The Audit Process

Prof. Dexter L. Rizano

What is Audit?

The overall objective of the auditor is 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.
Types of Audit Reports

 Unqualified - indicates that the auditor found no

significant issues with a company’s financial records. It
confirms compliance with accounting standards.
 Qualified - the auditor assessed that the financials are
fairly presented but with specific exceptions.
 Disclaimer - is issued when the auditor can’t form an
opinion due to reasons like lack of independence, scope
limitations, or doubts about the company’s ability to
continue as a going concern.
 Adverse - is issued when the auditor uncovers significant
irregularities or misrepresentations in the company’s
financial statements, indicating a substantial departure
from accounting standards.
Types of Financial Reporting
Framework
 Philippine Financial Reporting Standards (PFRS)
 PFRS for SME
 PFRS for Small Entities
Components of Audit Risk

1 2 3

INHERENT RISK CONTROL RISK DETECTION RISK

Financial Statement Assertions

1 Existence / Occurence 4 Valuation / Measurement

2 Rights and obligations 5 Classification

Presentation and
3 Completeness 6 disclosure
 Stages of Audit

Planning Execution Completion

1. Client acceptance and 1. Performance of audit 1. Evaluate misstatements

continuance procedures based on the 2. Final evaluation of the risk
2. Understanding of the entity planned audit program report and final analytical
and its environment* 2. Identifying and projecting procedures
3. Audit planning misstatements 3. Forming an opinion on the
• Computation of materiality 3. Review procedures financial statements
• Preliminary analytical
procedures
• Risk report
• Development of overall
strategy and identifying the
significant accounts and risk
assessment
Understanding of the Entity and its
Environment
1 Understand the components of internal controls and entity’s flow of transactions

2 Identify relevant controls

3 Evaluate design and determine implementation

4 Identify the need for Test of Controls

5 Assess detection risk