Monday, June 14, 2021

Why? - To express an opinion

AUDITING THEORY - FS When? - Management prepared Financial

AUDIT OVERVIEW Statement

Who? - Auditor

Where? - Audit report

Q1: How? - PSAs

Audit opinion is inside the audit report.

S1: Code of Ethics is an example of

AASC’s engagement standard

FRAMEWORK

S2: An audit engagement can either be

two-party or three-party relationship

A. True, True

B. False, False

C. True, False

D. False, True

Q2:
S1: Inquiry and analytical procedures are
a common procedure for audits and
reviews.

S2: Assurance engagement risk is the

risk that the practitioner expresses an
inappropriate conclusion when the Q3:

subject matter information is not

materially misstated.
Which of the following is not an example
of general-purpose framework?

A. True, True

B. False, False
A. PPSAS -

C. True, False
B. Full PFRS

D. False, True
C. PFRS for SEs

D. PFRS for cash basis

FS AUDIT

WHAT? - Examination of Financial Statement

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• Accuracy

FRAMEWORK • Cut-o

• Completeness

General Purpose Framework

- designed to meet the common nancial Presentation and Disclosure - All
information needs of a wide range of • Occurrence

users.
• Completeness

- Ex: PFRS
• Classi cation and Understandability

• Accuracy and Valuation

Special Purpose Framework

- designed to meet the nancial information

needs of speci c users.
ACCOUNT BALANCES
- Ex: cash basis

Rights and Obligations

- the entity holds or controls the rights to
assets, and liabilities are the obligations of
the entity.

Completeness
- all assets, liabilities and equity interests
that should have been recorded have been
recorded.

Existence
- assets, liabilities and equity interests exist.

Is it needed na 1:1 ang ratio ng cash to cash

in bank balance? - NO

Valuations and Allocations

- assets, liabilities and equity interests are
ASSERTIONS included in the nancial statements at
appropriate amounts and any resulting
- representations by management, explicit valuation or allocation adjustments are
or otherwise, that are embodied in the
appropriately recorded.

nancial statements.

- Valuation: Both initial and subsequent

measurement

Account Balances - SFP “as of”

- Allocation: related to only subsequent
• Rights and obligations

measurement.

• Completeness

• Existence

• Valuation
CLASSES OF TRANSACTIONS
Classes of Transactions - SCI, SCE, SCF
Occurrence
“during a period in time”
- transactions and events that have been
• Occurrence

recorded have occurred and pertain to the

• Classi cation

entity,

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 Monday, June 14, 2021
Cut-O
Q4:
- transactions and events have been
recorded in the correct accounting period.
S1: An audit reduces information risk that
may lead to lower cost of capital.

Completeness
- all transactions and events that should S2: An audit may be used to deter
have been recorded have been recorded.

ine ciency and fraud.

Accuracy A. True, True

- amounts and other data relating to

recorded transactions and events have B. False, False

been recorded appropriately.

C. False, True

Classi cation D. True, False

- transactions and events have been

recorded in the proper accounts.

GENERAL PRINCIPLES IN
PRESENTATION AND GOVERNING THE AUDIT OF FS
DISCLOSURES

Occurrence and Rights and Obligations

- disclosed events, transactions and other
matter have occurred and pertain to the
entity,

Completeness
- all disclosures that should have been
included in the nancial statements have
been included.
PROFESSIONAL SKEPTICISM
- an attitude that includes a questioning
Classi cation and Understandability mind, being alert to conditions which may
- nancial information is appropriately indicate possible misstatement due to
presented and described, and disclosures error or fraud, and a critical assessment of
are clearly expressed.
audit evidence.

Accuracy and Valuation

- nancial and other information are PROFESSIONAL JUDGMENT
disclosed fairly and at appropriate - application of relevant training, knowledge
amounts.
and experience, within the context
provided by auditing, accounting and
ethical standards, in making informed
decisions about the courses of action that

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 Monday, June 14, 2021
are appropriate in the circumstances of
the audit engagement.

- Attained through education, training and

experience.

THEORETICAL FRAMEWORK
OF AUDITING
- audit function operates on the assumption
that all nancial data are veri able.

- The auditor should always maintain

independence.

- There should be no long term con ict

between the auditor and the client
management.

- E ective accounting and internal control

systems reduces the possibility of errors
and fraud a ecting the FS.

- Consistent application of GAAP results in

fair presentation in FS.

- What was held true in the past will

continue to hold true in the future in the
absence of known conditions to the
contrary.

- An audit bene ts the public.

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