LECTURE 1:

OVERVIEW OF ASSURANCE AND AUDIT  AUDITING

- is the accumulation and evaluation of evidence about
 ASSURANCE SERVICES information to determine and report on the degree of
 Independent professional services that improve the correspondence between the information and
quality of information for decision makers established criteria
 shareholders, regulators, managers, etc.,  information: financial statements
 Provides satisfaction as to reliability and relevance of  established criteria:
provided information. Financial Reporting Standards Council (FRSC)
o the successor of Accounting Standards
 Can be performed by public accountants or a variety
of other professionals. Council (ASC)
o FRSC carries on the decision made by the
 Various levels (reasonable limited) depending on ASC to converge Philippine Accounting
nature and extent of procedures and evidence. Standards (PAS) with International
 Growth continues given the demand for real-time and Accounting Standards (IAS) issued by the
forward-looking information. International Accounting Standards Board
 It’s hard to provide reliability on information (IASB)
about the future
- should be performed by a competent, independent
person
 ATTESTATION SERVICES  competent: having the right skills
 Audit of Historical Financial Statements:  independent: being objective
o Auditor issues a written report with an opinion
about whether the financial statements are in  NATURE OF AUDITING
material conformity with accounting standards.  Information and established criteria:
o Verifiable information and criteria
 Review of Historical Financial Statements:
o Provides a moderate amount of assurance on the  Accumulating and evaluating evidence:
financial statements. o Sufficient quality and volume
 Other Attestation Services:  Competent, independent person:
o Must involve written assertions on an o Qualified, competent and independent
accountability matter.
 Reporting:
o Communication of the auditor’s findings to users.
 ECONOMIC DEMAND FOR AUDITING
 INFORMATION RISK
o The possibility that information on which a  AUDITING AND ACCOUNTING
business risk decision was made was inaccurate.
Accountants Auditors
 Auditing can have a significant effect on information Record, classify and Determine whether recorded
risk. summarize economic events information properly
for the purpose of providing reflects the economic events
financial information used that occurred during the
 CAUSES OF INFORMATION RISK:
in decision making accounting period.
 Remoteness of information – user and management
 Biases and motives of the provider – management;
provider  TYPES OF AUDITS:

 Voluminous data  FINANCIAL STATEMENT AUDIT

- To determine whether the overall financial
 Complex exchange transactions statements are stated in accordance with specified
criteria.
 REDUCING INFORMATION RISK:
 OPERATIONAL/PERFORMANCE AUDIT
 Users verifies information
- Evaluation of efficiency and effectiveness of
 Users shares information risk with management. organization’s operating procedures and methods.
 Audited financial statements are provided – reduce
the risk of agency  COMPLIANCE AUDIT
- To determine whether the client is following
specific procedures, rules or regulations set by a
higher authority.

 TYPES OF AUDITORS:
 PUBLIC ACCOUNTING FIRMS
o Responsible for auditing historical financial
statements of publicly traded companies
 COMMISSION ON AUDIT (COA) AUDITORS
o Responsible for performing the audit functions for
government
o Audit of financial information and evaluation of
efficiency and effectiveness
 TAX AUDITORS
o Bureau of Internal Revenue (BIR)
o Audit tax returns to determine compliance with
tax laws.
 INTERNAL AUDITORS
o Responsibilities vary considerably depending on
the employer
o Involved in compliance auditing and performance
auditing
 TOP 6 AUDITING FIRMS IN THE PHILIPPINES:
 SGV & Co. (Partner of Emst & Young)
 Navarro Amper & Co. (Partner of Deloitte Touche
Tohmatsu Ltd.)
 Isla Lipana & Co. (Partnet of PWC)
 R.G. Manabat & Co. (Partner of KPMG)
 Punongbayan & Araullo (Partnet of Grant Thomton
International Ltd.)
 Roxas Cruz Tagle & Co. (Partner of BDO Global)
 ACTIVITIES OF PUBLIC ACCOUNTING FIRMS
 Audit services – high volume, low margin
 Accounting and bookkeeping services
 Tax services
 Management consulting services – high margin
 STRUCTURE OF PUBLIC ACCOUNTING FIRMS
 Forms of Public Accounting Firms:
o Sole proprietorship
o Partnership
o Incorporated company
 Hierarchy in Public Accounting Firms:
o Partners, managers, supervisors, seniors and
assistants
 MAIN FUNCTIONS:
 Establishing standards and rules
 Research and publications
 Continuing education
The Philippine PRBOA also adopted the International
Standards on Auditing (ISAs), according to Philippine
Standards on Auditing (PSA) 120 and the “Interim Terms of
Reference” of 2004, with exclusion.
Thus, auditing standards are fairly uniform across national
boundaries. However, unlike the PSA, ASAs have been
enacted into laws and therefore the tenor of the standards is
that the auditor “SHALL” or “MUST” apply them (not
“MAY”).
 AUDITING AND ASSURANCE STANDARDS
COUNCIL (AASC)
- Issues PSAs
o provide explanatory guidance to auditors in fulfilling
their professional responsibilities in the audit of
financial reports
o PSAs represent minimum standards of performance
for auditors.
 QUALITY CONTROL
 Need to exist across firms and within firms
 Procedures used by the public accounting firm to
help it consistently meet auditing standards.
 Elements of quality control:
o Leadership responsibilities
o Ethical requirements
o Client acceptance and continuance
o Human resources
o Engagement performance
o Monitoring
 PEER REVIEW OR QUALITY REVIEW
 Review of a public accounting firm’s compliance
with its quality control system.
While Australia is successful in implementing the quality
review programs for the works of auditors through the
professional bodies (CAANZ and CPA Australia)...
The Philippines haven’t been able to implement it yet,
although it is set forth in RA 9298 or the Philippines
Accountancy Law of 2004, Sec 9h.
While the Australian Securities and Investment Commission
(ASIC) oversees the work of auditing firms, the local
Securities and Exchange Commission (SEC) “has no such
authority”.
*Firms wants UNMODIFIED AUDIT REPORT or
UNQUALIFIED meaning management is telling the truth.
QUALIFIED OPINION
- the financial report is materially misstated;
management is not truthful– certain area only
- inability to obtain sufficient appropriate audit
evidence; not enough evidence– small portion
ADVERSE OPINION
 - there’s a lot of errors in the financial statement

DISCLAIMER OF OPINION
- can’t get enough information in a lot of areas
- not giving an opinion at all