OVERVIEW OF

FINANCIAL
STATEMENTS AUDIT
 The objective of an audit of financial
statements is to enable the auditor to
express an opinion whether the financial
Objectives of statements are prepared, in all material
respects, in accordance with an
Financial identified financial reporting framework.
The phrase used to express the auditor’s
Statement opinion is “present fairly, in all material
Audit respects”. A similar objective applies to
the audit of financial or other
information prepared in accordance with
appropriate criteria.
General Principles of
an Audit
The general principles governing and audit of financial
statements include
• The auditor should comply with relevant ethical
requirements relating to audit engagements.
• The auditor should conduct an audit in accordance
with Philippine Standards on Auditing.
• The auditor should plan and perform the audit with
an attitude of professional skepticism recognizing
that circumstances may exist that cause the
financial statements to be materially misstated.
• The auditor should plan and perform the audit to
reduce audit risk to an acceptably low level that is
consistent with the objective of an audit.
 When the auditor renders an opinion on
the audited financial statements, three
important concepts underlie the
assurances that the auditor makes to
Assurances users of the financial statements:
• On the basis of evidence gathered
provided by (which include sampling)
auditor • The auditor provides reasonable
assurance (an implicit risk that the
overall audit conclusion is not correct)
• That the financial statements are free
from material misstatements.
Inherent limitations
of the audit

There are inherent limitations in an audit that

affect the auditor’s ability to detect material
misstatements as a result of the use of
testing, the inherent limitations of accounting
and internal control systems such as collusion,
and the fact that most audit evidence is
persuasive rather than conclusive.
 The overall objective of the audit of the
financial statements of an entity is to
gather and evaluate audit evidence of
Overview of the sufficient quantity and appropriate
audit function quality in order to form, and
communicate to the users of the
for a financial financial statements, an opinion on the
reliability of the assertions of
statement audit management inherent in those financial
statements for the purpose of adding
credibility to those assertions.
Auditing and Management Assertions

Generally, there
are two categories
of management
assertions:

Financial
Internal control
statements
assertions
assertions
Management Assertions

Audit Objectives

Audit Procedures

Audit Evidence

Audit Reports
Three A financial statement audit requires an
understanding of three fundamental
fundamental concepts:
concepts in • Materiality
conducting an • Audit risk
audit • Evidence
 In planning and performing the audit to
reduce audit risk to an acceptably low
level, the auditor should consider the
Auditor’s risks of material misstatements in the
financial statements due to fraud.
responsibility for Likewise, when designing and performing
audit procedures and in evaluation and
Errors, Fraud reporting the results thereof, the auditor
and Illegal acts should recognize that noncompliance by
the entity with laws and regulations
may materially affect the financial
statements.
Approaches to • Top-down approach
• Balance sheet approach
Auditing
• Transaction cycle approach
Financial • Systems approach
Statements • Substantive approach
• Risk-based audit approach
• Financial risk-analysis
approach
• Strategic business risk
approach
• Continuous audit approach
• In-depth approach
• Analytical approach