1. Name and discuss three competencies required in the public accounting
profession.
Core Competencies are the combination of individual skills, knowledge and expertise that
delivers good value and results to the client. Developing the profession’s core competencies
is vital in maintaining a competitive and differential advantage in the industry. These are some
if the core competencies required in public accounting profession:
Communication skills - can professionally communicate reliable and profound information,
employing suitable context and interpersonal skills.
Critical-Thinking and Problem-Solving Skills – proficient in assessing facts, difficult
statements, and employing judgement according to his/her expertise to create relevant
resolutions.
Integration and Collaboration – effective at creating tactical agreement and working
collaboratively to provide multidisciplinary solutions to multifaceted problems.
2. Why is the practice of accountancy considered practice of a profession?
The practice of accountancy is considered a practice of a profession as the it fulfills the
attributes of a profession. Professions are generally identified as influential industrial groups.
Ernest Greenwood in his Attributes of a Profession (1975) sets forth five major characteristics
of an ideal profession. These major characteristics are Systematic Theory these underlying
theory are the accounting theory, it is what the accountant learned and gained during collegelevel education; Professional Authority the basis for the professional accountants authority
is his/her proficiency in the systematic theory of accounting and auditing; Community
Sanction to practice the accounting profession it is controlled, one must fulfill the government
educational and experience requirements and pass the CPA licensure board examinations;
Regulations Code the rights granted to the public accounting profession by the community
usefully constitute monopoly, to discipline its members and prevent abuse of this monopoly,
the accountants should abide to the promulgated professional conduct which is made legally
through Accountancy Law; and lastly Culture the CPA is a member of a time-honored
profession and the accountabilities that complement this status affect his/her conduct in
society.
3. Briefly describe the scope of practice of a professional accountant.
The Philippine Accountancy Act of 2004 (RA. 9298) Article 1, Section 4, paragraphs (a) to (d)
spell out the scope of the practice of accountancy as follows:
(a) Practice of Public Accountancy a practitioner rendering services and professional
assistance to the public on a fee basis or otherwise, services and assistance such as
the matters relating to accounting procedures, recording and presentation of financial
facts or data.
(b) Practice in Commerce and Industry a practitioner involved in decision making,
requiring professional knowledge in the knowledge of accounting or when such
employment requires that the holder thereof must be a certified public accountant.
(c) Practice in Education/Academe a practitioner in an educational institution which
involves teaching of accounting, auditing, management advisory services, finance,
business law, taxation, and other technically related subjects.
(d) Practice in the Government a person who holds a position in the accounting
professional group in government or government owned/controlled corporation, where
decision making requires professional knowledge in the science of accounting, or
where a civil service eligibility as a certified public accountant is a prerequisite.
4. What is meant by assurance engagement and what is its basic objective?
Assurance engagement means an engagement in which practitioner expresses a conclusion
intended to enhance the degree of confidence that intended users can have about the
assessment of a subject matter.
The objective of an assurance engagement is for a professional accountant to evaluate or
measure a subject matter that is the responsibility of another party against identified suitable
criteria, and to express a conclusion that provides the intended user with a level of assurance
about that subject matter.
5. Explain the elements of an assurance engagement.
An assurance element should exhibit the following elements:
(a) Three Party Relationship – an assurance engagement always involves three separate
parties;
(i) Practitioner – the person who provides the assurance to the intended users about
a subject matter that is the responsibility of another party.
(ii) Responsible Party – is the person who is in a direct engagement and is responsible
for the subject matter.
(iii) Intended users – are the class of persons for whom the practitioner prepares the
assurance report. The responsible party can be one of the intended users, but not the
only one.
(b) Appropriate Subject Matter – the subject matter information of an assurance
engagement can take many forms, such as:
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Financial Performance for which the subject matter information may be the
recognition, measurement, presentation, and disclosure represented in financial
statements.
Non-Financial Performance for which the subject matter information may be essential
indicators of efficiency and effectiveness.
Physical Characteristics for which the subject matter information may be a
specifications document.
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Systems and Processes for which the subject matter information may be an assertion
about the effectiveness.
Behavior for which the subject matter information maybe a statement of compliance
or a statement of effectiveness.
(c) Suitable Criteria – criteria are the standards used to evaluate or measure the subject
matter, including relevant standards for presentation and disclosure. The following
characteristics must be present in Suitable criteria, such as its relevance, completeness,
reliability, neutrality, and understandability.
(d) Sufficient Appropriate Evidence – the practitioner plans and completes an assurance
engagement with an attitude of professional skepticism for information verification. They also
consider materiality, assurance engagement risk, and the quantity and quality of available
evidence when planning and performing the engagement, when determining the nature,
timing, and extent of the evidence-gathering procedures.
(e) Assurance Report – the practitioner delivers a written report comprising a relevant
conclusion that sends the assurance obtained about the subject matter information.
6. Differentiate between assertion-based engagements and direct reporting
engagements.
Assertion-based engagements are assurance engagements that contain the evaluation or
measurement of the subject matter by the responsible party and the subject matter
information in the form of an assertion by the responsible party is made available to the
intended users. On the other hand, Direct reporting engagement are engagements where
the practitioner either directly performs the evaluation of the subject matter or obtains a
representation from the responsible party that has performed the evaluation or measurement
that is not available to the intended users.
7. Define auditing and explain its basic objective as provided for in PSA 120
"Framework of Philippine Standards on Auditing.
According to the American Accounting Association, auditing is a systematic process by which
a competent, independent person objectively obtains and evaluates 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 Philippine Standards on Accounting (PSA) 120 “Framework of the Philippine Standards
on Auditing denotes that the auditor’s judgement supports and assist the creation of a credible
financial statements. The user, however, should not presume that the auditor’s judgment is
an assurance as the future viability of the entity nor an opinion as to the efficiency or
effectiveness with which management has conducted the affairs of the entity.
8. What are the differences and similarities in audits of financial statements,
compliance audits, and operational audits?
The similarities of financial statement audits, operational audits, and compliance audits is that
each category of audit comprises collecting and assessing of evidence to determine and
account on the step of correlation amongst the information and instituted criteria. The
differences between each category of audit are the evidence being assessed and the
established criteria that is used to evaluate the information.
9. Discuss the major factors today that have made the need for independent audits
much greater than it was fifty years ago.
For the past decade, society recognized that there is a need for audits of publicly held
companies, which has established because of the disconnection of ownership and
management. Auditing services are used widely by business government, and other nonprofit organizations. As civilization becomes more complex, there is an intensified probability
that inaccuracy of information will be presented to decision makers which is referred to as
information risk. The following are some of the factors that contribute to information risk, and
these are:
Remoteness of information users from information providers, mostly decision makers do not
get a direct knowledge about the business enterprise.
Potential bias and motives of information provider, a conflict of interest may be presumed to
exist between management and proprietors regarding the financial statements
Voluminous data, as industry expand, probably exchange transactions are handled daily
through manual or advanced computerized systems. As a result, an improper recording of
information of transaction may be recorded in the accounts.
Complex exchange transactions, new and shifting business relationships may take the lead
to advanced accounting and reporting difficulties. There will transactions that are so
complicated, consequently it is more difficult to record that may cause confusions and
misstatements.
Consequences, when financial information is unreliable, shareholders and other stakeholders
suffer the loss, a reliable source of information is very relevant in their assessment and
decision-making process.
10. The overall risk of the investment in a business includes both business risk and
information risk. Contrast these two types of risks. Which one is most directly
affected by the auditors?
Business risk are risks that influence the processes and potential outcomes of business
operations, it is the risk that is very crucial in the business's existence and profitability. Information
risk is the risk that the information provided about a business is inaccurate, it is the way where
business risk is quantified. If the information is inaccurate, then it is not easy to measure and
perceive the current situation of the business. The one that is most directly affected by auditors
is the information risk, as it is their job to make sure that the provided information are precise and
reliable to conclude and make correct judgement to generate solutions, with that the business will
be free from risks.