UNIT 4. EXTERNAL
AUDIT
BASIS
CONCEPTS
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Mª ANGELA JIMENEZ
4.1. DEFINITION
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GENERAL DEFINITION:
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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
Mª 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.
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AUDITING IS UNDERSTOOD:
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AS THE ACTIVITY,
PERFORMED BY A QUALIFIED, INDEPENDENT PERSON,
CONSISTING OF ANALYSIS, USING APPROPIATE REVIEWING
AND VERIFICATION TECHNIQUES, OF THE ECONOMICFINANCIAL
INFORMATION
OBTAINED
FROM
THE
ACCOUNTING EXAMINED.
Mª ANGELA JIMENEZ
4.1. DEFINITION

THE KEY WORD OF AUDITING ARE:
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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.
Mª 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
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Mª 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
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Mª 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
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Mª ANGELA JIMENEZ
4.3. PLANNING ACTIVITIES
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ENVIRONMENTAL MATTERS CAN BE COMPLEX AND MAY
THEREFORE REQUIRE ADDITIONAL CONSIDERATION BY
AUDITORS.
IT IS IMPORTANT TO CONSIDER THE JUDGMENT’S
AUDITOR.
IT USES TO DETERMINE THE NATURE, TIMING AND
EXTENT OF AUDIT PROCEDURES WITH RESPECT TO>
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KNOWLEDGE OF THE BUSINESS
RISK ASSESSMENTS AND INTERNAL CONTROL
CONSIDERATION OF LAWS AND REGULATIONS
USING THE WORK OF AN EXPERT AND SOME OTHERS
Mª ANGELA JIMENEZ
4.3. PLANNING ACTIVITIES
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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.
Mª 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
Mª ANGELA JIMENEZ
4.3. PLANNING ACTIVITIES
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GOVERNMENT POLICIES CURRENTLY AFFECTING THE
CONDUCT OF THE ENTITY’S 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.
Mª ANGELA JIMENEZ
4.4. ENGAGEMENT LETTER
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THIS LETTER CONFIRMS THE AUDITOR’S ACCEPTANCE
OF THE APPOINTMENT, THE OBJECTIVE AND SCOPE OF
THA AUDIT, THE EXTENT OF THE ADITOR’S
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
Management’s responsibility for the financial statment
Mª ANGELA JIMENEZ
4.4. ENGAGEMENT LETTER
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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.
Management’s 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.
Mª ANGELA JIMENEZ
4.5. AUDITOR’ S OPINION
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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.
Mª 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.
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AS TO THE EVENTS THAT MAY HAVE ARISEN BETWEEN THE
CLOSING DATE OF THE FINANCIAL YEAR AND DRAFTING
THE REPORT.
Mª ANGELA JIMENEZ
4.5. AUDITOR’ S OPINION
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THE DIFERENTS KINDS OF TECHNICAL OPINION COULD
BE:
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“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.
Mª 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.
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THE TECHNICAL OPINION WILL BE WRITTEN AND
EXPLAINED
IN
THE
“INDEPENDENT
AUDITOR´S
REPORT”.
Mª 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:
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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.
Mª 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.
Mª ANGELA JIMENEZ
4.6. AUDITING REPORT
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AUDIT REPORT: MERCANTILE DOCUMENT. IT CONTAINS:
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IDENTIFICATION OF THE COMPANY OR BODY AUDITED.
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INDIVIUALS OR CORPORATIONS WHO CARRIED OUT THE
AUDIT PROCESS.
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IDENTIFICATION OF THE DOCUMENTS TO BE EXAMINED
THAT ARE INCLUDED IN THE REPORT.
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SUMMARY AND GENERAL DESCRIPTION OF THE
TECHNICAL STANDARDS OF AUDITING APPLIED TO THE
AUDIT PROCESS.
Mª 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
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TECHNICAL OPINION.
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SIGNATURE OF THE AUDITOR OR AUDITORS WHO DAFTED
THE REPORT.
Mª ANGELA JIMENEZ
4.6. AUDITING REPORT
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ELEMENTS OF THE AUDITOR’ S REPORT *ISAS*>
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TITLE
ADDRESSEE
INTRODUCTORY PARAGRAPH
MANAGEMENT’S RESPONSIBILITY FOR THE FINANCIAL
STATEMENTS
AUDTOR’S RESPONSIBILITY
AUDITOR’S OPINION
OTHER REPORTING RESPONSIBILITIES
AUDITOR’ S SIGNATURE
DATE OF THE AUDITOR’S REPORT
AUDITOR’S AFFRESS
Mª ANGELA JIMENEZ
4.6. AUDITING REPORT
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WHEN THE ANNUAL ACCOUNTS ARE DEPOSITED AT THE
BUSINESS REGISTRY, THEY SHALL BE ACCOMPANIED,
WHEN APPROPIATE, BY THE AUDITOR´S REPORT.
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THE REPORT IS REGULATED BY DIFFERENT STANDARD:
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INTERNATIONAL
EUROPEAN COMMUNITIES
COUNTRY STANDARD AND ACTS
Mª ANGELA JIMENEZ