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Auditing and Assurance Principles 1Overview of Audit Module 001 Overview of Audit LEARNING OBJECTIVES (LO) After completing this module, the student is expected to: 1.Define what is auditing 2.Enumerate the different types of audits and auditors 3.Understand the advantages of audit and inherent limitations of audit Course Module
Auditing and Assurance Principles 2Overview of Audit What is Auditing? As defined by the Philippine Standards on Auditing (PSA), auditing is to enable the auditor toexpress an opinion whether the financial statements are prepared, in all material respects, inaccordance with an identified financial reporting framework. Another definition of auditing as defined by the American Accounting Association (AAA), it is asystematic process of objectively obtaining and evaluating evidence regarding assertions abouteconomic actions and events to ascertain the degree of correspondence between these assertionsand established criteria and communicating results to interested users. The above definitions convey the following notions with regards to auditing: •Auditing is a systematic process An audit involves series of steps and procedures which are carried out inlogical order. •Objectively obtaining and evaluating evidence Objectively obtaining evidence means that the one conducting the auditshould exercise an impartial attitude, meaning to say, free from bias andconflicts of interests. Evaluating evidence comes in the form of which the gathered informationmust be corroborated. Such gathered information may come from thedocuments of the company, interview with management and the like,of whichcalls for the need of validation and verification process. •Regarding assertions about economic actions and events Course Module LO 1
Auditing and Assurance Principles 3Overview of Audit Assertions are the representations of management that explains theeconomic actions and events that happen during the audit period.Accordingly, the role of an auditor is to validate such assertions ormanagement representations. •To ascertain the degree of correspondence between these assertions and establishedcriteria In conducting the audit, auditors use standards in order to ascertain theassertions made by the management. Established criteria are usually the standards that are being used to validateassertions or management representations. So, taking into an instance the audit of financial statements, the auditor willperform audit procedures in order to ascertain that the financial statementsprepared by the management(this is the assertions) conforms with theGenerally Accepted Accounting Principles (GAAP)(this is the establishedcriteria). •Communicating results to interested users This involves the process of communicating the audit findings to users offinancial statements by way of issuing the what we called, “auditor’s opinion”.