Overview of Auditing

Audit
 A form of attestation (experts
communication about the reliability of
someone else’s assertions)
 Performed by external auditors (public
accounting firms)
 AUDITING
Auditing is a systematic process by
which a competent, independent person
objectively obtains and evaluates
evidence regarding assertions about
economic actions and events to ascertain
the degree of correspondence between
those assertions and establishing criteria
and communicating the results to
interested users. (American Accounting
Association)
Objectives of Auditing
 The objective of an audit of financial statements
is to enable the auditor to express an opinion
whether the financial statements are prepared,
in all material respects, in accordance with an
identified financial reporting framework. The
phrase used to express the auditor's opinion is
“present fairly, in all material respects.” A
similar objective applies to the audit of financial
or other information prepared in accordance
with appropriate criteria.
Information risk
 An increased likelihood that unreliable
information will be provided to decision
makers
Factors that contribute to
Information Risk
 Remoteness of information users from
information providers
 Potential bias and motives of information
provider
 Voluminous data
 Complex exchange transactions
Approaches to reduce information
risk
 Allow users to verify the information
 Users shares information risk with
management
 Have financial statements audited
 AUDITING STANDARDS
 Auditing standards
Ten Generally Accepted Auditing Standards (GAAS)
Three categories:
General Standards
Standards of Field Work
Reporting Standards
Overview of FS Audit
 Pre-engagement activities
 Planning activities
 Internal control risk assessment activities
 Account balance audit activities
 Reporting activities
General Principles of an Audit
 Ethical requirements
 Reasonable assurance
 Responsibility for the financial statements
 INTERNAL AUDITS

 Internal auditing: independent appraisal function

established within an organization to examine
and evaluate its activities as a service to the
organization
 Objective of internal auditing – to assist all
members of management in the effective
discharge of their responsibilities
 Independence – organizational status and objectivity
 Performed by Internal Auditors or public accounting
firms (if there are no Internal Auditors)
 EXTERNAL vs. INTERNAL
 External auditing:
 Independent auditor (CPA)
 Independence defined in the Code of Ethics
 Required by SEC
 Referred to as a “financial statement audit”
 Represents interests of outsiders, “the public” (e.g.,
stockholders)
 Standards and guidance governed by AASC, FRSC
 Internal auditing:
 Auditor (CPA, CIA or CISA)
 Is an employee of organization imposing independence on self
 Optional per management requirements
 Broader services than financial audit; (e.g., operational audits)
 Represent interests of the organization
 Standards, guidance, certification governed by IIA and ISACA
Types of Internal Auditing
 Operational Audit
 Management Audit
 Financial audit
Government Audit
 Determination of whether government
funds are being handled properly and in
compliance with existing laws and
whether programs are being conducted
efficiently and economically.
 Conducted by COA auditors, BIR
examiners, Regulatory auditors
Three main divisions of State Audit
 Compliance audit
 Financial audit
 Performance audit - may take the form of
◦ Management audit (Economy and Efficiency
Audit)
◦ Program Results Audit (Effectiveness Audit)
 A comprehensive audit consist of a
proper balance among compliance,
financial and performance audit.
 FRAUD AUDITS
 Fraud audits: provide investigation services
where anomalies are suspected, to develop
evidence to support or deny fraudulent
activities.
Auditor is more like a detective
No materiality
Goal is conviction, if sufficient evidence of fraud exists
 CFE
 ACFE
 IT AUDITS
 ITaudits: provide audit services where
processes or data, or both, are embedded in
technologies.
Subject to ethics, guidelines, and standards of the
profession (if certified)
 CISA
 Most closely associated with ISACA
Joint with internal, external, and fraud audits
Scope of IT audit coverage is increasing
Characterized by CAATTs
IT governance as part of corporate governance
References
 Cabrera, M.E.B. (2017). Assurance Principles,
Professional Ethics and Good Governance. Manila:
GIC Enterprises & Co., Inc.
 Hall, J. (2011). Information Technology Auditing and
Assurance. With ACL Module. Cengage Learning
Asia Pte Ltd
 Salosagcol, J., Tiu, M. & Hermosilla, R. (2009).
Auditing Theory. Manila: GIC Enterprises & Co.,
Inc.