AUDITS OF FINANCIAL

STATEMENTS:
An Introduction
AUDITING
- Is “a systematic process of
It involves two
objectively obtaining and processes.. 

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
intended users.
Key phases in the Definition of Audit
It follows a logical sequence of
A systematic process
procedures

A CPA cannot express an opinion without

Objectively obtaining and evaluating
supporting evidence to back up the
evidence
opinion.
Assertions are representations of
Assertions about economic actions and management, explicit or otherwise, that
events are embodied in financial statement
components, records, or systems.
Auditors use standards or benchmarks
Degree of correspondence between these
(criteria) for purposes of expressing an
assertions and established criteria
opinion on the assertions of management.
In financial statement audit, the opinion
Communicating the results to interested is on the fairness of the presentation of
users financial statements for the period within
audit.
Relationship bet. engagements

ASSURANCE ENGAGEMENT NON-ASSURANCE

ENGAGEMENT
ATTESTATION
ENGAGEMENT DIRECT
AGREED-UPON
(ASSERTION-BASED ENGAGEMENT COMPILATION
PROCEDURES
ENGAGEMENT)

AUDIT OF REVIEW OF
HISTORICAL FS HISTORICAL FS CONSULTANCY TAX SERVICES
TYPES OF AUDITS
A. ACCDG. TO ASSERTION BEING AUDITED
TYPE ASSERTIONS CRITERIA REPORT
FINANCIAL Financial Identified Audit report on
STATEMENTS Statements are financial the fairness
AUDIT presented fairly reporting financial
framework statements.
OPERATIONAL Operational or Management Report on
AUDIT performance data objectives efficiency &
effectiveness,
including
constructive
suggestions.
COMPLIANCE Compliance w/ Laws, rules and Degree of
AUDIT applicable laws and regulations, or compliance
regulations or management report.
management policy policy
A. ACCDG. TO TYPE OF AUDITOR PERFORMING IN THE ENGAGEMENT

TYPE EXPLANATION
Performed by CPAs who are independent of the
EXTERNAL organizations whose assertions are being audited.
AUDITS -”Independent Auditor” or “External Auditor”

An independent appraisal function established

INTERNAL within an organization to examine and evaluate
AUDITS its activities as a service to the organization.

Involves the determination of whether gov’t

funds are being handled property and in
GOVERNMENT
compliance with existing laws and whether the
AUDITS
gov’t programs of a particular agency are being
conducted efficiently and economically.
THE OBJECTIVE & SCOPE OF FS AUDIT
OBJECTIVE SCOPE
THE EXPRESSION OF AN THE AUDIT SHOULD BE
OPINION ON FAIRNESS ORGANIZED TO COVER
OF SUCH FINANCIAL ADEQUATELY ALL
STATEMENTS. ASPECTS OF THE
ENTITY AS FAR AS THEY
ARE RELEVANT TO THE
FINANCIAL STATEMENTS
BEING AUDITED.
SCOPE
 Revenue – Billing/Statement of Account/ Sales Invoice
*GOODS
Terms: FOB Shipping Point/FOB Destination
-Cut-off: FOB Shipping Point – Shipping Date/Invoice Date
FOB Destination – Date of Delivery/ Delivery Report Date
Example:

Sales Invoice
Delivery Delivery Report
Date/Shipping Shipment Terms Amount
Report No. Date
Date
65215 12/26/2020 12/30/2020 FOB Destination
TOTAL REVENUE 20,000 √2020 revenue
65216 12/30/2020 01/02/2021 FOB Shipping Point 2020: 30,000 √2020 revenue
65217 12/30/2020 01/02/2021 P78,000.00
FOB Shipping Point 28,000 √2020 revenue
65218 12/31/2020 01/03/2021 FOB Destination 19,000 √2021 revenue
65219 01/02/2021 01/05/2021 FOB Buyer 30,500 √2021 revenue
65220 01/03/2021 01/06/2021 FOB Shipping Point 30,000 √2021 revenue
65221 01/03/2021 01/06/2021 FOB Seller 30,000 √2021 revenue
INFORMATION RISK
 The risk that information is misstated or
misleading.
FACTORS THAT MAY CONTRIBUTE TO THE
EXISTENCE OF INFORMATION RISK:
1. Remoteness of information users from
information provider.
2. Potential bias and motives of information
provider.
3. Voluminous data.
4. Complex exchange transactions.
Reducing Information Risk
1.Allow users to verify
information.
2.User shares information
risk with management.
3.Have the financial
statements audited.
THE AUDIT REPORT
 IS THE MEANS THROUGH WHICH THE AUDITOR PROVIDES
REASONABLE ASSURANCE THAT THE FINANCIAL
STATEMENTS ARE FAIRLY STATED.
 THE REPORT IS UNIFORM IN FORMAT.

LIMITATIONS OF AN AUDIT
 AUDIT IS NOT A GUARANTEE OF THE EXACTNESS OF
ACCURACY OF ASSERTIONS IN THE FINANCIAL STATEMENTS.
-END OF SLIDE-
THANK YOU! 