UNIT 4.

EXTERNAL
AUDIT
BASIS
CONCEPTS

M ANGELA JIMENEZ

4.1. DEFINITION

GENERAL DEFINITION:

A PERIODIC EXAMINATION OF THE BOOKS OF

ACCOUNT AND RECORDS OF AN ENTITY.
IT IS CARRIED OUT BY AN INDEPENDENT THIRD
PARTY (THE AUDITOR)
IF THE BOOKS OF ACCOUNT ARE ACCURATE AND
COMPLY WITH ESTABLISED CONCEPTS, PRINCIPLES,
ACCOUNTING STANDADS, LEGAL REQUIREMENTS
AND GIVE A TRUE AND FAIR VIEW OF THE FINANCIAL
STATE OF THE ENTITY

M ANGELA JIMENEZ

4.1. DEFINITION

THE OBJECTIVE OF AN AUDIT OF FINANCIAL

STATEMENTS IS TO EXPRESS AN OPINION WHETHER
THE FINANCIAL STATEMENTS ARE PREPARED, IN ALL
MATERIAL RESPECTS, IN ACCORDANCE WITH AN
APPLICABLE FINANCIAL REPORTING FRAMEWORK.

AUDITING IS UNDERSTOOD:

AS THE ACTIVITY,
PERFORMED BY A QUALIFIED, INDEPENDENT PERSON,
CONSISTING
OF
ANALYSIS,
USING
APPROPIATE
REVIEWING AND VERIFICATION TECHNIQUES, OF THE
ECONOMIC-FINANCIAL INFORMATION OBTAINED FROM THE
ACCOUNTING EXAMINED.
M ANGELA JIMENEZ

4.1. DEFINITION

THE KEY WORD OF AUDITING ARE:

TRUE AND FAIR VIEW OF THE FINANCIAL

STATEMENT AND THE ASSETS
VERIFICATION OF THE FINANCIAL SITUATION OF THE
COMPANY OR BODY AUDITED,
VERIFICATION OF THE RESULTS OF ITS OPERATIONS,
TO
COMPLY WITH THE GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES AND RULES.

M ANGELA JIMENEZ

4.2. GENERAL METHODOLOGY OF

AUDITING PROCESS
OBJECTIVES AND CONFIGURATION OF WORK AUDITING

ENGAGEMENT LETTER OF AUDITING

STRATEGY OF WORK>
Objective and configuration
Size and complexity of company
The auditor experience
Knowledge of the type of the business
Quality of the organization
Internal Control of the organization

M ANGELA JIMENEZ

4.2. GENERAL METHODOLOGY OF

AUDITING PROCESS
PLANIFICACION OF AUDITING
Scope, configuration and exact date of the beginning of the work

GLOBAL PLAN OF AUDITING

Planning,
Independent expert in other matters
Internal auditors
Auditing risk methods
The internal control
Analysis of the probabilistic series of different accounts of the financial
statements

M ANGELA JIMENEZ

4.2. GENERAL METHODOLOGY OF

AUDITING PROCESS
AUDITING PROGRAM
REVIEW TECHNIQUES TO REACH THE OBJECTIVES

PROFESSIONAL AND INDEPENDENT OPINION

AUDIT REPOR OF FINANCIAL STATEMENT

M ANGELA JIMENEZ

4.3. PLANNING ACTIVITIES

ENVIRONMENTAL MATTERS CAN BE COMPLEX AND MAY

THEREFORE REQUIRE ADDITIONAL CONSIDERATION BY
AUDITORS.
IT IS IMPORTANT TO CONSIDER THE JUDGMENTS
AUDITOR.
IT USES TO DETERMINE THE NATURE, TIMING AND
EXTENT OF AUDIT PROCEDURES WITH RESPECT TO>

KNOWLEDGE OF THE BUSINESS

RISK ASSESSMENTS AND INTERNAL CONTROL
CONSIDERATION OF LAWS AND REGULATIONS
USING THE WORK OF AN EXPERT AND SOME OTHERS
M ANGELA JIMENEZ

4.3. PLANNING ACTIVITIES

THE AUDITOR SHOULD DEVELOP AN AUDIT PLAN FOR

THE AUDIT IN ORDER TO REDUCE AUDIT RISK TO AN
ACCEPTABLE LOW LEVEL.
THE PLAN INCLUDES THE NATURE, TIMING AND EXTENT
OF AUDIT PROCEDURES TO BE PERFORMED BY
ENGAGEMENT TEAM.
THE AUDITOR RE/EVALUATES THE PLANNED AUDIT
PROCEDURES,
BASED
ON
THE
REVISED
CONSIDERATION OF ASSESSED RISKS FOR ALL OR
SOME OF THE CLASSES OF TRANSACTIONS, ACCOUNT
BALANCES OR DISCLOSURES.
M ANGELA JIMENEZ

4.3. PLANNING ACTIVITIES

THE AUDITOR MAY CONSIDER THE FOLLOWING

MATTERS TO ESTABLISH THE PLANN OF AUDITING>

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THE FINANCIAL REPORTING FRAMEWORK ON WHICH THE

FINANCIAL INFORMATION TO BE AUDITED HAS BEEN
PREPARED.
INDUSTRY/SPECIFIC REPORTING REQUIREMENTS SUCH AS
REPORTS MANDATED BY INDUSTRY REGULATORS.
THE EXTENT TO WHICH COMPONENTS ARE AUDITED BY
OTHERS AUDITORS
THE NATURE OF THE BUSINESS SEGMENTS TO BE
AUDITED, INCLUDING THE NEED FOR SPECIALIZED
KNOWLEDGE
M ANGELA JIMENEZ

4.3. PLANNING ACTIVITIES

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GOVERNMENT POLICIES CURRENTLY AFFECTING THE

CONDUCT OF THE ENTITYS BUSSINESS> MONETARY,
FISCAL, FINANCIAL INCENTIVES, ETC.
EXTERNAL FACTORS CURRENTLY> GENERAL LEVEL OF
ECONOMIC ACTIVITY, INTEREST RATES, INFLATION,
CURRENCY REVALUATION, ETC.
IMPORTANT SUPPLIERS OF GOODS AND SERVICES.
RESEARCH AND DEVELOPMENT ACTIVITIES
TRANSACTIONS WITH RELATED PARTIES
ACCOUNTING FOR FAIR VALUES
ACCOUNTING PRINCIPLES AND INDUSTRY SPECIFIC
PRACTICES, ETC.
M ANGELA JIMENEZ

4.4. ENGAGEMENT LETTER

THIS LETTER CONFIRMS THE AUDITORS ACCEPTANCE

OF THE APPOINTMENT, THE OBJECTIVE AND SCOPE OF
THA AUDIT, THE EXTENT OF THE ADITORS
REPONSIBILITIES TO THE CLIENT AND THE FORM OF
ANY REPORTS.
THIS LETTER IS THE AGREMENT BETWEEN THE
AUDITOR AND THE CLIENT.
PRINCIPAL CONTETS>

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The objective of the audit of financial statement

Managements responsibility for the financial statment

M ANGELA JIMENEZ

4.4. ENGAGEMENT LETTER

13

The scope of the audit, including reference to applicable

legislation, regulations, or pronouncements
The form of any reports or other communication of results of
the engagement
Unrestricted access to wathever records, documentation and
other information requested in connection with the audit.
Managements responsibility for establishing and maintaining
effective internal control.
Arrangements concerning the involvement of internal
auditors and other client staff.
Arrangements to be made with the predecessor auditor, in
any, in the case of an initial audit.
M ANGELA JIMENEZ

4.5. AUDITOR S OPINION

THE AUDITOR IS RESPONSIBLE FOR FORMING AND

EXPRESSING A TECHNICAL OPINION ON THE
FINANCIAL STATEMENTS WITH REFERENCE TO THE
FOLLOWING PARTICULARS:

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WHETHER THEY HAVE BEEN PREPARED AND PRESENTED

IN ACCORDANCE WITH THE GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES AND RULES.
WHETHER SAID PRINCIPLES AND RULES HAVE BEEN
APPLIED IN A UNIFORM MANNER AS TO THE PRECEDING
FINANCIAL YEAR.

M ANGELA JIMENEZ

4.5. AUDITOR S OPINION

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WHETHER FAILURE TO APPLY ONE OR SEVERAL

ACCOUNTING PRINCIPLES OR RULES IS CONSIDERED
FITTING, IN APPROPIATE, WITHIN THE TRUE IMAGE THE
ANNUAL ACCOUNTS MUST PROVIDE.

AS TO THE EVENTS THAT MAY HAVE ARISEN BETWEEN

THE CLOSING DATE OF THE FINANCIAL YEAR AND
DRAFTING THE REPORT.

M ANGELA JIMENEZ

4.5. AUDITOR S OPINION

THE DIFERENTS KINDS OF TECHNICAL OPINION COULD

BE:

16

QUALIFIED OPINION: WHEN THERE ARE NO RESERVES

IN THE PARTICULAR STATE OF THE PREVIOUS POINTS.
UNQUALIFIED OPINION OR ADVERSE OPINION: WHEN
THE RESERVES EXIST.
DISCLAIMER OF OPINION: WHEN THERE ARE IMPORTANT
RESERVES ABOUT THE DIFERENT PREVIOUS POINTS AND
IT IS NECESSARY COMPLEMENTARY DETAILS AND
INFORMATION ABOUT THE ANNUAL ACCOUNTS.

M ANGELA JIMENEZ

4.6. AUDITING REPORT

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THE TECHNICAL OPINION MUST STATE WHETHER THE

ACCOUNTING
STATEMENTS
OR
DOCUMENT
ADEQUATELY REPRESENTS THE ECONOMIC EVENTS
THAT HAVE ARISEN AT THE COMPANY OR BODY THAT
THESE
MUST
CONTAIN
ACCORDING
TO
THE
APPLICABLE ACCOUNTING RULES AND PRACTICE.

THE TECHNICAL OPINION WILL BE WRITTEN AND

EXPLAINED
IN
THE
INDEPENDENT
AUDITORS
REPORT.

M ANGELA JIMENEZ

4.6. AUDITING REPORT

AUDIT REPORT: THE FORMAL DOCUMENT IN WHICH AN

AUDITOR EXPRESSES AN
CLEAR OPINION AS TO
WHETHER THE FINANCIAL STATEMENTS OF AN ENTITY:

SHOW A TRUE AND FAIR VIEW OF:

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ITS POSITION AT A GIVEN DATE AND

THE RESULTS OF ITS OPERATIONS FOR THE ACCOUNTING
PERIOD ENDED ON THAT DATE

HAVE BEEN PROPERLY PREPARED IN ACCORDANCE WITH

THE RELEVANT STATUTORY REQUIREMENTS.
COMPLIANCE WITH CONTRACTUAL AGREEMENTS.
SUMMARIZED FINANCIAL STATEMENTS.

M ANGELA JIMENEZ

4.6. AUDITING REPORT

EVALUATION ABOUT THE FINANCIAL STATEMENTS> IT

INCLUDES>

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THE ACCOUNTING POLICIES SELECTED AND APPLIED ARE

CONSISTENT
WITH
THE
FINANCIAL
REPORTING
FRAMEWORK.
THE ACCOUNTING ESTIMATES MADE BY MANAGEMENT
ARE REASONABLE.
THE INFORMATION PRESENTED IN THE FINANCIAL
STATEMENTS IS RELEVANT, RELIABLE, COMPARABLE AND
UNDERSTANDABLE.
THE FINANCIAL STATEMENTS PROVIDE
SUFFICIENT
DISCLOSURES TO ENABLE USERS TO UNDERSTAND THE
EFFECT OF MATERIAL TRANSACTION AND EVENTS.

M ANGELA JIMENEZ

4.6. AUDITING REPORT

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AUDIT REPORT: MERCANTILE DOCUMENT. IT CONTAINS:

IDENTIFICATION OF THE COMPANY OR BODY AUDITED.

INDIVIUALS OR CORPORATIONS WHO CARRIED OUT THE

AUDIT PROCESS.

IDENTIFICATION OF THE DOCUMENTS TO BE EXAMINED

THAT ARE INCLUDED IN THE REPORT.

SUMMARY AND GENERAL DESCRIPTION OF THE

TECHNICAL STANDARDS OF AUDITING APPLIED TO THE
AUDIT PROCESS.

M ANGELA JIMENEZ

4.6. AUDITING REPORT

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WHETHER FINANCIAL STATEMENTS CONTAIN ALL THE

NECESARY AND SUFFICIENT INFORMATION TO INTERPRET
AND UNDERSTAND THE FINANCIAL SITUATION

TECHNICAL OPINION.

SIGNATURE OF THE AUDITOR OR AUDITORS WHO DAFTED

THE REPORT.

M ANGELA JIMENEZ

4.6. AUDITING REPORT

ELEMENTS OF THE AUDITOR S REPORT *ISAS*>

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TITLE
ADDRESSEE
INTRODUCTORY PARAGRAPH
MANAGEMENTS RESPONSIBILITY FOR THE FINANCIAL
STATEMENTS
AUDTORS RESPONSIBILITY
AUDITORS OPINION
OTHER REPORTING RESPONSIBILITIES
AUDITOR S SIGNATURE
DATE OF THE AUDITORS REPORT
AUDITORS AFFRESS
M ANGELA JIMENEZ

4.6. AUDITING REPORT

WHEN THE ANNUAL ACCOUNTS ARE DEPOSITED AT THE

BUSINESS REGISTRY, THEY SHALL BE ACCOMPANIED,
WHEN APPROPIATE, BY THE AUDITORS REPORT.

THE REPORT IS REGULATED BY DIFFERENT STANDARD:

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INTERNATIONAL
EUROPEAN COMMUNITIES
COUNTRY STANDARD AND ACTS

M ANGELA JIMENEZ