10 General Accepted Auditing
Standards
Regardless whether you are in US or not, there is only one standard for Auditing
standard.
GAAS are principles, not standards. They are used to develop Auditing Standards.
Issuer- you are issuing stocks →Public Company Accounting Oversight Board (PCAOB)
Auditing standards
- Issuer companies are public companies
Non-issuer -Private companies → AICPA auditing standards
Regardless of the standard used, it is based on 10 GAAS.
AUDITING
what? Examination of Historical Financial Information
Who? CPA
When? Year- end or Interim
Year-end
10 General Accepted Auditing Standards 1
Fiscal
Calendar
Interim
It can be done based on the internal control of the company.
Audit risk based approach
Why? Express an opinion
for lending an opinion as it shows your credibility to the financial statement
Where? Audit Report
Should have the word "Independent"
How? through GAAS
GAAS- A measure of the quality of Audit Work
3 General Standards- Apply to every phase of audit engagement
Technical training and proficiency
pertains to Education, Experience, and Evolution ( continuing education)
You need to gain a general knowledge of the entity
Independence in Mental Attitude
Independence in fact - External to the entity; has something to do with the
actual happening. He has Direct interest over the company. If may direct
interest sa company, that is a violation of independence in fact.
Independence in appearance- Even if it is only 1% interest over the entity,
the auditor has indirect interest of the entity. The public still views it that
the auditor is an owner of the company
Due Professional Care - due diligence with no negligence
To be exercised in the performance of the audit and the preparation of the
report
The standard of the prudent Practitioner
10 General Accepted Auditing Standards 2
An auditor must exercise both:
Professional skepticism- the questioning of mind. Thinking of the
mind that the company is neither honest nor dishonest (Paano
nakuha?) You are now accumulating evidence to support your answer.
Provide reasonable assurance (not absolute)
Professional Judgment- Being applied with respect to reasonable
assurance; this is the deciding point of the auditor.
there is no absolute assurance.
3 Standards of field work - Apply to
performance of audit work
has something to do with the environment or place where the auditor accumulates
evidence.
Standard of fieldwork No.1
Arena or where all evidences are.
Pre-planning phase- obtaining an understanding of the entity (includes the General
standard); helps you decide whether you will accept the client or not
Proper planning phase- pivotal phase; it's procedural or chronological.
Through proper planning, you have the auditing program.
STRUCTURE OF CPA FIRMS
Only allowed entities to create an Auditing Firm
a. Sole proprietorship
b. Partnership
Reason:
10 General Accepted Auditing Standards 3
1. Organization forms with high personal liability
2. Staff levels and responsibilities
STAFF LEVELS AND RESPONSIBILITIES
STAFF ASSISTANT- performs most of the detailed audit work
SENIOR OR IN-CHARGE AUDITOR- Responsible for the audit field work, including
supervising staff work
MANAGER- Helps the plan, manages the audit, reviews work, and works with the
client
PARTNER- Reviews overall audit work and is involved in significant audit
STANDARD OF FIELDWORK NO.2
A sufficient understanding of internal control is to be obtained to plan the audit ad to
determine the nature, timing, and extent of tests to be performed.
Assessment of internal control (testing the element of the framework if its
operating effectively, working effectively or not)
Assess if its working or not
If its working, you take less auditing procedures.
If its not working or operating as it is intended, the auditor should do more procedures
to compensate the weakness of the internal control.
Substantive testing- Other Audit Procedure
Internal Control Nature Timing Extent Control risk
Effective less extensive interim Lesser low
Ineffective year-end more more high
Standard of fieldwork no. 3
AUDIT EVIDENCE:
10 General Accepted Auditing Standards 4
1. Accounting Records
2. Other Information
Sufficient and Appropriate Corrobative evidential matter is to be obtained through
Inspection, Observation, Inquiries and Confirmations to afford a reasonable basis for
an opinion regarding the financial statements under audit,
5 Cardinal Rules on Reliability of Audit Evidence
1. Audit evidence is more reliable when it is obtained from independent
sources outside the entity.
2. Audit evidence that is generated internally is more reliable when related
controls imposed by the entity are effective
3. Audit evidence obtained directly by the auditor is more reliable than audit
evidence obtained indirectly or by inference
4. Audit evidence is more reliable when it exists in documentary form, whether
paper, electronic, or other medium.
5. Audit evidence provided by original documents is more reliable than audit
evidence provided by photocopies or facsimiles.
💡 Cost-Benefit Principle
4 Standards of reporting - Apply to
development of audit report
Standard of Reporting 1
Standard of reporting no.2
Standard of reporting No. 2
The report shall identify those circumstances in which such principles have not been
consistently observed in the current period in relation to the preceding period
10 General Accepted Auditing Standards 5
Consistent Application of Accounting Principles
Standard of Reporting no.3
Informative disclosures in the financial statements are to be regarded as reasonably
adequate unless otherwise stated in the report. This is implicit. Automatically
complete unless otherwise stated
Disclosures include:
Financial Statement wording
Notes to Financial Statements
Standard of reporting No. 4
The report SHALL CONTAIN (express) either an expression of opinion regarding the
financial statements, taken as a whole
Audit Opinion
Unmodified Opinion = Standard opinion; Unqualified Opinion; most common type of
opinion the auditor gives. "Fairly stated/not materially misstated" the financial
statement prepared by the client can be relied on
Modified Opinion
may binago sa assertion ng financial statement. You will look into the nature of the
accounting information. The FS is materially misstated.
Either FS are materially misstated
Qualified opinion or Adverse opinion
or Auditor unable to obtain sufficient appropriate evidence
Qualified opinion or Disclaimer of opinion
10 General Accepted Auditing Standards 6
Material bu not pervasive - Not in conformance with (GAAP) level of the effect of
one account to another account/s.
Material and Pervasive
Auditor's judgment regarding the pervasiveness of the matter
Material but not Material and
Nature of Matter
pervasive Pervasive
Financial statements are materially
Qualified Opinion Adverse Opinion
misstated
Inability to obtain sufficient
Qualified Opinion Disclaimer of opinion
appropriate evidence
Untitled
1. Qualified Opinion
2. Adverse Opinion
3. Disclaimer of Opinion
wala kang nakuhang evidence pero hindi mo sinasabing mali or tama yung
evidence.
10 General Accepted Auditing Standards 7
