Auditing  Appropriate Subject Matter

~ financial/non-financial performances
Topics covered:
~ physical characteristics
-Nature, Objectives, Elements ~ systems and processes
-Assurance and Related Services ~ behavior
 Suitable Criteria
Assurance Engagement ~ subject matter;
Designed to enhance the degree of confidence ~ suitable for intended users
of the intended users about the subject matter Criteria is suitable if it is:
information. (RUNCR)
~ relevant: influence a decision
Key words: ~ complete: facilitates understanding and
-Degree of Confidence avoid erroneous implication.
-Intended Users (internal and external users) ~ reliable
-Subject matter information ~ neutral: without any bias;
(about the fairness of the financial statements) “to be neutral is to be fair”
~ understandable
Note: there is a followed framework in the Two Criteria’s
Philippines. 1. Established Criteria
Types of Assurance Engagements - there is an embodied by laws or the
PFRS
1. Reasonable Assurance (Positive) 2. Specifically Developed Criteria
example: Audit it is extending into the - there is a purpose or customized
external controls, ITGC or application engagement.
controls (systems)
 Sufficient Appropriate Evidence
2. Limited Assurance (Negative)
~ professional skepticism:
example: review of Financial
practicing
Statements which it does not extend.
1. Critical Assessment
Notes: 2. Questioning Mind
-there is no absolute assurance 3. Should be Alert
-their number one difference is the level of
~ sufficiency: about the quality and
procedures.
quantity;
Elements of Assurance Engagements “higher the quality is less quantity
(PERCS) evidence”
~ appropriateness: it is influenced by the
 Three Party Relationship
quality’s;
~ practitioner: performs the
1. Source
engagements or the CPA
2. Nature
~ responsible party: the subject matter or
~ materiality: obtaining evidence
the management
~ engagement risk: need to assess the
~ intended users: internal and external
equivalent engagement risk that are
users.
related to evidence gathering
 WHY? it may put the company’s Compilations
reputation in risk.
An account is engaged to use accounting
~ evidence gathering: there are multiple
expertise to collect, classify, and summarize
techniques
financial information without the assertions
-will be discussed in the following weeks.
underlying that information.
 Written Assurance Report
~ audit – positive form of assurance
-Unqualified
-Qualified
-Adverse
-Disclaimer

~ review – negative form of assurance

Audit

High/reasonable level of assurance about the

management’s assertion of a subject matter’s
compliance to a suitable criteria, in a form of
positive assurance.

Level of Assurance: sufficient audit evidence

Management’s Assertion: Fairly presented
Subject’s Matter: Financial Statement

Review

Moderate/limited level of assurance about the

management’s assertion of subject matter’s
compliance to a suitable criteria, in a form of
negative assurance.

Moderate/limited level of assurance: less

evidence and procedures

 Inquiry
 Analytical Procedures

Agreed-upon Procedures

An auditor is engaged to carry out those

procedures of an audit nature to which the
auditor and the entity and any inappropriate
third parties have agreed and to report on
factual findings.

Report on factual findings: No assurance