AGREED UPON PROCEDURE

COMPILATION
NON- ASSURANCE
TAX COMPLIANCE

CONSULTING

ASSURANCE
REVIEW
ATTESTATION
AUDIT
ASSURANCE
PERFORMANCE REVIEW
OTHER
EXAMINATION FORECAST
Auditor

Client
3 PARTY RULE
3rd Party

Financial

Non-Financial

Physical
Subject Matter
System & Processes

Behavior

Relevance
ELEMENTS OF
Understandability
ASSURANCE
ENGAGEMENT Characteristics Neutrality

Completeness

Suitable Criteria Reliability

Established
Types
Specifically Develop

Sufficient
Evidence Appropriate

Written Assurance Report

 sytematic process

objectively obtaining and evaluatinf evidence

Definition ascertain degree of correspondence between assertion & criteria

communicating the result

External

Internal
TYPES OF AUDITOR
Governmenr

AUDIT Preparation Client

Responsibility
Expressing Opinion Auditor
for FS

Compliance

Operational

Code of Professional Ethics

General
Principles Philippine Standards on Auditing
TYPES Governing Audit
of FS Professional Skepticism

Professional Judgement

Sufficient, Appropriate Evidence

Financial
Conflict of Interest

Expertise
Need for Independent FS Audit
Remoteness

Financkal Consequences
 firm & personnel comply with professional standard, code of ethics
Policies
responsobilities of audit firm
Definition Procedure reports issued by firm are appropriate

Size of Firm

Nature of Practice

Operating Characteristics

Organization
EXTENT OF SQC
Geographical

Co-Benefit consideration

Whether it's part of network

SYSTEM
Partner-In-Charge
OF Leadership Responsibilities Managing Partner
QUALITY Appereance
CONTROL Types of Indendence
In Mind

Free from BIAS

Relevant Ethical Requirements

Integrity

Objectively
Requirements
Confidentiality

Due Care

Competence

Behavior

Recurring
ELEMENTS Types of Client
New

Acceptance & Continuance of Client Relationship Client's Integrity

Consideration Firm's capabilities, resources, time

Firm compliance with ethical requirements

Capabilities

Personnels Requirement Competence

Human Resource / Assignment of Engagement Team
Commitment

Consultation

Direction
Engagement Performance Review

Supervision

Monitoring
 Fraudelent Financial Reporting
Types Misappropriation of Asset

Prevention

Detection
Responsibility of Management
Solution

Pressure

FRAUD Planning Stage

Assess fraud risk factors Rationalization

Opportunity

Identifying material misstatement

Auditor's Responsibility Testing Stage

Acknowledge responsibility for fraud

Obtaining client representation letter
Completion Stage Disclosed to auditor any significant facts

Request management to correct FS

Qualified/ Adverse
Effect on Auditors Report Auditor believes material error exist and client did not correct

Qualified/Disclaim
Auditor unable to evaluate effect of fraud
Detect

Prevent
Responsibility of Management
Comply

obtain understanding of client regulatory framework

NON Planning Stage
COMPLIANCE Auditor's Responsibility
identifying non compliance and evaluation of effect
WITH LAWS & Testing Stage
REGULATION
Request management to correct FS

Qualified/ Adverse
Effect on Auditors Report Auditor believes material error exist and client did not correct

Qualified/Disclaim
Auditor unable to evaluate effect of fraud
AUDIT PROCESS Preliminary Engagement Activities Audit Planning

Assessing client's auditability Detailed Understanding

Pre-liminary Understanding Preliminary Assessment of Risk & Materiality

Acceptinf Engagement

Completing the Audit Substantive Testing Considering Internal Control

Review subsequent event Audit Sampling Understanding IC

Assessing going concern Testing FS Testing

Analytical procedure Depend on Internal Control

Obtaining Written Representation

lssuing a Report

Conclusion/ Opinion
 Investigate Background
New Client
Communicate with predecessor
Acceptance & Continuance
Evaluation (change in management, nature
of Client Relationship Recurring Client of client’s business)

Auditor’s Independence

Evaluate Compliance with Professional Competence

Ethical Requirement Ability to Serve the client

Objective & Scope

Preliminary Engagement Activities
Responsibilities of Auditor & management

Framework (PFRS)
Engagement Letter
Other requirement from Government

References to the expected form/content

Audit Fees

Who appoints the auditor

Recurring Audits - may
Establish Understanding not send another letter Legal Requirements
of the terms of unless there
should be revisions Degree of ownership
Engagement
Separate report is to be issued

Degree of independence

Client Request for Change reasonable justification stop original engagement

of Engagement
no reasonable justification refuse client reques
 Scope

Establish Overall Timing

Audit Strategies Direction

Item
Developing more
Objective
AUDIT PLANNING detailed audit plan/
Procedure Time
program

Continuous process

Changes in Audit plan Should be revised if necessary during audit

if omission/ misstatement could influence the economic

decision of users.
Definition

identify and assess risks

PLANNING
determine the nature, timing & extent of further audit procedures

MATERIALITY TESTING updated/revised if necessary

COMPLETION evaluate the effect of uncorrected misstatements,

Inverse High Peso Materiality = Less Evidence

relationship
Low Peso Materiality = More Evidence
with
evidence:

Determine Overall Materiality (FS Level)

Planning Stage
Determine the Tolerable Misstatement
Materiality Level (Account Balance Level)

Compare the aggregated amount of

uncorrected immaterial
Completion Stage
misstatements with the overall
materiality
 Risk that the auditor expresses innapropriate
opinion when FS is materially mistated
Definition

lower the level of risk to an

acceptable level
Objective

No specific

source: knowledge of entity, environment, preliminary analytical procedure

Steps in source: knowledge of internal control

Assessing
formula: DR = Audit Risk / Inherent Risk x Control Risk
Audit Risk

AUDIT RISK ST
Prior FS
ST
Anticipated budget or forecast

Industry Averages
PAINT
Non-financial information

Typical Relationship among

Risk Assessment Procedure FS and account balance

Audit Risk = Inherent Risk x Control Risk x Detection Risk

Develop expectation

Compare expectation with FS

Analytical Procedure
Investigate differences

Model
Significant - design extensive ST
Differences: Insignificant - design less extenstive ST

Relationship to
Substantive Test
 Process, Policies & Procedure

Implemented by those charge with governance & top management

Definition
Reasonable assurance of achieving entity's objective

ST

ST

Discussion among the engagement team abs the

Key elements of understanding obtained

Evaluation of the design of identified controls

Identified assessed risks of material misstatements

Consideration of Internal Control

INTERNAL CONTROL

Components of Internal Control

Performance Review

Segregration of Duties

Once auditor become aware of IC

weakness, he should report to
management ASAP whether in writing
or oral.
Communication of IC Weakness Deficiency in IC/ Control unable to detect, prevent,
Deficiency correct on timely basis
May be formally documented in Significant very important that sufficient to
Management Letter Deficiency in IC merit the attention of TCHWG

Management override

Collusion from employees

Cost-Benefit

Inherent Limitations Human Errors

Person responsible for internal control may abuse

responsibility

Inadequacy of internal control

 risk of material misstatement is greater when
accounting estimates are involved.

AUDITING ACCOUNTING ESTIMATES Auditor is responsible for obtaining sufficient

appropriate evidence, y accounted, disclosed and reasonable

procedure designed to
substantiate the account balances or to detect material
misstatement in the financial statements.

Nature
Definition
Effectivness of ST is affected by: Timing

Extent

Label
Test of Transaction Small Volume, High Value
Test of Details
Test of Balance High Volume, Small Value
Types Not Required by PSA, but allowed.
Analytical Procedure
1. Develop Expectation, 2. Compare, 3. Investigae Differences

Risk Assessment Procedure (RAP)

Test of Control
Major Audit Procedures
Substantive Procedures
SUBSTANTIVE TEST
Inquiry
Label
Inspection

Observation

Specific Procedure of Reperformance

Substantive Procedures Recalculation

Confirmation

Analytical Procedure

Label
source documents to accounting
Tracing record (Completeness)

Directional Testing accounting records to course

Vouching documentation (Existence)

Identification and disclosure

Management Responsibility Implement adequate accounting and internal
control systems

Obtains information about related party

AUDITING RELATED PARTY TRANSACTION
Obtain sufficient evidence that these are (1)
Auditor’s Responsibility Properly accounted for and (2) Disclosed in
the FS. Completeness

Obtain Written Representation Letter Existence

Definition supports the auditor’s opinion
Rights &
Sufficient Obligation
BALANCE SHEET
Characteristics
Appropriate Valuation &
Allocation
Nature persuasive rather than conclusive
Presentation &
FS Record/ Accounting Data
FINANCIAL STATEMENT/ Disclosure
Types MANAGEMENT
Corroborating Information/Source Documents ASSERTIONS Cut-off
EVIDENCE
Cost-Benefit consideration Completeness
INCOME
Obtain from independent sources outside STATEMENT Occurrence
entity
Accuracy
Internal control is effective
Classification
Obtain directly by the auditor
More reliable if:
Documentary form/written form that obtain
orally

Original documents
 Support the auditor’s conclusions on FS, auditor’s
representation as to compliance with PSA, and assist
auditor in planning, performance, review and supervision of
engagements
Definition

Auditor Retention: 5 Years

Ownership subpoena by court

Confidential Except
subpoena by court

Audit Objectives
DOCUMENTATION/
Substantive Procedures
WORKING PAPERS
Audit Conclusion & Significant matters arising during the audit

Content Signatures

Estimated Hours

Referencing

Permanent File

Classification Current File

 Types of Statistical Sampling Define the Objective of the Test

Determine the procedure to be

performed
Attribute Sampling Variable Sampling Determine Sample Size
Random Selection
Random Sampling
Probability Statistical
Systematic Sampling
Mathematical
Test of Control Haphazard Selection
Approach to Audit Sampling
Subjective Basic Sample Block Selection
Non-Statistical
Professional Judgement Select the Sample
Stop or Go sampling/ Sequential

Stratified Sampling
Refers to the risk that the auditor may draw incorrect conclusion about account balance or Substantive Test
class of transactions because of human errors. Value-weighted

Proper planning Apply the audit procedures

How to Control?
Non-Sampling Risk
Adequate direction, review and supervision of the audit team Evaluate the sample results
AUDIT SAMPLING
Risk that auditor’s conclusion, based on sample selected is different from conclusion reached if application of audit procedures to less than 100% of the items within an account
the entire population were subjected to the same procedures. balance or class of transactions such that all sampling units
have a chance of selection.
Use proper sample selection methods Definition
Use proper sample size 3 Ways to Reduce Sampling Risk

Use proper projection methods

Selecting all items
Risk of Underreliance
Evidence Gathering Selecting specific items
Affects EFFECIENCY
Risk of Incorrect Rejection
Alpha Risk Sampling Risk
Types
Risk of Overreliance
Affects EFFECTIVENESS Beta Risk
Risk of Incorrect Acceptance

Increasing the sample size

How to Control?
Using an appropriate sample selection method