Auditing Theory Concept and Practice

Introduction to Services and Statements

• Financial Statements
  • Typically prepared in accordance with standards.
  • Filipino services related to financial statements must be fairly presented by management.
  • Categories include: audited historical financial statements, reviewed historical financial statements, and other assurance engagements.

Compliance and Assurance

• Compliance: Financial statements must comply with Philippine Financial Reporting Standards (PFRS).
• Assurance Levels:
  • Reasonable Level of Assurance: Positive assurance, gathering sufficient evidence.
  • Limited or Moderate Level of Assurance: Negative assurance, based on limited procedures.

Auditing and Related Services

• Audit of Financial Statements: Ensures statements are fairly presented in all material respects.
• Review of Historical Financial Statements: Provides a negative assurance based on limited procedures.
• Agreed-Upon Procedures: Related services with no direct assurance.
• Compilation Services: Collection, classification, and summarization of financial information without assertions.

Types of Audits

• Operational Audit: Assesses the effectiveness and efficiency of entity operations.
• Integrated Audit (for publicly listed and public companies): Combines financial audit with audit of internal controls.
• Forensic Audit: Investigates and detects fraud.

Types of Auditors

• Independent or External Auditors: Must be certified public accountants (CPAs). Responsible for auditing the financial statements of businesses.
• Internal Auditors: Employees of the entity who help achieve business goals through internal control improvements and compliance audits.
• Government/Internal Revenue Agents: BIR agents check compliance with the National Internal Revenue Code.

Industry Specialization of Auditing Firms

• Firms may specialize in various industries such as manufacturing, banking, merchandising, etc.
• Firms offer additional services like taxation, consulting, and forensic audits.

Roles in Auditing Firms

• Managing Partners: Develop firm policies and oversee daily management.
• Managers: Supervise specific audit engagements.
• Seasonal Dynamics: Peak auditing season from December to April due to regulatory reporting deadlines.