1. Define auditing.

As defined by the American Accounting Association, auditing 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. It encompasses both investigative
and reporting process.

2. What are assertions? Give examples.

Assertions are representations made by the management about economic
actions and events in which the objective of the auditor is to determine whether
these assertions are valid. In order to satisfy this objective, the auditor performs
audit procedures and gathers evidence that corroborates or refutes the
assertions. An example is an assertion on the valuation of the inventory of an
enterprise. The auditors will test this audit assertions to prove if it is valid.
Another examples are assertions about the accuracy of the information
presented in the financial statements and the assertions on the completeness,
occurrence, and cutoff in auditing payroll.

3. What is the criteria being used for a financial statement audit?

The established criteria that are being used for a financial statement audit are the
generally accepted accounting principles. These serve as the benchmark of the
auditor in expressing opinions in the fairness of the presentation of financial
statements for the period under audit.

4. Distinguish accounting from auditing.

Accounting and auditing are interrelated, however, they differ in scope and
processes. Accounting is the process of recording, classifying and summarizing
economic events in logical manner for the purpose of providing financial
information for decision making. On the other hand, auditing is concerned with
the determination of whether the recorded accounting information for the entity
properly reflects the economic events that occurred during the accounting period.
Simply put, auditing begins where the accounting ends.

5. Are all audits attestations? Are all attestations audits? Explain.

All audits are attestations but not all attestations are audits. Audit is performed to
discover data, risks, or compliance issues that may not have been known before
the audit took place. Attestation is performed to evaluate and review how true the
data or information is when compared to a stated purpose, internal control or
system. Therefore, audits are attestations. Audits generally arise first, followed by
the attestations, and finally by assurance engagements.

6. What are the types of audits? Describe each.

 Audits can be classified according to the nature of assertion being audited or the
type of the auditor performing the engagement.

According to the nature of assertion:

a. Financial statement audits refers to the gathering of evidence on the
assertions embodied in the financial statements of an entity and using the
evidence to determine whether the assertions adhere to generally accepted
accounting principles (GAAP) or another comprehensive and authoritative
financial reporting framework.
b. Operational audit is a future-oriented, systematic, and independent evaluation
or organizational activities.
c. Compliance audit is used to determine whether a person or entity has
adhered to laws and regulations.

According to the auditor performing the engagement:

a. External audits are performed by CPAs who are independent of the
organizations whose assertions are being audited.
b. An internal audit is an independent appraisal function established within an
organization to examine and evaluate its activities as a service to the
organization.
c. Government audit involves the determination of whether government funds
are being handled properly and in compliance with existing laws and whether
the government programs of a particular agency are being conducted
efficiently and economically. This is further classified into three main divisions
which are compliance audit which involves the examination, audit and
settlement in accordance with laws and regulations, the financial audit which
is the audit of the accounting and financial system and controls to ensure
reliability of recorded financial data, and the performance audit which
encompasses the management and the program results audits.

7. What is the objective of a financial statement audit?

The objective of an audit of financial statements is to enhance the credibility of
such financial statements as the auditor expresses his opinion regarding its
fairness. Such financial statements shall be presented in conformity with the
GAAP.

8. What is information risk?

Information risk refers to the risk that the information is misstated or misleading.
This may be attributed to several factors such as the remoteness of information
users from the information provider, potential bias and motives of information
provider, voluminous data and complex exchange transactions.

9. What is an audit report?

 The audit report is a written report which states the reasonable assurance
provided by the auditor regarding the fairness of the audited financial statements.
It is presented in a uniform format with suitable title to avoid confusion on the
interpretation of the content and to differentiate it from other reports.

10. Describe the limitations of an audit.

An audit cannot provide an absolute guarantee regarding the exactness and
accuracy of assertions in the financial statements. It is only undertaken to
enhance the degree of confidence of the intended users towards the audited
financial statements. This is because of the inherent limitations of an audit arising
from the nature of financial reporting and audit processes, and the need for the
audit to be connected within a reasonable period of time at a reasonable cost. It
is also necessarily limited by its scope and objective.