Acctg 163 Review – Auditing Theory Page 1

ACCTG 163 – AUDITING THEORY REVIEW NOTES (AT-1)

1.0 Fundamentals of Auditing and Assurance Services

1.1 Introduction to assurance engagements
a. Nature, objectives and elements
b. Types of assurance engagements (audits, reviews, other assurance engagements)
c. Assurance services vis-a-vis attestation services
1.2 Introduction to Auditing
a. Nature, philosophy and objectives
b. Types of audit
1. According to nature of assertion/data (financial statements audit, operational audit, compliance audit)
2. According to types of auditor (external independent financial statements audit, internal audit, government
audit)
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1.0 Fundamentals of Auditing and Assurance Services

1.1 Introduction to assurance engagements
a. Nature, objectives and elements

a.1 Nature of assurance services/assurance engagements

ASSURANCE defined in PSA 120 Sec 15

- Refers to the auditor’s satisfaction as to the reliability of an assertion made by one party (e.g. Management) for the use of
another party (e.g users).
- To provide such assurance, the auditor assesses the evidence collected as a result of procedures conducted, and expresses
a conclusion.
- The degree of satisfaction achieved and therefore the level of assurance which maybe provided, is determined by the
procedures performed and their results.

Assertions - Representations by management, explicit or otherwise, that are embodied in the financial statements.
Types:
1. Internal control assertions-that internal control procedures are effective as to both their design and operation
2. Financial statement assertions
a. Existence/Occurrence/Validity: Only valid or authorized transactions are processed.
b. Completeness: All transactions are processed that should be.
c. Rights and obligations: Assets are the rights of the organization and the liabilities are its obligations as of a given date.
d. Valuation: Transactions are valued accurately using the proper methodology, such as a specified means of computation or
formula.
e. Presentation and disclosure: Accounts and disclosures are properly described in the financial statements of the
organization.

Philippine Framework for Assurance Engagements

Assurance Engagement - 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 services:
- Independent professional service that improves the quality of information for decision makers.

PSA 120 Framework of Philippine Standards on Auditing:

Framework for Auditing and Related Services: Distinguishes audits from related services.
-Related services comprise reviews, agreed-upon procedures and compilations.
- audits and reviews are designed to enable the auditor to provide high and moderate levels of assurance respectively, such terms
being used to indicate their comparative ranking.
-Engagements to undertake agreed-upon procedures and compilations are not intended to enable the auditor to express assurance

AUDITING RELATED SERVICES

Nature of Service Audit Review Agreed-upon Compilation
Procedures
Level of Assurance High, but not absolute Moderate None None
provided by auditor
Report provided Positive assurance on Negative assurance on Factual findings of Identification of
assertions assertions procedures compiled information
This framework does not apply to other services provided by auditors, such as taxation, consultancy, financial and accounting advice.

a.2 Objectives of an Assurance Engagement:

- For a professional accountant to evaluate or measure a subject matter that is the responsibility of another party, against an identified
suitable criteria, and to express a conclusion that provides an intended user with a level of assurance about that subject matter
- AE performed by a professional accountant is intended to enhance the credibility of information about a subject matter by
evaluating whether the subject matter conforms in all material respects with suitable criteria, thereby improving the likelihood that
the information will meet the needs of users.
- The outcome of the evaluation or measurement of a subject matter is the information that results from applying the criteria to the
subject matter
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- The term “subject matter information”, will be used to mean the outcome of the evaluation or measurement of a subject matter.
- It is the subject matter information about which the practitioner gathers sufficient appropriate evidence to provide a reasonable
basis for expressing a conclusion in an assurance report.

Assertion-based engagements
-when the responsible party is the one who evaluates or measures the subject matter and the subject matter information in the form
of an assertion, is made available to intended users.
Ex. Independent FS audit, AE about a report that the responsible party had evaluated like a report on sustainability practices

Direct Reporting engagements

-when the practitioner directly performs the evaluation or measurement of the subject matter, or obtains a representative from the
responsible party (indirect) that has performed the evaluation or measurement of a subject matter that is not available to the
intended users. The subject matter is provided to the intended users in the assurance report.

Two Types of Assurance Engagements

1. Reasonable assurance engagement – aims to reduce the AE risk to an acceptably low level in the circumstances of the engagement,
as a basis for expressing a positive form of conclusion.
- Ex. Independent FS audit and review of prospective FS
2. Limited assurance engagement – aims to reduce the AE risk to a level that is acceptable in the circumstances of the engagement
but where that risk is greater than for a reasonable AE as a basis for expressing a negative form of conclusion.
- Ex. Review on non-financial performance indicators such as capacity of a facility and review of HR practices, internal control,
IT systems, corporate governance and compliance with regulations

a.3 Elements of an Assurance Engagement

1. Three party relationship involving:
- a. A practitioner
- b. A responsible party, and
- c. Intended users
2. Appropriate subject matter
3. Suitable criteria
4. Sufficient appropriate evidence
5. Written assurance report in the form appropriate to a reasonable AE or limited AE

1. Three Party relationship

a. Practitioner – person who provides the assurance to the intended users about a subject matter that is the responsibility of another
party. The practitioner gathers evidence to obtain assurance and provide a conclusion to the intended users about whether a subject
matter conforms in all material respects with identified criteria. The responsible party and intended users maybe from the same or
different organizations.
NOTE: In the Phil. Framework for assurance engagements, the term “practitioner” is broader than “auditor”. Auditor relates to
practitioners who only perform audit or review engagements of FS

b. Responsible party
a. In a direct reporting engagement, is the one responsible for the subject matter
Ex. An entity engages a practitioner to perform an AE regarding a report the entity prepared about its own sustainability practices
b. In an assertion-based engagement, is the one responsible for the subject matter information (outcome), and may be responsible
for the subject matter.
Ex. A government agency engages a practitioner to perform an AE regarding a report about a company’s sustainability practices that
the govt agency prepared and will distribute to intended users. The responsible party may or may not be the party who engages the
practitioner.

c. Intended users
- person, or class of persons for whom the practitioner prepares the assurance report. The responsible party can be one of the
intended users, but not just the only one.
- When engagements are designed for specific intended users or a specific purpose, the practitioner considers including a restriction
in the assurance report that limits its use to those users or that purpose

2. Appropriate Subject Matter – anything within the company that can be consistenly verified or measured against suitable criteria.
An appropriate subject matter is:
1. Identifiable and capable of consistent evaluation or measurement against identified criteria
2. Can be subjected to procedures for gathering sufficient appropriate evidence to support a reasonable (high,not absolute) assurance
or limited (moderate) assurance conclusion.

Ex. Financial performance, non-financial performance, physical characteristics, systems and processes, behaviour,
Subject matter: Financial performance or conditions (ex. historical or prospective FS)
Subject matter information (outcome): recognition, measurement, presentation and disclosure in the FS

Subject matter: Non-financial performance or conditions (ex.performance of an entity)

Subject matter information (outcome): Key indicators of efficiency and effectiveness
Subject matter: Physical characteristics (ex. Capacity of a facility)
Subject matter information (outcome): Specifications document

Subject matter: Systems and Processes (ex. Entity’s internal control system)
Subject matter information (outcome): Assertion about internal control effectiveness

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Subject matter: Behavior (ex. Corporate governance, compliance with regulation, HR practices)
Subject matter information (outcome): Statement of compliance or effectiveness

3. Suitable Criteria - Criteria are the benchmarks used to evaluate or measure the subject matter.
Suitable criteria has the ff.characteristics
1. Relevance – contribute to conclusions that assist decision-making by intended users
2. Completeness – criteria are sufficiently complete when relevant factors that could affect the conclusions are not omitted
3. Reliability – Allow consistent evaluation or measurement of the subject matter, including, presentation and disclosures if relevant.
4. Neutrality – neutral criteria contributes to conclusions that are free from bias
5. Understandability – understandable criteria contribute to conclusions that are clear, comprehensive and not subject to significantly
different interpretations

4. Sufficient Appropriate Evidence

Ingredients needed for Sufficient appropriate evidence
1. Professional skepticism
- recognize that circumstances may exist that causes the subject matter to be materially misstated
- critical assessment of the validity of evidence obtained
- alert to evidence that contradicts or brings into question the reliability of documents or representation of the responsible party
- The practitioner is not expected to authenticate or be an expert in authenticating documents consider how reliable are the
documents serving as evidence (ex. Photocopies, fascimiles, filmed, digitized or other electronic documents)
- assessing the controls over their preparation and maintenance
2. Sufficiency and Appropriateness of Evidence
Sufficiency is the measure of the quantity of evidence.
Appropriateness is the measure of the quality of evidence (relevance and reliability).
- The greater the risk, the greater quantity of evidence required.
- The higher the quality, the less quantity required.
- Therefore the quantity of evidence required is affected by the risk of the subject matter information to be materially misstated, and
affected by the quality of evidence.
- However, obtaining more evidence cannot compensate for poor quality
Evidence is more reliable if:
a. Obtained from independent sources outside the entity
b. When controls are in place for internally generated evidence
c. Obtained directly by the practitioner, rather than through inquiry (ex. Direct observation of the application of a control)
d. When it exists in documentary form in paper, electronic or other media (ex.minutes of meeting)
e. Original documents, rather than photocopies
3.Materiality
- Is considered in the context of quantitative and qualitative factors, such as the relative magnitude, nature and extent of the effect
of these factors on the evaluation or measurement of the subject matter, and effect on the interests of intended users.
4.Assurance Engagement Risk
- Is the risk that the practitioner expresses an inappropriate conclusion when the subject matter information is materially misstated.
- The level of assurance of AE risk is higher in a limited AE, than in a reasonable AE because of the different nature, timing or extent
of evidence-gathering procedures.
Components of AE risk:
Inherent Risk – the susceptibility or tendency of a subject matter information to a material misstatement, assuming there are no
related controls
Control Risk – the risk that a material misstatement that could occur will not be prevented, or detected and corrected, on a timely
basis by related internal controls.
Detection Risk – the risk that the practitioner will not detect material misstatements that exists.

5. ASSURANCE REPORT
- The practitioner provides a written report containing a conclusion that conveys the assurance obtained about the subject
matter information

b. Types of assurance engagements:

A. Assurance Services
1. Independent Financial Statement Audit - an assurance engagement (AE) to provide a high level of assurance that the financial
statements are free of material misstatement. Absolute assurance is not attainable because of factors such as need for judgement,
use of testing, inherent limitations of any accounting and internal control systems and because most evidence available to the auditor
is persuasive rather than conclusive in nature.
2. Reviews - an AE wherein the evidence supports a moderate level of assurance that the information subject to review is free of
material misstatement.
- Review involves limited investigation of much narrower scope than an audit and undertaken for the purpose of providing limited
(negative) assurance that the statements are presented in accordance with identified Financial Reporting Standards.
- The FS may be historical (1 whole accounting period or interim) or prospective (forecasted/projected)
- The objective is to enable the auditor to state whether on the basis of procedures which do not provide all the evidence required in
an audit, nothing has come to the auditor’s attention that causes the auditor to believe that the FS are not prepared, in all material
aspects, in accordance with an identified financial reporting framework.
- This is referred to as negative assurance.
- A review comprises inquiry and analytical procedures which are designed to review the reliability of an assertion that is the
responsibility of one party for use by another party.
-A review involves the ff:

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application of audit skills and techniques

gathering of evidence
- Does not ordinarily involve:
- an assessment of accounting and internal control systems
- tests of records
- responses to inquiries by obtaining corroborating evidence through inspection, observation, confirmation and computation
(procedures ordinarily performed during an audit

3. Other Assurance Services

- Assurance on Information Technology, Information System Reliability, CPA Web trust, Business Performance Measurement Service,
Eldercare Plus, Health Care Performance Measurement, Risk Assessment, Environmental audit, Assessment of risks of accumulation,
distribution, and storage of digital information, Compliance with Trading Policies/Procedures, Compliance with Entertainment
Royalty Agreements, Controls Over risks related to investments, including policies related to derivatives, Fraud & Illegal Acts Risk
Assessment, Mystery Shopping, ISO 9000 certifications

B. Non-Assurance Services
1. Agreed Upon Procedures - The auditor is engaged to carry out those procedures of an audit nature to which the auditor and the
entity and any appropriate third parties have agreed and to report on factual findings .
- The recipients of the report must form their own conclusions from the report by the auditor. The report is restricted to those parties
that have agreed to the procedures to be performed since others, unaware of the reasons for the procedures, may misinterpret the
results.
- The party engaging the professional accountant or the intended user, determines the procedures to be performed and the
professional accountant provides a report of factual findings as a result of undertaking those procedures
- The intended user may derive some assurance from the report of factual findings, but the engagement is not meant to provide any
assurance. The professional accountant does not express a conclusion that provides a level of assurance. The intended user assesses
the procedures and findings and draws his/her own conclusions.
2. Compilation - The accountant is engaged to use accounting expertise as opposed to auditing expertise to collect, classify and
summarize financial information
- entails reducing detailed data to a manageable and understandable form without a requirement to test the assertions underlying
that information.
- procedures employed are not designed and do not enable the accountant to express any assurance on the financial information
- users of the compiled financial information derive some benefit as a result of the accountant's involvement because the service has
been performed with due professional skill and care.
- Presenting in the form of FS that is the representation of management without undertaking to express any assurance on the
statements
- The objective is for the CPA to use accounting expertise to collect, classify and summarize financial information.
- Compilation improves the quality of information by displaying in Financial Accounting and Reporting standards format and the
practitioner’s identification of obvious errors.
NOTE: It falls within the definition of assurance service despite the fact that no assurance is explicit in the practitioner’s report
because it somehow enhances the information which was compiled by the professional accountant
3. Tax - CPA is considered qualified to prepare corporate and individual tax return for both audit and non-audit clients. For smaller
accounting firms, tax services provide a large portion of revenue.
-CPAs render 2 kinds of tax services
1. Tax compliance – tax returns for individuals, corporations, estates and trusts, etc
2. Tax planning – determines tax consequences of planned or potential transactions and suggests course of action to minimize tax
liability

4. Management consultancy/advisory services - -Employs the practitioner’s technical skills, education, observations, experiences and
knowledge of the analytical approach and procedures used.
Ex. Design and installation of accounting system, computer risk management, corporate finance, tax services, e-business, etc

5. Accounting and data processing - -provide accounting services (manual or automated bookkeeping, journalizing and posting
adjusting entries or preparing/compiling FS) to small clients with limited accounting staff.
-The accounting firms acts as substitute or supplement the lack of accounting personnel of the client.

6. Other non-assurance services ( e.g. Information Technology System Services)

c.Assurance service vis-a-vis attestation services.

* Assurance services are a broad category of services designed to improve the quality of decision making by improving confidence in
the information on which decisions are made.
* Attestation services are a subcategory of assurance services. They require independence and result in a report. They include
examinations, reviews, and agreed upon procedures. Compilations are NOT included because they don't require independence. Type
of assurance service in which the CPA issues a report about a subject matter or assertion that is made by another party (e.g.
audits/review of historical FS, audit of internal controls over financial reporting, attestation on information technology).
* Audits are a subcategory of attestation services. They are examinations of historical financial statements

1.2 Introduction to Auditing

a. 1 Nature of auditing:
- Accumulation and evaluation of evidence about information (in verifiable form) to determine and report on the degree of
correspondence between the information and established criteria. Auditing should be done by a competent, independent
person.
- Process to establish the reliability (or unreliability of the FS and supporting records (audit examination)

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- A form of attestation, where attestation refers to an expert’s communication about the reliability of someone else’s
assertion. Attestation may also refer to a written communication that expresses a conclusion about the reliability of a
written assertion that is the responsibility of another party
- A systematic process by which a competent, independent person objectively obtains and evaluates evidence regarding
assertions about economic actions and events to ascertain the degree of correspondence between those assertions and
established criteria and communicating the results to interested users (American Accounting Association)

1. Systematic process – has structured, logical and organized series of steps and procedures. Has series of sequential steps that
include information testing system and testing of transactions and balances
2. Competent, independent person – the auditor must be qualified to understand the criteria used and the competence to know how
and what evidence to accumulate to reach a proper conclusion
3. Objectively obtains and evaluates evidence –examining the bases for assertions and evaluating the results without bias for or
against the individual (or entity) making the assertions
4. Assertions about economic actions and events – these are the representations made by the individual or entity that comprise the
subject matter. Includes information in the FS, internal operating reports, and tax returns.
5. Degree of correspondence –refers to the closeness with which the assertions can be identified with established criteria. The
expression of correspondence may be quantified, such as the amount of a shortage, or it may be qualitative, such as the fairness of
the FS
6. Established criteria – Standards against which the assertions are judged. May come from specific rules prescribed by a legislative
body, budgets and other measures of performance set by management or financial reporting standards.
7. Communicating the results –Often referred to as attestation. The final stage of audit process is the audit report, where the results
of audit are communicated. By attesting the degree of correspondence with established criteria, the auditor enhances (or weakens)
the credibility of the representations made by another party.
8. Interested users – persons who use or rely on the auditor’s findings. Includes stockholders, management, creditors, government
agencies and the public.
- is a structured process that:
a) Involves the application of analytical skills, professional judgement and professional skepticism
b) Is usually performed by a team of professionals directed with managerial skills
c) Uses appropriate forms of technology and adheres to a methodology
d) Complies with all relevant technical standards
e) Complies with professional ethics or required standards

a.2 Objectives:
PSA 120 (Framework of Philippine standards on auditing) – The objective of an audit of financial statements is to enable the auditor
to express an opinion on whether the financial statements are prepared in all material respects, in accordance with an identified
financial reporting framework. The phrase used to express the auditor’s opinion is “present fairly in all material respects”. A similar
objective applies to audit of financial or other information prepared in accordance with appropriate criteria.

b.1 Types of audit

A. Independent FS audit – methodical review and objective examination of FS prepared by an enterprise (auditee) to determine if
such statements have been prepared in conformity with financial reporting practices that are appropriate for the auditee.

PSA 200 (Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Philippine Standards on
Auditing)
(a) To obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether
due to fraud or error, thereby enabling the auditor to express an opinion on whether the financial statements are prepared, in all
material respects, in accordance with an applicable financial reporting framework; and
(b) To report on the financial statements, and communicate as required by the PSAs, in accordance with the auditor’s findings.

SCOPE OF INDEPENDENT AUDIT– Refers to audit procedures necessary to achieve the objectives of the audit. Includes critical and
systematic examination of the statements and related documents, records, procedures and controls. Audit evidence is gathered to
enable the auditor to substantiate the representations in the FS. Internal controls will be evaluated for effectiveness since they affect
the reliability of financial records.
Through inquiry, observation, confirmation and inspection, the auditor can test the existence and validity of assets, liabilities and
overall reasonableness of other account balances in the FS.

WHY INDEPENDENT AUDIT IS NECESSARY?

The need for independent audit developed as a result of separation of ownership and management. There is an increased likelihood
that unreliable information will be provided to decision makers (information risk)
Factors that contribute to information risk:
a. Remoteness of information users from information providers – when decision makers do not get first hand knowledge about
the business (ex. Owners are divorced from management, BOD are not involved in day-to-day operations or business may be
dispersed among numerous geographic locations
As a result: Users do are prevented from direct assessment of the quality of information
b. Potential bias and motives of information provider – a conflict of interest may be assumed to exist between management and
owners regarding the FS. Management always desires to present the results in the most favorable light.
-There is potential conflict of interest between those who prepare information, and those who use information. This may result
to biased information.
c. Voluminous data – increases the likelihood that information maybe improperly recorded
d. Complex exchange transactions – complex transactions are more difficult to record properly.
Other conditions creating the demand for audits:
Information can have substantial economic consequences for a decision maker
Expertise is often required for preparing and verifying information

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How information risk can be reduced:

1. Allow users to verify information – the user may go to the business to examine records and obtain information about the
reliability of the statement. Special audits during business acquisitions are called “due diligence audit”
2. Users share information risk with management – management has the primary responsibility of providing relevant information
to users. A lawsuit maybe brought against management, in cases where the users incur financial loss as result of inaccurate FS
3. Have the FS audited – the independent auditor further enhances the quality of financial reporting

User verifies information
Users share information
risk with management
Audited financial
statements are prepared
Advantages
1.User obtains information desired.
2.User can be more confident of the
qualifications and activities of the
person getting the information.
1.No audit costs incurred.
1.Multiple users obtain the information.
2.Information risk can usually be
reduced sufficiently to satisfy users at
reasonable cost.
3.Minimal inconvenience to
management by having only one
auditor.
Disadvantages
1.High cost of obtaining information.
2.Inconvenience to the person providing
the information because large number of
users would be on premises.
1.Users may not be able to collect on
losses.
1.May not meet needs of certain users.
2.Cost may be higher than the benefits in
some situations, such as for a small
company.

B. Internal audit – independent, objective assurance and consulting activity designed to add value and improve an
organization’s operations. Brings a systematic, disciplined approach to evaluate and improve the effectiveness of risk
management, control and government processes
- A business with internal audit department, has more value than those without

Objective – to assist all members of management in the effective discharge of their responsibilities by furnishing them with
analyses, appraisals, recommendations and pertinent comments concerning activities reviewed
Attainment of objective includes the ff:
- Review and appraisal of accounting, financial and other operational controls and promoting effective internal control at
reasonable cost.
- Ascertain the extent of compliance with established policies, plans and procedures
- Ascertain the extent to which company assets are accounted for and safeguarded from losses of all kinds (custody,
maintenance, insurance)
- Ascertain the reliability of management data developed within the organization (information systems)
- Appraise the quality of performance in carrying out assigned responsibilities
- Recommend operating improvements

Internal Auditing Approach and Techniques

1. Operational audit – future-oriented and systematic evaluation performed for management of the operational activities
controlled by top, middle and lower-level management for the purpose of improving profitability and attainment of other
organizational objectives
2. Management audit – future-oriented, independent and systematic evaluation of the activities of all levels of management
performed for the purpose of improving organizational profitability and attainment of other organizational objectives
3. Financial audit – historically-oriented, independent evaluation performed for the purpose of ensuring the fairness, accuracy
and reliability of the financial data.

C. Government audit – determine whether government funds are being handled properly and in compliance with existing laws
and whether the programs are being conducted efficiently and economically
- Audit of government receipts and disbursements
- Led to development of internal audit staff (COA) which report to highest official within their governmental bodies
Scope of government audit:
1. Financial and Compliance audit – determines whether financial operations are properly conducted, whether financial
reports are presented fairly, and whether the entity has complied with applicable laws and regulations.
2. Economy and Efficiency Audit – Determines whether the agency is managing and utilizing its resources (personnel, property,
space) economically and efficiently, determines the causes of inefficiencies or uneconomical practices and whether the
agency has complied with laws and regulations regarding economy and efficiency
3. Program Results – determines if desired results and benefits are achieved, if the objectives established are being met and
if the agency considered alternatives which yield lower cost.

Special audits: Other Audits or Limited Assurance engagements

a. Audits of FS prepared on another comprehensive basis of accounting
b. Audits of specified elements, accounts or items in the FS
c. Audits of information accompanying the basic FS (PSA 720)
d. Compliance with contractual agreements
e. Summarized FS

Summary of Types of Audit

1. Independent Financial Statement Audit – audit of historical financial statements

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2. Compliance Audit - determine compliance with criteria, standards, or rules set by an authoritative body
3. Management Audit- examination and evaluation of activities of management
4. Performance Audit – analysis of organization’s structure, internal systems, work flow and managerial performance
5. Comprehensive Audit – components of compliance, performance and financial statement audits
6. Operational Audit – effectiveness or efficiency of an organization’s operating activities
7. Internal Audit – independent, objective assurance and consulting activity designed to add value to and improve operations
8. Environmental Audit – covers environmental matters which may have an impact on the financial statements
9. Forensic Audit – examination of evidence regarding an assertion to determine correspondence to established criteria carried out
in a manner suitable to the court. It is a specialist area of auditing that focuses on unearthing the truth, providing evidence in
legal/financial disputes and/or irregularities (fraud).

b.2 Types of Auditors:

1. Public Accounting Firms (External Auditors)
- CPA firms whose primary responsibility is to perform audits of published historical FS of all publicly traded companies, other large
companies and many smaller companies and non-commercial organizations.
- also performs operational audit and compliance audit as part of management consultancy services
2. Internal auditors – could be CPA firms hired by the entity as consultants or employees of individual companies who perform
independent appraisal activity within the organization such as review of accounting, financial and other operations as a basis for
service to management. They provide management with valuable information for improving the effectiveness of business operations
3. Government auditors – government agencies that perform audits. Includes the COA and BIR
COA auditors – emphasis is on compliance with law and regulations on the agency’s disbursements and receipts
-there is an increasing effort towards evaluation of operational efficiency and effectiveness of various government programs
BIR examiners- audits by the BIR affects individuals and businesses. Audits made by BIR are a form of compliance audit and are
designed to determine whether the taxpayers have complied with the tax laws.
Regulatory auditors – other auditors include SEC, BSP, Cooperative Commission, Office of Insurance Commission and other
government agency examiners
4. Forensic auditors – financial auditing specialists who conduct forensic audits

Audits of Financial Compliance Audits Operational Audits

Statements
Purpose To determine whether the
financial statements are
presented in accordance
with PFRS.
To determine whether the client is To evaluate whether
following specific procedures, rules or operating procedures are
regulations set by higher authority. efficient and effective.

Users of Audit Report Different groups for Authority setting down procedures, Management of organization
different purposes – many internal or external
outside entities.

Nature Highly standardized Not standardized, but very specific and Highly nonstandard; often
usually objective very subjective

Performed by:
CPAs Almost universally Occasionally Frequently
COA Auditors Occasionally Frequently Frequently
BIR Auditors Never Universally Never
Internal Auditors Frequently Frequently Frequently

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