Factors Contributing to Information Risk

1. Voluminous data (maraming prinoprocess na transactions and events ng isang company sa isang
accounting period; madaling madaya kapag maraming transactions)
2. Complexity of transactions (May mga transactions na hindi gano'n kasimple. The more na
complex ang transaction, mas mataas ang risk.)
3. Remoteness of information ('Yung mga users, wala na silang direct access sa supporting
documents ng entity)
4. Conflicts of interest between the provider and users of information

Ways of Reducing Information Risk

1. Verify the information
2. Have the financial statements be audited (most efficient way)
3. Share information risk with the management

Kapag nagkaroon ng adverse effect sa user, may share 'yung preparer ng information.

Demands for FS Audit - Additional Conditions

Conflict of Interest - between the responsible party and the intended users of the financial statements
(magkaiba ng interests)
Expertise - Complexity of accounting and auditing requires expertise
Remoteness of users - Users of information frequently are prevented from directly assessing the quality
of information
e.g. Owner ka ng isang listed entity tapos nagdeclare ng PHP 10 dividend. May 1,000 shares ka. Pumunta
ka sa company to validate the dividends. Baka di ka pansinin no'n.
Financial Consequence - Misleading financial information could have substantial economic
consequences for a decision maker
1. Decisions to be made by the users of the FS involve significant amount of money. Gusto ng users
na tama ang i-present.

Value of FS Audit
1. Audit reduces information risk that may lead to lower cost of capital.
1. Lower cost of capital - minimizes the risk of loss of your investment
2. Kapag tama ang basis, tama ang magiging conclusion.

1. Audit may be used to deter inefficiency and fraud.

1. It is not intended for the prevention of fraud and error but because of the procedures
performed, it can also be used to identify fraudulent activities and inefficiencies in the entity.

General Principles of an FS Audit

1. Comply with relevant ethical requirement (Code of Ethics).
2. Conduct an audit in accordance with Philippine Standards on Auditing.
3. Plan and perform the audit with an attitude of professional skepticism.
4. Exercise professional judgment (the distinguishing feature of audit is exercise of judgment)
5. Obtain sufficient appropriate audit evidence (Kailangan ng evidence para makapagconclude ka.)

Theoretical Framework of FS Audit

Conditions that should exist to have a favorable audit.
Favorable if the FS are fairly presented in accordance with the criteria/IFRS/PFRS.

Assumptions, Postulates, or Concepts:

1. All financial data are verifiable through existence of supporting documents and records.
1. Ability of the information to reach consensus with users.
2. If the users come up with similar conclusion, verifiable siya
1. Auditor should always maintain independence with respect to the financial statements under
audit
2. No long-term conflict between the auditor and the client's management
1. Pag nagkaroon ng disagreement, possible na magkaroon ng modification of the opinion.
2. Prior to the issuance of the opinion, dapat maresolve ang disagreement.
3. Sa resolution process, ang dapat masatisfy diyan is si auditor kasi siya ang mag-eexpress ng
opinion. Pwedeng magkaroon ng compromise, basta dapat satisfied si auditor sa resolution
process.
1. Audit benefits the public
2. Effective internal control systems reduces the possibility of errors and fraud
1. Effective control means more reliable information

1. Consistent Application of GAAP - the more consistent na ina-apply 'yung mga accounting
policies in the previous years, mas probable na fairly stated ang FS.
2. What was held true in the past will continue to hold true in the future in the absence of the
evidence to the contrary.

Audit Process: A General Approach

General Overview
1. Entity prepares and presents financial statements
1. The financial statements are considered as assertions or representation made by the entity,
through its management and those charged with governance, as appropriate.

Different assertions:
1. Assertions about classes of Transactions and events for the period under audit (TOCCAC)
2. Assertions about Account balances at the period end (ACERV)
3. Assertions about Presentation and disclosure (POCAC)

Assertions about Classes of TRANSACTIONS:

Occurrence - Dapat nangyari na before magrecord ng transaction with the entity
Completeness - Dapat kung ano 'yung dapat i-record, na-i-record
Cutoff - Dapat i-report sa tamang accounting period ang transactions.
Accuracy - Assigning appropriate amounts/Proper assignment of accounts to transactions
Classification - Transactions and events should be properly classified and should be recorded in
appropriate accounts.

Assertions about ACCOUNT BALANCES

Completeness - All items included in an account balance that should have included have been included.
Lahat ng dapat makasama, dapat kasama. Greater concern sa liabilities kasi pwedeng ma-understate ang
liabilities.
Existence - All items that were included in account balance are existing/valid. Lahat ng isinama ay totoo.
Mas concern sa assets since entities tend to overstate assets.
Rights and Obligations - Rights for Assets. Obligations for entities. (liabilities?)
Valuation and Allocation - Properly measured in accordance with the applicable IFRS. May mga valuation
accounts sa asset. Depreciation sa PPE should be allocated for the periods benefitted.

Assertions about PRESENTATION and DISCLOSURES

Occurrence and Rights and Obligation - All items presented here have occurred and it pertains to the
entity.
Completeness - All items presented here should have been presented.
Accuracy and Valuation - Proper assignment of amounts and accounted for by applicable IFRS
Classification and Understandability - Items presented and disclosed are properly classified and they are
presented in clear and understandable manner.

Those assertions will be used by the entity as targets when setting objectives.

1. The auditor performs audit procedures

Categories of Audit Procedures

1. Major Audit Procedures
1. Risk Assessment Procedures (RAP)
Enable the auditor to obtain an understanding of the entity and its environment, including its internal
control, to assess the risks of material misstatement at the financial statement and assertion levels.
1. Kilalanin ang gumawa ng FS to understand ang pinapasok ang transactions na pinapasok to
understand FS and understand the risks.
2. Kinilala ang entity
3. To be more efficient in the audit of the FS itself

Further Audit Procedures (FAP):

1. Test of Controls
Evaluate the operating effectiveness of controls in preventing, or detecting and correcting, material
misstatements at the assertion level.
1. Titingnan kung maganda o pangit ang processes/controls used by the entity in FS preparation
2. To be more efficient in the audit of the FS itself

1. Substantive Tests
Detect material misstatements at the assertion level.
1. Looks at the FS itself.
1. Test of Details (of classes of transactions, account balances, and disclosures)
e.g. Auditing cash - can be increased by receipts and decreased by disbursements. Test of transactions
if 'yung items na nagpadagdag or nagpabawas aka nagpagalaw ang inexamine mo. Test of balances if
ending ang naging focus. If tinanong ka kung ano mas effective procedure, test of transaction kasi mas
detailed siya.
1. Substantive Analytical Procedures (SAP)
1. Lahat ng natutuhan mo sa FS Analysis (ratio analysis, horizontal and vertical analyses)

Mas effective ang Test of Details kaysa sa Substantive Procedures kasi mas detalyado. Increase or
decrease lang ang Substantive Procedure.
Sa substantive test, pinaka-nagrerely ang auditor to gather appropriate sufficient evidence.
'Yung RAP, Test of Control ang tutulong para mapadali ang substantive test pero sa substantive test pa
rin magrerely si auditor.

1. SPECIFIC Audit Procedures

Inspection of Records or Documents
1. Consists of examining records or documents, whether internal or external, in paper form,
electronic form, or other media.

Inspection of Tangible Assets

1. Consists of physical examination of the assets such as cash, inventories, investment securities,
and tangible fixed assets.
(Basta may physical existence, pwedeng i-inspect. Kapag intangible, documents that could support the
existence naman.)

Observation
1. Consists of looking at a process or procedure being performed by others.

Inquiry
1. Consists of seeking information of knowledgeable persons, both financial and non-financial,
throughout the entity or outside the entity.
2. Pag ang procedure ay inquiry, most likely ang source is internal kasi if external ang source, it is a
specific type of inquiry called confirmation.

Confirmation
1. Specific type of inquiry that is the process of obtaining a representation of information or of an
existing condition directly from a third party.

Recalculation
1. Consists of checking the mathematical accuracy of documents or records. Common recalculation
techniques include footing and cross-footing.
2. Kapag footing, kapag pababa ang chinecheck mo, ichecheck mo ang bottom figure. Pahalang is
cross-footing.

Reperformance
1. Involves the auditor's independent execution of procedures or controls that were originally
performed as part of the entity internal control.

Analytical Procedures
1. Consist of evaluations of financial information made by a study of plausible relationships among
both financial and non-financial data.

1. The auditor gathers audit evidence

1. To have a basis, kaya nag-gagather ng evidence.
1. The auditor express an audit opinion
1. It should be contained in a written audit report and the information should be communicated.