Fundamentals of
Auditing and
Assurance Services
LESSON 01
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Table of
Contents!
Assurance
Engagement Auditing
Definition Definition
Elements of
Assurance
Engagement Types of Audit
FIVE ELEMENTS Three major types
ASSURANCE
ENGAGEMENT
● means an engagement in which a
practitioner expresses a conclusion
designed to enhance the degree of
confidence of the intended users other
than the responsible party about the
outcome of the evaluation or
measurement of a subject matter
against criteria.
ASSURANCE
● refers to the auditor’s satisfaction as to
the reliability of an assertion being made
by one party for use by another party.
Five
Elements
1. Three-party relationship
2. Appropriate subject matter
3. Suitable criteria
4. Sufficient appropriate evidence
5. Written assurance report
01
THREE-
PARTY
Practitioner, Responsible
Party and Intended Users
02
APPROPRIATE SUBJECT
natureMATTER
of the assertion the
practitioner gathers sufficient
evidence
03
SUITABLE
CRITERIA
benchmarks used to evaluate
or measure the subject matter
04
SUFFICIENT
APPROPRIATE
EVIDENCE
1. Quantity and Quality of evidence
2. Materiality
3. Assurance engagement risk
4. Cost-benefit consideration
5. Professional skepticism
QUESTION
If you require specific evidence,
but the cost of obtaining it is
too high, and too much effort is
required, would you still obtain
it despite the costs?
05
WRITTEN
ASSURANCE REPORT
The practitioner provides a written report
containing a conclusion or an opinion that
conveys the assurance obtained about the
subject matter information.
LEVELS AND FORMS
OF ASSURANCE
1. Reasonable assurance
2. Limited assurance
QUESTION
Which of the following DOES NOT appropriately
pertains to the elements of assurance
engagement?
A. A three-party relationship involving an auditor,
the management and intended users.
B. Suitable criteria
C. Sufficient appropriate evidence
D. A written assurance report in the form
appropriate to a reasonable assurance
engagement or a limited assurance
engagement
QUESTION
The following cannot be a suitable criterion
for an assurance engagement, EXCEPT?
A. Practitioner’s own expectations
B. Practitioner’s judgment
C. Practitioner’s experience
D. Agreement between the responsible party
and the intended users
QUESTION
Which is incorrect concerning evidence?
A. The higher the risk of material
misstatement involved, the more is
required.
B. The better the quality, the less is required.
C. The volume of evidence can compensate
for its poor quality.
D. The reliability of evidence is influenced by
its source and its nature.
LET’S HAVE
A RECAP!
QUESTION 1: QUESTION 3:
Enumerate the What makes a
five elements of subject matter
an assurance appropriate?
engagement.
QUESTION 2: Why QUESTION 4:
is it important Which is more
that the important? The
conclusion be in quantity or
written format? quality of
evidence?
Introductio
n to
Auditing
AUDITING
● The PSA defines auditing by stating the
objective of a financial statement audit,
that is, to enable the auditor to express
an opinion whether the financial
statements are prepared, in all material
respects, in accordance with the
applicable financial reporting framework.
BREAK IT DOWN!
1. Systematic process
2. Obtaining and evaluating
evidence about assertions
regarding economic actions and
events
3. Conducted objectively
4. Degree of correspondence
between assertions and
established criteria
5. Communicate the results
TYPES OF
AUDIT
1. Financial
Statement Audit
2. Compliance Audit
3. Operational Audit
Which type of audit
fits you best?
determine whether
the financial
01 statements of an
entity are fairly
presented in
Financial accordance with the
applicable financial
Statement Audit reporting
framework.
review of an
organization’s
02 procedures to
determine whether
the organization has
Compliance adhered to specific
procedures, rules or
Audit regulations.
study of a specific
03 unit of an
organization for
the purpose of
Operational measuring its
Audit performance
COMPARISON
FS AUDIT OPS AUDIT GOVT AUDIT
Assertions Fairness of financial Activities are conducted Organization complies
made statements effectively and efficiently with laws, regulations
etc.
Criteria PFRS Objectives set by BOD Laws, regulations,
ordinances, republic
acts, constitution
Content of Opinion on the Recommendations and Reports on the
report fairness of FS suggestions degree of compliance
(Statement of
compliance)
TYPES OF
AUDITORS
1. External Auditor
2. Internal Auditor
3. Government
Auditor
Which type of audit
fits you best?
these are
independent CPAs
01 who offer their
professional
services to different
External Auditor clients on a
contractual basis.
entity’s own
employees who
02 investigate and
appraise the
effectiveness and
Internal Auditor efficiency of
operations and
internal controls
government
employees whose
03 main concerns is to
determine whether
persons or entities
Government comply with
government laws
Auditor and regulations
QUESTION
Which of the following best describes the
audit of a taxpayer’s return by a BIR
auditor?
A. Operational Audit
B. Internal Audit
C. Financial Statement Audit
D. Compliance Audit
QUESTION
Which of the following is NOT a suitable
criteria in the context of audit?
A. IFRS
B. PFRS for SMEs
C. PSA
D. GAAP
QUESTION
The subject matter of any audit consists
of
A. Assertions about economic events
B. Economic data
C. Financial statements
D. Operating data
QUESTION
Which of the following is an INCORRECT
phrase?
A. Auditing is a systematic process
B. Auditing objectively obtains and
evaluates evidence
C. Auditing evaluates evidence regarding
assurance
D. Auditing communicates results to
interested users
QUESTION
One objective of an operational audit is to
A. Determine whether the financial statements
fairly present the entity’s operations
B. Evaluate the feasibility of attaining the
entity’s operational objectives
C. Make recommendations for improving
performance
D. Report on the entity’s relative success in
attaining profit maximization
QUESTION
The auditor communicates the results of his
or her work through the medium of the
A. Engagement letter
B. Audit report
C. Management letter
D. Financial statements
Key Concepts
on Financial
Statement
Audit
Expression of an In all material
1 opinion 4 respect
Financial
2 statements taken
as a whole
5 Communication of
the results
Presence of
3 Reasonable
assurance
6 criteria
FINANCIAL STATEMENTS
AUDIT
Responsibility for Assurance
the financial provided
statements Only reasonable
assurance
1. Management
2. Auditor
INHERENT LIMITATIONS
Nature of Nature of
Nature of the evidence
Financial
procedures Reporting persuasive rather than
conclusive
1. The use of testing or
sampling risk application of significant
2. Error in judgment or judgment and estimates
non-sampling risk on the part of the
management
AUDIT RISK
risk that the auditor
expresses an inappropriate
conclusion when the
financial statements is
materially misstated.
Risk of Risk of
Material Non-
Misstateme Detection
nt
1. Inherent Risk
1. Detection Risk
2. Control Risk
AUDIT RISK = INHERENT RISK x CONTROL RISK x DETECTION RISK
General
Requirements
The auditor should
The auditor should obtain sufficient
1 comply with the
relevant ethical
requirements.
4 appropriate audit
evidence to reduce audit
risk to an acceptably low
level.
The auditor should
2 5
conduct the audit in The auditor should plan and
accordance with the perform the audit with an
attitude of professional
PSAs. skepticism.
The auditor should apply
3 professional judgment in
planning and performing
the audit.
General
Requirements
The auditor should
The auditor should obtain sufficient
1 comply with the
relevant ethical
requirements.
4 appropriate audit
evidence to reduce audit
risk to an acceptably low
level.
The auditor should
2 5
conduct the audit in The auditor should plan and
accordance with the perform the audit with an
attitude of professional
PSAs. skepticism.
The auditor should apply
3 professional judgment in
planning and performing
the audit.
Theoretical 4. Effective internal control system
reduces the possibility of material
Framework of misstatements of the financial
Auditing statements.
1. Audit function operates on 5. Consistent application of
the assumption that all applicable financial reporting
financial data are verifiable. framework results in fair
2. The auditor should always presentation of financial
maintain independence with statements.
respect to the financial
statements under audit. 6. What was held true in the past
3. There should be no long-term will continue to hold true in the
conflict between the auditor future in the absence of known
and the management. conditions to the contrary.
7. Audit benefits the public.
QUESTION
The concept of reasonable assurance indicates
that the auditor is:
A. Not an insurer of the correctness of the
financial statements
B. Not responsible for the fairness of the
financial statements
C. Responsible only for issuing an opinion on
the financial statements
D. Responsible for finding all misstatements
QUESTION
Management of a company is responsible
for:
A. Hiring the auditor
B. Preparing the financial statements
C. The audit workpapers
D. Independence and obtaining evidence
QUESTION
An auditor’s objective in a financial statement
audit is to
A. Determine that all individual accounts and
footnotes are fairly presented
B. Employ the audit risk model
C. Express an opinion on the fair presentation
of the financial statements in accordance
with GAAP
D. Detect all errors and fraud
QUESTION
In an audit of historical financial
statements, which of the following
accounting bases is the most common?
A. Regulatory accounting principles
B. Cash basis of accounting
C. Generally accepted accounting
principles
D. Liquidation basis of accounting
QUESTION
In financial statements audit, the audit
process should be conducted in accordance
with
A. The audit program
B. The Philippine Standards on Auditing
C. The Philippine Accounting Standards
D. The Philippine Financial Reporting
Standards
QUESTION
When auditing financial statements, the primary
concern is with
A. Determining whether recorded information
properly reflects economic events that occurred
during the accounting period
B. Determining if fraud has occurred
C. Determining if taxable income has been
calculated properly
D. Analyzing the financial information to be sure
that it complies with government requirements
References:
Salosagcol, J., Tiu, M., & Hermosilla, R. (2021). Auditing Theory
(2021st ed.). GIC Enterprises & Co., Inc.
Escala, R. (n.d.). Auditing Theory (2023rd ed.). Real Excellence
Publishing.
ISM !
AGIAR
NO TO PL
END
