AUDIT AN OVERVIEW

PSA AUDITING DEFINED:

-CLUE: OBJECTIVE OF FS GENERAL CHARACTERISTICS OF
“TO ENABLE AN AUDITOR TO EXPRESS AN OPINION
AUDIT:
WHETHER THE FS ARE PREPARED IN ALL MATERIAL 1. Systematic examination and evaluation
RESPECTS IN ACCORDANCE WITH AN IDENTIFIED of evidence to ascertain whether
FINANCIAL REPORTING FRAMEWORK” assertions comply with established
criteria
AMERICAN ACCOUNTING 2. Communication of the results to the
ASSOCIATION (AAA) AUDITING intended users
DEFINED:
TYPES OF AUDITORS
-CLUE: SYSTEMATIC PROCESS
1. External Auditors
Thoughts in definition by AAA: 2. Internal Auditors
1. Systematic 3. Government Auditors
Process

2. Obtaining and MANAGEMENT’S

evaluating RESPONSIBILTY:
evidence
-Preparing and presenting the financial
3. Conducted statements in accordance with financial
objectively reporting framework.
-Adopt and implement adequate accounting and
4. Ascertain the internal control system.
degree of
correspondence AUDITOR’S RESPONSIBILITY:
between
assertions and Form and express an opinion regarding the
established fairness of the FS presented.
criteria
FACTORS THAT AFFECTS THE
5. Communicate AUDIT:
the result to various interested
users
SNRIN
1. SAMPLING RISK
TYPES OF 2. NON-SAMPLING RISK/ERROR IN JUDGEMENT
Assertions-representations AUDIT 3. RELIANCE IN MANAGEMENT’S
made by client (a.k.a: DATA REPRESENTATION
1. FINANCIAL 4. INHERENT LIMITATIONS OF THE CLIENT’S
IN FS) STATEMENT AUDIT ACCOUNTING AND INTERNAL CONTROL
SYSTEM
Established Criteria-needed 2. COMPLIANCE 5. NATURE OF EVIDENCE
to judge validity of the AUDIT
assertions (a.k.a PFRS) PSA GENERAL PRINCIPLES
3. OPERATIONAL
AUDIT/PERFORMANCE “GUIDELINES IN AUDITING FS”
AUDIT/MANAGEMENT
AUDIT 1. Compliance in Code of Professional
Ethics for CPAs promulgated by BOA
2. Audit in accordance with PSA
 3. Plan and perform in accordance with
an attitude of professional
skepticism “questioning mind”
NEED FOR AN INDEPENDENT
FINANCIAL STATEMENT AUDIT:
“Reasons for audit” CERF
1. Conflict of interest between mngmt
and users
2. Expertise
3. Remoteness
4. Financial Consequences
THEORITICAL FRAMEWORK OF
AUDITING
1. All financial data can be verified
“can be compared with other data”
2. Auditor’s Independence “ for the
credibility of the audited fs”
3. NO LONG-TERM CONFLICT between auditor
and client
4. Effective internal control
5. Consistent application CRITERIA:
Generally Accepted Accounting
Principles (GAAS) or PFRS
6. What was held true in the past shall
continue to be true in the future
unless stated.
7. An audit benefits the public.
PSA 120: FRAMEWORK OF PHILIPPINE
STANDARDS ON AUDITING
PREPARATION OF FS SHOULD BE
IN ACCORDANCE TO:
One, or a combination of:
(a) Accounting standards generally accepted
in the Philippines; (PFRS)
(b) International Accounting Standards (IAS);
and
(c) Another authoritative and comprehensive
financial reporting framework which has been
designed for use in financial reporting and
is identified in the financial statements.
Framework for Auditing and Related
Services
Assurance
-Refers to the auditor's satisfaction as to
the reliability of an assertion being made by
one party for use by another party.
Levels of Assurance
1. Reasonable assurance
-Positive assurance on assertion(s)
-audit engagement
-high, but not absolute, level of
assurance
-information subject to audit is free
of material misstatement
2. Negative assurance
-review engagement
-moderate level of assurance
-information subject to review is
free of material misstatement.
3. No
Compilation engagement-although
users of the compiled
information derive some
benefit from the accountant's
involvement, no assurance is
expressed in the report.
assurance
-Agreed-upon procedures
-provides a report of the factual
findings
AUDIT AND RELATED SERVICES
DEFINED
AUDIT
Additional Notes to Remember:
-The phrase used to express the auditor's
-Limitations
opinion is “present imposed
fairly, by the
in all client is
material
respects.” NOT a limitation of an audit that is
-In forming the audit opinion, the auditor
different from the limitations in its
obtains sufficient appropriate audit evidence
to be able tointernal control whichon
draw conclusions is included
which toin the
base that opinion.
limitations of an audit
-The auditor's opinion enhances the
credibility of financial statements by
providing a high, but not absolute, level of
assurance.

the procedures, may misinterpret the

results.

RELATED SERVICES: 3. Compilations

-engaged to use accounting expertise
1. Reviews as opposed to auditing expertise to
-objective of a review of financial collect, classify and summarize
statements is “to enable an auditor financial information.
to state on the basis of procedures -users of the compiled financial
which do not provide all the evidence information derive some benefit as a
that would be required in an audit result of the accountant's
anything has come to the auditor's involvement because the service has
attention that causes the auditor to been performed with due professional
believe that the financial statements skill and care
are not prepared, in all material
respects, in accordance with an
identified financial reporting
framework.”
-in summary: Required audit
procedures were not performed and
that no material misstatements were
present.
-Procedures used: Inquiry and
Analytical procedures
-procedures used are designed to
review the reliability of an
assertion that is the responsibility
of one party for use by another party
-Procedures not used in a review:

a. Assessment of accounting and

internal control systems
b. Tests of records
c. Inspection
d. Observation
e. Confirmation
f. Computation

2. Agreed-upon Procedures
-engaged to carry out those
procedures of an audit nature to
which the auditor and the entity and
any appropriate third parties have
agreed and to report on factual
findings.
-report is restricted to those
parties that have agreed to the
procedures to be performed since
others, unaware of the reasons for