Assurance Non-Assurance

AUDIT REVIEW OTHERS RELATED SERVICES

PSA PSRE PSAE PSRS

*FS Audits *Review of *Examination *Agreed-upon procedures

*Audits of FS of *Compilation of financial or
Internal **Review of Prospective other information
Control Interim FS
over Information *Performance
FInancials Review
*Risk Advisory
 ASSURANCE SERVICES CONSULTING SERVICES
Parties Three-party Two-party contracts
Involved contracts

Primary To improve quality To recommend uses for

purpose of information information

Focus Decision makers and Outcomes

information used
for optimum
decisions

Output’s Intended to improve Designed to improve

Objective decision maker’s client’s condition
condition indirectly through findings,
through conclusions and
recommendations recommendations
An engagement in which a practitioner
expresses a conclusion designed to
enhance the degree of confidence of
the intended users other than the
responsible party about the outcome of
the evaluation or measurement of a
subject matter against criteria.
 Type Objective Conclusion
Reasonable Reduction in assurance Positive form of
assurance engagement risk to an expression of the
engagement acceptably low level in the practitioner’s
circumstances of the conclusion
engagement
Limited Reduction in assurance Negative form of
assurance engagement risk to a level expression of the
engagement that is acceptable in the practitioner’s
circumstances of the conclusion
engagement, but where the
risk is greater than for a
reasonable assurance
engagement, as the basis for
a practitioner’s conclusion
žA three-party relationship
*the practitioner
*responsible party
*intended users

žA subject matter
ž Suitable criteria
ž Sufficient Appropriate Evidence
ž Assurance report
žAttestation
žAssurance
žAuditing
 Don’ts in a Non-Assurance Report:
v Implying compliance with this Framework,
PSAs, PSREs or PSAEs.
v Inappropriately using the words “assurance”,
“audit”, or “review”.
v Including a statement that could reasonably
be mistaken for a conclusion designed to
enhance the degree of confidence of
intended users about the outcome of the
evaluation or measurement of a subject
matter against criteria.
A systematic process of objectively obtaining
and evaluating evidence regarding selected
assertions about economic actions and
events to ascertain the degree of
correspondence between those assertions
and established criteria and communicating
the results to interested users.
žExistence or occurrence
žCompleteness
žRights and obligations
žValuation or allocation
žDisclosure and presentation
ž Compliance audit
ž Management audit
ž Performance audit
ž Comprehensive audit

ž Operational audit
ž Internal audit

ž Environmental audit
ž Forensic audit
ž External (independent) auditor
ž Internal auditor
ž Government auditor
ž Forensic auditor
 Aspect of
Comparison Auditing Review Related Services
Nature of Audit Review Agreed-upon Compilation
Service procedures
Level of High, but not Moderate None None
assurance absolute
Report Positive Negative Factual findings Identification of
provided assurance (on assurance (on procedures information
assertions) assertions) compiled
Procedures Select from all Inquiry and Procedures Reduce detailed
available analytical agreed-upon with data to a
procedures any procedures the specified manageable and
combination that designed to review user(s) understandable
can limit audit reliability of an form
risk to an assertion
appropriately low
level
Features Auditor’s opinion Audit skills & Recipients of the Acctg not auditing
enhances techniques applied report form their expertise used;
credibility of FS; but accounting & own conclusions; benefits derived by
absolute internal control report is users arise from
assurance not systems not restricted to the the service that
attainable assessed parties in the was rendered with
contract due professional
skill & care
 Similarities Differences

INDEPENDENCE NATURE OF REPORTING

Both types of auditors need to be One difference is their relationship

independent to function effectively, to the company. Internal auditors
although they define independence prepare reports for management
differently. External auditors are that are rarely read by anyone
not allowed to be employees of or outside the company.
hold shares in the company they are External auditors, on the other
auditing, whereas internal auditors hand, prepare reports that often
are usually employees of the have a wide readership .
company.
 Similarities Differences
EVIDENCE AUDIT FOCUS

Both gather evidence so that they Internal auditors assess the

can report on aspects of the effectiveness, efficiency, and
company’s operations. economy of the operations of the
company and may or may not audit
financial statements. External
auditors focus on the company’s
financial statements.

QUALIFICATIONS INTERNAL CONTROL

Both should be competent, External auditors need to gain an

adequately trained, and diligent in understanding of and evaluate the
exercising due care in their internal control of the company
activities. being audited, whereas internal
auditors are part of that internal
control.
 Similarities Differences
EVIDENCE AUDIT FOCUS

Both gather evidence so that they Internal auditors assess the

can report on aspects of the effectiveness, efficiency, and
company’s operations. economy of the operations of the
company and may or may not audit
financial statements. External
auditors focus on the company’s
financial statements.

QUALIFICATIONS INTERNAL CONTROL

Both should be competent, External auditors need to gain an

adequately trained, and diligent in understanding of and evaluate the
exercising due care in their internal control of the company
activities. being audited, whereas internal
auditors are part of that internal
control.
 Similarities Differences
OBJECTIVITY

Because of the nature of their

relationship to management, both
external and internal auditors face
pressure to compromise their
independence. For external
auditors, pressure arise from the
contractual relationship with the
client. For internal auditors,
pressures arise from the
employment relationship. Both
external and internal auditors need
to be aware of these pressures and
to have a strong ethical
commitment to be objective in
their work.
 Similarities Differences
TYPE OF AUDIT TYPE OF AUDIT

External auditors may perform Financial statement audits are

operational audits (for example, a usually performed by external
company that does not have an auditors who are hired as
internal audit department may need independent contractors by a
its external auditor to audit the company and who normally report
effectiveness and economy of its to parties other than management.
operations).
Operational audits are usually
Internal auditors may perform performed by internal auditors who
financial audits (for example, when are employees of a company and
the internal audit department of a who report to management and/or
company performs a financial audit to other parties, whereas internal
of a subsidiary that is to be sold). auditors would always report to
management regardless of the type
of audit.
GENERAL STANDARDS
1. The examination is to be performed by a
person or persons having adequate technical
training and proficiency as an auditor.
2. In all matters relating to an engagement, an
independence in mental attitude is to be
maintained by the auditor.
3. Due professional care is to be exercised in
the performance of the audit and in the
preparation of the report.
STANDARDS OF FIELDWORK
4. The work is to be adequately planned and
assistants, if any, are to be properly
supervised.
5. There is to be a proper study and evaluation
of the existing internal control as a basis for
reliance thereon and for the determination of
the resultant extent of the tests to which
auditing procedures are to be restricted.
6. Sufficient, competent evidential matter is to
be obtained through inspection, observation,
inquiries, and confirmations to afford a
reasonable basis for an opinion regarding the
financial statements under examination.
STANDARDS OF REPORTING
7. The report shall state whether the financial
statements are presented in accordance with
generally accepted accounting principles.
8. The report shall identify those circumstances
in which principles have not been
consistently observed in the current period
in relation to the preceding period.
9. Informative disclosures in the financial
statements are to be regarded as reasonably
adequate unless otherwise stated in the
report.
10. The report shall either contain an
expression of opinion regarding the
financial statements, taken as a whole, or
an assertion to the effect that an opinion
cannot be expressed. When an overall
opinion cannot be expressed, the reasons
therefore should be stated. In all cases
where an auditor’s name is associated with
financial statements, the report should
contain a clear-cut indication of the
character of the auditor’s examination, if
any, and the degree of responsibility he is
taking.
 What is
an Audit?
The objective of an audit of financial
statements is to enable the auditor
to express an opinion whether the
financial statements are prepared,
in all material respects, in
accordance with applicable financial
reporting framework.
(a) The auditor is responsible for forming
an opinion on the financial
statements.
(b) Management is responsible for
identifying the financial reporting
framework to be used while the
auditor should determine whether
such financial reporting framework
adopted by management is
acceptable.
1) The auditor should comply with relevant ethical
requirements relating to audit engagements
** integrity and objectivity, professional competence and due
care, confidentiality, professional behavior, and technical
standards.
2) The auditor should conduct the audit in
accordance with PSAs.
3) The auditor should plan and perform the audit
with an attitude of professional skepticism.
4) Reduce the audit risk to an acceptably low level
that is consistent with the objective of an audit.
žMaterialmisstatement
žReasonable assurance
žSampling

INHERENT LIMITATION:
Audit Evidence is persuasive
rather than conclusive.
1) Audit Risk
2) Materiality
3) Audit Evidence
ž Top-down approach
ž Balance sheet approach
ž Transaction cycle approach
ž Systems approach
ž Verification or substantive approach
ž Risk-based audit approach
ž Financial risk-analysis approach
ž Strategic business risk approach
ž Continuous audit approach
ž In-depth vs. Non in-depth approach
ž Analysis vs. Non-analytical approach
The attest function of audit.

The conclusions reached are formally

communicated to users of financial statements
through the “Independent Auditor’s Report”.
1) Standard Auditor’s Report
2) Modified Auditor’s Report
žUnqualified (Unmodified)

Modified:
žQualified
žAdverse
žDisclaimer of Opinion
thank
you!