Auditing 5x2m1c

AUDITING FOR NON-ANTS

INTRODUCTION YOUR

NAME YOUR COOPERATIVE YOUR POSITION YOUR EXPECTATION

I. II.

III. IV. VI.

Review of Auditing Fundamentals

Auditing and Governance

Preparation of Audit plan or program

Audit procedures and techniques

V.

Samples of highly effective audit procedures

Preparation of audit report and recommendations

INTRODUCTION

WHAT IS AUDIT? 

  

Inspection of the organization’s s To check & the s To check the authenticity of financial statement To state “TRUE & FAIR VIEW”

Auditing defined

It is a critical and systematic examination or review of ing reports, documents, records, procedures and controls, for the purpose of determining whether they conform with prescribed criteria, or to enable the expression of an opinion on the propriety of financial statements.

HISTORY

HOW AUDIT CAME INTO EXISTENCE?  



Derived from Latin word “AUDIRE” Audire means TO HEAR 1ST started in England in 1314 by W. EXCHEQUER

AUDIT IN ING 

  



To ascertain the validity and reliability of information Audit is a vital part of ing An audit is an independent assessment Performed by Auditor To express an opinion on person/organization/system

PURPOSE

OBJECTIVES

PRIMARY OBJECTIVES 





To judge the reliability of the financial statements To give opinion whether the s disclose a true and fair view of the state of company's affairs Adequate and Appropriate recording of books of s

SECONDARY OBJECTIVES DETECTION & PREVENTION OF ERRORS A. Clerical errors: i. Errors of Commission ii. Errors of Omissions iii. Compensating Errors B. Errors of Principles: 



DETECTION & PREVENTION OF FRAUDS

SCOPE OF AUDIT

ADVANTAGES OF AUDIT  To

Business

 To

Public

 To

Gov’t

ADVANTAGES TO BUSINESS Independent Opinion 2. Verification of Books 3. Satisfaction of Owner 4. Detection and Prevention of Errors 5. Detection and Prevention of Frauds 6. Moral Check 7. Protection of the Rights and Interests of Shareholders 8. Reliance by Outsiders 9. Loan Facility 10. Easy Valuation 11. Up to Date Record 12. Reliance by Partners / Shareholders 1.

ADVANTAGES TO PUBLIC 1. 2. 3.

Safety from Exploitation Facility for Prospective Investor Satisfaction about Business Operations

ADVANTAGES TO GOVERNMENT

1.

Easy Assessment of Tax

2.

Quick Recovery of Taxes

3.

Leading to Economic Progress

LIMITATIONS OF AUDITING  



Exercise of judgment Material misstatements Failing of internal control system

TYPES OF AUDIT 

Legal bases



Time of execution



Specific Objectives

LEGAL BASES 

Statutory Audit (BIR, SEC, BSP, IC, etc)

TIME OF EXECUTION Annual Audit A. Advantages B. Disadvantages  Interim Audit A. Advantages B. Disadvantages 

SPECIFIC OBJECTIVE  

  

  



Internal Audit Management Audit Cost Audit Social Audit Due Diligence Audit Environment Audit Financial Audit Proprietary Audit System Audit

AUDITOR  



Meaning Definition Work

TYPES OF AUDITOR A. B.

C. D.

External auditor / statutory auditor Internal auditors Consultant auditors Quality auditors

AUDIT IN COMPUTERIZED ENVIRONMENT  

 

Auditing around the Computer Auditing with the Computer Auditing through the Computer Computer use in Internal Auditing

General Types of Audit  

  

Financial Statements Audit an independent / external audit involves the basic financial statements designed to obtain reasonable assurance expresses an opinion on the FS as a whole

General Types of Audit   



Operational Audit also known as “Management” or “Performance” audits. design to determine the effectiveness and efficiency of management operations. expected output are the recommendations for improvements

General Types of Audit    

Compliance Audit performed to determine whether specific procedures or rules are being followed. the auditee generally determines the standard to be followed. the output is directed to a specific rather than a broad spectrum of s

General Types of Audit 

Fraud Audits - the investigation of anomalies - gathering of evidence of fraud - the legal goal is conviction

General Types of Audit 

Information Technology Audits - assessing the proper implementation, operation and control of computer resources - establishes congruence on the major management assertions

Types of Auditors  

 

Certified Public ing Firms Internal Auditors Specialized Auditors – CIA, CFA,CISA Government Auditors - Commission On Audit - Bureau of Internal Revenue

Benefits of Independent Audit 





adds credibility and reliability to the FS - basis for tax returns - basis for financial assistance - basis for additional investments improves business operations commission of fraud is minimized

General Principles Governing an Audit of Financial Statements  

An auditor should comply with the Code of Ethics for Professional ants issued by IFAC. An auditor should conduct an audit in accordance with Philippine Standards on Auditing.

Audit Process

AUDIT PROCESS

Planning

Fieldwork

Audit Report Audit Follow Up

AUDIT PROCESS

AUDIT PROCESS

Planning

Fieldwork

Engagement Letter

Transaction Testing

Initial Meeting

Advice & Informal Communications

Preliminary Survey Internal Control Review Audit Program

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 Planning Audit Planning means developing a general strategy and a detailed approach for the expected nature, timing and extent of the audit. The auditor plans to perform the audit in an efficient and timely manner.

PURPOSES Adequate planning of the audit work accomplishes among others the following: It ensures that appropriate attention is devoted to important areas of the audit ii. It enables the auditor to identify potential problems iii. It enhances completion of audit expeditiously iv. It assists in proper assignment of work to assistants and in coordination of work done by other auditors and experts i.

Audit planning considerations    

 

Knowledge of the business Understanding of the ing and Internal Control System Assessment of Risk and Materiality Nature, Timing and Extent of Audit Procedures Coordination, Direction, Supervision and Review Other matters such as assessment of the going concern assumption, related parties and the

Analytical procedures in the audit planning stage 



Consist of evaluations of financial information made by a study of plausible relationships among both financial and non financial data. The purpose of applying analytical procedures in planning the audit is to assist in understanding the business and identifying areas of potential risk.

Audit plan inclusions 1. 2. 3. 4. 5. 6. 7.

8. 9. 10.

Description of the structure and nature of the cooperative Audit objectives Description of the nature and extent of other services Timetable of the audit work Work to be done by management Assignment of audit Target completion dates of the major segments of the engagement Preliminary evaluation and judgment about materiality levels Any special problems to be resolved in the engagement particularly those revealed by analytical procedures Conditions that may require changes in audit tests

Other critical matters in audit planning Assessment of the Going Concern Assumption The auditors are required to evaluate whether substantial doubt exists about an entity’s ability to continue as a going concern based on procedures planned and performed to obtain evidence about the managements assertions embodied in the financial statements.



Examples of conditions that may cast significant doubts about the going concern assumption  

     

Net liability or net current liability position Fixed term borrowings approaching maturity without realistic prospects of renewal or repayment or excessive reliance on short term borrowings to finance long term assets Indications of withdrawal of financial by debtors and other creditors Negative operating cash flows indicated by historical or prospective financial statements Adverse key financial ratios Substantial operating losses Arrears or discontinuance of dividends Inability to pay creditors on due dates

48

Planning of 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.

7/1/2017

Conduct in office review 49



Review documents (criteria) related to the client (laws, regulations, guidelines 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). 

7/1/2017

Entrance Conference 50

  

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 7/1/2017 (draft and final) and follow-up audits.

 How 51

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  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. 7/1/2017

52

Conduct 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 7/1/2017 previously.

53

i. 



Phases of Preliminary Survey 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. 7/1/2017

54

Identification of potential areas for improvement Identifying areas for audit emphasis (risk area). These include: Areas

identified/documented in risk. .  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 7/1/2017

55

Confirmation: Getting evidences from third parties where necessary. 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 7/1/2017 and field work.

Audit Program

Benefits/Advantages of Audit Program 61

   

 

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. 7/1/2017

Evidence Gathering 62





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. 7/1/2017

Evidence 63

Defn: Refers to all matters that s 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. ing the observations and recommendations; consistent with objectives. Useful ie. Help the organization to meets its objective.

7/1/2017

Evidence….

64

Types of evidence 

  

Physical - direct inspection/observation – documented as memoranda, charts, maps, photographs etc. Documentary - created information eg. ing 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. 7/1/2017

AUDIT TECHNIQUES (PSA 500) -

a. b.

c. d. e.

f. g. h.

practical methods we do in the course of audit. Inspection Observation Inquiry External Confirmation Scrutiny and review Recalculation Reperformance Analytical procedures

Inspection 

Inspection performed as test of controls



Inspection of documents (Existence)



Inspection of tangible assets (Existence)

Audit procedures 

Inspection

- examining records, documents or tangible assets. Inspection of records and documents provides audit evidence of varying degrees of reliability depending on their nature and sources and the effectiveness of internal control over their processing. Documentary evidence may be :  Created by entity and held by third parties  Created by third parties and held by the entity  Created by and held by the entity



Tracing

- involves establishing completeness of transaction processing by following a transaction forward through the ing records. Example : compares information from receiving reports to purchases journal



Vouching

- involves following a transaction back to ing documents from a subsequent processing step. Example : to occurrence of purchase transaction, the auditor starts with the purchases journal to ing evidence such as paid checks and receiving reports.

Observation Consists of examining a process or procedure being done by others. for example - observation of inventory counting and (PSA 501) - observation of the performance of control activities.

Inquiry

This consists of seeking information of knowledgeable persons, both financial and non-financial, throughout the entity or outside the entity.

External Confirmation

This is a specific type of inquiry, and is the process of obtaining a representation of information or of an existing condition directly from a third party.

Confirmation - Response to inquiries may provide the auditor with information not previously possessed or with corroborative audit evidence. - Confirmation consists of the response to an inquiry to corroborate information contained in the ing records. - There are two types of confirmation requests: the positive form and the negative form. Some positive forms request the respondent to indicate whether he or she agrees with the information stated on the request.

Information frequently confirmed and its Source a. b.

c. d. e.

Cash in bank- bank s receivable – customer Notes receivable – maker Inventory out on consignment – consignee Cash surrender value of life insurance policy – insurance company

Information frequently confirmed and its Source f. g.

h. i. j.

s payable – creditor/supplier Bonds payable – issuer Shares Outstanding – registrar and transfer agent Contingent liability – company’s legal counsel Bond indenture agreement – issuer/trustee

Two Types of External Confirmations  

Positive – the respondent is asked to reply to the auditor in all cases Negative – the respondent is to asked to reply only in the event of disagreement with the information provided

(Date) (Customer’s name and address) Dear

:

In connection with an audit of the financial statements of (insert name of client) as of December 31, 2015 and for the year then ended, please examine the enclosed statement carefully. If it does not agree with your records, please report any differences directly to our auditors: (insert name and address of auditors) DO NOT SEND ANY PAYMENTS TO OUR AUDITORS. Thank you for your anticipated timely cooperation with this request. Respectfully, (Name of client) (Client’s authorized signature and title)

Scrutiny and review

Scrutiny tests can be performed in relation to review of documents and certain other ing records like ledger s and cash books.

Recalculation

Consists of checking the mathematical accuracy of documents or records and can be performed through the use of information technology

Re-performance

This is the auditor’s independent execution of procedures or controls that were originally performed as part of the entity’s internal control



Reconciliation

- involves establishing agreements between two sets of independently maintained but related records. - for example, reconciliation between subsidiary ledger and general ledger - bank reconciliation - inventory reconciliation

Analytical Procedures

Consist of evaluations of financial information made by a study of plausible relationships among both financial and non-financial data

Commonly Used Audit Procedures and Examples of their Applications a. b.

c.

d. e.

Analyze – transactions Compare – beginning balances with last year’s audit figures Confirm – s receivable, cash in bank, AP Count – inventory, cash Examine – authoritative documents such as invoices, checks

f. g.

h. i. j. k.

Extend – multiply inventory quantity Foot – total cash received column Inspect – certificate of stocks Interrelate – interest expense with liabilities Observe – inventory count Reconcile – cash balance per ledger and per bank

l. m.

n. o.

Test – cash transactions Trace – bookkeeping procedures – rent income against lease contract Vouch – cash disbursement

PSA 520

Analytical Procedures

Analytical Procedures 

‘Analytical procedures’ means evaluations of financial information through analysis of plausible relationships among both financial and non-financial data.



Analytical procedures also encom such investigation as is necessary of identified fluctuations or relationships that are inconsistent with other relevant information or that differ from 91 expected values by a significant amount

Objectives of the auditor: 



To obtain relevant and reliable audit evidence when using substantive analytical procedures; and To design and perform analytical procedures near the end of the audit that assist the auditor when forming an overall conclusion as to whether the financial statements are consistent with the auditor’s understanding of the entity 92

PSA 520 – Analytical Procedures 

The auditor should apply analytical procedures as risk assessment procedures to identify aspects of the entity of which the auditor was unaware and may assist the auditor in assessing the risk of material misstatement in order to provide a basis for deg and implementing responses to the assessed risk.

93

During Planning 

Perform an analysis of the INTERIM financial statements obtained for planning purposes by computing the following financial ratios: – – –

– – –

Gross profit percentage Cost of sales to inventory Number of days sales in receivables Number of days purchases in s payable Current ratio Acid test 94

During Planning  



Consider also non-financial information that may indicate discrepancies with related financial data. Compare results of the computations with corresponding figures from the prior periods. Relate such computed ratios with our understanding of the Company’s business. Incorporate in the proposed work programs to be used during audit fieldwork the audit procedures to investigate s or transactions that are expected to cause or have caused any variations in the ratios. 95

Substantive Analytical Procedures



The auditor shall determine the suitability of particular substantive analytical procedures for given assertion, taking of the assessed risks of material misstatement



Evaluate the reliability of data from which the auditor’s expectation of recorded amounts or ratios is developed taking of source, nature and relevance of information available 96

Substantive Analytical Procedures



Develop an expectation of recorded amounts or ratios and evaluate whether the expectation is sufficiently precise to identify a misstatement that may cause the financial statements to be materially misstated



Determine the amount of any difference of recorded amounts from expected values that is acceptable without further investigation. 97

Investigating Results of Analytical Procedures 

If analytical procedures performed identify fluctuations or relationships that are inconsistent with other relevance information or differ from expected values by a significant amount, the auditor shall investigate such differences by – Inquiring of management and obtaining appropriate audit evidence relevant to management’s responses; and – Performing other audit procedures as necessary in the circumstances 98

Analytical Procedures When Forming an Overall Conclusion 

The auditor shall perform analytical procedures near the end of the audit that assist the auditor when forming an overall conclusion as to whether the financial statements are consistent with the auditor’s understanding of the entity

99

Analytical Procedures When Forming an Overall Conclusion 





Investigate significant or unusual trends and obtain adequate explanations and appropriate corroborative evidence. Consider whether any variances or trends indicate potential fraud that requires further investigation Determine whether the financial statements as a whole are consistent with our knowledge of the company’s business. 100

Analytical Procedures When Forming an Overall Conclusion 



The conclusion drawn from analytical procedures performed near the end of the audit are intended to corroborate conclusions formed during the audit of individual components or elements of the financial statements The conclusion assists the auditor in determining the appropriate audit opinion 101

AUDIT ASSERTIONS

Categories of financial statement assertions 

Assertions about classes of transactions and events for the period under audit.



Assertions about balances at the period end.



Assertions about presentation and disclosure.

Assertions about classes of transactions and events for the period under audit Occurrence  Completeness  Accuracy  Cutoff  Classification 

Assertions about balances at the period end



  

Existence Rights and Obligations Completeness Valuation

Assertions about presentation and disclosure



  

Occurrence and rights and obligations Completeness Classification and understandability Accuracy and valuation

AUDIT WORKING PAPERS

INTRODUCTION

WHY PREPARE AUDIT WORKING PAPERS?

Why Prepare Audit Working Papers?



The standard (i.e., PSA 230) requires that the auditor should document matters which are important in providing evidence to the audit opinion and evidence that the audit was carried out in accordance with Philippine Standards on Auditing.

Why Prepare Audit Working Papers?

Working papers may be in the form of data stored on paper, film, electronic media, or other media.

Purposes of Working Papers Working papers prepared during the audit should:

1. Provide a record that we have followed auditing standards (i.e., PSAs) in the audit of the financial statements.

Purposes of Working Papers Working papers prepared during the audit should:

2. Assisting of the engagement team responsible for supervision to direct and supervise the audit work.

Purposes of Working Papers Working papers prepared during the audit should:

3. Retaining a record of matters of continuing significance to future audits.

Purposes of Working Papers Working papers prepared during the audit should:

4. Enabling the conduct of quality control reviews and inspection in accordance with PSQC 1.

Purposes of Working Papers Working papers prepared during the audit should:

5. Enabling the conduct of external inspections in accordance with applicable legal, regulatory or other requirements.

1 1 6

Purposes and Uses of Working Papers 

 

  

Serve as basic tools to assist the auditor in the conduct of the audit. 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 ’ performance. 7/1/2017

Permanent File Index

1 1 7

I. II. III.

Information About the Client’s Business Internal Control System Documentation Organization and Equity Capital   

Articles of Incorporation By-Laws Minutes or Resolution of Continuing Interest 7/1/2017

Permanent File Index (Cont.) 1 1 8

IV.

V.

Financing and Other Significant Agreements and Contracts  Bank and Other Financing Agreement  Bond Indentures, Mortgages and Trust Agreements Other Information of Continuing Relevance  Certificates of Registration with Gov’t. or Regulatory Bodies  Tax Information 7/1/2017

1 1 9

Current Index File I.

II.

III.

Auditor’s Report, Financial Statements and General Matters Planning and istration PA Initial Planning Audit Program PA1 Initial Planning Memorandum Compliance Test Documentation 7/1/2017

1 2 0

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 ed Journal Entries 7/1/2017

1 2 1

Current Index File (Cont.) 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

7/1/2017

1 2 2

Current Index File (Cont.) LIABILITIES (Double Capital Letters) AA Notes Payable and Bank Loans BB s Payable CC Acceptances Payable and Related s 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 7/1/2017

1 2 3

Current Index File (Cont.) INCOME AND EXPENSES (Two-Digit Numbers) 10 Sales 20 Cost of Sales 30 Selling Expenses 40 istrative Expenses 50 (60 or 70) Other Groupings of Expense s 80 Other Income or Expenses

7/1/2017

Basic Contents 

Every working paper should include the following information:

Name of client

Basic Contents 

Every working paper should include the following information:

Name of client

Period under audit

Basic Contents 

Every working paper should include the following information:

Name of client Period under audit

Work paper reference number (index)

Basic Contents 

Every working paper should include the following information:

Name of client Period under audit Work paper reference number (index)

Initials of the preparer

Basic Contents 

Every working paper should include the following information:

Name of client Period under audit Work paper reference number (index) Initials of the preparer

Date the work was performed

Basic Contents 

Every working paper should include the following information:

Name of client Period under audit Work paper reference number (index) Initials of the preparer Date the work was performed

Basic Contents 

Every working paper should include the following information:

The objective of the audit procedure

Basic Contents 

Every working paper should include the following information:

Objective of the audit procedure

Nature of the audit procedure

Basic Contents 

Every working paper should include the following information:

Objective of the audit procedure Nature of the audit procedure

Timing of the Audit Procedure

Basic Contents 

Every working paper should include the following information:

Objective of the audit procedure Nature of the audit procedure Timing of the audit procedure

Extent of the Audit Procedure

Basic Contents 

Every working paper should include the following information:

Objective of the audit procedure Nature of the audit procedure Timing of the audit procedure Extent of the audit procedure

Findings of the audit procedure

Basic Contents 

Every working paper should include the following information:

Objective of the audit procedure Nature of the audit procedure Timing of the audit procedure Extent of the audit procedure Findings of the audit procedure

Basic Contents 

Every working paper should include the following information:

The conclusions reached

Basic Contents 

Every working paper should include the following information:

The conclusions reached

Evidence of review

Basic Contents 

Every working paper should include the following information:

The conclusions reached Evidence of review

The meaning of any symbols or tick marks used.

Basic Contents 

Every working paper should include the following information:

The conclusions reached Evidence of review The meaning of any symbols or tick marks used.

XYZ COOPERATIVE Analysis of Provision for Doubtful s Audit: 12-31-14 PBC 2013 Balance Beginning of Year P130,089 Write-offs ( 71,087) Provision 92,689 Balance End of Year 1 P151,691 ========= B DETAIL OF CURRENT WRITE-OFF Date Customer 4-21-14 Lion King 4-29-14 Jose Pedal 5-18-14 Atty. Ong 5-20-14 Sec. Bunye – Original Various amounts under P1,000 2014 Write-Offs

2014 _ 1 P151,691 2 ( 62,439) 83,994_ P173,246 ========= B

Amount _ P 25,081 5,377 17,341 10,093 4,547_ 2 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 XYZ & Co. and agrees.

XYZ COOPERATIVE List of Outstanding Checks Audit: 12-31-14 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 ==========

NOTE 1> Reviewed the list of outstanding checks noting no unusual or significant items except for A & B as discussed below.

B P25,962.90 =========

Examined cancelled checks returned by bank together with the December 2005 bank statement, noted in order. Examined check and noted that these were not acknowledged received by the payee in December 2004. Footed by QCB & Co. and agrees.

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 s payable at 12/31/04:

PAJE <1> Cash

P25,962.90 s Payable

P25,962.90

SUBSTANTIVE PROCEDURES

CASH

Why is Cash Considered a Significant Balance to be Audited?    

144

Cash is the most liquid of assets Offers the greatest temptation for theft, embezzlement, and misappropriation. The volume of transactions affecting Cash. Assist in substantiating other items in the financial statements.

Objectives in Auditing Cash Balances 





To determine whether all cash on the statement of financial position is held by the entity or by others (e.g., a bank) for the entity. (Existence) To determine whether all cash owned by the entity at the reporting date is included on the statement of financial position. (Completeness) To determine whether cash is stated at its realizable value. (Valuation)

Objectives in Auditing Cash Balances (continued) 



To determine whether the entity owns, or has a legal right to, all the cash on the statement of financial position at the reporting date. (Rights and Obligations) To determine whether all cash is free of restrictions on use, liens, or other security interests, or whether such restrictions, liens, or other security interests, if any, are properly disclosed. (Assertion about presentation and disclosure. Occurrence and rights and Obligations, Completeness and Accuracy and Valuation )

Objectives in Auditing Cash Balances (continued) 

To determine whether cash is properly classified, described, and disclosed in the financial statements, including notes, in conformity with acceptable reporting framework. (Assertions about presentation and disclosure. Classification)

Primary Substantive Procedures Cash Balance 



Confirm cash held by others (3.g. bank balances and/or overdrafts); count or confirm cash on hand if significant. (External Confirmation) Examine the client’s bank reconciliations. To the appropriateness of the reconciling items obtain cutoff bank statements or subsequent month bank statement. (Scrutiny and review)

Substantive Procedures Cash Balance (continued)



Test cutoff of cash receipts, cash disbursements, and transfers at the reporting date. (Scrutiny and review)

Additional Substantive Procedure 

Review the cash s in the general ledger for unusual items.



Review the cash disbursements and cash receipts journals for unusual items; investigate any such items observed.



Review bank confirmations, minutes, loan agreements, and other documents for evidence of restrictions on the use of cash, or of liens on or security interests in cash.

Additional Substantive Procedure(continued)



Examine agreements relating to any escrow funds, compensating balances and sinking funds, and determine compliance with the agreements and whether necessary disclosures have been made.



Confirm compensating balance agreements.

Analytical Review Cash



Compare the list of cash s with those of prior periods and investigate any unexpected changes (e.g., credit balances, unusually large balances, new s, closed s) or the absence of expected changes.



Review interest received and/or paid in relation to the average cash balances and/or

Receivables

Principal Objectives in Auditing s Receivable 

s receivable on the reporting date are real claims of the company. (Existence)



All real claims of the company for s receivable are included on the statement of financial position. (Completeness)

Principal Objectives in Auditing s Receivable (continued) 

s receivable are carried at amortized cost. (Valuation)



The company owns, or has legal rights to all s receivable on the Statement of Financial Position at the reporting date. All receivables are free of liens, pledges, or other security interests or, if not, such liens, pledges, or other security interests are identified. (Rights and Obligations)

Principal Objectives in Auditing s Receivable (continued) 

s receivable are properly classified, described, and disclosed in the financial statements, including notes, in conformity with acceptable financial reporting framework. (Assertions about presentation and disclosure)

Substantive Procedures s Receivables 

Confirm s receivable. (Existence) For s confirmed at an interim date. Perform roll-forward analysis from the confirmation date to the reporting date. Investigate unusual items: consider confirming (at the balance sheet date) significant new s and those s with significant increases or decreases between the confirmation date and the reporting date.

External confirmation procedures The auditor shall maintain control over external confirmation requests:  Determining the information to be confirmed or requested.  Selecting the appropriate confirming party.  Deg the confirmation requests including determining that requests are properly addressed and contain return information for responses to be sent directly to the auditor and  Sending the requests, including follow-up requests when applicable, to the confirming party.

Result of External Confirmation Positive confirmation responses categorize as follows:  Confirmed  With Exception/Unable to confirm  No reply (or NR for No Reply) We rarely use negative confirmation.

Substantive Procedures s Receivables (continued) For Confirmation with no replies we examine (Existence)  Subsequent cash receipts.  Or if not yet collected subsequently we inspect shipping records, sales contracts, and other evidence to the validity of s receivable.

Substantive Procedures s Receivables (continued) 



Test the cutoff by inspecting the sales , billings, shipping documents, and other ing documents immediately before and after the cutoff date, and determine that the transactions were recorded in the proper period; compare the receivables cutoff to cutoffs in related areas (e.g., sales and inventories). (Cutoff) Evaluate the adequacy of the allowance for doubtful s. (Valuation)

Additional Substantive Testing s Receivable 

Review evidence or obtain information concerning credit worthiness for large new s.



Trace the totals of s receivable in the customer’s ledgers to the general ledger control s or s receivable summary; investigate reconciling items.



Inquire about management, salespersons, or others receiving products without billing or payment.

Substantive Testing of s Receivable (continued) 



For large or unusual sales contracts uncompleted at year end, request confirmation from customers as to pricing, discount, payment, and warranty . Examine details of s or notes receivable from officers, directors, shareholders, and other related parties; investigate unusual items as well as significant reductions or increases at the balance sheet date; determine that necessary disclosures are made.

Analytical Review of Receivable



Compare the list of receivables with those of prior periods and investigate any unexpected changes (e.g., credit balances, unusually large balances, new s, closed s) or the absence of expected changes.

Auditing Inventories

Inventories – Audit Objectives The principal objectives in auditing inventories are to determine whether:  All inventories included on the Statement of Financial Position are held by the entity or by others for the entity; (Existence)  All inventories owned by the entity at the reporting date are included on the Statement of Financial Position; (Completeness)  Inventories are carried at the lower of cost or net realizable value. (Valuation)

Inventories – Audit Objectives (continued) 

The entity owns, or has a legal right to, all the inventories on the balance sheet. (Rights and Obligation)



Inventories are properly classified, described, and disclosed in the financial statements, including notes, in conformity with acceptable reporting framework. . (Assertions about presentation and disclosure)

Substantive Procedures s Inventory Count Observation    



Observed the Clients Conduct of its Physical Inventory. (Existence) Perform Test Counts during and after the Conduct of Physical Inventory. (Completeness) Test the Summarization of the Inventory at Year end. Test the Cost assigned to Inventory to Underlying records and test the Inventories Net Realizable Value (Valuation) Inquire and Inspect Documents and determine whether there are any liens attach to the inventory.

Additional Procedures during the Inventory Count 

 



Ascertain that the count teams are following the client’s inventory count procedures Observe whether supervisory personnel are performing their prescribed functions. Make test counts Compare test counts to the client’s perpetual records, if appropriate

Procedures Performed During the Inventory Count (continued) 



Check receiving, production, and shipping cutoff Consider whether the client’s procedures are being followed for: –

– –

Identify potentially obsolete and slow-moving goods Identifying consigned inventory Tracking the movement of goods during the count

Testing Cutoff  

  

Receipts/shipment In-transit Cutoff between inventory Bill and hold Coordinate with other audit

Test Final Inventory Listing  

 



Agree test counts (if deemed necessary) Compare final listing to tags or sheets Determine whether unused, voided, or noquantity ed for Test adjustments to final inventory Reconcile to general ledger

Audit of Prepaid Expenses

Substantive Procedures Prepayments  Inquiry and recalculation test the reasonableness and

accuracy of prepayments.  Review prior year working papers;  Inquire regarding significant changes;  Determine that ing policies are appropriate;  Consider whether audit evidence examined s our understanding;

Substantive Procedures Prepayments (continued)



 

Select sample of additions and trace to ing documentation; Re-compute the amortization expense; Ensure expectation of future benefits is reasonable

Analytical Procedures Prepayments 

Develop expectations of the current year balance based on the prior year balance, balances at preceding dates in the current year and prior and current year expenditure and amortization



Compare the expectation to the recorded amounts and ensure within the pre-determined threshold. If not within the threshold, obtain corroborating evidence for the differences.

Auditing Property, Plant and Equipment (PPE)

Audit Objectives PPE 



All property, plant and equipment in the Statement of Financial Position(including assets leased under capital leases) are held by the entity or by others for the entity. (Existence) All property, plant, and equipment owned or leased under capital leases by the entity at the reporting date are included on the balance sheet. (Completeness)

Audit Objectives PPE 

Property, plant, and equipment are carried at the appropriate amount, taking into the accumulated depreciation, depletion, or amortization. (Valuation)

Audit Objectives PPE 

The entity owns, or has a legal right to, all the property, plant, and equipment on the statement of financial position at the reporting date. All property, plant, and equipment are free of liens, pledges, security interest, and restrictions or, if not, such liens, pledges, security interest, and restrictions are identified. (Rights and Obligations)

Audit Objectives PPE 

Property, plant and equipment and related s are properly classified, described, and disclosed in the financial statements, including notes, in conformity with acceptable reporting framework.

Substantive Procedures PP&E 

  

 

Testing the summary of PP&E transactions for the period under audit Testing Additions. Testing Disposals and related gains/losses. Testing depreciation expense (book and tax) Testing for items improperly charged to expense (e.g. Repairs and maintenance). Testing for possible impairments

Substantive Procedures PP&E (Continued) 

Obtain Lapsing schedule from Client.



Trace the beginning balance column of each PPE item to last year’s audit working papers.



Obtain from the client a listing of asset additions by (e.g., land, buildings, building improvements, etc.). The listing should, at a minimum, contain the acquisition date, amount, and a description of the item capitalized.

Substantive Procedures PP&E (Continued) 

Inspect documents for PP&E additions and disposals and physically inspect significant additions.



Trace the ending balance in the lapsing schedule to trial balance and the general ledger.



Additionally, the entire working paper should be tested for clerical accuracy by footing and crossfooting the totals.

Substantive Procedures PP&E (Continued) 



Examines the vendor’s invoice and compare it to the listing for purchase date, cost, asset description, and client name. Determine whether the asset life and salvage value set by the company are reasonable.

Substantive Procedures PP&E (Continued) 

Inquire about corresponding retirements when the additions represent replacements of existing assets.

Additional Procedures to Test PP&E Additions  



Ascertain the business reasons for unusual additions. Examine capital expenditures authorizations and other data ing additions of PP&E during the period. Examine the lease agreements to determine whether leases are appropriately classified as capital or operating; determine whether the proper ing has been performed; and determine whether appropriate disclosures are

Additional Audit Procedures to Test PP&E Additions (continued) 



Compare the actual costs of additions with the authorized or estimated amounts; investigate the reasons for any significant differences. Review minutes, agreements, and other documents for evidence of liens, pledges, or restrictions on PP&E or for evidence of plans or commitments for future additions.

Audit Procedures to Test PP&E Disposals 





Obtain a schedule of all disposals by classification. Examine evidence that key item disposals were properly approved in accordance with company policy. the sales price of disposals by reference to contracts, sales invoices, remittance advices, correspondence, or cash receipts records.

Audit Procedures to Test PP&E Disposals (continued) 



the cost and accumulated depreciation amounts of disposals by reference to the company’s detailed property records. the gain or loss computation. If the company uses different methods of depreciation for tax and book purposes, the computation should be tested under both methods.

Audit Procedures to Test PP&E Disposals (continued) 



Determine whether the cost of assets acquired through trade-ins of key items was recorded correctly (net book value of asset traded in plus additional consideration required). Gather all information needed to prepare schedules for the corporate income tax return.

Analytical Procedures PP & E



Compare the cost and accumulated depreciation of PP & E with those of prior periods (e.g., additions, depreciation and disposal) and investigate any unexpected changes.

Auditing s Payable

Objectives in Auditing s Payable



s payable on the Statement of Financial Position are real debts due to suppliers or other creditors for good received or services performed. (Existence)



s payable owed at the reporting date are included on the Statement of Financial Position. (Completeness)

Objectives in Auditing s Payable (continued)

 

s payable are stated at amortized cost. (Valuation) s payable on the Statement of Financial Position represent obligations of the company as of that date. s payable are not secured by liens on assets, security interests, or other collateral unless otherwise indicated. (Rights and Obligations)

Objectives in Auditing s Payable (continued) 

s payable are properly classified, described, and disclosed in the financial statements, including notes in conformity with acceptable financial reporting framework. . (Assertions about presentation and disclosure)

Substantive Procedures s Payable 

 

Test cutoff by inspecting the voucher , receiving records, vendors’ invoices, and other ing documents immediately before and after the cutoff date. Perform a search for unrecorded liabilities. Perform External Confirmation.

Procedures for Search of Unrecorded Liabilities



Reviewing transactions (e.g., cash disbursements, purchases) recorded after the reporting date for any significant transactions that apply to the period under audit.



Reviewing files of unprocessed invoices and unmatched purchase orders for items that should be included in the period under audit.

Procedures for Search of Unrecorded Liabilities (continued) 

Examining files of unmatched receiving reports for items received on or before the physical inventory or reporting date.



Asking ing and purchasing personnel about any significant unrecorded liabilities.



Reviewing cutoffs in related areas such as purchases and inventories, with attention to goods in transit.

Factors Affecting Search for Unrecorded Liabilities 

Nature of the client’s business



Our evaluation of the effectiveness of controls over the recording of liabilities



Timeliness of the recording of liabilities

Factors Affecting Search for Unrecorded Liabilities (continued)



Known delays by vendors in submitting invoices



Results of other audit procedures, such as confirming selected s or inspecting vendors’ statements

Analytical Review on s payable



Compare the list of s payable with those of prior periods and investigate any unexpected changes (e.g., debit balances, unusually large balances, new suppliers s and suppliers closed s) or the absence of expected changes.

Auditing Stockholders Equity

Audit Procedures for Stockholders’ Equity  Examine Stock and Transfer Book and confirm with transfer

agent and registrar to determine the number of shares issued and outstanding.  Test dividends by reference to board of director meeting

minutes for dividend rate and capital stock records for number of shares.

Audit Procedures Stockholders’ Equity(cont.)  Review the Articles of Incorporation.

 Examined the General Information Sheet from the SEC.  Review minutes of meetings, debt agreements and other

sources for disclosure on dividends and other capital stock transactions.

Analytical Review for Stockholders’ Equity  Analyze changes in equity s for the period and

examined ing documents for the significant changes

Auditing Revenue and Expenses

Substantive Procedures Revenue and Expense s • Obtain schedule and agree with the general ledger and

trial balance. • Vouch revenue/expenses to ing documents. (e.g.

official receipts or sales invoice.)

Substantive Procedures Revenue and Expense s • Perform test of reasonableness of revenue and expense

by. - Develop an expectation based on the sample chosen - Compare the balance per expectation againts balance per books - Investigate cause of unusual difference.

Additional Substantive Procedures Revenue and Expense • If the auditor is concerned with the accuracy of amounts of particular revenue and expense s (e.g., salaries and wages, representation), he should

• obtain (or prepare) an analysis of the involved, or at least of the material items therein; and

Additional Substantive Procedures Revenue and Expense(cont.) • Examine a sufficient number of the items to be satisfied that there are no material misstatements.

• If the auditor is concerned with a particular type of transaction (e.g., when fraud could arise due to weak controls over certain types of payments) rather than a specific balance, he should

Additional Substantive Procedures Revenue and Expense(cont.) • identify or isolate the areas in the income or expense that might be affected by the weak controls; and • select and examine sufficient material transactions of the type he is concerned with from the which might be misstated.

Analytical Review Procedures • Analytical review procedures - - involve the study and comparison of relationships among data to identify fluctuations that are not expected, the absence of fluctuations that are expected, or other unusual items.

Sources of Expectations From Analytical Review Procedures • Financial information from prior periods • Anticipated amounts such as budgets and forecasts • Relationships among elements within the financial statements • Industry averages and standards • Non-financial information such as number of units shipped or square feet of shelf space

Exit Meeting 215



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.





7/1/2017

AUDIT REPORT .

Audit Step : To communicate the results of the audit to management A.

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.)

B.

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.

C.

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, 20xx

__________Total Hours:

W/P No.

Est. Hrs.

Act. Hrs.

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 reconciliations, it was noted that many reconciliations were not being reviewed by the supervisor in Item Processing and Deposit Operations. Recommendation We recommend management review all s 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 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 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.

Formal Draft The auditor then prepares a formal draft, taking into 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.

Applicable Standards 

   

PSA 315 Identifying and Assessing the Risks of Material Misstatement through Understanding The Entity and its Environment PSA 320 Materiality in Planning and Performing an Audit PSA 330 The Auditor’s Responses to Assessed Risks PSA 500 Audit Evidence PSA 505 External Confirmation

Issuing the Audit Report 

The audit opinion is helpful in setting out the scope of the audit, the ant’s opinion about the procedures and records used for creating statements, and the ant’s opinion about whether or not the financial statements present an accurate reflection of the organization’s financial condition.

Types of Audit Opinion 







Unqualified opinion — the unqualified opinion has no reservations concerning the financial statements. This is also known as a clean opinion meaning that the financial statements appear to be presented fairly. Qualified opinion — this means that the auditor has taken exception to certain current-period ing applications or is unable to establish the potential outcome of a material uncertainty. Disclaimer opinion — this is a special type of audit report that should be issued when the auditor permits his or her name to be associated with financial statements that were not examined in accordance with generally accepted auditing standards. Adverse opinion — this is a type of audit opinion which states that the financial statements do not fairly present the financial position, results of operations, and changes in financial position, in conformity with generally accepted ing principles.

Thank You for Your Attention Any Questions?