PHILIPPINE STANDARDS

ON AUDITING
 By stating the objective of a financial
statement audit, that 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.
 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
interested users.
 TYPES OF AUDITS
1. Financial Statements Audit
2. Compliance Audit
3. Operational Audit
 Fairly
presented
Financial
Statement
Complied with
Audit
an identified
financial
reporting
framework
 Adhered to:
Compliance • procedures
Audit • rules or
• regulations
 Assess
Operational
entity’s
Audit
performance

Identify areas
for
improvements
Measuring of
Performance
Make
recommendations
TYPES OF AUDITORS
1. External Auditors
 independent CPA
2. Internal Auditors
 entity’s own employees
3. Government Auditors
 government employees
Financial Compliance Operational
Statement Audit Audit
Audit
Financial Compliance Operational
Statement Audit Audit
Audit
 THE INDEPENDENT
FINANCIAL STATEMENT
AUDIT
 Responsibility for the financial
statements
 Assurance provided by the auditor
 FACTORS
INHERENT LIMITATIONS
1. The use of Testing/Sampling Risk
 use of sample of evidence
2. Error in Application of
Judgment/Non-sampling Risk
 Inappropriate procedure,
misinterpret the audit evidence
and unable to recognize
misstatement
 FACTORS
INHERENT LIMITATIONS
3. Reliance on Management’s representation
 Written representations from
management
4. Inherent Limitations of the Client’s
Accounting and Internal Control Systems
 Collusion among employees or
management’s circumvention of internal
control
5. Nature of Evidence
 Persuasive rather than conclusive
 GENERAL PRINCIPLES
GOVERNING THE AUDIT OF
FINANCIAL STATEMENTS
 Compliance with the CODE OF
ETHICS
 Accordance with PHILIPPINE
STANDARS on ACCOUNTING
 Attitude of SKEPTICISM
 NEED FOR AN INDEPENDENT
FINANCIAL STATEMENT
AUDIT
 Conflictof Interest between
management and users of financial
statements
 Expertise
 Remoteness
 Financial Consequences
 THEORETICAL FRAMEWORK
OF AUDITING

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.
 THEORETICAL FRAMEWORK
OF AUDITING

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.
 THEORETICAL FRAMEWORK
OF AUDITING

5. Consistent application of Generally

Accepted Accounting Principle
(GAAP) or Philippine Financial
Reporting Standards (PFRS) results
in fair presentations of financial
statements.
 THEORETICAL FRAMEWORK
OF AUDITING

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.
SEATWORK (10 PTS.)
 INSTRUCTION
Fill the information needed in each
blank.
 Financial Compliance Operational
Statement Audit (3pts) Audit (3pts)
Audit (3pts)
Assertions
made by
the auditee
Established
criteria

Content of
the
auditor’s
report