OBJECTIVES

Auditor: To obtain reasonable assurance about whether f/s as a whole is free from material misstatement, whether due to fraud or error

Enabling auditor to express an opinion whether f/s is prepared in all material respects in accordance with the framework.

To report on f/s and communicate findings

When reasonable assurance cannot be obtained + qualified opinion is insufficient:

Disclaim opinion or

Withdraw from engagement (where legally permitted)

SCOPE Establishes the independent auditors responsibilities when conducting an audit.

Sets out overall objectives of auditor

Explains the nature and scope of an audit

Also: explains scope, authority and structure of PSAs and includes requirements establishing the general responsibilities of an auditorBASIC REQUIREMENTS Ethical requirements relating to and audit of Financial Statements

Professional Skepticism

Professional Judgment

Sufficient Appropriate Evidence and Audit Risk

Conduct of an Audit in Accordance with the PSAs

Complying with PSAs Relevant to the Audit

Comply with all PSAs relevant to the audit

Have an understanding of the entire text of a PSA including its application and other explanatory material

Not represent compliance with PSAs unless complied with the requirements of this PSAs and all other relevant PSAsObjectives Stated in Individual PSAs

Use objectives stated in relevant PSAs to:

Determine whether additional audit procedures are necessary

Evaluate whether sufficient an appropriate evidence was obtained

Complying with Relevant Requirements

Auditor shall comply with each requirement of a PSA unless:

PSA is not relevant

It is conditional and the condition does not exist

*Necessary to depart = perform alternative audit procedures

EXPLANATORY

Audit of Financial Statements1. Scope of an Audit

1.1 Auditors opinion deals with whether the f/s are prepared in all material respects in accordance with the applicable financial reporting framework therefore, does not assure the future viability of the company not the efficiency or effectiveness with which management has conducted the affairs of the entity.2. Preparation of the Financial Statements

2.1 Management have responsibility:

a. For the preparation and presentation of the f/s in accordance with the applicable framework. This includes the design, implementation and maintenance of internal control.

b. To provide auditor with:

- All information

- Additional information

- Unrestricted access

2.2 As part of their responsibility for the preparation and presentation of the f/s, management are responsible for:

a. Identification of the applicable financial reporting framework

b. Preparation and presentation of the financial statements

c. Adequate description of that framework

2.3 Financial statements may be prepared in accordance with a financial reporting framework designed to meet:

a. General purpose

b. Special purpose2.4 Where conflict exists between financial reporting framework and the sources from which direction on its application may be obtained, or among the sources that encompass the financial reporting framework, the source with the highest authority prevails.

2.5 Some financial reporting frameworks are fair presentation frameworks, while others are compliance frameworks.

2.6 Auditor is required to obtain agreement from management that they acknowledge their responsibilities as a precondition for accepting the audit engagement.3. Form of the auditors opinion

Fair presentation framework presented fairly in all material respects

Compliance framework in accordance with the framework

Ethical Requirements Relating to an Audit of Financial Statements1. Fundamental principlesa) Integrity

b) Objectivity

c) Professional Competence and due care

d) Confidentiality

e) Professional Behavior2. Auditor must be independent of the entity subject to the audit:

a) Of mind

b) In appearance

Independence enhances:

a) Integrity

b) Objectivity

c) Professional Skepticism

Professional Skepticism1. Being alert to:

a) Audit evidence that contradicts other evidence

b) Information that brings into question the reliability of documents and materials to be used as evidence

c) Conditions that indicate possible fraud

d) Circumstances that suggest the need for additional audit procedures

2. Reduce risk of:

a) Overlooking unusual circumstances

b) Overgeneralizing when drawing conclusions

c) Using inappropriate assumptions in determining nature, timing and extent of procedures and evaluating results thereof

3. In cases of doubt, PSAs require that the auditor investigate further

4. Auditor cannot be expected disregard past experience of the honesty and integrity of the entitys management and those charged with governance

Professional Judgment 1. Training, knowledge and experience

2. Appropriately documented

3. Necessary in decisions about:

a) Materiality and audit risk

b) Nature, timing and extent of audit procedures

c) Evaluating whether sufficient appropriate evidence has been obtained

d) Evaluation of managements judgment in applying framework

e) Drawing of conclusions

Sufficient Appropriate Evidence and Audit Risk1. Sufficiency and Appropriateness of Audit Evidence

1.1 Audit evidence necessary to support auditors opinion and report

1.2 Sufficiency and appropriateness of audit evidence are interrelated

Obtaining more evidence may not compensate for its poor quality

1.3 Appropriateness = quality (relevance and reliability)

Sufficiency = quantity

2. Audit Risk

2.1 A function of the risks of material misstatements and detection risk

2.2 Assessment of risks is a matter of professional judgment rather than precise measurement

2.3 Audit risk does not include the risk that an auditor might express an opinion the f/s are materially misstated when they are not. It does not refer to business risks such as loss from litigation, adverse publicity, etc.

3. Risk of Material Misstatement

3.1 Overall financial Level relate pervasively to the f/s as a whole

Assertion Level assessed to determine nature, timing and extent of further audit procedures.

a) Inherent Risk higher for some assertions, related classes (complex calculations, estimates, technical development, disclosures)b) Control Risk design, implementation and maintenance of Internal Control (human errors, controls circumvented, inappropriate management override)3.2 Expressed: Quantitative terms

Non quantitative terms4. Detection Risk

4.1 Bears an inverse relationship to the assessed risks of material misstatements

4.2 Relates to the nature timing and extent of audit procedures

4.3 Inherent Limitations of an audit

a) The nature of financial reporting

b) The nature of audit procedures

c) Timeliness of financial reporting and the balance between benefit and cost Management may not give complete information

Fraud organized scheme designed to conceal it

Audit not official investigation into alleged wrongdoing

Difficulty, time and cost not a valid basis to omit audit procedure

Subsequent discovery of material misstatement does not indicate failure

Inherent limitations not justification for the auditor to be satisfied with less than persuasive audit evidence

Conduct of an Audit in Accordance with PSAs

1. Nature of the PSAs

1.1 PSAs do not override laws and regulations that govern and audit of financial statements. In the event that those laws and regulations differ from the PSAs, an audit conducted only in accordance with laws and regulations will not automatically comply with PSAs.

2. Considerations Specific to Audits in the Public Sector

3. Considerations Specific to Smaller Entities

4. Failure to Achieve Objective

4.1 Evaluate whether it prevents auditor from achieving overall objectives:

a) Modify opinion

b) Withdraw

Submitted by: Carol Sarah Bravo4A1OVERALL OBJECTIVES OF THE INDEPENDENT AUDITOR AND THE CONDUCT OF AN AUDIT IN ACCORDANCE WITH THE PHILIPPINE STANDARDS ON AUDITING

PSA 200