AUDIT

• Audit


  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
• Auditing


  • It is a systematic process
  • It involves obtaining and evaluating evidence about assertions regarding economic actions and events
  • It is conducted objectively
  • It ascertains the degree of correspondence between assertions and established criteria
  • It communicates the audit results to interested users
• Financial statement audit


  An audit conducted to determine whether the financial statements of an entity are fairly presented in accordance with an identified financial reporting framework
• Compliance audit


  An audit that involves a review of an organization's procedures to determine whether the organization has adhered to specific procedures, rules or regulations
• Operational audit


  An audit that is a study of a specific unit of an organization for the purpose of measuring its performance
• Types of audits


  • Financial statement audit
  • Compliance audit
  • Operational audit
• Types of auditors


  • External auditors
  • Internal auditors
  • Government auditors
• Responsibility for the financial statements

  • Management is responsible for preparing and presenting the financial statements in accordance with the financial reporting framework
  • The auditor's responsibility is to form and express an opinion on these financial statements based on the audit
• Assurance provided by the auditor

  An audit conducted in accordance with Philippine Standards on Auditing is designed to provide only reasonable assurance (not absolute assurance) that the financial statements taken as a whole are free from material misstatements
• Limitations affecting the auditor's ability to detect material misstatements

  • Use of testing/Sampling risk
  • Error in application of judgment/Non-sampling risk
  • Reliance on management's representation
  • Inherent limitations of the client's accounting and internal control systems
  • Nature of evidence
• General principles governing the audit of financial statements

  • The auditor should comply with the Code of Professional Ethics for Certified Public Accountants
  • The auditor should conduct an audit in accordance with Philippine Standards on Auditing
  • The auditor should plan and perform the audit with an attitude of professional skepticism
• Need for an independent financial statement audit


  • Conflict of interest between management and users of financial statements
  • Expertise
  • Remoteness
  • Financial consequences
• Theoretical framework of Auditing

  • All financial data are verifiable
  • The auditor should always maintain independence with respect to the financial statements under audit
  • There should be no long-term conflict between the auditor and the client management
  • Effective internal control system reduces the possibility of errors and fraud affecting the financial statements
  • Consistent application of generally accepted accounting principles (GAAP) or Philippine Financial Reporting Standards (PFRS) results in fair presentation of financial statements
  • What was held true in the past will continue to hold true in the future in the absence of known conditions to the contrary
• Effective internal control system reduces the possibility of errors and fraud affecting the financial statements
• The condition of the entity's internal control system directly affects the reliability of the financial statements
• The stronger the internal control is, the more assurance it provides about the reliability of the accounting data and financial statements
• Consistent application of generally accepted accounting principle (GAAP) or Philippine Financial Reporting Standard (PFRS) results in fair presentation of financial statements
• Different criteria are used to verify the validity of an assertion. In the case of an independent audit of financial statements, the criteria are usually the PFRS
• What was held true in the past will continue to hold true in the future in the absence of known conditions to the contrary
• Experience and knowledge accumulated from auditing a client in prior years can be used to determine the appropriate audit procedures that need to be performed
• An audit benefits the public
• Financial statements are ordinarily prepared and presented in order to meet the common information needs of wide range of users
• These users who rely on the financial statements as their major source of information are the primary beneficiary of the financial statement audit
• Auditor's opinion must be based on an examination conducted in accordance with professional standards
• Failure to comply with these standards exposes the auditor to risks such as loss of public respect or even assessment of legal damages
• Standards are established to measure the quality of performance of individuals and organizations
• Standards relating to the accounting profession concern themselves with CPAs' professional qualities, the judgment 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
• Philippine Standards on Auditing (PSAs) are issued to clarify the meaning of these ten GAAS
• Auditing procedures are the means used by the auditors in attaining the quality required by the standards
• Generally Accepted Auditing Standards (GAAS)

  Measures of the quality of the auditor's performance
• Generally Accepted Auditing Standards (GAAS)


  • General Standards
  • Standards of Fieldwork
  • Standards of Reporting
• General Standards


  • Technical Training and Proficiency
  • Independence
  • Professional care
• Standards of Fieldwork


  • Planning
  • Internal Control Consideration
  • Evidential matter
• Standards of Reporting


  • Generally Accepted Accounting Principles
  • Inconsistency
  • Disclosure
  • Opinion
• The Auditing and Assurance Standards Council (AASC) has been given the task to promulgate auditing standards, practices and procedures which shall be generally accepted by the accounting profession in the Philippines
• To facilitate the preparation by the AASC of its pronouncements and to attain uniformity of those pronouncements with international auditing standards, the AASC has approved the adoption of the International Standards on Auditing (ISAs), International Standards on Assurance Engagements (ISAEs), International Standards on Review Engagement (ISREs) and International Standards on Related Services (ISRSs) issued by the International Auditing and Assurance Board (IAASB) created by the International Federation of Accountants (IFAC)
• In addition to these standards, Practices Statements are also issued to provide practical assistance to auditors in implementing the standards and to promote good practice in the accountancy profession
• The AASC undertakes a review of the standards and practices statements issued by IAASB to determine if these can be adopted in the Philippines with or without changes, after considering any local requirements imposed by law or practice