AUDIT-

AN OVERVIEW
 OBJECTIVES
At the end of this presentation, the students will be able to:

1. Define Auditing
2. Identify types of audit
3. Identify types of Auditors
4. Find out the independent financial audit
5. Determine theoretical framework of auditing
Introduction
The fundamental purpose of an
independent audit is to give
credibility to a company's financial
statements. The value and usefulness
of the financial statements are
enhanced by the auditor's opinion.
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AUDITING
DEFINITION
What Is This
Topic About? “An audit is 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.”

-American Accounting
Association
DEFINITION OF
AUDITING
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TYPES
OF AUDIT
 TYPES OF
AUDIT
• FINANCIAL STATEMENT
AUDIT
Is conducted to determine whether the Financial
Statements of an entity are fairly presented in • OPERATIONAL AUDIT
accordance with the applicable financial reporting
framework. Its main objective is to access
entity’s performance, identify areas
for improvements and make
recommendations to improve
• COMPLIANCE AUDIT performance.

Involves a review of an organization’s procedures to

determine whether the organization has adhered to
specific procedures, rules or regulations.
 COMPARISON OF 3 DIFFERENT
TYPES OF AUDIT
FINANCIAL AUDIT COMPLIANCE OPERATIONAL
AUDIT AUDIT
ASSERTIONS Financial statements are Organization has Organization’s activities are
MADE BY THE fairly presented complied with laws, conducted effectively and
AUDITEE regulations or contracts. efficiently.

ESTABLISHED Philippine Financial Laws, regulations and Objectives set by the Board
CRITERIA Reporting Standards (PFRS) contracts of Directors (BOD)

CONTENT OF Financial statements are Reports on the degree of Recommendations and

THE fairly presented in compliance with the suggestions on how to
AUDITOR’S accordance with the applicable laws, improve operations.
REPORT applicable financial regulations and contracts.
reporting framework.
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TYPES
OF AUDITORS
 TYPES OF
AUDITORS
• EXTERNAL OR
INDEPENDENT AUDITORS
Are the ones who generally perform financial • GOVERNMENT AUDITORS
statements audits.
Who usually conduct compliance audits

• INTERNAL AUDITORS
Who usually perform operational audits.
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INDEPENDENT
FINANCIAL
STATEMENTS AUDIT
 • RESPONSIBILITY FOR FINANCIAL
STATEMENTS
o MANAGEMENT- responsible for preparing
and presenting the financial statements in
accordance with the applicable financial
reporting framework.
o AUDITOR- to form and express an opinion on
these financial statements based on the audit
results.
• ASSURANCE PROVIDED BY THE
AUDITOR
An audit conducted in accordance with
PSAs is designed to provide only reasonable
assurance this is because there is inherent
limitations of an audit that affect the auditor’s
ability to detect material misstatements.
o NATURE OF THE PROCEDURES
 THE USE OF TESTING/SAMPLING RISKS
- examining only sample of evidence may be
different from the conclusion if the auditor
examines the entire population.
 ERROR IN THE APPLICATION OF
JUDGMENT
- There is no absolute assurance because the
work undertaken by the auditor to form an
opinion is permeated by judgment.
o NATURE OF FINANCIAL REPORTING
- Reliance on management representation
o NATURE OF EVIDENCE
- Audit evidence is generally persuasive
rather than conclusive in nature
ROLE OF MANAGEMENT
AND INDEPENDENT
AUDITOR
GENERAL REQUIREMENTS
WHEN AUDITING FINANCIAL
STATEMENTS
1. The auditor should comply with the
relevant ethical requirements, including
those pertaining to independence, relating
to financial statement audit engagements.
2. The auditor should conduct an audit in
accordance with the Philippine Standards
on Auditing (PSAs).
3. The auditor should apply professional
judgment in planning and performing the
audit
4. The auditor should obtain sufficient
appropriate audit evidence to reduce the
audit risk to an acceptably low level.
5. The auditor should plan and perform
the audit with an attitude of professional
skepticism recognizing that circumstances
that may exist which may cause the
financial statement to be materially
misstated.
 NEED FOR AN
INDEPENDENT 3.
FINANCIAL STATEMENT REMOTENESS
-most of the users do not have
1. CONFLICTAUDIT
OF AN INTEREST the access to entity’s records
BETWEEN MANAGEMENT AND to personally verify the quality
of the financial information.
USERS OF FINANCIAL
STATEMENTS.
- Outside parties want unbiased,
realistic financial statements

2. EXPERTISE 4. FINANCIAL
-most of the users of financial -misleading CONSEQUENCES
financial information
information are not equipped with could have substantial economic
the necessary skills and consequences for a decision
competence to determine maker.
financial statement’s reliability.
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THEORETICAL
FRAMEWORK OF
AUDITING
 THEORETICAL
FRAMEWORK OF
AUDITING
1. Audit function operates on the
assumption that all financial data are
verifiable.
2. The auditor should always maintain
independence with respect to the financial
statements under audit.
3. There should be no long-term
conflict between the auditor and the
client management.
4. Effective internal control system
reduces the possibility of material
misstatements of the financial
statements.
5. Consistent application of the
applicable financial reporting
framework such as the PFRS results
in fair presentation of financial
statements.
6. What was held true in the past will
continue hold true in the future in the
absence of known conditions to the
contrary.
7. An audit benefits the public.
REFERENCE/
SOURCE:
2021 EDITION

AUDITING
THEORY
A GUIDE IN UNDERSTANDING THE PHILIPPINE
STANDARD ON AUDITING

-JEKELL SALOSAGCOL
-MICAHEL TIU
-ROEL HERMOSILLA