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The Definition Coveys The Following Thoughts:: ST ND RD TH TH

The document defines auditing and outlines the key elements and types of audits. It discusses the roles and responsibilities of management and independent auditors. It also describes the general principles, theoretical framework, and major steps of the audit process.

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Christian Marito
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27 views

The Definition Coveys The Following Thoughts:: ST ND RD TH TH

The document defines auditing and outlines the key elements and types of audits. It discusses the roles and responsibilities of management and independent auditors. It also describes the general principles, theoretical framework, and major steps of the audit process.

Uploaded by

Christian Marito
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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CHAPTER 1: AUDIT – An Overview

ESSENTIAL ELEMENTS OF THE DEFINITION OF AUDIT

- SYSTEMATIC PROCESS
- EVIDENCE
- CORRESPONDENCE
- OBJECTIVE
- ASSERTIONS
- COMMUNICATE

Definition of AUDITING
 According to Philippine Standards of Auditing (PSA)
- Auditing enables the auditor to express an opinion whether the FS are prepared, in all
material respects, in accordance with an identified financial reporting.
 According to American Accounting Association (AAA)
- An audit is a systematic process of objectively obtaining and evaluating evidence regarding
assertions about economic actions and events to ascertain the degree of correspondence
between these assertions and established criteria and communicating the results to
interested users.

- The definition coveys the following thoughts:


(a) Auditing is a systematic process
(b) An audit involves obtaining and evaluating evidence about assertions regarding
economic actions and events
(c) An audit is conducted objectively
(d) Auditors ascertain the degree of correspondence between assertions and established
criteria.
(e) Auditors communicate the audit results to the interested users.

To illustrate the process of definition:


(1st) Independent Auditor
(2nd) Following a systematic process
(3rd) Objectively obtains and evaluate evidence
(4th) Establish the degree of correspondence between assertions and established criteria
(5th) Communicate the result to interested users.

Remember:
 ASSERTIONS – representations made by an auditee about economic actions and events
 ESTABLISHED CRITERIA – this is needed to judge the validity of the assertions

TYPES OF AUDITS
 Financial Statement Audit
Assertions: The FS are fairly presented
Established criteria: Financial reporting standards or other financial reporting framework
Auditor: External Auditor

 Compliance Audit
Assertions: The firm has complied with the laws, regulations or contracts
Established criteria: Laws, regulations or contract
Auditor: Government Auditor

 Operational Audit
Assertions: The firm’s activities are conducted effectively and efficiently
Established criteria: Objectives set by the BOD
Auditor: Internal Auditor

TYPES OF AUDITORS
 External Auditors
 Internal Auditors
 Government Auditors

Remember:
 MANAGEMENT – responsible for preparing and presenting the FS in accordance with the
financial reporting framework
 AUDITOR – responsible in forming and expressing an opinion on the FS
o Assurance provided by the auditor:
 An audit is conducted in accordance with PSA to provide only reasonable
assurance (not absolute assurance) that FS taken as a whole are free from
material misstatements.

ROLE OF MANAGEMENT AND INDEPENDENT AUDITOR


 MANAGEMENT
Process: (1st) Prepares FS
(2nd) Unaudited FS
(3rd) Audited FS
(4th) Users of FS

 INDEPENDENT AUDITOR
Process: (1st) Evaluates FS
(2nd) Audit Report on FS
(3rd) Users of FS

GENERAL PRINCIPLES GOVERNING THE AUDIT OF FS


(a) The auditor should comply with the “Code of Professional Ethics”
(b) The auditor should conduct an audit in accordance with PSA
(c) The auditor should plan and perform the audit with an attitude of Professional Skepticism
Remember:
 Professional Skepticism – means the auditor makes a critical assessment, with a questioning
mind, of the validity of audit evidence obtained and is alert to audit evidence that contradicts or
bring into questions the reliability of documents or management representations.

THEORITICAL FRAMEWORK OF AUDITING

Below are selected postulates, assumptions or ideas that support many auditing concepts and
standards:
(1) Audit function operates on the assumption that all financial data are verifiable
(2) The auditor should always maintain independence with respect to the FS under audit
(3) There should be no long-term conflict between the auditor and the client management
(4) Effective internal control system reduces the possibility of errors and fraud affecting the FS
(5) Consistent application of GAAP or PFRS results in fair presentation of FS
(6) What was held true in the past will continue to hold true in the future in the absence of known
conditions to the contrary
(7) An audit benefits the public.

GENERAL PRINCIPLES
- PSA COMPLIANCE - Auditor should conduct the audit in accordance with PSA.
- CODE OF ETHICS - Auditors must adhere to standards of ethical conduct.
- MANAGEMENT RESPONSBILITY - The management is responsible for preparing and presenting
the FS.
- PROFESSIONAL SKEPTICISIM - Auditor should plan and perform the audit with a questioning
mind.
- REASONABLE ASSURANCE - Auditor’s opinion on the FS is not a guarantee that the FS are
dependable.

OBJECTIVE OF FS AUDIT
- To obtain reasonable assurance about whether the financial statements as a whole are free
from material misstatement, whether due to fraud or error, thereby enabling the auditor to
express an opinion on whether the financial statements are prepared, in all material respects, in
accordance with an applicable financial reporting standard.

MAJOR STEPS OF THE AUDIT PROCESS


PHASE 1. PRE-ENGAGEMENT & AUDIT PLANNING
PHASE 2. GATHERING & EVALUATING EVIDENCE
PHASE 3. ISSUING THE AUDIT REPORT

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