Auditing Theory Notes ❖ Practitioner – person who provides the assurance to the intended users about a

subject matter that is the responsibility of another party. (Professional Accountant)

Assurance Engagements ❖ Responsible party – person/s who are responsible for the subject matter of the
• PSAE 3000/ISAE 3000 assurance engagement.
- Assurance engagements are intended to enhance the credibility of information about a subject ❖ Intended users – are the person/s whom the practitioner prepares the assurance
matter by evaluating whether the subject matter conforms in all material aspects with suitable report.
criteria. Appropriate subject matter

Objective of an Assurance Engagement Characteristics

- For professional accountant to evaluate or measure subject matter that is responsibility of 1. Identifiable
another party against identified suitable criteria and to express a conclusion that provides the 2. Capable of consistent evaluation or measurement against identified criteria
intended user with a level of assurance about that subject matter. 3. Capable of being subjected to procedures for gathering evidence to support a
conclusion
Levels of Assurance E.g.
• Absolute 1. Data (Financial & non-financial information) 2. Systems & Processes
• Reasonable/ High Level 3. Behavior (entity’s compliance with laws and regulations)
• Limited/ Moderate level 4. Physical characteristics (capacity of a plant facility)

Absolute – cannot provide 100% assurance. Not realistic stating that there is no risk at all. Suitable criteria
❖ Criteria are standards or benchmark used to evaluate or measure the subject.
Reasonable – aims to reduce the assurance engagement risk ❖ E.g. law, regulations, standards & systems ❖ Suitable criteria exhibit the ff.
characteristics: Relevance, completeness, reliability, neutrality & understandability
to an acceptable low level. (Positive form of conclusion)

Two groups/types of criteria

Limited – aims to reduce the assurance engagement risk to a level that is acceptable in the
circumstance of engagement but where that risk is greater for a reasonable assurance 1. Established criteria
engagement on basis for a negative form of expression of the practitioner’s conclusion. 2. Specifically developed criteria

Assurance Services/Engagements • Criteria should be clearly available to and understood by the intended users.

Elements of Assurance Engagements

1. A three party relationship Sufficient appropriate evidence
2. Appropriate subject matter
3. Suitable criteria 1. Professional skepticism – recognizing that circumstance may exist that cause the
4. Sufficient appropriate evidence subject matter information to be materially misstated.
5. A written assurance report 2. Sufficiency & Appropriateness of evidence
– Quantity and quality
3. Reliability of evidence
4. Cost-benefit Consideration
5. Materiality
6. Assurance Engagement risk
Three party relationship

Reliability of evidence
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• Consistent/corroborating evidences
• From independent resources Standards of Assurance Services
• When internal controls are effective ❖ PSAE/ISAE – assurance engagements
• Obtained directly by the practitioner ❖ PSRS/ISRS – non-assurance engagements
• When obtained in documentary form or recorded form (tangible)
• Original vs. photocopied/faxed Other assurance engagements
• Assurance services on IT
Cost-benefit Consideration • CPA web trust service
• Cost vs. benefit of obtaining the evidences • Information system reliability service
• Look for alternative • Assurance service on other types
• If no alternative, difficult/costly to obtain evidence does not automatically justify the
commission of evidence-gathering procedure. Assurance vs. Attestation vs. Audit

Assurance – refers to the auditor’s satisfaction as to the reliability of an assertion being made by
Materiality one party.
• Practitioner’s judgement as to what/how much is material
• Nature, timing extent of procedure Attestation – an accountant expresses an opinion on the reasonableness of a particular assertion
• Factors that might influence the intended users or set of assertions. (E.g. covered by attestation engagement includes financial forecasts and
compliance with laws or procedures)
Assurance Engagement risk
- Risk that the practitioner expresses an inappropriate conclusion when the subject matter Audit – an accountant expresses an opinion as to whether or not a set of financial statement is
information is materially misstated. presented fairly with respect to the GAAP (or IFRS etc).

A written assurance report Assurance

❖ The practitioner provides a written report containing a conclusion that conveys the 1. Direct Reporting
assurance obtained about the subject matter information. 2. Attestation
a) Audit (PSA/ISA)
Types of written report b) Review (PSRE/ISRE)
• Short term & long form report
Financial Reporting Framework
Types of conclusions • PFRS/IFRS
• PFRS for SMEs/IFRS for SMEs
• Unqualified/unmodified/clean conclusion
• Pre-need Rule 31 (IC)
• Qualified
• CDA Framework
• Adverse
• BSP/MORB
• Disclaimer of conclusion
• PPSAs/IPSAS
• US GAAP/IFAS
Limitations of Assurance Engagements
1. Use of selective testing
Financial Statements
2. Inherent limitations of internal control
3. Evidence obtained are persuasive rather than conclusive
 Responsibility of the management and those charged with governance.
4. Practitioner’s use of judgement in gathering and evaluating evidence
5. Characteristics of the subject matter
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 Prepared by the entity/management based on accounting estimates in certain • Material based on qualitative and quantitative considerations
circumstances. • Qualitative consideration (e.g. illegal payment/activities, potential errors in
 Assertion/representation of the company s to the results of operation and financial more
condition of the company. liquid assets)

Basic concepts underlying a FS Audit (PSA 200) 6. Audit Risk

• The risk that the FS may contain material misstatements that the auditor may
1. Auditor Independence detect in the conduct of auditor leading to expression inappropriate audit
• Compliance with ethical requirements (code of ethics) opinion
• Independence in mind and appearance • Risk cannot be eliminated inherent limitations of audit use of sampling, time
2. Professional Skepticism constraints of audit
• Skeptic – doubt/disbelief
• Risk cannot be eliminated but can be reduced Audit Risk Model
• Does not easily believe but in a professional manner as a part of the audit Audit Risk = Inherent Risk x Control Risk x Detection Risk
procedure
Audit Risk – risk that the auditor gives an inappropriate audit opinion on the FS that is materially
3. Conduct and Scopes of an Audit in accordance with misstated
GAAS/PSA
• Should comply with PSAs unless relevant Inherent Risk – acceptability of an account balance or class of transactions to a material
• Appropriate procedures based on PSAs and auditors judgement (inquiry, misstatement assuring that there are no related internal controls.
inspection, observation, performance, confirmation,
recalculation) Detection Risk – risk that an auditor’s substantive procedures will not detect material
misstatements in an account balance or class of transactions.
4. Audit evidence and PS assertions
• Audit Evidence – information used by the auditor in arriving the conclusion 7. Professional Judgement
on which the audit opinion is based. • Application of relevant knowledge and experience, within the context of
e.g. accounting records, resource documents, journals, ledger, worksheets, audition, accounting and ethical standards in reaching a decision about the
contracts courses of action appropriate in the circumstance of the audit engagement.

• Management assertions – summarized in FS 8. Inherent Limitations of an Audit

e.g. completeness, existence, occurrence, valuation and allowance, • What are inherent limitations
presentation and - Use of sampling
disclosure - Time constraint
- Misstatements due to fraud error
5. Audit Materiality - Collusion
• Concept is relative
• Materiality is applied by the audit all throughout the audit process
• Misstatements, including omissions, are considered material if they,
individually or aggregate, could reasonably be expected to influence
• Materiality is matter of professional judgement
• The lower the materiality, the more audit evidences are required.
• Provides a threshold or cut-off point

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- Background investigation (making inquiries) - Communicate with predecessor auditor (w/
client’s permission)
Audit Process -obtain info about the client that will be useful in determining whether the engagement will be
1. Accepting an engagement (preliminary engagement) accepted
2. Audit planning -inquiries: -reasons for the change of auditor
3. *Considering internal control
– control risk -any disagreements
4. *Performing substantive st te
– detention risk -focus on the integrity of the client’s mgt.
5. Completing the audit Engagement Letter
6. Issuing a report • Written contract
7. Post-audit responsibi
lity (debriefing) • Objective of the audit
• Management responsibility
*consumelarger timeof the audit process • Scope
• Forms
• Facts of the limitation
• Client’s responsibility
1. Accepting an Engagement (PSA 300) • Billings arrangement
• Arrangement about investment of others
New engagement
Considerations to Auditing Financial Statements FS Assertions Categories:
Accept ▪ Classes of transactions and events - Occurrence, completeness, accuracy, cut-off,
Engagement letter classification
▪ Account balance at period end
Decision Continuance of engagement - existence, completeness, rights & obligations, allocation
▪ Presentation of disclosures
Reject - occurrence and rights and obligations
Classification and understandability
Considerations: Accuracy and valuation
1. Competence Completeness
2. Independence
3. Ability to serve 2. Audit Planning
4. Integrity of perspective client’s management  Obtaining more detailed knowledge about client’s business and industry
 Preliminary assessment of risk and materiality
Competence
- Skills, education, training, experience 3. Considering internal control
 Directly affects the reliability of the FS
Independence  Obtains an understanding of the entity’s internal control systems and assessing the
- Threats to audit team and independence, objectivity, establish safeguard control risk performance of test of control to obtain evidence that internal control is
functioning effectively.
Ability to Serve
4. Performing Substantive Test
- Enough qualified personnel to perform the audit
 To determine whether FS are presented fairly in accordance to PFRS
- Sufficient direction, supervision and review of work
 Examination of the documents and evidence supporting the amounts and disclosures
in the FS.
Integrity of Management
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 Highly dependent on the results of the auditor’s consideration of internal control. • Determine whether there is any obligation, either contractual or otherwise, to report
the circumstances to other parties (those charged with governance), owners or
5. Completing the Audit regulators
 Review of subsequent events and contingencies
 Assessing going concern analytical procedures
 Related party transactions Nature and Scope of Audit Planning
 PSA 300 establishes guidance and standards applicable to audit planning
6. Issuing a Report  Audit planning involves the establishment of the overall audit strategy for the
 Auditor forms a conclusion (in the form of opinion) based on the audit evidence engagement and developing an audit plan, in order to reduce audit risk to an
gathered through an audit report. acceptable level.
 Involves audit partner and other key members of the engagement team
7. Post-audit Responsibilities  Nature and extent of planning activities vary according to the size and complexity of
 Considering the events after the audit analysis of the activities within the audit auction the entity, auditor’s previous experience and changes in circumstances during the
plans and recommendations. audit. (PSA 300, par. A2)
 It is not a discrete phase of an audit but rather a continual and iterative process (PSA
Engagement Letter (composition) 300 par A3)
 Care must be taken in discussing overall audit strategy and audit plan to client’s
• Unavoidable risk that material misstatements may remain undiscovered due to
management as this may compromise the effectiveness of audit (too predictable)
inherent limitations of the audit.
 Although the auditor may decide to discuss the elements of planning to entity’s
• Responsibility of the client to allow the auditor to have unrestricted access to records,
management in order to coordinate some of the planning works with the entity’s
documentations and information.
personnel, THE OVER-ALL AUDIT
• Billing arrangements
• Expectations of receiving management representation letter STRATEGY AND AUDIT PLAN REMAIN THE AUDITOR’S
• Arrangements concerning the involvement of others (experts, other auditors, internal RESPONSIBILITY (PSA300 par A4)
auditors and other client personnel) Difference between Audit Strategy and Audit Plan
• Request for the client to confirm the terms of the engagement.  Audit strategy is the general approach to audit. It determines the scope and direction
of the audit and its development.
Factors to Revise the Terms of Audit Engagement  Audit plan shows the detailed steps to be followed in implementing the audit strategy.
• Any indication that the entity misunderstands the objective and scope of audit.  Audit program shows the procedures to be done and the staff/member assigned.
• Any revised or special terms of the audit engagement
• A recent change of senior management
• A significant change in ownership
• A significant change in nature or size of the entity’s business Activities Involved during the Planning Process
1. Understanding of the client and its environment
• A change in legal or regulatory requirements
2. Assessing possibility of non-compliance
• A change in the financial reporting framework being adopted
3. Establishing materiality and assessing risk
• A change in other reporting requirements
4. Identifying related parties
5. Performing analytical procedures
PSA 210, paragraph 17: If the auditor is unable to agree to a change of terms of the audit
6. Need for experts
engagement and is not permitted by the management to continue the original audit
7. Establishments of over-all audit strategy and development of audit plan
engagement, the auditor shall:
8. Preliminary audit program
• Withdraw from the audit engagement where possible under the applicable law or
regulation; and

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1. Understanding the Entity’s Business and its environment including internal control ▪ Effect of significant accounting policies in controversial or emerging areas which there
is a lack of authoritative guidance
PSA 315, par. 11: Auditor’s Understanding of: ▪ Changes in entity’s accounting policies
▪ Relevant industry, regulatory and other external factors including applicable financial ▪ Adaptation of new financial reporting standards Understanding of objectives and
reporting strategies related to business risks
framework • Business affect the ability of the entity to achieve its objectives, potential outcomes of
▪ Nature of entity (i.e. operations, ownership, governance structures, types of organizational activities and execute strategies
investments, financing structure the entity)
▪ Selection and application of accounting policies Understanding of business risks increases the likelihood of identifying risks of material
▪ Objectives and strategies and the related business risks that may result in risks of misstatements. The auditor does not have the responsibility to identify or assess all business
material misstatement risks.
▪ Measurement and review of entity’s financial performance • Auditors are interested on business risks which may result to risk of material
▪ Internal control misstatements for classes of transactions, account balances and disclosures at the
assertion level or financial statements as a whole
Understanding of Industry, Regulatory and Other External
Factors Including the Applicable Financial Reporting Understanding the measurement and review of entity’s financial performance
Framework ▪ It assists the auditor in considering whether such pressures result in management
• Industry Factors (market and competition, cyclical/seasonal activity, product actions that may have increased the risks of material misstatement
technology and energy supply and cost) ▪ Auditors may consider internally-generated information for measuring and reviewing
• Regulatory factors (accounting principles and industry specific practices, regulatory financial performance (key ratios, key performance, indicators, budget and variance
framework in a regulated industry, environmental requirements, taxation, government analysis, departmental performance reports, competitor
policies) analysis)
• Other external factors (general economic conditions, interest rates, inflation, currency
revaluation) Understanding the client’s internal control
▪ PSA 315, par. 4: Internal control is the process designed and effected by those charged
Understanding of the nature of entity with governance, management and other personnel to provide reasonable assurance
• Matters to be considered about the achievement of the entity’s objectives with regard to reliability of financial
▪ Business operations (nature of revenue sources, products, services & reporting, effectiveness and efficiency of operations and compliance with applicable
markets, key customers, important suppliers, location, conduct of operations, laws and regulations.
related party transactions) ▪ Importance of understanding internal control. It assists auditors in planning the audit
▪ Investments (acquisitions, merger or disposals, investment in securities, and developing an effective audit approach
loans, PPE, SPEs, JV)
▪ Financing (group structure, debt structure, and financial agreements, leasing,
related parties) 2. Assessing possibility of non-compliance
▪ Financial reporting (acctg principles and industry practices, revenue
recognition, fair value, accounting for complex transactions) Non-compliance of the entity
• Importance to understand the classes of transactions, account balances and disclosures • Omission or commission by the entity, either intentional or unintentional, which are
and potential risks of material misstatements to fs. contrary to laws and regulations
• May give rise to business risk
Selection and application of accounting principles PSA, par. A24: An understanding of • Legal and regulatory framework applicable to the entity/industry of the entity
entity’s selection and application of accounting policies may encompass: • Example: SEC regulations for listed entities; Banks- BSP; Insurance-IC; Mining/Oil;
▪ Methods to account for significant, unusual transactions Construction
companies
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▪ No fixed rule in determining planning materiality. Matter of professional judgement
3. Establishing materiality and assessing risk
How to determine overall materiality
Materiality (PSA 320, par. 2) Common benchmarks: total assets, total revenues, total equity/net assets or net profit from
• Misstatements, including omissions, are considered material if they, individually or in continuing operations or net profit before tax depending on what is considered as significant
aggregate, could reasonably be expected to influence the economic decisions of users from the FS users.
taken on the basis of the financial statements
• Judgements about materiality are made in the light of surrounding circumstances and Performance materiality (PSA 320, par.9)
are affected by the size or nature of misstatement, or a combination of both ▪ Performance materiality means the amount/s set by the auditor at less than
materiality for the fs as a whole to make sure that the aggregate of uncorrected and
Concept of Materiality explained undetected misstatements does not exceed materiality for the financial statements as
▪ Provides a threshold or cut-off point a whole
▪ Material based on qualitative and quantitative considerations ▪ This can be applied to particular classes of transaction, account balances or disclosures
▪ Qualitative considerations (e.g. illegal payment/activities, potential errors in more ▪ In practice, this is similar to tolerable misstatement
liquid assets) ▪ Purpose: assess risks of material misstatement and determine the nature, timing and
▪ The lower the materiality, the more audit evidences are required extent of further audit procedures
▪ Materiality is a matter of professional judgement • Performance materiality involves exercise of professional judgement based on
▪ The concept is applied in planning, performing the audit and completion (when understanding of the entity and updated during risk assessment procedures
evaluating the effects of identified misstatements and uncorrected misstatements) • No specific guideline set by PSA
▪ Careful considerations of materiality must be done to avoid over-auditing and under- • Example: Performance materiality may range from auditor’s judgement
auditing and reduce audit inefficiencies and unnecessary costs
▪ Materiality may need to be revised as a result of Risk-based audit approach
- Change in circumstances that occurred during the audit
- New information An audit approach that begins with assessment of the types and likelihood of misstatements in
- Change in auditor’s understanding of the entity the account balance and then adjusts the amount and type of audit work, to the likelihood of
material misstatements occurring in the account balances.
Levels of Materiality
1. Over-all materiality In risk-based audit, the audit team:
- Materiality level for the financial statements as a whole) ▪ Views all key processes, objectives, activities
2. Account balance level ▪ Identify all possible risks to each activity, objective, process
- Tolerable misstatement ▪ Determine management plans to mitigate risks (e.g.
controls) and whether these are in place
Over-all materiality ▪ Assessment of the risks
• Highest amount of misstatements that could be included in the financial statements
without affecting the economic decisions taken by a financial statement user.
• Matter of auditor’s professional judgement Inherent risk
• Financial statements are materially misstated = amount of uncorrected misstatements
(individually or aggregate) > over-all materiality Business characteristics that may indicate high inherent risk:
▪ Inconsistent profitability of the client within the industry
Preliminary judgement about materiality ▪ Operating results highly sensitive to economic factors
▪ Amount used as initial basis to evaluate misstatement in the financial statement ▪ Going concern problems
▪ Subject to change if circumstances change ▪ Large known and likely misstatements detected in prior audits
▪ Purpose: help auditor plan the appropriate evidence to accumulate
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▪ Substantial turnover, questionable reputation or inadequate accounting skills of • The more complex the entity’s accounting principles, the more extensive the auditor’s
management documentation need to be.

In general, assertions with high inherent risk involve: Detection risks

▪ Difficult to audit transactions or balances • Detection risks is a complement of assurance level. Lower acceptable level of detection
▪ Complex calculations risk increases the assurance level to be provided by substantive tests and vice-versa
▪ Difficult accounting issues
▪ Significant judgement by management Designing the Substantive Testing
▪ Valuations that vary significantly based on economic factors Auditors modify the nature, timing, and extent of audit
procedures
Assessment of inherent risks
PSA 315 requires the auditor to assess the inherent risk at the FS level and account balance or Acceptable Level of Detection Risk
transaction class level. LOW HIGH
NATURE Overall More Less
Factors the affect the risk of misstatements at the financial statement level include:
effectiveness of effective effective
▪ Management integrity
audit procedures
▪ Management experience and knowledge ▪ Unusual pressures on management,
TIMING When should the Year-end Interim
changes in mgt.
audit procedures
▪ Industry factors to which the business operates
take place
EXTENT How many samples Large Small
Control Risk
to be used? sample size sample size
• Risk that a material error in an account will not be prevented or detected on a timely
basis by the client’s system of internal control.
• If the auditors find that the client has designed effective internal control for a particular
account and is being consistently followed, control risk for the related assertions will How to apply the audit risk model
be low thus accepting a higher level of detection risk 1. Set the desired level of audit risk
2. Assess the level of inherent risk
• Higher control risk means that the entity’s accounting and internal control systems are
not effective or evaluating the effectiveness of the entity’s accounting and internal 3. Assess the level of control risk
control systems would not be efficient. 4. Determine the acceptable level of detection risk
5. Design the substantive testing
• The auditor should document in the working papers:
- Understanding obtained of the entity’s accounting and internal control
systems Important concepts on Audit risk model
- Assessment of control risk • IR + CR = RMM
- Basis of conclusion, if the control risk is less than high • There is an inverse relationship between RMM and DR
• Techniques used to document the understanding of the accounting and internal • The model is a conceptual tool and represents more of a way to think about audit risk
control systems: (estimate)
- Narrative descriptions • Auditors cannot estimate IR to be zero
- Questionnaires • Auditors cannot place complete reliance on internal controls and estimate CR to be
- Checklists zero
- Flowcharts • Auditors would not seem to exhibit due professional care if the level of audit risk high
• The form and extent of this documentation depends on the nature and complexity of (e.g. 32%) AR(32%) = IR(80%) * CR(80%) * DR(50%) • Audit risk model has been
entity’s accounting and internal control systems expressed quantitatively. In audit practice, most audit firms use qualitative
measures of audit risk (e.g. high, medium, low)

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• Engineers, actuary, appraisers, lawyers
Risk assessment procedures (PSA 315, par. 5-6)
• Auditor should perform the ff risk assessment procedures to provide a basis for the 7. Establishments of over-all audit strategy and development
identification and assessment of risks of material misstatements of the fs at assertion of audit plan
levels and shall include the ff:
▪ Inquiries of management and others within the entity (legal counsel, internal Audit strategy
auditors, experts) • Optimized audit approach
▪ Analytical procedures • Achieve the necessary level of assurance at the lowest cost within the constraints of
▪ Observation and inspection available information
• Cost beneficial audit procedures on important assertions
4. Identifying related parties
• Sets as guide/direction of the over-all audit
Related parties
• Scope, timing, focus of the audit
• Accounting standards PAS 24/IAS 24: Related party disclosures – definition of a related • The audit plan is more detailed than audit strategy
party
• It includes the nature, timing and extent of audit procedures to be performed by the
• Control/significant influence/joint control engagement team members in order to obtain sufficient appropriate audit evidence to
• KMP/close family member reduce audit risk to an acceptably low level
• Auditing standards on consideration and audit procedures to be done PSA 550 • Overview of expected scope and conduct of the audit
• The audit plan should include a description of:
5. Performing analytical procedures o Nature, timing and extent of planned risk assessment procedures (PSA 315)
Analytical procedures o Nature, timing and extent of planned further audit procedures (PSA 330)
• PSA 520 requires the use of analytical procedures in the planning and overall review o Other planned audit procedures
stage of the audit.
• In the planning stage, the application of analytical procedures helps to understand the
Contents of typical audit plan
client’s business and identify areas that may represent specific risks
• Description of the client company
• Basic premise: plausible relationships among data may reasonably be expected to exist
• Audit objectives
and continue in the absence of known conditions to the contrary
• Description of the nature and extent of other services (e.g. preparation of tax return)
• Involves analysis of significant ratios, trends, fluctuations and relationships of financial
• Timetable of audit work
and nonfinancial information
• Work to be done by the client’s employer
• This is used in planning, substantive tests (substantive analytical procedures) and
• Assignment of audit staff
overall review
• Target completion dates of the major segments of engagement
• Any special problems to be resolved
6. Need for experts
• Conditions that may require changes in audit test
PSA 620 Using the work of an auditors’ expert
•
• Auditor does not possess all knowledge and skills and expertise
• Determine if there is a need for an expert 8. Preliminary audit program
• Competence and experience of the expert
• Assertion of the client vs the report/valuation of the expert as audit evidence
Audit Program
• Audit evidences – statement or report of an expert, opinion, valuations
 The auditor should develop and document the audit program setting out the nature,
• Valuations (assets, specialized machines, products) timing and extent of planed audit procedures required to implement the over-all audit
• Specialized techniques or methods (computations such as actuary, insurance, PV of plan.
cleanup/restoration cost)  The audit program serves as a set of instructions to assistants involved in the audit plan
• Litigation cost and probability of winning or losing the case and as a means to control and record the proper execution of the work.

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 Test control audit program • Scheduling of work
 Substantive control audit program
 “Preliminary” audit program only as procedures may change if there are any new Planning a repeat engagement
information that may be encountered during the audit • Planning a repeat engagement is easier to plan than planning for a first audit of a new
client because of prior year’s audit provides a wealth of information about the
Time Budget continuing client.
▪ Time budget is an estimate of the total hours an audit is expected to take • The auditor should not merely duplicate last year’s audit program but should modify
▪ It serves as the basis for estimating fees and measures the efficiency of the staff this approach based on current year’s changes in client’s operations, internal control or
▪ Underreporting of time creates an unrealistic basis for the following year’s time budget business environment.
▪ The development of time budget is facilitated in repeat engagements by reference to
preceding Other Planning Considerations
year’s time records
Arrangement for company assistance
• List of schedules and analyses (only the documents or reports that can be requested
Discussion of other critical matters in engagement planning early)
• Application of analytical procedures in Planning the audit • Formats of documented/files
• Engagement of an audit team • Other relevant assistance (contact persons, timing of meetings with the client’s office
• Consideration of work performed by other auditors/parties (e.g. predecessor auditor, that can serve as working area of the audit team, transportation, food
other CPA, specialists, use of client’s staff, internal auditors) and accommodation)
• Assessment of going concern assumption
• Identification of related parties Consider the work of the internal auditors
• Client’s legal obligations • The work of the internal auditors may be relied upon depending on the objectivity and
• Completion of initial audit program competence of the internal auditors and the effectiveness of procedures.
• Preparation of a time budget • May assist in efficiently conducting the external audit procedures but should not be
• Assignment of personnel to the engagement FULLY relied upon.

Direction, supervision, and review Non-Assurance Engagements and Related Services

• The auditor should plan the nature, timing and extent of direction and supervision of 1. Non-audit assurance engagements
engagement team members and review of their work. a) Reviews of historical financial information
• Coordination within the engagement team members b) Reviews of interim financial information
• Reporting and review (up) c) Examination of prospective financial information
• Delegation and assignment of task (down) 2. Related services
a) Agreed-upon procedures regarding financial information
b) Compilation of financial information

Non-audit assurance engagements

1. a. Reviews of historical financial information

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❖ Enables an auditor to state whether the FS is not prepared in accordance to GAAP.
Qualified/Adverse conclusion- when a material adjustment should be made to interim financial
General Principles of a Review Engagement information.
1. Independence
2. Review in accordance with PSRE 2400 (practitioner other than the entity’s 1. c. Examination of prospective financial information
auditor), PSRE 2410 (entity’s auditor) & PSAE 3000 (other historical information).
3. Professional Skepticism Prospective financial information- based on assumptions about events that may occur in the
4. Scope of review future and possible actions by the entity. Requires considerable judgement.
5. Agreement on the terms of engagement (matters to include in engagement
letter – review engagement) Forecast- based on assumption
6. Update of knowledge of the business Projection- based on hypothetical assumption
7. Professional judgement
8. Materiality ➢ Auditor provides only a moderate level of assurance.
9. Documentation
10. Inquiry Considerations
• Realistic assumptions
Conclusion and Reporting • Sufficient level of knowledge
- Clear, written expression of negative assurance. • Extent to which reliance on the entity’s historical information is justified.
• Period of time covered by the prospective financial information.
1. b. Reviews of interim financial information Other Considerations
 Financial information that comprises either complete or condensed set of FS • Likelihood of material misstatements
for a period that is shorter than the entity’s financial year. • Knowledge obtained during any previous engagements
 A review is not designed to obtain reasonable assurance. • Management’s competence in preparation of prospective financial
information.
General Principles in Reviewing of interim financial information • The extent to which prospective financial information is affected by
1. In accordance to PSRE 2410 (entity’s auditor) management’s judgement.
2. Understanding of the entity through inquiries. To be used in analytical and • Adequacy and reliability of underlying data.
review procedures to be applied.
3. Compliance with ethical requirements. Related services
4. Implementation of quality control and professional skepticism.
5. Agreement on the terms of engagement. 2. a. Agreed-upon procedures regarding financial information
6. Understanding of the entity for the basis of reporting. ❖ Auditor carry outs procedures agreed-upon and report on factual findings.
7. Inquiries with persons responsible for financial and accounting matters.
8. Audit of annual financial statements of the entity. Covered by PSRS 4400
9. Obtaining evidence by tracing interim financial information to: a) accounting • No assurance is expressed • Compliance with Code of Ethics.
records and b) other supposing data. • Ensure clear understanding regarding agreed procedures and the conditions
10. Documentation of engagement.
• Include agreed-upon procedures in the engagement letter
Other Considerations • Plan the work for effective management and prepare documentation
• Written representations form the management
• Material inconsistency 2. b. Compilation of financial information
• Entity’s refusal for amendment
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 Accountant uses accounting expertise to collect, classify and summarize
financial information.
 Reducing data to manageable and understandable form without assertions
underlying that information.

Auditor’s Considerations in a Compilation Engagement Covered by PRSR 4410:

1. Accountant’s compliance with Code of Ethics
2. Ensure a clear understanding regarding terms of engagement.
3. Plan the work for effective management and general understanding of the
nature of entity’s business.
4. Assessing reliability and completeness of information
5. If information is incorrect, perform further necessary procedures & request
additional information
6. If there is material misstatements, make appropriate amendments.
7. material misstatements include mistakes in the application of GAAP
8. GAAP should be disclosed
9. Obtain acknowledgement from the management of its responsibility for the
appropriate presentation & approval of the financial information.

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