AUDITING (competence)

The accumulation and  Qualified to understand the

evaluation of evidence about criteria used
information to determine and  Know the types and amount
report on the degree of of evidence to accumulate
correspondence between the in order to reach proper
information and established conclusion after examining
criteria. evidence
 Quality control (PSQC)
Auditing should be done by a
competent, independent person. Independent person
(independence)
Information and Established  Must not be biased in the
criteria accumulation and
 Information (verifiable evaluation of evidence
form)  Event internal auditors
 Criteria (standards) (although employed) should
 Information may be be independent
quantifiable (FS) or  Must be independent of
subjective (effectiveness of mind and appearance
systems)  Code of ethics for
 Criteria is dependent upon professional accountants in
what information is audited the Philippines.
Information Criteria Reporting
Financial PFRS The final stage in the
statements auditing process is preparing the
Internal control COSO audit report, which communicates
framework the auditor’s findings to users.
Corporate SEC rules in
governance CG Reports differ in nature, but all
must inform readers of the degree
of correspondence between the
Accumulating and Evaluating information audited and
evidence established criteria.
 Evidence is ay information
used by the auditor to Reports also differ in form ad can
determine whether the vary from highly technical type
information being audited is usually associated with financial
stated in accordance with statement audits to a simple oral
established criteria. report in the case of an
 Forms of evidence operational audit of a small
o Transaction data department’s effectiveness
o Communication with
The Audit process
outsiders
o Observations
o Client testimony
 Auditors must obtain
sufficient and appropriate
audit evidence to satisfy
the purpose of the audit
Competent person
 Pre-engagement 1. Remoteness of
activities information
Entity prepares and presents
FS 2. Biases and motives of the
provider
planning activities 3. Voluminous data
The Auditor perfroms audit 4. Complex exchange
procedures
transactions

Evidence gathering
The Auditor gathers audit How to reduce information risk? :
evidences
1. User verifies information –
Reporting
the user may go to the
The Auditor expresses in audit
business to verify the
opinion information. This is often
costly and impractical
2. User shares information risk
Accounting Auditing with management –
The recording, Focuses on management may be held
classifying, determining responsible in a lawsuit if
and whether inaccurate information is
summarizing recorded provided
of economic information 3. Audited financial statement
events to properly are provided – external
provide reflects the auditors are engaged to
financial economic provide assurance that the
information for events that financial statements are
decision occurred reliable.
making during the
accounting
period Assurance Services
Auditors must possess expertise (Engagement)
in the accumulation and An independent
interpretation of audit evidence. professional service that improves
the quality of information for
decision makers
Economic demand for auditing
 Information risk reflects the It also means an engagement in
possibility that the which a practitioner expresses a
information upon which a conclusion designed to enhance
business decision was the degree of confidence of
made was inaccurate. intended users other than the
 Auditing of financial responsible party about the
information reduces outcome of the evaluation or
information risk to the measurement of a subject matter
users of financial against criteria.
information. Assurance services can be
Information risk provided by CPAs or other
professionals

Causes of information risk Assurance services by CPAs have

been common for years,
especially regarding historical CPA firms perform numerous
statement information other services that generally fall
outside the scope of assurance
Assurance- refers to the services
practitioners satisfaction as to
reliability of an assertion being Independence is not required
made by one party for use by since no assurance is provided
another party.
Example:
 Accounting and
Attestation service
bookkeeping services
An attestation service is a type of
 Tax services
service in which the CPA issues a
 Management consulting
report about a subject matter or
services
assertion that is made by another
party.
Assurances services
This is one category of assurance Attestation Services
services provided by CPAs Audits (PSA)
 Audits of historical financial Reviews (PSRE)
statement Other assurance services (PSAE)
 Audits if internal control
over financial reporting Non-assurance services
 Reviews of historical bookkeeping
financial statements tax services
 Other attestation that may agreed upon procedures
be applied to a broad range management services
of subjects
Other assurance services Types of audits
These do not meet the definition 1. Operational audit –
of attestation service. A written evaluates the efficiency and
report is not required, and it need effectiveness of any part of
not be about reliability or an organization’s operating
compliance procedures and methods
2. Compliance audit –
determines the auditee is
following specific
Examples:
procedures, rules, or
1. Mystery shopping – regulations set by some
anonymous shopping to higher authority
assess sales personnel 3. Financial statement audit –
dealings with customers determines whether the
and procedures they follow financial statement are
2. ISO 9000 certifications – stated in accordance with
certify a company’s PFRS
compliance with ISO 9000
Types of Auditors
quality control standards
1. CPA firms
which help ensure company
2. Government auditors
products are of high
3. Internal auditor
quality.
Activities of CPA firms
Non-assurance services
  Provide audit services as Two primary reasons why
well as other attestation people act unethical:
and assurance services 1. The person’s ethical
 Also provide accounting standards differ from
and bookkeeping services, general society
tax services, and 2. Person chooses to act
management consulting selfishly
and risk advisory services
 CPA firms vary in nature
and range of services, Code of professional conduct
which affects the structure Consists of principles and rules, in
of the firms addition to interpretations.

Quality control Only members in public practice

 For a CPA firm, quality can audit financial statement
control includes the
The code establishes a conceptual
methods used to ensure
framework for all professional
that the firms meets its
accountants to ensure compliance
professional responsibilities
within the five fundamental
to clients
principles of ethics:
 Each firms should
document quality control 1. Integrity – straightforward
policies and procedures. and honest in all
The quality control system professional and business
should address the six relationship
elements: 2. Objectivity – should not
1. Leadership allow bias, conflict of
responsibilities for interest or undue influence
quality within he firm of others
2. Relevant ethical 3. Professional competence
requirements and due care- maintain
3. Acceptance and professional knowledge and
continuation of client skill at the level required
relationship and 4. Confidentiality – should not
specific disclose any such
engagements information to third parties
4. Human resources without proper and specific
5. Engagement authority
performance 5. Professional behaviour –
6. Monitoring should comply with the
relevant laws and
Professional Ethics
regulations and should
Ethics can be defined as a set of avoid any action that
moral principles or values. Ethical discredits the profession
behaviour is necessary for a
society to function in an orderly Compliance with the fundamental
manner principles may potentially be
threatened by a broad range of
The need for ethics in society is circumstances:
sufficiently important that many
commonly held values are 1. Self-interest threats –
incorporated into laws 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
Safeguard to threats
1. Created by profession,
legislation, or regulation
2. Work environment