Auditing and Assurance Principles Alexis Sosing, CPA

Bachelor of Science in Accountancy 3A Laguna State Polytechnic University – Siniloan Campus

Auditor’s Responsibility

The fair presentation of the financial statements in accordance

with the applicable financial reporting standards is the
The Auditor’s Responsibility responsibility of the client’s management.

 Error The auditor’s responsibility is to design the audit to

 Fraud
 Non-compliance with laws and regulations provide reasonable assurance of detecting material
misstatements in the financial statements that may
Sir Ali emanate from: (1) error, (2) fraud, and (3) non-
compliance with laws and regulations.

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Error Fraud

The term “error” refers to unintentional misstatements in the financial statements, Fraud refers to intentional act by one or more individuals among management, those
including the omission of an amount or a disclosure, such as; charged with governance, employees, or third parties, involving the use of deception
to obtain an unjust or illegal advantage. Although fraud is a broad legal concept, the
 Mathematical or clerical mistakes in the underlying records and accounting data. auditor is primarily concerned with fraudulent acts that cause a material
misstatements in the financial statements.
 An incorrect accounting estimate arising from oversight or misinterpretation of
facts.
 Mistake in the application of accounting policies.

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Auditing and Assurance Principles Alexis Sosing, CPA
Bachelor of Science in Accountancy 3A Laguna State Polytechnic University – Siniloan Campus

Types of Fraud Types of Fraud

1. Fraudulent financial reporting involves misstatements or omissions of amounts or 2. Misappropriation of assets or employee fraud involves theft of an entity’s
disclosures in the financial statements to deceive financial statement users. This assets committed by the entity’s employees. This may include
type of fraud is also known as management fraud because it usually involves
management or those charge with governance. This may involve  Embezzling receipts
 Stealing entity’s assets such as cash, marketable securities, and inventory
 Manipulation, falsification or alteration of records or documents.  Lapping of accounts receivable
 Misrepresentation in or intentional omission of the effects of transactions from
records or documents.
This type of fraud is often accompanied by false or misleading records or
 Recording of transactions without substance. documents in order to conceal the fact that the assets are missing.
 Intentional misapplication of accounting policies.

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Responsibility of Management and Those Charged with

Governance (Fraud and Error)
Auditor’s Responsibility (Fraud and Error)

 PLANNING PHASE
 Management to establish a control environment and to implement internal
control procedures designed to ensure, among others, the detection and
prevention of fraud and error. When planning an audit, the auditor should make inquires of management about the
possibility of misstatements due to fraud and error. Such inquiries may include
 Individuals charge with governance of an entity to ensure the integrity of an
entity’s accounting and financial reporting systems and that appropriate controls  Management’s assessment of risks due to fraud
are in place.  Controls established to address the risks
 Any material error or fraud that has affected the entity or suspected fraud that
the entity is investigating.

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Auditing and Assurance Principles Alexis Sosing, CPA
Bachelor of Science in Accountancy 3A Laguna State Polytechnic University – Siniloan Campus

Auditor’s Responsibility (Fraud and Error) Auditor’s Responsibility (Fraud and Error)

 COMPLETION PHASE
 TESTING PHASE
The auditor should obtain a written representation from the client’s management that
Throughout the audit, the auditor may encounter circumstances that may indicate
the possibility of fraud or error. The auditor should perform procedures necessary  it acknowledges its responsibility for the implementation and operations of accounting and
to determine whether material misstatements exist. internal control systems that are designed to prevent and detect fraud and error;
 it believes the effects of those uncorrected financial statement misstatements aggregated by
the auditor during the audit are immaterial, both individually and in the aggregate, to the
After identifying misstatement in the financial statements, the auditor should financial statements as a whole;
consider whether such misstatement resulted from a fraud or an error.  it has disclosed to the auditor all significant facts relating to any frauds or suspected frauds
known to management that have affected the entity;
 it has disclosed to the auditor the results of its assessment of the risk that the financial
statements may be materially misstated as result of fraud.

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Non-compliance with laws and regulations Auditor’s Responsibility (Non-compliance)

 PLANNING PHASE
Non-compliance refers to acts of omission or commission by the entity being audited,
either intentional or unintentional, which are contrary to the prevailing laws or
regulations. Such acts include transactions entered into by, or in the name of, the To plan the audit, the auditor should obtain a general understanding of the legal and
entity or on its behalf by its management or employees. Common examples include regulatory framework applicable to the entity and the industry and how the entity is
complying with that framework.
 Tax evasion
 Violation of environmental protection laws After obtaining the general understanding, the auditor should design procedures to
 Inside trading of securities help identify instances of non-compliance with those laws and regulations where
non-compliance should be considered when preparing financial statements.

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Auditing and Assurance Principles Alexis Sosing, CPA
Bachelor of Science in Accountancy 3A Laguna State Polytechnic University – Siniloan Campus

Auditor’s Responsibility (Non-compliance) Auditor’s Responsibility (Non-compliance)

 TESTING PHASE  COMPLETION PHASE

When the auditor becomes aware of information concerning a possible instance of The auditor should obtain written representations that management has disclosed
non-compliance, the auditor should obtain an understanding of the nature of the to the auditor all know actual or possible non-compliance with laws and
act and the circumstances in which it has occurred, and sufficient other information regulations that could materially affect the financial statements.
to evaluate the possible effect on the financial statements.

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