Audit Summary

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SUMMARY OF KEY POINTS
OVERVIEW OF FINANCIAL STATEMENTS AUDIT
* The audit enables the auditor to express an opinion whether financial statements are prepared, in all material respects, in accordance with and acceptable financial reporting framework. * Complete set of general purpose financial statements:

* 1. balance sheets
* 2. income statements
* 3. statement of changes in equity
* 4. cash flow statement
* 5. summary of significant accounting policies and other explanatory notes Ethical principles governing the auditor’s professional responsibilities 1. Independence
2. Integrity
3. Objectivity
4. Professional competence and due care
5. Confidentiality
6. Professional behavior
7. Technical standards
Three fundamental concepts of financial statement audit
* 1. materiality
* 2. audit risk
* 3. evidence
* The auditor’s judgment of materiality and audit risk establishes the type and amount of the audit work to be performed (referred to as scope of the audit). In establishing the scope of the audit, the auditor must make decisions about the nature, timing and extent of evidence to be gathered. PHILIPPINE STANDARDS OF AUDITING

* -which contain basics principles and essential procedures together with related guidance in the form of explanatory and other material. The auditor is also aware and considers Philippine Auditing Practice Statements (PAPS) applicable to the audit engagement, providing interpretative guidance and practical assistance to auditors in implementing PSAs. * * The auditor should plan and perform the audit with an attitude of professional skepticism recognizing that circumstances may exist which cause the financial statements to be materially misstated. Three important concepts underlie the assurances that the auditor makes to user of financial statements. 1. On the basis of evidence gathered, which include sampling. 2. The auditor provides reasonable assurance or an implicit risk that the overall audit conclusion is not correct. 3. The financial statements are free from material misstatements. An auditor cannot absolute reasonable assurance due to Inherent limitations results from: * Use of testing

* Inherent limitations of internal control
* The fact that most audit evidence is persuasive rather than conclusive. The auditor’s opinion is not an assurance as to the future viability of the entity nor the efficiency or effectiveness with which management has conducted the affairs of the entity. Management assertions are categorized into

a. Existence
b. Rights and obligations
c. Occurrence
d. Completeness
e. Valuation
f. Measurement
g. Presentation and disclosure
AUDIT RISK
* Is a function of the risk of material misstatement of the financial statements (risk of material misstatement and the risk that the auditor will not detect such misstatement (detection risk). * Audit risk= IR x CR x DR

DETECTION OF NONCOMPLIANCE
* - auditor should recognize that the noncompliance by the entity with laws and regulations may materially affect the financial statements thus misleading financial statement users, thus auditor must exercise professional skepticism. * Auditor’s interest relating to fraudulent acts arise from: * 1. fraudulent financial reporting- intentional misstatements including omissions of amounts or disclosures in financial statements to deceive financial statement users. * 2. misappropriation of assets- which involves the theft of an entity’s assets and is often perpetrated by employees in relatively small and immaterial amounts. The auditor’s ability to detect a fraud depends on such factors such as a. Skillfulness of the perpetrator

b. The frequency and extent of manipulation
c. The degree of collusion involved
d. The relative size of individual amounts manipulated
e. Seniority of those individuals involved
Fraud triangle-
1....
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