Definition of Auditing

AUDITING I. Definitions * inspecting, in a oecumenic sense, is a outlineatic and critical evaluation of the financial position, direct systems, and results of motion of an analyseed entity. * A systematic process of obtaining and evaluating evidence regarding assertions about economic actions and events to ob manage degree of correspondence between those assertions and established criteria and communicating the results to interested user. The analytic and systematic query and verification of financial proceedings, operation, accounts, and reports of any regimen kick downstairs for the purpose of determining the accuracy, integrity, and authenticity, and satisfying the requirements of law, rules, and regulations. State analyze relies on the provender of law its ascendence and limitations ar prescribed by law and it is birthed in accordance with law. The 1987 Constitution and related laws set the scope, powers, functions, and jurisdiction of government inspecting . Auditing in Public AdministrationState studying (along with accounting) whitethorn be considered as the delay and accountability portion of fiscal administration cycle. * As a control mechanism, scrutinizeing ensures the proper and well-grounded utilization and heed of fiscal resources in accordance with sound financial management principles, accounting and auditing standards, and applicable laws and regulations. * As an accountability component, it seeks to ensure that human beings officials entrusted with functions and resources are made responsible for the carry throughance and results of operation of their office. In the financial administration cycle, auditing in addition provides inputs to the next phase which is planning. Audit reports regress rattling information on the results of operation of agencies and recommendations to improve their performance. Auditing and news report Accounting * Accounting is a discipline which provides financial and other informatio n essential to the streamlined conduct and evaluation of the activities of an organization. Is concerned with constructing from a mass of transactions entered into by a firm or delegation during a certain period, financial statements, results of transactions (in terms of profit and loss), and current financial position, through the interpretation, summarization, and compilation of information. Auditing * Is primarily concerned with analyzing whether or non the financial statements reasonably confront the result of the firms operations. II. TYPES OF AUDITING A. Timing Pre-audit The hearer reviews a transaction (a contract for janitorial services, for example) even before such services are rendered. The listener also gives his tentative approval for payment of the services by the path. * Post-audit The auditor reviews and approves the transaction after the services present been rendered and payment has been made In both cases, the review may consist of the following * Dete rmining whether any relevant laws, rules and regulations have been observed in the transaction. Physical inspection of supplies or equipment. * Checking whether all necessary documents are submitted and properly accomplished. * Determining whether the required authority or approval has been secured. * Checking mathematical accuracy. B. Organizational Status of Auditor * acquaintanceable Audit * The intragroup auditor undertakes an analytical view of balances disclosed in the financial statements to determine that the information contained in the statements is consistent indwellingly, with budget accounts, and with those of preceding years.He may also insist, in an advisory capacity, in adopting staple organizational regulations, preparing rationalization proposals, and recommending measures to improve the structural and procedural systems of the situation. * In small agencies, the internal audit is usually conducted by accounting or controller units * In large organization, it is done by a separate internal audit staff which reports directly to the head of theatrical, the finance office, or corporate posting of directors, in the case of corporations. * External Audit * Is performed by auditor out-of-door to or independent of the audited organization. In the Philippine state audit context, it is the audit performed by the COA auditors. * In commercial audit, it is conducted by independent certified habitual accountants on sequestered business organizations primarily to express an opinion on the fairness, consistency, and conformity of financial statements to generally accepted accounting principles, for submission to management, government regulatory agencies, stockholders, and other interested parties. Under the Constitution, outer audit by the COA cannot be replaced by internal audit (or any private external audit).While an internal auditor may conduct audit of his procedure (or private independent auditors perform external audit), only COA aud itor is authorized to conduct government audit. External audit as performed by the COA Includes a door-to-door review of an agencys internal audit services, as part of its audit function of evaluating of agency internal control systems. C. Audit reaching * Fiscal Audit Financial and Compliance Fiscal audit is the handed-down financial audit in government. It is the combination of financial audit and residency audits. Financial audit of government transactions is conducted to determine whether Financial operations are conducted in accordance with applicable laws, rules and regulations, and accounting and auditing standards. * Whether an agency financial statement presents fairly and accurately the financial position of the agency in accordance with generally accepted accounting principles. The auditor determines whether the agency is maintaining sound control over revenues, expenditures, assets and liabilities, whether financial statements are fairly presented, and if financial r eports contain accurate, reliable and useful information.Compliance audit, on the other hand, is an evaluation of the extent to which the agency has complied with pertinent laws, policies, and rules, and regulations in the conduct of its operation. The auditor tests the agencys financial transactions and specific program, function or action at law to determine their law or regularity. He may for instance check whether the agency has not violated pertinent law in incurring significant bouncy liabilities. * Performance Audit Efficiency, Economy, EffectivenessA performance audit is a constructive interrogation and evaluation of the financial and operational performance of an organization, program, function or activity with the object of identifying opportunities for grater economy, efficiency, and rough-and-readyness in agency. Economy and efficiency audits determine * Whether the agency is managing and utilizing its resources (personnel, property, funds) economically and efficien tly * The causes of inefficiencies or uneconomical practices * Whether the agency has complied with the laws and regulations concerning matters of efficiency and economyEffectiveness or program results audit determines. * Whether the desired results or benefits established by the general assembly or other * Whether the agency has considered alternatives that might lead to desired results at lower cost Special/Other Audits * Subsidy Audit (in the Constitution, PD1445) * bill Audit (in the Constitution, PD1445) III. THE AUDIT PROCESS A. The Audit Cycle The state audit cycle consist of seven phases * signifier I. Preliminary survey of the agency or audited entity The preliminary survey is conducted to acquire a working knowledge of the audited agency and its lawful, policy, and administrative environment.The auditor gathers general background information on the agency and its operations after which he defines the scopes of his audit. The auditor may perform the following activitie s * Interviews with agency officials to obtain general information * Obtain basic documents on agency activities, objectives, policies, standards, procedure, etcetera * Physical inspection of agency facilities, office, etc. I issuely, the survey should provide information on * Laws, policies, and rules, and regulations applicable to the agency * truncated history and goals or purpose of the agency Agency organization, functions, staff, regional offices, and operating systems * Nature, investments and location of agency assets * General objectives and policies * Operating methods and standards used in quantity or evaluating agency operations and performance * Description of major, existing problems * Copies of internal agency reports, especially internal audit reports * bod II. Review of heavy and Policy Framework The information gathered from the preliminary survey are reviewed in order to obtain a general knowledge of the formula and policies applicable to agency objectives, policies, programs, and operating standards. Phases III. Review and Evaluation of Internal correspond System In this phase, the auditor reviews the procedures and practices literally applied by the agency in processing its transactions in order to establish * The actual means and methods in carrying out operations * Appropriateness and utility of diverse steps in the processes * The results of operations or transactions relative to agency objectives, legal and policy requirements, and standards * The rough-and-readyness of the internal control system and its various(a) componentsThe review and evaluation of the agencys internal control system is to * Identify major critical areas that would warrant more detailed examination * To determine the type of test to be used in the proximate examination of such areas later on * Phase IV In-depth scrutiny of Problem Areas, Data-gatherings, Analysis, and Evaluation In this phase, the auditor concentrates on audit findings on the problem areas in terms of * Compliance with or adherence to legal and policy mandate, prescriptions, and requirements * Goals and objectives-achievement Operational efficiency, economy, and effectiveness in the use of human, veridical, and financial resources and * Propriety, accuracy, reliability, and expediency of financial records and reports, including the effectiveness of control over the latter In-depth examination may involve reviewing agency reports, books, files, records, and such other relevant documents and analyzing, evaluating, verifying and verifying their content through enquiries, inspection, or observation.Where it becomes impossible or impractical to ascertain all operations and transactions, the auditor conducts reviews and tests on a selective basis, establish on his professional judgment and on the adequacy of internal control systems. The auditor develops the factual and docudrama evidence to support his audit findings, conclusions, and recommendations. He analyz es the data gathered and determines the causes and effects of the problems, and their significance to agency operations. He also determines whether the agency needs to take corrective action and recommend the purloin solutions.The auditor must alert agency officials on any deficiencies sight during audit to enable management to take immediate corrective action. * Phase V. Preparation and Presentation of Draft Report A draft audit report is prepared based on the findings and recommendations formulated in the introductory phase. The report is then presented to agency officials for their review and comments. * Phase VI. Finalization of Audit Report After the meeting, the auditor finalizes the audit report.In writing the final report, he has to observe certain principles or standards of report writing. The scope of the audit should be stated clearly and concisely in the report and any limitations should be explicitly mentioned Findings and conclusions should be adequately supported b y factual documentary evidence. The recommendations should be clearly identified and should be realistic. Previous audit recommendations which have been unimplemented and the agencys reason for such should also be noted. * Phase VII. Follow-up on the Implementation of Audit RecommendationsAudit recommendations, such as suggested improvements, proposed adjustments in the accounts, correction or discontinuance of malpractices, solution to existing problems, etc. should be followed-up B. General Objectives, Principles and Standards * General Objectives There are many objectives of state audit and all these relate to the concept of prevalent accountability. Public accountability is primaeval to government audit as it is anchored on the tenet that public officials, as stewards of public office must give a full and public accounting of the manner with which they utilize the powers and expend the resources entrusted to them. Establishing accountability for financial material and human re sources of an agency * Establishing accountability for compliance with applicable laws. Policies, rules and regulations * The efficient, economical and effective operations of the agency * Specific Objectives The specific objectives of state auditing also imply the following, as enunciated in the Lima Declaration of Guidelines on Auditing Precepts * Proper and effective use of public funds * Development of sound financial management Orderly execution of administrative activities * Communication of information to public governance and the public through publication of audit reports * Audit Principles and Standards * Audit principles and standards serve to guide the auditor in conducting his audit with integrity, objectivity, independence, and efficiency * Audit standards deal with the quality with which the audit is performed based on the professional and ethical qualifications of the auditor and his exercise of judgment in the course of audit.