Summary of Auditing Theory Chap 1 & 2

say-so service deal with analyse or review of historical pecuniary information and bureaus dealing with unresolved matters different than historical monetary information. * designed to enhance the degree of confindence of the intended users some opposite than the creditworthy fellowship approximately the outcome of the military rating or amount of a subject matter against criteria FF. atomic number 18 the broad categories of services under the umbrella of federal agency services 1. Risk assessment 2. Information political science reliability 3.Adequacy of security over Electronic commerce transactions, electronic documents, and body forth systems 4. Effectiveness of Health c ar performance measurement systems 5. Reliability and relevancy of Business performance measurement * it evolves natur everyy from Attestation services, which in unloose evolve from audit * The root of all three is independent bank check Non- dominance services (Related Services) pertai n to digest of fiscal information , agreed-upon-procedures and different associate services which do non result in the expression of endpoint that provides a level of assurance. auditing is a systematic process of objectively obtaining and evaluating enjoin regarding selected assertions about economic actions and events to ascertain the degree of correspondence amid those assertions and establish criteria and communicating the result to interested users. * determining whether recorded information flop reflects the economic events that occurred during the accounting period. Elements * Systematic process * Objectivity * Obtaining and evaluating proof * Assertions about economic actions and events * Degree of correspondence stablished criteria * Communicating results * Interested users Attestation refers to an dears written communication of a goal about the reliability of someone elses assertions. * when a practitioner is engaged to issue a written communication that expres ses a conclusion about the reliability of a written assertion * a type of assurance service whose subject matter ( twain FS and non-FS in constitution) * offering some level of assurance Ex. of indorse services 1. Future-oriented financial information 2. Managements discussion and synopsis 3.Effectiveness of internal control 4. Compliance with statutory, regulatory and contractual obligations Consulting services (Management consultative Services) professional services that provide advice and assistance concerning an entitys system of rules, personnel, finances, operations, systems, or other activities. * an analytical process that typically involves some combination of activities relating to a) objective- targetting b) fact-finding c) comment of problems or opportunities d) rating of alternatives e) development of recommendations including actions ) communication of results g) implementation h) follow-up reports are generally written in a narrative style nature and catho de-ray oscilloscope is determined by agreement between the professional accountant and the leaf node Areas of consulting services 1. Consultations 2. Advisory 3. Implementation 4. Transaction 5. Staff and other support 6. Product AssuranceConsulting * three party-two party contractscontracts * to amend calibre-to recommend of informationuses for infos. * ratiocination makers & -Outcomes info. used for optimum decisions * intended to improve-designed to ecision makers improve clients condition indirectly conditions thru directly thru recommendationsfindings, conclusions and recommendation Four conditions that create demand for audits 1. Potential conflict of interest between those who prepare information & those who use information. 2. Information freighter have red-blooded economic consequences for a decision maker. 3. Expertise is often required for preparing and corroborative information 4. Users of information frequently are prevented from directly assessing the quality of informationStewardship or agency Theory implies that the manager, as well as the owner, wants the credibility an audit adds to the financial statement assertions. Types of audited accounts 1. Compliance scrutinises to determine compliance with criteria, standards, or rules set by an authoritative body 2. Management scrutinize (Effectiveness of Performance) an examination and evaluation of the activities of management 3. Performance Audit analyzes an organizations structure, internal systems, execution flow and managerial performance 4. Comprehensive Audit includes the components of compliance, performance and financial statements udit 5. Operational Audit to determine the extent to which some aspect of an organizations operating activities is functioning effectively 6. Internal Audit an independent, ovjective assurance and consulting activity designed to add value and improve an organizations operations. Helps by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance process 7. Environmental Audit environmental matters which may have an impact on the financial statements 8.Forensic Audit examination of evidence 9. Financial tilts Audit Types of attendees 1. External (independent) auditors public accountants, both individuals or firms 2. Internal auditors services for a single organization for which they are employed on a full-time basis, typically reporting to the mount up of directors 3. Government auditors full-time employees of the government tasked to determine compliance with laws, statutes, policies and procedures 4. Forensic auditors financial auditing specialists who focus on unearthing the truthAuditing and Assurance Standards Council (AASC) body authorized to establish and make know generally accepted auditing standards (GAAS) in the Philippines * The main distinguishing feature of auditing and related services is the level of assurance provided by the auditor in the engagement. * An auditor becomes associated with the financial information through the attachment of a report or when consent to the use of auditors name in professional connection. Remedies if known that the auditors name is in suspendly used 1.Request management to hold off the inappropriate association of auditors name 2. Inform each known third party users 3. Seek legal advice Sarbanes Oxley Act of 2002 (SOX) formula passed in the USA in response to increased occurrence of collective fraud. * gave state-supported Companies Accounting Oversight Board (PCAOB) authority to establish auditing standards, quality control standards and independence standards for auditor of public companies * Philippine Securities and Exchange citizens committee (SEC) in its Resolution No. 135 Series of 2002 Code of bodily GovernanceAssurance Engagement an engagement in which a practitioner expresses a conclusion designed to enhance the degree of confidence of the intended user s other that the responsible party about the outcome of evaluation or measurement of a subject matter against criteria. Subject matter information the outcome of the evaluation or measurement of a subject matter. Types of Assurance Engagement purpose Conclusion 1. Reasonable risk reductionPositive to an acceptably low level 2. control risk reduction to a level Negative that is acceptable in the circumstancesElements of an Assurance Engagements 1. A three-party relationship practitioner responsible party intended users 2. An appropriate subject matter a) identifiable and capable of consistent evaluation or measurement against the identified criteria b) information about it can be subjected to procedures for gathering satisfactory appropriate evidence to support a reasonable assurance or limited assurance conclusion 3. desirable criteria benchmarks used to evaluate or measure the subject matter, including where relevant, benchmarks for presentation and disclosure. . enoug h appropriate evidence an attitude of professional scepticism to obtain sufficient appropriate evidence 5. A written assurance report in the form appropriate to a reasonable assurance engagement or a limited assurance engagement a conclusion that conveys the assurance obtained about the subject matter information Assertion-based engagement * In price of the responsible partys assertion * Directly in impairment of the subject matter and the criteria Non-assurance Engagements Engagements covered by ISRS/PSRS, such as agreed-upon procedures engagements and compilation of financial or other info * preparation of tax returns where no conclusion conveying assurance is expressed * consulting engagements, e. g. Management and Tax consulting Reports on Non-assurance Engagements clearly distinguishes that report from an assurance report Philippine Standards on Assurance Engagements covers assurance engagements other than audits or reviews of historical financial infos. Acronyms * AASC Auditing and Assurance Standards Council * ASPC Auditing Standards and take a leak Council GAAS oecumenicly Accepted Auditing Standards * PICPA Philippine Institute of Certified Public Accountants * ACPAPP familiarity of CPAs in Public Practice * ISAEs International Standards on Assurance Engagements * PCAOB Public Companies Accounting Oversight Board * AAS Auditing and Assurance Services * FRF Financial reportage Framework * PAS Philippine Accounting Standards * PFRS Philippine Financial Reporting Standards * prostate specific antigen Philippine Standards on Auditing * PRC Professional Regulation Commission * feather boa Board of Accountancy Chapter 2 Objectives of Financial Statement Audit to alter the auditor to express an opinion whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting textile -Auditor is responsible for forming and expressing opinion on the FS and should determine whether s uch financial reporting framework adopted by management is acceptable -Management those charged with governance and has the primary duty of preparing and presenting these FS in accordance with frameworks and responsible for identifying the financial reporting framework to be usedComplete Set of FS * Statement of Financial position * Statement of Comprehensive Income * Statement of Changes in Equity * Statement of Cash Flows * Notes General Principle of Audit 1. Ethical Requirements Quality control 2. Audit in accordance with PSA 3. Professional scepticism questioning mind 4. Objectives load audit risk to an acceptable level Assurance Provided by Auditor 1. Basis of evidence gathered (which include sampling) 2. Auditor provides reasonable assurance 3.Financial statements are free from material misstatements (materiality) * Sampling used to gather evidence on financial statement amounts and disclosures * Reasonable Assurance alludes to the concept of audit risk which is implicit in the audit function and implied in the scope paragraph of auditors report * Material misstatements no imprimatur that the FS are accurate. Auditor provides reasonable assurance concerning material misstatements and an opinion on fairness, in all material aspects.Collusions when two or more individuals work together to effect misappropriation or concealment. Assertions representations by managements, explicit or otherwise, that are embodied in the financial statements * Internal control assertions an implied assertions by management that such internal control procedures are effective as to both their design and operation * Financial Statement assertions management asserts that the financial statements, and by implication the financial statement items and underlying account balances and classes of transaction, are free of material misstatement.Level of Aggregation Category of FS Assertions per the AASCs Glossary of toll 1. Existence 2. Rights and Obligations 3. Occurrence 4. Completeness 5. Valuation 6. Measurement 7. Presentation and disclosure Audit Objectives * to gather and evaluate audit evidence of sufficient quantity and appropriate quality in order to form an opinion on the financial statements prepared by management. Three Fundamental Concepts in Conducting an Audit 1. corporality degree of misstatement or omission . Audit risk auditors may unsuitably express his opinion 3. Evidence refers to the necessary information that an auditor gathers in order to form a credible opinion on the assertions Audit Report 1. Title 2. Addressee 3. Introductory paragraph 4. Managements responsibility 5. Auditors responsibility 6. Auditors opinion 7. some other reporting responsibilities 8. Auditors signature 9. Date of the auditors report 10. Auditors address Other Types of OpinionsQualified expressed when the auditor concludes that an unqualified opinion cannot be expressed but that the effect of either disagreement with management, or limitation on sco pe is not so material and pervasive Adverse issued when the effect of a disagreement is so material and pervasive to the FS that the auditor concludes that a qualification of the report is not adequate Disclaimer issued when the possible effect of a limitation on scope is so material and pervasive to the FS