CHAPTER 1 (Assignment no.

1 - Group)
GROUP 1

S. No Question No.

1 1

2 2

3 3

4 4

5 5

6 6
7 7

8 8

9 9

10 10

11 11 - A

12 11 - B
13 12

14 13

15 14

16 15

17 16
18 17

19 18 - A

20 18 - B

21 19 - A

22 19 - B

23 19 - C

24 19 - D

25 19 - E

26 19 - F

27 19 - G

28 19 - H

29 20

30 BONUS
Leader: Andaya, Rosellee L.
Members: Ablay, Quitalyn L.
Alce, Riza Mae G.
Ampis, Ressarie S.
Areja, Eddzon F.
signment no. 1 - Group)

Answer

Auditors' reports are important to users of financial statements because it enhances the reliability of the fin
Being done by a competent and reliable auditor, it gives the users reasonable assurance that the financial
from material misstatements and in all material respects, prepared in accordance with an applicable financ
framework. Auditor’s reports also add value to the company and enhance the overall quality of business.

The purpose of this Philippine Standard on Auditing (PSA) is to establish standards and provide guidance
auditor’s report issued as a result of an audit of a complete set of general purpose financial statements pre
with a financial reporting framework that is designed to achieve fair presentation. It also provides guidance
auditor considers in forming an opinion on those financial statements.

Risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially
is the risk that an auditor will not detect errors or fraud while examining the financial statements of a clie
the audit process provides guidance on the auditor’s consideration of audit risk and materiality when pla
an audit of financial statements in accordance with generally accepted auditing standards. The existe
important to the users of financial statement because it inform users of the auditor’s opinion as to whether
are fairly stated or whether no conclusion can be made with regard to the fairness of their presentati
opinion puts emphasis on the credibility of financial statement and users especially look for any deviatio
the standard unqualified report and the reasons and implications of such deviations. A clean audit repo
followed accounting standards while an unqualified report means there might be errors. Evaluating the o
the financial statement and believe that our audits provide a reasonable basis for our opinion.

Before accepting a new client, Ms. Cruz should consider whether acceptance of such engagement would
compliance to the fundamental principles. As what the client wants is that the assigned people should be
which is somehow a threat to the audit team’s independence and objectivity, however Ms. Cruz can stil
long as there is an adequate safeguard to be established so that it can potentially reduce the threat to an a
an option to not accept the engagement.
An auditor is associated with financial statements when he or she:
a.has consented to the use of hi
report, document, or written communication containing the statement indicating that auditor is the one who
company's financial statement.
b. has prepared or
preparing the financial statements. An auditor who prepares or assist in preparing financial statements is a
or her name is not included with the statements.

The factors should an auditor consider in determining whether financial statements are presented fairly in c
applicable financial reporting standards are (1) The risk of misstatements in the financial statements, (2) T
was intentionally and carefully hidden, (3) The internal control of the company, (4) The recognition of acco
with the standard, (5) The measurement of accounts in accordance with the appropriate standard, and (6)
the notes to financial statements. There are unending factors that the auditor should consider, but when in
the gathered evidence is sufficient enough, he/she will conduct appropriate tests and procedures to form a
The Importance of Auditor Independence. The auditor should be independent from the client company, so
will not be influenced by any relationship between them. If this happens, the auditors can no longer be said
and the shareholders to be independent and the shareholders cannot rely on their opinion.

A. Audit risk is the risk that auditors issued the incorrect audit opinion to the audited financial statemen
unqualified opinion to the audited financial statements even though the financial statements are materia
words, the material misstatements of financial statements fail to identify or detect by auditors
.B. Inherent risk refers to the risk that could not be protected or detected b
control. This risk could happen as a result of the complexity of the client’s nature of business or transacti
nature of business could link to the complexity of financial transactions and require high involvement with
normally high if the transaction or even involve highly human judgment. C. Control risk or
the risk that current internal control could not detect or fail to protect significant error or misstatem
statements. Basically, management is required to set up and assess the effectiveness and efficiency of
financial reporting to make sure that financial statements are free from material misstatements.
D. Detection risk is the risk that auditor fails to detect the material misstatement in the financial statemen
incorrect opinion to the audited financial statements. Detection risk is occurred because of the auditor part
part.

a.) It can determine the total amount of risk associated with an audit, and describes how this risk can be m
components Control risk, Detection risk and Inherent risk
b.) It helps the auditor to plan its audit engagement, the auditor must
subsidiary levels of risk to determine the total amount of audit risk. Depending on the level of risk if it’s high
auditor will determine if they will add another procedure or not to reduce the risk to an acceptable level. W
control risk and inherent risk is high, the auditor can increase the sample size for audit testing, thereby red
Conversely, when control risk and inherent risk are considered to be low, it is safe for the auditor to reduce
auditing testing, which increases detection risk.

Detection risk is the chance that an auditor will fail to find material misstatements that exist in an entity's
These misstatements may be due to either fraud or error while Accumulation of evidence in decision mak
which noisy sensory information is sequentially sampled until sufficient evidence has accrued to favo
another or others. The relationship of this two is that the amount of audit evidence an auditor must gathe
allowable detection risk, so if an allowable detection risk of the company proven to decreases, the amoun
increases, and vice versa.

Ranking

5 - lesser audit evidence needed.

The fairness of financial statements and the adequacy of internal controls are judged by reference to the c
those criteria for the financial statement audits. To have unbiased and clear communication, criteria
independent observers can assess whether such assertions are appropriate. An assertion is a positive
action, event, condition, or performance over a specified period of time. The Committee of Sponsorin
provide thought leadership through the development of comprehensive frameworks and guidance
management, internal control and fraud deterrence designed to improve organizational performance an
reduce the extent of fraud. The Committee of Sponsoring Organization provides criteria for evaluating the
of internal controls. Internal auditors may refer to management’s policies and procedures in determ
compliance with company policies. Generally accepted accounting principle (GAAP) become the criteria
the financial statement presentation is judged. However accounting majors know that interpreting authorita
is difficult. When management prepares financial statements, they assert that those statements ar
accordance with GAAP.
Having complex transactions are more susceptible to errors and to be erroneously recorded because ther
judgment involved in accounting for transactions, or the training level of the accounting staff is low. It mean
risk is high due to the high number of errors. So it is a must that the financial statement produced must be
has to reduce the audit risk to obtain a reasonable assurance.

The most important user of an auditor's report is the company's Shareholders since they use the report to
company is progressing and the money they’ve invested is properly utilised and they getting properly calcu
according to the profits and revenues earned by the company, also to decide whether to continue investing
The auditor provides auditing services to the client, the client provides the financial statements to the users
provides the auditor’s report to the users.

Resolving potential conflicts auditor must: a. Deal with issues rather than personalities - w
valid arguments, by separating the problem from the person, issues can be tackled while the relationship is
b. Actively listen-Understand where the other person is coming from before defending your own position.Li
and appreciate the other person’s point of view. c. Agree the issue- Different people see different problems
establish a common perception of the problem, you need to understand what the other person sees as the

 An audit enhances the quality of financial statements and management's reports on internal control as it u
procedures in accordance with the relevant standards to know if the reports were properly presented. But,
fair presentation of a company's financial statements or that internal control systems are free of material de
belong to the auditor. Thus, audit only provides opinion with regards to the presentation of financial statem
observed circumstances during the course of audit.
Public accounting services are predicated on the idea that accountants should be acting in the best interes
providing opinions on accounting issues. To ensure this is the case, public accountants are subject to stric
independence from the organization that's subject to audit. This is in contrast to internal auditors. While an
audit function is made as independent from company managers as possible, internal auditors are still emp
company being audited and often share in the financial success of the organization. The auditor might inqu
audit function's charter, mission statement, or similar directive from management or the board of directors.
normally provide information about the goals and objectives established for the internal audit function. An i
responsibility of the internal audit function is to monitor the performance of an entity's controls. When obtai
understanding of internal control,3 the auditor should obtain an understanding of the internal audit function
those internal audit activities that are relevant to planning the audit. The extent of the procedures necessar
understanding will vary, depending on the nature of those activities.
Detection risk = Audit risk / Control risk * Inherent risk
= 3% / 50%

= 0.06 or 6%

Detection risk = Audit risk / Control risk * Inherent risk

Incorrect -The risk of material misstatement is composed of the three components of audit risk.

Correct -Inherent risk is the possibility of material misstatement before considering the client’s internal con

Incorrect -Less control risk means an increase in the risk of material misstatement.

Correct -Detection risk does not exist when no audit is performed.

Incorrect -Rather than restrict detection risk through the performance of more substantive procedures, aud

Correct -Absent any other changes, an increase in the risk of material misstatement results in an increase

Incorrect -Audit risk refers to the possibility that the auditors may unknowingly fail to appropriately modify th
financial statements that are materially or immaterially misstated.

Correct- Both inherent risk and control risk exist independently of the audit of financial statements.

Auditor should start with the significant processes that lead to material account balances since as said in
focuses more on how risks could affect the information that lead to their financial statement and by
evaluate in what way this particular risk could affect the companys future progress ,then they now can th
risk eliminate or somehow lessen the impact to the cpmpany. On what is the most preffered we guest its d
and how his/her clients company's potential risk and control.
 TOTAL POINTS

Andaya, Rosellee L.
lay, Quitalyn L.
e, Riza Mae G.
pis, Ressarie S.
ja, Eddzon F.
Score
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