Professional Documents
Culture Documents
Aud1 & Aud12
Aud1 & Aud12
Auditing
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.
Audit
systematic process
objective
obtaining and evaluating evidence regarding assertions about economic actions and events
ascertain the degree of correspondence
between these assertions and established
criteria
Communicating the results to interested users.
Types of Audits
1. Financial statement audit - to determine if FS are presented fairly in accordance with accounting standards.
2. Compliance Audit -to determine if an organization has adhered to specific procedures, rules or regulations.
3. Operational/Internal audit - to assess entity's performance, identify areas for improvement and make
recommendations to improve performance.
Although these may differ, they have some similarities: systematic examination and required written report
Types of Auditors
External auditors - independent CPAS who offer professional services specifically FS audit
Internal auditors - entities own employees who investigate and appraise the effectiveness and efficiency of
operations and internal controls, specifically through operations audit
Government auditors - gov't employees whose function is to determine if persons or entities comply with
gov't laws and regulations
Comparison of different types of Audit
Assertions made by the That the financial That the organization has That the organization's
auditors statements are fairly complied with laws, activities are conducted
presented regulations or contracts. effectively and efficiently
Established criteria Financial reporting Laws, regulations and Objectives set by the
standards or other contracts board of directors
financial contracts
reporting framework
Content of the auditor's An opinion about whether Reports on the degree of Recommendations or
report the financial statements compliance with suggestions on how to
are fairly presented in applicable laws, improve operations
conformity with an regulations and contracts
identified reporting
framework
Independent FS Audit
To enable the auditor to express an opinion whether the FS are prepared, in all material respects, in accordance with
an identified financial reporting framework or acceptable financial reporting standards.
Management is responsible for preparing and presenting the FS. They are responsible for its reliability.
It is management's responsibility to adopt internal control procedures and prepare reliable financial
statements.
PSAS states that an audit is designed to provide only reasonable assurance (not absolute assurance) that the
financial statements taken as a whole are free from material misstatements.
Audit limitations
The auditor should comply with the Code of Professional Ethics for CPAS
The auditor should plan and perform the audit with an attitude of professional skepticism recognizing that
circumstances may exist which may cause the financial statements to be materially misstated.
Conflict of interest
Expertise
Remoteness
Financial consequences
Audit function operates on the assumption that all financial data are verifiable
The auditor should always maintain independence with respect to the FS under audit.
There should be no long-term conflict between the auditor and client management
Effective internal control system reduces the possibility of errors and fraud affecting the FS
What was held true in the past will continue to hold true in the future in the absence of known conditions to
the contrary
C H A P T E R 1 2
2. Review of Financial Statements - a review engagement is conducted to provide limited assurance that there are
no material modifications that should be made to the financial statements for them to be in conformity with the
financial reporting framework.
a. Level of Assurance - the auditor does not provide the same level of assurance as provided on audit
engagement because of the limited procedures performed when reviewing the financial statements.
c. Reporting Responsibility - the reports should contain a clear written expression of negative assurance.
- the auditor should review and assess the conclusion dawn from the evidence
obtained as the basis for assurance.
*The Unmodified Review Report - it is issued based on the evidence obtained by the auditor that there are no
material modifications made to the financial statements in conformity with Philippine Financial Reporting Standard
a. Material Misstatements
The entities turn to professional accountants to assist them in the preparation and presentation of their financial
statements.
The objective of a compilation engagement is for the accountant to use accounting expertise, as opposed to auditing
expertise, to collect, classify and summarize financial information.
a. Level of Assurance - The procedures employed in a compilation engagement are not designed and do not
enable the accountant to express any assurance on the financial information.
b. Procedures to be performed – The accountant should read the compiled information and consider
whether it appears to be appropriate in form and free from obvious material misstatements.
a. Make any inquiries of management to assess the reliability and completeness of the information
provided;
c. Reporting Responsibility - The accountant's compilation report should identify the financial statements
compiled and should clearly indicate that no assurance is provided on the financial statements.
Material Misstatements
Scope Limitation
4. Agreed-upon Procedures Engagement
The client takes full responsibility for the adequacy of the procedures to be performed; and
The distribution of the report is limited only to those parties who have agreed about the procedures
to be performed.
The objective of an agreed-upon procedures engagement is for the auditor to carry out procedures of an
audit nature to which the auditor and the entity and any appropriate third parties have agreed and to report
on factual findings.
a. Level of Assurance - As the auditor simply provides a report of the factual findings of agreed-upon
procedures, no assurance is expressed.
b. Restrictions on the distribution of report - The report is restricted to those parties that have agreed to
the procedures to be performed since others, unaware of the reasons for the procedures, may
misinterpret the results.
c. Terms of the Engagement – The auditor should ensure with representatives of the entity and,
ordinarily, other specified parties who will receive copies of the report of factual findings, that there is a
clear understanding regarding the agreed procedures and the condition of the engagement.
d. Procedures and Evidence - The auditor should carry out the procedures agreed upon and use the
evidence obtained as the basis for the report of factual findings. These are the audit procedures but
usually applied only to specific accounts or elements of a financial statement. These procedures may
include:
ASSURANCE ENGAGEMENTS
PSAE 3000 states that assurance engagements are intended to enhance the credibility of information about
a subject matter by evaluating whether the subject matter conforms in all material respects with suitable criteria.
Reasonable assurance engagement - the practitioner gathers sufficient appropriate evidence to conclude
that the subject matter conforms in all material respects with identified suitable criteria, and gives a report
in the form of a positive assurance. The financial statements have been prepared in accordance with
applicable legislation and accounting standards.
Limited assurance engagements - the practitioner gathers sufficient appropriate evidence to conclude that
the subject matter is plausible in the circumstances, and gives a report in the form of a negative assurance.
Nothing has come to our attention that causes us to believe that the financial statements are not
prepared in accordance with applicable legislation and accounting standards.
CRITERIA - Criteria are the standards or benchmark used to evaluate or measure the subject matter of an
assurance engagement. Suitable criteria are required for reasonably consistent evaluation or
measurement of a subject matter within the context of professional judgment.
1. Relevance
2. Completeness
3. Reliability
4. Neutrality
5. Understandability
EVIDENCE - The practitioner plans and performs an assurance engagement with an attitude of professional
skepticism to obtain sufficient appropriate evidence about whether the subject matter information is free
of material misstatement.
ASSURANCE REPORT - The practitioner provides a written report containing a conclusion that conveys the
assurance obtained about the subject matter information. The professional accountant's conclusion
provides either high or moderate level of assurance about the subject matter. In addition, the practitioner
considers other reporting responsibilities, including communicating with those charged with governance
when it is appropriate to do so.