Introduction to Auditing Ascertain the degree of correspondence
between assertions and established criteria
Standard Philippine Standard on
~ related to the assurance engagements
Auditing (PAS) 200
Types of Auditing
Auditing Definition
a. Financial Statement Audit
An audit is a systematic process of objectively
- determining if the financial statements
obtaining and evaluating evidence regarding
are fairly presented in accordance with
assertions about economic actions and events to
the standards.
ascertain the degree of correspondence between
b. Compliance Audit
these assertions and established criteria and
- involves the review of an organization’s
communicating the results to interested users.
procedures to determine whether the
Key Thoughts: organization has adhered specific
procedures, rules or regulations.
Systematic Process
c. Operation Audit
~ it is ordered and has structured steps (phase
- other terms: performance /
or audit cycle)
management audit.
AUDIT CYCLE - measures the performance.
- identify areas for improvements and
1. Pre-Planning
make recommendations to improve
~ looking for potential auditee /client
performance.
~ Engagement Risk – looking for the
capability to audit. Types of Auditors
~ if it’s high, do not accept
a. External Auditors
~ if it’s low, accept
- Auditors that are doing the financial
2. Planning
statements audit.
~ meet with the auditee
- Certified Public Accountants (CPA’s)
3. Test of Controls
-they’re in a contractual basis.
~ Control Risk
b. Internal Auditors
~ if it’s not effective, high risk
- the entity’s own employees investigate
~ if it’s effective, low risk
and appraise the effectiveness and
4. Substantive Testing
efficiency of operations and internal
5. Completion of Audit
controls.
6. Reporting / Opinion
- performs the operation audit.
Objectively obtaining and evaluating c. Government Auditor
evidence - government employee
~ there are assertions / representations - main concern is to determine whether
~ assertions that needs to evaluate the evidence persons or entities comply with
government laws and regulations.
Example: Presenting the inventory accurately
- doing the compliance audit.
and completely before the cut-off.
~ Objectively: related to neutrality / without
bias
Responsible on Financial Statements financial statements; and they’re
qualified to do so.
Management
3. Remoteness
- following the standard, regulations and
- having the access to the records
framework.
- an independent auditor is needed to
Auditor
assess them in verifying the reliability of
- the one performing the audit and serve
the information.
opinions.
4. Financial Consequences
General Principles governing the audit on - Misleading financial information could
Financial Statements have substantial economic consequences
for a decision-maker. It is therefore
a. Code of Ethics
important that financial statements be
- follow the guidelines
audited first before they are used for
- code of professional ethics (PSA 200)
making important decisions.
promulgated by BOA
5. Complexity of Subject Matter
need to comply
6. Business and Information Risk
Integrity – honest
Objectively – independent / “no Theoretical Framework of Auditing
bias”
Selected postulates, assumptions or ideas that
To Public Service support many auditing concepts and standards.
b. Philippine Standard on Auditing
- basic and essential principles 1. Audit function operates on the
- nice to, nice to do, and nice to be done assumption that all financial data are
c. Professional Skepticism verifiable.
- “plan and perform with an attitude of 2. The auditor should always maintain
professional skepticism” independence with respect to the
financial statements under audit.
Need for an Independent Financial 3. There should be no long-term conflict
Statement Audit between the auditor and the client
FACTORS: management.
4. Effective internal control system reduces
1. Conflict of Interest the possibility of errors and fraud
- others do window-dressing to their affecting the financial statements
financial statements. 5. Consistent application of Generally
- Managers are frequently placed in Accepted Accounting Principles (GAAP)
positions where they can benefit by or Philippine Financial Reporting
providing outside parties with overly Standards results in fair presentation of
optimistic are even false financial financial statements.
information. Recognizing this inherent 6. What was held true in the past will
conflict of interest, users of financial continue to hold true in the future in the
statements have become skeptical of absence of known conditions to the
unaudited financial statements. contrary.
2. Expertise 7. An audit benefits the public.
- auditor’s, accountants, or CPA’s study
the standards on how to present a
