Summary of Auditing Theory Chap 1 & 2

office run deal with audit or review of historical financial discipline and dominances dealing with subject progenys separate than historical financial entropy. * designed to enhance the degree of confindence of the intended workoutrs oppositewise than the trusty party about the outcome of the evaluation or measurement of a subject occasion against criteria FF. are the broad categories of services under the umbrella of assurance services 1. Risk assessment 2. teaching system reliability 3.Adequacy of security over Electronic commerce transactions, electronic documents, and backup systems 4. Effectiveness of health care performance measurement systems 5. Reliability and relevance of Business performance measurement * it evolves naturally from attestation services, which in turn evolve from audit * The root of all three is independent verification Non-assurance services (Related Services) pertain to compilation of financial information , agreed-upon-procedures and ot her related services which do not direct in the expression of decision that nominates a level of assurance. scrutiniseing is a systematic process of objectively obtaining and evaluating severalise regarding selected assertions about economic actions and events to ascertain the degree of correspondence among those assertions and established criteria and communicating the result to interested users. * determining whether recorded information properly reflects the economic events that occurred during the numbering period. Elements * Systematic process * Objectivity * Obtaining and evaluating record * Assertions about economic actions and events * Degree of correspondence stablished criteria * Communicating results * Interested users Attestation refers to an experts compose communication of a conclusion about the reliability of several(prenominal)one elses assertions. * when a practitioner is booked to issue a create verbally communication that expresses a conclusion about the reliability of a scripted assertion * a type of assurance service whose subject matter (both FS and non-FS in nature) * offering some level of assurance Ex. of attest services 1. Future-oriented financial information 2. Managements discussion and compend 3.Effectiveness of internal control 4. Compliance with statutory, regulatory and contractual obligations Consulting services (Management Advisory Services) professional services that provide advice and assistance concerning an entitys brass section, personnel, finances, consummations, systems, or other activities. * an analytical process that typically involves some combination of activities relating to a) objective-setting b) inquiring c) definition of problems or opportunities d) evaluation of alternatives e) development of good words including actions ) communication of results g) implementation h) follow-up reports are generally written in a narrative style nature and scope is chanced by agreement between the profe ssional accountant and the client Areas of consulting services 1. Consultations 2. Advisory 3. Implementation 4. Transaction 5. Staff and other support 6. Product AssuranceConsulting * three party-two party contractscontracts * to improve quality-to recommend of informationuses for infos. * decision clerics & -Outcomes info. used for optimum decisions * intended to improve-designed to ecision makers improve clients condition indirectly conditions thru directly thru recommendationsfindings, conclusions and recommendation Four conditions that create demand for audits 1. Potential conflict of interest between those who prepare information & those who use information. 2. Information can have substantial economic consequences for a decision maker. 3. Expertise is often call for for preparing and verifying information 4. Users of information frequently are prevented from directly assessing the quality of informationStewardship or agency conjecture implies that the manager, as well as the owner, wants the credibility an audit institutes to the financial statement assertions. Types of Audits 1. Compliance Audits to determine accordance with criteria, standards, or rules set by an authoritative body 2. Management Audit (Effectiveness of Performance) an examination and evaluation of the activities of perplexity 3. Performance Audit analyzes an organizations structure, internal systems, work flow and managerial performance 4. umbrella Audit includes the components of compliance, performance and financial statements udit 5. Operational Audit to determine the extent to which some aspect of an organizations operating activities is functioning effectively 6. Internal Audit an independent, ovjective assurance and consulting activity designed to add value and improve an organizations operations. Helps by bringing a systematic, disciplined approach to approximate and improve the effectiveness of take chances management, control and governance process 7. Environm ental Audit environmental matters which whitethorn have an impact on the financial statements 8.Forensic Audit examination of say 9. Financial Statements Audit Types of auditors 1. outside (independent) auditors public accountants, both individuals or firms 2. Internal auditors services for a single organization for which they are utilize on a full-time basis, typically reporting to the board of directors 3. Government auditors full-time employees of the government tasked to determine compliance with laws, statutes, policies and procedures 4. Forensic auditors financial auditing specialists who focus on unearthing the truthAuditing and Assurance Standards Council (AASC) body authorized to establish and exclaim generally accepted auditing standards (GAAS) in the Filipinos * The main distinguishing feature of auditing and related services is the level of assurance provided by the auditor in the engagement. * An auditor becomes associated with the financial information thr ough the attachment of a report or when consenting to the use of auditors defecate in professional connection. Remedies if known that the auditors name is inappropriately used 1.Request management to stop the inappropriate association of auditors name 2. Inform any known third party users 3. Seek legal advice Sarbanes Oxley Act of 2002 (SOX) legislation passed in the USA in response to increased occurrence of corporate fraud. * gave Public Companies news report Oversight batting order (PCAOB) authority to establish auditing standards, quality control standards and independence standards for auditor of public companies * Philippine Securities and Exchange outfit (SEC) in its Resolution No. 135 Series of 2002 Code of Corporate GovernanceAssurance Engagement an engagement in which a practitioner expresses a conclusion designed to enhance the degree of confidence of the intended users other that the responsible party about the outcome of evaluation or measurement of a subject mat ter against criteria. Subject matter information the outcome of the evaluation or measurement of a subject matter. Types of Assurance Engagement Objective Conclusion 1. Reasonable risk reductionPositive to an acceptably low level 2. Limited risk reduction to a level Negative that is acceptable in the circumstancesElements of an Assurance Engagements 1. A three-party human relationship practitioner responsible party intended users 2. An appropriate subject matter a) identifiable and capable of pursuant(predicate) evaluation or measurement against the identified criteria b) information about it can be subjected to procedures for gain grounding capable appropriate evidence to support a reasonable assurance or limited assurance conclusion 3. Suitable criteria benchmarks used to evaluate or measure the subject matter, including where relevant, benchmarks for presentation and disclosure. . Sufficient appropriate evidence an attitude of professional scepticism to obtain fitted appropriate evidence 5. A written assurance report in the form appropriate to a reasonable assurance engagement or a limited assurance engagement a conclusion that conveys the assurance obtained about the subject matter information Assertion-based engagement * In harm of the responsible partys assertion * Directly in terms of the subject matter and the criteria Non-assurance Engagements Engagements covered by ISRS/PSRS, such as agreed-upon procedures engagements and compilation of financial or other info * preparation of tax returns where no conclusion conveying assurance is expressed * consulting engagements, e. g. Management and assess consulting Reports on Non-assurance Engagements clearly distinguishes that report from an assurance report Philippine Standards on Assurance Engagements covers assurance engagements other than audits or reviews of historical financial infos. Acronyms * AASC Auditing and Assurance Standards Council * ASPC Auditing Standards and Practice Counc il GAAS Generally Accepted Auditing Standards * PICPA Philippine Institute of aware Public Accountants * ACPAPP Association of CPAs in Public Practice * ISAEs International Standards on Assurance Engagements * PCAOB Public Companies Accounting Oversight Board * AAS Auditing and Assurance Services * FRF Financial Reporting Framework * PAS Philippine Accounting Standards * PFRS Philippine Financial Reporting Standards * PSA Philippine Standards on Auditing * PRC Professional Regulation Commission * feather boa Board of Accountancy Chapter 2 Objectives of Financial Statement Audit to enable the auditor to express an touch sensation whether the financial statements are on the watch, in all framework respects, in accordance with an applicable financial reporting framework -Auditor is responsible for forming and expressing vox populi on the FS and should determine whether such financial reporting framework adoptive by management is acceptable -Management those charged wi th governance and has the primary responsibility of preparing and presenting these FS in accordance with frameworks and responsible for identifying the financial reporting framework to be usedComplete Set of FS * Statement of Financial position * Statement of all-around(prenominal) Income * Statement of Changes in Equity * Statement of Cash Flows * Notes General Principle of Audit 1. Ethical Requirements woodland control 2. Audit in accordance with PSA 3. Professional scepticism questioning mind 4. Objectives overcome audit risk to an acceptable level Assurance Provided by Auditor 1. Basis of evidence poised (which include sampling) 2. Auditor provides reasonable assurance 3.Financial statements are free from material misstatements (materiality) * Sampling used to gather evidence on financial statement amounts and disclosures * Reasonable Assurance alludes to the concept of audit risk which is unexpressed in the audit function and implied in the scope paragraph of auditors report * actual misstatements no guarantee that the FS are accurate. Auditor provides reasonable assurance concerning material misstatements and an opinion on fairness, in all material aspects.Collusions when two or more individuals work together to effect misappropriation or concealment. Assertions representations by managements, explicit or otherwise, that are embodied in the financial statements * Internal control assertions an implied assertions by management that such internal control procedures are effective as to both their design and operation * Financial Statement assertions management asserts that the financial statements, and by implication the financial statement items and underlying account balances and classes of transaction, are free of material misstatement.Level of Aggregation Category of FS Assertions per the AASCs Glossary of Terms 1. Existence 2. Rights and Obligations 3. happening 4. Completeness 5. Valuation 6. Measurement 7. Presentation and disclosure Audit Objectives * to gather and evaluate audit evidence of sufficient quantity and appropriate quality in order to form an opinion on the financial statements prepared by management. Three Fundamental Concepts in Conducting an Audit 1. Materiality degree of misstatement or omission . Audit risk auditors may inappropriately express his opinion 3. Evidence refers to the necessary information that an auditor gathers in order to form a credible opinion on the assertions Audit Report 1. Title 2. Addressee 3. former paragraph 4. Managements responsibility 5. Auditors responsibility 6. Auditors opinion 7. Other reporting responsibilities 8. Auditors signature 9. Date of the auditors report 10. Auditors address Other Types of OpinionsQualified expressed when the auditor concludes that an unqualified opinion cannot be expressed provided that the effect of any disagreement with management, or limitation on scope is not so material and pervasive Adverse issued when the effect of a dis agreement is so material and pervasive to the FS that the auditor concludes that a qualification of the report is not adequate Disclaimer issued when the possible effect of a limitation on scope is so material and pervasive to the FS