LESSON 2: Audit Process

Overview of the Framework Philippine Standards on Auditing

 (PSAs) are to be applied in the audit of financial statements

 An auditor may judge it necessary to depart from a
 PSA but must be prepared to justify the departure. PSAs need only be applied to material
matters.

Philippine GAAP - PFRS, PIC, PFRS for small entities

International Accounting Standards - IFRS International accounting

Standards - US GAAP, regulatory requirements

AUDIT PLANNING

Preliminary Engagement Activities Develop an audit plan

a) Continuance of the client relationship and
specific audit engagement
b) Evaluate compliance with ethical
requirements
c) Understanding of the terms of engagement
a) NET of planned risk assessment
b) NET of planned audit procedures at the
assertion level.
c) Other planned audit procedures required by
PSA

Documentation
a) Audit strategy - Record of the key decisions in planning and communicating significant matters. -
Memorandum.
b) Audit plan - Record of planned risk assessment and further audit procedures at the assertion level -
Audit programs or audit completion checklists
c) Any significant changes to overall audit strategy or audit plan and the reasons for such changes.

Initial audit engagements considerations

a) Procedures regarding the acceptance of the client relations hip and the specific audit engagement.
b) Communicating with the predecessor

AUDIT RISKS
AUTHOR’S CONSIDERATION OF INTERNAL CONTROL

Understanding of internal control

Part of the overall understanding of the entity and its environment.

Risk assessment Understand IC Risk of material misstatement of FS NET of audit procedures

Procedures for understanding of internal controls:

a) Previous experience with the entity c) Inquiries
b) Inquiries d) Observation

AUDIT PROCEDURES
AUDIT REPORTS

TYPES OF AUDIT REPORT:

Correspondence

YES – Unqualified Opinion

YES, but… - Qualified Opinion

NO – Adverse Opinion

Don’t Know – Disclaimer of Opinion

 Emphasis of Other Matter and
Other Matter

Summary of Report
Modification