THE PROFESSIONAL STANDARDS
Auditing Theory
THE PROFESSIONAL STANDARDS
Standards are established to measure the quality of performance of
individuals, and organizations. Standards relating to the accounting profession
concern themselves with CPAs’ professional qualities, the judgement exercised
by the CPAs in the performance of their professional engagement, and the
CPA firm’s quality control policies and procedures
The board of accountancy promulgated ten generally accepted auditing
standards (GAAS) that established required level of quality for performing
financial statement audits. These standards must be followed by CPAs when
auditing financial statements.
GENERALLY ACCEPTED AUDITING
STANDARDS (GAAS)
GAAS represents measures of the quality of the auditor’s performance. These
standards should be looked at as a minimum standard of performance that
auditors should follow. These ten GAAS are grouped into general, fieldwork
and reporting standards.
GENERALLY ACCEPTED AUDITING
STANDARDS (GAAS)
Generally Accepted Auditing Standard (GAAS)
General Standards
 Technical Training
and Proficiency
Standards of Fieldwork
 Planning
 Independence
 Internal Control
Consideration
 Professional care
 Evidential matter
Standards of Reporting
 Generally Accepted
Accounting Principles
 Inconsistency
 Disclosure
 Opinion
PHILIPPINE STANDARDS ON AUDITING
(PSA)
The auditing and assurance standards council (AASC) has been given the task
to promulgate auditing standards, practices and procedures which shall be
generally accepted by the accounting profession in the Philippines. The
structure of AASC pronouncements is shown in fig. 2.2.
STRUCTURE OF AASC PRONOUNCEMENTS
AASC Pronouncements
Framework for Assurance
Engagements
Related Services
Audit
Review
Other Assurance
Engagements
Agreed-upon
Procedures Engagement
PSA
100 - 999
PSA
2000 2699
PSA
3000 3699
PSA
4000 4699
PSA
1000 1999
PSA
2700 2999
PSA
3700 3999
PSA
4700 4999
Compilation
Engagement
SYSTEM OF QUALITY CONTROL
Quality control are policies and procedures adopted by CPA’s to provide
reasonable assurance of conforming with professional standards in performing
audit and related services.
Under Philippine standards on quality control (PSQC) 1, a firm has an
obligation to establish a system of quality control designed to provide it with
reasonable assurance that the firm and its personnel comply with professional
standards and regulatory and legal requirements, and that the report issued
by the firm are appropriate in the circumstances.
SYSTEM OF QUALITY CONTROL
In this regard, engagement teams:
vImplement quality control procedures that are applicable to audit
engagement
vProvide the firm with relevant information to enabling the functioning of that
part of the firm’s system of quality control relating to independence; and
vAre entitled to rely on the firm’s system unless information provided by the
firm or other parties suggest otherwise.
ELEMENTS OF A SYSTEM OF QUALITY
CONTROL
PSA 220 states that the audit firm should implement policies and procedures
designed to ensure that all audits are conducted in accordance with PSAs.
vLeadership responsibilities for quality on audits
vEthical requirements
vIndependence
vAcceptance and continuance of client relationships
vHuman resources and assignment
vEngagement performance
vMonitoring
ENGAGEMENT PERFORMANCE
vDirection
Assistants should be informed of their responsibilities, the nature of the entity’s
business, potential problems that may arise and the detailed approach to the
performance of the engagement.
vSupervision
This involves monitoring the progress of the audit, resolving accounting and
audit issues, and considering the level of consultation appropriate for the
engagement.
ENGAGEMENT PERFORMANCE
vReview
Work performed by assistants should be reviewed to consider whether the
audit procedures, evidence and documentation are appropriate to support the
conclusion reached.
vConsultation
The firm should establish policies and procedures that encourage firm personnel
to seek assistance from authoritative sources wither within or outside the firm.
ENGAGEMENT PERFORMANCE
vEngagement quality control review
The firm should establish policies and procedures requiring an engagement
quality control review that provides an objective evaluation of the significant
judgements made and conclusions reached in formulating the auditor’s report.
vDifference of opinion
The engagement team should follow the firm’s policies and procedures for
dealing with and resolving differences of opinion that arise within the
engagement team, with those consulted and, where applicable, between the
engagement partner and the engagement quality control reviewer.
QUALITY CONTROL REVIEW
Recognizing the importance of professional accountants’ services to the society,
the government has also taken steps to ensure that CPAs work to the highest
standards which can reasonably be expected from them. The government thru
the Professional Regulatory Board of Accountancy (BOA) has required all CPA
firms and individual CPAs in public practice to obtain a certificate of
accreditation to practice public accountancy. Such certificate is valid for three
years and can be renewed after complying with the requirements of board of
accountancy.
QUALITY CONTROL REVIEW
As a condition to the renewal of the certificate of the accreditation to practice
public accountancy, the board requires individual CPAs and CPA firms to
undergo a quality control review to ensure that these CPAs comply with
accounting and auditioning standards and practices.
The PRC has created a Quality Review Committee (QRC) which shall conduct a
quality review on applicants for registration to practice public accountancy
and shall recommend the revocation of the certificate of registrations of CPAs
who have not observed the quality control measures or those who have not
complied with the standards of quality prescribed for the practice of public
accountancy.