AUDIT – AN OVERVIEW
Types of Audit
1. Financial Statement Audit – audit conducted to determine whether the FSs of an entity are fairly presented
with an identified financial reporting framework. (Conducted by EXTERNAL AUDITORS)
2. Compliance Audit – a review of an organization’s procedures to determine whether the organization adhered
to specific procedures, rules, contracts, or regulations. (Conducted usually by GOVERNMENT AUDITORS)
3. Operational Audit – study of a specific unit of the organization for the purpose of measuring its performance.
(Conducted usually by INTERNAL AUDITORS)
The Independent Financial Statement Audit



MANAGEMENT is responsible for preparing and presenting the FSs in accordance with the financial reporting
framework.
The AUDITOR’S RESPONSIBILITY is to form and express an opinion on the FSs based on his audit.
An audit conducted with PSA is designed to provide only REASONABLE ASSURANCE that the FSs taken as a
whole are free from material misstatements.
Limitations of an Audit
1. Sampling Risk/ Use of Testing
2. Error in Application of Judgment/ Non-sampling
risk
3. Reliance on Management’s Representation
4. Inherent Limitations of the Client’s Accounting
and Internal Control Systems
5. Nature of Evidence
General Principles Governing the Audit of Financial Statements
1. Code of Professional Ethics
2. Philippine Standards on Auditing (PSA)
Need for an Independent Financial Statement Audit
1.
2.
3.
4.
Conflict of Interest
Expertise
Remoteness
Financial Consequences
Theoretical Framework of Auditing (Assumptions or Ideas that Support the Audit Function)
1.
2.
3.
4.
5.
6.
7.
Financial Data are Verifiable
Independence
No Long-Term Conflict
Effective Internal Control
Consistent application of GAAP/PFRS
Continuity
Benefits the Public