FUNDAMENTALS OF AUDITING
(Study Material and Notes) October 2021
AUDITING – is a systematic process by which a competent, independent person objectively obtains
and evaluates evidence regarding assertions about economic actions and events to ascertain the
degree of correspondence between those assertions and established criteria and communicating the
results to interested users (American Accounting Association).
A. Auditing is a systematic process.
Auditing involves structured and logical series of sequential steps or procedures. This is known
as the audit process.
B. An audit is conducted by a competent, independent person.
The auditor must be qualified to understand the criteria used and the competence to know how
and what evidence to accumulate to reach the proper conclusion.
The auditor must also have an independent mental attitude which involves impartial and
objective thinking.
C. An audit involves obtaining and evaluating evidence about assertions regarding
economic actions and events.
Assertions are representations made by an auditee about economic actions and events. These are
the subject matter of auditing. In the context of financial statements, assertions are representations
of the management, explicit or otherwise, that are embodied in the financial statements.
The auditor’s objective is to determine whether these assertions are valid. To satisfy this
objective, the auditor performs audit procedures and gathers evidence that corroborates or
refutes the assertions.
D. An audit is conducted objectively.
The auditor examines the bases for the assertions and judiciously evaluating the results
without bias or prejudice either for or against the individual or entity making the
representations.
E. Auditors ascertain the degree of correspondence between assertions and established
criteria.
Established criteria are needed to judge the validity of the assertions. These criteria are
important because they establish and inform the users of the basis against which the
assertions have been evaluated or measured. In an audit, the auditor determines the degree
by which the assertions conform to the established criteria.
F. Auditors communicate the audit results to various interested users.
The communication of audit findings, often referred to as attestation, is the ultimate objective of
any audit. For the audit to be useful, the results must be communicated to interested users on
a timely basis. Interested users are those individuals who rely on the auditor’s findings which
may include stockholders, creditors, governmental agencies management and the general
public. The communication of findings is achieved through a written report.
Processes of Auditing
A. Investigative process – involves systematic gathering and evaluation of evidence as a basis
for determining whether the assertions made by responsible person correspond with the
, ACCOUNTING VERSUS AUDITING
Though related and often both conducted by CPAs, auditing and accounting are separate fields of
study. Their distinctions are as follows:
Auditing Accounting
Involves the Involves the
verification of preparation and
financial statements presentation of
as to its fairness of financial statements
presentation
Begins when
Precedes auditing
accounting ends
The end product of
The end product of
the accounting
the audit process is
process is a
the independent
complete set of
auditor’s report
financial statements
The auditor must be
both proficient in
accounting as well as The accountant need
auditing, specifically not be proficient in
in and accumulating auditing
and interpreting
evidence
Accounting is
governed by the
Auditing is governed
generally accepted
by the generally
accounting standards
accepted auditing
(PFRSs) with the
standards (PSAs)
Philippine Framework
with the PSAEs as its
for Financial
foundation
Reporting as its
foundation
GENERAL TYPES OF AUDIT
According to the Nature of Assertion or Date Being Audited
A. Financial statement audit – also known as independent audit, independent financial
statement audit, financial statement audit and financial audit, is conducted to determine
whether the financial statements of an entity are fairly stated in accordance with an identified
financial reporting framework. This type of audit is conducted by external auditors on a fee
basis and for more than one client. The following are the basic characteristics of financial
statement audits:
Auditors who perform financial statement audits are independent of management and
financial statement users.
Auditors base their opinions on a sample of the financial data rather than every item that
(Study Material and Notes) October 2021
AUDITING – is a systematic process by which a competent, independent person objectively obtains
and evaluates evidence regarding assertions about economic actions and events to ascertain the
degree of correspondence between those assertions and established criteria and communicating the
results to interested users (American Accounting Association).
A. Auditing is a systematic process.
Auditing involves structured and logical series of sequential steps or procedures. This is known
as the audit process.
B. An audit is conducted by a competent, independent person.
The auditor must be qualified to understand the criteria used and the competence to know how
and what evidence to accumulate to reach the proper conclusion.
The auditor must also have an independent mental attitude which involves impartial and
objective thinking.
C. An audit involves obtaining and evaluating evidence about assertions regarding
economic actions and events.
Assertions are representations made by an auditee about economic actions and events. These are
the subject matter of auditing. In the context of financial statements, assertions are representations
of the management, explicit or otherwise, that are embodied in the financial statements.
The auditor’s objective is to determine whether these assertions are valid. To satisfy this
objective, the auditor performs audit procedures and gathers evidence that corroborates or
refutes the assertions.
D. An audit is conducted objectively.
The auditor examines the bases for the assertions and judiciously evaluating the results
without bias or prejudice either for or against the individual or entity making the
representations.
E. Auditors ascertain the degree of correspondence between assertions and established
criteria.
Established criteria are needed to judge the validity of the assertions. These criteria are
important because they establish and inform the users of the basis against which the
assertions have been evaluated or measured. In an audit, the auditor determines the degree
by which the assertions conform to the established criteria.
F. Auditors communicate the audit results to various interested users.
The communication of audit findings, often referred to as attestation, is the ultimate objective of
any audit. For the audit to be useful, the results must be communicated to interested users on
a timely basis. Interested users are those individuals who rely on the auditor’s findings which
may include stockholders, creditors, governmental agencies management and the general
public. The communication of findings is achieved through a written report.
Processes of Auditing
A. Investigative process – involves systematic gathering and evaluation of evidence as a basis
for determining whether the assertions made by responsible person correspond with the
, ACCOUNTING VERSUS AUDITING
Though related and often both conducted by CPAs, auditing and accounting are separate fields of
study. Their distinctions are as follows:
Auditing Accounting
Involves the Involves the
verification of preparation and
financial statements presentation of
as to its fairness of financial statements
presentation
Begins when
Precedes auditing
accounting ends
The end product of
The end product of
the accounting
the audit process is
process is a
the independent
complete set of
auditor’s report
financial statements
The auditor must be
both proficient in
accounting as well as The accountant need
auditing, specifically not be proficient in
in and accumulating auditing
and interpreting
evidence
Accounting is
governed by the
Auditing is governed
generally accepted
by the generally
accounting standards
accepted auditing
(PFRSs) with the
standards (PSAs)
Philippine Framework
with the PSAEs as its
for Financial
foundation
Reporting as its
foundation
GENERAL TYPES OF AUDIT
According to the Nature of Assertion or Date Being Audited
A. Financial statement audit – also known as independent audit, independent financial
statement audit, financial statement audit and financial audit, is conducted to determine
whether the financial statements of an entity are fairly stated in accordance with an identified
financial reporting framework. This type of audit is conducted by external auditors on a fee
basis and for more than one client. The following are the basic characteristics of financial
statement audits:
Auditors who perform financial statement audits are independent of management and
financial statement users.
Auditors base their opinions on a sample of the financial data rather than every item that
