Professional Documents
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I KNOW I UNDERSTAND
ACCTG 4110
Mc Neill A. Sabid
BSMA 4
PSA 120
Definition of Terms
Agreed Upon-Procedures
the auditor essentially produces a report of factual findings with no assurance offered. Instead,
readers of the report evaluate the techniques and findings reported by the auditors for
themselves and draw their own conclusions from the auditors' work.
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Assurance
refers to the auditor's satisfaction as to the reliability of an assertion being made by one party
for use by another party.
Audit Engagement
the auditor provides a high, but not absolute, level of assurance that the information subject to
audit is free of material misstatement. This is expressed positively in the audit report as
reasonable assurance.
Auditor
is used throughout the PSAs when describing both auditing and related services which may be
performed.
Compilation Engagement
the users of the compiled information derive some benefit from the accountant's involvement,
no assurance is in the report.
Financial Statements
Are prepared and presented annually and are directed toward the common information needs
of a wide range of users.
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Framework for Auditing and Related
Services
the framework distinguishes auditors from related services. Related services comprise reviews,
agreed-upon procedures and compilations.
Objective of Reviews
to state whether, on the basis of procedures which do not provide all the evidence that would
be required in an audit, anything has come to the auditor's attention that causes the auditor to
believe that the financial statements are not prepared, in all material respects, in accordance
with an identified financial reporting framework.
Review Engagement
the auditor provides a moderate level of assurance that the information subject to review is free
of material misstatement. This is expressed in the form of negative assurance.
Objective of Audit
to enable the auditor to express an opinion whether the financial statements are prepared, in all
material respects, in accordance with an identified financial reporting framework.
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Objective of Compilation
engaged to use accounting expertise as opposed to auditing expertise to collect, classify and
summarize financial information. This ordinarily entails reducing detailed data to a manageable
and understandable form without a requirement to test the assertions underlying that
information.
Significant Learnings:
Takeaway: Auditing is examination and evaluation of a company’s financial statement to a
certain criterion. The Philippine Standards on Auditing issued by the Auditing Standards
Practices Council (Council) are based on International Standards on Auditing (ISAs) issued by the
International Auditing Practices Committee of the International Federation of Accountants.
However, on the other hand financial statements are very vital reports for the many
users whether it is external users nor internal. Financial statements should be prepared in
accordance with the accounting standards generally accepted in the Philippines, International
Accounting Standards and another authoritative and comprehensive financial reporting
framework which has been designed for use in financial reporting and is identified in the
financial statements.
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This framework also encompasses the auditor's four linked services. First The auditor
provides a high, but not absolute, level of assurance that the information under audit is free of
substantial misstatement during an audit engagement. This is referred to as reasonable certainty
in the audit report. The auditor gives a modest level of confidence that the information under
examination is free of material misrepresentation in a review engagement. Negative confidence
is a way of expressing this. No assurance is given for agreed-upon procedures because the
auditor simply offers a report of the factual findings.
Users of the report, on the other hand, examine the procedures and findings presented
by the auditor for themselves and draw their own conclusions from the auditor's work. Although
the accountant's involvement benefits the users of the combined material, no assurance is
stated in the report in a compilation engagement. Other services supplied by auditors, such as
taxation, consulting, and financial and accounting advice, are not covered by the Framework.
PSA 120
Definition of Terms
Audit Evidence
information used by the auditor in arriving at the conclusions on which the auditor’s opinion is
based. Audit evidence includes both information contained in the accounting records underlying
the financial statements and other information.
Audit Risk
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the risk that the auditor expresses an inappropriate audit opinion when the financial statements
are materially misstated. Audit risk is a function of the risks of material misstatement and
detection risk.
Auditor
the person or people who are performing the audit, usually the engagement partner or other
members of the engagement team, or the firm, if relevant. When an ISA specifies that an
engagement partner is to fulfill a requirement or responsibility, the phrase "engagement
partner" rather than "auditor" is used. Where applicable, the terms "engagement partner" and
"firm" should be interpreted as referring to their public sector equivalents
Detection Risk
the risk that the auditor's processes for reducing audit risk to an acceptable level will fail to
notice a major misstatement that occurs, either individually or when aggregated with additional
misstatements.
Financial Statements
a structured record of historical financial data, including related notes, used to communicate an
entity's economic resources or obligations at a specific point in time, or changes over time, in
compliance with a financial reporting framework.
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Management
the individual or individuals in charge of the entity's activities on a day-to-day basis.
Management can comprise some or all of people responsible with governance in some
countries, such as executive members of a governance board or an owner-manager.
Misstatement
a discrepancy between a reported financial statement item's quantity, classification,
presentation, or disclosure and the amount, classification, presentation, or disclosure that is
required for the item to be in compliance with the appropriate financial reporting framework.
Professional Judgment
the application of relevant training, knowledge and experience, within the context provided by
auditing, accounting and ethical standards, in making informed decisions about the courses of
action that are appropriate in the circumstances of the audit engagement.
Professional Skepticism
is an attitude that includes a questioning mind, being alert to conditions which may indicate
possible misstatement due to error or fraud, and a critical assessment of audit evidence.
Reasonable Assurance
in the context of an audit of financial statements, a high, but not absolute, level of assurance.
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Those charged with governance
the ones with responsibility for overseeing the strategic direction of the entity and obligations
related to the accountability of the entity. This includes overseeing the financial reporting
process.
Significant Learnings:
Takeaway:
2. Another is the importance of audit evidence. It is all the information that an auditor gathers to
reach his audit opinion about an organization’s financial statements and/or internal control
environment.
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Audit evidence is critical to the audit and internal controls
process because it allows executives of public companies to
trust the opinions of their auditors.
The audit evidence's appropriateness, reliability, and relevance. The audit evidence must
be credible and relevant to support the findings that the auditor makes to form the basis
of his audit opinion in order to be considered appropriate.
It must be self-sufficient. It refers to the number or amount of audit evidence. The
auditor evaluates the risks of misstatement to determine the amount of audit evidence
required.
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ATTESTATION: AUDIT
Definition of Terms (Types of Auditors)
External Auditor
is involved in assurance services and attestation, as well as being outsourced and linked to a
three-party relationship between the practitioner, responsible party, and intended users. You
must also be a Certified Public Accountant to work as an external auditor.
Forensic Auditor
it could be external or internal, and it requires expertise not just in accounting but also in
investigation because it involves financial crimes such as theft, fraud, and embezzlement.
Internal Auditor
It is a two-party relationship because it is a part of the organization or is essentially employed by
the organization. And, unlike an external auditor, you don't have to be a Certified Public
Accountant to work as an internal auditor.
Quality Audit
relating ISO, this is what they use to evaluate, confirm, and verify activities related to quality
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Definition of Terms (Types of Audits)
Compliance Audit
involves audit on legal and policies.
Environmental Audit
ensures compliance with the environmental laws.
External Audit
it must be performed by a CPA, involve a three-party system, and provide an opinion based on
auditing criteria.
Forensic Audit
the Certified Forensic Auditor is a certification that can be obtained either internally or
externally. This audit is employed in court cases and entails the extraction of data, facts, and
evidence. It has to do with stealing, fraud, embezzlement, and so on.
Internal Audit
the Certified Internal Auditor, rather than a Certified Public Accountant, could perform this task.
Control evaluation, asset protection, legal compliance, and financial statement audit are all part
of this process.
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Operational Audit
this is an internal audit that is linked to an organization's goals, planning processes, and
operating results.
Performance Audit
this is usually done internally to ensure resource efficiency in order to fulfill the organization's
goal.
Quality Audit
ISO processes. Used to evaluate, confirm, and verify activities related to quality.
Strategic Audit
internal audit investigates the extent to which the organization's plans are implemented in
respect to their VMGOs.
Sustainability Audit
comparing the organization's practices to those of others in order to quantify and report their
effort.
Tax Audit
it is done by the government like the Bureau of Internal Revenue.
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