the results to intended users.
a practitioner may not change that engagement to
a non-assurance engagement, or from a reasonable
assurance engagement to a limited assurance
engagement without reasonable justification which
may be any of the following but not limited to:
a. A change in circumstances that affects
the intended users’ requirements; or
b. A misunderstanding concerning the
nature of the engagement.
If such a change is made, the practitioner
does not disregard evidence that was obtained prior
to the change.

87. Challenges Faced by the Public Accounting

Profession
a. Accounting in highly complex business
environment or increasingly complex
transaction and organizational
standard.
b. Computer systems are complex.
c. Many companies are global.
d. There is time pressure to get the audit
done and to report more quickly than
ever before.
e. There is a need to generate audit fees
sufficient to both attract new people to
the profession and retain managers and
partners, who often operate under
having stress to fulfill this most
important obligation.