Audit

-Primary function is to lend credibility to the fs prepare by an entity.

-Auditors opinion enhances the value of the usefulness of the fs

-Provides increased in assurance

-to enable the auditor express an opinion whether the fs is prepared in all material respect, in
accordance with identified financial reporting framework.

1. Auditing is a systematic process

2. An audit involves obtaining and evaluating evidence about assertions(representative) regarding

economic activities and events.

3. Conducted objectively

4. auditors ascertain the degree of correspondence between assertions and established criteria(guide).

5. auditors communicate the audit results to various interested users.

Type of audit

Three major type

Financial Statement Audit- fs is fairly presented according to the identified financial reporting frame
work.

Compliance Audit- done to see if the organization has adhered specific procedure rules and regulation

Operational Audit-purpose of measuring organization performance whether it is done effectively and

efficiently.

Type of Auditors

External Auditors- independent CPA’s

Internal Auditors- own employee who investigate and appraise the effectiveness and efficiency of the
operational and internal controls

Government Auditors- conduct compliance audit

iN

The Independent financial audit

- Responsibility for the fs

o Management is responsible for the preparation if fs
o Audtiros responsibility is to form and express an opinion on these fs
o Audit doesn’t relieve management from its responsibilities.
o Management responsibility is to adopt and implement adequate accounting and
internal control.
- Assurance provided by the auditor
o Opinion of the auditors is not guarantee that fs is dependable. It only provide
reasonable assurance not absolute that the fs are free from any material errors.
 The use of testing sampling risk.
 Error in application of judgement Non sampling risk
 Reliance on management representation
 Inherent limitations of the clients accounting and internal control system
 Nature of evidence -they do not consist of hard facts. Audit evidence is generally
persuasive rather than conclusive
- General Principles
o The auditor should comply with the code of professional ethics for cpa promulgated by
BOA
o The auditor should conduct an audit in accordance with Philippine standards on
auditing.
o The auditors should plan and perform audit with an attitude of professional skepticism
recognizing that circumstances may exist .
- Need for an independent fs audit
o Conflict of interest between management and users of financial statements
o Expertise
o Remoteness
o Financial consequences
- Theoretical framework for auditing
o Audit function operates on the assumptions that all financial data are verifiable.
o The auditor should always maintain independence with respect to the fs under audit
o There should be no long term conflict between the auditor and the client management.
o Effective internal control system reduces the possibility of errors and fraud affecting the
fs
o Consistent application of GAAP or PFRS result in fair presentation of fs
o What was held true in the past will continue to hold true in the future in the absence of
known conditions to the contrary
o An audit benefits the public