Session-1-auditing-and-assurance-principles.pptx

QUEZON CITY UNIVERSITY Accountancy Department

AUDITING AND ASSURANCE PRINCIPLES ACPAUD1 5:00 PM – 8:00 PM

AUDITING ACPAUD1 ACPAUD2

ACPAUD3 ACPAUD4 ACPAUD5

Auditing and Assurance Principles Auditing and Assurance: Concepts and Applications 1 Auditing and Assurance: Concepts and Applications 2 Auditing and Assurance: Specialized Industries Auditing in CIS Environment`

COVERAGE Auditing and Assurance Principles

This course is designed to expose students both to the demand for and the supply of the profession’s flagship service - financial statement audits - and to the nature of the value added assurance services which decision makers demand in the information age.

COVERAGE Auditing and - focus on financial statements audit. Assurance: - detailed approaches: independent examination of Concepts and cash, receivables, inventories, investments, prepaid Applications expenses, deferred charges, property, plant and 1 equipment, intangibles. Auditing and -detailed approaches; independent examination of Assurance: liabilities, owners’ equity, and revenue and expenses. Concepts and -It deals specifically with the application of auditing Applications standards, techniques, and procedures; 2 -internal control evaluation; -preparation of audit working papers; -introduction of computer application in auditing; -audit adjustments; and -audit reports pertaining to a medium-sized manufacturing or trading concern.

COVERAGE Auditing and Assurance: Specialized Industries

-detailed approaches: independent examination in specialized industries like banking, insurance and extractive industries. -It deals specifically with the application of auditing standards, techniques and procedures, - evaluation of internal control, - preparation of audit working papers with computer application, - audit adjustments pertaining to this type of industry.

Auditing in CIS Environment`

-discusses information technology (IT) -related risks, security and control mechanisms and techniques employed to address the risks, and the impact of computer use on the audit. - introduces computer assisted audit techniques (CAAT) & tools. -In this course, students gain an appreciation of the particular features and understanding of the risks involved in auditing in a CIS environment, the CIS controls they would expect to find in this particular area, how auditors use CAATS in this area. - the students gain hands-on experience in the use of computers in performing audits.

COURSE DESCRIPTION • This course is designed to expose students both to the demand for and the supply of the profession’s flagship service - financial statement audits - and to the nature of the value added assurance services which decision makers demand in the information age.

COURSE DESCRIPTION • TOPICS INCLUDE: – nature of the accounting profession, auditing and assurance fundamentals: – relationship among assurance, attestation, and audit services; – consulting vs. assurance services; – types of attestation services (agreed-upon procedures engagement and review engagement); – types of audits (internal, external or financial statement audits, government audit, and special purpose audits);

COURSE DESCRIPTION – relationship of accounting and auditing; – other services (operational audits, compliance audits, and non-attest services); – professional standards: assurance standards and attestation and auditing standards; – public sector regulation of accounting practice and legal liability; – the framework of financial statements auditing: – risk-based approach as audit methodology; – audit evaluation and planning, including the concept of risk and materiality;

COURSE DESCRIPTION – assessing internal controls, and tests of controls including internal controls in computer-based business systems; – performance of an audit: evidence collection, analysis, and substantive tests; – reporting: reports on assurance services, attestation services, and financial statement audits; and completing the audit including communications with board of directors and management concerning internal control weaknesses. – Also discussed in detail are the basic professional values and the Code of Ethics for Professional Accountants and SEC’s Code of Corporate Governance.

COURSE DESCRIPTION After successful completion of this course, the student is expected to: – Manifest understanding of the nature and value of financial statement audits and the other non-attest services – Be able to discuss the professional standards to be observed in audits and non-attest services

– Be able to describe the audit process and the risks involved in the audit – Evaluate the strengths and weaknesses of a client’s internal control system – Exhibit understanding of the basic professional values and the Code of Ethics for Professional Accountants and SEC’s Code of Corporate Governance

References • Auditing Theory, A Guide in Understanding the Philippine Standards of Auditing; 2018 Edition; by Salosagcol, Tiu, and Hermosilla • Auditing Theory; 2017 Edition; by Cabrera and Cabrera • PICPA Website - http://www.picpa.com.ph/

• Auditing Standards and Assurance Council Website http://www.aasc.org.ph/

Course Requirements 1. 2. 3. 4. 5. 6.

Class Participation Assignments Quizzes Long Tests Major Examinations Submission of Practice Set

Grading System Midterm Grade (MG) Midterm Exam Class Standing Quizzes 15% Recitation 10% Assignment 5% Seatwork 10% Output 20% Total

40%

60% 100%

Pre-Final Grade (PFG) Final Exam Class Standing Quizzes 15% Recitation 10% Assignment 5% Seatwork 10% Output 20% Total

Final Grade (FG)= (MG + PFG) / 2

40%

60% 100%

Grading System GRADE

POINT Equivalent

REMARKS

GRADE

POINT Equivalent

REMARKS

98-100

1.00

Excellent

77-79

2.75

Satisfactory

95-97

1.25

Excellent

75-76

3.00

Passed

92-94

1.50

Very Good

Below 75

5.00

Fail

89-91

1.75

Very Good

INC

Incomplete

86-88

2.00

Good

OD

Officially Dropped

83-85

2.25

Good

UD

Unofficially Dropped

80-82

2.50

Satisfactory

Expectations from Students 1. The student is responsible to come to each class prepared. 2. The student is expected to take all examinations on the date scheduled. 3. The student should read the assigned chapter/s and solve exercises/problems prior to class. 4. The student is expected to attended each class and participate actively in the discussions. 5. The student is expected to do the seatwork/exercises that will be assigned by the instructor inside the classroom.

• All students are expected to be honest. Cheating, lying, and other forms of unethical behavior will not be tolerated. Consistent with the University rules and regulations, the following are considered major offenses and will be subject to disciplinary action:

• Cheating during examination, quiz or test; plagiarism – Unauthorized possession of notes or materials relative to examination, whether the students use of them or not – Copying from of allowing another to copy from one's examination paper, report, term paper, etc. – Having somebody else take the examination in place of another student. Both students shall be liable – Talking to another student without permission during the examination

– Submitting as one's work, assigned report, term paper, case analysis, reaction paper, etc, copied from others

Policy on Absences 1.

A student is expected to attend all his/her classes promptly and regularly from the first day of classes onwards.

2.

A student will be marked late if s/he arrived within the 15-minutes grace period.

3.

A student will be considered absent if s/he arrives beyond the grace period

4.

Three instances of tardiness will be equivalent to one (1) absence

5.

The maximum number of absences is 20% of the total hours allotted for a subject in a semester or equivalent to 7 absences. A student who incurs more than 7 absences shall be considered Unofficially Dropped.

BSA Retention Policy • A student admitted into the program should have no failing grade in any of the subjects. • On the 2nd year, must have no failing grade in any of his subjects and have no grade lower than 2.25 in any major subjects. Also, he/she must pass the qualifying examination at the end of the 2nd Year, to move to the 3rd Year level.

• On the 3rd year, must have no failing grade in any subject and must have no grade lower than 2.25 in any accounting education subjects.

SESSION 1

AUDITING AND ASSURANCE PRINCIPLES

Auditor • Auditor—The auditor is the person with final responsibility for the audit. • This term is also used to refer to an audit firm. (For ease of reference, the term “auditor” is used throughout the PSAs when describing both auditing and related services which may be performed. Such reference is not intended to imply that a person performing related services need necessarily be the auditor of the entity’s financial statements.) Source: Philippine Standards of Auditing

AUDITING • AUDIT—The objective of an audit of financial statements is to enable the auditor to express an opinion whether the financial statements are prepared, in all material respects, in accordance with an identified financial reporting framework. • The phrase used to express the auditor’s opinion is “present fairly, in all material respects.

• A similar objective applies to the audit of financial or other information prepared in accordance with appropriate criteria. Source: Philippine Standards of Auditing

What is Assurance • Assurance refers to the auditor's satisfaction as to the reliability of an assertion being made by one party for use by another party. (PSA 120) • Reasonable assurance—In an audit engagement, the auditor provides a high, but not absolute, level of assurance, expressed positively in the audit report as reasonable assurance, that the information subject to audit is free of material misstatement. Source: Philippine Standards of Auditing

Auditing and Assurance Standards Council • The AASC was created by the Professional Regulation Commission upon the recommendation of the Board of Accountancy (BOA) to assist the BOA in the establishment and promulgation of auditing standards in the Philippines. • The AASC replaced the Auditing Standards and Practices Council (ASPC) which was established by the Philippine Institute of Certified Public Accountants and the Association of 3 CPAs in Public Practice and previously set generally accepted auditing standards in the Philippines, also based on International Standards and Practice Statements.

Auditing and Assurance Standards Council • The AASC has 15 regular members coming from the following: – – – – – –

Chairman Board of Accountancy Securities and Exchange Commission Commission on Audit Association of CPAs in Public Practice Philippine Institute of CPAs: • Public Practice • Commerce and Industry • Academe/Education • Government Total

No. of Members 1 1 1 1 1 7 1 1 1 15

Auditing and Assurance Standards Council • The AASC is the body authorized to establish and promulgate generally accepted auditing standards (GAAS) in the Philippines. • At present, AASC pronouncements are mainly adopted from the standards and practice statements issued by the International Auditing and Assurance Standards Board (IAASB). Country-specific standards and practice statements are developed to address specific auditing issues not covered by the IAASB pronouncements. • The main objective of the AASC in adopting IAASB standards and practice statements is to attain uniformity of the local GAAS with the IAASB pronouncements. This harmonization is expected to enhance the reliability and acceptability of audited financial statements of Philippine companies. The AASC's objectives, organization and working procedures are set out in the Preface to Philippine Standards on Quality Control, Auditing, Review, Other Assurance and Related Services. • The AASC replaced the Auditing Standards and Practices Council (ASPC).

The Big 5 Accounting and Auditing Firms in the Philippines 1. SGV & Co. (SyCip Gorres Velayo & Co.) (affiliate of Ernst & Young) 2. Manabat Delgado Amper & Co. (formerly C.L. Manabat & Co.) (affiliate of Deloitte Touche Tohmatsu (DTT))

3. Isla Lipana & Co. (formerly Joaquin Cunanan & Co.) (affiliate of PricewaterhouseCoopers) 4. Manabat Sanagustin & Co. (formerly Laya Mananghaya & Co.) (affiliate of KPMG) 5. BDO Alba Romeo & Co. (Philippine Member Firm of BDO International) Note: Punongbayan & Araullo is another major accounting company.

The World's Big 4 Accounting and Auditing Firms in Order of Revenue 1. 2. 3. 4.

Deloitte Touche Tohmatsu PricewaterhouseCoopers Ernst & Young KPMG

• The Big Four accounting and auditing firms are the world’s most credible accounting companies, providing audit, tax, bookkeeping and all accounting services for private and public corporations globally. They have networks and affiliates in China, Jordan, Egypt, Indonesia, Israel, Japan, Singapore, Malaysia, Korea, Brazil, Saudi Arabia, India, Turkey, Pakistan, Philippines, Sri Lanka, Mexico, Argentina, Bangladesh, and other countries. • Once upon a time, the Big Four giant accountancy firms group were known as the Big Eight. Then, through a series of mergers, the group became the Big Five. The Big Five became the Big Four in 2002 when the ENRON/Arthur Andersen scandal shook the accounting world.

SOURCE: https://toughnickel.com/industries/Top-5-Accounting-Firms-in-the-Philippines-Best-Accounting-Firms

PSA 120 FRAMEWORK OF PHILIPPINE STANDARDS ON AUDITING

• The AASC has been authorized to issue Philippine Standards on Auditing (PSAs). The purpose of this document is to describe the framework within which PSAs are issued in relation to the services which may be performed by auditors. • For ease of reference, except where indicated, the term “auditor” is used throughout the PSAs when describing both auditing and related services which may be performed. Such reference is not intended to imply that a person performing related services need be the auditor of the entity's financial statements.

Financial Reporting Framework • Financial statements are ordinarily prepared and presented annually and are directed toward the common information needs of a wide range of users. • Many of those users rely on the financial statements as their major source of information because they do not have the power to obtain additional information to meet their specific information needs.

• Thus, financial statements need to be prepared in accordance with one, or a combination of: a) accounting standards generally accepted in the Philippines; b) International Accounting Standards; and c) another authoritative and comprehensive financial reporting framework which has been designed for use in financial reporting and is identified in the financial statements.

Framework for Auditing and Related Services • This Framework distinguishes audits from related services. Related services comprise reviews, agreedupon procedures and compilations. • As illustrated in the diagram below, audits and reviews are designed to enable the auditor to provide high and moderate levels of assurance respectively, such terms being used to indicate their comparative ranking. Engagements to undertake agreed-upon procedures and compilations are not intended to enable the auditor to express assurance.

LEVELS OF ASSURANCE • Assurance refers to the auditor's satisfaction as to the reliability of an assertion being made by one party for use by another party. • To provide such assurance, the auditor assesses the evidence collected as a result of procedures conducted and expresses a conclusion. • The degree of satisfaction achieved and, therefore, the level of assurance which may be provided is determined by the procedures performed and their results.

• In an audit engagement, the auditor provides a high, but not absolute, level of assurance that the information subject to audit is free of material misstatement. This is expressed positively in the audit report as reasonable assurance.

• In a review engagement, the auditor provides a moderate level of assurance that the information subject to review is free of material misstatement. This is expressed in the form of negative assurance.

• For agreed-upon procedures, as the auditor simply provides a report of the factual findings, no assurance is expressed. Instead, users of the report assess for themselves the procedures and findings reported by the auditor and draw their own conclusions from the auditor's work. • In a compilation engagement, although the users of the compiled information derive some benefit from the accountant's involvement, no assurance is expressed in the report.

AUDIT • The objective of an audit of financial statements is to enable the auditor to express an opinion whether the financial statements are prepared, in all material respects, in accordance with an identified financial reporting framework. The phrase used to express the auditor's opinion is “present fairly, in all material respects.” A similar objective applies to the audit of financial or other information prepared in accordance with appropriate criteria.

• In forming the audit opinion, the auditor obtains sufficient appropriate audit evidence to be able to draw conclusions on which to base that opinion.

Audit • The auditor's opinion enhances the credibility of financial statements by providing a high, but not absolute, level of assurance. – Absolute assurance in auditing is not attainable as a result of such factors as the need for judgment, the use of testing, the inherent limitations of any accounting and internal control systems and the fact that most of the evidence available to the auditor is persuasive, rather than conclusive, in nature.

RELATED SERVICES 1. Reviews 2. Agreed-upon Procedures 3. Compilations

1) Reviews • The objective of a review of financial statements is to enable an auditor is to state whether, on the basis of procedures which do not provide all the evidence that would be required in an audit, anything has come to the auditor's attention that causes the auditor to believe that the financial statements are not prepared, in all material respects, in accordance with an identified financial reporting framework. – A similar objective applies to the review of financial or other information prepared in accordance with appropriate criteria.

1) Reviews • A review comprises inquiry and analytical procedures which are designed to review the reliability of an assertion that is the responsibility of one party for use by another party. – While a review involves the application of audit skills and techniques and the gathering of evidence, it does not ordinarily involve an assessment of accounting and internal control systems, tests of records and of responses to inquiries by obtaining corroborating evidence through inspection, observation, confirmation and computation, which are procedures ordinarily performed during an audit.

1) Reviews • Although the auditor attempts to become aware of all significant matters, the procedures of a review make the achievement of this objective less likely than in an audit engagement, thus the level of assurance provided in a review report is correspondingly less than that given in an audit report.

2) Agreed-upon Procedures • In an engagement to perform agreed-upon procedures, an auditor3 is engaged to carry out those procedures of an audit nature to which the auditor and the entity and any appropriate third parties have agreed and to report on factual findings. – The recipients of the report must form their own conclusions from the report by the auditor. The report is restricted to those parties that have agreed to the procedures to be performed since others, unaware of the reasons for the procedures, may misinterpret the results.

3) Compilations • In a compilation engagement, the accountant is engaged to use accounting expertise as opposed to auditing expertise to collect, classify and summarize financial information. – This ordinarily entails reducing detailed data to a manageable and understandable form without a requirement to test the assertions underlying that information. – The procedures employed are not designed and do not enable the accountant to express any assurance on the financial information. – However, users of the compiled financial information derive some benefit as a result of the accountant's involvement because the service has been performed with due professional skill and care.

Auditor Association with Financial Information • An auditor is associated with financial information when the auditor attaches a report to that information or consents to the use of the auditor's name in a professional connection. • If the auditor is not associated in this manner, third parties can assume no responsibility of the auditor.

Auditor Association with Financial Information • If the auditor learns that an entity is inappropriately using the auditor's name in association with financial information, the auditor would require management to cease doing so and consider what further steps, if any, need to be taken, such as informing any known third party users of the information of the inappropriate use of the auditor's name in connection with the information.

• The auditor may also believe it necessary to take other action, for example, to seek legal advice.

Read and Study • Republic Act No. 9298 - ..\Auditing Theory\Accountancy Act.pdf • Code of Ethics -..\Auditing Theory\Code of Ethics.pdf

Read and Study • Glossary of Terms ..\Auditing Theory\PSA\Glossary-ofTerms-December-2002.pdf • Philippine Framework for Assurance Engagement ..\Auditing Theory\PSA\Philippine-Framework-forAssurance-Engagements.pdf • Preface to the International Standards and Philippine Standards on Quality Control, Auditing, Review, Other Assurance And Related Services ..\Auditing Theory\PSA\Preface-to-International-Standards-andPhilippine-Standards.pdf

SEE YOU NEXT WEEK

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