AUDITING  Must not be biased in the

The accumulation and evaluation accumulation and evaluation of

of evidence about information to determine evidence
and report on the degree of correspondence  Event internal auditors (although
between the information and established employed) should be independent
criteria.  Must be independent of mind and
appearance
Auditing should be done by a competent,
 Code of ethics for professional
independent person.
accountants in the Philippines.
Information and Established criteria
Reporting
 Information (verifiable form)
The final stage in the auditing
 Criteria (standards) process is preparing the audit report, which
 Information may be quantifiable communicates the auditor’s findings to
(FS) or subjective (effectiveness of users.
systems)
 Criteria is dependent upon what Reports differ in nature, but all must
information is audited inform readers of the degree of
correspondence between the information
Information Criteria audited and established criteria.
Financial PFRS
statements Reports also differ in form ad can vary
Internal control COSO framework from highly technical type usually
Corporate SEC rules in CG associated with financial statement audits
governance to a simple oral report in the case of an
operational audit of a small department’s
effectiveness
Accumulating and Evaluating evidence
 Evidence is ay information used by The Audit process
the auditor to determine whether
the information being audited is
stated in accordance with Pre-engagement activities
established criteria. Entity prepares and presents FS

 Forms of evidence
o Transaction data planning activities
o Communication with The Auditor perfroms audit
outsiders procedures
o Observations
o Client testimony
Evidence gathering
 Auditors must obtain sufficient and The Auditor gathers audit evidences
appropriate audit evidence to
satisfy the purpose of the audit
Competent person (competence) Reporting
The Auditor expresses in audit opinion
 Qualified to understand the criteria
used
 Know the types and amount of
evidence to accumulate in order to Accounting Auditing
reach proper conclusion after The recording, Focuses on
examining evidence classifying, and determining
 Quality control (PSQC) summarizing of whether recorded
economic events to information
Independent person (independence)
 provide financial properly reflects It also means an engagement in which a
information for the economic practitioner expresses a conclusion
decision making events that designed to enhance the degree of
occurred during confidence of intended users other than the
the accounting responsible party about the outcome of the
period evaluation or measurement of a subject
Auditors must possess expertise in the matter against criteria.
accumulation and interpretation of audit
Assurance services can be provided by
evidence.
CPAs or other professionals
Assurance services by CPAs have been
Economic demand for auditing
common for years, especially regarding
 Information risk reflects the historical statement information
possibility that the information
upon which a business decision Assurance- refers to the practitioners
was made was inaccurate. satisfaction as to reliability of an
 Auditing of financial information assertion being made by one party for
reduces information risk to the use by another party.
users of financial information.
Information risk Attestation service
An attestation service is a type of service in
which the CPA issues a report about a
Causes of information risk subject matter or assertion that is made by
1. Remoteness of information another party.
2. Biases and motives of the
provider This is one category of assurance services
3. Voluminous data provided by CPAs
4. Complex exchange transactions
 Audits of historical financial
statement
How to reduce information risk? :  Audits if internal control over
financial reporting
1. User verifies information – the  Reviews of historical financial
user may go to the business to statements
verify the information. This is  Other attestation that may be
often costly and impractical applied to a broad range of
2. User shares information risk with subjects
management – management may
be held responsible in a lawsuit if Other assurance services
inaccurate information is provided These do not meet the definition of
3. Audited financial statement are attestation service. A written report is not
provided – external auditors are required, and it need not be about
engaged to provide assurance that reliability or compliance
the financial statements are
reliable.
Examples:

Assurance Services (Engagement) 1. Mystery shopping – anonymous

An independent professional shopping to assess sales personnel
service that improves the quality of dealings with customers and
information for decision makers procedures they follow
 2. ISO 9000 certifications – certify a  Provide audit services as well as
company’s compliance with ISO other attestation and assurance
9000 quality control standards services
which help ensure company  Also provide accounting and
products are of high quality. bookkeeping services, tax services,
and management consulting and
Non-assurance services
risk advisory services
CPA firms perform numerous other
 CPA firms vary in nature and
services that generally fall outside the
range of services, which affects the
scope of assurance services
structure of the firms
Independence is not required since no
Quality control
assurance is provided
 For a CPA firm, quality control
Example: includes the methods used to
ensure that the firms meets its
 Accounting and bookkeeping professional responsibilities to
services clients
 Tax services  Each firms should document
 Management consulting services quality control policies and
procedures. The quality control
Assurances services system should address the six
Attestation Services elements:
Audits (PSA) 1. Leadership responsibilities
Reviews (PSRE) for quality within he firm
Other assurance services (PSAE) 2. Relevant ethical
requirements
Non-assurance services 3. Acceptance and
continuation of client
bookkeeping relationship and specific
tax services engagements
agreed upon procedures 4. Human resources
management services 5. Engagement performance
6. Monitoring
Types of audits
Professional Ethics
1. Operational audit – evaluates the
Ethics can be defined as a set of moral
efficiency and effectiveness of any
principles or values. Ethical behaviour is
part of an organization’s operating
necessary for a society to function in an
procedures and methods
orderly manner
2. Compliance audit – determines the
auditee is following specific The need for ethics in society is
procedures, rules, or regulations sufficiently important that many commonly
set by some higher authority held values are incorporated into laws
3. Financial statement audit –
determines whether the financial Two primary reasons why people act
statement are stated in accordance unethical:
with PFRS 1. The person’s ethical standards
differ from general society
Types of Auditors 2. Person chooses to act selfishly
1. CPA firms
2. Government auditors
3. Internal auditor Code of professional conduct
Activities of CPA firms
Consists of principles and rules, in addition Safeguard to threats
to interpretations. 1. Created by profession, legislation,
or regulation
Only members in public practice can audit
2. Work environment
financial statement
The code establishes a conceptual
framework for all professional accountants
to ensure compliance within the five
fundamental principles of ethics:
1. Integrity – straightforward and
honest in all professional and
business relationship
2. Objectivity – should not allow
bias, conflict of interest or undue
influence of others
3. Professional competence and due
care- maintain professional
knowledge and skill at the level
required
4. Confidentiality – should not
disclose any such information to
third parties without proper and
specific authority
5. Professional behaviour – should
comply with the relevant laws and
regulations and should avoid any
action that discredits the profession
Compliance with the fundamental
principles may potentially be threatened by
a broad range of circumstances:
1. Self-interest threats – results from
financial or other interest of a
professional accountant
2. Self-review threats – when a
previous judgement needs to be re-
evaluated by the professional
accountant responsible
3. Advocacy threats – when a
professional accountant promotes a
position or opinion to the point that
subsequent objectivity may be
compromised
4. Family threats – because of a close
relationship, becomes too
sympathetic to interest of others
5. Intimidation threats – accountants
may be deterred from acting
objectively by threats, actual or
perceived