Chapter 1: TYPES OF AUDITS:

➔​ Primary function of an INDEPENDENT Financial Statement Audit

AUDIT is to lend credibility to the ➔​ To determine whether the financial
financial statements prepared by an statements of an entity are fairly
entity. presented in accordance with an
➔​ The auditor’s opinion enhances the identified financial reporting
value and usefulness of the financial framework.
statements.
Compliance Audit
Auditing Defined: ➔​ Involves a review of an organization’s
➢​ An Audit is a systematic process of procedures to determine whether the
objectively obtaining and evaluating organization has adhered to specific
evidence regarding assertions about procedures, rules and regulations.
economic actions and events to ➔​ The performance of compliance audit
ascertain the degree of is dependent upon the existence of
correspondence between these verifiable data and recognized criteria
assertions and established criteria and established by an authoritative body.
communicating the results to
interested users Operational audit
➔​ A study of a specific unit of an
Auditing is a systematic process - means of organization for the purpose of
an ordered and structured series of step measuring its performance.
➔​ Main objective is to assess an
An audit involves obtaining and evaluating entity's performance, identify areas
evidence about assertions regarding for improvements, and make
economic actions and events - Assertions recommendations to improve
are representations made by an auditee about performance.
economic actions and events. The auditor’s ➔​ This type of audit is also known as
objective is to determine whether these performance audit or management
assertions are valid. To satisfy this objective, audit.
the auditor performs audit procedures and
gathers evidence that corroborates or refutes
the assertions. TYPES OF AUDITORS:

An audit is conducted objectively - The External auditors

auditor should conduct the audit without bias. ➔​ Independent CPAs who offer their
Impartial attitude must be maintained by the professional services to different on a
auditor when evaluating evidence and contractual basis.
formulating his conclusion. ➔​ Are the ones who generally perform
financial statement audits.
Auditors ascertain the degree of
correspondence between assertions and Internal auditors
established criteria - Established criteria ➔​ Entity;s own employees who
are needed to judge the validity of the investigate and appraise the
assertions. effectiveness and efficiency of
operations and internal controls.
Auditors communicate the audit results to ➔​ The main function of internal auditors
various interested users - The is to assist the members of their
communication of audit findings is the ultimate responsibilities.
objective of any audit. For the audit to be ➔​ Internal auditors usually perform
useful, the results must be communicated to operational audits.
interested users on a timely basis.
Government auditors 1.​ The use of testing/sampling risk
➔​ Government employees whose main 2.​ Error in application of
concern is to determine whether judgment/non-sampling risk
persons or entities comply with 3.​ Reliance on management’s
government laws and regulations. representation
➔​ Government auditors usually conduct 4.​ Inherent limitations of the client’s
compliance audit accounting and internal control
systems
INDEPENDENT FINANCIAL STATEMENT 5.​ Nature of evidence
AUDIT:
➔​ The objective of an audit of financial ❖​ General principles governing the
statements is to enable the auditor to audit of financial statements
express an opinion whether the ➢​ The procedures required to
financial statements are prepared, in conduct an audit in
all material respects, in accordance accordance with PSAs should
with an identified financial reporting be determined by the auditor
framework or acceptable financial having regard to the
reporting standards. requirements of PSAs,
relevant professional bodies,
❖​ Responsibility for the financial legislations, regulations, and
statements: where appropriate, the terms
➢​ The management is of the engagement and the
responsible for preparing and reporting requirements. PSA
presenting the financial provides the following
statements in accordance with guidelines when auditing
the financial reporting financial statements:
framework 1.​ The auditor should
➢​ The auditor’s responsibility is comply with the
to form and express an “Code of Ethics for
opinion on these financial Certified Public
statements based on his audit. Accountants”
promulgated by the
❖​ Assurance provided by the auditor BOA.
➢​ The auditor’s opinion on the 2.​ The auditor should
financial statements is not a conduct an audit in
guarantee that the financial accordance with
statements are dependable. Philippine Standards
➢​ An audit conducted in on Auditing.
accordance with Philippine 3.​ The auditor should
Standards on Auditing (PSA) plan and perform the
is designed to provide only audit with an attitude
REASONABLE ASSURANCE of professional
(not absolute assurance) that skepticism
the financial statements taken recognizing that
as a whole are free from circumstances may
material misstatements. exist which may
➢​ There are always Inherent cause the financial
Limitations that affect the statements to be
auditor’s ability to detect materially misstated.
material misstatements.
These limitations result from
such factors as:
❖​ Need for an independent financial Chapter 2:
statement audit
1.​ Conflict of interest between ➔​ Standards are established to
management and users of measure the quality of performance of
financial statements individuals and organizations.
2.​ Expertise ➔​ Standards relating to the accounting
3.​ Remoteness profession concern themselves with
4.​ Financial consequences CPA’s professional qualities, the
judgment exercised by the CPAs in the
❖​ Theoretical framework of Auditing performance of their professional
1.​ Audit function operates on the engagement, and the CPA firm’s
assumption that all financial quality control policies and
data are verifiable procedures.
2.​ The auditor should always
maintain independence with GENERALLY ACCEPTED AUDITING
respect to the financial STANDARDS (GAAS)
statements under audit ➔​ Represents measures of the quality of
3.​ There should be no the auditor’s performance. These
long-term conflict between standards should be looked at as a
the auditor and the client minimum standard of the performance
management that auditors should follow.
4.​ Effective internal control
system reduces the possibility General Standards
of errors and fraud affecting ❖​ Technical training and Proficiency
the financial statements ❖​ Independence
5.​ Consistent application of ❖​ Professional care
GAAP or PFRS
6.​ What was held true in the past Standards of Fieldwork
will continue to hold true in the ❖​ Planning
future in the absence of ❖​ Internal Control Consideration
known conditions to the ❖​ Evidential matter
contrary. - Continuity
7.​ An audit benefits the public. Standards of Reporting
❖​ GAAP
❖​ Inconsistency
❖​ Disclosure
❖​ Opinion

PHILIPPINE STANDARDS ON AUDITING

➔​ The Auditing and Assurance
Standards Council (AASC) has been
given the task to promulgated auditing
standards, practices, and procedures,
which shall be generally accepted by
the accounting profession in the
Philippines.

Practice Statements - are additions to these

standards to provide practical assistance to
auditors in implementing the standards and to
promote good practice in the accountancy
profession.
SYSTEM OF QUALITY CONTROL provide it with reasonable
assurance that it will only
Quality Control - are policies and procedures undertake or continuance
adopted by CPAs to provide reasonable relationships and engagement
assurance of conforming with professional where it:
standards in performing audit and related a.​ Has considered the
services integrity of client
b.​ Is competent to
➔​ Under Philippine Standards on Quality perform the
Control (PSQC), a firm has an engagement and has
obligation to establish a system of the capabilities, time,
quality control designed to provide it and resources to do
with reasonable assurance that the so
firm and its personnel comply with c.​ Can comply with
professional standards and regulatory ethical requirements
and legal requirements, and that the
reports issued by the firm are ❖​ Human resources and assignment
appropriate in the circumstances. ➔​ The firm should establish
policies and procedures
designed to provide it with
ELEMENTS OF A SYSTEM OF QUALITY reasonable assurance that it
CONTROL: has sufficient personnel with
capabilities, competence, and
❖​ Leadership Responsibilities for commitment to ethical
Quality on Audits principles necessary to
➔​ The engagement partner perform engagement.
should take responsibility for a.​ Recruitment
the overall quality on each b.​ Performance
audit engagement to which evaluation,
the partner is assigned. compensation and
promotion
❖​ Ethical Requirements c.​ Capabilities and
a.​ Integrity competence
b.​ Objectivity d.​ Career development
c.​ Professional competence and e.​ Assignment of
due care engagement teams
d.​ Confidentiality
e.​ Professional behavior ❖​ Engagement Performance
➔​ The engagement partner
❖​ Independence should take responsibility for
➔​ The engagement partner the:
should form a conclusion on -​ Direction
compliance with -​ Supervision
independence requirements -​ Review
that apply to the audit -​ Consultation
engagement. -​ Engagement quality
control review
❖​ Acceptance and continuance of -​ Differences of opinion
client relationships
➔​ The firm should establish
policies and procedures for
the acceptance and
continuance of client
relationships and specific
engagements, designed to
 ❖​ Monitoring
➔​ The continued adequacy and
operational effectiveness of
quality control policies and
procedures is to be monitored.
Policies and procedures must
be adopted to provide
reasonable assurance that the
systems of quality control are
relevant, adequate, and
operating effectively.

QUALITY CONTROL REVIEW

➔​ The government thru the Professional
Regulatory Board of Accountancy
(BOA) has required all CPA firms and
individual CPAs in public practice
accountancy. Such certificate is valid
for three years and can be renewed
after complying with the requirements
of the BOA