Areas of agreement if any:

1. It is true that test checking is dangerous because the financial statements audited are
susceptible to mistakes and defect due to the reason that not all data are verified by the auditor.
The auditor will just get a sample from the whole or the representative of the whole data and
made an audit out of it. The statement “test checking depends upon the auditor’s judgment” is
true because test checking or the checking of samples of the whole data depends upon the
auditor’s judgment. He will select the data which he thinks the best way to check if the
presented FS is correct or in accordance with laws and regulations. And not all of this selection
are accurate to determine if there is something wrong. Sometimes if the staff knew that these
specific data is being audited by the auditor they will make it believable or valid but they will
disregard and even worst do the mistake intentionally to those data which will not audited by
the auditor.

“An audit can be relied upon only if every transaction is verified”

This statement is always true, and it is also true if you apply the test checking. The questioning part is
that “It is absolute?” the answer is obvious, it is not absolute or applied to all because you don’t check
the whole data. You just select what you think represents the whole or what gives a great impact if the
presented data are true or not. This statement obviously want to show that every financial statements
created by the accountant must be audited. It must be true and real for it to become reliable that will
surely help every user of financial statements.

2. “The auditor does not create; he merely checks what someone else has done.”

The creation of the financial statements is the job of an accountant so auditors truly don’t create
because their main function is to make a verification about the validity of the financial statements
made by the accountant based on the standards.

3. The importance of footnotes in the financial statements are guaranteed because it gives a detail
about how the business recognized its resources or obligations with accordance to standards
and in what way they recorded it and also determine the status of the resources. It is true that
these footnotes are really technical and incomprehensible in nature that’s why the need for
professional like CPA’s are observed.
Areas of misconception, incompleteness or fallacious reasoning included in the statement if any.

4. Usually business works for the main objective which is to generate profit. This profit will surely
be attain if the business have sufficient resources to make a profit. These resources came from
two equities. The creditors and shareholders. These people rely information from the financial
statements which is the auditor’s function that is to check if the financial statements made by
the accountant is valid or correct in accordance with the standards.

Gross Domestic Product is one of the component of Gross National Product, so we can say that the
value of the gross national product depends upon the value of the GDP. In the Philippines, there is
an increasing rate of GNP in the current year, the main source of this increasing rate is from the
service sector which is obviously a form of business. So we can say that the value of the economy
which determined by the value of the GNP is essentially based on the business operated here in the
Philippines. What I want to emphasize here is that audit greatly influence the GNP of the economy
because it has a great impact for the continuing operation of the business. The question is, in what
way? Independent audits provide that trust, and thus bridge the gap
between entrepreneurs who need capital and investors who can provide
capital. There have been many changes over the years in the nature of the
information that capital users provide to markets, changes designed to
maintain the relevance of the information to capital providers.

If this specific business made a valid financial statements verified by the

auditor, more investors will be willing to invests which an indication of
additional resources which can help in generating the desired profit of the
business. So, the statement “Audit made by the CPA contributes neither to
GNP and the well-being of the society” is absolutely wrong.

3. The last statement of case 3 is not true or not within the scope of what
auditors do. Auditors don’t select accounting policies or procedures and
prepare financial statements or footnote disclosures because this is the
job of the accountant. Let us clear that auditors checks, verified and give
an opinion about the validity of the financial statements. They don’t make
these financial statements. They are the one who made judgment if the
financial statements made by the accountant coincide with accounting
standards and policies. So, it is crystal clear that the last statement of
third case is what the management do or specifically what accountants
do.