Audit- an Overview Auditing Defined PSA 200- (financial statement audit) 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 American Accounting Association- 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 the interested users. 1.Auditing is a systematic process. 2.Involves obtaining and evaluating evidence about assertions regarding economic actions and events. 3.An audit is conducted objectively. 4.Auditors ascertain the degree of correspondence between assertions and established criteria. 5.Auditors communicate the results to various interested users.

Types of Audit

Financial Audit Compliance Audit Operational Audit 1. Assertions made by the auditee That the financial statements are presented fairly That the organization has complied with laws, regulations or contracts That the organization s activities are conducted effectively and efficiently 2. Established Criteria Financial reporting standards or other financial reporting framework Laws, regulations and contracts Objectives set by the board of directors

Financial Audit Compliance Audit Operational Audit 3. Content of the auditor s report An opinion whether the financial statements are fairly presented in conformity with an identified financial reporting framework

Reports on the degree of compliance with applicable laws, regulations and contracts. Recommendations or suggestions on how to improve operations. 4. Auditors who generally perform External Auditors Government Auditors Internal Auditors

Types of Auditors External auditors Internal Auditors offer professional services to clients on contractual basis investigate and appraise the effectiveness and efficiency of operations and internal controls. concerned with compliance with government laws and regulations.

Government Auditors

Independent Financial Statement Audit Management is responsible for preparing and presenting the financial statements in accordance with the financial reporting framework. The auditor provides only a reasonable assurance (not absolute) that the financial statements taken as a whole are free from material misstatements due to inherent limitations that affect the auditor s ability to detect material misstatements.

Independent Financial Statement Audit The use of testing/ Sampling Risk. Error in the application of judgment/ Non-Sampling risk. Reliance on management s representation. Inherent limitations of the clients accounting and internal control systems. Nature of the evidence. (audit evidence is generally persuasive rather than conclusive in nature)

Principles governing the audit of financial statements 1.The auditor should comply with the Code of Professional Ethics for CPAs promulgated by BOA 2.The auditor should conduct the audit in accordance with the Philippine Standards on Auditing. 3.The auditor should plan and perform the audit with an attitude of professional skepticism.

Professional Skepticism 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 brings into question the reliability of documents or management representations.

Need for independent financial statement audit Conflict of interest between management and users of financial statements. Expertise Remoteness of financial information Financial Consequences

Theoretical Framework of Auditing Audit function operates on the assumption that all financial data are verifiable. The auditor should always maintain independence with respect to the financial statements under audit. There should be no long-term conflict between the auditor and the client management. Effective internal control system reduces the possibility of errors and fraud affecting the financial statement. Consistent application of generally accepted accounting principles (GAAP) or Philippine Financial Reporting Standards (PFRS) results in fair presentation of financial statements. What was held true in the past will continue to hold true in the future in the absence of known conditions to the contrary. An audit benefits the public.