Introduction to

Auditing Theory
(AT.100)

Leomar R. Cabarles
Outline
• AUD Syllabus

• AT Topics outline

• AT Handouts structure
AUD Syllabus
• Candidates must conceptual knowledge and
understanding of assurance and related
services performed by professional
accountants.

• Examination: 70 MCQs

❑ Auditing Theory – 35 items

❑ Auditing Problems – 35 items

AT Topics Outline
• Public Practitioner’s Engagements
• Audit Engagements
• Review and Other Assurance Engagements
• Related Services Engagements
• Professional Standards, Quality Control, and
Legal Liabilities
• Code of Ethics for Professional Accountants
• Setting-Up a Public Accounting Practice
AT Handouts Structure
• Learning objectives

• Review notes

• Discussion questions

• Practice exam
Public Practitioner’s
Engagements
(AT.101)

Leomar R. Cabarles
Learning Objectives
1. Name typical engagements practitioners
render to clients.

2. Discuss the fundamentals of assurance

engagement.

3. Give examples of non-assurance

engagements.
 Public Fundamentals Non-
Practitioner’s of Assurance assurance
Engagements Engagements Engagements
 Public Fundamentals Non-
Practitioner’s of Assurance assurance
Engagements Engagements Engagements
Assurance = Lending credibility by
expressing an opinion/conclusion
 greater

prohibited

specialists
generalization
 Review is also attestation

May also involve direct reporting

Audit also involves

attestation
 Public Fundamentals Non-
Practitioner’s of Assurance assurance
Engagements Engagements Engagements
 Enhanced
QUALITY
Responsible Subject Intended
Party Matter Users

Evaluation or
? Conclusion that
enhances
measurement confidence
Criteria

Practitioner
 Demand for Assurance Engagements

• Bias of responsible party

• Remoteness of users

• Complexity of subject matter

• Risk management—
information risk reduction

• Cost of capital reduction

 Types of Assurance Engagements

1. Level of assurance
a. Reasonable
b. Limited

2. Structure
a. Attestation
b. Direct reporting
Level of Assurance and Engagement Risk
 Level of Assurance Engagements

Assurance Level of Form of

Engagement Engagement Conclusion
Risk
Reasonable Low Positive
(High)
Limited Greater than Negative
(Low or for a RAE
Moderate) (High or
moderate)
 Limitations of Assurance Engagements

• Selective testing
• Judgment
• Inherent limitations of
internal control
• Persuasive evidence rather
than conclusive
• Characteristics of subject
matter
 Structure of Assurance Engagements

Engagement Is subject matter Who primarily

responsible evaluates the
party’s subject
representation? matter?
Attestation Yes Responsible
(Assertion- party
based)
Direct reporting No Practitioner
 Elements of Assurance Engagements

1. Three party relationship

2. Subject matter (appropriate)

3. Criteria (suitable)

4. Evidence (sufficient
appropriate) CREST

5. Report (written assurance)

 Three Party Relationship

Intended Can’t be the RP alone

Users

Accountability Assurance

Responsible
Practitioner
Party
 Subject Matter

• Financial

• Non-financial

• Physical characteristics Assertion

=
• Systems/processes Attestation
• Behavior
 Criteria

• Benchmark against
subject matter

• To be suitable:
❑ Relevant
❑ Complete
❑ Reliable
❑ Neutral
❑ Understandable
 Evidence

• Basis of
opinion/conclusion
 Written Assurance Report

• Conveys assurance
incomplete
elements
No independence
Consulting
/advisory
RAE

LAE
Direct reporting assurance engagement
Direct reporting
Other choices are examples of attestation.
Evidence

Report

Subject
matter
 Public Fundamentals Non-
Practitioner’s of Assurance assurance
Engagements Engagements Engagements
 Non-assurance Engagements

• Agreed-upon procedures (findings)

• Compilations (accounting service)
• Tax (when no assurance conveyed)
• Consulting/advisory (advice)
• Testifying in legal proceedings
• Professional opinion not intended as an
assurance report
End of AT.101