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Auditing and Assurance Principles Jose M. Ireneo Shirley C. Ireneo George R. James

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Auditing and Assurance Principles

Auditing and Assurance PrinciplesJose M. IreneoShirley C. IreneoGeorge R. JamesChapter 1: Fundamentals of Assurance ServicesSummary of Leaning Objectives

Appreciate why it is imperative for students to take up Auditing

The application of auditing concepts learned in this course will enable a student to sharpen logic and evidence gathering skill which are necessary in todays business world. The demand for audits will continue way into the distant future. As long as there is a need for reliable and fairly stated information, CPAs will continue to provide audits.Define assurance and assurance engagements and give examples.

AssuranceRefers to the auditors satisfaction as to the reliability of an assertion being made by one party for use by another party.

Assurance engagements Are three-party contracts in which assurers (such as a CPA) reports on the quality of information.

Include assertion-based services such as audits and review of financial statements, and direct reporting engagementsDiscuss the Five elements of assurance engagements

Every assurance engagements has five elements:A three party relationship involving a practitioner (CPA), a responsible party, and intended users

An appropriate subject matter

Suitable criteria

Sufficient appropriate evidence, and

A written assurance report in the form appropriate to a reasonable assurance engagement or a limited assrance engagement.Classify assurance engagements according to structure and according to level of assurance provided.

Assurance engagements may be classified according to level of assurance provided ( reasonable assurance and limited assurance) and according to structure (assertion-based and direct reporting). Discuss the meaning of assertion-based engagements and give examples.

Assertion-based assurance engagements(attest engagement)Is an engagement in which a practitioner is engaged to issue, or does issue, a written communication that expresses a conclusion about the reliability of a written assertion that is the responsibility of another party.

Examples include audits and reviews.Give examples of non-assurance engagements and describe each one briefly

Examples of common non-assurance services are agreed upon procedures; compilation of financial and other information; preparation of tax returns where no conclusion is expressed, and tax consulting; and management consulting and other advisory services.Chapter 2:Audits of Historical Financial InformationSummary of learning objectives

Define AuditingAuditingIs a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between these assertions and established criteria and communicating the results to interested users.

Distinguish between auditing and accounting

The main difference between accountants and auditors is the skill required in obtaining and evaluating evidence.

Distinguish between audits, assertion-based engagements and assurance services

The main difference between audits, assertions, and assurance lie in the scope of services.Enumerate and explain the different of audit engagements

Audits may be classified as follows:According to the nature of data or assertion being audited; financial statement audits, operational audits, and compliance audits.

According to the type of auditor performing the engagement: external audits, internal audits and government auditsKnow the objective and scope of a financial statement audit

Objective of an auditExpression of an opinion on the fairness of such financial statements

The auditor normally determines the scope of an audit with the requirements of legislation, regulations or relevant professional bodies. It should be organized to cover adequately all aspects of the entity as far as they are relevant to the financial statements being audited.Explain the meaning of information risk and enumerate the different means to reduce information risk

Information risk the risk that information is misstated or misleading To reduce information risk, management of business and the users of their financial statements may adopt any or all of the following approaches:

Allow users to verify informationUser shares information risk with managementHave the financial statements audited.Be familiar with the unqualified audit report

The unqualified audit report now consists of five paragraphs per PSA 700 (Revised)

Give examples of the limitations of an audit

An audit cannot provide absolute assurance that the subject matter(for example, the financial statements) is free of any fraud, or error.

An audit is not guarantee that the fraud will be prevented.

The following factors are reasons why an audit can provide a high ( but not absolute) level of assurance:The use of [selective] testingThe inherent limitations of any accounting and internal control systems

The fact that most audit evidence is persuasive rather than conclusiveThe use of judgementAppreciate how auditing has evolved through human history

The word audit is a Latin term associated with hearing or listening (hence the auditory nerve, auditorium, etc ).

Centuries ago, most people lack reading/writing skills


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