Auditing Theory and Practice: Overview

Jul 22, 2024

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.