An overview on types of audits and auditors

1. AUDIT - An
Overview

2. Auditing
 A systematic process of objectively obtaining
and evaluating evidence regarding assertions
about economic actions and events to
ascertain the degree of correspondence
between these assertions and established
criteria and communicating the results to
interested users.

3. Audit
1. systematic process
2. objective
3. obtaining and evaluating evidence regarding
assertions about economic actions and events
4. ascertain the degree of correspondence
between these assertions and established
criteria
5. communicating the results to interested users.

4. Financial Statement Assertions
 Assertions made by management
 Existence
 Completeness
 Rights and obligations
 Valuation
 Presentation and disclosure
 Related evidence is obtained for accounts and
disclosure in financial statements

5. MANAGEMENT’S FINANCIAL
STATEMENT ASSERTIONS
Existence or Occurrence
• Refers to existence of assets and liabilities
• Refers to occurrence of recorded transactions
Completeness
• Refers to inclusion of all transactions and accounts in financial statements
Valuation or Allocation
• Refers to inclusion of accounts in financial statements at appropriate amounts
Rights and Obligations
• Refers to assets being the rights of an organization
• Refers to liabilities being the obligations of an organization
Presentation and Disclosure
• Refers to components of financial statement being properly classified, described,
and disclosed

6. Audit
P - Planning
I - Internal Control
E - Evidence gathering
R - Report

7. Types of Audits
 Financial statement audit – to determine if FS
are presented fairly in accordance with
accounting standards.
 Compliance Audit –to determine if an
organization has adhered to specific
procedures, rules or regulations.

8. Types of Audits
 Operational/Internal audit – to assess entity’s
performance, identify areas for improvement
and make recommendations to improve
performance.
Although these may differ, they have some
similarities: systematic examination and
required written report

9. Types of Auditors
 External auditors – independent CPAs who offer
professional services specifically FS audit
 Internal auditors – entity’s own employees who
investigate and appraise the effectiveness and
efficiency of operations and internal controls,
specifically through operations audit
 Government auditors – gov’t employees whose
function is to determine if persons or entities
comply with gov’t laws and regulations

10. Independent FS Audit
 To enable the auditor to express an opinion
whether the FS are prepared, in all material
respects, in accordance with an identified
financial reporting framework or acceptable
financial reporting standards

11. Responsibility for the FS
 Embodied in the Statement of Management
Responsibility
 Management is responsible for preparing and
presenting the FS. They are responsible for
its reliability.
 It is management’s responsibility to adopt
internal control procedures and prepare
reliable financial statements.

12. Assurance provided by Auditor
 Audit opinion is not a guarantee that the FS
are dependable.
 PSAs states that an audit is designed to
provide only reasonable assurance (not
absolute assurance) that the financial
statements taken as a whole are free from
material misstatements.

13. Audit limitations
 Use of testing / sampling risk
 Error in application of judgment / non-
sampling risk
 Reliance on management’s representation
 Inherent limitations of the client’s accounting
and internal control systems
 Nature of evidence

14. General principles governing the
audit of financial statements
 The auditor should comply with the Code of
Professional Ethics for CPAs
 The auditor should conduct an audit in
accordance with PSAs
 The auditor should plan and perform the audit
with an attitude of professional skepticism
recognizing that circumstances may exist
which may cause the financial statements to
be materially misstated.

15. Need for an independent FS
audit
 Conflict of interest
 Expertise
 Remoteness
 Financial consequences

16. Theoretical framework of auditing
 Audit function operates on the assumption
that all financial data are verifiable
 The auditor should always maintain
independence with respect to the FS under
audit.
 There should be no long-term conflict
between the auditor and client management

17. Theoretical framework of auditing
 Effective internal control system reduces the
possibility of errors and fraud affecting the FS
 Consistent application of GAAP or PFRS
results in fair presentation of FS
 What was held true in the past will continue to
hold true in the future in the absence of
known conditions to the contrary
 An audit benefits the public