Aud Theo

• Auditing (PSA)


  To enable the auditor to express an opinion whether the financial statements are prepared, in all materials respects, in accordance with the applicable financial reporting framework
• Auditing (AAA)


  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
• Characteristics of Auditing


  • A systematic process
  • Obtaining and Evaluating evidence about assertions regarding economic actions and events
  • Conducted Objectively
  • Ascertain the degree of correspondence between assertions and established criteria
  • Communicate the results to various interested users
• Types of Audits


  • Financial Statement Audit
  • Compliance Audit
  • Operational Audit
• Independent Financial Statement Audit

  • Responsibility for the financial statements
  • Assurance provided by the auditor
• Audit does not relieve the management of its responsibilities
• Auditor's opinion is not a guarantee that the financial statements are dependable
• Audit conducted ( in accordance to PSAs) is designed to provide only reasonable assurance, not absolute assurance, that the financial statements taken as a whole are free from material misstatements
• Nature of inherent limitations


  • Procedures performed
  • Financial reporting framework used
  • Evidence obtained
• Nature of Financial Reporting

  The application of the applicable financial reporting framework involves application of significant judgment and estimates on the part of the management
• Nature of Evidence


  • Audit evidence obtained does not contain hard facts
  • Audit evidence consists of pieces of information gradually accumulated during the course of an audit which persuade the auditor about the fairness of the financial statements
  • Audit evidence is persuasive in nature rather than conclusive
• Subsequent discovery of a material misstatement of the financial statements does not indicate a failure to conduct audit in accordance to PSAs
• The opinion of the auditor is not an assurance as to the future viability of the entity nor the efficiency or effectiveness with which management has conducted the affairs of the entity
• General Requirements when Auditing Financial Statements

  • The auditor should comply with the relevant ethical requirements including those pertaining to independence
  • The auditor should conduct an audit in accordance with the PSAs
  • The auditor should not represent compliance to PSA in the auditor's report unless the auditor has complied with all the PSAs relevant to the audit
  • The auditor should apply professional judgment in planning and performing the audit
  • The auditor should obtain sufficient appropriate audit evidence to reduce the audit risk to an acceptably low level
  • The auditor should plan and perform the audit with an attitude of professional skepticism
• Professional Skepticism


  • The auditor makes a critical assessment, with a questioning mind, of the validity of the audit evidence obtained
  • The auditor is alert to audit evidence that contradicts or brings into question the reliability of the documents or management representations
• Representations from management are not a substitute for obtaining sufficient audit evidence to be able to draw reasonable conclusions
• Need for an Independent Audit of FS

  • Conflict of interest between management and users of FS
  • Expertise
  • Remoteness
  • Financial Consequences
• Theoretical Framework of Auditing

  • Audit function operates on the assumption that all financial data are verifiable
  • Financial data must have documents or evidence to prove validity
  • 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 material misstatements of the FS
  • Consistent application of the applicable financial reporting framework results in fair presentation of the FS
  • What was held true in the past may hold true in the future in the absence of known conditions to the contrary
  • An audit benefits the public
• Generally Accepted Auditing Standards

  • Represent measures of the quality of the auditor's performance
  • The Board of Accountancy promulgated ten of these
  • Should be looked at as a minimum standard of performance that auditors should follow
• GAAS: Groups


  • General Standards
  • Fieldwork Standards
  • Reporting Standards
• 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
• Philippine Standards on Auditing

  • Auditing and Assurance Standards Council (AASC) tasked to promulgate auditing standards, practices, and procedures which shall be generally accepted in the Philippines
  • AASC has approved the adoption of International Standards on Auditing, International Standards on Review Engagement, and International Standards on Related Services
• Auditing - To enable the auditor to express an opinion whether the financial statements are prepared, in all materials respects, in accordance with the applicable financial reporting framework.
• 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.
• Review engagement - A service that involves applying limited assurance procedures to obtain reasonable assurance as to whether there are any material modifications required so that the reviewed information is in agreement with the applicable financial reporting framework.
• Related services - Professional services other than audit or review engagements performed by the practitioner or firm that are not subject to the requirements of this Code but may include agreed-upon procedures engagements, compilations, accounting and bookkeeping services, tax services, consulting services, and other professional services.
• Agreed-Upon Procedures Engagements - An attestation engagement whereby the practitioner performs specified procedures and issues a report describing those procedures and presenting relevant facts and findings without providing an opinion or any form of assurance on the subject matter being examined.
• Characteristics of Auditing

  • A systematic process
  • Obtaining and Evaluating evidence about assertions regarding economic actions and events
  • Conducted Objectively
  • Ascertain the degree of correspondence between assertions and established criteria
  • Communicate the results to various interested users
• Auditing proceeds by means of

  An ordered and structured series of steps
• Enables the auditor to

  Conduct an audit in a more efficient way
• Auditor's overall objective

  Determine whether the assertions are valid
• Auditing should be

  • Conducted without bias
  • Auditor should make an impartial assessment of the relevant circumstances in forming conclusions
  • Bias should not override professional judgment
  • This is essential because the auditor's conclusion can influence the decisions of parties relying on the report
• Established Criteria


  • Essential to judge the validity of the assertions
  • Informs users about the basis against which the assertions are evaluated or measured
• Ultimate objective of any audit

  Communicate the results to various interested users
• To be useful, the audit results should be communicated in a timely manner
• Obtaining and Evaluating evidence about assertions regarding economic actions and events

  Corroborate or refute assertions
• Conducted to determine whether the financial statements of an entity are fairly presented in accordance with the applicable financial reporting framework.
• Involves a review of an organization’s procedures to determine whether the organization has adhered to the specific procedures, rules, or regulations.