Auditing and

Assurance
Principles
Jose M. Ireneo
Shirley C. Ireneo
George R. James

Chapter 1: Fundamentals of
Assurance Services
Summary of Leaning Objectives
1. Appreciate why it is imperative for students to take

up Auditing
.The application of auditing concepts learned in this

course will enable a student to sharpen logic and

evidence gathering skill which are necessary in
todays business world. The demand for audits will
continue way into the distant future. As long as there
is a need for reliable and fairly stated
information, CPAs will continue to provide audits.

2. Define assurance and assurance engagements and give

examples.
.Assurance
.Refers to the auditors satisfaction as to the reliability of an

assertion being made by one party for use by another

party.
.Assurance engagements
.Are three-party contracts in which assurers (such as a

CPA) reports on the quality of information.

.Include assertion-based services such as audits and

review of financial statements, and direct reporting

engagements

3. Discuss the Five elements of assurance engagements

.Every assurance engagements has five elements:
a) A three party relationship involving a practitioner (CPA), a

responsible party, and intended users

b) An appropriate subject matter
c) Suitable criteria
d) Sufficient appropriate evidence, and
e) A written assurance report in the form appropriate to a

reasonable assurance engagement or a limited assrance

engagement.

4. Classify assurance engagements according

to structure and according to level of

assurance provided.
.Assurance engagements may be classified

according to level of assurance provided

( reasonable assurance and limited assurance)
and according to structure
(assertionbased and direct reporting).

5. Discuss the meaning of assertion-based

engagements and give examples.

.Assertion-based assurance

engagements(attest engagement)
.Is an engagement in which a practitioner is
engaged to issue, or does issue, a written
communication that expresses a conclusion
about the reliability of a written assertion that
is the responsibility of another party.
.Examples include audits and reviews.

6. Give examples of non-assurance

engagements and describe each one briefly

.Examples of common non-assurance services

are agreed upon procedures; compilation of

financial and other information; preparation of
tax returns where no conclusion is expressed,
and tax consulting; and management
consulting and other advisory services.

Chapter 2:Audits of Historical

Financial Information
Summary of learning objectives
1. Define Auditing
.Auditing
.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.

2. Distinguish between auditing and accounting

.The main difference between accountants

and auditors is the skill required in

obtaining and evaluating evidence.
3. Distinguish between audits, assertion-based

engagements and assurance services

.The main difference between audits,

assertions, and assurance lie in the scope of

services.

4. Enumerate and explain the different of audit

engagements
.Audits may be classified as follows:
a) According to the nature of data or assertion

being audited; financial statement audits,

operational audits, and compliance audits.
b) According to the type of auditor performing

the engagement: external audits, internal

audits and government audits

5. Know the objective and scope of a financial

statement audit
.Objective of an audit
.Expression of an opinion on the fairness of such

financial statements
.The auditor normally determines the scope of an

audit with the requirements of legislation,

regulations or relevant professional bodies.
It should be organized to cover adequately all
aspects of the entity as far as they are relevant
to the financial statements being audited.

6. Explain the meaning of information risk and

enumerate the different means to reduce

information risk
.Information risk
. the risk that information is misstated or misleading
.To reduce information risk, management of business

and the users of their financial statements may

adopt any or all of the following approaches:
a) Allow users to verify information
b) User shares information risk with management
c) Have the financial statements audited.

7. Be familiar with the unqualified audit report

.The unqualified audit report now consists of five paragraphs per PSA 700

(Revised)
8. Give examples of the limitations of an audit
.An audit cannot provide absolute assurance that the subject matter(for

example, the financial statements) is free of any fraud, or error.

.An audit is not guarantee that the fraud will be prevented.
.The following factors are reasons why an audit can provide a high ( but not

absolute) level of assurance:

a) The use of [selective] testing
b) The inherent limitations of any accounting and internal control systems
c) The fact that most audit evidence is persuasive rather than conclusive
d) The use of judgement

9. Appreciate how auditing has evolved

through human history

.The word audit is a Latin term associated

with hearing or listening (hence the auditory

nerve, auditorium, etc ).
.Centuries ago, most people lack

reading/writing skills