Major 2: Auditing & Assurance Principles: Concept & Application 1

Major 2:
Auditing & Assurance Principles:

Concept & Application 1
By Group 2:
Richelda Barsaga Erica Ann Cestina
Ma. Katrina Busa Maryrose Candano
Mark Anthony Bidol Marinella Capuz

Audit Process
Pre-engagement Activities
Audit Planning
Audit
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 thereof. (American Accounting Association)
Audit Process
The audit process is the sequence of different activities involved in
an audit. This process normally includes the following steps:
Phase Description
1. Pre-engagement This phase will require a decision from
the auditor whether or not to accept a
new client or continue. relationship with
an existing one. This process would
require evaluation not only of the
auditor's qualification, but also the
integrity and auditability of the client's
financial statements.
Primary objective: To minimize the
likelihood of being associated to a client
whose management lacks integrity.
Phase Description
2. Audit Planning Audit planning involves the development of an overall
audit strategy, audit plan and audit program. The
auditor usually obtained more detailed knowledge
about the client's business and industry in order to
understand the transactions and events affecting
the financial statements.
Preliminary assessment of risk and materiality is
also made during this phase.
Primary objective: To assess the different risks
associated with the audit to determine the nature,
timing and extent of further audit procedures
necessary to be performed
Phase Description
3. Consideration of Since entity's internal control directly
internal controls affects the reliability of the financial
statements, it is appropriate to study and
evaluate these controls.
Primary objective: To establish a basis
for reliance on internal controls, in
determining the nature, timing and extent
of audit procedures to be performed.
Phase Description
4. Evidence gathering Using the information obtained in audit
(Substantive testing) planning and consideration of internal
controls, the auditor performs substantive
test to determine whether entity's financial
statements are presented fairly in
accordance with financial reporting
standards. Substantive procedures could
either be analytical procedures or test of
details of transactions and balances.
This phase will always be performed by the

auditor.
Description
Primary objective: To ascertain the
degree of correspondence between the
financial statements prepared by
client's management and the financial
reporting framework. With this, the
auditor will be able to conclude whether
or not the financial statements are
presented fairly in accordance with
financial reporting standards.
Phase Description
5. Completing the audit
Wrapping-up procedures are performed;
conclusions reached are reviewed; and
an overall opinion is formed during this
phase.
Primary objective: To assist the auditor
in assesing conclusion reached is
consistent with evidence gathered.
Phase Description
6. Issuance of the In this stage, auditor prepares and issues
audit report audit report which describes the scope of
the audit and states the auditor's conclusion
regarding the fairness of the financial
statements.
Primary objective: To communicate the
conclusions reached by the auditor to
various intended users.
Phase Description
7. Post-audit After completion of the audit engagement,
responsibilities auditor performs procedures that will
enable him/her identify areas for
improvement in the current and future
engagements.
Primary objective: To assess and evaluate
the quality of services delivered by the
engagement team
PRE-ENGAGEMENT
Acceptance of an engagement
In making a decision whether to accept or reject an engagement,
an auditorshould consider the following:
1. Its competence;
2. Its independence;
3. Its ability to serve the client properly; and
4. The integrity of the prospective client's management.
Furthermore, the auditor is expected to perform the following:
1. Obtain a preliminary knowledge of the client's business and industry to determine whether the
auditor has the degree of competence required by the engagement.
2. Consider whether there are any threats to the firm's independenceand objectivity, and if so,
whether adequate safeguards can beestablished.
3. Evaluation of the firm's ability to serve the prospective client.
4. Evaluate auditability.
5. Investigation of the integrity of the client's management through inquiry to appropriate parties or
communication with the predecessor auditor.
Matters to be discussed with predecessor auditor include the following:
(RID)
a. The predecessor's understanding as to the Reasons for change in
auditors;
b. Information that might bear on the Integrity of the management;and
c. Disagreements between the predecessor auditor and management
as to accounting principles, auditing procedures, etc.
Note: Every time communication is made to parties other than the
client, the auditor shall seek permission from the client and document
the items discussed.
6. Agree on the terms of the engagement and prepare an engagement

letter.
Agreeing the Terms of Audit

Engagements
The auditor and the client shall agree on the terms of engagement. The agreed
terms would need to be recorded in an audit engagement letter or other
suitable form of contract.
Audit Planning
“Planning involves developing a general strategy and a detailed
approach for the expected nature, timing and extent of the audit.”
“It is not a discrete phase, but rather a continual and iterative

process that often begins shortly after the completion of the previous
audit and continues until the completion of the current audit.”
ADEQUATE PLANNING
-helps the auditor:
•Devote appropriate attention to important areas.
•Identify and resolve potential problems on a timely basis.
•Properly organize and manage the audit so that it is performed in an
effective and efficient manner.
•To assist in the selection of team to respond to anticipated risks, and
the proper assignment of work.
•Facilitate the Direction and Supervision of team members and
Review of their work.
•Coordination of work done by auditors of components and experts.
Audit Planning
Overall Audit Strategy
Big picture of the audit; auditors can do this before they do audit procedures based on
 Experience in and knowledge of the industry
 Information gained through client acceptance process
 Previous audit engagements, such as quarterly reviews
 Components of the audit strategy
 Scope of the engagement
 Timing
 Materiality and risk
 Fraud risk
Audit Plan: Nature, Timing and Extent
First the auditor has to know:
 Management assertions (which requires knowing which accounts are important),
materiality, risk, timing driven by client specifics.
Nature is type of test, control or substantive, and which specific audit procedures is to be
performed.
Timing is when it is to be performed; considerations are having audit resources available,
evidence availability, being able to test the period for which evidence is needed.
Extent is quantity of testing to be performed.
Audit Planning
Audit Program
“An audit program sets out the nature, timing, and extent of planned
audit procedures required to implement the overall audit plan.”
“It serves as a set of instructions to assistants involved in the audit

and as a mean to control the proper execution of work.”
As a result of unexpected events, changes in conditions, or the

audit evidence obtained, the auditor may need to modify the overall
audit strategy and audit plan.
Thank you.

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Major 2:

Auditing & Assurance Principles:

Ma. Katrina Busa Maryrose Candano

Mark Anthony Bidol Marinella Capuz

This phase will always be performed by the

6. Agree on the terms of the engagement and prepare an engagement

Agreeing the Terms of Audit

“It is not a discrete phase, but rather a continual and iterative

“It serves as a set of instructions to assistants involved in the audit

As a result of unexpected events, changes in conditions, or the

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