CHAPTER 1: AUDIT – AN OVERVIEW

AUDIT DEFINED (PSA 200) actions and events to ascertain the degree
of correspondence between these assertions
The Philippine Standards on Auditing and established criteria and
(PSA) defines auditing by stating the communicating the results to interested
objective of a financial statement audit. users.”

a) Auditing is a systematic process.

Overall Objectives of the Auditor May sinusunod ka talagang proseso pg. 118
b) An audit involves obtaining and
In conducting an audit of financial evaluating evidence about assertions
statements, the overall objectives of the regarding economic actions and
auditor are: events.
(a) To obtain reasonable assurance about Assertions:: the action of stating something
whether the financial statements as a or exercising authority confidently and forc
whole are free from material efully. (May sinasabi)
misstatement, whether due to fraud or
error, thereby enabling the auditor to Financial Statement Assertions /
express an opinion on whether the Management Assertions
financial statements are prepared, in
all material respects, in accordance EXISTENCE / OCCURRENCE
with an applicable financial reporting Mayroong sinasabi yung management. For
framework (suitable framework); and example, kapag nakabasa ka sa balance
sheet ng accounts receivable, sinasabi ng
(b) To report on the financial statements, management na nageexist yung receivable
and communicate as required by the at nag occur yung transaction kung bakit
PSAs, in accordance with the auditor’s sila may A/R. Hindi nila word for word
findings. sinasabi na nag eexist. You have to check if
nag exist talaga.
In all cases when reasonable assurance
cannot be obtained and a qualified opinion RIGHTS AND OBLIGATION
in the auditor’s report is insufficient in the
May Karapatan (rights) ba talaga sila sa
circumstances for purposes of reporting to
receivable and to check kung na ireport ba
the intended users of the financial
lahat ng liabilities.
statements, the PSAs require that the
auditor disclaim an opinion or withdraw
c) An audit is conducted objectively.
from the engagement, where withdrawal is
d) Auditors ascertain the degree of
legally permitted.
correspondence between assertions
and established criteria.
Auditing is defined by the American
e) Auditors communicate the audit
Accounting Association (AAA) as:
results to various interested users.
“a systematic process of objectively
obtaining and evaluating evidence TYPES OF AUDITS AS TO
regarding assertions about economic SUBJECT MATTER
 (ITEM BEING AUDITED) EXTERNAL AUDITORS / ING OR
INDEPENDENT AUDITORS
FINACIAL STATEMENT AUDIT INTERNAL AUDITORS / ING
COMPLIANCE AUDIT GOVERNMENT AUDITORS / ING
Pwede procedures and criteria
OPERATIONAL AUDIT Assurance provided by the auditor:
Yes, it adds credibility, pero hindi totally
All audits possess the SAME GENERAL gina guarantee na hundred percent very
characteristics. They all involve: correct ang Financial Statement.

1.Systematic examination and evaluation INHERENT LIMITATIONS

of evidence which are undertaken to 1. Nature of the procedures
ascertain whether assertions comply with The use of testing and sampling: the fact na
established criteria; and hindi mo sinilip lahat ng documents, but
2.Communication of the results of the you should have the skills na hindi lang
examination, usually in a written report, basta don sa range na yon ikaw titingin,
to the party by whom, or on whose behalf, tumingin ka ng ibang samples.
the auditor was appointed.
Error in the application of judgement or
Compli non-sampling risk:
Financi Operational
ance
al Audit Audit
Audit
That the
Asserti organizatio That the
That the
ons n has organization’s
financial
complied activities are
made statements
with laws; conducted
by the are fairly
regulations effectively and
auditee presented.
or efficiently.
contracts.
Financial
Reporting
Framework
Establis Laws,
such as Objectives set
regulations,
hed Philippine
and
by the board of
Criteria Financial directors.
contracts.
Reporting
Standards
(PFRS)
An
OPINION
about
REPORTS
whether the
on the
financial
degree of
Content statements RECOMMEN
compliance
are fairly DATIONS or
of the with the
presented suggestions on
auditor’ in
applicable
how to improve
s report laws,
conformity operations.
regulations,
with the
and
applicable
contracts.
financial
reporting
framework.

TYPES OF AUDITS AS TO
auditor conducting the audit
 CHAPTER 2: The professional standards
Standards are established to measure the  Dapat nag aaral ka ng accountancy,
quality of performance of individuals and maging CPA, and experience.
organizations. Standards relating to the 2.In all matters relating to the assignment,
accounting profession concern themselves an independence in mental attitude is to
with CPA’s professional qualities, the be maintained by the auditor or auditors.
judgement exercised by the CPAs in the 3.Due professional care is to be exercised in
performance of their professional the performance of the audit and the
engagement, and the CPA firm’s quality preparation of the report.
control policies and procedures.
Standards of Field Work
The Board of Accountancy promulgated ten 1. The work is to be adequately planned
generally accepted auditing standards and assistants, if any, are to be properly
(GAAS) that establish required level of supervised.
quality for performing financial statement 2. A sufficient understanding of internal
audits. These standards must be followed by control is to be obtained to plan the audit
CPAs when auditing financial statements. and to determine the nature, timing, and
extent of tests to be performed.
Generally Accepted Auditing 3. Sufficient appropriate evidential matter
Standards is to be obtained through inspection,
observation, inquiries, and confirmations
to afford a reasonable basis for an
GAAS represents measures of these quality
opinion regarding the financial
of the auditor’s performance. These
statements under audit.
standards should be looked at as a
MAXIMUM STANDARD of performance
that auditors should follow. These ten Standards of Reporting
GAAS are grouped into GENERAL, 1. The report shall state whether the
FIELDWORK, and REPORTING financial statements are presented in
STANDARDS. accordance with generally accepted
accounting principles (GAAP).
2. The report shall identify those
General Standards
circumstances in which such principles
1.The audit is to be performed by a person
have not been consistently observed in
or persons having adequate technical
training and proficiency as an auditor.
 the current period in relation to the the character of the auditor’s work, if
preceding period. any, and the degree of responsibility the
3. Informative disclosures in the financial auditor is taking.
statements are to be regarded as
reasonably adequate unless otherwise
stated in the report.
4. The report shall contain either an
expression of opinion regarding the
financial statements, taken as a whole, or
an assertion to the effect that an opinion
cannot be expressed. When an overall
opinion cannot be expressed, the reasons
therefor should be stated. In all cases
where an auditor’s name is associated
with financial statements, the report
should contain a clear-cut indication of

CHAPTER 3: AUDITOR’S RESPONSIBILITY

 CHAPTER 4: The audit process – Accepting
engagement
TEST FOR UNDERSTATEMENT means ng documents pag lahat ng record ay may
nanghingi ka ng source documents, then supporting documents, ibig sabihin talagang
you will do tracing papunta ng records. nag EEXIST. Pag may Nakita ka na naka
Ang intension mo is malaman kung lahat ng record then hindi naman pala nag e-exists,
transaction ay naka record. Pag may Nakita kasi walang supporting documents, ang
ka na HINDI naka RECORD, meaning mangyayari magiging sobra.
maiisip mo na yung naka record ay naka
UNDERSTATED may kulang. Pag lahat ASSERTIONS ABOUT CLASSES OF
ng sample documents mo, nung tinignan TRANSACTIONS AND EVETNS FOR
mo sa record ay lahat naka record then TYE PERIOD UNDER AUDIT:
mayroong completeness. Ang HINDI mo
ma ta trace doon ay kapag nanghingi ka ng Occurrence
documents tapos papunta ka sa records, ang
hindi mo ma vavalidate is hindi mo nasilip Yung objective is naka connect sa assertion.
na record baka walang supporting
documentation, ang hindi mo masisilip is STEPS IN AUDIT PROCESS
yung EXISTENCE kasi hindi mo naman
masasabi na lahat ng naka record is nag e- Accepting an Engagement
exists unless gawin mo yung baliktad na Aalamin mo kung kaya mo yung
directions (vouching). engagement, wag tanggap nang tanggap (i-
aassess mo muna)
TEST FOR OVERSTATEMENT means
kukuha ka ng records then sasampulan mo Audit Planning
Considering the internal control Performing substantive test
If internal control is strong, control risk is Ito yung test na mag substantiate sa
low. If internal control is weak, control risk assertion kung tama or mali. Eto ang
is high, meaning mas risky na maka lusot required na test at lagi ginagawa.
ung material misstatements.
Eto na yung mga audit procedure na gusto
Sa test of control, tinetest mo rito is the ma validates yung assertions.
INTERNAL CONTROL, gagawin mo
lang siya to test the internal control. Kahit anong substantive test or audit
procedure na ginagawa mo ultimately, ang
Test of control is NOT REQUIRED objective mo is to detect material
(meaning sa kabuuan ng proseso pwedeng misstatements.
hindi mo siya gawin). Pero kailan siya
required na gawin? After testing your assessments,
napatunayan mo na matibay pag titiwalaan
Kapag ang assessment mo sa internal mo na. so reliable yung documents na pino
control ay matibay or internal control is provide nila. So kaunting procedure nalang
strong meaning effective then itetest mo to validate any other items. (Less
kung tama ang assessment mo (test of substantive nalang)
control). Gagawin mo ang test of control
kapag MATIBAY ang INTERNAL If internal control is effective / strong,
CONTROL at mataas ang effectiveness substantive test is less procedure. If
kasi susuportahan mo yung assessment internal control is weak so need mo pa mag
nayun. bigay effort so substantive test is more.

Kapag ang assessment mo sa internal

control ay mahina at mababa ang
effectiveness ng internal control, then
control risk is high. Hindi na gagawin ang
test of control

CHAPTER 5:
Materiality
Step 1
Largest: hanggat hindi lumalagpas yung
misstatements kayang sabihin ni auditor na Okay lang na hindi masilip yung 20% kasi
hindi materially misstated ang financial kapag nasilip mo yung 80%, walang chance
statement (CEILING) na ang mali ay more than 20%. Kung
mayroon mang mali doon =, pinaka
Smallest: (Floor or minimum) maximum ay 20%.

Materiality is relative in nature: it would Hindi mo na sisilipin yung 20% kasi kung
depend on company, hindi porket ikaw ang mali sila lahat, okay lang hindi siya
auditor ng dalawang company, isang materially misstated kasi hinid lalagpas ng
materiality level lang ang ise-set mo. It will 20%.
depend to audit to another audit client.
If the materiality level is set too low, POSTIVE Confirmation Letter in both
sisilipin mo yung 95% instead na 80% cases, nag hihintay ka ng reply
(okay lang na 80% pala).
if NEGATIVE Confirmation Letter, nag
ADUIT RISK MODEL (EQUATION) iintay k alng ng reply kung sakaling hindi
mag match, pero kapag nag match okay
Audit Risk = Inherent Risk * Control Risk lang kung hindi mag reply.
* Detection Risk

AUDIT RISK: risk na baka mali ang

opinion ni Auditor. Ise-set at acceptably low
level to provide high level assurance.

INHERENT RISK: kaya nagkaroon ng

ganitong risk kasi WALANG CONTROL
in the first place.

CONTROL RISK: assessment of internal

control.

DETECTION RISK: nasa auditor na ang

bola. It is the risk that you will not detect
material misstatements na nag eexist.

Risk of material misstatements (RMM):

consists of or talks about inherent and
control.

Interpretation:

Mas mag effort ka bumaba ng hagdan

kapag bababa ka or pupunta ka sa LOW
MATERIALITY LEVEL.

HIGH MATERIALITY:
- Substantive test is = Less extensive
- evidence talks about the volume
 CHAPTER 12: ASSURANCE ENGAGEMENTS
AND RELATED SERVICES
Suitable - Hindi detailed pero at least may
Written Assurance Report examination kang ginawa
Evidence
Appropriate subject matter NON-ASSURANCE ENGAGEMENT (2
Three-party relationship PARTIES: Practitioner & Client only)
EXAMPLES:
ASSURANCE ENGAGEMNETS:
Attestation services a.k.a assertion based * AGREED-UPON PROCEDURES: sort
services of audit pero hindi ganon ka lalim or wide
Assertion means meron talgang report na yung scope. In particular, ang concern dito
binibigyan mo ng assurance. is yung client, hindi para ilabas yung report
at sabihin “audited na yung F.S. hindi mo
*AUDIT LEVEL (High/Reasonable but nilagyan ng assurance or dinagdagan ng
NOT absolute)  POSITIVE: credibility yung F.S. pina examine lang
-Tedious sayo yung mga certain parts na
-Sasabihin mo talaga na the F.S have been pinagkasunduan ninyo (may specific
audited in accordance with PFRS in all purpose lang and kayo lang ang involve don
material respects. (necessary ang “in all or hindi involve ang public). Restricted
material respect kasi mung may maka lusot lang ang report sa users which is kung sino
man, ayun ay ang mga immaterial yung nag engage sayo.
misstatements na kung makakalusot man Basically, pwede ka gumawa ng napag
sayo hindi ma apektuhan yung decision usapan lang. Procedure then tatapatan mo
making ng users or nagbabasa) ng Result.
-Detailed examination
-Procedures: * COMPILATION SERVICES: nag
Inquiry cocompile ka lang ng F.s. (binigyan ka
Inspection information let’s say trial balance,
Observation pagandahin mo lang itsura or porma para
Analytical procedures (procedures na ni mag mukhang formal F.s ikaw bilang
rerequire ang analysis e.g., Financial compiler saka client mo sa enggament).
Statement Ratio Analysis) Pero hindi ibig sabihin na compile mo na
Confirmation yung F.s, sinasabi mo na na audit mo yun.
Reperformance Hindi ka naman nag add ng credibility sa
Recalculation or recomputation report or inusisa. Once natapos and na
report na yung compiled f.s, maglalagay ka
*REVIEW LEVEL (Limited / Moderate) sa report mo ng or nakatatak na
 Negative: “COMPILED”, “UNAUDITED”, “SEE
-Inquiry (more on tanong tanong lang) COMPILATION REPORT” then may
-Analytical procedures separate report.
- Specific term: “Nothing has come to
my/our attention that causes us to *TAX RELATED SERVICES:
believe…” -tax consultancy/ing and tax planning:
advise client on tax consequences.
-tax compliance: assist client in preparation
of returns. Para matulungan mo si client na
hindi ma penalize. No conclusion.

*MANAGEMENT ADVISORY
SERVICES: more on giving
recommendations.

ELEMENTS OF ASSURANCE
ENGAGEMENT

1. THREE-PARTY RELATIONSHIP
Party number 1: ikaw bilang auditor
(professional practitioner)
Party number 2: Client mo sa engagment
Party number 3: Public (third party)

Hindi ibig sabihin inaudit natin yung F.S.

tapos for whatever reason halimbawa may
nakalusot na mali (error), hindi ibig sabihin
non na sa atin ang sisi lalo na kung ginawa
or sinunod mo yung standard or nag audit
ka in accordance with auditing standards.

2. APPROPRIATE SUBJECT MATTER

Yung subject matter na tiinutukoy is yung
Financial Statements (siya yung subject to
audit).

3. SUITABLE CRITERIA
Nag coconform ka ba or sumusunood pa ba
ang F.s sa suitable criteria (PFRS)?

4. WRITTEN REPORT (assurance

report)
At the end of the day, gagawa ka ng
conclusion or opinion to be reported in
auditor’s report.

5. EVIDENCE
Madaling sabihin na ang F.s is conformity
with GAAP but how? By gathering
evidence. With those evidence, mabibigyan
natin yung conclusion na “okay sumusunod
siya sa standards” or in short mayroong
BASIS kasi hindi pwede walang basehan
yung pagbibigay mo ng opinion na walang
or hindi siya nag coconform sa accounting
standards.