AUDITING SYSTEMS IN

THE PHILIPPINES
State audit in
the Philippines
Nature
types

process
Issues
and
Problems
CONCEPTS THEORIES PRACTICES
Auditing is a systematic
process of obtaining and
evaluating evidence regarding
assertions about economic
actions and events to ascertain
the degree of correspondence
between those assertions and
established criteria and
communicating the results to
interested user
The analytical and systematic
examination and verification of
financial transactions, operations,
accounts and reports of any
government agency for the
purpose of determining their
accuracy, integrity and
authenticity and satisfying the
requirements of law, rules and
regulations.

GOVERNMENT AUDITING CODE OF
THE PHIL: (PD NO. 1445)
The first known activity in the Spanish
colonial government which can presently
described as auditing was in 1653 when a
High court of justice was set up in the
capital city of Manila. Fiscal review was
conducted by the court in addition to
regular judicial functions. This later evolved
into a separate and independent fiscal
control activity.
JUDICIAL TYPE OF
AUDIT
During the Malolos Republic
Title XII of the Malolos
constitution was devoted to
the administration of the
state.
The budget process was
described in detail
Budget should be
published
The tax collectors should
render an accounting of all
expenditures as well as all
tax collections which were to
be verified b y the assembly
LEGISLATIVE TYPE
OF AUDIT
During the AMERICANS

The practiced of pre-audit was initiated
The very first regulation of auditing was passed
All disbursement, whether by treasury warrant,
bank checks or in currency should be
approved by the AUDITOR.




EXECUTIVE TYPE
OF AUDIT
COMMONWEALTH PERIOD
1935
Constitution
Commonwealth
act no. 320
Commonwealth
act no. 325
AUDITING THEORY
AUDIT An Overview
The objective of an audit of financial statements is to enable
the auditor to express an opinion whether the financial statements
are prepared, in all material respects, in accordance with an
identified financial reporting framework.

The purpose of an audit is to enhance the degree of
confidence of intended users in the financial statements.

An audit is a systematic process of objectively obtaining and
evaluating evidence regarding assertions about economic actions
and events to ascertain the degree of correspondence between
these assertions and established criteria and communicating the
results to interested users. (American Accounting Association)
Internal audit
is the evaluation of management controls
and operations performance, and the
determination of the degree of compliance
with laws, regulations, managerial policies,
accountability measures, ethical standards
and contractual obligations. It involves the
appraisal of the plan of organization and all
the coordinated methods and measures, in
order to recommend courses of action on
matters relating to operations and
management control.
Internal audit is an integral part of the
internal control system of public
service organizations. The scope of
internal audit is broad and involves all
matters relating to operations and
management control
internal audit encompasses the appraisal
of the adequacy of internal controls, the
conduct of management audit and the
evaluation of the results of operations,
focusing on the effectiveness of controls
of operating systems and support
services units/systems.
CLASSIFICATIO
N OF TYPES OF
AUDIT
TIMING
Pre-
audit
Post -
audit

Continuous
audit

AS TO ORGANIZATIONAL STATUS
OF THE AUDITOR
Internal
auditor
External
auditor
Government
auditor

External auditor
These are independent CPAs who offer their professional
services to different clients on a contractual basis. External
auditors are the one who generally perform financial statement
audits.
Internal auditors
Internal auditors are entitys own employees who
investigate and appraise the effectiveness and efficiency of
operations and internal controls. Internal auditors usually perform
operational audit.
Government auditors
These are government employees whose main concern as
to determine whether persons or entities comply with government
laws and regulations. Government auditors usually conduct
compliance audits
Mainly a
management tool for
control and evaluation
of agency operations
Referred to as
Management audit
INTERNAL AUDITING
The internal auditor undertakes an
analytical review of balances
disclosed in the financial statement
is consistent internally with the
budget accounts, and with those of
prior years
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 the agency
External audit
It is called upon to give a professional opinion on
the fairness of presentation of financial
statements
Audit performed by the COA auditors
Performed by the auditors external to or
independent of the audited organization
Under the constitution, external audit by the COA cannot be
replaced by internal audit (or any private external audit). Only
the COA auditor is authorized to conduct government audit.
External audit as performed by COA includes a
comprehensive review of an agencys internal audit services,
as part of its audit function of evaluating agency internal
control system
The scope and thrust of internal audit is dependent on the
adequacy and effectiveness of internal control system
Where internal audit is adequate, the scope of COA audit
can be limited to selective checks on agency internal control
systems
AS TO AUDIT SCOPE
FISCAL AUDIT
SPECIAL OR
OTHER AUDIT
PERFORMANC
E AUDIT
THE FISCAL
AUDIT
Fiscal audit is the traditional
financial audit in government. The
combination of financial and
compliance audits.
The most widely practiced type of
audit in the private sector.
It is required by the constitution
It requires the COA to submit an
annual report on the financial
condition and operation of the
national government and its
subdivisions, instrumentalities and
agencies including government
corporations

THE
PERFORMANCE
AUDIT
TYPES
OF AUDIT
This is an audit conducted to
determine whether the financial
statements of an entity are fairly
presented in accordance with an
identified financial reporting
framework.
Financial
statement audit
Compliance audit
Involves a review of an organizations
procedures to determine whether the
organization has adhered to specific
procedures, rules or regulations..
Operational audit
a study of a specific unit of an
organization for the purpose of
measuring its performance.
It is also known as
performance audit or management
audit.
External auditor
These are independent CPAs who offer their professional
services to different clients on a contractual basis. External
auditors are the one who generally perform financial statement
audits.

Internal auditors
Internal auditors are entitys own employees who
investigate and appraise the effectiveness and efficiency of
operations and internal controls. Internal auditors usually perform
operational audit.

Government auditors
These are government employees whose main concern as
to determine whether persons or entities comply with government
laws and regulations. Government auditors usually conduct
compliance audits.
Types of auditor
Financial
audit

Compliance
audit

Operational
audit

Assertions
made by the
auditee


That the financial
statements are
fairly presented

That the
organization has
complied with laws,
regulations or
contracts.

That the
organizations
activities are
conducted
effectively and
efficiently
Established
criteria

Financial
reporting
standards or
other financial
reporting
framework
Laws, regulations
and contracts

Objective set by the
board of directors

Content of
auditors report

An opinion about
whether the
financial statements
are fairly presented
in conformity with
an identified
financial reporting
framework

Reports on the
degree of
compliance with
applicable laws,
regulations and
contracts

Recommendations
or suggestions on
how to improve
operations

EXTERNAL
AUDITOR
GOVERNMENT
AUDITOR
INTERNAL
AUDITOR
Compliance Audit
Compliance audit is the evaluation of the degree of compliance with laws,
regulations and managerial policies and operating procedures in the
agency, including compliance with accountability measures, ethical
standards and contractual obligations. This type of audit is a necessary
first step to, and part of, management and operations audits.
Operational Audit
Operations audit is a separate evaluation of the outcome, output, process
and input to determine whether government operations, programs and
projects are effective, efficient, ethical and economical, including
compliance with laws, regulations, managerial policies, accountability
measures and contractual obligations.
Management Audit
It is a review and appraisal of the systems and processes,
organizational and staffing structures, operations and
management practices, records, reports and performance
standards of the agencies/units covered.
AUDITING
PRACTICE
S

Conduct of Baseline Assessment (BA) of ICS
Assessment of Control Significance and Materiality and Control Risk
Assessment of Internal Audit Risk
Formulation of Strategic Plan
Preparation of Annual Work Plan

AUDIT PROCESS
Management Compliance Operations
Audit Audit Audit

PERFORMANCE MONITORING AND
EVALUATION
STRATEGIC PLANNING
Internal audit activities start with the development of a
strategic plan for a three-year period, which consists of the
strategic plan and the annual work plan. The strategic
planning begins with a baseline assessment of ICS that
establishes how the IAS/IAU:
(1) reviews the organizations internal control components in
the context of the public service organization in the sector
and key strategic challenges and advantages; and
(2) leverages on this knowledge to plan for the work to be
undertaken in assisting the organization to achieve its
objectives. After the baseline assessment of ICS, the IAS/IAU
considers the control significance and materiality and control
risk of key processes in the operating and support systems
to achieve the control objectives, assesses the internal audit
risks, formulates the Strategic Plan and prepares the Annual
Work Plan
Conduct Baseline Assessment (BA) of the ICS
Baseline assessment is carried out by
performing activities such as: administering
internal control questionnaires/checklist and
verifying the results; using flowchart/narrative
notes, conducting walkthrough and test of
controls.
Significance is considered in terms of quality and is based on a process
possible impact on the control objectives. Materiality is quantitative and
is often considered in terms of value or the relative importance of an
amount. The materiality level may or may not be set based on a specific
amount. Information is material if its omission or misstatement could
affect the control objectives. It depends on the nature and size of the item
or error judged in particular circumstances.

Control Significance and Materiality Level
Prepare the Annual Work Plan
An Annual Work Plan (AWP) contains the prioritized
audit areas from the Strategic Plan and approved by the
DS/HoA or GB/AuditCom which will be focused on
during a one-year period, the type and approach of the
audit, and the timelines of the same.
The Strategic Plan consists of the three-year direction of the IAS/IAU
considering the results of the baseline assessment of the ICS of the
organization/sector, the control significance and materiality and control
risk of key processes, and the assessment of internal audit risks. The
IAS/IAU prepares the proposed three-year direction of the internal audit
activities for approval by the DS/HoA or the GB/Audit Com.

Formulate Strategic Plan