1

CHAPTER 1 AUDITING AND ASSURANCE

SERVICES

1.1 Introduction

Financial statements are a crucial source of information for both internal and
external users. External users such as investors and creditors, in particular, rely on
financial statements for decision-making. However, due to limited access to company-
specific data, the accuracy and reliability of financial statements are critical and highly
demanded. Auditing, therefore, plays an essential role in enhancing the credibility of
financial statements. Auditors, being knowledgeable, skilled, and independent
professionals, significantly influence stakeholder decision-making. This chapter
introduces key auditing concepts, assurance services, the evolution of the auditing
profession, types of audits, and qualifications of auditors.
1.2 Demand for Reliable Information

In today’s rapidly evolving business environment, commercial activities are

increasingly complex and global. Innovations and new technologies have transformed
business operations, necessitating high-quality and trustworthy information for
decision-making. The demand for such information arises from:

1. Complexity: Modern businesses are complex due to technological advancements,

changing consumer behavior, and diverse business models. This complexity
complicates financial reporting, and most users lack the technical knowledge to
assess whether financial statements comply with relevant accounting principles
and regulations.
2. Remoteness: Most external users are distant from the entities whose financial
statements they analyze, both temporally and geographically. Online operations
further widen this gap, as businesses can now operate and serve customers
globally without physical boundaries.
3. Time Sensitivity: Timely information is essential for decision-making. Delays in
financial reporting reduce its relevance, especially in fast-paced economies where
decisions occur in real-time due to technological disruption.
4. Consequences: Decision-making involves allocating limited resources efficiently.
Poor decisions, based on inaccurate or misleading financial information, can have
significant negative repercussions on stakeholders and the entity itself.

These factors contribute to the risk that financial statement information may be
inaccurate or misleading (information risk), highlighting the need for auditing to enhance
confidence in such data.
1.3 Definition of Auditing and Assurance Engagements

The American Accounting Association defines auditing as:

"Auditing is a systematic process of objectively 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 users."

The primary objective of an audit, as stated in Auditing Standard 200, is to increase

the confidence of users in the financial statements. Auditors must be competent and
independent, and conduct their work in accordance with auditing standards and ethical
requirements. They must gather sufficient and appropriate audit evidence to express an
opinion on whether the financial statements comply, in all material respects, with the
applicable financial reporting framework.

Assurance services include not only annual audits and quarterly reviews, but also a
broader range of engagements as defined by the Federation of Accounting Professions.
The Framework for Assurance Engagements identifies three key components:

• Subject matter (e.g., financial statements, internal control effectiveness,

sustainability performance)
• Criteria (e.g., accounting standards, COSO framework, sustainability reporting
standards)
• Evidence and Conclusion communicated to intended users.

1.4 Differences Between Accounting and Auditing

Accounting is the process of recording, summarizing, and reporting economic

activities in accordance with financial reporting standards. Auditing, on the other hand,
involves gathering evidence and evaluating whether financial statements comply with
such standards. The purpose of auditing is to enhance users' confidence in these reports.
The key differences are summarized below:

Aspect Accounting Auditing

Enhance reliability of financial

Objective Present financial statements
statements

Business documents and

Input Prepared financial statements
transactions
 Aspect Accounting Auditing

Output Financial statements Auditor's report

Standards Financial Reporting Standards Auditing Standards

Performed
Accountants Certified Public Accountants (CPAs)
by

1.5 Evolution of the Auditing Profession

Auditing has evolved over the past century. Initially, audits focused on detailed
verification to detect fraud, examining every transaction. As transaction volume grew,
audits adopted sampling techniques and emphasized internal control systems. With
globalization and technology, modern auditing demands international standards,
automation, and multidisciplinary knowledge.

In Thailand, the Federation of Accounting Professions (TFAC) aligns Thai Standards

on Auditing (TSA) with International Standards on Auditing (ISA), issued by the IAASB.
The TFAC also regulates accounting, auditing, and ethical standards for Thai
professionals.

1.6 Qualifications of Certified Public Accountants (CPAs)

To become a CPA in Thailand, individuals must meet general, educational,

examination, and training requirements:

• General Qualifications: Thai nationality (or reciprocal recognition), age ≥ 20,

moral integrity, no disqualifying professional or legal history.
• Education: Bachelor’s degree in accounting from a TFAC-accredited institution.
• Examinations: Pass 6 subjects: Accounting 1, Accounting 2, Auditing 1, Auditing
2, Law 1 and 2 (related to the profession).
• Training: Minimum of 3 years (but not exceeding 5 years) and 3,000 hours in a
qualified audit environment.

CPAs must also undertake 40 hours of continuing professional development

annually, with at least 20 hours being structured learning and half the content related to
accounting/auditing.

1.7 Types of Auditors

1. External Auditors (CPAs): Licensed by TFAC to audit all corporate financial

statements, except for listed firms unless approved by the SEC.
 2. Capital Market Auditors: SEC-approved CPAs qualified to audit listed or IPO
companies.
3. Tax Auditors (TAs): Licensed by the Revenue Department to audit small
partnerships.
4. Internal Auditors: Appointed by management to assess internal controls and
risk management.
5. Internal Revenue Agents: Tax officers who verify tax compliance.
6. Government Auditors (GAO): Auditors from the Office of the Auditor General
inspecting public sector entities and recipients of government funding.

1.8 Types of Audit Engagements

Audits can be categorized into:

• Financial Statement Audit: Assesses accuracy and compliance of financial

statements with accounting standards.
• Operational Audit: Evaluates the efficiency and effectiveness of business
operations.
• Compliance Audit: Verifies adherence to laws, regulations, and organizational
policies.

Auditing encompasses both financial audits and compliance audits.

1.9 Conclusion

Financial statements are vital outputs of the accounting process and are used to
assess a firm’s financial performance and position. Their reliability is fundamental for
decision-making by internal and external stakeholders. Auditing enhances the credibility
of financial statements, thus playing a critical role in governance and economic
development. The evolving nature of businesses and technology demands that auditors
possess not only technical expertise but also communication, teamwork, and
interdisciplinary knowledge.
 Review Questions

1. Explain the purpose of auditing.

2. What factors drive the demand for auditing?
3. Summarize the key milestones in the evolution of the auditing profession.
4. List and describe the types of auditors.
5. Which of the following is not a reason for the demand for reliable information?

a) Timeliness

b) Remoteness

c) Decision consequences

d) Technological advancement

6. Which of the following is not a type of audit?

a) Internal control effectiveness audit

b) Operational audit

c) Compliance audit

d) Financial statement audit

7. What is the international body responsible for auditing standards?

a) IFAC

b) TFAC

c) IAASB

d) ISA

8. Which of the following is not a component of an audit?

a) Evidence collection

b) Auditor’s report

c) TFAC

d) Financial statements
9. What distinguishes a Capital Market Auditor from a general External Auditor?
a) They audit small partnerships only.
b) They are not certified by the SEC.
c) They are approved by the SEC to audit listed or IPO companies.
d) They only work for government organizations.
10. Which is a correct statement about CPA qualifications?

a) Minimum 5 years of training

b) Six subject examinations

c) Must be a TFAC member or from a reciprocating country

d) Minimum 5,000 training hours