OVERVIEW OF

THE AUDITING
PROFESSION
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1.
Nature of Auditing
“ AUDITING
the accumulation and evaluation of evidence
about information to determine and report on
the degree of correspondence between the
information and established criteria.
Auditing should be done by a competent,
independent person.
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INFORMATION AND ESTABLISHED
CRITERIA
▸ Information (verifiable form) vs. Criteria (standards).
▸ Information may be quantifiable (FS) or subjective
(effectiveness of systems).
▸ Criteria is dependent upon what information is audited.
Information Criteria
Financial statements PFRS
Internal control COSO Framework
Corporate governance SEC Rules on CG
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ACCUMULATING AND EVALUATING
EVIDENCE
▸ Evidence is any information used by the auditor to determine
whether the information being audited is stated in
accordance with established criteria.
▸ Forms of evidence:
▸ Transaction data
▸ Communications with outsiders
▸ Observations
▸ Client Testimony
▸ Auditors must obtain sufficient and appropriate audit
evidence to satisfy the purpose of the audit.
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COMPETENT AND INDEPENDENT
PERSON
▸ Competence
▹ Qualified to understand the criteria used
▹ Know the types and amount of evidence to accumulate in order
to reach proper conclusion after examining evidence
▹ Quality Control (PSQC)
▸ Independence
▹ Must no be biased in the accumulation and evaluation of
evidence
▹ Even internal auditors (although employed) should be
independent.
▹ Must be independent of mind and in appearance
▹ Code of Ethics for Professional Accountants in the Philippines
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REPORTING

▸ The final stage in the auditing process is preparing the audit

report, which communicates the auditor’s findings to users.
▸ Reports differ in nature, but all must inform readers of the
degree of correspondence between the information audited
and established criteria.
▸ Reports also differ in form and can vary from the highly
technical type usually associated with financial statement
audits to a simple oral report in the case of an operational
audit of a small department’s effectiveness.
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THE AUDIT PROCESS

PRE-
ENGAGE- PLANNING EVIDENCE
MENT REPORTING
ACTIVITIES GATHERING
ACTIVITIES
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DISTINCTION BETWEEN
ACCOUNTING AND AUDITING
▸ Accounting is the recording, classifying, and summarizing of
economic events to provide financial information for decision
making.

▸ Auditing focus on determining whether recorded information

properly reflects the economic events that occurred during
the accounting period.

▸ In addition to understanding accounting, auditors must

possess expertise in the accumulation and interpretation of
audit evidence.
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ECONOMIC DEMAND FOR AUDITING

▸ Information risk reflects the possibility that the information

upon which a business decision was made was inaccurate.

▸ Auditing of financial information reduces information risk to

the users of financial information.
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INFORMATION RISK

▸ Causes of information risk:

▹ Remoteness of information
▹ Biases and Motives of the Provider
▹ Voluminous Data
▹ Complex Exchange Transactions
▸ How to reduce information risk:
▹ User verifies information – the user may go to the business to verify the
information. This is often costly and impractical.
▹ User shares information risk with management – Management may be
held responsible in a lawsuit if inaccurate information is provided.
▹ Audited financial statements are provided – External auditors are
engaged to provide assurance that the financial statements are reliable.
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2.
Assurance Services
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ASSURANCE SERVICES

▸ An assurance service is an independent professional service

that improves the quality of information for decision makers.

▸ Assurance services can be provided by CPAs or other

professionals.

▸ Assurance services by CPAs have been common for years,

especially regarding historical financial statement
information.
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ATTESTATION SERVICES

▸ An attestation service is a type of service in which the CPA

issues a report about a subject matter or assertion that is
made by another party.

▸ This is one category of assurance services provided by CPAs.

▸ Primary categories of attestation services include:

▹ Audits of historical financial statements
▹ Audits of internal control over financial reporting
▹ Reviews of historical financial statements
▹ Other attestation that may be applied to a broad range of
subjects
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OTHER ASSURANCE SERVICES

▸ Other assurance services do not meet the definition of

attestation services. A written report is not required, and it
need not be about reliability or compliance.

▸ Examples:
▹ Mystery shopping – Perform anonymous shopping to assess
sales personnel dealings with customers and procedures they
follow
▹ ISO 9000 certifications – Certify a company’s compliance with
ISO 9000 quality control standards, which help ensure company
products are of high quality
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NON-ASSURANCE SERVICES

▸ CPA firms perform numerous other services that generally

fall outside the scope of assurance services.

▸ Independence is not required since no assurance is provided.

▸ Examples:
▹ Accounting and bookkeeping services
▹ Tax services
▹ Management consulting services
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Non-
Assurance
Assurance
Services
Services
Attestation Services
• Audits (PSA) • Bookkeeping
• Reviews (PSRE) services
• Tax services
• Agreed upon
procedures
(PSRS)
• Management
Other Assurance consulting services
Services (PSAE)
PSQC, Code of Ethics
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3.
Types of Audits and
Auditors
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TYPES OF AUDITS

▸ Operational audit—Evaluates the efficiency and effectiveness

of any part of an organization’s operating procedures and
methods.

▸ Compliance audit—Determines whether the auditee is

following specific procedures, rules, or regulations set by
some higher authority.

▸ Financial statement audit—Determines whether the financial

statements are stated in accordance with PFRS.
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TYPES OF AUDITORS

▸ CPA firms

▸ Government auditors

▸ Internal auditors
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TEST YOUR KNOWLEDGE

Which of the following best describes why an independent
auditor is asked to express an opinion on the fair presentation
of financial statements?
A. It is difficult to prepare financial statements that fairly present a company’s
financial position, operations, and cash flows without the expertise of an
independent auditor.
B. It is management’s responsibility to seek available independent aid in the
appraisal of the financial information shown in its financial statements.
C. The opinion of an independent party is needed because a company may not
be objective with respect to its own financial statements.
D. It is a customary courtesy that all stockholders of a company receive an
independent report on management’s stewardship of the affairs of the
business.
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TEST YOUR KNOWLEDGE

Which of the following professional services is an attestation
engagement?
A. A consulting service engagement to provide computer-processing
advice to a client.
B. An engagement to report on compliance with statutory
requirements.
C. An income tax engagement to prepare income tax returns.
D. The preparation of financial statements from a client’s financial
records.
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THANKS!
Any questions?