Types of Audits General Characteristics of Audits

Despite the differences among the various types of

1. Financial Statements Audit audits, they all share common characteristics that
This type of audit assesses whether an entity’s ensure their effectiveness and reliability:
financial statements are presented fairly according
to the applicable financial reporting framework, such
as GAAP or IFRS. The primary goal is to ensure
accuracy and transparency in financial reporting,
providing stakeholders with confidence in the 1. Systematic Examination and Evaluation
reported financial position and performance of the All audits involve a structured and methodical
organization. approach to examining and evaluating the relevant
information. This process aims to ascertain whether
2. Operational Audit the assertions made during the audit (such as the
An operational audit focuses on a specific unit or fairness of financial statements, operational
department within an organization to evaluate its efficiency, or compliance with laws) adhere to the
performance. The auditor examines processes and established criteria. A systematic examination
practices to express an opinion on the effectiveness ensures that the audit is thorough, reliable, and free
and efficiency of operations. The aim is to identify from biases, allowing auditors to form valid
areas for improvement and ensure that resources conclusions based on evidence.
are being utilized optimally to achieve
organizational goals.

3. Compliance Audit
This audit involves reviewing an organization’s 2. Communication
adherence to specific procedures, rules, or Effective communication is crucial in the auditing
regulations. The objective is to ascertain the degree process. After completing the examination, auditors
of compliance with laws and regulations imposed by must convey their findings to the appropriate
higher authorities. This type of audit helps ensure parties. This is typically done through a written
that the organization operates within legal and report that outlines the results of the audit, including
regulatory frameworks, reducing the risk of legal any opinions, conclusions, and recommendations.
issues and enhancing operational integrity. Clear and concise communication is essential, as it
provides stakeholders with valuable insights into the
audit findings and helps facilitate informed
Comparison of Audit Types decision-making.

Financial Statements Audit: This audit assures

stakeholders that the financial statements provide a
true and fair view of the entity’s financial position.
External auditors carry out these audits, using
established financial reporting frameworks as
criteria to assess the accuracy and fairness of
financial statements.

Operational Audit: Focused on the efficiency and

effectiveness of specific operations within an
organization, this audit aims to evaluate whether
operational goals are being met. Internal auditors
typically conduct these audits, providing
recommendations for enhancing performance
based on the objectives set by management.

Compliance Audit: This type of audit checks if the

organization adheres to laws and regulations
relevant to its operations. Conducted mainly by
government auditors, the compliance audit helps
ensure that the organization is not only legally
compliant but also follows internal policies and
contractual obligations.
Professional Standards in Auditing Generally Accepted Auditing Standards (GAAS)
When auditors conduct financial statement audits, Generally Accepted Auditing Standards (GAAS) are
they assume significant professional responsibilities a set of guidelines that define the minimum
that ensure the integrity and reliability of their acceptable level of auditor performance. They are
findings. Adherence to these professional standards crucial in ensuring the quality and consistency of
is essential for maintaining public trust and the audits across various organizations and industries.
credibility of the audit process. Key points to GAAS serves as a foundation for the auditing
consider include: profession and encompasses three main
categories:
1. Importance of Professional Standards:
An auditor’s opinion must be based on 1. General Standards: These standards pertain to
examinations conducted in accordance with the qualifications and conduct of auditors. They
established professional standards. These emphasize the need for auditors to possess
standards serve as a framework for auditors, adequate technical training and proficiency,
guiding them in performing their duties with maintain independence in mental attitude, and
diligence and integrity. exercise due professional care throughout the audit
process.

2. Consequences of Non-Compliance:
Failure to comply with professional standards can 2. Standards of Fieldwork: These standards focus
expose auditors to various risks, including loss of on the actual performance of the audit. They require
public respect, damage to their professional auditors to adequately plan their work, supervise
reputation, and potential legal liabilities. Auditors any assistants, study and evaluate internal controls,
must understand that their compliance with these and obtain sufficient competent evidential matter to
standards not only reflects their personal support their conclusions.
professionalism but also affects the overall
perception of the auditing profession.
3. Standards of Reporting: These standards guide
how auditors should communicate their findings and
3. Quality Measurement: opinions. They stipulate that the audit report must
Professional standards are established to measure state whether the financial statements are
the quality of performance of auditors, both presented in accordance with applicable financial
individually and collectively. These standards help reporting frameworks, identify any inconsistencies
ensure that audits are conducted thoroughly and in the application of accounting principles, evaluate
that the findings are reliable, ultimately benefiting the adequacy of disclosures, and express an overall
stakeholders who rely on the accuracy of financial opinion or state the reasons if an opinion cannot be
statements. provided.

4. Generally Accepted Auditing Standards (GAAS): Importance of GAAS

The Board of Accountancy (BOA) in the Philippines GAAS represents the quality benchmarks that
has promulgated ten Generally Accepted Auditing auditors should strive to meet, ensuring that their
Standards (GAAS). These standards set the work is reliable and credible. By adhering to these
required level of quality for performing financial standards, auditors not only protect the interests of
statement audits and are crucial for ensuring stakeholders but also enhance the overall integrity
consistency and reliability in the audit process. of the auditing profession. The consistent
application of GAAS helps maintain public trust in
financial reporting and the auditing process.
5. Philippine Standards on Auditing (PSAs):
To further clarify the meaning and application of
these ten GAAS, the Philippine Standards on
Auditing (PSAs) are issued. PSAs provide specific
guidelines and interpretations that auditors must
follow, ensuring a clear understanding of the
standards and their implications in various audit
scenarios.
General Standards of Auditing Standards of Fieldwork
To ensure the integrity and quality of audits, certain The effectiveness of an audit significantly relies on
general standards must be adhered to. These the standards of fieldwork that guide auditors during
standards are essential for maintaining the the audit process. These standards help ensure that
credibility of the audit process and the trust of the audit is conducted efficiently and that the
stakeholders: findings are reliable:

1. Competence and Technical Training 4. Adequate Planning and Supervision

The examination must be conducted by individuals The audit work must be thoroughly planned to
who possess adequate technical training and ensure that all aspects of the audit are addressed
proficiency as auditors. This ensures that the systematically. This includes establishing clear
auditors have the necessary skills and knowledge to objectives, determining the necessary resources,
perform the audit effectively and accurately. and scheduling tasks appropriately. Additionally, if
Competent auditors are better equipped to identify assistants are involved in the audit, they must be
issues, evaluate evidence, and provide sound properly supervised to ensure that they understand
conclusions. their responsibilities and adhere to the audit plan.
Effective planning and supervision are crucial for
maintaining the quality and efficiency of the audit.

2. Independence
Auditors must maintain an independent mental
attitude in all matters related to the engagement. 5. Study and Evaluation of Internal Control
This means they should be free from any Auditors must conduct a proper study and
relationships or influences that could compromise evaluation of the organization's existing internal
their objectivity and impartiality. Independence is controls. This evaluation serves as a basis for
critical in ensuring that the audit findings and determining how much reliance can be placed on
conclusions are unbiased and credible, fostering those controls and influences the extent of testing
trust among stakeholders. that will be performed. A robust internal control
system may allow auditors to limit the amount of
testing needed, while weak controls may require
more extensive procedures. Understanding the
3. Due Professional Care internal control environment is essential for
Auditors are required to exercise due professional assessing risk and designing appropriate audit
care throughout the audit process and in the strategies.
preparation of the audit report. This involves being
diligent and thorough in gathering and evaluating
evidence, as well as ensuring the accuracy and
clarity of the report. By exercising due professional 6. Sufficient Competent Evidential Matter
care, auditors uphold the quality of their work and Auditors are required to obtain sufficient and
ensure that the conclusions drawn are based on competent evidential matter to support their findings
reliable information. and opinions regarding the financial statements
under examination. This evidence can be gathered
through various methods, including inspection of
documents, observation of processes, inquiries with
management and staff, and confirmations from third
parties. The evidence must be reliable and relevant,
providing a reasonable basis for the auditor's
opinion. Adequate evidence collection is
fundamental to ensuring the credibility of the audit
conclusions.
Standards of Reporting Independence in Auditing
The reporting phase of the audit is critical, as it Independence is a fundamental principle in the
conveys the auditor's findings and conclusions to auditing profession, ensuring that auditors maintain
stakeholders. The following standards outline the objectivity and impartiality in their work. To uphold
essential elements that must be included in an audit this principle, audit firms must establish robust
report: policies and procedures that provide reasonable
assurance that the members of the engagement
7. Compliance with GAAP team, the firm itself, and, where applicable, network
The audit report must explicitly state whether the firms maintain independence when delivering audit
financial statements are presented in accordance services. Key aspects of maintaining independence
with Generally Accepted Accounting Principles include:
(GAAP) or any applicable financial reporting
framework. This assertion provides clarity to 1. Formation of Independence Conclusions:
stakeholders regarding the reliability and integrity of The engagement partner plays a critical role in
the financial statements. assessing compliance with independence
requirements. It is their responsibility to form a
conclusion regarding the independence of the audit
team and the firm throughout the engagement.
8. Consistency of Accounting Principles
The report should identify any circumstances where
accounting principles have not been consistently 2. Identification of Threats to Independence:
applied in the current period compared to the Auditors must actively obtain relevant information to
previous period. This information is vital for users of identify any circumstances or relationships that may
the financial statements, as inconsistencies may pose threats to independence. This includes
affect the comparability and reliability of the analyzing personal relationships, financial interests,
reported data. or any other factors that could compromise the
auditor's objectivity.

9. Adequacy of Informative Disclosures 3. Evaluation of Breaches:

Auditors are required to evaluate the adequacy of In the event that potential breaches of the firm's
informative disclosures made in the financial independence policies and procedures are
statements. These disclosures should be identified, the engagement partner must evaluate
considered reasonably adequate unless stated this information carefully. They need to determine
otherwise in the report. This standard ensures that whether such breaches create a significant threat to
users are aware of any significant omissions or independence that could affect the audit's integrity.
deficiencies in the information provided.

4. Safeguards and Mitigation:

When threats to independence are identified,
auditors must take appropriate safeguards to
10. Expression of Opinion eliminate these threats or, at the very least, reduce
The report must include either an expression of them to an acceptable level. Safeguards may
opinion regarding the financial statements as a include restructuring roles, increasing supervision,
whole or a statement indicating that an opinion or implementing other controls to mitigate any
cannot be expressed. If the auditor is unable to potential conflicts of interest.
provide an opinion, the reasons for this should be
clearly stated. Additionally, when the auditor’s name
is associated with the financial statements, the 5. Documentation of Independence Conclusions:
report should indicate the nature of the auditor's It is essential for auditors to document their
examination and the degree of responsibility conclusions on independence and the rationale
assumed by the auditor. This transparency is behind these conclusions. This documentation
essential for maintaining the credibility of the audit serves as a record of the steps taken to ensure
process. independence and provides transparency regarding
the auditor's objectivity in the audit process.