AUDITING THEORY 1

REGULATORY FRAMEWORK AND FUNDAMENTALS:

ASSURANCE SERVICES 1

ASSERTION BASED/ATTESTATION2

NON-ASSURANCE SERVICES6

DIRECT REPORTING3
AUDIT 4 REVIEW 5

1: Reliability, credibility, relevance, timeliness; 3 party contracts in which CPA reports on the quality
of information; example: FS audit/IC/Compliance; OTHER assurance services = Business
Performance Measurement (PM), Health Care PM, Elder Care Plus, Risk Assessment Services, CPA
Webtrust, IS Reliability

2: Dissertion is known by all; Reliability, Credibility

CPA
MGMT USER
*Evaluator measures the underlying subject matter information against criteria

3: Not available to all users; example: Specifically developed criteria

MGMT CPA USER

*Practitioner evaluates the underlying subject matter against criteria and presents the resulting subject matter
information as part of assurance report

4: REASONABLE ASSURANCE; High level assurance; IIOARRC; Conclusion: (+) form; Reliability and
credibility

5: LIMITED ASSURANCE; Moderate level assurance; INQUIRY AND ANALYTICAL PROCEDURE;

Conclusion: (-) form

6: No conclusion: Agreed upon, Compilations

2 parties only: Tax services, Management Consultancy and Advisory Services

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 AUDITING THEORY 2

• Checks correctness – PFRS Subject Matter:

• Checks audit – PSA
1. Financial
PFRS, GAAP,
EXTERNAL 2. Non-financial
FS AUDIT CONCEPTUAL
AUDITOR FRAMEWORK
3. Systems and Processes
GOVT
LAW, RULES, 4. Physical Characteristic
COMPLIANCE AUDITOR
REGULATIONS
5. Behavior of management/ Corporate
INTERNAL MANAGEMENT Governance
OPERATIONAL OBJECTIVES
AUDITOR
Suitable Criteria:

C ompleteness
FS, COMPLIANCE,
EXTERNAL AUDITOR
OPERATIONAL R elevance
3 DIVISION: R eliability
1. COMPLIANCE
2. FINANCIAL U nderstandability
3. PERFORMANCE
GOVERNMENT(STATE) 3.1 ECONOMY
N eutrality
AUDITOR AND
EFFICIENCY
• ESTABLISHED CRITERIA: embodied in laws or
AUDIT
3.2 EFFECTIVENESS regulations
AUDIT • SPECIFICALLY DEVELOPED CRITERIA:
designed for the engagement
OPERATIONAL,
INTERNAL AUDITOR
COMPLIANCE
• Business or a company in private sector with
Misstated: paid up capital of at least 5M and/or annual
revenue of at least 10M, CPAs should
1. Error occupy positions as to (1) supervise
2. Fraud recording/prepare FS; (2) coordinate with
2.1 Fraudulent Financial Reporting or EA
Management Fraud • CPAs in multiple sectors as long as no
2.2 Misappropriation of Assets or impairment in: integrity, objectivity,
Employee Theft independence
History: • The responsible party can be one of the
intended users
• Audit: Latin term associated with hearing • The responsible party may or may not be the
(such as “Auditory nerve”) party who engages the practitioner
• Egypt, Babylonia, Greece (Plato), Rome,
Exchequer (William Ewart Gladstone), Types of Criteria:
England; American vs British;
1. Established criteria
Elements of Assurance Engagements: 2. Specifically developed criteria

T hree party relationship Ways to Promulgate Criteria:

A ppropriate subject matter 1. Publicly

2. Inclusion In subject matter info
S suitable criteria 3. Inclusion in assurance report
4. General understanding
S ufficient appropriate evidence

A ssurance report that is written

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 AUDITING THEORY 3

Sufficient Appropriate Evidence:

• High risk, High evidence needed Risk that information

• High Qn, Low Ql – cannot offset low quanlity INFORMATION is misstated; reason
with high quantity RISK? for a need for audit
• High Ql, Low Qn (Yes)

Reliability of Evidence:
WHY IS THERE INFO RISK?
• Source: External > Internal
• Direct > Indirect R EMOTENESS OF INFO TO USERS
• Original > Photocopy P OTENTIAL BIAS
• Written > Oral V OLUMINOUS DATA
• Effective IC System C OMPLEXITY OF TRANSACTIONS

Forms of Conclusion:
HOW TO REDUCE INFO RISK?
1. Reasonable Assurance – Audit
A LLOW USERS TO VIEW INFO
2. Limited Assurance – Review
S HARE RISK WITH MGMT
Limitations of Assurance Engagement: H AVE FS AUDITED

P ersuasive rather than conclusive

Risk of issuing
U se sample AUDIT An incorrect opinion

U se judgment RISK? • If auditor proved

he followed PSA, he
S ubject matter characteristic
cannot be sued
I internal control limitations (Human error, • If did not follow, his
license could be revoked
Collusion, Management override)

A/R Procedure of Audit:

1. Confirmation letters BUSINESS

2. Tracing sales invoice
RISK? Risk that objectives
AUDIT REVIEW
INQUIRY INQUIRY will not be attained
INSPECTION - due to internal and
OBSERVATION - external factors; can be
ANALYTICAL ANALYTICAL reduced
PROCEDURE PROCEDURE
• Lawyers are not under PRC, they are under
RECALCULATION -
supreme court (SC)
REPERFORMANCE - • PRBOA (TOTAL: 7)
CONFIRMATION - (1) Chair; (1) Vice Chair;(5) members
SEGREGATE: • All: appointed by PH President
• Vice chair – renewable if appointed;
1. Custody
elected by BOA from its members
2. Authorization
• BOA members – 3 years term/
3. Recording reappointment/ maximum of 12 years
4. Execution - Substitution not counted as term
• Natural born/Resident/10years work in ANY
scope/Good moral/No pecuniary
interest/Not APO director or officer

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 AUDITING THEORY 4

• CPA CERTIFICATE OF REGISTRATION: one-

time issuance; name and CPA number;
3 3 3 3
X •
required for CPD units application
PRC ID: 3 years; renewable on or before
birthday
• X = 1-year lapse • PICPA ID: 24 000 (lifetime membership), 1 200
• AIPO/PICPA (annual)
- Designated by PRC as APO for • FRSC AASC
accountancy; non-stock corporation - 3 years; renewable; appointed by PRC
- PICPA must renew accreditation once with recommendation from BOA
every 3 years - AASC: issuance of exposure draft ay
- Shall have a full-time career Executive
MAJORITY; final issuance ay 10
Director
• COA
- Accredited and Integrated Professional
- (1) chair; (2) commissioners
Organization
- 7 years without reappointment; by the
APO/PICPA President of PH w/concurrence of
(5 NOMINEES) commission on appointments
NO SUGGESTION
YES FROM PICPA
- Natural born/ 35 years/ 10 years in
AUDIT/or PH Bar member with 10 years in
law/Not a candidate for any elective
PRC PRC + BOA position
(CHOOSE 3) (3 NOMINEES - AT NO TIME SHALL MEMBERS BELONG TO
THE SAME PROFESSION
• FOREIGN CPAs
- GENERAL RULE: No
THE PRESIDENT
- EXCEPT: (1) reciprocity; (2) special and
• APO submit to PRC not later than 60 days temporary
prior to expiry of the term - REQUIREMENTS:
• CPD – CONTINUING PROFESSIONAL o TEMPORARY PERMIT:
DEVELOPMENT specific purpose, professor,
• CPAs cannot sign FS even after obtaining expert
CPA title, cert of registration, and PRC ID o PERMANENT PERMIT:
because CERTIFICATION OF If maprove na Fil Citizens ay
ACCREDITATION is needed and to acquire pwede rin magpractice sa
such, 3 years of meaningful experience is country niya
needed • PROFESSIONAL STANDARDS: basic rules and
• Fly-by-night: occurs when auditors sign principles (see page 6)
blindly the FS; ground for REVOCATION • PRACTICE STATEMENTS: interpretative
• CPD Certificate: maximum of 2 area of guidance (see page 6)
practice of certificate of accreditation
GROUND FOR REFUSAL OF CPA CERTIFICATE
THEMATIC (credit units ISSUANCE:
CPD SOURCES
required per area)
ENABLING RULES AND G uilty of immoral character
SEMINARS G.U.M. ALSO
REGULATIONS
U nsound mind APPLIES TO
STANDARDS APPLICABLE
TRAININGS TO PROFESSIONAL M oral turpitude GROUNDS FOR
PRACTICE M isrepresentation REVOCATION
WORKSHOPS ETHICS
CONVENTIONS ENVT OF PRACTICE After 2 years,
FURTHER STUDY DEVT AS A PERSON pwede
SELF DIRECTED LEARNING
reinstate

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 AUDITING THEORY 5

Regulation and 3 years meaningful experience with

PRC licensing of various attachment of details
professions
PRBOA Implement RA 9298
Highest and final FORMER NOW
COA authority in state
auditing (Constitution)
ASC FRSC
Registration and ACCOUNTING Accounting
FINANCIAL REPORTING standard
SEC operations of STANDARDS
STANDARDS COUNCIL
associations COUNCIL
Maintain price
BSP
stability
ASPC AASC
BIR Raise revenue AUDITING
AUDITING AND Auditing
STANDARDS AND standard
Regulate and PRACTICES
ASSURANCE
IC supervise insurance STANDARDS COUNCIL
(INSURANCE COMISSION)
COUNCIL
industry
ORGANIZATIONS ALLOWED TO PRACTICE PUBLIC IASC
ACCOUNTANCY: INTERNATONAL
IASB
INTERNATIONAL Counterpart
ACCOUNTING of FRSC
ACCOUNTING
1. Single proprietorship STANDARDS
STANDARDS BOARD
COMMITTEE
- Must obtain cert of accreditation: PRC
→ BOA → (not later than 60 days) → IAPC IAASB
CPD INTERNATIONAL INTERNATIONAL Counterpart
AUDITING AUDITING AND
- CPAs in PP: accreditation w/BIR (at least of AASC
PRACTICES ASSURANCE
18 units) COMMITTEE STANDARDS BOARD
- CPAs w/publicly listed clients: • IASB: under IFRS Foundation
accreditation w/SEC • IAASB: under IFAC – global organization
2. General and Limited Partnership
• RENEWAL OF ACCREDITATION: 3 years (on or • ASEAN MEMBER STATES:
before SEPTEMBER 30), if not, surcharges will 1. Brunei
be applied; PRBOA requires quality review 2. Cambodia
• QRC: (1) chair; (1) BOA; (2) public; (1) 3. Indonesia
academe; (1) commerce; (1) govt 4. Laos
▪ CHAIR should have been or presently 5. Malaysia
a senior practitioner in public 6. Thailand
accountancy 7. Philippines
▪ POWERS: 8. Singapore
▪ Conduct quality review 9. Myanmar
▪ Recommend to the Board the 10. Vietnam
revocation
• ETC: (1) chair; (1) BOA; (1) public; (2) • ASEAN CHARTERED PROFESSIONAL
academe; (1) commerce; (1) govt ACCOUNTANT (ACPA):
▪ CHAIR should have been or presently - Practical experience not less than 3
a senior practitioner in academe years CUMULATIVELY WITHIN 5 years
▪ Academe from public and private
schools
• Rule on name as to DEATH/WITHDRAWAL of
a partner: report to BOA within 1 month,
failure = penalty)
▪ Partnership na naging SOLE: pwede
naman continure pero not more than
2 years
• First time registrants: Application of
registration + Sworn statement regarding the

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 AUDITING THEORY 6

FRSC AASC • Note: 120 credit units every 3 years; excess

(1) CHAIR – from ANY (1) CHAIR – from units NOT CARRIED OVER EXCEPT doctorate
scope PUBLIC practice and master’s degree/specialty trainings
1- BOA 1- BOA • Failed to renew for 5 continuous years shall
1-SEC 1- SEC be declared delinquent and be dropped
1- CPA ASSOC IN from CPA roster after due notice
1-BSP
PUBLIC
1-BIR 1- COA PRC CPD COUNCIL:
1-FINEX 1- BSP
2- COA • (1) Chair; (2) members
2- ACPAPP 6- ACPAPP • Chair chosen from BOA by the BOA
2- ACPACI 1-ACPACI • 1st member: president/officer chosen by
2- ACPAE 1ACPAE PICPA BOD
2- GACPA 1-GACPA • 2nd member: president/officer or
• AASC SHOULD BE: 15 members organization of deans/dept head/or
But ACTUAL: 17 members appointed by PRC from 3 recommendees of
• AASC SHOULD BE ACPAPP: 6 BOA
But ACTUAL: 9 members • Term of Chair co-terminus with his
• FRSC and AASC chairman and members: incumbency in PRC
appointed by PRC • Term of members co-terminus with
- Upon recommendation of BOA with respective terms in PICPA or organization
PICPA • In special cases, PRC CPD may delegate
- 3 years term/ renewable some functions to PICPA, thus, PICPA CPD
• Note: PP is a sector, ACPAPP is an Council is created
organization ▪ TAKE NOTE: ETC AND QRC
• BSA: Graduates must take CPALE within 2 ▪ 3-year term
years ▪ All appointed by PRC
• Removal exams: 2 years ▪ TAKE NOTE: ETC AND QRC AND PRC
• CPA BOARDS: CPD – COUNCILS FORMED TO ASSIST
- gen average of 75% THE BOA
- no grade lower than 65%
VIOLATION OF RA 9298:
- if 75% in majority, CONDITIONAL and
take the subject/s within 2 years • Not less than 50 000 / OR/ imprisonment for
- the original and removal exam are a period not exceeding 2 years/ OR BOTH/
counted as ONE EXAM ONLY
- if failed in 2 complete exams, ADDITIONAL:
disqualified until refresher course of 24-
• Syllabi board exam: once every 3 years ang
unit subjects
change
ENGAGEMENT PRACTICE • President: remove/suspend BOA member
SERVICE • BOARD EXAM: not required na resident, ang
STANDARD STATEMENT
AUDIT PSA PAPS mahalaga ay Filipino
REVIEW PSRE PREPS ▪ Within 10 calendar days, submit to
OTHER PSAE PAEPS PRC ang ratings
ASSURANCE • Public practice: 3 years renewal (including
SERVICES partners/staff) upon accreditation with PRC
RELATED PSRS PRSPS and BOA
SERVICES
METHODS OF BILLING:

CPD EXEMPTION: • Flat/Fixed fee

• Actual time charges
• Permanent: 65 years old + • Maximum fee
• Temporary: Abroad; provided that he has • Retainer fee
been out of the country for at least 2 years
immediately prior to date of renewal

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 AUDITING THEORY 7

FRAUD: 3 PILLARS/POINTS OF FRAUD TRIANGLE • Acceptance of gifts is allowed if value is

clearly insignificant/just token
• Gift acceptance: SELF INTEREST THREAT TO
OBJECTIVITY
• Gift/Offer made in public: INTIMIDATION
THREAT TO OBJECTIVITY
JUSTIFICATION OPPORTUNITY
• An accountant in PP may quote a fee lower
than another
▪ It the fee will cause difficultness in
PRESSURE performing engagement, there will
be a SELF INTEREST THREAT TO
PROFESSIONAL COMPETENCE AND
INDEPENDENCE: DUE CARE
- In mind (auditor’s perception) • Contingent fee: SELF INTEREST THREAT TO
- In appearance (public’s) OBJECTIVITY; not contingent if fixed by court
or judicial/government result
FRAMEWORK: • Advertising: SELF INTEREST THREAT TO
PROFESSIONAL BEHAVIOR
A. FUNDAMENTAL PRINCIPLES ▪ GR: ALLOWED
▪ INTEGRITY ▪ PROVIDED: no exaggerated claims or
▪ OBJECTIVITY no comparisons
▪ PROFESSIONAL COMPETENCE • Holding assets of client: SELF INTEREST THREAT
AND DUE CARE (attainment and TO OBJECTIVITY
maintenance) • Having close relationship: FAMILIARITY
▪ CONFIDENTIALITY THREAT TO OBJECTIVITY; SELF INTEREST AND
▪ PROFESSIONAL BEHAVIOR INTIMIDATION
B. IDENTIFY THREATS TO THE PRINCIPLES
▪ SELF INTEREST ENGAGEMENT PERIOD:
▪ SELF REVIEW
▪ ADVOCACY
CONCEPTUAL • START: Begins to perform assurance services
FRAMEWORK • END: Report issued
▪ FAMILIARITY APPROACH
▪ INTIMIDATION • FS Audit engagement – include period
covered by FS reported by firm
C. ASSESS THE SIGNIFICANCE OF THREATS
D. SAFEGUARDS FOR SIGNIFICANT THREATS
▪ Qualitative and Quantitative
▪ Categories:
▪ SAFEGUARDS CREATED BY
PROFESSION/LEGISLATION/RE CPA
GULATION SPOUSE DIRECT FI IMPAIRED
INDEPENDENCE
▪ SAFEGUARDS IN WORK
ENVIRONMENT DEPENDENT CHILD

MATERIAL:
IMPAIRED
• Referral fee is allowed if the payee of check NON-DEPENDENT CHILD
is a foundation; if not, SELF INTEREST THREAT
TO PROFESSIONAL COMPETENCE AND DUE PARENT
INDIRECT FI
CARE AND OBJECTIVITY SIBLINGS
• Accountant should not PAY or RECEIVE a IMMATERIAL:
referral/commission unless he has NOT
established safeguards; he may PURCHASE IMPAIRED
ALL OR PART OF A FIRM – payments to former • FI = Financial Interest
owners/heirs/estates (not a
referral/commission in this case)

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 AUDITING THEORY 8

OTHER INTERPRETATIONS:

• LOAN: if client is a financial institution, no

impairment PROVIDED: immaterial and
normal lending procedure
• CLOSE RELATIONSHIP: Indirect FI + material =
impaired independence
• HONORARY MEMBER ON THE BOARD OF
CLIENT: no impairment PROVIDED he does
not participate in management of
operations; OFFICER/DIRECTOR=IMPAIR
• AUDITING FS OF LISTED ENTITIES: lead
engagement partners be rotated ONCE
every 5 YEARS
• FIRM/NETWORK FIRM: Should not provide
accounting/bookkeeping services for a
client that is a PUBLIC INTEREST ENTITY
• TAX SERVICES: No impairment
• DISPUTE/LITIGATION:
▪ AS ADVOCATE: material amount =
impairment
▪ AS ADVISOR/SUPPORT: no impairment
if with safeguards
• CORPORATE FINANCE SERVICES:
promoting/underwriting securities of client =
impairment
• OVERDUE PROFESSIONAL FEE: impaired

RETENTION OF WORKING PAPERS:

• ISQC: 5
• PSQC: 7
• BIR: 10

INDEPENDENCE:

FS AUDIT Members of team, firm

ENGAGEMENT and network firms
NON-AUDIT – Members of team,
DISTRIBUTION OF firm
REPORT NOT
RESTRICTED
NON-AUDIT – Members of team
DISTRIBUTION OF (+) firm has no
REPORT RESTRICTED MATERIAL FI (direct or
indirect) in client

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 AUDITING THEORY 9

THE AUDIT PROCESS - Scope

General Approach: Assertions – Procedures – - Unrestricted access
Evidence – Opinion - Reports
Assertions - Objective
• Management implicitly or explicitly makes - Timetable and fees
assertions ABOUT recognition, (Others)
measurement, presentation and - Expectations of receiving
disclosures management representation letter
- Arrangement concerning
Assertions – SCI involvement of others
• Occurrence - Request for client to confirm terms
• Completeness Send a separate letter:
• Accuracy - Independence
• Cut off - Ownership
• Classification - Separate audit report is issued
Assertions – BS - Appoint
• Existence - Legal requirements
• Rights and obligations - Extent of work performed by other
• Completeness auditors
• Valuation and allocation Send a new letter:
Assertions – presentation and disclosures - Change in circumstances
• Occurrence and rights and obligations - Misunderstanding
• Completeness - Scope limitation
• Classification and understandability
• Accuracy and valuation B. AUDIT PLANNING
Procedures C. CONSIDERING INTERNAL CONTROL
• The auditor uses the above assertions to D. PERFORMING SUBSTANTIVE TESTS
form a basis for the ASSESSMENT OF RISKS E. COMPLETING THE AUDIT
of material misstatement and the DESIGN F. ISSUING A REPORT
AND PERFORMANCE of further audit
procedure
a. Inspection
b. Observation
c. Inquiry
d. Confirmation
e. Computation
f. Analytical Procedures
Evidence
• Comprise of source documents and
accounting records

THE AUDIT PROCESS:

A. ACCEPTING AN ENGAGEMENT
- Procedures regarding continuance
of client relationship and
engagement
- Compliance with ethical
requirements
- Understanding of the terms
The firm should consider the auditor’s:
- Competence
- Independence
- Ability to serve properly
- Integrity
The engagement letter contains:
- Management responsibilities
- Inherent limitations

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 AUDITING THEORY 10

PLANNING Related party transaction: Why is it important?

- Source of evidence
OBJECTIVE OF: - Disclosures
AUDIT – EXPRESS AN OPINION - Affects FS
AUDITOR – TO OBTAIN REASONABLE ASSURANCE - Motivated by fraud
Responsibilities of management:
- Prepare and present FS STRETEGY > PLAN > PROGRAM
- Implement internal control
- Make accounting estimates RISK
- Select framework ASSESSMENT TEST OF SUBSTANTIVE
- Select accounting policies PROCEDURE CONTROLS TESTING
Major audit planning activities: S
- Client and its environment Inquiry Inquiry Inquiry
- Possibility of non-compliance Inspection Inspection Inspection
- Establish materiality and assess risk Observation Observation Observation
- Related parties Reperformanc
Preliminary analytical procedure Analytics Analytics
- e
- Experts Recalculatio
- Develop overall audit strategy and n
detailed audit plan Confirmation
- Prepare preliminary audit programs
RAP – basic procedure
TOC AND ST – further audit procedure
TOC ST CONSEQUENCE
RELIANCE YES YES LESS: extensive Contents of Audit Plan:
and samples; - Coordination, Direction & Supervision
interim of team members
NO NO YES MORE: - Other matters (going concern,
RELIANCE extensive and related parties)
samples; year- - Risk and materiality
end - N, T, E of procedures
- Internal control
Understand what? - Knowledge about entity and envt
- Industry and regulatory framework Importance of planning audit:
- Internal control - Proper assignment and coordination
- Nature of entity - Audit is effective and efficient
- Objective, strategies and risk - Work completed expeditiously
- Measures of performance - Important areas
- Potential problems
MATERIALITY RISK AUDIT Auditor must obtain sufficient evidence that:
PROCEDURE - No material misstatements in the
opening balances
- Prior period’s closing balances have
been correctly brought forward
- Consistent accounting policies
Inherent risk @ FS LEVEL: Issues considered in designing substantive audit
- Management characteristic procedures:
- Industry characteristic - What level of assurance?
- Management integrity - How susceptible?
- Operating characteristic - How effective is the internal control?
Inherent risk @ ACCOUNT BALANCES / CLASS OF Audit Risk = Inherent Risk x Control Risk
TRANSACTIONS LEVEL: x Detection Risk
- Degree of judgment involved Audit Risk Model:
- Complexity of calculations 1. Set the desired level of audit risk
- Complexity of transactions 2. Assess the level of inherent risk
- Susceptibility of account to theft 3. Assess the level of control risk
4. Determine acceptable level of detection
risk

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5. Design substantive tests
Study and evaluation of internal controls:
1. Obtain and document understanding of
IC
2. Make preliminary assessment of CR
3. Determine the response to risk assessment
4. Reassess CR
5. Determine N, T and E of ST
OVERVIEW OF THE FINANCIAL STATEMENT AUDIT
PROCESS
• Doubt of reliability – investigate further
and determine what modifications to
procedures are necessary
• Must comply with PSA unless:
- Entire PSA not relevant
- Requirement not relevant because it
is conditional and the condition does
not exist
• If objective cannot be achieved – modify
opinion or withdraw
• Failure to achieve objective requires
documentation
• Auditor is not responsible for detection of
immaterial misstatements as to FS
• Audit risk may be assessed in:
- Quantitative terms
- Non-quantitative terms
• Inherent risk
- Complex calculations
- Accounting estimates
- Business risk
• Control risk
- Human errors
- Collusion
- Override
• IR and CR exist independently of the audit
• Auditor combines assessments of IR and
CR to assess the likelihood of material
error
• If auditor opted not to evaluate CR, the
assessment of the likelihood of material
error will be based on IR only as well as the
volume of transactions
• DR is a function of the effectiveness of an
audit procedure; cannot be reduced to
zero
- Inappropriate procedure
- Misinterpret audit results
• Professional judgment needs to be
exercised throughout the audit; needs to
be documented
• Since PJ is a personal quality, training and
experience are intended to promote
consistency of judgment
AUDITING THEORY 11
• FS audits are similar in LOGIC (scientific
method inquiry) and OBJECTIVE (opinion)
• Approach in performing audit varies;
Major steps in engagement are similar
• If management impose a limitation on the
scope of auditor’s work and latter
believes it will result in disclaiming an
opinion, auditor shall not accept
engagement unless required by law or
regulation to do so
• The auditor shall not accept if:
unacceptable framework, agreement
has not been obtained
• To avoid qualified opinion, the
management asks to perform a review
instead – auditor would consider any
legal or contractual implications for
change
• To avoid reader’s confusion, the new
report would not include reference to the
original engagement EXCEPT where the
engagement is changed to an
engagement to undertake agreed upon
procedures
• On a recurring engagement, he must
focus on aspects of the control structure
that have been added, changed or
assumed increase importance since the
previous audit
• Kinds of substantive test:
- Test of details
(balances/transactions)
- Substantive analytical procedures
(test the reasonableness of
balances); less effort and less reliable;
NOT required; only used if client has
good IC
• Completing the audit – requires
considerable professional judgment;
generally performed by more senior
members of the engagement team
• Post-audit responsibilities – involves
assessing and evaluating the quality of
the audit service team
- Considering events during audit
- Analyzing activities within audit
- Producing recommendations
• Debriefing notes are not considered to be
audit work papers; discarded when the
audit plan for the following year’s audit is
complete
• Engagement partner responsibilities:
- Leading debriefing and setting
direction for improvement
- Follow-up in developing subsequent
year’s audit strategy
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 AUDITING THEORY 12

AUDIT PLANNING - SAD (summary of audit differences)

• The LOWER the TE, the MORE EXTENSIVE
• PSA 300: The objective of the auditor is to the required audit procedures
plan the audit so that it will be performed • If the aggregate likely misstatements
in an EFFECTIVE manner approaches the PERFORMANCE
• Outputs of planning stage: MATERIALITY LEVEL, he must consider that
- Overall audit STRATEGY (strategy the former could exceed materiality level,
document) thus, he must consider reducing audit risk
- Overall audit PLAN BY PERFORMING ADDITIONAL AUDIT
- The DRAFT audit PROGRAMS PROCEDURES or BY REQUESTING
• <<supported by a summary that MANAGEMENT TO ADJUST FS FOR
documents main decisions taken>> IDENTIFIED MISSTATEMENTS
<<OAS + OAP = Audit planning • The assessment of IR and CR may be
memorandum>> expressed quantitatively or qualitatively
• Audit planning memorandum – • Significant risk – a risk that requires special
summarizes the decisions taken during audit consideration; significant non-
the planning process routine transactions and judgmental
• Sources of understanding Entity & Envt: matters
- Previous experience • If he judges material weakness in IC, he
- Discussion communicates this to those with
- Publications related governance and considers implications
- Legislations and regulations for risk assessment
- Visits • The LOWER the acceptable DR, MORE
- Documents produced extensive procedures
• Risk Assessment Procedures (IIOA) • INVERSE relationship between
- INQUIRIES CAN BE DIRECTED TO: MATERIALITY and AUDIT RISK; how to
a. Governance compensate?
b. Internal audit personnel - Reduce assessed risk of MM
c. Employees and unusual (additional TOC)
transaction - Reduce DR by modification
d. In-house legal counsel • How to identify RELATED PARTIES?
e. Marketing or sales personne - Inquiries (mgmt. and predecessor)
- OBSERVATION AND INSPECTION - Reviews (stockholder listings and
a. Observation of operations material investment transactions)
b. Inspection of documents • Analytical procedures are REQUIRED in
c. Reading reports prepared planning and final review stages but
d. Visits OPTIONAL in substantive test/execution
e. Tracing transactions • Examples of AP:
• Nature of entity: - Study of changes in balances
- Operations - Comparison of info with anticipated
- Ownership - Relationships between balances or
- Types of investments among firms
- Structure - Comparison of simple computations
• Business risk > Risk of material that develop an estimate
misstatement of FS - Relationship of financial with non-
• An understanding of business risk financial
increases the likelihood of identifying risks • The auditor SHOULD apply AP as risk
of material misstatements assessment procedure, thus, he develops
• No responsibility to identify or assess all BR EXPECTATIONS (what can go wrong)
• Not all BR give rise to risks of MM • Expert – a person OR firm possessing
• Noncompliance – omission or commission special SKILL, KNOWLEDGE and
• The auditor shall determine EXPERIENCE in a particular field OTHER
PERFORMANCE MATERIALITY; not a simple THAN accounting and auditing
calculation; involves professional • Situations for need of expertise:
judgment - Valuations
• Steps in applying materiality: - Measurement
- PM (planning materiality) - Legal opinions
- TE (tolerable error)

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 AUDITING THEORY 13

- Determination of quantities or
amounts using specialized
techniques
• Auditor would consider (As to expert):
- Engagement team’s knowledge and
previous experience
- Risk of material misstatement
- Quantity and quality of other audit
evidence
• Expert’s objectivity impaired when:
- Employed by entity
- Related
• Establishment of the overall audit strategy
involves:
- Characteristics of engagement -
scope
- Reporting objectives –timing,nature
- Important factors –focus
• Reporting objectives, timetable and
communications are also factored in
establishing audit strategy
• Audit program – most important control
mechanism (for initial, usually not
prepared; for continuing, can be
drafted); Types:
- Test of controls audit
program(reliance)
- Substantive test audit
program(reliance or no reliance)
• Listing of schedules prepared by the client
• Queries raised during review process
should be followed up and resolved
before completing engagement and
issuing audit opinion

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CONSIDERATION OF INTERNAL CONTROL
• Assessing control risk is the process of
evaluating the design and operating
effectiveness of an entity’s internal
control as to how it prevents or detects
material misstatements in the financial
statements
• Conclusion reached: ASSESSED LEVEL OF
CONTROL RISK
• Internal control (COSO): process
designed and effected by those charged
with governance, management, and
other personnel to provide reasonable
assurance about the achievement of the
entity’s objectives with regard to reliability
of financial reporting effectiveness and
efficiency of operations and compliance
with applicable laws and regulations
• INHERENT LIMITATIONS:
1. Benefits > cost (cost benefit
consideration)
2. Routine > non-routine (transactions)
3. Human error
4. Collusion
5. Management override
6. Inadequate procedures due to
changes in conditions; compliance
may deteriorate
• Financial reporting objective (most
relevant to audit)
• Operational and Compliance objectives
(relevant only if they relate to the data
being evaluated)
• FIVE INTERRELATED COMPONENTS
INTERNAL CONTROL: CRIME
1. Control activities (4)
2. Risk assessment (2)
3. Information and communication
systems (3)
4. Monitoring (5)
5. Environment (1)
• THE CONTROL ENVIRONMENT (most imp)
✓ Commitment to competence
✓ Human resources
✓ Assignment of duties/responsibilities
✓ Management philosophy and
operating style
AUDITING THEORY 14
✓ Participation of those charged with
governance
✓ Organizational structure
✓ Integrity and ethical values
• THE RISK ASSESSMENT
✓ Business risk (risk that objectives will
not be attained due to internal and
external factors); cannot be
eliminated, can be reduced
✓ RAP – process for identifying,
managing & assessing risk
✓ DESIGN, EXISTENCE, IMPLEMENTATION
✓ STAGES:
1. Risk IDENTIFICATION
Clean sheet of paper approach
2. Risk ANALYSIS
Estimate impact/assess likelihood
3. Risk MANAGEMENT
Actions taken by mgmt
• THE INFORMATION AND
COMMUNICATIONS SYSTEM (IS
encompasses methods/records that :)
✓ Identify and record all valid
transactions
✓ Describe on a timely basis
✓ Measure the value
✓ Determine the time period
✓ Present properly & disclosures
o Hardware, software, people,
procedures, data
• THE CONTROL ACTIVITIES
✓ Performance reviews
✓ Information processing
OF ✓ Physical controls
✓ Segregation of duties
• THE MONITORING (by mgmt.)
✓ Ongoing monitoring
✓ Separate valuations
✓ Combination of the above
• IC in small businesses are weaker but can
be COMPENSATED if the owner/manager
ACTIVELY PARTICIPATES in the operations
• Auditors should give adequate
consideration:
1. Understand IC
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 AUDITING THEORY 15

2. Document the understanding ✓ Performed to obtain evidence

3. Assess CR about the EFFECTIVENESS of the
4. Perform ToC DESIGN and OPERATION
5. Document assessed level of CR ✓ Only test the OPERATING
EFFECTIVENESS that are likely to
• THE UNDERSTANDING IC detect/prevent MM
✓ Evaluating the DESIGN ✓ Should OBTAIN AUDIT EVIDENCE
o Inquiries through TOC to SUPPORT ANY
o Inspecting ASSESSMENT OF CR AT LTH LEVEL
o Observing ✓ LOWER assessment of cr , MORE
✓ Determine if IMPLEMENTED evidence
o Walk through test ✓ GREATER reliance, MORE
(to verify, identify audit trail) extensive
(tignan lang flow ng ✓ Assessed level of CR + assessed
transaction so no need to level of IR = determine
gather samples) acceptable DR
▪ NOT REQUIRED TO OBTAIN ✓ Timing? Usually during INTERIM
KNOWLEDGE ABOUT OPERATING visit in ADVANCE of period end;
EFFECTIVENESS To test or not to test the
▪ Purpose of understanding? REMAINING PERIOD, must
(OBJECTIVE): To IDENTIFY consider:
potential misstatements; To o Interim tests results
CONSIDER factors that affect risk; o Length of remaining
To DESIGN the NTE o Changes occurred in
1. Perform preliminary review remaining
2. Identify transaction cycles
3. Document system • THE DOCUMENTATION OF ASSESSED LEVEL
4. Perform walkthrough OF CONTROL RISK (CR)
5. Identify controls potentially reliable ✓ HL: document conclusion
✓ LTH: document conclusion and
• THE DOCUMENTATION OF the basis for that assessment
UNDERSTANDING
✓ Need not be in any particular • REQUIRED to report material weaknesses
form in the DESIGN and OPERATION; writing ;
✓ Golden rule: “if not yet oral – provided that it is documented in
documented, not yet done” the audit working papers
✓ Extent may vary depending on • Internal control weaknesses and other
the size and complexity and concerns are DOCUMENTED in a FORMAL
nature MANAGEMENT LETTER
✓ Some include: narrative
descriptions, flowchart, IC
questionnaire, checklist
(all accomplished by auditor)

• THE ASSESSMENT OF CR

• THE PERFORMANCE OF TOC

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 AUDITING THEORY 16

• INTERNAL CONTROL SYSTEMS & POLICIES &

PROCEDURES ADOPTED BY
MANAGEMENT
✓ S – safeguarding assets CR
✓ O - orderly & efficient conduct of
operations
HIGH MED LOW
✓ A – adherence to mgmt. policies
✓ P – prevent & detect fraud/error
✓ A – ccuracy & completeness of
records HIGH Low Lower Med
✓ T –imely preparation of fin’l reports

IR
• Employer not liable to the fraudulent acts
MED Lower Med Higher
of employee
• PUPOSE OF IT: method of managing
information
• What aspect of IT are we concerned? LOW Med Higher High
FINANCIAL REPORTING
• Different phases of Fin reporting:
- RECORDING
- PROCESSING
- REPORTING

CR RISK
UNDERSTANDING BASIS
ASSESSMENT ASSESSMENT
H ✓ ✓ x
LTH ✓ ✓ ✓
H = no reliance
LTH = reliance

QUALITY OF INFO (CAAAT):

Current
Accurate
Accessible
Appropriate
Timely

CR N E T
H More eff Larger YE
sample
LTH Less eff Smaller interim
sample
H = ineffective
LTH = effective

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Performing Substantive Tests
SUBSTANTIVE TESTS: Audit procedures designed to
substantiate the account balances or to detect
material misstatements in the FS.
(The decision about which procedure to use is
based on the AUDITOR’S JUDGMENT about the
expected effectiveness and efficiency of such
procedures in satisfying the audit objective)
TYPES:
1. Analytical Procedures
2. Test of Details
• Analytical Procedures (planning, testing,
overall review stages) applied as ST
enable the auditor to obtain
corroborative evidence about a quality needed to support the
particular account
o TOTALLY ELIMINATED IF MANUAL;
LARGE VOLUME OF
TRANSACTIONS, PREDICTABLE
OVER TIME
• If SIGNIFICANT FLUCTUATIONS are found,
auditor should conduct FURTHER
INVESTIGATION to determine MM
• Investigation ordinarily begins with
INQUIRIES of management followed by
CORROBORATION of management’s
responses and other audit procedures
based on the results of inquiries
Effectiveness of AP as ST – affected by factors:
1. Nature of assertions
2. Reliability of data used to develop
expectations
3. Precision of expectations
4. Predictability of the account balances
The following generalizations may be helpful in
assessing the predictability of the accounts: sin
1. Income statement accounts > BS
2. Accounts not subject to management
discretion
3. Relationships in a stable environment
• Test of Details – examining actual details
making up the various account balances;
may take the form of :
- Test of details of balances (direct
testing the ending balance of an
account)
; will be used when account
balances are affected by large
volume of relatively immaterial
transactions
Example: counting of cash on hand
and testing of bank reconciliation by
client
AUDITING THEORY 17
- Test of details of transactions (testing
the transactions which give rise to the
ending balance of an account)
; Useful if account balances are
comprised of a smaller volume of
transactions representing relatively
material amounts like PPE,
intangibles, BP, stockholder’s equity
accounts
Example: examining individual
transactions
Effectiveness of ST – affected by NTE:
• N – quality of evidence
(Determine the appropriate
desired level of DR; consider the
high costs)
• T – interim / YE
(Procedures are less effective
due to incremental audit risk –
interim. The higher the MM, more
likely YE)
• E – relates to amount of evidence
needed to satisfy a particular objective
(Based on auditor’s judgment
after considering the
MATERIALITY, ASSESSED RISK, and
DEGREE OF ASSURANCE. High risk
of MM, higher extent of
procedures)
Relationship between ST and ToC:
• ToC : provide evidence that indicates a
MM likely to occur
• ST : provide evidence about existence of
MM in account balance
AUDIT EVIDENCE: information obtained by the
auditor in arriving at the conclusions on which the
audit opinion is based; accounting data CANNOT
be considered sufficient evidence; MUST obtain
corroborative evidence
1. Underlying accounting data
(Accounting records underlying the FS;
book of accounts, related accounting
manuals, worksheet supporting cost
allocations and reconciliations prepared)
2. Corroborating information
(Supporting the underlying accounting
data obtained from client and other
sources; invoices, bank statements,
purchase orders, contracts, checks +
other information obtained through
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 AUDITING THEORY 18

confirmation, recalculation, observation, PRIMARY FUNCTION:

reconciliation) ✓ Support opinion
✓ Support representation as to
compliance with PSA
Qualities of Evidence: ✓ Assist in planning, performance,
1. Sufficiency review and supervision
(Amount; cost/benefit consideration) SECONDARY FUNCTION:
- COMPETENCE OF EVIDENCE (More ✓ Planning future audits
competent evidence, less amount ✓ Providing information useful in
need) rendering other services
- MATERIALITY OF ITEM (More material,
more evidence) FORM/ CONTENT/ EXTENT OF AUDIT
- RISK INVOLVED (High risk, more DOCUMENTATION:
evidence) The auditor should consider what would enable
- EXPERIENCE GAINED during previous an experienced auditor, having no previous
audit may indicate the amount of connection with audit, to understand:
evidence taken before and whether ❖ NTE of audit procedures (who performed
such evidence was enough and when; who reviewed and date and
extent)
D egree of risk ❖ Results and audit evidence obtained
T ype of info ❖ Significant matters and conclusions
E xperience reached
R esults of audit procedure (toc)
M ateriality CLASSIFICATION OF WORKING PAPERS:
1. Permanent file (information of continuing
2. Appropriateness significance to the auditor in performing
(Measure of the quality and its recurring audits)
relevance to a particular assertion ✓ Copy of AOI & by-laws
and its reliability) ✓ Major contracts
- RELEVANCE – timelines and ability to ✓ Engagement letter
satisfy the audit objective ✓ Organizational chart
- RELIABILITY – objectivity of evidence ✓ Analyses of long term accounts
and is influenced by source & nature ✓ Internal control analyses
o From independent outside 2. Current file (contains evidence gathered
sources and conclusions reached relevant to the
o Generated internally audit of a particular year)
o Directly by auditor > entity ✓ Copy of FS
o Documents and written > ✓ Audit program
oral ✓ Working trial balance
T imeliness ✓ Lead schedules
V alidity ✓ Detailed schedules
V erifiability ✓ Correspondence with other
F ree from error parties such as lawyers,
F aithful representation customers, banks, and
management
AUDIT DOCUMENTATION / WORKING PAPERS OWNERSHIP OF WORKING PAPERS:
- Property of AUDITOR and CLIENT HAS
• Sufficient appropriate evidence MUST be NO RIGHT; may serve as REFERENCE
clearly documented in the auditor’s SOURCE for client but NOT PART OR
working papers SUB FOR CLIENT’S RECORDS
• Completion: not more than 60 days after CONFIDENTIALITY OF WORKING PAPERS:
audit report date - Cannot be shown to third parties
without the permission of client
UNLESS: required by law or there is a
professional right to disclose
WORKING PAPERS: records kept by the auditor information such as auditor
that documents the audit procedures applied, defending himself
information obtained and conclusions reached RETENTION OF WORKING PAPERS:

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 AUDITING THEORY 19

- For a period of time sufficient to meet MANAGEMENT’S RESPONSIBILITY

the needs of his practice and to - Identification and disclosure of RP
satisfy any pertinent legal - Implementation of adequate
requirements of record retention accounting and IC systems to ensure
- 7 years retention that transactions are appropriately
identified and disclosed in the FS
GUIDELINES FOR THE PREPARATION OF WORKING
PAPERS: AUDITOR’S RESPONSIBILITY
- HEADING - Obtain and review information by
(Properly identified with name of directors/management identifying
client, type of working paper, names of all known RP
description of content, date/period
covered) - INDENTIFYING RELATED PARTIES
- INDEXING o Prior year WP
(Use of lettering/numbering system; o Entity’s procedures
each WP must be indexed to aid in o Inquire affiliation
cross-referencing essential o Shareholder records
information) o Minutes of meetings
- CROSS INDEXING/ CROSS o Inquire other auditors
REFERENCING o Income tax returns etcetera
(To provide a trail useful to supervisors (<above> may be MODIFIED as
in reviewing the WP) appropriate if in the auditor’s
- TICK MARKS judgment the risk of significant RP
(Must include symbols that describe remaining undetected is LOW)
the audit procedures performed)
- IDENTIFYING RELATED PARTY
AUDITING ACCOUNTING ESIMATES: TRANSACTIONS
(Risk of MM is greater when accounting estimates o Detailed test of
are involved); management is responsible for transactions/balances
making accounting estimates o Review minutes of meetings
RESPONSIBILITY OF AUDITOR FOR MAKING o Review accounting records;
ACCOUNTING ESTIMATES: paying attention to
• Properly accounted for and disclosed transactions recognized
• Reasonable at/near the end
THE AUDITOR MAY USE THE FOLLOWING o Review confirmations of loan
APPROACHES: (thereafter, auditor SHOULD make receivable/payable and
a final assessment of the reasonableness of the confirmation from banks to
estimate) identify existence of
• Review and test the process used by guarantee
management to develop the estimate o Review investment
• Make an independent estimate transactions
• Review subsequent events which confirm • Audit NOT EXPECTED to provide
the estimate made assurance that ALL RP TRANSACTIONS will
be discovered
RELATED PARTIES: • Auditor should be alert for unusual
- Persons or entities that may have transactions – ;
dealings with one another in which o Abnormal terms of trade
one party has the ability to exercise o Lack of apparent logical business
significant influence or control over reason for occurrence
the other party in making financial o Substance differs from form
and operating decisions o Transactions not processed in an
THE AUDITOR NEEDS TO BE AWARE OF RELATED unbiased manner
PARTIES BECAUSE: o High volume/significant
- GAAP requires disclosure transactions with certain
- May be motivated such as profit customers compared with others
sharing o Unrecorded transactions like
- May affect the FS and reliability of receipt/provision of
audit evidence

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 AUDITING THEORY 20

management services at no USING WORK OF INTERNAL AUDITORS

charge
• After identifying RPT, auditor SHOULD - Involves two phases:
obtain sufficient appropriate evidence 1. Making a preliminary assessment
that these are properly accounted for of internal auditing
and disclosed in the FS and SHOULD EA should consider the IA’s:
obtain written representation concerning o Competence
completeness of information o Objectivity
USING WORK OF AUDITOR’S EXPERT o Due professional care
- Person/firm possessing special skill, o Scope of function
knowledge and experience in a
particular field other than accounting 2. Evaluating and resting the work
and auditing of internal auditing
1. Auditor’s expert o If the EA decides to use the
2. Management’s expert work of IA, the EA will have to
evaluate and test the IA’s
THE AUDITOR WOULD CONSIDER: work to confirm its adequacy
- Whether the management has used o May request the assistance
a management’s expert of IA in performing
- Nature and significance of the routine/mechanical audit
matter, including complexity procedures
- Risks of material misstatement in the o Auditor’s report SHOULD NOT
matter include any reference to the
- Expected nature of procedures to work performed by IA
respond to identified risks, including
the auditor’s knowledge of and
experience with the work of experts in
relation to such matters; and MISTATEMENT
availability of alternative sources of
audit evidence
EVALUATING THE AUDITOR’S EXPERT (The auditor
must) IMMATERIAL MATERIAL
1. Asses the competence and objectivity of
the expert
- Professional certification/licensing
- Experience and reputation QUALIFIED ADVERSE
2. Understand the field of the expertise of
auditor’s expert
3. Establish the terms of the agreement with
the expert
4. Evaluate the results of the work of the
expert
• The auditor SHOULD NOT REFER work of
auditor’s expert containing an
unmodified opinion
• The auditor CAN MAKE REFERENCE if
modified opinion and SHOULD indicate in
his report that such reference does not
reduce the auditor’s responsibility

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 AUDITING THEORY 21

2 FIELD GOAL (GAAS): SCOPE LIMITATION:

1. To provide reasonable assurance in QUALIFIED (M)

forming a conclusion
DISCLAIMER (P)
2. To perform as efficiently as possible
MISSTATEMENT:
(PSA):
QUALIFIED (M)
1. To detect MM
2. To reduce DR to an acceptable level ADVERSE (P)
INSPECTION: Additional:
1. TRACING • Cash cutoff: to detect kiting
 Understatement • Confirmation OR alternative (test of
 Source to Acctg records subsequent receipts)
 Completeness • If same taxing authority, OFFSET DTA DTL
 Expense, Liab • Relevant ang collateral para sa disclosure
2. VOUCHING • CAAT: Computer Assisted Auditing Techniques
 Overtstament
 Acctg records to Considerations in Interim Testing:
Source/Evidence
• Recon
 Existence
• Material fluctuations
 Income, Asset
• Special transactions entered like buscom
INVENTORY COUNT: • Conflicts that arise during interim should be
received
 Floor to list (complete)
 List to floor (existence) FRAUD AND ERROR:

FRAUD: M – otivation
O – pportunity
• Fraudulent fin’l reporting: WITHDRAW, do N – eed
not report unless subpoena etc • The auditor should be concerned if
• Misappropriation: report to higher level of o It affects FS
management o MM

MGMT REFUSES TO SEND

CONFIRMATION LETTERS

Valid reason Not valid

(Alternative
Procedure)

Qualified Disclaimer
(material) (pervasive)

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 AUDITING THEORY 22

AUDIT SAMPLING ALPHA BETA

sample population sample population
Audit Sampling – the application of audit
procedures to less than 100% of the items within an TOC Not Effective Effective Not
account balance or class of transactions such effective effective

that all sampling units have a chance of selection

Assumption: the sample selected for testing is ST Not fairly Fairly Fairly Not fairly
stated stated stated stated
representative of the population
3 Ways of selecting items for testing:
1. 100% testing
- Not efficient except very few
2. NON-SAMPLING RISK
transactions
- Risk that the auditor may draw incorrect
2. Selective testing
conclusions about the account balance
- Threshold: monetary amount
or class of transactions because of
3. Audit Sampling
human errors
Audit procedures:
- Cannot be eliminated; control by proper
1. RAP – no sampling
planning and adequate direction,
2. TOC – yes to sampling (appropriate when
review, supervision of audit team
control leaves evidence; if not, non-
sampling such as inquiry and observation) General Approaches:
3. ST – yes to sampling (test of details);
analytics must be involved with whole 1. STATISTICAL SAMPLING
amount rather samples a. ATTRIBUTE SAMPLING
Risks in sampling: - Estimate the frequency of occurrence of
a certain characteristic
1. SAMPLING RISK - TOC to estimate rate of deviations
- Possibility that the auditor’s conclusion b. VARIABLE SAMPLING
based on a sample may be different - Estimate a numerical measurement
from the conclusion reached if the entire - ST to estimate the amount of
population were subjected to the same misstatements
audit procedures 2. NON-STATISTICAL SAMPLING
- Reason for existence: sample selected - Auditor’s judgment
may not be a representative ✓ BOTH 1 and 2 cannot assure that sample
- May be eliminated by examining entire is representative of population
population; control by increasing sample ✓ BOTH 1 and 2 will require use of auditor’s
size and using appropriate sample judgment
selection method
STAT NON-STAT
a. ALPHA RISK (assess CR too high) Probability theory Judgment
• TOC – risk of under reliance Quantify Cannot Quantify
• ST – risk of incorrect rejection Objective Less Objective
• Efficiency Time Consuming Less Time Consuming

b. BETA RISK (assess CR too low) ❖ VOIDED DOCUMENTS – if properly voided,

❖ TOC – risk of overreliance replaced by another sample item
❖ ST – risk of incorrect ❖ MISSING DOCUMENTS – deviation
acceptance
❖ Effectiveness

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 AUDITING THEORY 23

Factors considered in determination of sample

size:

TOC ST
Acceptable sampling Acceptable sampling
risk (ASR) risk (ASR)
Tolerable deviation Tolerable
rate (TDR) misstatement (TM)
Expected deviation Expected
rate (EDR) misstatement (EM)
Variation in the
population
Methods used:

TOC ST
Random # selection Stratified (Highly
variable)
Systematic selection Value weighted
Haphazard selection
Block selection
Sequential sampling
Discovery sampling

ADDITIONAL:

• Confidence level – auditor’s measure

on how reliable the sample results
should be
• Precision/Confidence Interval – range
within which estimate of pop charac
is expected to fall; interval around the
sample statistic that is expected to
contain the true pop value
• UDL = UL of precision

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COMPLETING THE AUDIT
PSA 560 – THE AUDITOR SHOULD PERFORM
PROCEDURES DESIGNED TO OBTAIN SUFFICIENT
APPROPRIATE EVIDENCE THAT ALL EVENTS UP TO
THE DATE OF AUDITOR’S REPORT THAT MAY REQUIRE
ADJUSTMENT OF, OR DISCLOSURE IN, THE FS HAVE
BEEN IDENTIFIED
Procedures:
1. Identifying subsequent events that may
affect the FS under audit
2. Identifying contingencies such as
litigation, claims and assessment
3. Obtaining written management
representation
4. Performing wrap-up procedures
STEP 1: SUBSEQUENT EVENTS (SE)
• Events/transactions that occur
subsequent to the balance sheet date
that may affect the FS and auditor’s
report
• Only concerned with those events that
occur subsequent to BS date but before
date of auditor’s report
• If auditor becomes aware of SE which
materially affect FS, he should consider
whether such events are properly
accounted for and disclosed
• CLASSIFICATION OF SUBSEQUENT EVENTS
(SE):
o Requiring adjustment – those that
provide further evidence of
conditions that existed at BS date
o Requiring disclosure – those that
are indicative of conditions that
arose subsequent to BS date
• PROCEDURES TO IDENTIFY SUBSEQUENT
EVENTS (SE):
o Inquire management
o Review procedures management
has established to identify SE
o Review minutes of board of
directors and stockholder’s
meetings
o Read latest available interim FS
and management reports
(budgets and forecasts)
o Inquire entity’s lawyers – LCA
• SUBSEQUENT EVENTS OCCURING AFTER
REPORT DATE BUT BEFORE ISSUANCE OF FS:
o Responsibility of management to
inform auditor of events after report
date that may affect FS
o If auditor becomes aware after report
date but before issuance of FS, he
AUDITING THEORY 24
should take necessary actions to
ascertain whether such event has
been properly accounted for and
disclosed in notes to FS
o Qualified/Adverse opinion – failure of
client to make appropriate
amendments to FS where the auditor
believes they need to be amended
o Auditor would notify those persons
ultimately responsible for overall
direction of an entity NOT to issue FS
in the event that report has been
released to the entity
o IF the FS are subsequently released,
auditor needs to take action to
prevent reliance on audit report
• EFFECT OF SUBSEQUENT EVENTS ON THE
DATE OF REPORT:
o Date of report – dated as of
completion of essential audit
procedures; shows the date
when the auditor’s responsibility
for SE ends, thus, auditor not
responsible to perform audit
procedures to identify SE after
report date
o Material SE requiring adjustment
(after report before issuance) – FS
should be adjusted and report
should bear original date or
report; because condition
existed as of BS date and did not
actually occur in SP
o Material SE requiring disclosure –
should consider adequacy of
disclosure and date or report
either: (1) date of SE; (2) dual
date the report (*3/15 except for
note 9 as to which the date is
3/31)
▪ If (1), his responsibility for
SE is extended up to SE
date, thus, extend his SE
review procedure to
identify other SE which
may have occurred from
original date up to new
date
▪ If (2), responsibility for SE
occurring after original
date is limited only to the
specific event referred to
in the note
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STEP 2: LITIGATION, CLAIMS AND ASSESSMENT
(LCA)
• Management’s responsibility to adopt
policies and procedures that will identify,
evaluate and account for LCA as a basis
for the preparation of FS
• PSA 501 – auditor to carry out procedures
in order to become aware of any LCA
which may have a material effect on FS
• Management –primary source of
information about LCA; auditor
corroborates information obtained by
asking client to send letters of audit inquiry
to lawyers with whom the client has
consulted concerning these matters;
letter – prepared my management and
sent by auditor; request the lawyer to
communicate directly to auditor to assist
• Scope limitation: management or lawyer
refusal – qualified or disclaimer of opinion
• Lawyer is unable to estimate the
likelihood of an unfavourable outcome
(amount/range of potential loss on one or
more items) = Auditor should consider
adding an EMP to an unmodified report
to draw attention of the readers of FS
STEP 3: WRITTEN MANAGEMENT REPRESENTATION
(WR)
• PSA 580 – requires auditor to obtain
sufficient appropriate audit evidence
that the management (1) has
acknowledge that it has fulfilled its
responsibility for the P&P of FS; (2) has
approved the FS
• WR – important source of audit evidence;
If management modifies WR, it may alert
the auditor; If management does not
provide WR, auditor concludes that there
is sufficient doubt about integrity, thus,
disclaimer of opinion; If management
provides WR, it does not affect the
nature/extent of other audit evidence
• Written (not oral) – may prompt
management to consider the matter
more rigorously, thus enhancing quality of
evidence
• WR – complement the audit evidence.
Not a substitute for the performance of
audit procedures designed to obtain
• FORM AND CONTENT OF WR:
o R that management has fulfilled its
responsibility for P&P
o R that FS are P in accordance with
applicable financial reporting
framework
AUDITING THEORY 25
o R that management has provided
auditor with all relevant information
agreed in the terms of engagement
and all transactions have been
recorded and reflected in FS
o R that describes management’s
responsibilities as described in terms
o Other representations requires by
other PSAs
• BASIC ELEMENTS OF A WMR:
o Addressed to auditor
o Date shall be as near as practicable
to, but not after, the report date
o Shall be signed by the appropriate
level of management who has
primary responsibility for the FS
STEP 4: WRAP-UP PROCEDURES
• Procedures done at the end of the audit
that generally cannot be performed
before audit:
o Final analytical procedures
- Identifying unusual fluctuations
that were not previously
identified
- Assessing the validity of the
conclusions reached and
evaluating the overall FS
o Evaluation of going concern
- Management’s responsibility:
to make a specific assessment
of the entity’s ability to
continue; all available
information which should be at
least, but not limited to, 12
months from BS date
- Auditor’s responsibility: to
consider the appropriateness
of management use of the
going concern assumption (1)
consider whether there are
events or conditions which
may cast significant doubt;
(2)evaluate management’s
assessment
- E/C significant doubt : non-
compliance with terms of loan
and others, pending major
legal proceedings, changes in
legislation policy, net
liab/current liab, substantial
operating loss, inability to pay
creditors on due dates, loss of
major market/supplier
- After obtaining, carrying out
and considering, auditor
should determine whether the
questions raised regarding GC
AUDITING THEORY | TADR, CPA

have been satisfactorily
resolves; If reasonable
assurance that GC,
unmodified report; If uncertain
as to GC, report will depend on
whether this uncertainty is
adequately disclosed – if
adequately disclosed,
unmodified opinion with
emphasis of a matter
paragraph, if not adequately
disclosed, qualified/adverse
o Evaluating audit findings and
obtaining client’s approval for the
PAJE
- After evaluating the obtained
evidence, he should decide
whether to accept the FS as
fairly stated or to request
management to revise the
statements; if management
accepts PAJE, unmodified
report, if management refuses
PAJE, qualified/adverse
opinion
POST-AUDIT RESPONSIBILITIES: Events after FS have
been issued
• General rule: Auditor does not have any
responsibility to perform additional
procedure after FS issuance
• Except: He becomes aware that audit
report issued in connection with FS may
be inappropriate
• SUBSEQUENT DISCOVERY OF FACTS:
o No obligation to make inquiry unless
he becomes aware of a material fact
(1) which existed @ date of report; (2)
which, if known at that date, may
have caused the auditor to modify
the report
o Auditor should: (1) Discuss the matter
with appropriate level of
management and consider whether
the FS needs revision; (2) Advise
management to take necessary steps
to ensure the users of the previously
issued FS are informed
o If management makes appropriate
revisions & disclosures, auditor should
issue a new audit report that includes
an emphasis of a matter paragraph
to highlight the reason for such
revision
o If management refuses to revise /
inform, auditor should notify those
persons ultimately responsible for the
direction of the entity about such
AUDITING THEORY 26
refusal and about his intent to prevent
users from relying on the audit report
• SUBSEQUENT DISCOVERY OF OMITTED
PROCEDURE:
o Not require to review the WP once
audit report is issued, however, firm’s
internal inspection program/quality
control review may disclose the
omission of auditing procedures
considered necessary @ time of
audit. Thus, auditor should follow
these guidelines:
1. Assess the importance of the
omitted procedures to the
auditor’s ability to support his
opinion
- Review WP, discuss the
circumstances with
engagement personnel, re-
evaluate the scope
2. Undertake to apply the
omitted procedures or
corresponding alternative
procedures
- If he determines that omission
impairs his ability to support
opinion & he believes that
there are persons relying, he
should promptly apply the
omitted procedures or
corresponding AP
- If after applying omitted
procedures, he determines
that the FS are materially
misstated & audit report is
inappropriate, he should
discuss the matter with
management and take steps
to prevent future reliance on
report
ADDITIONAL:
• RL OBJECTIVES:
o Confirm oral rep by mgmt.
o Confirm mgmt. acceptance
o Reduce misunderstanding
• FORMS OF RL:
o Mgmt. prep, To auditor
o Aud prep, Signed mgmt.
o Minutes of meeting
• RL – kapag other appropriate evidence
cannot be obtained thus last option mo
na lang to
• Responsibility of auditor ends sa audit
report pero SE ay until release of FS
AUDITING THEORY | TADR, CPA
 AUDITING THEORY 27

MGMT LETTER MGMT RL

Made by auditor Made by client

To client To auditor
Signed by auditor Signed by CEO/CFO

• Material • Ackno. of resp

weakness in IC • Ackno. of major
w/ suggestions assertions and
• PAJEs approved estimates
by client • Unrestricted
• Problems access to
encountered evidence

AUDITING THEORY | TADR, CPA


THE AUDITOR’S REPORT ON FINANCIAL
STATEMENTS
• Financial reporting frameworks:
o general reporting framework like PFRS
and PFRs for SMEs
o special purpose framework like (1)
cash basis, modified cash basis, other
basis that has authoritative support
(2) financial reporting provisions
established by government
regulators such as SEC IC BSP (3)
financial reporting provisions of a
contract such as bond indenture,
loan agreement or project grant
• PSA 700: clear expression of auditor’s opinion
• Auditor must form a judgment:
o Accounting policies – consistent &
appropriate
o Accounting estimates – reasonable
o Information in FS – relevant, reliable,
comparable, understandable
o FS – disclosures
• THE UNMODIFIED REPORT:
o Clean opinion
o Based on audit evidence, FS are
presented fairly in all material aspects in
accordance with the applicable
framework
o If audit conducted in accordance with
PSAs, uniformity in the wording of audit
report is required in order to enhance the
credibility in international perspective and
to promote reader’s understanding
o ELEMENTS:
▪ Title (independent auditor)
▪ Addressee (not appropriate to address sa
members of management na responsible for
FS audited)
▪ Introductory paragraph (entity name, state
na audited na, title of each FS, summary of
significant accounting policies and
explanatory notes)
▪ Management’s responsibility for the FS (P&P of
FS, design implementation and maintenance
of IC; accounting policies and estimates ay
hindi explicit)
▪ Auditor’s responsibility (state na responsibility
ng auditor ang i-express opinion, with PSAs,
give general description of audit, believes
that evidence obtained is sufficient and
appropriate)
▪ Auditor’s opinion (presented fairly)
▪ Other reporting responsibilities
AUDITING THEORY 28
▪ Auditor’s signature (signed in the name of
audit firm and/or personal name)
▪ Date of report
▪ Auditor’s address (location in jurisdiction kung
nasaan ang office)
• MODIFICATION TO OPINION:
o MM – any departure from specific
requirements of standards will cause the FS
to contain MM; include description of MM
and quantification of financial efforts or
disclosure of omitted info
o Scope Limitation – circumstances beyond
entity control, circumstances relating to
nature or timing of auditor’s work,
limitations imposed by management;
unable to perform necessary audit
procedures or auditor unable to obtain
sufficient appropriate evidence; resigning
depends on the stage of completion –
substantially completed (complete to
possible extent, disclaim and explain
scope limitation in report prior to resigning)
o Should include a separate paragraph in
report that provides a description of
matter giving rise to the modification;
placed before opinion paragraph
• OPINION PARAGRAPH:
o Heading: “Qualified Opinion”, “Adverse
Opinion”, “Disclaimer of Opinion”
o If QO due to MM – “except for the
effects…”
o If QO due to SL – except for the possible
effects
o AO – “the FS do not present fairly”
o DOO – has not been able to obtain
sufficient appropriate evidence to provide
basis for audit opinion; does not express an
opinion
• AUDITOR’S RESPONSIBILITY:
o QO or AO – last sentence should be
modified stating na ang evidence ay
sufficient and appropriate to provide a
basis for auditor’s QO or AO
o DOO – “we were not able to obtain
sufficient appropriate audit evidence to
provide a basis for audit opinion”’
introductory paragraph should be
modified
• PIECEMEAL OPINION:
o Unmodified opinion expressed on one or
more components of FS while expressing
adverse or disclaimer; x PSA 705 kasi it
AUDITING THEORY | TADR, CPA

tends to contradict or overshadow the
DOO or AO on FS
• The following are adequately disclosed and
an unmodified opinion with emphasis of
matter paragraph is expressed:
o Uncertainties
o Going concern (if inappropriate,
alternative basis gagamitin which is yung
PFRS 5 NCA held for sale; if ipinipilit na gc
pa rin, adverse na)
o Early application of new accounting
standards (If pervasive effect sa fs)
o Major catastrophe (with disclosure pa)
o Subsequent discovery of notes
o Special purpose FS (just to emphasize na
iba ang framework na ginamit)
o Other matter (OMP)
▪ COMPARATIVE INFO REPORT (provides
users info necessary to identify trends and
changes affecting entity); frameworks for
comparatives namely:
• Comparative fs –amounts and
disclosures ng naunang period ay
kasama sa comparison ng fs current
but do not form part of current period
fs)
should issue a report in which the
comparative fs are specifically identified
kasi yung opinion ay expressed individually
on fs of each period
• Corresponding figures – amounts and
disclosures ng naunang period ay
included as part of current period fs
and intended to be read in relation to
amounts; not presented as complete fs
stand alone pero integral part siya ng
current fs)
If presented as corresponding figures ang
comparatives, he should issue a report that
refers only to FS of CP; comparatives are not
specifically identified kasi yung opinion ay nasa
CP FS as a whole
o Prior P FS audited by continuing auditor
: report should cover CP fs as well as PP
audited by firm; should not reissue PY
report but should update it to
determine if appropriate pa din;
updating involves – re expressing
AUDITING THEORY 29
opinion issued OR expressing opinion
different from the one issued
If iba ang updated report sa dati, report
should include Other Matter paragraph
stating (1) fact na updated ay iba nga sa
dati (2) date dati (3) type of opinion dati
(4) reason bakit nagbago
o Prior P FS audited by another auditor :
(1) predecessor may either residue
report on PP FS or (2) incoming auditor
will make reference to report of nauna
If (1), determine niya dapat if appropriate
pa din. But how? By comparing CP FS with
FS audited, by discussing with successor
auditor about any events that may affect
the FS of PP, by obtaining a letter of
representation from successor auditor
After above steps, decide na siya if
reissue report on PPFS and report shall
bear the original date and original
wording of such report
If (2), report nung bagong auditor on CP
FS should include Other Matter Paragraph
stating nan a-audit ng another auditor
ang PPFS, state din ang date of report
nung nauna, and yung type of opinion
dati and if modified, ilagay dahilan
o Prior P FS not audited : state dapat sa
CPFS na hindi audited ang
comparative fs and magperform ng
appropriate procedures to provide
reasonable assurance that PPFS do not
contain MM na makaka affect sa CPFS
If malaman na may MM, he should
request the mgmt. to revise PP figures.
If ayaw ng mgmt., express qualified or
adverse depending on its impact on
CPFS
Py: unqualified ------- no reference
Py: modif + unresolved---modify
opinion except “counterbalancing
figures”
Py: unqua but subseq discovered---
modify opinion
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Material inconsistency between fs and other
info
• OTHER INFORMATION ACCOMPANYING
AUDITED FS:
o Auditor’s responsibility regarding other
info: does not extend beyond the FS
identified in report; no responsibility to
corroborate other info pero he should
read other info to determine na hindi
materially inconsistent sa audited FS. May
material inconsistency if other info
contradicts the info in audited FS
o Effect of other info on auditor’s report: he
should determine if kelangan i-amend
yung audited FS. If necessary ang
amendment and entity refuses to make
amendment, he should issue QO or AO. If
necessary and entity refuses to amend
other info to eliminate material
inconsistency, consider muna yung: pag
add ng Other matter paragraph to
describe material inconsistency, yung pag
withhold ng auditor’s report, yung pag-
withdraw from engagement
o MM of fact: existing to if yung other info na
not related to matters appearing in FS ay
incorrectly stated. If he becomes aware,
he should discuss with mgmt. and request
them to consult a qualified 3rd party to
resolve. If may MM and mgmt refuses to
correct, he should notify the audit
committee about sa concern niya and if
necessary, obtain legal advice
▪ More than 1 framework
• If he determines na acceptable ang
frameworks, he may include an OMP in report
referring to the fact that another set of FS has
been prepared by same entity
▪ Limiting use of report
• State sa OMP na yung report ay intended
solely for intended users and should not be
distributed to or used by other parties
▪ Subsequent discovery of facts
AUDITING THEORY 30
• The addition of these paragraphs does not
negate the unmodified opinion and is not to
be construes as a modification to the opinion
or a sub for modified opinion; for
understandability
• AUDIT OF GROUP FS:
o When one or more audit firms participate
in an audit engagement, one firm has to
act as group auditor. GA is the auditor na
responsible for reporting on FS of entity
when those FS include info of one or more
components audited by another auditor
o He should consider if sufficient yung
participation niya to be able to act as the
group auditor who will express an opinion
on group fs; consideration involves
assessment of:
• Materiality of the portion of FS audited
• Auditor’s knowledge of the overall FS
• The importance of the components
audited by another auditor
o UNDERSTANDING THE COMPONENT
AUDITOR: if appropriate ka to serve as GA,
judgment as to whether to rely on the work
of other auditors or not should be made;
CONSIDER dapat (1) whether the
component auditor understands and will
comply with ethical requirements
particularly the independence
requirements (2) the component auditor’s
professional competence (3) whether
sufficient appropriate evidence about the
work of the CA can be obtained
o If GA not satisfied sa CA, the GA should
obtain sufficient evidence relating to the
financial info of the component by
auditing the fs of component
o REPORTING RESPONSIBILITY: the GA is
responsible for direction, supervision and
performance of group audit engagement
in compliance with professional standards
and legal requirements and whether the
report issued is appropriate; auditor’s
report on group FS shall not refer to a CA
AUDITING THEORY | TADR, CPA

• REPORTS ON SPECIAL PURPOSE FS:
o Auditor should always comply with PSAs
applicable and ethical requirements
1. AUDIT OF SINGLE FS OR SPECIFIC ELEMENT
OF A FINANCIAL STATEMENT
• Usual sa franchise agreements which require
payment of royalty based on revenue; since
this engagement does not result to an
expression of an opinion on fs taken as a
whole, the opinion should be confined only to
the specific account or element of a fs
identifies in report
• When accepting this type of engagement:
o Examine other related accounts to express
opinion on a specific component
o Materiality should be related to the
specific account rather than fs as a whole
and his examination will be more extensive
than if the same component were to be
audited in connection with a report on
entire fs
o Report on component of fs should not
accompany the fs of entity to avoid giving
users the impression that report related to
entire fs
• It may not be practicable for auditor to
comply with PSA requirements when he is not
also engaged to audit the complete set of fs;
hindi same level of understanding sa
environment and IC
• Reporting responsibility: if he undertakes
engagement to report on single fs or on
specific element of fs in conjunction with an
engagement to audit the complete set of fs,
he should express a separate opinion for each
engagement. If MODIFIED, shall determine
whether it is also necessary to modify the
opinion or include an emphasis of OMP. If AO
or DOO on complete set of fs, PSA does not
permit auditor to include in the same report
an unmodified opinion on single fs as this
would contradict the AO or DOO. BUT IF tingin
niya appropriate mag express ng unmodified
opinion, pwede lang if: (1) not prohibited by
law (2) report on specific element is not
published together with report on complete
set (30 specific element does not constitute a
major portion of entity’s complete set fs
2. REPORTING ON SUMMARY FINANCIAL
STATEMENTS
• He may be requested to report on summary fs
which highlight the SFP and results of ope.
May be accepted only if engaged rin si
AUDITING THEORY 31
auditor to express an audit opinion on fs from
which fs were derived.
• Since summary fs ay derives from complete
set, report on summary should express an
opinion about whether the summary fs are
consistent with the audited fs or whether the
summary fs are a fair summary of audited fs
• If report contains QO, emphasis of OMP –
report on summary should state the fact that
an AO or DOO was issued on audited FS and
it is thus inappropriate for him to express an
opinion on summary fs
• 2 POSSIBLE REASONS WHY WE USE UNIFORM
WORDING:
1. CREDIBILITY
2. FORM OF UNDERSTANDING
• If he is not independent, DOO!
- DOO (not a modified opinion kasi WALA
ka nga opinion)
- Hindi ka indendent so hindi ka qualified
mag engage sa audit thus wala ka
karapatan
• 2 TYPES OF MODIFIED REPORT:
1. Modified report with modification of
opinion
2. Modified report without modification of
opinion
• MULTIPLE UNCERTAINTIES:
- Disclaim mo kasi marami ka di alam
• 2 QUALIFICATIONS TO BE UNQUALIFIED:
1. Free from MM
2. No scope limitation
ADDITIONAL:
 EMP: matters DISCLOSED
 OMP: draw attention/ not properly
disclosed/ wants to restrict the distribution
of report
 Expresses QO/AO/DOO: include sa report
ang separate paragraph na “Basis for
Modification Paragraph”
 QO: MODIF DUE TO MM
o Descrip of MM
o Quantification of effects of mm
 QO: MODIF DUE TO INABILITY TO OBTAIN
o Descript of limitation
o Modify “Opinion” and “Auditor’s
responsibility”
 DOO
o Modify “Intro”, “A. Respon”,
“Opinion”
AUDITING THEORY | TADR, CPA
 AUDITING THEORY 32

IAC NOTES  DOO

o Auditor not independent
GOING CONCERN o Multiple uncertainty
o Refusal of mgmt. rep letter
• Standard unmodified opinion
o Scope limitation in examination
• Adverse = liquidation
of forecasted FS
• Unmodified w/material uncertainty related
CORRESPONDING
to GC = may material uncertainty na i-
disclose  Part ng current ang previous
• Mgmt. did not asses: COMPARATIVE
▪ QO due to limitation  Hiwalay ang previous
▪ DOO  PP AUDITED BY CONTINUING:
• W/material uncertainty, not disclosed: Update lang PP to det if appropriate…
▪ QO due to mm ~Re-express
▪ AO ~Express different (OMP)
AUDIT REPORT Iba sa dati
I. Title Old date
II. Addressee Old opinion
III. Body Why
A. OPINION  PP AUDITED BY ANOTHER:
B. BASIS FOR OPINION ~Predecessor re-issue
C. KEY AUDIT MATTER Det if appropriate by comparing
Listed entities; bawal if DOO CP with FS audited; discuss w/
D. MATL UNCERTAINTY GC successor – letter of
E. MATL INCONSISTENCY OF OTHER INFO P representation from successor
F. EMP ~Incoming will make reference (OMP)
G. OMP
H. MGMT RESPONSIBILITY  PP NOT AUDITED:
I. A’S RESPONSIBILITY Must state sa CP na di audited ang
J. REPORT ON OTHER LEGAL REGULATORY comparative fs; AP for reasonable
REQTS assurance na walang mm (if meron,
Ex: bank request mgmt. to revise pp figures pero
IV. if ayaw, matic na QO/AO na to
a. Name of partner
b. Signature of partner
c. Address of partner
d. CPA #, BOA accredit#, PTR#

DIFF TYPES OF MODIFIED OPINION

 QO due to matl misstatement (mm)

 QO due to matl scope limitation (msl)

 AO
o Pervasive to ah
o Inappropriate use of GC
o Unreasonable mgmt.
assumption in forecasted fs
o Summary fs inconsistent
w/complete fs
o Wrong use of framework

AUDITING THEORY | TADR, CPA