CHAPTER 1: AUDIT – AN OVERVIEW
AUDIT DEFINED (PSA 200)
The Philippine Standards on Auditing
(PSA) defines auditing by stating the
objective of a financial statement audit.
Overall Objectives of the Auditor
In conducting an audit of financial
statements, the overall objectives of the
auditor are:
(a) To obtain reasonable assurance about
whether the financial statements as a
whole are free from material
misstatement, whether due to fraud or
error, thereby enabling the auditor to
express an opinion on whether the
financial statements are prepared, in
all material respects, in accordance
with an applicable financial reporting
framework (suitable framework); and
(b) To report on the financial statements,
and communicate as required by the
PSAs, in accordance with the auditor’s
findings.
In all cases when reasonable assurance
cannot be obtained and a qualified opinion
in the auditor’s report is insufficient in the
circumstances for purposes of reporting to
the intended users of the financial
statements, the PSAs require that the
auditor disclaim an opinion or withdraw
from the engagement, where withdrawal is
legally permitted.
Auditing is defined by the American
Accounting Association (AAA) as:
“a systematic process of objectively
obtaining and evaluating evidence
regarding assertions about economic
actions and events to ascertain the degree
of correspondence between these assertions
and established criteria and
communicating the results to interested
users.”
a) Auditing is a systematic process.
May sinusunod ka talagang proseso pg. 118
b) An audit involves obtaining and
evaluating evidence about assertions
regarding economic actions and
events.
Assertions:: the action of stating something
or exercising authority confidently and forc
efully. (May sinasabi)
Financial Statement Assertions /
Management Assertions
EXISTENCE / OCCURRENCE
Mayroong sinasabi yung management. For
example, kapag nakabasa ka sa balance
sheet ng accounts receivable, sinasabi ng
management na nageexist yung receivable
at nag occur yung transaction kung bakit
sila may A/R. Hindi nila word for word
sinasabi na nag eexist. You have to check if
nag exist talaga.
RIGHTS AND OBLIGATION
May Karapatan (rights) ba talaga sila sa
receivable and to check kung na ireport ba
lahat ng liabilities.
c) An audit is conducted objectively.
d) Auditors ascertain the degree of
correspondence between assertions
and established criteria.
e) Auditors communicate the audit
results to various interested users.
TYPES OF AUDITS AS TO
SUBJECT MATTER
 (ITEM BEING AUDITED) EXTERNAL AUDITORS / ING OR
INDEPENDENT AUDITORS
FINACIAL STATEMENT AUDIT INTERNAL AUDITORS / ING
COMPLIANCE AUDIT GOVERNMENT AUDITORS / ING
Pwede procedures and criteria
OPERATIONAL AUDIT Assurance provided by the auditor:
Yes, it adds credibility, pero hindi totally
All audits possess the SAME GENERAL gina guarantee na hundred percent very
characteristics. They all involve: correct ang Financial Statement.

1.Systematic examination and evaluation INHERENT LIMITATIONS

of evidence which are undertaken to 1. Nature of the procedures
ascertain whether assertions comply with The use of testing and sampling: the fact na
established criteria; and hindi mo sinilip lahat ng documents, but
2.Communication of the results of the you should have the skills na hindi lang
examination, usually in a written report, basta don sa range na yon ikaw titingin,
to the party by whom, or on whose behalf, tumingin ka ng ibang samples.
the auditor was appointed.
Error in the application of judgement or
Compli non-sampling risk:
Financi Operational
ance
al Audit Audit
Audit
That the
Asserti organizatio That the
That the
ons n has organization’s
financial
complied activities are
made statements
with laws; conducted
by the are fairly
regulations effectively and
auditee presented.
or efficiently.
contracts.
Financial
Reporting
Framework
Establis Laws,
such as Objectives set
regulations,
hed Philippine
and
by the board of
Criteria Financial directors.
contracts.
Reporting
Standards
(PFRS)
An
OPINION
about
REPORTS
whether the
on the
financial
degree of
Content statements RECOMMEN
compliance
are fairly DATIONS or
of the with the
presented suggestions on
auditor’ in
applicable
how to improve
s report laws,
conformity operations.
regulations,
with the
and
applicable
contracts.
financial
reporting
framework.

TYPES OF AUDITS AS TO
auditor conducting the audit
 CHAPTER 2: The professional standards
Standards are established to measure the
quality of performance of individuals and
organizations. Standards relating to the
accounting profession concern themselves
with CPA’s professional qualities, the
judgement exercised by the CPAs in the
performance of their professional
engagement, and the CPA firm’s quality
control policies and procedures.
The Board of Accountancy promulgated ten
generally accepted auditing standards
(GAAS) that establish required level of
quality for performing financial statement
audits. These standards must be followed by
CPAs when auditing financial statements.
Generally Accepted Auditing
Standards
GAAS represents measures of these quality
of the auditor’s performance. These
standards should be looked at as a
MAXIMUM STANDARD of performance
that auditors should follow. These ten
GAAS are grouped into GENERAL,
FIELDWORK, and REPORTING
STANDARDS.
General Standards
1.The audit is to be performed by a person
or persons having adequate technical
training and proficiency as an auditor.
 Dapat nag aaral ka ng accountancy,
maging CPA, and experience.
2.In all matters relating to the assignment,
an independence in mental attitude is to
be maintained by the auditor or auditors.
3.Due professional care is to be exercised in
the performance of the audit and the
preparation of the report.
Standards of Field Work
1. The work is to be adequately planned
and assistants, if any, are to be properly
supervised.
2. A sufficient understanding of internal
control is to be obtained to plan the audit
and to determine the nature, timing, and
extent of tests to be performed.
3. Sufficient appropriate evidential matter
is to be obtained through inspection,
observation, inquiries, and confirmations
to afford a reasonable basis for an
opinion regarding the financial
statements under audit.
Standards of Reporting
1. The report shall state whether the
financial statements are presented in
accordance with generally accepted
accounting principles (GAAP).
2. The report shall identify those
circumstances in which such principles
have not been consistently observed in
 the current period in relation to the the character of the auditor’s work, if
preceding period. any, and the degree of responsibility the
3. Informative disclosures in the financial auditor is taking.
statements are to be regarded as
reasonably adequate unless otherwise
stated in the report.
4. The report shall contain either an
expression of opinion regarding the
financial statements, taken as a whole, or
an assertion to the effect that an opinion
cannot be expressed. When an overall
opinion cannot be expressed, the reasons
therefor should be stated. In all cases
where an auditor’s name is associated
with financial statements, the report
should contain a clear-cut indication of

CHAPTER 3: AUDITOR’S RESPONSIBILITY

 CHAPTER 4: The audit process – Accepting
engagement
TEST FOR UNDERSTATEMENT means
nanghingi ka ng source documents, then
you will do tracing papunta ng records.
Ang intension mo is malaman kung lahat ng
transaction ay naka record. Pag may Nakita
ka na HINDI naka RECORD, meaning
maiisip mo na yung naka record ay naka
UNDERSTATED may kulang. Pag lahat
ng sample documents mo, nung tinignan
mo sa record ay lahat naka record then
mayroong completeness. Ang HINDI mo
ma ta trace doon ay kapag nanghingi ka ng
documents tapos papunta ka sa records, ang
hindi mo ma vavalidate is hindi mo nasilip
na record baka walang supporting
documentation, ang hindi mo masisilip is
yung EXISTENCE kasi hindi mo naman
masasabi na lahat ng naka record is nag e-
exists unless gawin mo yung baliktad na
directions (vouching).
TEST FOR OVERSTATEMENT means
kukuha ka ng records then sasampulan mo
ng documents pag lahat ng record ay may
supporting documents, ibig sabihin talagang
nag EEXIST. Pag may Nakita ka na naka
record then hindi naman pala nag e-exists,
kasi walang supporting documents, ang
mangyayari magiging sobra.
ASSERTIONS ABOUT CLASSES OF
TRANSACTIONS AND EVETNS FOR
TYE PERIOD UNDER AUDIT:
Occurrence
Yung objective is naka connect sa assertion.
STEPS IN AUDIT PROCESS
Accepting an Engagement
Aalamin mo kung kaya mo yung
engagement, wag tanggap nang tanggap (i-
aassess mo muna)
Audit Planning
Considering the internal control
If internal control is strong, control risk is
low. If internal control is weak, control risk
is high, meaning mas risky na maka lusot
ung material misstatements.
Sa test of control, tinetest mo rito is the
INTERNAL CONTROL, gagawin mo
lang siya to test the internal control.
Test of control is NOT REQUIRED
(meaning sa kabuuan ng proseso pwedeng
hindi mo siya gawin). Pero kailan siya
required na gawin?
Kapag ang assessment mo sa internal
control ay matibay or internal control is
strong meaning effective then itetest mo
kung tama ang assessment mo (test of
control). Gagawin mo ang test of control
kapag MATIBAY ang INTERNAL
CONTROL at mataas ang effectiveness
kasi susuportahan mo yung assessment
nayun.
Kapag ang assessment mo sa internal
control ay mahina at mababa ang
effectiveness ng internal control, then
control risk is high. Hindi na gagawin ang
test of control
CHAPTER 5:
Materiality
Largest: hanggat hindi lumalagpas yung
misstatements kayang sabihin ni auditor na
hindi materially misstated ang financial
statement (CEILING)
Smallest: (Floor or minimum)
Materiality is relative in nature: it would
depend on company, hindi porket ikaw ang
auditor ng dalawang company, isang
materiality level lang ang ise-set mo. It will
depend to audit to another audit client.
Performing substantive test
Ito yung test na mag substantiate sa
assertion kung tama or mali. Eto ang
required na test at lagi ginagawa.
Eto na yung mga audit procedure na gusto
ma validates yung assertions.
Kahit anong substantive test or audit
procedure na ginagawa mo ultimately, ang
objective mo is to detect material
misstatements.
After testing your assessments,
napatunayan mo na matibay pag titiwalaan
mo na. so reliable yung documents na pino
provide nila. So kaunting procedure nalang
to validate any other items. (Less
substantive nalang)
If internal control is effective / strong,
substantive test is less procedure. If
internal control is weak so need mo pa mag
bigay effort so substantive test is more.
Step 1
Okay lang na hindi masilip yung 20% kasi
kapag nasilip mo yung 80%, walang chance
na ang mali ay more than 20%. Kung
mayroon mang mali doon =, pinaka
maximum ay 20%.
Hindi mo na sisilipin yung 20% kasi kung
mali sila lahat, okay lang hindi siya
materially misstated kasi hinid lalagpas ng
20%.
If the materiality level is set too low,
sisilipin mo yung 95% instead na 80%
(okay lang na 80% pala).
ADUIT RISK MODEL (EQUATION)
Audit Risk = Inherent Risk * Control Risk
* Detection Risk
POSTIVE Confirmation Letter in both
cases, nag hihintay ka ng reply
if NEGATIVE Confirmation Letter, nag
iintay k alng ng reply kung sakaling hindi
mag match, pero kapag nag match okay
lang kung hindi mag reply.

AUDIT RISK: risk na baka mali ang

opinion ni Auditor. Ise-set at acceptably low
level to provide high level assurance.

INHERENT RISK: kaya nagkaroon ng

ganitong risk kasi WALANG CONTROL
in the first place.

CONTROL RISK: assessment of internal

control.

DETECTION RISK: nasa auditor na ang

bola. It is the risk that you will not detect
material misstatements na nag eexist.

Risk of material misstatements (RMM):

consists of or talks about inherent and
control.

Interpretation:

Mas mag effort ka bumaba ng hagdan

kapag bababa ka or pupunta ka sa LOW
MATERIALITY LEVEL.

HIGH MATERIALITY:
- Substantive test is = Less extensive
- evidence talks about the volume
 CHAPTER 12: ASSURANCE ENGAGEMENTS
AND RELATED SERVICES
Suitable
Written Assurance Report
Evidence
Appropriate subject matter
Three-party relationship
ASSURANCE ENGAGEMNETS:
Attestation services a.k.a assertion based
services
Assertion means meron talgang report na
binibigyan mo ng assurance.
*AUDIT LEVEL (High/Reasonable but
NOT absolute)  POSITIVE:
-Tedious
-Sasabihin mo talaga na the F.S have been
audited in accordance with PFRS in all
material respects. (necessary ang “in all
material respect kasi mung may maka lusot
man, ayun ay ang mga immaterial
misstatements na kung makakalusot man
sayo hindi ma apektuhan yung decision
making ng users or nagbabasa)
-Detailed examination
-Procedures:
Inquiry
Inspection
Observation
Analytical procedures (procedures na ni
rerequire ang analysis e.g., Financial
Statement Ratio Analysis)
Confirmation
Reperformance
Recalculation or recomputation
*REVIEW LEVEL (Limited / Moderate)
 Negative:
-Inquiry (more on tanong tanong lang)
-Analytical procedures
- Specific term: “Nothing has come to
my/our attention that causes us to
believe…”
- Hindi detailed pero at least may
examination kang ginawa
NON-ASSURANCE ENGAGEMENT (2
PARTIES: Practitioner & Client only)
EXAMPLES:
* AGREED-UPON PROCEDURES: sort
of audit pero hindi ganon ka lalim or wide
yung scope. In particular, ang concern dito
is yung client, hindi para ilabas yung report
at sabihin “audited na yung F.S. hindi mo
nilagyan ng assurance or dinagdagan ng
credibility yung F.S. pina examine lang
sayo yung mga certain parts na
pinagkasunduan ninyo (may specific
purpose lang and kayo lang ang involve don
or hindi involve ang public). Restricted
lang ang report sa users which is kung sino
yung nag engage sayo.
Basically, pwede ka gumawa ng napag
usapan lang. Procedure then tatapatan mo
ng Result.
* COMPILATION SERVICES: nag
cocompile ka lang ng F.s. (binigyan ka
information let’s say trial balance,
pagandahin mo lang itsura or porma para
mag mukhang formal F.s ikaw bilang
compiler saka client mo sa enggament).
Pero hindi ibig sabihin na compile mo na
yung F.s, sinasabi mo na na audit mo yun.
Hindi ka naman nag add ng credibility sa
report or inusisa. Once natapos and na
report na yung compiled f.s, maglalagay ka
sa report mo ng or nakatatak na
“COMPILED”, “UNAUDITED”, “SEE
COMPILATION REPORT” then may
separate report.
*TAX RELATED SERVICES:
-tax consultancy/ing and tax planning:
advise client on tax consequences.
-tax compliance: assist client in preparation
of returns. Para matulungan mo si client na
hindi ma penalize. No conclusion.

*MANAGEMENT ADVISORY
SERVICES: more on giving
recommendations.

ELEMENTS OF ASSURANCE
ENGAGEMENT

1. THREE-PARTY RELATIONSHIP
Party number 1: ikaw bilang auditor
(professional practitioner)
Party number 2: Client mo sa engagment
Party number 3: Public (third party)

Hindi ibig sabihin inaudit natin yung F.S.

tapos for whatever reason halimbawa may
nakalusot na mali (error), hindi ibig sabihin
non na sa atin ang sisi lalo na kung ginawa
or sinunod mo yung standard or nag audit
ka in accordance with auditing standards.

2. APPROPRIATE SUBJECT MATTER

Yung subject matter na tiinutukoy is yung
Financial Statements (siya yung subject to
audit).

3. SUITABLE CRITERIA
Nag coconform ka ba or sumusunood pa ba
ang F.s sa suitable criteria (PFRS)?

4. WRITTEN REPORT (assurance

report)
At the end of the day, gagawa ka ng
conclusion or opinion to be reported in
auditor’s report.

5. EVIDENCE
Madaling sabihin na ang F.s is conformity
with GAAP but how? By gathering
evidence. With those evidence, mabibigyan
natin yung conclusion na “okay sumusunod
siya sa standards” or in short mayroong
BASIS kasi hindi pwede walang basehan
yung pagbibigay mo ng opinion na walang
or hindi siya nag coconform sa accounting
standards.