Audit Engagements

Arguably, The Core of Public Accounting

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Auditing: An
Overview
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Auditing defined -
“An audit is a systematic process of objectively
obtaining and evaluating evidence regarding
assertions about economic actions and event to
ascertain the degree of correspondence between
these assertions and established criteria, and
communicating the results to interested users.”

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◈ A audit is a systematic process.
◈ An audit is conducted objectively.
◈ The auditor obtains and evaluates evidence.
◈ The auditor ascertains the degree of
correspondence between assertions and
established criteria.
◈ The ultimate goal of audit is to communicate its
results to interested users.
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Types of Audit

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Bring the attention of your audience over a key
concept using icons or illustrations

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 Audits According to Subject Matter

◈ F/S Audits
◈ Operations
◈ Compliance

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 1. F/S Audit

◈ This is conducted to determine whether F/S

present fairly the financial position,
performance and cash flows of an entity in
accordance with the AFRF (the criteria).
◈ AFRF may be full PFRS, PFRS for SMEs, Other
acceptable basis of accounting or the US
GAAP.

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Assertions are representation of management, explicit or otherwise, that
are embodied in the F/S

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 Assertions - Classes of transactions and events
(refer primarily to income statement accounts)

a) Occurrence
b) Completeness
c) Accuracy
d) Cutoff
e) Classification

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 Assertions – Account balances
(refer to balance sheet accounts)

a) Existence
b) Rights and obligations
c) Completeness
d) Valuation and allocation

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 Assertions – Presentation and Disclosure
(refer to entire F/S)

a) Existence
b) Rights and obligations
c) Completeness
d) Valuation and allocation

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 2. Operational Audit

◈ This is the study of an entity’s specific unit for

purposes of measuring whether that unit
conducted its operations efficiently and effectively.
◈ Types:
1. Economy and efficiency (management) audit – The
appraisal of management performance from the most efficient point of view.

2. Effectiveness (program results) audit – The evaluation of

programs and activities to determine the extent of achievement of previously set goals
and objectives.

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 3. Compliance Audit

◈ This is an evaluation whether an entity is following

specific policies, rules or regulations set out by
some higher authorities.

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 Audits According to Auditor

1. External Audits
2. Internal Audits
3. Governmental Audits

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The Auditor’s Overall Objectives – Obtaining Reasonable
Assurance, Reducing Audit Risk

◈To obtain reasonable assurance whether the F/S are

free from material misstatemnent, whether due to fraud
or error, to enable the auditor to express an opinion on
whether the F/S are prepared, in all material respects, in
accordance with an AFRF; and
◈To report on the F/S and communicate the audior’s
findings.

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 Audit Risk and Reasonable Assurance

◈ Audit risk – the auditor gives an

inappropriate opinion when the F/S are
materially misstated (beta risk).

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 The Risk-Based Audit Process

Phase 1: Risk Assessment Phase 3: Conclusion and Reporting

Phase 2: Risk Response

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 Phase 3: Conclusion and Reporting

The auditor evaluates the results of the audit from the audit evidence obtained and:
a) Form and opinion on the F/S; and
b) Express clearly that opinion through a written report.

Types of auditor’s opinion

1. Unmodified (unqualified/clean) opinion – The opinion expressed when the F/S are
prepared, in all material respects, in accordance with the AFRF.

2. Modified opinion
a. Qualified Opinion – The auditor is satisfied that the F/S are presented fairly, except for
a specific aspect of them.
b. Adverse Opinion – The auditor does not believe the F/S are fairly presented.
c. Disclaimer of Opinion – The auditor does not know if F/S are presented fairly.

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