Assurance Principles, Professional Ethics and Good Governance

A. Fundamentals of Auditing and assurance Services

B. The Professional Practice of Accounting
C. The CPA’s Professional Responsibilities
D. The Framework of Financial Statements Audit
E. Gathering and Evaluating Audit Evidence
F. Study and Evaluation of Internal Control
G. Audit Sampling
H. Auditing In A Computer Information Systems
Environment
I. Audit Program Applications
J. Completing the Audit/Post-audit
Responsibilities
K. Reports on Audited Financial Statement
L. Other Services

Assurance Engagement- an engagement in which a practitioner expresses a conclusion

designed to enhance the degree of confidence that intended users can have about the
evaluation or measurement of a subject matter that is the responsibility of a party ,other than the
intended users or the practitioner, against criteria

Types of Assurance engagements

a. Reasonable assurance engagement

b. Limited assurance engagement

Types of Assurance services

a. Audit
b. Reviews
c. Other Assurance Services- assurance on information technology, CPA Web Trust Service,
Information System reliability Service, Business Performance Measurement, Risk
Assessment and Eldercare Plus

Non- Assurance Services

● Agreed-upon procedures
● Compilation of financial or other information
● Preparation of tax return
● Management consulting services
● Other advisory services
Elements of an Assurance engagement

a. 3 party relationship
b. An appropriate subject matter
c. Suitable criteria
d. Sufficient appropriate evidence
e. A written assurance report

Auditing- is a form of attestation

Attestation refers to an ”expert’s” communication about the reliability of as someone else’s

assertion

Types of Audit

a. Financial statements audit or Internal Audit

b. Operational Audit-known as management audit and performance audit
c. Compliance Audit- is performed to determine whether the auditee is following specific
procedures or rules set down by some higher authority

The CPA’s Professional Responsibilities

1. PSA-Philippine Standards on Auditing

2. Auditing Standards and Practice Council-ASPC, has been authorized to issue PSAs
for the purpose to describe the framework within which PSAs are issued in relation to the
services which may be performed by auditors.

3. Revised Code of Ethics For Professional Accountants in the Phils.

a. Part A: General Application of the Code
100 Introduction and Fundamental Principles
110 integrity
120 Objectivity
130 Professional Competence and Due Care
140 Confidentiality
150 Professional Behavior

b. Part B: Professional Accountants in Public Practice

200 Introduction
210 Professional Appointment
220 Conflicts of Interest
230 Second Opinions
240 Fees and Other Types of remuneration
250 Marketing Professional Services
260 Gifts and Hospitality
 270 Custody of Client Assets
280 Objectivity- All Services
290 Independence-Assurance engagement

c. Part C: Professional Accountants in Business

Overview of the Risk-Based Audit Process

Phase I- Risk Assessment

Phase II- Risk Response
Phase III- Reporting

Phase I- Risk Assessment

This phase involves the following activities:
A. Performance of preliminary engagement activities to decide whether to accept/continue
an audit engagement
B. Planning the audit to develop an overall audit strategy and audit plan
C. Performance of risk assessment procedures to identify/assess risk of material
misstatement through understanding the entity

Phase II- Risk Response

This phase covers the following activities:
A. Designing overall responses and further audit procedures to develop appropriate
responses to the assessed risk of material misstatement
B. Implementing responses to assess risk of material misstatement to reduce audit risk to
an acceptably low level

Phase III- Reporting

This phase involves the following activities:
A. Evaluating the audit evidence obtained to determine what additional audit work (if any) is
required
B. Forming an opinion based on audit findings and preparing the auditor’s report
 Auditing 2 & 3

Risk Response: Designing of Tests of Controls and Substantive Tests of Transaction

Nature of Audit Procedures

Nature of Assurance Engagement.

Assurance- refers to the auditor’s satisfaction as to the reliability of an assertion being made
by one party for use by another party.
Assertions- representation by mgt, explicit or otherwise that are embodied in F/S
ECRVP-existence or occurrence; completeness; rights and obligations; valuation; and
presentation /disclosure

Audit Procedures are the methods or acts that auditors use to gather evidence to determine
the validity of financial statement assertions.

Various types of audit procedures available to the auditor are categorized as follows:
I. Test of Controls or compliance test
These are audit procedures designed to evaluate the operating effectiveness of controls
in preventing, or detecting and correcting material misstatements at the assertion levels

II. Substantive Procedures

These are audit procedures designed to detect material misstatements at the assertion
level. Substantive procedures comprise:
i. Tests of details (of classes of transactions, account balances and disclosure
ii. Substantive analytical procedures
Example:
a. Compare current financial information for prior periods
b. Compare current financial information with anticipated data like compare
research and development expense to the budgeted amount

Audit Program- is a set of audit procedures specifically designed for each audit. The program
which includes both substantive test and test of controls will enable the auditor to express an
opinion on the financial statements taken as a whole
Auditing of the following transactions:

1. Audit of the revenue and collection cycle: test of controls and substantive tests of
transactions
A. Audit of Sales transaction- receipt/invoices; record; Financial statements
B. Audit of sales adjustments transaction-SRA; SD;
C. Audit of cash receipts transactions-

2. Audit of the expenditure cycle: test of controls and substantive tests of transactions
A. Audit of acquisitions
B. Audit of cash disbursements

3. Audit of the expenditure cycle: test of controls and substantive tests of transactions
A. Audit of Payroll transactions
B. Audit of production cycle transaction
C. Audit of inventory warehousing

4. Audit of the financing and investing cycle: test of controls and substantive tests of
transactions

Flowchart
Sample of Audit Program
I. Test of Control
Assertions and controls Potential Misstatement Audit Procedures
Existence/Occurrence
- recorded sales are for Sales that did not occur may Examine approved customer
shipment actually made to be recorded order, sales order, shipping
customer document, and copy of sales
invoice for a sample of entries
in the sales journal
Completeness
- all sales transactions that Goods may be shipped but Observe procedure. Examine
occurred are recorded not billed cop of invoices for a sample of
shipping documents
Rights and obligations
- sales recorded represent Consignment transactions Observe procedures
only sales transactions may be recorded as sales
Valuation/ Measurement
- sales correctly billed and More or fewer goods may Observe procedure. For a
recorded have been shipped than sample, examine signature on
ordered. Customer returns documents evidencing
may occur performance