Chapter 8

PERFORMIN G SUBST@NTivE TssTs

set less
Desired Inheren Acceptable
Dfttto! Risk Lnvel of
Levd of t Rsk
Audit Risk Detection Risk

.Audit Considemtion of Performing

internal control Substantive
Tests
{Chapter 5)
(Chapter 6)

After considering inherent risk and control risk, the zuditoz performs
substantix•e tests to reduce the level of detection risk to rim
acceptable level.

Subetaative tests are audit procedures designed to substantiate

the account balances or to detect material misstatements in
the financial statements. There are two types of substantive tests,
namely analytical procedures and tnst of details. The decision
nbout which procedures to use is based on the auditor’s
judgment about the expected effectiveness rind efficiency of
such procedures in satisfying the audit objective

Analytical Procedures

As discussed in Chapter 5, nuslytical procedures may be used

iz the plznzziog, test]Zt@ And overall ieriew stages of the audit.
Andytical procedures applied as tub o ndve tests toable the
auditor to obtain corrobomare evidence about a peidculxr
account. This approach involres omp«dion of finsncinl
information with
auditors expectanons to determine the
reasonablenes s azt account balance zepoztcd iz› a ’299
of
statement.
financial
Uhen a nalytic* prOcedm es idenafy flues
significant
uct
«uéto‹ should cond ñzrther iztvestigad q to de\,

whetho the fin•• « d s

tateme nts are matenally
investigation
followed b/ COrroboration of management's res
audit procedmes based On the zesCts of I[\ese

Develop Expectations about

the Financial Statements

Compare the Financial

Sta tements with the
Kxgectations
Developed

US ' Conduct further

inves d q

NO
 Th« effectiveness of ana lytical procedures applicd xs
,obst• ntive tests is affected by many factors such «s the natuze
of the assertions, reliabili ty of d«t« used to develop
gxpeCtitt2ORS, QreciSlOR OF gy p2{g ORS and predictability of
the account balances.

When in tendttlg to petforrrt analytical procedures as

substantive tests, the fiUditOz should focus on those accounts
that are predictable. The fo8owing genets stions m«y be
helpful ii assessing the predictabili ty of the accounts.

• Income statement accounts ate more predictable

compared to balance sheet accounts.
* Accounts that are not subject to management
discretion are generally predictable.
• Relationships in a stable environment are more
predictable than those in a dynamic or unstable
cni•ironment.

test of details

Test of details involves examining the actual details mzking

up the, various account balances. This approach may take the
form of test of details of balances or test of details of
transactions. Test of details of balances involres direct
testing of the ending balance of an account, wMe test of details
of RansaCtions involves testing the transactions which give
rise to the ending balance of an account.

To illustrate the difference between the two forms, assume

* the auditor wants to examine * * *

B ning balance 1,(}()()

Cash receipts, fish d bursnncnts

d‹ui• g tic yc«• t2,000,000 during ‹h*y-

Endu›g bzlz‹icc t y000

301
 the ending balance of cas
hand and testing
byA*
also obtain >i dc•
actively, the s U@tOf. may
p thc cnsh account balance b}
P12,000,000 «nd ‹disbu rse
P11,500,000) «ff<cnng the cash accouñt that” ^^Syitcd d
the yes TltiS approach, pracac4
aanszCbOUB that occurred did
are probably
financial stntensents taken as a whole.

¿n gene«i1, tut of balances will be used whin aJCOYlnt balance

ace affected br large s•olume of relatively 1tYlmatei i•l
transactions. Emmples of acñoullts of this ape include end,
accounts receivable and inventory.

On the other hnnd, test of transacuons is useful if account

balances are comprised of a smaller volume of transzcaoos
representing relatively material amounts. Examples of them
accounts nre property and equipment, intangibles, bonar
payable, and stockholders’ equity accounts.

°<ectireneaa-of Substantive Teaa

C QOteDtial effectiveness of the auditor’s subso ntive
R affected by 1t8 nature, timing, And extent.

*} Nature Or »ub8tantive test

Of SubStanbv e test relates O *$

The auditor ^P
quality Of evidence
feeded to suPP
of detection list,
Although the
prefar h quality op m en t to
high cost
also involve'
 Substantive tests may QflffOrrñed

effecuvc due to in ate genemlly considmed lees

cremental
au@dng intezizn balances. Thus, the higher th« «›k of
mateziat rnisstatemcnt, Ie more likely it is rhat auditor
may decide to puform substantive closec to year-
end. tess

Performing audit procedures at mtgtifR datn assists the

auditor in identifying sig«iaCartt matters at an early stnge
of the’ audit, and consequently resolving them «ith ibe
help of management oc developing en effective «udit
approach to addres4 such mutters. Additionally,
P f* $ >P d «0o &e auditor to spmad
the work tlirt›ughout the yes thereby minimizing the
load during the p‹•:ik period.

¿j Extent of substantive icat

The extent of subsmntive test relates to the amount of

m•idence needed to satisfy a particular objecdve. The
extent of substantive tests is based on the auditor’s
judgment aher considering the materiality, the «ssessed
nsk, and the degree of assurânce the auditor plans to
obtaia. IA 8fnculn , the auditor ordinarily increases the
extent of substantive pmcedmes as the risk of mateoel
Restatement iaczeasw

co
”tests of coatrok provide evidence t)fat indicates a
I1kcIy tb occuz.Substantive tests, on the otbec
evideacc sbout
ba1sace.

Fo‹ example, if the re5Ul tS 0

t0fOal COna o l p rocedures are
auditor will assume t material misstatements are likely to
The auditor will then Om cbsnntive tests tO detWmiae whet
e›atefial missatcmenn actually do ‹%°*

In expressing an opinion on the financial statements, the zuditoi

relies on the effectiveness of the internal control to prevent
intern etzors in the accounting process, and on substantive tesn to
v‹ei§ the amounts in the financial statements. If tests of conHob
into that the internal control is effective 2 7y g d
correctirig matenal misstatements that may occur in
theoccounting ’process, the auditor may perform less substance
tests. Conrers@, if the internal control is not reliable, the auditor
will have to perform extensh•e substantive tests. Thus, the result
of tests of control 0 major factor in determining the nature,
timing, and.extent o( suditox’s substantive tess

WheO auditing financial statements, auditors would

perform tuf t of CORaol simultaneously with the test of del
tzaosacaons in ocdeE tO increase efficiency in. the app1iCt@OB
audit tcsu. This lS Called d¥t aJ-purpOse testing.

AUDIT EVIDENCE
.
e auditor should obtain
priate e¿d
be able tO ‹thaw re onsble sufficient app which
conclusions on

Evi @+ Ce refers to ed b; the z

the information ob
t C fl ClUS O nC n which the audit O O
‘
 Audit • ideace consists
infozmati‹ni.

« Underlying accounting dntn refs to thc

upQO COSt allocatiotts

by tic client pczsoonel.

• Corroborating information supporting the uudeciying

xccouuti«g date ^* 6ozo cficztt aud otbcr
sources This includes documents such ss inroices, bznk
statements, Qurchnse orders, contracts, checks and other
iaformauon obtained or developed by the auditor through
confirmation, recalculation, observauon and
reconciliation.

Accounting data alone can not be considered sufficient

evidence to support an opinion on the financial smiementn
Accordingly, the auditor must obtain corroborntive
information to support his audit ceport.

t• Quahtics of c«ideocc

Audit eridence is typically obtained as a result of

perfocoñng tests of control and substantive tests. In cases
where controls caonot be relied upon, evidence may be
obtained entirely from substantive tests Wheat obtaining
audit evidence from either tests of control oz substantive
tests, the auditor should COflS i dCf e cix and
a pp zopnateaese of audir evidence obbziziot

ten pcrgozodng tests

of control sel f evidence must
sup por t the assessed
leqel of control risk. When
Q6rforming substan *
k. At d›c concl
the acceptable level of detccaO
$f the nudit, the au@fiOf

305
sufficiency and zp ropriatenes5 of evidence flop
substantire tests afld tests of control suppozt• th<
mineral statement nsSC-I Ofl5.

Sufficiency refers to the amount of evidence

‹hat the auditor should accumulate. Because ofb e
cost/ benefit con5ldemtion the auditor does not
exit all evidence available. The auditor uses his
judgment to determine the amount of evidence
needed to
support an opinion on the financial statemen ts. The
following factors mm bn ConSldered in evalua
the sufficiency of evidence:

• The competence of evidence

The amount of evidence that is sufficient in

a given situation varies inversely with the
competence of evidence. Thus, the more
competent the evidence, the less Mount of
es•idence is needed to support the auditor’s
opinion.

• The materi ity of the item lieing examined.

The more material the financial statemen

amount being examined, the more evidence
be needed to support its valiaty. Convms‹ y›
if the account 1s not oiatefial to the fin$<
statements, the auditor does not ha+@ tO
perform any procedure related to that acCO

■ The risk involved in a paniculai account

As the cisk of misstatement in a

account increases, the more evidence
needed.
 fld do g previous audit may
@CRte be O¥lDt O/ evidence n ken before
Mid w'hethet Such evidence was’enough.

Appropriateness is the measuf « of

audit erid BflCe and its relevance
to a particular
assertiOR and its reliability,

Relevatice zelatr.S the timeliness of evidence and

its ability to satisfy the audit objective. Reliability
relatea to the objectivity of evidence and is
influenced by its source and b)• its nature.

While reli«bilit)• of audit evidence is dependent on

indix•idual circumstance, the following
geneia1izaii‹›ns could help the auditor in assessing
the teliabilio of audit evidence:

• Audit e dence obtained from independent

outside sources (for example, conRmation
received from a third party) is more reliable
than that generated internally.

• Audit evidence generated internally is more

* r<litblc when the related accounting and
internal control systems are effective.

• Audit eviden ce Obtained directly by the

auditor is fnore Reliable than that obtained
from
the entity.

^ Audit evidence in the form of documen

ts and
pgp e pcese more reliable than
ntaéons i
oral representat2oflB
 OB

the
q b g evideflC£ And the usefulue88 OfI N
mfotjjjgñoa obtained. Tbe auditor uses’ his QTofessio ns l
detcimi«iag the appropriate type of evidence
be obtained.

Auditevidence docs not have to bR COOClusive to be used

Oidiontily, the auditor finds it new S f)f to http pp qq (
dmee that is persuasive rather iLw •O» ig i‹,
;„ natuce rind will often seek audit evidence fi:om ditt
JJe g sources or of z different natuce to suppoa the
sag„ assertion.

Q AUDIT DOCUMENTAT ION/ WORKI NG PAPERS

The sufficient appropriate m•idence ze uired by the

standards piofessiond in the
are records auditor’s w '
procedures
Rftd COnclusions tcacbcd.
8
kept br the auditor th
applied, infor tnatl0fl
U t O dOc um • fl t
PSA 230 req«i‹•• *•
d mattm that are imponant to suppo^ °
was conducted ¥tatetztents, •»d d dence that the *+
+CCOt dance with PsA.

" “““ f the working papees

^•.P*•paied primarily to
Supp O p t t
$tatet etl ts. * auditor's opinion on b>°*C '
 '• PP *' ' e * d*t *'* oprcsentatton as to
coraplisncc with USA.
• Assist tbc auditot la tj,c planning, performance,
review and Supervision of

SBCOadaztty, wozkzog papezs also assist the auditor izt

• providing information useful in rendering other

sezvtCeS (MAS O‹ UA COOS w«y)
^ providing adequate defense in case of litigation.

â Porm, Content and-Extent of Audit Documentation

It is neither necessary nor practicable to document Very

mauec the auditor considers during the audio In
deciding on the foxm, content and extent of audit
documentation, the auditor should consider what would
ennble an experienced auditor; haviog no jicevious
connection with the audit, to understand:

(a) The nature, tieing, and exient of the audit

“ procedures performed to comply with PSAs and
applicable legal and regulatory requirements;
(b) The results of the audit procedures and the audit
evidence obtained; and
{c) sigoiacaat zaatteza zzisiog duzing tbc au‹fit and the
Coaclusione reached thereon.

The form, content and extent of audit documentation

depend on factors such as:
' The natuce of the audit procedures to ba performed;
The identified tisks of material fnis8tAteOi0nt)
The extent of judgment required in performing the

be csnce a/ the audit evidence obteincdi

be natuze aOd c3t£€'nt of excepdons identified,
 « The need to document a conclusion or be hgJ¿
« conclusion not readily detecrrtinable f oe,
docume @ lOn Of the work perfor med tk‹
m•idenCe obtained; and
• The aux fflCthodology and tools used.

Although aUdit dOcumentation depends upon be auñ to,;

judgment, the
require audit documentation:
• Discussions of significant matters «itr
management and others on a timely basis.

• In exceptional circumstances, whcn the auditor

judges it aecessaq• to depart from a basic
principle or an cesenual procedure that is
relevant in the circumstances of the audit, the
auditor should document how the alternative audit
prucedmes performed achieve the objectire of the
audit, and, unless otheovise clear, the reasons for
the deponue.

° In documenting the nature, timiag and extent Of

audit procedures performed, the auditor. shOuld
record:
(a)
Who peifotm«d the audit wozk and the date
such work was completed; and
) to e •iew<d the audit work performed
the date, and extent of such zeriew•

§§ Clil8sification of wOr
king papeee

ClassifiedJ tO permafl e nt file or current mo$8

**man ent file contains informattofl Of COf1

*ig ruf1CAftCe t o the Auditor in
file would most likely incJl dD

310
 * CO lg5 Of be articles of Q uotation and by-

^ engagement letted
^ otg•niz«tion•J chxrt
&t1itl1WS C›f long-tu a•ccomn M P t
”’
assets, long-term liabiliau and stockbolde
accounts.
"” ” izttezn@ costto{ &Zta} Ses.

y. Current file contztos evidence gathered and

conclusion› ieflChed releran t to the audit of a
particular )'ear. T his 2e Wtluld normall,y include

° a cti}aY tit the financial statements

• audit lii ‹›gram
• working trial balance
° lead schedules
• detailed schedules
• correspondence with other parties such as
law ers, customers, banks, and management.

g§ Ownership of working papeee

,Wozlung papers are the property of the auditqt and the

client has no right to the working papers prepared by
the auditor. Working papers may sometimes serve as e
reference source for the client (at the discretion of the
auditor) but they should not be considered as part or as
a substitute for the clients Accorda.

°§ Confidentiality of wockipg papers

Althou gh the g papers xc the personal property

pt
of tile auditor,
these working papers can not be shtiwn to
id parties without tbe client’s pgE SSIOR. flCtlOfl 4
Ofl e thMppine'fl'° Pro fessional E fiiCS fequices
° °
 the CPA to respect the CO nfidentiality of pio fe sio
ed durin g the course of perfor g
obtain
ser vices. H o wever , in some ins tances the f

confidW tiali is overridden by the stamte 0

exam ple, the auditof Can disclose C onfident infoi pg
the co nsent
the following circumsta nces: client’s

• When disclosure is required by law ot $gq

working papets are subpoenaed by a court.
• ten these is a professional righ t to disclose
information such as when the auditor uses his
working papers to defend himself when sued by
be
client for negligence.

;d Retention of working papers

9Pozking papers should be retained by the auditor for z

period of time sufficient to meet the needs of his prncuce
and to saosfy any pertinent legal requirements of tecoid
retention.

¿ Guideline6 for the pceparaéon of working pzpe^

Working papers should be properly organized to

their review. The following techniques may be

■ Heading
Each working paQex must be properly
such mforrnati on as the name of the t;)ient›
* g paper, a desczipHon of its content tod
i t: Or Qeñod co tered b, the examinati >
 • Indexing
Indexing refers to the use Of lenering oc numbetipg
System (for example “A” for Cash lead schedule).
Each working paper must be indexed to aid in cross
referencing essential information.

Cross-referencing is important to provide a tzail

useful to supetvison in reviewing the wooing pay

Working papers must include symbols that describe

the audit procedures performed.

AUDITING ACCOUNTING ESTIMATES

As defined by PSA 540, ‘accounting ’estimate' means an

approxnnation of the amounts of an item in the absence of a
precise means of tneasmement. Accounting es tes are often
made in conditions of uncertainty regarding the outcome of
events that have occurred or are likely to oc in and involve
’the use of judgment. Examples include:

° Allowance for uncollectible accounts

' Depreciation and amo attofl
' Accrued revenue
' Defied taxes
Loss contingencies
' Percentage of completion income on COOSt ¥ UCtZOO
contracts

affected by accounting estimates

e i l mi ag ta t emen' $ greater when accounting
 On sible for making accoqpp
ev ent is resp ^a
included Jl the
••otor ' Woosibiliy
evidence as No whether
d disclosed; Bfld
• Accounting estimate is cea a o n abl e in ,p,
circumstance •

Determining whether accounting estates we roped)

accounted fOf and disclosed zequitn5 ltftOx9le‹1ge nf the
client’s business «nd application of relevan t fman’ccl
reporting standards. When es•a1uating the reasonableness
of accounting estimates, the auditor should obtain an
understanding of the procedures and methods, including
the accounting and internal control systems, used bj
management in making the accounong estimates. In
addition, the auditor may use one of a combination of
the following approaches:

”” 1 Review aod test tfze process used by

management to develop the estimate. éd
often inrolve:
^ evaluating data and management as6mn
* g of Calni lations,
CO P g prior periods estimates J t

*n >, end
CO$ sidering n«gement approv£ pyoced '

be auditor may make oz obtain as icdey dat

" t and Com
pare it with the accouati•g*
P'•pned by •‹ »t
 • °'<ew menu a«a
subaequent O»n,« a t
e8timate made.
OCCt1g aft:cz pedod
TmDsacttozzs •nd
end, but pnor to completion of the audit,
provide iuffi

After performing thy «boVC Qzoceduies, the auditor

5hOuld make a fatal assessment of the iea•onablen> s
of the estimate based on the auditor’s knowledge
of the business and Whether the estimate is
c‹›nststent with othec audit eridencn obtained dudng
the audit.

REERTE

The term relate° --•°ty rc’fers tu p rsons or entities that may

have dealings with one another in which one party hns the
ability to exercise significant influence or control over the other
party in making financial and operating decisions. This
would include entitys parent, subsidiaries, associates,
affiliates, pnncipal ownecs, directors, officers including their
immediate families.

While the existence of xtlated parties and transactions between

such parties are considered ordin fcames of business, the
auditor needs to be awace of them because:
° Generally accepted accounting
principles in the
Philippines require disclosure in the financial statemeRH
of certain related party £elatiOnShips d ttansactionx

' A related p
transaction jelas be motivated by
sS
bu siness considexatlo fls 5 UCh
sharing oz even fYnud.
^ 1bc existcace oc related pecty
of related parties
tzansacaons raay
«ffer J< ^,nt <==n and the
dence.
 Maung emen t
is responsible (pt the identiñCadon q
of related and transactions wi‹t• »‹;,
parties
p«ities•
This ioo O@Sibiiity requi*** '°* * lent t,
’ tmp
adequate accounong and internal cOtl>»i
systems
to ensure that cansacd oD5 EB@tcd pag¿g
are zpproptistely identified in the accounting
recotds <d
disclosed m statemen ts.

g Au@iOJ8 Hsponsibility

The auditor should obtain and review’ information

provided by the directors and management identifying
the names of all’ known related parties and related
party transactions. The following procedures may
«ssist the auditor in identi related parties:

° Reriew prior-yeax working papers for nan ies of

known related parties
° Review the envy’s for identibcaoon of
procedures

° Ing e as to the affiliation

officers of the directors and
° with oth er enti
RevieI shareholder recordsties.
to determine the nan**
of b Cl at shmeholden
or, if appropñ ate, obj
Review ••»•utéS of the€ shzreeegistet.
gs of shateho
e
ie of directors And othex relevant smJ
records such as the ceg s
te£ of director’s intern
currently involved m '
nf adM d.•’°d°° S •O* aua to‹o»u‹x‹
‹s, •›•*s’
onH
"^Y
be abOp e
OCg
. dm es modified as app
)u of
deteCted i , tOq.
316
 D the course of the audit,
the following to be able to identify related
procedures
party ttaa88Caoae:

• Performing detailed tests of transactions and

balances.
^ Reviewing minutes of meetings of shareholders and
CCtOIS.
° Reviewing accounting iflCOrds for Age or unusual
transaCttOn$ or balances, paying particular
attention to transactions recognized at or neni the
end of the reporting pefiod.
• Reviewing confirmations of loans receivable and
payable and confir tions from banks to idcuofy
the existence of guarantee and other related party
WansatDons.
• Reviewing investment ttansai:tions like purchase or
sale of an equity interest in a joint renture or other
entity.

An audit can not be expected to provide assurance that

all related party transactions will be discovered.
Nevertheless, the auditor should be alert for unusual
tmnsactions that may indicate the existence of related
parties or related party transactions. Examples of
conditions in which related party transactions nre likely
would include:
° Transactions which have abnormal terms of trade,
such as unusual ptices, Interest otes, guarantees and
repayment terms
^ Transactions which lack an apparent buñncss
logical
zeason for their occurrcacc.
Transactions in which substance differs from form.
^ Trans«cdons not processed in an unbiased mamaer•

customers or with others.

Un t eco tded t t ñflSRCtlORS the receipt or
provision of manageme$‹ services at no charge.
 aze ideod6ed,
’PP Pte e idCnce
shoed
we accouflted foe and ClO5R I the
properly
statements The zu@tmf should also obtain

CO tnp le
teness rom. ded regarding the
identification Of related parties and the adequacy of

USING THE WORK OF IN AUDITOR’S EXPERT

The auditor’s education and experience enable the auditor to

be knowledgeable about business matters in general. However,
the auditor is not expected to hax•e the expertise required to
. practice other profession or occupation. During the audit,
the auditor may need to obtain audit evidence in the form or
reports, opinions, valuations, and statements of an expert. to
expert lS a person or firm possessing special skill, kftowleéQ
and expetigf ¥ce in a particular field o accoun
udio.Common examples of expert’s work include:

^ Valuation of precious stones, works of arts, ri zJ ** ° t°

and other specialized assets
de termination of amount
s using specialized techniq*"

of teChniCal re
or legal title t o p* P i1
PSA C20 identi
fies to kinds of ex
pects, namely:
Expos those wo*
his/her field of
. M«»«gemenf a Expert
I hiS/h8£ fiéld of expertise, is
used @ ae entity to ° ^t'**• •*i9 i*i papañog ilie
dial ataiemente.

Determlnmg the need for an AnditoJ« Experi

Not all engagement would require the help of an experL

Usually, the auditor will be able to obtain sufficient
appropriate evidence about an account balance oc
transaction-classmvem without the help-of an expert. In
s‹›mc instances 1iowei•cr, the auditor can not obtain
s:itisf.iction about an assertion without seeking the
assistance of an expert. \Vhen determining the need to
use the ivotk of an expert, the auditor would consider.
» Whether management has used a managements
expect in preparing the financial statements
• The nature and significance of the matter,
including its complexity.
• The risks of material misstatement in the matter.
• The expected nature of procedures to respond to
identified tisks, including the auditor’s imowledge
of and experience with the work of experts in
relation to such matters; and the availability of
alternative sources of audit evidence.

§) Evaliiatiog tbé AuditoJa Expert

After concluding that the help of the auditor's expert is

needed to assist the auditor in obtaining sufficient
approp rite evidence, tile auditor fDUSt'

Aase ss tb e om p Ct caCc aad Ob t¿vtt}r of be

expert.

The following factors must be considered when

assessing the competency Of thC Cft•

319
 ■
P i of
certification of licensing
esslOflal za appropriate
giembersNp
body; @fld
tation in the field in •s.h
•
E xperience and repu
the au@ SO£ evidence

vs‹ «v i••d n of expert’s objectivity shall »

i„; scurry regarding interests and
relationships a•tx create a t feat to the exper ts
obJeCdvlty.

2. Understand the field of the expezti6e of au&tor,

expert.
This understanding should enable the i uditot to
determine the nature, scope and objectires of Sa
expert’s work; and evaluate the adequacy of that
wock for the auditor’s purposes.

3. Establish the tero of the agreement aa a‹

expert.
The «uditoi and the expect should agre‹i on matters
such as the nature, scope, and objectives of tb*
expert's work; their duties and tesponsibili@si
of completion; attd the need for the auditOf’S8X
to observe confidentiality requirement •
appropriate, such agreement has to be in ›v 8’

4. Evaluat e tii• *°•»lts of bthe work of t « t

’
The auditor should assess the appxopJ>JJ gS

>Cml Statemen t assertion being considered

WO uld seq e consideration of the expert s
of dat Qg S umptuous and methods, and
of «xpe ts workI light of the auditotJ ‘
of
pzo ceduzes.
O led8’
 • < >U ton e Wfi work should ennble
the auditor to satisf:y his objecBveu If the nuditoz
determines that the work of the
not adequate for the auditors

be performed; or the auditor

may perform furth audit procedures appiop ate

$ Effect of the Reliance on ExpCrt 8 WOrk on the Audit

Report
The auditor has eole responsibility for the audit opinion
expressed, and that responsibility D not reduced by the
auditor’s use of the work of an expert. Thus, the auditor
sDoutd oot zefet to ftse work of an auditor’s expect izt
ao auditor*s zcpozt contaizzing an uozaodJ zczt opizz{om

When an auditor's report contains a modified opinion,

the auditor can make fefecence to the expert’s work if
the auditor believes that such reference’is necessary in
ordex for the zeadezs to uqdexstand the reason for
expressing a modified opinion. When this happens, the
auditor should indicate in his report that such reference
doea not reduce the auditors eponeibility foe thxt
opinion.

CO NSIDE RING THE WORK OF INTERNAL

AUDITORS

auditing is an ‘appmisal actiVl 88tnblished

nn ennty as a service to the enttty. The extmnat suditoc
obiain, sufficient

rind <xtent of the external «uditozs pxocedurcu

the woxk ofintetriaJ auditor itivol cs

assessment Of lfltCfBBl Bt2di tñig; and

2. aluatiog nod testing the work of Internal auditing
 Aside from neong the work p
@ formed
auditors, the
^•7 also rc9uest the
P’
gqci statements in spe , precuce provided the external
the external
' Old

the audit Of finsncia) gt;ttpygj ¿g yp

those of the external
.Consider U€ professional qu«1ificztions and
auditor. ° auditors responsibility for sudit opinon ii
t g internal auditors. noc reduced by any •8^ made of internal auditing.
Accnrdinglt' the auditors iepott on
shuuld not include «nt referen« to
2. by internal auditors

stud eudirou sport the results of thy wotp. |’

J, fjue proftssionnl care

Consider proper flu nning, supexrision and
documentation O EUR B tO£’S WOIJ

4. Scope of function
Consider tire nature and extent of the intctntl

Exzluatiog and testing tire work of internal nu >^

d « If› use the work of the internal auditor, the estW

auditor wk have to evaluate and test the
exten
include
auditor's puipos es. This evaluatio n may
e whgijqe2 the work is performed b