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AuditingTheory Chapter1

The document discusses auditing and provides definitions and an overview. It defines auditing as a systematic process of objectively obtaining and evaluating evidence to ascertain the degree of correspondence between assertions and established criteria. An audit involves obtaining evidence about assertions regarding economic actions and events. The primary function of an independent audit is to lend credibility to financial statements by providing assurance to users that the statements are reliable. The document also describes different types of audits, including financial statement audits, compliance audits, and operational audits. It provides comparisons of the different types of audits and discusses the roles of management and independent auditors in preparing and auditing financial statements.

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Janna Hazel Villarino Villanueva
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42 views

AuditingTheory Chapter1

The document discusses auditing and provides definitions and an overview. It defines auditing as a systematic process of objectively obtaining and evaluating evidence to ascertain the degree of correspondence between assertions and established criteria. An audit involves obtaining evidence about assertions regarding economic actions and events. The primary function of an independent audit is to lend credibility to financial statements by providing assurance to users that the statements are reliable. The document also describes different types of audits, including financial statement audits, compliance audits, and operational audits. It provides comparisons of the different types of audits and discusses the roles of management and independent auditors in preparing and auditing financial statements.

Uploaded by

Janna Hazel Villarino Villanueva
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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AUDITING AND ASSURANCE

PRINCIPLES (ASP301)
Aurea B. Natividad
Professor
CHAPTER 1 : AUDIT – An Overview

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LESSON OBJECTIVES
At the end of this lesson, the student are expected to:

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Case Study – Enron Accounting Standard
(1503) Enron Accounting Scandal Explained! A Frequent Accounting Inter
view Question! - YouTube

1st SEM. AY 2021-2022


AUDITING Defined
To enable the auditor to express an opinion whether the financial statements are
prepared, in all material respects, in accordance with an identified financial
reporting framework. (Philippine Standards on Auditing (PSA)

An audit is a systematic process of objectively obtaining and evaluating evidence


regarding assertions about economic actions and events to ascertain the degree of

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correspondence between these assertions and established criteria and
communicating the results to interested ursers. (American Accounting Association)
Auditing is a systematic process

An audit involves obtaining and evaluating evidence about assertions


regarding economic actions and events.

An audit is conducted objectively

Auditors ascertain the degree of correspondence between assertions and


established certain criteria

Auditors communicate the audit results to various interested users


The primary function of an independent audit is to lend credibility to
the financial statements prepared by an entity. The auditor’s opinion
enhances the value and usefulness of the financial statements. By
attaching a report to the financial statements, the auditor provides
increased assurance to the users that the financial statements are

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reliable.
Illustrative Definition of Auditing
Independent Auditor

Following Systematic Process

Objectively obtains and evaluates evidence

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Establishes the degree of correspondence between
Established
Assertions Criteria

Communicate the results to the Interested users


Types of Audit
• Financial statement Audit
• Compliance Audit
• Operational Audit

General characteristics of Audits


1. Systematic Communication
2. Communication of the results of examination

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(Criteria in the financial statement audit and compliance audit are defined. While
criteria in the operational audit is to evaluate the effectiveness and efficiency of
operations are not clearly established.
TYPES OF AUDITORS

External Auditors
1.SGV & Co. (Partner of Ernst & Young)
2.Navarro Amper & Co. (Partner of Deloitte Touche Tohmatsu Ltd.)
3.Isla Lipana & Co. (Partner of PWC)
4.R.G. Manabat & Co. (Partner of KPMG)
5.Punongbayan & Araullo (Partner of Grant Thornton International Ltd.)
6.Roxas Cruz Tagle & Co. (Partner of BDO Global)

Internal Auditors
TYPES OF AUDITORS

Government Auditors
COMPARISON OF DIFFERENT TYPES OF AUDIT
Financial Audit Compliance Audit Operational Audit

Assertions made by the That the financial That the organization has That the organization’s
Auditee statements are fairly complied with laws, activities are conducted
presented regulations or contracts effectively and efficiently

Established Criteria Financial reporting Laws, regulations and Objectives set by the board
standards or other contracts of directors
financial reporting
framework

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Content of the Auditor’s An opinion about whether Reports on the degree of Recommendations or
report the financial statements compliance with applicable suggestions on how to
are fairly presented in laws, regulations and improve operations
conformity with an contracts
identified financial
reporting framework
Auditors who generally External auditors Government auditors Internal Auditors
perform
The Independent Financial Statement 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 an identified financial reporting framework or acceptable financial
reporting standards.

 Responsibility for the financial statements


 Assurance provided by the auditor – reasonable assurance. In every audit, there
are always inherent limitations that affect the auditor’s ability to detect material
misstatements. This limitations result from such factors as:
1. The use of testing / Sampling risk
2. Error in application of judgement / Non-sampling risk
3. Reliance on management’s representation
4. Inherent limitations of the client’s accounting and internal control systems
5. Nature of evidence
Role of Management and Independent Auditor
Management Independent Auditor

Prepare Financial
Statements

Unaudited Financial Evaluates Financial


Statements Statements

Audited Financial Audit Report on


Statements Financial Statements

Users of Financial Statements


General principles governing the audit of financial statements
The procedures required to conduct an audit in accordance with Philippine Standards
on Auditing should be determined by the auditor having regard to the requirement of
PSA’s, relevant professional bodies, legislations, regulations, and where appropriate,
the terms of the engagement and the reporting requirements. PSA provides the
following guidelines when auditing financial statements.

 The auditor should comply with the “Code of Professional Ethics for Certified
Public Accountants” promulgated by the Board of Accountancy.
 The auditor should conduct an audit in accordance with Philippine Standards on
Auditing
 The auditor should plan and perform the audit with an attitude of professional
skepticism recognizing that circumstances may exits which may cause the financial
statements to be materially stated.
Need for an independent financial statement audit
The need for an independent audit of financial statements stems from the following
interrelated sources:

 Conflict of interest between management and users of financial statements.


 Expertise
 Remoteness
 Financial Consequences .
Theoretical framework of Auditing
The audit function operates within a theoretical framework. 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 financial statements
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
financial statements.
5. Consistent application of generally accepted accounting principles (GAAP) or Philippines
Financial Reporting Standards (PFRS) results in fair presentation of financial statement
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.
Application / Question and Answer

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Thank you!

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