AN OVERVIEW ON THE AUDITING AND ASSURANCE

PRINCIPLES

 Financial Statements are the final output of Accountants

 The report of the external auditor is anchored on the final output of the accountant which is
the financial statements.
How will you know that financial statements are fairly presented – no bias; objective?
 We should not only rely what the accountants say as users of financial reports. Primary
users are very concern on the financial statements because they have to make an
economic decision.
 FS are fairly presented if it complies with all the requirements and provisions of the
accounting standards (PFRS) unless otherwise, immaterial (will not affect the economic
decision making).
Independent / External Auditor
 Is not affiliated with the company. He / she is an independent body that will verify if
financial statements comply to the accounting standards.
 His/her primary purpose is to give an opinion whether the financial statements are fairly
presented or not.
 It is not their primary purpose to discover fraud because it comes along the way. There is a
separate engagement regarding fraud audit. The scope ng independent audit is the
fairness of FS and its compliance on the standards.
Audit Opinion / Audit Report
 It is the auditor’s final output.
 After all the procedures done by the independent auditor, he/she will make an audit opinion
and it is important for it to be seen by users of financial statements being attached to it
certifying that it is fairly presented in all material respect.
Audit
 It is a systematic process. You are just like investigating to have a conclusion. Before an
auditor can give an audit opinion, he/she will go through a systematic process first because
there is what we call the Philippine Standards on Auditing (PSA)
 The auditor must have a Sufficient Appropriate Evidence
 Sufficient – you need to have the correct number or quantity of documents.
 Appropriate – you need to have the right documents ; this pertains to the quality of
the evidence.
 Evidences – contract, invoices and other kinds of supporting documents

BY DEFAULT, FINANCIAL STATEMENTS ARE FAIRLY PRESENTED BECAUSE EVERYONE

IS CONSIDERED TO BE INNOCENT UNLESS OTHERWISE PROVEN.
We just need to check in order to verify if it complies to the PFRS. You need to know the
applicable accounting standards and its provisions. You need to know the Philippine Standards
on Auditing so that you will know the recommendations. Clients are more concerned regarding
the tax so even though you are not expert, you need to learn it and be expert, making it the
reason why we are learning law. We need to know those kinds of laws because it will affect the
FS presentation.
INTRODUCTION TO AUDITING AND ASSURANCE PRINCIPLES
AND CONCEPTS

Introduction to Assurance Engagement

Assurance
 guarantee ; it refers to practitioner’s (Independent CPAs, Auditor, Practicing Accountant)
satisfaction as to the reliability of an assertion (management representation just like the
accountant telling that financial statements are fairly presented) being made by one party
for the use of another party.
Three parties engaged:
 Practitioner – should be satisfied on the reliability being claimed by the management. The
role of the practitioner is to make a conclusion or opinion regarding the reports if it is
clearly presented so that the intended users will be confident to use them in making
economic decisions (has something to do with the financial) because someone checked it
(check and balance). They engage to give conclusion regarding the reliability and fair
presentation of FS to increase the confidence level of intended users.
 Management
 Another Party – the party who will make an economic decision
Assurance Engagement or Services
 It is an engagement where the practitioner expresses conclusion. It is designed to enhance
the degree of confidence of the intended users (other than responsible party). It is about
the outcome of the evaluation or measurement of a subject matter (Financial Report)
against a criteria (PAS / PFRS).
 Auditor should be knowledgeable regarding the criteria.

AUDITING IS AN ASSURANCE ENGAGEMENT BECAUSE IT GIVES CONCLUSION. IT IS

JUST ONE ENGAGEMENT UNDER ASSURANCE
Objective of Assurance Engagements or Services
 It is to evaluate or measure the subject matter (Financial Statements) that is responsibility
of another party (management running the company) against identified suitable criteria
(PFRS) and express a conclusion that provides the intended user with level of assurance
about the subject matter.
 Auditors should be confident enough that the intended users made a correct economic
decision since someone checked it and evaluated the FS and it is reliable. Balance of the
financial statements shoukd be checked. That is the concept of assurance and auditing.
Elements of Assurance Engagement
 Three party relationship (practitioner, responsible party and intended users)
This is unlike the non-assurance engagement – an engagement wherein one does not
need to give a conclusion or opinion. Two party relationship (practitioner and
responsible party) since it is more on internal
  Appropriate subject matter – may ginagawa na report na chinecheck ni practitioner.
 Suitable Criteria – Accounting standards , PFRS
 Sufficient Appropriate Evidence and;
 Written Assurance Report (Conclusion) in the form to:
Reasonable Assurance Engagement – example is auditing
Limited Assurance Engagement – hindi full blown procedures, kapag review
engagement lang
There is no 100 % assurance / guarantee