Audit process

ATTY. RHENEIR P. MORA, CPA
MANAGING PARTNER
R. P. MORA & CO.

Historical background
 Records of auditing activity in early Babylonian
times (around 3,000 BC).
 Ancient China, Greece and Rome.
 The Latin meaning of the word 'auditor' was a
'hearer or listener' because in Rome auditors heard
taxpayers.
Modern auditing dates
to beginning of the
modern corporation

By the audit process, the auditor enhances the usefulness
and value of the financial statements, and also increases
the credibility of other non-audited information
released by management.

The function of auditing is to lend credibility to the financial
statements
① Is the company a going concern?
② Is it free of fraud?
③ Is it managed properly?
④ Is there integrity in its database?
⑤ Do directors have proper and adequate
information to make decisions?
⑥ Are there adequate controls?
⑦ What effect do the company's products and by-
products have on the environment?
⑧ Can an ‘unfortunate mistake’ bring this company
to its knees?

Philippine Financial Reporting Standards
 Philippine Financial Reporting Standards (PFRS) are
the standards that are applied for financial accounting.
 PFRS were formerly called Philippine Accounting
Standards (PAS)
 The Philippine Accounting Standards Board (PASB)
has accounting standard setting responsibilities for
PFRS.

Advantages of Philippine Standards
of Auditing (PSA)
 worldwide
 increases confidence in non-domestic investment
 consistent
 international investors comprehend financial
statements from different countries
 high quality
 Non-national standards encourage better quality, less
political influence

Auditing and Assurance Standards Board (AASB) Issues:
 Philippine Standards on Auditing (PSAs) as the standards to be
applied by auditors in reporting on historical financial
information.
 Philippine Standards on Assurance Engagements (PSAEs) as
the standards to be applied by practitioners in assurance
engagements dealing with information other than historical
financial information
 Philippine Standards on Quality Control (PSQCs) as the
standards to be applied for all services falling under the
Standards of the AASB, and
 Philippine Standards on Related Services (PSRSs) as the
standards to be applied on related services, as it considers
appropriate
 Philippine Standards on Review Engagements (PSREs) as the
standards to be applied to the review of historical financial
information.

PSAs
100-999 Philippine Standards on Auditing (PSAs)
100-199 Introductory Matters
120 Framework of International Standards on
Auditing
200-299 General Principles And Responsibilities
200 Objective and General Principles Governing an
Audit of Financial Statements
210 Terms of Audit Engagements
220 Quality Control for Audit Work
230 Documentation (ED)

240 The Auditor’s Responsibility to Consider Fraud and Error in
an Audit of Financial Statements
250 Consideration of Laws and Regulations in an Audit of
Financial Statements
260 The Auditor’s Communication with Those Charged with
Governance
300-499 Risk Assessment And Response To Assessed Risks
300 Planning
310 Knowledge of the Business
315 Understanding the Entity and Its Environment and Assessing
the Risks of Material Misstatement
320 Materiality in the Identification and Evaluation of
Misstatements
330 The Auditor’s Procedures in Response to Assessed Risks
PSAs

400 Risk Assessments and Internal Control
401 Auditing in a Computer Information Systems
Environment
402 Audit Considerations Relating to Entities Using
Service Organizations
500-599 Audit Evidence
500 Audit Evidence
500R Audit Evidence
501 Audit Evidence—Additional Considerations for
Specific Items
505 External Confirmations
PSAs

510 Initial Engagements—Opening Balances
520 Analytical Procedures
530 Audit Sampling and Other Selective Testing Procedures
540 Auditing Accounting Estimates and Related Disclosures
(Other than Those Involving Fair Value Measurements and
Disclosures)
545 Auditing Fair Value Measurements and Disclosures
550 Related Parties
560 Subsequent Events
570 Going Concern
580 Management Representations
PSAs

 600-699 Using Work Of Others
 600 The Audit of Group Financial Statements
 610 Considering the Work of Internal Auditing
 620 Using the Work of an Expert
 700-799 Audit Conclusions And Reporting
 700 The Auditor’s Report on Financial Statements
 701 The Independent Auditor’s Report on Other Historical Financial
Information
 705 Modifications to the Opinion in the Independent Auditor’s Report
 706 Emphasis of Matter Paragraphs and Other Matters Paragraphs in
the Independent Auditor’s Report
 710 Comparatives
 720 Other Information in Documents Containing Audited Financial
Statements
 800-899 Specialized Areas
 800 The Independent Auditor’s Report on Summary Audited Financial
Statements
PSAs

 2000-2699 Philippine Standards on Review Engagements
(PSREs)
 2400 Engagements to Review Financial Statements (Previously PSA
910)
 2410 Review of Interim Financial Information Performed by the
Independent Auditor of the Entity
 3000-3699 Philippine Standards on Assurance Engagements
(PSAEs)
 3000 Assurance Engagements (Previously PSAE 100)
 3000R Assurance Engagements Other Than Audits or Reviews of
Historical Financial Information
 3400 The Examination of Prospective Financial Information
(Previously PSA 810)
 4000-4699 Philippine Standards on Related Services (PSRSs)
 4400 Engagements to Perform Agreed-upon Procedures Regarding
Financial Information (Previously PSA 920)
 4410 Engagements to Compile Financial
 Information (Previously PSA 930)

PSA 200 states 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.
Terms used 'give a true and fair view' or ‘present
fairly, in all material respects’
equivalent terms?

Audit Definition
“An audit is a systematic process of objectively
obtaining and evaluating evidence regarding
assertions about economic actions and events to
ascertain the degree of correspondence between
these assertions and established criteria and
communicating the results to interested users.”
American Accounting Association

General Principles Governing an
Audit of Financial Statements
An auditor should comply with the Code of Ethics for
Professional Accountants issued by IFAC.
An auditor should conduct an audit in accordance with
International Standards on Auditing.

Scope of an audit - the audit procedures deemed
necessary to achieve the objective of the audit.
Certain inherent limitations in an audit affect the
auditor’s ability to detect material misstatements.
 Test and sampling
 Internal control
 Audit evidence
 Audit process permeated by judgment
Management is responsible for the financial
statements, accounting, and internal control.
General Principles Governing an Audit of Financial
Statements

Business Risk and Audit Risk
 Companies, depending on the nature of
their operations and industry, the
regulatory environment in which they
operate, and their size and complexity,
they face a variety of business risks.
 The risk that causes the greatest
concern by the auditor is the risk that
the auditor expresses an inappropriate
audit opinion when the financial
statements are materially misstated
(known as audit risk). “The auditor
should plan and perform the audit to
reduce audit risk to an acceptably low
level that is consistent with the
objective of an audit.” (ISA 200)

TYPES OF AUDIT
Audit of financial statements
Examine financial statements, determine if they give a
true and fair view or fairly present the financial
statements.
Operational Audit
A study of a specific unit of an organization for the
purpose of measuring its performance.
Compliance Audit
A review of an organization’s procedures and financial
records performed to determine whether the
organization is following specific procedures, rules,
or regulations set out by some higher authority.

Types of Auditors
 Internal auditors are employed by individual
companies to investigate and appraise the effectiveness
of company operations for management.
 Independent auditors are typically certified either
by a professional organization or government agency.

Planning
Fieldwork
Audit Follow Up
Audit Report

Planning
Announcement
Letter
Initial Meeting
Preliminary
Survey
Internal
Control Review
Audit Program
Fieldwork
Transaction
Testing
Advice & Informal
Communications
Audit
Summary
Working
Papers
Audit Report
Discussion Draft
Exit Conference
Formal Draft
Final Report
Client Response
Client Comments
Audit Follow-Up
Follow-up
Review
Follow-up
Report
Audit Annual
Report to the
Board
AUDIT
PROCESS

Audit Planning
 The audit process is similar for most engagements and
normally consists of four stages: Planning (sometimes
called Survey or Preliminary Review), Fieldwork, Audit
Report, and Follow-up Review. Client involvement is
critical at each stage of the audit process. As in any
special project, an audit results in a certain amount of
time being diverted from your department's usual
routine. One of the key objectives is to minimize this
time and avoid disrupting ongoing activities.

Planning
 During the planning portion of the audit, the auditor
notifies the client of the audit, discusses the scope and
objectives of the examination in a formal meeting with
organization management, gathers information on
important processes, evaluates existing controls, and
plans the remaining audit steps.

Management Assertions
and Audit Objectives
 The audit starts with the financial statements prepared
by the client and the claims or “assertions”. that the
client makes about these numbers.
 It is the auditor's job to validate management's
assertions. In order to do so, the auditor will identify
audit objectives, which can be regarded as the auditor's
counterpart of management assertions.

Management
assertions
Management assertions are
implied or expressed
representations by
management about classes
of transactions and related
accounts in the financial
statements. An example of
a management assertion is
that “the company’s
financial statements are
prepared based on
international financial
reporting standards.”

Assertions about classes of transactions and
events for the period under audit
Occurrence. Transaction and events that have
been recorded have occurred and pertain to the
entity.
Completeness – All transactions and events that
should have been recorded have been recorded..
Accuracy - Amounts and other data relating to
recorded transactions and events have been
recorded appropriately.
Cutoff - Transactions and events have been
recorded in the correct accounting period.
Classification - Transactions and events have
been recorded in the proper accounts.

Assertions about account balances at the period end.
 Existence:- Assets, liabilities and equity interests
exist.
 Rights and obligations:- An entity holds or
controls the rights to assets, and liabilities are the
obligations of the entity.
 Completeness—All assets, liabilities and equity
interests that should have been recorded have
been recorded
 Valuation and allocation —Assets, liabilities, and
equity interests are included in the financial
statements at appropriate amounts and any
resulting valuation or allocation adjustments are
appropriately recorded.

Assertions about presentation and disclosure
Occurrence and rights and obligations—
Disclosed events, transactions, and other matters
have occurred and pertain to the entity.
Completeness—All disclosures that should have
been included in the financial statements have
been included..
Classification and understandability—Financial
information is appropriately presented and
described, and disclosures are clearly expressed.
Accuracy and valuation—Financial and other
information are disclosed fairly and at appropriate
amounts.

Phase 1: Planning
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Stages in Planning of Audit
1. Engagement
This could be a request from the authority or a routine
audit.
• Appointment of audit team: The appointed team
(by Audit Executive) should do the following:-
 Conduct team first meeting
 Document preparations for audit
 Set engagement objectives (audit objective)
 Determine the scope of audit.

Phase 1: Planning……
11/7/2015 32
2. Conduct in office review
 Review documents (criteria) related to the client (laws,
regulations, guideline etc.)
 Advantages of in-office review
 Gain good understanding of the client
 Help to establish audit risk and materiality of issues (relevant criteria).
 Help to identify criteria and establish compliance requirements
 Clarify audit objectives (operating objectives).
 Enable the team to prepare relevant questions to the client during
entrance meeting.
 Help the team to understand well the criteria (what is to be done; by
whom and when).

Phase 1: Planning….
11/7/2015 33
3. Contact and meeting client
 Clients needs to be notified on the audit at least 5 (five)
working days before entrance meeting.
 Notification should be formal (eg. Engagement letter)
 Contents of engagement letter
 Letter reference
 Date of letter Source of audit (Annual plan, Management request
etc.)
 General audit objective
 Names of audit team and team leader
 Official contacts of team leader
 Time and location of entrance.

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4. Entrance Conference
 Should be conducted prior to preliminary survey
 Head of Internal audit should meet with key personnel of the
client
 Points to be discussed in entrance meeting
 Scope and objective of audit
 Emphasize that the purpose of audit is to add value to the organization.
 Determine who will be the contract person from the client (it should not
be the director or person of too high level).
 Brief overview of the process from preliminary survey to reporting.
 Tentative audit event timeline estimated dates of fieldwork, interim
meeting, exit meeting, audit report (draft and final) and follow-up
audits.

Entrance Conference……
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 How audit findings will be handled (resolution of minor findings;
agreement on the action plan to implement the audit recommendations
etc.)
 Collective review of draft report.
 Method of distribution of final audit report.
 Identification of areas of special concern by client (Note: Do not get
involved in functional or operational activities of the client).
 Working hours, access to records, available work area, clients work
deadline requirements (i.e. Auditor should fit into the clients office
routine with minimal disruption to client).
 Arrange for tour of the facility for familiarization.
 Arrangement for auditors to meet other personnel who will be working
with during audit.
Note: Effective Communication at the beginning of audit
engagement will significantly influence the atmosphere in
which the entire audit is conducted.

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5. Preliminary survey
This refers to the process for gathering information without
detailed verification on the activity being examined (audited)
Why Preliminary Survey
 To understand well the activity under review.
 Identify significant areas that worth special emphasis.
 Obtain relevant information for use in actual audit.
 Determine whether further audit is necessary (nature, timing and extent of
detailed audit work).
Note: i) No fieldwork should be started unless preliminary
survey has been conducted.
Survey work may be more extensive for activities that are audited
for the first time than for areas that were audited previously.

Preliminary survey……
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Phases of Preliminary Survey
i. Familiarization
 Obtaining significant back ground information and
practical working knowledge of applicable laws,
regulations policies, and procedures, management and
financial controls, organizations statues and staffing;
and unusual challenges faced.
 Documents to be reviewed includes; previous audit
reports/programs, working papers, laws, regulations,
operating manuals, organization charts, financial
statements, flow charts, budget, operating reports etc.

Phases of Preliminary
Survey…..
11/7/2015 38
ii) Identification of
potential areas for
improvement
Identifying areas for audit emphasis (risk area). These
include:-
 Areas identified/documented in risk. Register.
 Area of high possibility of fraud or mis management
 Where there is large volumes of transactions.
 Where management has expressed concerns.
 Where prior audit disclosed major weakness/deficiencies.


Phases of Preliminary
Survey…..
11/7/2015 39
iii) Confirmation: Getting evidences from third
parties where necessary.
(iv)Planning the detailed audit
 Preparation of audit program in areas that worth for further
audit
 Audit program should be recorded
 It basically show, what is to be done; by when; by who; for how
long and how will it be done.
 This is a link between preliminary survey and field work.

 Announcement Letter: The client is informed of the
audit through an announcement or engagement letter
from the Internal Audit Director.
 Initial Meeting: the client describes the unit or
system to be reviewed, the organization, available
resources (personnel, facilities, equipment, funds),
and other relevant information.

 Preliminary Survey: In this phase the auditor gathers
relevant information about the unit in order to obtain
a general overview of operations.
 Internal Control Review: The auditor will review the
unit's internal control structure, a process which is
usually time-consuming.

Audit Program
 Preparation of the audit program concludes the
preliminary review phase. This program outlines the
fieldwork necessary to achieve the audit objectives.

Mechanics for preparation of Audit Program
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 Setting of Audit Objective: Start from operating objectives
followed by operating procedures eg.
Operating objective: To ensure procurement of right
goods/service at right, right price, at right time and right quantity
and quality).
Operating Procedure: On requisition, the ordering dept
should clearly spell out the goods/service to be procured – proper
specification).
Audit Objective: To ascertain whether the procurement of
goods/services was done properly to ensure right goods/service,
right price, right time and right quality and quantity.
 Determine the scope of Audit Program – (objective of Internal
Control System) and key risk from the same.
 Develop audit objective from operating objective/target;
requirement of the law (legislative requirements) terms of
reference – in special audit assignment [see item (i) above].

Benefits/Advantages of Audit Program
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 Set a systematic approach to audit. Gives specific steps
to be taken by auditor.
 Provide precise instruction to obtain precise audit
information.
 Provide for more focused audit hence serve time for
audit engagement.
 As a bases of or duty/assignment to audit assistants.
 Help the supervisor to monitor the audit
 Provide summary of work to be done.

Phase 2: Field work (Evidence Gathering)
11/7/2015 45
 Is the systematic process of gathering evidence about
entity’s operations, evaluating it and found out
whether those operations meet the acceptable
standards.
 Here auditor perform the procedures as in the audit
program by doing the following:-
 Concentration on transaction testing and informal
communication.
 Determine and evaluate whether internal controls are
operating properly and in manner described by
management.

Evidence
11/7/2015 46
Defn: Refers to all matters that supports a
point/position assumed by auditor
Qualities of an evidence
Evidence must be:-
 Suffient ie. Adequate and convincing.
 Competent ie. Reliable and best attainable.
 Relevant ie. Supporting the observations and
recommendations; consistent with objectives.
 Useful ie. Help the organization to meets its objective.

Evidence….
11/7/2015 47
Types of evidence
 Physical - direct inspection/observation – documented
as memoranda, charts, maps, photographs etc.
 Documentary - created information eg. Accounting
records, invoices, letters contracts etc.
 Testimonial - responses to inquires – interview (needs
to be confirmed).
 Analytical - analysis or verification of information –
computations, comparisons of operations; standards,
law/regulations, and evaluation of physical or
documentary information.

Field work Audit Checklist
11/7/2015 48
Before going to fieldwork the audit team should ensure
to have the following:-
 Audit program (each team member should have a copy).
 Responsibility of each team member (segregation of
duties).
 That audit client is aware in advance.
 Adequate working tools (working papers, folders,
stationery, calculator, laptop, camera etc.).
 Copies of relevant laws, regulation, standards, etc.
relating to the audit area.

Documentation of the fieldwork results
11/7/2015 49
 The field results (step of activities) will be recorded in
the audit working paper.
 The reference should be made in the working paper
with the audit program to maintain consistency.
 The working papers are used to arrive to the audit
finding.

AUDIT EVIDENCE &
DOCUMENTATION

Evidential Matter
Evidential matter supporting financial statements
consists of:
 Underlying accounting data
 Corroborating evidence (supporting information)

Evidential Matter
Appropriate Sufficient
•Reliable •Amount of evidence
•Relevant •Professional judgment

Sufficient Audit Evidence
Influenced by:
 Competence of evidence
 Risks involved
 Materiality and tolerable error
 Experience

Appropriate Evidence
 Relevant
 Satisfies audit objective
 Timely
 Reliability is influenced by:
 Independence of source
 How the evidence is obtained
 Condition of internal control

Audit Methodology
Audit Work Flow
• Understand the business including the IT environment
• Evaluation of entity level controls and fraud assessment
• Perform risk assessment and evaluation procedures
• Determine audit approach and plan audit strategy
• Determine substantive procedures
• Perform substantive procedures
• Conclude on procedures performed
• Perform completion procedures
• Perform overall review of financial statements
• Obtain management representation
• Form an audit opinion
Planning and
Risk
Assessment
Evaluation of
Controls
• Fraud assessment procedures
• Going concern assessment
• Subsequent events review
• Laws and regulations, litigations and claims
• Understand significant processes and perform walkthrough
• Evaluate design and implementation of controls
• Test and conclude on operating effectiveness of controls
Perform
Substantive Test
General Audit
Procedures
Conclude the Audit
P
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F
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Anticipation
and Resolution
of Audit Issues
• Team discussion of accounting and auditing issues
• Brain storming session with the Company on the identification and
resolution of issues`

Planning and Risk Assessment
• Engagement acceptance and continuance
• Understand the business
• Understand IT environment
• Planning materiality
• Entity level control and fraud assessment
• Identification of significant account and processes
• Understanding and evaluation of IT general controls
• Understanding of significant process and walkthrough
• Audit planning memorandum
• Combined risk assessment
• Audit planning discussion

Control Evaluation
• Test of the design and operating effectiveness of control
– Nature of test of control
– Timing of test of control
– Extent of test of control
• Conclude on operating effectiveness of control
– Control deviations discovered during the testing
– Control deficiencies
– Documenting control deficiency

Substantive Procedures
• Test of Details
• Analytical Review Procedures
• Other Substantive Procedures

General Audit Procedures
• Fraud
• Going concern assessment
• Subsequent events
• Laws and regulations
• Litigations and claims
• Related parties

Conclude the Audit
• Overall review of financial statements
• Management representations
• Perform overall evaluation of:
– Procedures performed on each significant accounts
– Significant findings and issues
• Reassessment of materiality
• Changes in audit strategy and planned procedures
• Audit differences
– Ethical and independence issues
• Form an audit opinion

SUBSTANTIVE PROCEDURES – ASSETS
Cash and Cash Equivalents
 Obtain bank confirmations for all accounts, including
the accounts closed during the year
 Examine client's bank reconciliation
 Test proper cut off of cash receipts and cash
disbursements
 Test appropriate valuation

 Bank confirmation
 Bank reconciliation
 Bank statement
 Cash book
 General ledger

Bank Reconciliation
Balance per Bank xxx
Add:
Deposit in Transit x
(Less)
Outstanding Checks (x)
Balance per book xx
Bank
Statement
Bank
Confirmation
Post Year-End
Bank
Statement
Cash Book
Cash Book
Post Year-End
Bank
Statement
General
Ledger

Accounts Receivable - Trade
 Agree subledger to general ledger control account
 Verify existence through confirmation or subsequent
cash receipts.
 Perform roll-forward procedures, as necessary
 Perform analytical procedures

Accounts Receivable – Trade (cont)
 Evaluate adequacy of the allowance for impairment of
receivables
 Evaluate the adequacy of other adjustments to
accounts receivables
 Test valuation of balances in foreign currencies
 Inquire about or review list of credit balances and
investigate large items.

Inventories
 Observe the taking of physical inventories
 If significant, confirm inventories held by others at the
physical inventory date
 Review the reconciliation of physical inventory
compilation with the GL account and records
 Perform roll-forward procedures, as necessary
 Perform cut off procedures
 Perform valuation and NRV testing

Physical Inventory Observation
 Review industry observation instructions obtained
from client.
 Review the physical inventory work program
 Attend physical inventory:
 Plant tour
 Test counts
 Physical Inventory Observation Checklist and memo
 Conclusion

QUANTITY x UNIT COST = TOTAL COST
Q x UC = TC
Countsheet
Location Description Qty
X1 Cheddar Cheese 600
X2 Cream Cheese 400
(completeness)
Inventory by
Location Report
Location Description Qty
6000
X2 Cream Cheese 400
Priced Out
Inventory Listing
Unit Total
Qty Cost Cost
_________
24,000,000
(accuracy)
G/L

Inventory cut-off procedures
 In order to ensure that the books and records are
complete, the paperwork associated with the above
must all be processed by the same count date.

Inventory Obsolescence Review
The identification and valuation of inventory items
that are:
 Excess
 Slow moving
 Obsolete
 Defective
 Expired
 Replaced or reproduced for
less than the cost or current
carrying amount

Investments, including investments in affiliates
 Verify the existence through confirmation or
examination of evidence of ownership
 Review minutes of meetings, agreements and
confirmation replies
 Perform valuation procedures through inspection of
market quotations
 Perform impairment testing

Property, Plant and Equipment
 Obtain a schedule of property, plant and equipment, including
capitalized leases
 Examine invoices, authorizations, leases and other data for additions
and disposals
 Review and examine support for rentals under operating leases
 Test reasonableness of depreciation, depletion and amortization
 Assess possible indications of impairment

Intangibles, including Goodwill
 Obtain a schedule of intangibles, including goodwill,
and test the bases on which additions, amortization
and disposals are recorded.
 Assess possible indications of impairment
 Impairment testing for goodwill (e.g. review of
discounted cashflows)

SUBSTANTIVE PROCEDURES - LIABILITIES
Accounts Payable - Trade
 Agree subledger to general ledger control account
 Review subledger for unusual items
 Test proper cut-off
 Review subsequent events and analytic procedures
 Test valuation of balances in foreign currencies

Income Taxes, Deferred Taxes and Related Income Statement
Accounts
 Test reconciliation of the current year book/local GAAP/statutory and
taxable income
 Test computations of provisions for current and deferred income taxes
 Review movements of income tax accounts
 Determine whether provision should be made for tax positions or other
tax contingencies
 Test intercompany and other related party transactions

Provisions, Accrued Liabilities and Deferred
Income
 Review the schedule of provisions, accrued liabilities
and deferred income and agree amounts to the general
ledger accounts
 Test if provisions, accrued liabilities and deferred
income were recorded at appropriate or reasonable
amounts
 Review lawyers’ confirmation, minutes and other
documents for completeness of recorded liabilities
 Search for unrecorded reserves/accruals (i.e. review
contracts, invoices, payments)

Notes Payable, Long-term debt & Leases
 Obtain confirmations from banks or other debt holders
 Inspect documents and authorization (i.e. loan documents, minutes,
lines of credit)
 Test compliance with loan covenants
 Identify liens, security interests, and assets pledged as collateral for
debt. Ensure proper disclosure

Notes Payable, Long-term debt & Leases
 Review subsequent events (i.e. refinancing transactions)
 Test reasonableness of interest expense
 Review summary of lease and rent contracts and test correct
presentation (e.g., operating or finance lease) in the financial
statements
 Test reasonableness of rent expense

SUBSTANTIVE PROCEDURES – INCOME STATEMENT ACCOUNTS
Revenue
 Perform analytical review procedures
 Inquire of sales and marketing personnel for any
unusual transactions, or similar items
 Review of the terms of sales agreements (i.e. returns,
sales incentives)
 Identify unusual items

Other Income
 Review contents of miscellaneous income and identify
unusual transactions
 Test interest and dividend income
 Determine that the changes in the value of
investments is properly recorded

Cost of Sales And Expenses
 Obtain details of expenses and analyze in comparison of prior period
/and or budget
 Test reasonableness of major expense accounts i.e. payroll,
depreciation, interest
 Verify through a review of lawyers fees that all lawyers and in-house
legal counsels, who handle significant litigation or other claims, have
been covered in the lawyers' confirmation work
 Review significant other taxes, e.g., property taxes, for correctness and
proper cutoff.

Purpose of Audit Documentation
Documentation occurs throughout the Audit
 The Engagement Team
 Conducts testing
 Obtains sufficient appropriate evidence
 Provides opinion

Reasons for Documentation
 Supports compliance with PSA
 Provides the principal support for our audit
opinion
 Aids us in the conduct and supervision of the
engagement
 Facilitates communication

We Document
 What we did
 What we found
 Where we found it
 What we concluded

GOAL OF DOCUMENTATION
Quality and Efficiency
Volume

EXTENT OF WORKING PAPER DOCUMENTATION
PSA 230
The auditor should prepare the audit documentation so as to enable an
experienced auditor, having no previous connection with the audit, to
understand:
(a) The nature, timing, and extent of the audit procedures performed to
comply with PSAs and applicable legal and regulatory
requirements;
(b) The results of the audit procedures and the audit evidence obtained;
and
(c) Significant matters arising during the audit and the conclusions
reached
thereon.

Audit Files
 Continuing Audit Files  Current Workpaper Files

Permanent File
 Brings together all the materials which may continue
to be of interest to this and future audits.
 Contents of a Continuing Audit File
 General information about the client
 Minutes, contracts, and regulations
 Accounting policies and procedures
 Material relating to the formation of the company
 Historical analyses of accounts
 Income tax information

Current Workpaper File
 Brings together all of the current audit work
performed and conclusions reached in the current-
year audit
 Contents of Current Workpaper File:
 Working Trial Balance
 Lead Schedules
 Detailed Schedules
 Planning document
 Audit Program
 Schedules prepared by clients

Safeguarding Working Papers
 All professionals are responsible for safeguarding audit
working papers to prevent their loss or use by an
unauthorized person.
 Secure working papers and computers in a locked area
at the client’s office.
 Be careful not to leave confidential data on the screen
of the computers for unauthorized persons view.
 Consider security matters when transporting working
papers and computer to the client’s location.

Elements of an Effective Work
Program
 Responds to risks in the planning process
 Acts as a substitute for practice aids in lower risk areas.
 May serve as a vehicle to communicate time
expectations
 Includes client procedures
 Incorporates any general notes
 Documents results of work done
 Reinforces what work to do and how to do it

Contents of the Work Program
 Company procedures and background information
 Audit objectives
 Audit procedures
 Performance and results of work (including general
explanatory notes)
 Conclusions

Current Working Paper File
FINANCIAL
STATEMENT
LEAD
SCHEDULES &
SUBSTANTI VE
TEST
Working
Trial
Balance
Lead
Schedules
Assets
Liabilities &
Shareholders
Statement
Profit & Loss
Cash
Accounts
Payable
Sales
Detail
Schedules &
Memoranda

Workpaper Hierarchical Structure
Financial Statements
(Assets) (Liabilities & Equity) (Profit & Loss)
A
(CASH)
B
(Accounts
Receivable)
C
(Inventory)
D
(Prepaid)
E
(PPE)
K
(Notes
Payable)
L
(Accounts
Payable)
M
(Accruals)
U
(Sales)
V
(Cost of
Sales)
W
(Selling,
General &
Admin Costs)

L
(Accounts Payable
Lead Schedule)
L1
(Reconciliation of
Payables Listing to
General Ledger)
L2
(Listings of Trade
Payables)
L3
(Trade Payables
Circularization
Control)
L3.1
(Agreed
Replies)
L3.2
(Disagreed
Replies)
L3.3
(Nonreply
Work)

Techniques for Documenting
Work
 Indexing
 Cross Referencing
 Tick Marks
 General Notes
 Lettered Explanations
 Conclusions
 Disclosures

Cross-Referencing
 Two-types of cross-referencing:
 Internal
 External
 Cross-referencing should be in red pencil

Tick marks
 Symbols used to refer to an explanation of work
completed
 Explain that work was done in a specific way
 Eliminate the need to write repetitive explanations
 Normally include description of evidence examined,
findings and results and unusual items noted and how
they were resolved.

Tick marks
- agrees with support document
C - confirmed
 - all formula and calculations have been tested
i - immaterial balance, accept as reasonable, NFA
PY - agrees to prior period working papers
TB - agrees to trial balance
GL - agrees to general ledger
β - discussed with client

Example of a General Note
 Example: General note on review of subsequent
payments:
Note 1 – Reviewed cash payments book and all bank
statements until Feb 15, last fieldwork day. One
omission noted. A payment on Jan 8 to Tokyo office
was not accrued. This is the subject of an Audit
Difference. No other above sdcope omissions.

Lettered Explanations
 Document and explain exceptions and unusual items
 Can be documented in the workprogram or workpaper
 Should be in red pencil

Types of Conclusions
1 2 3 4
Conclusions on
the financial
statements taken
as a whole
Explicit
conclusions
dealing with
fraud and going
concern
Conclusions on
passed
adjustments and
reclassifications
Conclusions on
resolution of
significant
audit issues

Audit Difference
 A difference between the amount, classification, or
presentation of a financial statement element,
account, or other item and the amount, classification,
or presentation that we believe would be required
under PFRS
 Omission of a financial statement amount, account, or
item required under PFRS.

Essential Documentation Features
 Indexing
 Cross-referencing
 Tick marks
 General Notes
 Lettered Explanations
 Signed Conclusions
 Completed Work Program
 Signature and Date on Workpaper
 Headings

Outline
 Purposes and Uses of Working Papers
 Working Papers Includes
 Permanent File Index
 Current File Index
 Audit Documentation
 Matters Affecting the Form & Content
of Working Papers
 Types of Audit Evidence

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9
Purposes and Uses of
Working Papers
 Serve as basic tools to assist the auditor in the
conduct of the audit.
 Support the auditor’s opinion on the financial
statements.
 Substantiate the competence of the auditor’s
examination.
 Serve as guides in subsequent audits.
 Aid in giving advice on tax and business matters
 Provide a basis for evaluation of staff members’
performance.

11/7/2015 110
WORKING PAPERS ORDINARILY INCLUDE:
 Information concerning the legal and organizational
structure of the entity.
 Extracts or copies of important legal documents,
agreements and minutes.
 Information concerning the industry, economic
environment and legislative environment within
which the entity operates.

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 Evidence of the planning process including audit
programs and any changes thereto.
 Evidence of the auditor’s understanding of the
accounting and internal control systems.
 Evidence of inherent and control risk assessments
and any revisions thereof.
 Evidence of the auditor’s consideration of the work
of internal auditing and conclusions reached.
 Analyses of transactions and balances.

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 Analyses of significant ratios and trends.
 A record of the nature, timing and extent of audit
procedures performed and the results of such
procedures.
 Evidence that the work performed by assistants was
supervised and reviewed.
 An indication as to who performed the audit
procedures and when they were performed.
 Details of procedures applied regarding
components of business whose financial
statements are audited by another auditor.

11/7/2015 113
 Copies of communications with other auditors,
experts and other third parties.
 Letters of representation received from the entity.
 Conclusions reached by the auditor concerning
significant aspects of the audit, including how
exceptions and unusual matters, if any, disclosed by
the auditor’s procedures were resolved or treated.
 Copies of the financial statements and auditor’s
report.

11/7/2015 114
Permanent File Index
I. Information About the Client’s Business
II. Internal Control System Documentation
III. Organization and Equity Capital
 Articles of Incorporation
 By-Laws
 Minutes or Resolution of Continuing
Interest

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Permanent File Index
(Cont.)
IV. Financing and Other Significant Agreements and
Contracts
 Bank and Other Financing Agreement
 Bond Indentures, Mortgages and Trust Agreements
V. Other Information of Continuing Relevance
 Certificates of Registration with Gov’t. or Regulatory
Bodies
 Tax Information

11/7/2015 116
Current Index File
I. Auditor’s Report, Financial Statements and
General Matters
II. Planning and Administration
PA Initial Planning Audit Program
PA1 Initial Planning Memorandum
III. Compliance Test Documentation

11/7/2015 117
Current Index File (Cont.)
IV. Substantive Tests
WORKING TRIAL BALANCES
AND ADJUSTMENTS
ST Substantive Test Program Summary
WBS Working Balance Sheet
WPL Working Profit and Loss
TB Trial Balance
AJE/RJE Summary of Adjusting/Reclassifying Journal Entries
PJE Summary of Passed Journal Entries

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ASSETS (Single Capital Letters)
A Cash
B Trade Receivables
C Other Receivables
D Inventories
E Prepayments
F Investments
G Property, Plant and Equipment
H Deferred Charges
I Intangible Assets
J Other Assets

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LIABILITIES (Double Capital Letters)
AA Notes Payable and Bank Loans
BB Accounts Payable
CC Acceptances Payable and Related Accounts
DD Accrued Liabilities
EE Income Taxes
FF Other Current Liabilities
GG Long-Term Debt
HH Other Non-Current Liabilities
II Contingent Liabilities and Commitments
JJ Stockholders’, Partners’ or Proprietor’s Equity
KK Retained Earnings

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12
0
INCOME AND EXPENSES (Two-Digit Numbers)
10 Sales
20 Cost of Sales
30 Selling Expenses
40 Administrative Expenses
50 (60 or 70) Other Groupings of Expense Accounts
80 Other Income or Expenses

11/7/2015 121
PSA 210
ON AUDIT DOCUMENTATION
Section 2.
The auditor should document matters which are
important in providing evidence to support the
audit opinion and evidence that the audit was
carried out in accordance with Philippine
Standards on Auditing.
Section 5.
The auditor should prepare working papers
which are sufficiently complete and detailed to
provide an overall understanding of the audit.

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Matters Affecting the Form and Contents of
Working Papers
 Nature of the engagement.
 Form of the auditor’s report.
 Nature and complexity of the business.
 Nature and condition of the entity’s accounting
and internal control systems.
 Need in the particular circumstances for direction,
supervision and review of work performed by
assistants.
 Specific audit methodology and technology used
in the course of the audit.

11/7/2015 123
Types of Audit Evidence
 Physical Examination
 Third-Party Statements or Confirmation
 Client Statements or Representations
 Authoritative Documentations
 Observation
 Clerical Accuracy
 Comparison & Data Relationships

11/7/2015 124
PHYSICAL EXAMINATION
Description Of General Auditing Procedures
COUNTING OF INVENTORY, CASH, SECURITIES,
UNMATURED PROMISSORY NOTES
- To establish existence and, where applicable,
ownership and condition of assets

11/7/2015 125
THIRD-PARTY STATEMENTS OR
CONFIRMATIONS
OBTAINING CONFIRMATION DIRECTLY OR DETAILS
OF ACCOUNT BALANCES
- To verify validity and accuracy of balances and other
information with outside parties.

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6
CLIENT STATEMENTS OR REPRESENTATIONS
OBTAINING CLIENTS REPRESENTATION LETTER,
EXPLANATIONS TO MANY DIVERSE QUESTIONS
RAISED DURING THE AUDIT
- To obtain knowledge and understanding about the
client and its circumstances.

11/7/2015 127
AUTHORITATIVE DOCUMENTATION
EXAMINING (OR VOUCHING) PAID CHECKS,
VENDORS PRUCHASE ORDERS, RECEIVING
REPORTS, TITLES, CONTRACTS AND OTHER
DOCUMENTARY MATERIALS.
- To verify the validity and propriety of accounting
treatment of transactions and account balances
and compliance with internal controls.

11/7/2015 128
OBSERVATION
OBSERVING THE TAKING OF PHYSICAL
INVENTORIES BY CLIENT PERSONNEL OR THE
ACTUAL OPERATION OF INTERNAL CONTROL
- To determine compliance with prescribed procedures.

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9
CLERICAL ACCURACY
RECHECKING CLERICAL DETERMINATION BY
CLIENT
- To verify the accuracy of computations and transfers of
information made by client.

11/7/2015 130
COMPARISON AND DATA RELATIONSHIPS
COMPARING CURRENT PERIOD ACCOUNT
BALANCES OR OPERATING DATA WITH SIMILAR
INFORMATION FOR PRIOR PERIODS AND
INVESTIGATING UNUSUAL DATA RELATIONSHIPS.
-To disclose and determine the reasons for significant
changes.

Working Paper
Organization Chart
Continuing
Audit
File
Current
Working
Paper File
Risk
Assessment
& Planning
Job
Administration
Work
Of
Others
Lead
Schedules
&
Substantive
Work
Financial
Reporting
Transaction
Processing
Cycles
Transaction
Processing
Cycles
Evidential Matter
(Test of Controls)
Assets
Liabilities
&
Equity
Profit
& Loss
Financial
Reporting
Working
Trial
Balances
Lead
Schedules
and
Substantive
Work
Lead
Schedules
Detail
Schedules
and
Memoranda
Account Level
Evidential Matter
(Substantive Testing)

Indexing
If there are two or more pages comprising a given schedule, the pages are
marked to indicate both the particular page and the number of total pages (see
B-5 above).
Detailed work of an account balance could be supported by several tiers of
supporting schedules using fractional indexing (see B-9 above)

2003 2004 _
Balance Beginning of Year P130,089 P151,691
Write-offs ( 71,087) ( 62,439)
Provision 92,689 83,994_
Balance End of Year P151,691 P173,246
========= =========
Examples
ANAK NG JUETENG, INC.
Analysis of Reserved for Doubtful Accounts
Audit: 12-31-04
B-9
PBC
DETAIL OF CURRENT WRITE-OFF
Date Customer Amount _
4-21-04 Lion King P 25,081
4-29-04 Jose Pedal 5,377
5-18-04 Atty. Ong 17,341
5-20-04 Sec. Bunye – Original 10,093
Various amounts under P1,000 4,547_
2004 Write-Offs P 62,439
==========
Examined write-off form approved by the controller noting agreement of date, customer and amount all
write-offs over P1,000.
Accumulated write-offs under P1,000 from detail maintained by the credit manager noting agreement.
Traced to Prior Year Audit Working Papers noting agreement.
Footed by QCB & Co. and agrees.
1
1
2
2
B B

Examples
ANAK NG JUETENG, INC.
List of Outstanding Checks
Audit: 12-31-04
A-4
PBC
Amount _
P 991.90
15,000.00
2,001.03
12,576.13
2,790.29
1,745.75
8,941.86
49,810.73
15,439.75
4,989.51
5,533.64
P122,410.43
==========
Examined cancelled checks returned by bank
together with the December 2005 bank statement,
noted in order.
Examined check register and noted that these were
not acknowledged received by the payee in December
2004.
Footed by QCB & Co. and agrees.
P25,962.90
=========
Reviewed the list of outstanding checks noting no unusual or
significant items except for & as discussed below.
NOTE 1>
A B
B
A Per review of the vendor invoices and receiving reports, this
check is for lumber and supplies purchased for the additions to
the building site. See extracts from the board of directors
meeting minutes at XX for further discussion.
B Per discussion with Gen. Garcia, Comptroller, these checks dated
12/30/04 were not released to the vendors until 1/2/05 as all
authorized check signers were on vacation. Based on the dates
these checks cleared the bank per our review on the January 2005
bank statement, this explanation is reasonable. Thus the
following adjustment is proposed to properly state cash and
accounts payable at 12/31/04:
PAJE <1>
Cash P25,962.90
Accounts Payable P25,962.90

Exit Meeting
11/7/2015 135
 This is the meeting between audit team and the client at
the end of fieldwork.
 The objective of the meeting is to share and discuss the
key noted findings.
 It is the important forum for audit team to get
confirmation on the obtained/noted findings;
responses from the management and the tentative
corrective actions/action plans.
 The minutes of the meeting should be well
documented and signed by both parties and these
forms parties of the working papers.

Filling of 5 – Attribute form/sheet
11/7/2015 136
 This is the sheet/form where audit findings are recorded.
 It is a key tool for ensuring effective report writing.
 Summary of contents of the form include:-
 Audit objective: The purpose of audit
 Attributes of the findings: Condition, criteria, cause
effect and recommendation.
 Client personnel with who discussed: Name, title, dept, date
of discussion, and name of auditor.
 Comments by client personnel: Relevant comments made by
client personnel with whom the finding was discussed.

Phase 3: Reporting
11/7/2015 137
 This refers to the communication between the Auditor
and the Client on the results of the audit engagement (It
is the product of audit engagement).
 It is the most visible output that provides feedback to
the client and other stakeholders on the result of
engagement.
 It is an opportunity for audit showing how it can add
value to the organization.
 It provide the management with the opinion on the
adequacy of internal controls systems.

Audit Step : To communicate the results of the audit to management W/P
No.
Est.
Hrs.
Act.
Hrs.
A.
B.
C.
Prepare a Draft Report:
1. Write report introduction, background & scope.
2. Consolidate conclusion summaries into a report, x-ref
3. Write memo for less significant items.
4. Submit report for review & clear review notes.
5. Set up the Exit Conference and distribute Draft Report
6. Conduct Exit Conference to brief on the audit results and request a date for completion of the
corrective action plan. (Note: If any material changes to the audit report are identified,
establish the date for revised report to be issued.)
Obtain Corrective Action Plan
1. Analyze the Corrective Action Plan for adequacy and document.
2. Advise agency management of any apparent inadequacies in the Corrective Action
Plan & resolve.
Prepare a Final Report:
1. Add the revised Corrective Action Plan to the Draft Report to prepare the Final Report.
2. Submit report for review & clear review notes.
3. Distribute the final report.
REPORTING: Date Completed April 4, 2010 _____69_____Total Hours:
AUDIT REPORT
.

Discussion Draft
At the conclusion of fieldwork, the auditor drafts the
report. Audit's goal is to complete the audit and issue a
draft audit report within 30 days after the completion of
fieldwork.
Audit management reviews the audit working papers
and the discussion draft before it is presented to the
client for comment. This discussion draft is submitted to
the client for review before the exit conference.

Exit Conference
Internal Audit meets with the unit's management
team to discuss the findings, recommendations, and
text of the discussion draft. At this meeting, the client
comments on the draft and the group works to reach
an agreement on the audit findings.

Exit Conference
Is an opportunity for the auditor, department management, process owners, and
other to review and validate audit outcomes.
The Exit Conference should accomplish the following:
1) Present observations and determine if the current operating context might affect
past transactions.
2) Confirm facts, observations, and conclusions, e.g., that the findings are accurate.
3) Validate the cause leading to findings and present recommendations.
4) Estimate the effect of the findings on operations or its risk management.
5) Solicit draft management comments on the audit findings and determine if
alternative recommendations adequately eliminate the cause of findings.
6) Define the timeline for issuing the final audit report and implementing
recommendations.

Audit Finding
Audit Findings
Reconciliation Supervisory Review (Urgent)
During our sample review of account reconciliations, it was noted that
many account reconciliations were not being reviewed by the
supervisor in Item Processing and Deposit Operations.
Recommendation
We recommend management review all accounts at least monthly.
Action Plan
The Supervisor of the Item Processing Department was advised of this
requirement and has implemented changes as requested.
The Deposit Operations Manager will sign and review all account
reconciliations. A secondary signature by the balancing associate
and/or supervisor will also be implemented. This procedure is
currently in place.

Exit Conference Checklist
Procedure
Set the date, time, and location of the exit meeting.
The agenda should include the following:
• Accomplishment of the audit objectives (theirs and ours).
• Discussion of potential audit findings and
recommendations.
• Discussion of when management’s response
will be due.
• Audit reporting process.
• Follow up process.
Document results of the exit meeting.

Exit Conference
This section of the report summarizes the pertinent
information regarding the Audit Exit Conference. It
includes:
The date the conference was held.
The persons in attendance and their titles.
A statement that a summary of the Findings and
Recommendations was discussed.

Audit Exit Conference WP
Audit Location (Faculty Division)---------------------------------------------------------------------------------------------
Audit Date---------------------------------------------------------------------------------------------------------------------------
Lead Auditor------------------------------------------------------------------------------------------------------------------------
Audit team Member--------------------------------------------------------------------------------------------------------------
The main purpose of this meeting is to immediately present audit observations to the senior management in a timely manner at the
end of the audit and in such a manner so as to ensure that they clearly understand the results of the audit.
List Observations:
The lead auditor should present observations, taking into account their
perceived significance and identifying key non-conformance areas.
Key Non-conformances:
The lead auditor should present the audit team’s conclusions .
Proposed Audit Score:
Audi tee response to observations, non-conformances and audit score proposed by the auditor.
JOSE

Formal Draft
The auditor then prepares a formal draft, taking into
account any revisions resulting from the exit
conference and other discussions. This report is issued
to the audited requesting a written response to
any audit findings and recommendations.
When the changes have been reviewed
by audit management and the client,
the final report is issued.

AUDIT REPORT
Our principal product is the final report in which we
present the audit findings and discuss recommendations
for improvements. Once the fieldwork is completed,
Internal Audit will draft a report to include the result of
the audit including recommendations for improvement.
After the draft report is completed, it will be forwarded
to department management for review and discussion at
a scheduled exit conference.

Quality of the Internal Audit report
11/7/2015 148
Internal Audit Report must be:-
 Accurate - ie. Free from errors and distortions (purpose
clearly communicated).
 Objective - ie. Fair, impartial and unbiased.
 Clear - ie. Easy to understood and logical.
 Concise - ie. Straight to the point without unnecessary
details.
 Constructive - ie. Help the client to improve its
performance (practical solution).
 Complete - ie. Should include all the relevant facts.
 Timely - ie. Well timed to enable timely decision on
proposed recommendations.

Format of Internal Audit Report
11/7/2015 149
The standard audit report should have the following key sections
 Executive Summary: showing all aspects of the report but in a
nutshell. It should be able to give the snapshot of the whole report,
but it should not too much summarized to lose the meaning.
 Introduction: Show the background information on area under
the audit, establishment, objective, function etc. (The mandate of
the internal audit in auditing such area).
 Objectives: Show the audit focus, expected output (what it will
achieves (could generals and specific ones).
 Scope of Audit: description of auditable areas, timing (period
covered and when the audit conducted).
 Compliance statement: describe that the audit activity was
conducted “In accordance with professional practice of auditing
standards” (whether local, international or both).

Format of Internal Audit Report…
11/7/2015 150
 Approach or Methodology use: describe the criteria followed; standards used;
work done in testing; documents used (reviewed) etc.
 Findings and Recommendations: For each finding, describe the condition;
criteria; cause and effect/impact. Recommendations should address the cause to
improve operations, and is shown in a separate sub-paragraph.
 Conclusion/Summary:
 This show the auditors’ evaluation of the effect of the findings on the activity audited (The overall
implications).
 Should focus on audit objectives and any qualifications.
 Can also focus on clients accomplishment in relation to previous findings, compliance and
achievements of operations (Here the auditor can show the noted strengths of the client).
 Compliance plan: Agreement between auditor and client on the implementation
of the auditor’s recommendations as part of management responses. It show area of
improvement, responsible person, action to be taken and time frame, name and
signature of both parties (client & auditor). [where possible the compliance plan can
be signed between Head of Internal Audit and the Head of audited entity].
 Acknowledgement: General statement to show the appreciation for
cooperation/assistance extended by client to the audit team during time of audit
(Note: it should not mention specific individuals).

Format of Internal Audit Report…
11/7/2015 151
 Signature: Signed after the audit examination
completed. Should be signed by the authorized
internal auditor and showing his/her name after
his/her signature.
 Appendixes: Any relevant information that clarifies
the finding/ observation can be shown as appendix to
the report. This must be cross-referenced in the report
by number or letters (eg. Appendix 1 or Appendix A)

Phase 4: Audit follow-up
11/7/2015 152
Sometime referred as Recommendation Audit.
 It assumes all steps like any other audit engagement.
 The objective is to review and verify the
Implementation of audit recommendation.
 It is the last phase of audit engagement. However The
Audit Engagement is completed/closed when all
recommendation has been fully implemented.

Report Issuance Control Sheet
Spelling and Grammar Check Performed by: ______PABLO____________________
Quality Assurance Review (QAR) Performed by: ______VILMARI__________________
Approval of final draft with responses Director of Audits: ___AMANDA_________________
Engagement Manager: ___JOSE ____________________
Check all reports (original and all copies). Verify the following:
1. They contain all pages, in the appropriate order __________
2 All copies are straight and legible; and __________
3. The signature page has been signed. __________
Report Distribution*:
President
Client Management
Chief Business Officer
Director of Internal Audit
Chancellor
Vice Chancellor for Academic Affairs
Executive Vice Chancellor for Health Affairs
Executive Vice Chancellor for Business Affairs
Institution Compliance Officer
Others (list)
Reading File (unbound hard copy – stamped and placed in Reading File)
Unbound hard copy provided to Office Associate
* As determined by type of audit and institution where engagement is conducted (Academic, Medical, or System Administration).
Compliance Officer should be included in report distribution if engagement involves a compliance issue.
Engagement Distribution Timeline:
Last Day of Fieldwork (MM/DD/YYYY) _____________
Report Issuance Date _____________
Days between Last Day of Fieldwork and Report Issuance. _____________

Final Report
After audited management has been given an
opportunity to respond to the Preliminary Draft, the Final
Draft Report is presented to the Accountability Oversight
Committee for approval. Upon approval of the Final
Draft the Final Report is issued.
Auditor distributes the final report the Chief Financial
Officer, the Chief Accountant, the President, the Board of
Directors, and other appropriate members of senior
management. Final Reports are considered public
information and will be available to anyone.

Independent Auditors' Report
To the Board of Directors and Shareholders
I have audited the accompanying financial statements of ABC CO., INC., which comprise the statements of financial position as at December 31, 2013 and
2012, and the statements of comprehensive income, statements of changes in equity and statements of cash flows for the years then ended, and
notes, comprising a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with Philippine Financial Reporting
Standards (PFRS), and for such internal control as management determines is necessary to enable the preparation of financial statements that are
free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with Philippine Standards
on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance
whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures
selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due
to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation
of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and
the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.
Opinion
In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ABC CO., INC. as of December 31,
2013, and their financial performance and its cash flows for the years then ended in accordance with the PFRS.

Client Response
The client has the opportunity to respond to the audit
findings prior to issuance of the final report which can be
included or attached to our final report.
In the response, the client should explain how report
findings will be resolved and include an implementation
timetable. In some cases, managers may choose to respond
with a decision not to implement an audit
recommendation and to accept the
risks associated with an audit finding.

Client Response Example
Client Response (1) - Treasury balances are reconciled
monthly. Treasury activity is reconciled daily. Differences are
isolated to the period of October 1, 2012 and prior, and have
been controlled since that date. Adjusting entries are made
with proper documentation and review.
Moving the function to a private sector financial institution has
been discussed and poses two major obstacles. The first
obstacle is the negotiability of a private sector check versus a
Treasury check. This would obviously cause problems for
account holders in remote locations as Treasury checks are
readily negotiated at local merchants. A private sector financial
institutions checks would not be as negotiable. The second
obstacle is the financial resources required to obtain the
services of a private sector institution.

Client Comments
Finally, as part of Internal Audit's self-evaluation
program, we ask clients to comment on Internal
Audit's performance. This feedback has proven to be
very beneficial to us, and we have made changes in our
procedures as a result of clients' suggestions.

Client Comment Example
"I would highly recommend Schmidt & Associates to any
credit union currently searching for a quality auditing
firm. I have been very impressed with the scope of the
audits and the level of detail employed by representatives
of the firm during their monthly and quarter
contacts. Furthermore, I always receive prompt attention
whenever I have questions regarding regulatory or
compliance issues."
Greg Kidwell
Members First Credit Union
Columbus, Ohio
11,000 Members, $38 Million in Assets

Audit Follow up
 Depending on the nature of the audit or the audit
findings, the Follow-Up procedure may formal or
informal”.

Audit
Approximately one year of the final report, Internal
Audit will perform a follow-up review to verify the
resolution of the report findings.
 FOLLOW UP REVIEW
 FOLLOW UP REPORT
 AUDIT ANNUAL REPORT TO THE BOARD

Followed up review
 The actions taken to resolve the audit report findings
may be tested to ensure that the desired results were
achieved.

Followed up Report
 To resolve the original report findings.
 Unresolved findings will include a brief description of
the finding, the original audit recommendation, the
client response, the current condition, and the
continued exposure to the board of company.

Audit Annual Report
 Memorandum to the senior manager that notifies them that audit
activities are underway and describes the follow-up process.
This memo should include:
 timeframes for the project,
 a copy of the outstanding findings relating to areas reporting.
 a request that they distribute the findings to these areas and ask
the managers to provide Internal Audit with the information
requested,
 a statement that these comments were previously distributed as
part of an audit report or close-out letter
 notification that the results will be reported to Board of Trustees.
 The Announce Memo report Findings Access database provides
sample wording for the notification memo.
 The notification memo should be sent

Thank You for Your Attention
Any Questions?

Audit process

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