Chapter 1: Professional Practice of Accountancy

Mastery of a particular intellectual skill, acquired
by training and education
Role of the professional accountant in the economy


values and conduct
A free-market economy can exist only if there is
sharing of accurate, reliable information among
Adherence by its members to a common code of

Acceptance of a duty of society
parties that have a vested interest in the financial
performance and future prospects of an
organization. The market is further strengthened
A professional accountant is an individual who holds a
valid certificate issued by the Board of Accountancy.
if the data are transparent and neutral.
Scope of Practice
Five major characteristics of an ideal profession (SPCRC)
a.
Practice of Public Accountancy—member in an
accounting or auditing firm, render professional
1.
Systematic theory
a.
Accounting theory
b.
Financial accounting and reporting
services, etc.
b.
decision making requiring professional
standards and practices
c.
Auditing standards
d.
Can be achieved through formal
knowledge
c.
2.
accounting subjects
d.
Professional authority
a.
Judgment of what is good or bad for the
government or in a government-owned and/or
Community sanction
a.
Control in the admission to the
profession
b.
A candidate must be licensed by PRCBOA through the CPALE
4.
Requirements to Enter the Accountancy Profession
(degree—CPALE—LRR)
a.
Holder of BSA degree
b.
Qualify as a professional accountant by passing
c.
Satisfy all other legal and regulatory
the CPALE administered by PRC-BOA
Regulative code
a.
accounting profession, abuse should be
prevented by…
b.
Rules of professional conduct
c.
Code of ethics
d.
The accountancy law
Culture
a.
requirements
Since there is monopoly in the powers
and privileges granted to the public
5.
controlled corporation
Based on the expertise in the systematic
theory of accounting and auditing
3.
BSA Program (Pre-qualification education requirements)
I.
Accounting, finance, and related
knowledge
II.
The public accounting profession is a
b.
Organization and business knowledge
c.
IT knowledge and competencies
Professional Skills and General Education
PROFESSIONAL SKILLS
a.
Accounting has developed a
professional culture as evidenced by
such factors as the formal norms of the
code of ethics, the informal rules
A profession has the following characteristics:
Professional Accounting Education
a.
time-honored profession
b.
Practice in the Government—appointed to a
position in the accounting professional group in
clients
b.
Practice in Education/Academe —a person in an
educational institution involving teaching
college-level education in an academic
environment
Practice in Commerce and Industry—involved in
Intellectual skills
b.
Technical and functional skills
c.
Personal skills
d.
Interpersonal and communication skills
GENERAL EDUCATION
III.
Professional Values, Ethics, and Attitude
VALUES AND ATTITUDE
a.
b.
Commitment to the public interest and
accounting and reporting
sensitivity to social responsibilities
systems
Continual improvement and lifelong
B.
Practical Experience
learning
c.
d.
Reliability, responsibility, timeliness,
Five different areas that the professional accountant’s
courtesy, and respect
mindset needs to embrace
Laws and regulations
PROFESSIONAL ETHICS
1.
Professionalism and ethical behavior
2.
Professional judgment
3.
Organization and environmental awareness

CPALE—Read more in Chapter 4
4.
An investor and wider stakeholder focus

Other Legal and Regulatory Requirements—
5.
Change, uncertainty, and complexity
Read more in Chapter 4
How competencies can be developed and maintained
(specific development programs for professional
accountants):
(a) Exposure to various parts of the organization
(b) Formal and informal training, including coaching
Education and development for maintaining and
acquiring the capabilities of professional accountants can
and mentoring
(c) Synchronization of development with
include:
organization maturity
(a) Advanced professional education pursued at
academic institutions or thru the programs of
professional bodies
(b) On-the-job-training and experience programs
Ten (10) Insights and Directions
1.
technology
2.
Pre-certification and Lifelong Learning
(c) Off-the-job training
3.
Worldwide Profession
(d) Continuing professional development courses
4.
Pride in the Profession
and activities
5.
Trusted Attester
6.
Trusted Advisor
Competency Requirements for professional Accountants
7.
Market Permissions
in Public Practice
8.
Marketplace
9.
Value Proposition
A. Knowledge Content
a.
Audit of historical financial information
10. Demographic Shifts
at an advanced level
i. Best practices in audit
ii. ISA & IAPS
iii. Any other applicable standards
or laws
b.
c.
Core Values and Competencies

Core values—the essential and enduring beliefs
that it upholds over time. These enable CPAs to
retain their unique character and value as they
Financial accounting and reporting at an
embrace the changing dynamics of the global
advanced level
economy
i. FAR processes and practices
o
integrity
ii. IFRS
o
competence
iii. Any other applicable standards
o
lifelong learning
or laws
o
objectivity
Information technology
o
commitment to excellence
o
relevance in the global marketplace
i. IT systems for FAR
ii. Frameworks for evaluating
controls and assessing risks in

Core competencies—a unique combination of
human skills, knowledge, and technology that
provides value and results to the users.
o
Communication skills
o
Leadership skills
o
Critical-thinking and problem-solving
skills
o
Anticipating and serving evolving needs
o
Synthesizing intelligence to insight
o
Integration and collaboration
information upon which to make
Chapter 2: Practice of Public Accountancy
investment decisions
Practice of Public Accountancy


o
Scope of the practice of public accountancy
o
Section 4
o
Philippine Accountancy Act of 2004

o
PFRSC (Philippine Financial
Reporting Standards Council)
Prohibitions on the usage of the CPA title
o
Represented in standard-setting bodies
such as the:

AASC (Auditing and Assurance

PIC (Philippine Interpretations
Standards Council)
Article IV, Section 26
Philippine Accountancy Act of 2004
Committee)
Certified Public Accountant

A person who, after obtaining the required

Commission on Audit
o
education, passes an extensive examination and
The agency that audits or determines
whether government units handle their
is licensed by the country to practice as a
funds according to existing laws and
professional accountant
whether their programs are being
conducted efficiently and economically.
Regulatory and Professional Organizations

Bureau of Internal Revenue
Influencing the Profession
o
A. Regulatory Government Agencies
o
Responsible for the enforcement of the
tax laws, rules, and regulations.

Internal Revenue Code (NIRC)
Professional Regulation Commission (PRC)
o
o
Administers, implements, and enforces
regulatory policies regarding licensing,
B.
Professional Organizations
etc.

Philippine Institute of CPAs (PICPA)
o
Has jurisdiction over the Board of
o
Its authority is from the PRC
o
Board of Accountancy (BOA)
o
Consists of 1 chairman and 6 members
o
The agency empowered to administer

Other sectoral organizations (for specific
requirement of CPAs)
o
Only body allowed to issue and revoke

ACPAPPAssociation of CPAs in Public
Practice
CPA certificates and grant licenses to
o
Publishes the Accountants Journal
professional development and other
the Accountancy Law
o
Public practice, education, government,
and commerce and industry
Modernization Act of 2000

The accredited national professional
organization of CPAs
Accountancy
o
Bases compliance on the National
practice
o
ACPAE Education
Its authority is from the Philippine
o
ACPACI Commerce and Industry
Accountancy Act of 2004
o
GACPA Government
Securities and Exchange Commission (SEC)
o
Regulates the registration and
operations of corporations, partnership,
o
C. Standard-Setting Bodies

International Federation of Accountants (IFAC)
and other forms of associations of the
o
Approved in Munich in 1977
Philippines
o
Its mission is to develop and enhance
the profession to enable it to provide
Its overall objective is to assist in
services of high quality in the public
providing investors with reliable
interest

International Accounting Standards Board (IASB)
o
Based in London which began in 2001
o
Funded by contributions from major
o
Has 14 board members (12 full time)
o
Committed to developing, in the public

Auditing and Assurance Standards Council
(AASC)
accounting companies
o
Created within 90 days after the
effectivity of the IRR to R.A. 9298
o
Composed of the (17)
interest, a single set of high quality,

Chairman
global accounting standards that require

BOA
transparent and comparable information

SEC
in general purpose financial statements

BSP
o
April 2001 IASC:IAS  IASB:IFRS

COA
o
December 2003: issued 15 revised IASs,

An org of CPAs in active public
the Effects on Changing Prices),

ACPAPP (9)
approved IFRS 1 to 5

ACPACI (1)
December 26, 2004: BOA approved the

ACPAE (1)
practice of accountancy
withdrew IAS 15 (Information Reflecting
o
adoption of IASs and IFRSs effective
January 1, 2005  PFRS
Types of Services of a Professional Accountant
in Public Practice (Assurance & Non-Assurance)

Financial Reporting Standards Council
o
Promulgates PFRS and is the accounting
1.
o
Created within 90 days after the
are free of material misstatement
c.
Chairman

BOA
enable the auditor to express an opinion

SEC
whether the FS are prepared in

BSP
accordance with an identified2 FR

BIR
framework

Major org of preparers & users

COA

ACPAPP (2)

ACPAE (2)
a.
PSREs 2400 and 2410

ACPACI (2)
b.
Involves limited investigation of much

GACPA (2)
c.
Undertaken for the purpose of providing
International Auditing Practices Committee
d.
“give a true and fair view”, “present fairly,
e.
HIGH but not absolute level of assurance
in all material respects”
2.
Reviews
narrower scope than an audit
limited (negative) assurance that the
(IAPC)
o
The objective of an audit of FS is to

of FS
o
Its objective is to provide a high level of
assurance that the financial statements
Composed of 15 members with a
chairman

The most predominant type which is
commonly called external audit
b.
effectivity of the IRR to R.A. 9298
o
Independent financial statement audit
a.
standard setting body of the Philippines
A standing committee of the Council of
statements are presented in accordance
IFAC
with identified FRS
Responsible for the development and
d.
standards and statements on a variety of
The FS reviewed may be historical or
prospective
issuance on behalf of the Council
e.
Its objective is to enable the auditor to
audit and attests functions in order to
state that nothing has come to the
improve the degree of uniformity in the
auditor’s attention that causes the
world
auditor to believe that the FS are not
d.
prepared in accordance with the
f.
Assurance services on other types of
frameworknegative assurance
information (by the Special Committee
MODERATE level of assurance
on Assurance Services of the AICPA)
i. Business performance
Other review engagements
g.
measurement
Wherein a practitioner is engaged to
ii. Health care performance
issue or does issue a written
measurement
communication that expresses a
conclusion with respect to the reliability
iii. Risk assessment
of a written assertion that is the
iv. Eldercare Plus
responsibility of another party.
h.
i.
3.
Independent assurances about other
types of information
1.
Agreed-upon procedures
Ex. review of investment performance
2.
Compilation
statistics
3.
Tax
Other assurance services (PSAE 3000)
a.
Non-assurance Services
Assurance Services on IT
i. CPAs can help provide
4.
Management consultancy/advisory services
5.
Accounting and data processing
6.
Other non-assurance services
assurance on concerns over
privacy, security of information,
and the reliability of processes
Assurance Engagements

generating information in a real-
Nature
o
satisfaction as to the reliability of an
time format.
b.
assertion being made by one party for
CPA Web Trust Service
i. To provide assurance to 3
rd
use by another party
party users of web sites in the
o
The auditor assesses collected evidence
and expresses a conclusion
internet
ii. The Web Trust seal assures the
o
Assurance engagement—an
user that the web site owner has
engagement where a practitioner
met established criteria related
expresses conclusion to enhance the
to business practices,
degree of confidence that intended
transaction integrity, and
users can have about the audited
statements of a company
information processes
iii. Web Trust—attestation service

iv. Web Trust seal—a symbolic
Objective
o
For a professional accountant to
representation of the CPA’s
evaluate or measure a subject matter
report on management
that is the responsibility of another party
against identified suitable criteria; and
assertions about its disclosure of
electronic commerce practices
c.
Assurance (PFAE, 2006)—the auditor’s
o
the intended user with a level of
Information System Reliability Service
assurance about that subject matter
i. CPAs provide assurance that an
info system has been designed
o
and operated to produce
o
reliable data that protects the
____
Level of assurance provided by the
auditor’s conclusion conveys the degree
system against potential data
defects
To express a conclusion that provides
of confidence placed by the user.

Assertion-Based Engagements
vs. Direct Reporting Engagements
o
Assertion-based engagements

c.
evaluation or measurement of
responsible party


o
2.
Limited assurance engagement
a.
the assertion by the responsible
engagement risk to a level that is
intended users
acceptable in the circumstance of the
ex. IFSA
engagement
b.
c.
Negative form (“No, there are no
errors.”)
or measurement of the subject
matter, or
Risk is greater than for a reasonable
assurance engagement
Where the practitioner either
directly performs the evaluation

Aims to reduce the assurance
party is made available to the
Direct reporting engagement

Positive form (“Yes, followed the
standards.”)
the subject matter by the
3.
Other assurance services
obtains a representation from
a.
CPA Web Trust
the responsible party that has
b.
Eldercare Plus
performed the evaluation or
c.
Business Performance Measurement
Services
measurement that is not
d.
available to the intended users
If the measurement of subject matter is given by the
responsible party, it takes the form of assertions if it is
Information Reliability Servi ces
Elements of an Assurance Engagement (3SSSW)
1.
A three-party relationship involving the
practitioner, responsible party, and intended
disclosed to the intended users and then practitioner is
users;
asked to affirm such assertions of the responsible party.
Such assurance engagement is attestation engagement.
2.
an appropriate subject matter;
Another name for attestation engagement is assertion-
3.
suitable criteria;
based engagement as practitioner express his opinion
4.
sufficient appropriate evidence;
about assertions fairness.
5.
a written assurance report in the form
appropriate to a reasonable or limited assurance
engagement
However, if the practitioner performs the measurement of
subject matter himself OR obtains the representation from
the responsible party who has conducted the
measurement of subject matter where such evaluation
was not disclosed to intended users by the responsible
A Three-Party Relationship

party then measurement of subject matter will be
Practitioner
o
The person who provides the assurance
provided by the practitioner in his assurance report to
to the intended users about a subject
intended users. Such engagements are called direct
matter that is the responsibility of
reporting engagements.
another party.
o
The term is broader than “auditor”
(refers to practitioners performing audit
or review engagements with respect to
Types of Assurance Engagements
historical financial information)
(based on PFAE)

1.
Reasonable assurance engagement
a.
b.
Responsible party
o
Aims to reduce the assurance
In a direct-reporting engagement—
responsible for the subject matter
Not absolute
o
In an assertion-based management—
engagement risk to an acceptably low
responsible for the subject matter
level
information (the assertion) and also for
the subject matter

Intended users
o

Criteria are made available to the intended users
in one or more of the following ways:
Are the people for whom the
practitioner prepares the assurance
(a) Publicly
report
(b) Through inclusion in a clear manner in
the presentation of the subject matter
information
Appropriate Subject Matter


o
Financial performance or conditions
o
Non-financial performance or conditions
o
Physical characteristics
o
Systems and processes
o
Behavior
the assurance report
(d) By general understanding (e.g. general
measurement of time)
Sufficient Appropriate Evidence
Characteristics of the subject matter (degree of
(The practitioner plans and performs an assurance
objectivity vs subjectivity, etc.) affect the:
engagement with an attitude of professional skepticism
o
o

(c) Through inclusion in a clear manner in
Can take any forms such as
Precision of the evaluation of the subject
to obtain sufficient appropriate evidence) The
matter
practitioner considers (1) materiality, (2) assurance
Persuasiveness of available evidence
engagement risk, and the (3) quantity and quality of
An appropriate subject matter is:
o
Identifiable and capable of consistent
eval or msrmt against the identified
available evidence when planning and performing the
engagement.

criteria
o
Professional Skepticism
o
Means that the practitioner makes a
Such that the info about it can be
critical assessment, with a questioning
subjected to procedures for gathering
mind, of the validity of evidence
SAE
obtained and is alert to evidence that
contradicts or brings into question the
reliability of documents ore
Suitable Criteria

representations by the responsible party
Are benchmarks used to evaluate or measure the
subject matter including benchmarks for

o
Recognizing that circumstances may
presentation and disclosure
exist that cause the subject matter
Criteria may be:
information to be materially misstated
o
Formal
o
Established internal control

Sufficiency and Appropriateness of Evidence
o
Sufficiency is the measure of the
quantity of evidence
framework/objectives specifically
designed for engagements
o

Applicable law, regulation, or contract
Should exhibit the following characteristics:
o

Risk of material misstatement

Quality
Appropriateness is the measure of the
quality of evidence
o
Relevance: assist decision-making
o
Completeness: relevant factors are not

Relevance
omitted

Reliability
o
Reliability: allow reasonably consistent

Influenced by its source
evaluation or measurement of the

And nature
subject matter
o
Neutrality: free from bias
o
Understandability: conclusions that are
o
o
The higher the quality, the less may be
required
clear, comprehensive, and not subject to
significantly different interpretations
The greater the risk, the more evidence
is likely to be required

Materiality
o
Relevant when the practitioner
o
CPAs prepare corporate and individual
tax returns for both audit and non-audit
determines the nature, timing, and
clients.
extent of evidence-gathering
procedures, and when assessing whether
o
Primary types:
the subject matter information is free of


individuals, corporations, estates
Assurance Engagement Risk
o
and trusts, and others
The risk that the practitioner expresses
an inappropriate conclusion when the
o
Tax compliance —includes the
preparation of tax returns for
misstatement

Tax planning—determines the
subject matter information is materially
tax consequences of planned or
misstated
potential transactions and
The risk that the subject matter
suggests the desirable course of
information is materially misstated
action to minimize the tax

Inherent risk: susceptibility to

Control risk: the risk that a
liability while achieving the
client’s objectives
material misstatement

material misstatement will not
Management Consulting/Advisory Services
o
practitioner in a consulting engagement
be prevented by related internal
controls

Professional services that employ the

Accounting and Data Processing or Information
Technology System Services
Detection risk: the risk that
material misstatements will not
o
Accountants being outsourced by small
clients with limited accounting staff
be detected
Assurance Report

A written report containing a conclusion that
So as not to confuse users, a report that is not an
conveys the assurance obtained about the
assurance report avoids, for example:
subject matter information

Implying compliance with this Framework, PSAs,

Inappropriately using the words assurance, audit,

Including a statement that could reasonably be
PSREs, or PSAEs
Non-Assurance Engagements
These are engagements not covered by the Philippine
Framework on Assurance Engagements

Agreed-upon Procedures Services
o
or review
mistaken for a conclusion designed to enhance
The party engaging the professional
the degree of confidence of intended users
accountant (the intended user)
about the outcome of the evaluation or
determines the procedures to be
measurement of a subject matter against criteria
performed and the professional
o

accountant provides a report of factual
Having accepted an assurance engagement, a
findings as a result of undertaking those
practitioner may not change such engagement to a non-
procedures
assurance engagement, or from a reasonable assurance
Not an assurance engagement but may
engagement to a limited assurance engagement without
be
reasonable justification.
Compilation of financial or other information
o
PSRS 4410 (formerly PSA 930)
Expectation gap—a gap that exists between what
o
For the CPA to use accounting expertise,
auditors attempt to do in an audit and the user’s
not auditing expertise, to collect, classify,
expectations of the audit.
and summarize financial information

Tax Services
Chapter 3: Overview of Auditing
Philosophy of an Audit

Businesses, institutions, and individuals must
maintain records of their financial condition and
AUDITING
progress.

Records are necessary to (EDMS):
o
evaluate and guide business operations
(IM)

o
determine financial status (IM, GA, C&I)
o
meet legal requirements (GA)
o
serve as a basis for credit (C&I)
Creditors and investors (present and
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.
prospective)
o
Study the FS for credit extension and
SCOA-DECI (by the American Accounting Association
investment purposes

Government agencies
o
Study the GS to help them carry out the
duties imposed upon them by law

Internal management
o
Study the FS for planning, directing, and
controlling business operations
Systematic process
Competent, independent person
Objectively obtains and evaluates evidence
Assertions about economic actions and events
—
Degree of correspondence
Established criteria
Communicating the results
RELIABLE AND CREDIBLE INFORMATION
Interested users


Systematic process
o
Audit examination—the process employed to
series of steps and procedures
establish the reliability or unreliability of the
o
financial statements and supporting records

o
Auditing of financial records has become an


Attestation
o
GENERAL SENSE: an expert’s
communication about the reliability of

o
Proper conclusion
o
Independent metal attitude
o
Impartial and objective thinking.
Objectively obtains and evaluates evidence
o
someone else’s assertion.
o
o
communication that expresses a
Judiciously evaluating the results
without bias or prejudice
conclusion about the reliability of about
is the responsibility of another party.
Means examining the bases for the
assertions (representations)
NARROWER SENSE: a written
the reliability of a written assertion that
The auditor must be qualified…to know
how and what evidence to accumulate
indispensable (absolute necessary).
Auditing is a form of attestation.
Include information testing system and
Competent, independent person
o
certified public accountant are considered

Consists of a series of sequential steps
testing of transactions and balances
important factor in the dissemination of financial
information and the services of the independent
A structured, logical, and organized

Assertions about economic actions and events
o
These are the representations made by
(a) Involves the application of analytical skills,
the individual or entity under audit
o
They comprise the subject matter of
auditing
o
professional judgment, and professional
skepticism;
(b) Is usually performed by a team of professionals,
Assertions—information contained in
the financial statements, internal
directed with managerial skills;
(c) Uses appropriate forms of technology and
operating reports, and tax returns.
o

Assertions are the representations of
adheres to a methodology;
(d) Complies with all relevant technical standards
management as to the fairness of the
such as International Standards on Auditing
financial statements
(ISAs), International Standards on Quality Control
Degree of correspondence
o
o
(ISQCs), IFRS, International Public Sector
The closeness with which the assertions
Accounting Standards (IPSAS), and any applicable
can be identified with established
international, national, or local equivalents as
criteria
appropriate; and
May be quantitative (ex. amount of
(e) Complies with required standards or professional
shortage) or qualitative (ex. measure of
ethics.
the fairness of the FS)

Established criteria
o
The standards against which the
o
Criteria—specific rules prescribed by a
assertions or representations are judged
legislative body, budgets, and other
measures of performance set by
management, or financial reporting
Objective of Auditing (PSA 120, Framework of Philippine
standards by the FRSC (Financial
Standards on Auditing)
Reporting Standards Council)


whether the FS are prepared in accordance to
Communicating the results
o
o
standards
Attestation
Audit report—the final stage in the audit
To enable the auditor to express an opinion

“present fairly, in all material respects”
process wherein the findings are
o
communicated to the users
Why Independent Auditing is necessary  Information
By attesting to the degree of
Risk
correspondence, the investigator
(The increased likelihood that unreliable information will
enhances or weakens the credibility of
be provided to decision makers)
the claims
o
Communication of findings is achieved
through a written report

Factors that contribute to information risk:
a.
o
Individuals who use or rely on the
b.
Potential bias and motives of information
provider
auditor’s findings
o
Remoteness of information users from
information providers
Interested users
Ex. stockholders, management, creditors,
c.
Voluminous data
government agencies, the public
d.
Complex exchange transactions
How information risk may be reduced:

IFAC Education Committee defines auditing as:
A structured process that:
1.
Allow users to verify information
2.
User shares information risk with management
3.
Have the financial statements audited
Revised Code of Ethics for Professional Accountants in the
Due diligence audit is an investigation or audit of a
Philippines—promulgated by the BOA and approved by
potential investment or purchased company before
the PRC that should be followed by an auditor.
entering the agreement of buying company.
Ethical Principles

Ethical principles of an auditor
o
Independence
A. Independent Financial Statements Audit
o
Integrity
B.
Internal Audit
o
Objectivity
C. Government Audit
o
Professional competence and due care
D. Special Audits: Other Audits or Limited
o
Confidentiality
o
Professional behavior
o
Technical standards
General Types of Audit
Assurance Engagements
Independent Financial Statements Audit

Audits should be conducted in accordance with

Audits should be planned and performed with
the PSA
Nature

To determine if such statements have been
an attitude of professional skepticism
prepared in conformity with financial reporting
practices that are appropriate for the auditee.

“attest function”
Reasonable Assurance

Assurance that the FS taken as a whole are free

Reasonable assurance —a concept relating to the
from material misstatement
Overall Objectives (PSA 200)


To assure that the FS are free from material
misstatement, fraud, and error
accumulation of the audit evidence necessary for
To report on the financial statements or give
the auditor to conclude that there are no
opinion
material misstatements in the financial
statements taken as a whole
Scope—the audit procedures necessary to achieve the
audit’s objectives

The auditor will conduct a critical and systematic
Responsibility for the financial Statement

an opinion
examination of the statements and of the related
documents, records, procedures, and control.
Auditor: responsible for forming and expressing

Management: responsible for preparing and
presenting the financial statements
Overview of an Independent Financial Audit Engagement
1.
Pre-engagement Activities
Requirements for an Effective Financial Statements Audit
2.
Planning Activities
(Relevant qualities an auditor must possess to complete
3.
Internal Control Risk Assessment Activities
an audit within the framework)
4.
Account Balance Audit Activities
5.
Reporting Activities
1.
The auditor must have a thorough
understanding of the entity being audited and
the industry of which it is a part.
General Principles of an Audit
1.
Ethical Requirements
2.
Reasonable Assurance
3.
Responsibility for the Financial Statement
4.
Requirements for an Effective Financial
2.
A comprehensive knowledge of the Financial
Reporting Standards in order to audit effectively.
3.
A solid grasp of the concepts of internal control
and competence.
4.
Be knowledgeable in the area of evidence
gathering and evaluation.
Statements Audit
Ethical Requirements
Internal Audit
Nature


An independent, objective assurance and
o
Performed for the purpose of ensuring
consulting activity designed to add value and
the fairness, accuracy, and reliability of
improve an organization’s operations
financial data
Helps an organization accomplish its objectives
Objective and Scope

To assist all members of management in the
effective discharge of their responsibilities by
furnishing them with analyses, appraisals,
recommendations, and pertinent comments
concerning the activities reviewed
Government Audit
Nature



Involves the determination of whether
government funds are being handled properly
Responsibility and Authority
To inform and advise management in
and in compliance with existing laws and
consistence with the Code of Ethics of the
whether the programs are being conducted
Internal Auditors
efficiently and economically
To coordinate activities with others
Independence
Scope

Financial and Compliance Audit
Determines whether financial operations

Independence is essential to the effectiveness of
internal auditing.
are properly conducted, financial reports

Obtained primarily through organizational status
are presented fairly, and entity has

Organizational status of the IA function and the
o
complied with laws and regulations.
and objectivity

support accorded to it by management are

Objectivity is essential to audit function
economically and efficiently

Operational audit
Program Results
o
Determines if the desired results and
o
Efficiency and effectiveness
benefits and objectives are achieved and
o
Future-oriented, independent, and
met, and whether the agency has
systematic evaluation performed by the
considered alternatives to minimize
internal auditor for management of the
costs
operational activities
Three Main Divisions of State Audit (from the Primer on
For the purpose of improving
Government Accounting and Auditing in the Philippines
organizational profitability and
issued by the PICPA Committee on GAAS in 1984)
increasing the attainment of the other
1.
organizational objectives
2.
Future-oriented, independent, and
3.
Financial audit—reliability of recorded financial
Performance Audit—fin and operational
performance
systematic evaluation of the activities of
a.
all levels of management
o
Compliance audit—laws and regulation
data
Management audit
o
Efficiency Audit)—appraisal of
organizational profitability and
management performance; least cost
POV; cost-benefit analysis
b.
organizational objectives
Historically-oriented, independent
evaluation
Program Results Audit (Effectiveness
Audit)—evaluation of program results
Financial audit
o
Management Audit (Economy and
For the purpose of improving
increasing the attainment of the other

Determines whether the entity is
managing and utilizing its resources
o

o
major determinants of its range and value
Internal Approach and Techniques (Types)

Economy and Efficiency Audit
Comprehensive audit

Consists of a proper balance among compliance,
financial, and performance audits
auditing—the effectiveness of
Commission on Audit

The highest and final authority in state auditing

Created under Sec. 1, Art XII-D of the Philippine
attaining entity objectives
o

Line functions—an internal auditor must
be independent of line functions
Constitution
Highest audit office of the RP

Government Auditors
Special Audits: Other Audits or
o
Ex. COA, BIR
o
COA Auditors—Compliance
Limited Assurance Engagements



Determines whether gov’t
agencies present FS fairly in
Nature
Other type of audit services that fall within
accordance with standards,
auditing standards but are not audits of
conduct programs with
historical financial statements in accordance with
economy and efficiency, and
PFRS
whether desired results are
Established by PSAs 800, 805, 810
achieved.
Include:
o
(a) Audits of FS prepared on another
BIR Examiners—Compliance

Determines whether the
taxpayers have complied with
comprehensive basis of accounting
the tax laws
(b) Audits of specified elements, accounts, or items
in a financial statement
o
(c) Audits of information accompanying the basic
Regulatory Auditors

SEC, BSP, Cooperative
Commission, Office of Insurance
financial statements (PSA 720)
(d) Compliance with contractual agreements
Commission, other government
(e) Summarized financial statements
agency examiners
Accounting versus Auditing
Accounting

Types of Auditors

summarizing economic events in a logical
Public Accounting Firms
o
The primary responsibility is the
manner for the purpose of providing financial
performance of audits of the published
information for decision making
historical FS of all publicly traded
companies
o
Auditing

the recorded accounting information for the
compliance auditing as part of
entity properly reflects the economic events that
Internal Auditors
o
o
occurred during the accounting period.
Both record transactions and prepare financial
Can be hired CPA firms or employees of
statements as linked by financial reporting standards
individual companies
(FRS).
Concerned with all kinds of financial and
other data generated for both internal
and external users
o
Concerned with the determination of whether
Can perform operational auditing and
management consultancy services

The process of recording, classifying, and
Also engaged in…

Operational auditing —resource
utilization

Management or performance
auditing and routine compliance
Article II
Chapter 4: Regulation of the Practice of Public
Accountancy
Article I

The PRC through BOA and Courts of Justice are
Composition of PRBOA

Chairman

6 members

Appointed vice-chairman shall have a term of
one year
responsible for the public regulation of the
public accounting practice.

No person who has served two successive terms
term
shall be eligible for reappointment until a one
regulations.
year lapse
Penalties for noncompliance of an auditor:
Qualifications of members of the board
Payment of damages to those claiming
(a) Natural-born citizen and a resident of the Phil.
injury
(b) Must be a duly-registered CPA with at least 10-
o
Public censure (reprimand
o
Injunction
o
Suspension or prohibition from practice
o
Temporary or permanent loss of license
before the SEC
to practice
year work experience in any scope of practice
(c) Must be of good moral character and must not
have been convicted of crimes involving moral
turpitude
(d) Must not have any pecuniary interest in any
institution conferring an academic degree
Philippine Accountancy Act of 2004 —the
necessary for admission to the practice of
program for regulation of the accounting
accountancy or where review classes in
profession, as implemented by the BOA
preparation for the licensure examination are
The Philippine Accountancy Act of 2004 (R.A. No. 9298)


and failure to comply with the laws and
o

Chairman and members hold office for a 3-year
Objective of public regulation: protect the
investing public from fraud, gross negligence,


being offered or conducted, nor shall he/she be
Repealing for the purpose Presidential Decree
a member of the faculty or administration
No. 692 (Revised Accountancy Law)
thereof at the time of his/her appointment to
Summary of Articles
the Board
Powers and Functions of the Board

Article 1—Title, Declaration of Policy, Objective

Article 2—Professional Regulatory Board of
necessary for carrying out the provisions of this
Accountancy
Act
and Scope of Practice

Article 3—Examination, Registration, and
Licensure
(a) Prescribe and adopt the rules and regulations
(b) Supervise the registration, licensure, and practice
of accountancy

Article 4—Practice of Accountancy
(c) Administer oaths

Article 5—Penal and Final Provisions
(d) Issue, suspend, revoke, or reinstate the certificate
Objectives of the Act
of registration
Standardization and regulation of accounting
(e) Adopt an official seal of the board
education
(f) Prescribe and/or adopt a Code of ethics

Examination for registration of CPAs
(g) Monitor the conditions affecting the practice of

Supervision, control, and regulation of the

practice of accountancy in the Philippines
Scope of Practice

Practice of public accountancy

Practice in commerce and industry

Practice in education/academe

Practice in the government
accountancy
(h) Conduct an oversight into the quality of audits
of financial statements
(i) To investigate violations of this act and
promulgate the rules and regulations hereunder
(j) Motu proprio, make such investigations as it
deems necessary to determine whether there is
violation of any provisions of this law, any
(b) Of good moral character
accounting or auditing standard or rules
(c) A holder of the degree of Bachelor of Science in
(k) Issue a cease and desist order to any person,
Accountancy conferred by a school, college,
academy, or institute duly recognized by CHED
association, partnership, or corporation
and by gov’t
(l) Punish for contempt of the board
(m) Prepare, adopt, issue, or amend the syllabi of the
(d) Has not been convicted of any criminal offense
involving moral turpitude
subjects for examinations in consultation with
the academe, determine and prepare questions,
Scope of examination
and correct and release results
Old
New
Prac-Acc 1
FAR
Prac-Acc 2
AFAR
MAS
MAS
AudTheo
Tax
AudProb
Auditing
BL and Tax
RFBT
TOA
To be qualified as having passed the CPALE:
(n) Ensure that all higher educational instruction
and offering of accountancy comply with
policies, standards, and requirements prescribed
by authorities
(o) Exercise such other powers as may be provided
by law as well as those which may be implied
from the express powers granted to the board
The commission:

Shall administratively supervise the BOA

Shall take custody of all records of the board

General average of 75%

No grades lower than 65% in any given subject
including applications for examination and
Any candidate who fails in two complete CPALEs shall be
administrative and other investigative cases
disqualified from taking another set examinations unless
conducted by the board
he/she enrolled in and completed at least 24 units in

Shall designate the secretary of the board
subject given in the licensure exam.

Shall provide secretariat and other support
services to implement the provisions of this act
The certificate of registration shall bear the signature of:

The PRC chairman

The BOA chairman and members
Ground for suspension or removal of members of the

Seal of PRC
board:

Seal of BOA
The president of the Phil, upon the recommendation of
PRC and after giving the concerned member to defend
A professional identification card (PIC) bears:
himself, may suspend or remove any member on the

Registration number
following grounds:

Date of issuance

Expiry date
(a) Neglect of duty or incompetence
(b) Violation or tolerance of any violation of this Act
Documents signed by a CPA in connection with the
(c) Final judgment of crimes including moral
practice of profession shall indicate:
turpitude

Cert registration number and its date of issuance
(d) Manipulation or rigging of the CPA exam results

Duration of validity
The board shall submit an annual report to the President

Professional tax receipt (PTR) number
at the close of each calendar year.
Article IV
Article III


CPAs wanting to practice public accountancy
All applicants for registration for the practice of
must have 3 meaningful years of experience in
accountancy shall be required to undergo a
any areas of public practice including taxation
licensure examination to be given by the board
Qualifications of applicants for examinations
(a) A Filipino citizen

No corporations
Working papers under the ownership of the CPA:

All working papers

Schedules and memoranda made by the CPA

Papers prepared and submitted by the client

DOES NOT INCLUDE reports submitted by a CPA
to a client
Membership in an accredited (integrated) organization
(PICPA) shall not be a bar to membership in any other
associate of CPAs
CPAs, firms, and partnerships engaged in the practice of
public accountancy shall register with the commission
and the board, such that registration to be renewed
every three years.
Seal

All CPA should obtain a seal of a design
prescribed by the board bearing:
o
The registrant’s name
o
The registration number and title
Coverage of temporary/special permits
(a) A foreign CPA called for consultation provided
that his/her practice shall be limited only for the
particular work he/she is being engaged for and
that there is no Filipino CPA qualified for such
consultation or specific purposes
(b) A foreign CPA engaged as professor, lecturer, or
critic in fields essential to accountancy education
(c) A foreign CPA who is an internationally
recognized expert
Article V

Any violations of this act will be fined by not less
than 50T or imprisonment for a period not
exceeding 2yrs

This act shall be effective 15 days after
publication in the Official Gazette.

Within 90 days after effectivity of this act, rules
and regulations shall be adopted and
promulgated to carry out the provisions of this
act

The Secretary of Justice or his duly designated
representative shall act as legal adviser to the
commission and the board

The board shall assist the commission in filing
the appropriate charges through the concerned
persecution office in accordance with law and
rules of court

General appropriations act shall specify the
funding of this act
and his staff
Chapter 6: Organization of CPA Firms
The organization structure of not allowing CPA firms by
corporation is influenced by the following factors:

Public accounting firms are usually organized as
(1) The need to be independent from clients —to
avoid biased conclusions
sole proprietorships or partnerships

Whatever the legal form, the hierarchy in the
competence—to conduct audits efficiently and
managers or supervisors, in-charge auditors
effectively
(sometimes called senior and staff auditors)
Advantages
Sole Proprietorship
 Practitioner is his
own boss and is
dependent
 No regular office
hours
 Earn more than a
salaried
employee
 Attain selffulfillment from
success of
practice
Partnership
 Greater stability
and continuity
 Responsibility,
risks, and cost of
practice can be
shared
 Opportunity for
specialization is
increased
 Can handle larger
engagements
more efficiently
and adequately
 Can combine
talent, resources,
time, and
experience

(2) The need of a structure to encourage
public accounting firm usually includes partners,
Disadvantages
Sole Proprietorship
 Assumes all the
risks and
responsibilities
 Income may not
be regular and
should be
supplemented
from other
sources
 Must rely on own
judgment
(3) The increased risk of litigation
Competence is encouraged by having a large number of
professionals with related interests associated in one
firm.
Public accounting firm organization (DRAW HERE):
Partnership
 Personal
differences
between partners
may arise
 One partner may
feel that the
other partner is
not contributing
enough to the
welfare of the
firm
A corporation is not allowed to engage in the
practice of public accounting in the Philippines
and therefore the SEC shall not register any


Usually in a CPA firm, there are fewer partners
corporation organized for the practice of public
than managers and senior accountants, and
accountancy
fewer senior accountants than staff
“professional corporations”—professional
practice of corporations that is allowed in the US
and other parts of the world

Assistants of staffs spend 2 or 3 years in each
classification before achieving partner status
Audit Partner
Concerned about the
overall quality of each audit
Signs the audit report and
accepting ultimate
responsibility for each audit
Maintaining client
relationships
Planning audits
Evaluating audit findings
Resolving technical matters
Audit
Manager/Supervisor
Administers important
aspects of audit
engagements
Scheduling the audit work
to be done with client
personnel
Assigning work to audit
staff, supervising staff, and
reviewing staff work
Responsible for controlling
staff time and overseeing
billing and collections
Keeps the audit partner
apprised of significant
developments during the
audit
In-Charge (Senior)
Auditor
Work under the direction of
audit managers and assist
them in administering the
audit
Generally participate in
audit planning
Provide direct supervision
to staff auditor
Review work performed by
staff auditors
Summarize audit findings
for the audit partner to
review
Staff Auditor
Perform various audit
procedures
Gather audit evidence to
use as a basis for the audit
reports
Perform procedures that
relate to a variety of aspects
of a client’s activities
(e.g. testing payroll,
inventory, accounts
payable)
Test internal control
procedures over cash
payments and test cash
balances
SPECIFIC DUTIES
1.
2.
3.
4.
5.
To plan and review all
phases of an audit
engagement
To sign the audit
report
To approve the firm’s
billing to the client
To obtain/establish
contracts with clients
To determine office
operating policies
1.
2.
3.
4.
5.
6.
To act as a liaison
officer between
partners and other
members of the staff
To discuss with the
client problems that
may arise in the course
of the audit
To exercise direct
supervision on seniors
in charge of specific
audit engagements
To review working
papers and drafts of
audit report
To discuss reports and
results of audit with
clients
To take direct charge
of training programs
1.
To prepare the audit
program to review by
the partner, principal,
or supervisor
2. To assign particular
phases of the audit
work to staff and to
exercise direct
supervision
3. To perform certain
audit procedures
requiring skill and
experience such as:
a. Review of articles of
incorporation, by
laws, and other
nonfinancial
records
b. Verification of
assets and liabilities
1.
2.
3.
4.
5.
6.
To prepare schedules
and reports on
findings
To work on tax returns
To check the accuracy
of footings and
extensions on books of
accounts and other
records
To check the postings
of entries from the
journals to the ledger
To examine vouches
supporting minor
disbursements
Generally, to serve as
an assistant
and the basis of
valuation
c. Comparison of the
current and
preceding period's
oper. results
d. Examination of
adequacy of
allowances for depr,
bad debts,
provision for
income taxes, etc.
4. To take up with the
client or with the
partner or principal
problems or questions
that arise in the course
of the audit
5. To assemble the
working papers in an
audit, and prepare a
draft of the report and
financial statements
for review and
approval by the
partner of supervisor
Chapter 7: System of Quality Control for Public
compliance by engagement teams w/ the firm’s
Accountancy Firms
QC policies and procedures
(i) Listed entity—whose shares, stock, or debt are
quoted or listed on a recognized stock exchange
Quality control for firms that perform audits and review
of financial statements, and other assurance and related
(j) Monitoring—ongoing consideration and
evaluation of the firm’s system of QC, periodic
services engagements (Philippine Standard on Quality
inspection
Control 1)
(k) Network firm—a firm or entity belonging to a
network
Applicable to:

Audits

Reviews

Other assurance services
(l) Network—a larger structure aimed at
corporation and aimed at profit or cost-sharing
(m) Partner—with authority to bind the firm
(n) Personnel—partners and staff
Objective of PSQC
(o) Professional standards—AASC engagement
The objective of the firm is to establish and maintain a
standards, relevant ethical requirements, and
system of quality control to provide it with reasonable
more
assurance that:
(p) Reasonable assurance—high, but not absolute
level of assurance
(a) The firm and its personnel comply with
professional standards and regulatory and legal
(q) Relevant ethical requirements—ethical
requirements to which the engagement team
requirements; and
and EQCR are subject
(b) Reports issued by the firm or engagement
partners are appropriate in the circumstances
(r) Staff—professionals and experts other than
partners
Definitions (keywords)
(s) Suitably qualified external person—an individual
(a) Date of report—to date the report
outside the firm w/ competence and capabilities
(b) Engagement documentation—the record of
to act as an engagement partner
work, results, conclusions “working papers”
“workpapers”
(c) Engagement partner—responsible for the
Requirement (highlights only)

circumstances
(d) Engagement quality control review —objective
evaluation, on or before date of report, is for
The firm shall comply with each requirement
unless the requirement is not relevant in the
engagement and its performance

Requirements are designed to enable the firm to
achieve the objectives of the PSQC
audits of FS of listed entities and other
engagements determined by the firm necessary
to be reviewed
Elements of a system of quality control (LRAHEM)

Leadership responsibilities for quality within the
external person, etc., with sufficient appropriate

Relevant ethical requirements
experience to objectively evaluate the significant

Acceptance and continuance of client
(e) Engagement quality control reviewer—partner,
firm
other person in the firm, suitably qualified
relationships and specific engagements
judgments made

Human resources
performing the engagement, and any individuals

Engagement performance
engaged by the firm. Excludes external experts

Monitoring
(f) Engagement team—all partners and staff
(g) Firm—a sole practitioner, partnership, or other
entity of professional accountants
(h) Inspection—in relation to completed
engagements, designed to provide evidence of
The firm shall document its policies and
procedures and communicate them to
the firm’s personnel
Leadership responsibilities for quality within the firm

Policies and procedures designed to promote
personnel comply with relevant ethical
internal culture recognizing that quality is
requirements
essential in performing engagements

To assume ultimate responsibility for the firm’s
system of quality

Independence

CEO (or equivalent)
with reasonable assurance that the firm, its
o
Firm’s managing board of partners, ir
personnel, and others subject to independence
appropriate (or equivalent)
requirements maintain independence where
Any person/persons assigned operational
required by relevant ethical requirements. Such
responsibility for the firm’s SQC by the CEO of
PP shall enable the firm to:
MBOP has sufficient and appropriate experience


Policies and procedures designed to provide it
o
o
Communicate its independence
and ability and necessary authority to assume
requirements to personnel and those
such responsibility
subject to them
Quality-oriented internal culture for clear,
o
Identify and evaluate circumstances and
consistent and frequent actions and messages
relationships that create threats to
from all levels of management
independence and to take appropriate
To:
action to eliminate those threats by
o
Perform work that complies with PSRLR
applying safeguards, or withdrawal
o
Issue reports appropriate in the
where permitted
circumstances

Requirements of such policies and procedures
Engagement partners should provide

Reward high quality work

Training seminars, meetings, formal or informal
the firm with relevant info about client
dialogue, mission statements, newsletters,
engagements
o
briefing memoranda, etc

o
Particular importance: for the firm’s leadership to
circumstances and relationships that
recognize that the firm’s business strategy is
create a threat so that actions can be
taken
subject to the overriding requirement for the
firm to achieve quality in all engagements that

o
Accumulation and communication of
the firm performs.
relevant info to appropriate personnel
Promoting such an internal culture includes:
so that:
o
Establishment of policies and

o
satisfy independence
evaluation, compensation, and
requirements

Can maintain and update its
Assignment of mgmt. responsibilities so
records relating to
that commercial considerations do not
independence
override the quality of work performed
o
Can determine whether they
procedures addressing performance
promotion (incentive systems)

Personnel to promptly notify the firm of

Can take appropriate actions
Provision of sufficient resources for the
regarding threats to
devt, docu, and support of its QCPP
independence that are not at an
acceptable level
Requirements for persons responsible for SQPP
o
Sufficient and appropriate experience
o
Ability

Policies and procedures designed to provide it
with reasonable assurance that it is notified of
breaches of independence requirements, and
Relevant Ethical Requirements

Policies and procedures designed to provide it
with reasonable assurance that the firm and its
enable it to take appropriate actions to resolve
such situations. It shall include requirements for:
o
Personnel to notify the firm of
independence breaches
o
Firm to communicate identified
o

Engagement partner

Other relevant personnel, the
Firm, network, and network firm

network, and those subject to
Firm
o
Prompt communication to the firm by
o
through ownership, management, or
individuals to the actions taken to
other means
o
procedures in independence from all firm
personnel required to be independent by
An entity controlled by such parties
through ownership, management, or
At least annually, the firm shall obtain written
other means
confirmation of compliance with its policies and

An entity that controls such parties
the engagement partner and the above
resolve the matter

A sole practitioner or partnership of
professional accountants
independence requirements
o
A process for dealing with noncompliance
breaches to:
Written confirmation

Written confirmation may be in paper or
relevant ethical requirements
electronic form. By obtaining confirmation and
Policies and procedures:
taking appropriate action on non-compliance,
o
the firm demonstrates importance to
Setting out criteria for determining the
independence
need for safeguards to reduce familiarity
threat to an acceptable level when using
the same senior personnel on an
Familiarity threat

engagement over a long period of time
period of time
o
Requiring, for audits of FS of listed
The threat that may be created by using the
same senior personnel on an assurance
assurance engagement over a long

entities, the rotation of the ff. after a
Appropriate criteria to address familiarity threat
o
which it involves a matter of public
specified period in compliance with REE

Engagement partner

Individuals responsible for EQCR

Others subject to rotation
Nature of engagement and the extent to
interest
o
The length of service of the senior
personnel on the engagement
requirements
Compliance with REE

Rotating the senior personnel or
requiring an EQCR are examples of
Fundamental principles of professional ethics
safeguards
(IOPCP)

Integrity
o
Objectivity
particularly relevant in the context of financial

o
Professional competence and due care
statement audits of listed entities. And so,
o
Confidentiality
rotation of the key audit partner after a pre-
o
Professional behavior
Part B of Phil. Code of Ethics
o
Provides how the conceptual framework
is to be applied in specific situations
o

PEC recognizes that the familiarity threat is
o
defined period
Considerations specific to public sector audit
organizations

Statutory measures may provide safeguards for
Provides examples of safeguards to
the independence of public sector auditors.
address threats to compliance with
However, threats may still exist regardless of the
fundamental principles
measures designed to protect it.
Fundamental principles are reinforced by:

Listed entities are not common in the public
Leadership of the firm
sector. However there may be other public
o
Education and training
sector entities that are significant due to size,
o
Monitoring
complexity, or public interest aspects
o

In the public sector, legislation may establish the

The firm shall establish policies and procedures
appointments and terms of office of the auditor
on continuing an engagement and the client
with engagement partner responsibility. This
relationship, addressing the circumstances where
may override rules of rotation but rotation is still
the firm obtains information that would have
considered important and is promoted
caused it to decline the engagement had that
information been made available earlier. Such PP
shall include the consideration of:
o
The professional and legal
responsibilities that apply to the
circumstances including whether there is
a requirement for the firm to report to
the person or persons who made the
appointment or in some cases to
Acceptance and Continuance of Client Relationships
regulatory authorities
and Specific Engagements

o
engagement or from both the
continuance of client relationships and specific
engagement and the relationship
engagements, designed to provide the firm with
reasonable assurance that it will only undertake
Competence, capabilities, and resources

or continue relationships and engagements
Include whether:
o
o
o
o
Is competent to perform the
o
relevant regulatory or reporting
including time and resources to do so
requirements, of the ability to gain the
Can comply with relevant ethical
necessary skills and knowledge
requirements
effectively
Has considered the integrity of the client
o
would lead it to conclude that the client
o
Expert are available if needed
lacks integrity
o
Individuals meeting the criteria and
eligibility requirements to perform
The firm to obtain such considered
engagement quality control review are
necessary information before accepting
available
an engagement with a new client, when
o
The firm is able to complete the
deciding whether to continue existing an
engagement within the reporting
engagement, and when considering
deadline
acceptance of a new engagement with
an existing client
The firm to determine whether it is
Integrity of Client

Matters to consider regarding integrity of client
o
Identity and business reputation of
appropriate to accept the engagement if
client’s owners, key management, and
a potential conflict of interest is
those charged with governance
identified
o
Firm has sufficient personnel with the
necessary competence and capabilities
Such policies and procedures shall require
o
Firm personnel have experience with
engagement and has the capabilities,
and does not have information that
o
Firm personnel have knowledge of
relevant industries or subject matters
where the firm:

The possibility of withdrawing from the
Policies and procedures for the acceptance and
o
were resolved if there were issues that
Nature of client operations and business
practices
The firm to document how the issues
o
Information concerning attitude of ditto
have been identified and the
towards such matters as aggressive
engagement or relationship is accepted
interpretation of accounting standards
or continued
and the internal control environment
o
Whether the client is aggressively
with governance w/drawal from the
concerned with maintaining the firm’s
engagement or from both, and the
reasons of such
fees as low as possible
Indications of an inappropriate limitation
in the scope of work
the firm to remain in place or for the
o
Indications that the client might be
firm to report the withdrawal from
involved in money laundering or other
engagement or both, including reasons
o
for such withdrawal, to authorities
criminal activities
o
o
Reasons for the proposed appointment
o
consultations, conclusions, and the basis
the previous firm
for the conclusions
The identity and business reputation of
Considerations specific to public sector audit
related parties
organizations

In the public sector, auditors may be appointed
regarding the integrity of a client will
in accordance with statutory procedures.
generally grow within the context of an
Accordingly, certain of the requirements and
ongoing relationship with that client
considerations regarding the acceptance and
Sources of information on such matters obtained
continuance of client relationships and specific
may include the following:
engagements may not be relevant. Nonetheless,
o
o
Communications with existing or
establishing policies and procedures as
previous providers of professional
described may provide valuable information to
accountancy services to the client in
public sector auditors in performing risk
accordance with relevant ethical
assessments and in carrying out reporting
requirements
responsibilities
Inquiry of other firm personnel or third
parties such as bankers, legal counsel,
and industry peers
o
Human Resources

Policies and procedures designed to provide it
Background searches of relevant
with reasonable assurance that it has sufficient
databases
personnel with the competence, capabilities, and
Continuance of client relationships

commitment to ethical principles necessary to:
Deciding whether to continue a client
o
relationship includes consideration of significant
o
current engagements, and their implications for
into an area where the firm does not possess the
necessary expertise)
Withdrawal
Enable the firm or engagement partners
to issue reports that are appropriate in
continuing the relationship (e.g. a client may
have started to expand its business operations
Perform engagements in accordance
with PSRLR; and
matters that have arisen during the previous or

Documenting significant matters,
of the firm and non-reappointment of
The extent of knowledge a firm will have

Considering whether there is a PSRLR for
o
the circumstances
Assignment of engagement teams

The firm shall assign responsibility for each
engagement to an engagement partner and
shall establish policies and procedures requiring
W/drawal from engagement or both address
issues that include the following:
o
o
The identity and role of the partner are
Discussing with the appropriate level of
communicated to key members of client
client’s management and those charged
management and those CWG
with governance the appropriate action
o
that:
o
The partner has appropriate
that the firm might take
competence, capabilities, and authority
Discussing with the appropriate level of
to perform the role
client’s management and those charged
o
The responsibilities of the engagement

communicated to that partner

The firm may use a SQEP when internal technical
and training resources are unavailable
partner are clearly defined and

Performance evaluation, compensation, and
The firm shall also establish policies and
promotion procedures give due recognition and
procedures to assign appropriate personnel with
reward to the development and maintenance of
the necessary competence and capabilities to
competence and commitment to ethical
o
Perform engagements in accordance
principles. Steps a firm may take in developing
with PSRLR; and
and maintaining competence and commitment
o
Enable the firm or engagement partners
to ethical principles include:
to issue reports that are appropriate in
o

ethical principles
Personnel issues relevant to the firm’s PP related
to HR include:
o
o
o
Performance evaluation
Capabilities, including time to perform
progress, and career development
o
advancement to positions of greater
o
Competence
responsibility depends upon
o
Career development
performance quality and adherence to
o
Promotion
ethical principles and that failure to
o
Compensation
comply with the firm’s policies and
o
Estimation of personnel needs
procedures may result in disciplinary
procedures help the firm select individuals of
integrity with the capacity to develop
action
Considerations specific to smaller firms

The size and circumstances of the firm will
competence and capabilities necessary to
influence the structure of firm’s performance
perform the firm’s work and possess the
evaluation process. Smaller firms may employ
appropriate characteristics to enable them to
less formal methods of evaluation of personnel
perform competently
Competence can be developed through a variety
Assignment of engagement partners

of methods, including the following:
Policies and procedures may include systems to
monitor the workload and availability of
o
Professional education
engagement partners to enable these individuals
o
CPD
to have sufficient time to adequately discharge
o
Work experience
their activities
o
Coaching by more experienced staff
o
Independence education for personnel
required to be independent

Helping personnel understand
assignments
Effective recruitment processes and

Providing personnel with evaluation of
and counseling on performance,
Recruitment
o
Making personnel aware of firm
expectations regarding performance and
the circumstances
Assignment of engagement teams

The firm’s assignment of engagement teams and
the determination of the level of supervision
The continuing competence of the firm’s
required includes consideration of the
personnel depends to a significant extent on an
engagement team’s
appropriate level of CPD so that personnel
o
Understanding and practical experience
maintain their knowledge and capabilities.
with engagements of similar nature and
Effective PP emphasize the need for continuing
complexity through appropriate training
training for all levels of firm personnel, and
and participation
provide the necessary training resources and
o
Understanding of PSRLR
assistance to enable personnel to develop and
o
Technical knowledge and expertise
maintain the required competence and
capabilities
including knowledge of relevant IT
o
Knowledge of relevant industries in
in formulating the report. Policies and
which the clients operate
procedures shall:
o
Ability to apply professional judgment
o
Understanding of the firm’s QCPP
o
Require an engagement quality control
review for all audits of FS of listed
entities
Engagement Performance

o
Policies and procedures designed to provide it
reviews, and other assurances shall be
(the firm) with reasonable assurance that
evaluated to determine whether EQCR
engagements are performed in accordance with
should be done
PSRLR and that the firm or the engagement
o
previous item
circumstances. Such policies and procedures
shall include:

The firm shall establish policies and procedures
Matters relevant to promoting
setting out the nature, timing, and extent of an
consistency in the quality of
EQCR. The engagement report should not be
engagement performance
dated until the completion of the engagement
o
Supervision responsibilities
quality control review
o
Review responsibilities
o

EQCR must include: (significant matters, FS/SM,
The firm’s review responsibility policies and
engagement documentation, evaluation of
procedures shall be determined on the basis that
conclusions)
work of less experienced team members is
o
team members
o
Review of the FS or other subject matter
information and the proposed report
Consultation
The firm shall establish policies and procedures
o
Review of selected engagement
designed to provide it with reasonable assurance
documentation relating to significant
that:
judgments the engagement team made
and the conclusions it reached
o
Appropriate consultation takes place on
o
Sufficient resources are available to
formulating the report and
enable appropriate consultation to take
consideration of whether the proposed
difficult contentious matters
o
The nature and scope of, and
conclusions resulting form, such
consultations are documented and are

EQCR of audits of financial statements of listed
entities must also include:
o
specific engagement
consultation and the individual
o
Engagement team’s evaluation of the
firm’s independence in relation to the
agreed by both the individual seeking
consulted
Evaluation of the conclusions reached in
report is appropriate
place
o
o
Whether appropriate consultation has
Conclusions resulting from consultations
taken place on matters involving
are implemented
differences of opinion or other difficult
or contentious matters and the
Engagement quality control review

Discussion of significant matters with
the engagement partner
reviewed by more experienced engagement

Require an EQCR for all engagements
meeting the criteria established in
partner issues reports that are appropriate in the

Set out criteria against which audits,
The firm shall establish policies and procedures
conclusions arising from those
requiring, for appropriate engagements, an
consultations
EQCR that provides an objective evaluation of
o
Whether documentation selected for
the significant judgements made by the
review reflects the work performed in
engagement team and the conclusions reached
relation to the significant judgments
made and supports the conclusions
assembly of final engagement files on a
reached
timely basis after the engagement
reports have been finalized
Criteria for the eligibility of EQC reviewers

The firm shall establish PP to address the

Confidentiality, safe custody, integrity,
appointment of EQC reviewers and establish
accessibility, and retrievability of engagement
their eligibility through:
documentation
o
The technical qualifications required to

Retention of engagement documentation
perform the role (necessary experience
o
o
The firm shall establish PP for the
and authority)
retention of engagement
The degree to which an EQC reviewer
documentation for a period sufficient to
can be consulted on the engagement
meet the needs of the firm or as
required by law or regulation
without compromising the reviewer’s
objectivity
Consistence in the quality of engagement performance
The firm promotes consistency in the quality of

The firm shall establish PP designed to maintain
the objectivity of the EQC reviewer
engagement performance through its policies

EQC reviewer must be replaced when the
and procedures—often accomplished through
reviewer’s ability to perform an objective review
written or electronic manuals, software tools, or
may be impaired
other forms of standardized documentation, and

industry or subject matter-specific guidance
Documentation of the EQCR

materials. Matters addressed may include:
PP on documentation of the EQCR which require
documentation that:
o
o
the engagement
The procedures required by the firm’s
policies on EQCR have been performed
o
The EQCR has been completed on or
o
The reviewer is unaware of unresolved
o
o
o
Methods of reviewing the work
that the significant judgments the
performed, the significant judgments
engagement team made and the
made and the form of report being
conclusions it reached were not
issued
appropriate
o
of the review
The firm shall establish PP for dealing with and
resolving differences of opinion within the
o
Processes to keep all policies and
procedures current
engagement team, with those consulted, and
where applicable, between the engagement
Appropriate documentation of the work
performed and of the timing and extent
Differences of opinion

Appropriate teamwork and training assist less
partner and the EQCreviewer.
experienced members of the engagement team
PP require that:
to clearly understand the objectives of the
o
o
assigned work
Conclusions reached be documented
and implemented
Supervision
Report not be dated until the matter is

Tracking the progress of the engagement
resolved

Considering the competence and capabilities of
Engagement documentation

Processes of engagement supervision,
staff training, and coaching
matters that would cause him to believe

Processes for complying with applicable
engagement standards
before the date of report; and

How engagement teams are briefed on
individual members of the engagement team,
Completion of the assembly of final engagement
whether they have sufficient time to carry out
files
their work, understand the instruction, or if work
o
The firm shall establish PP for
is being carried out in accordance with the
engagement teams to complete the
planned approach to the engagement


Addressing significant matters arising during the

Documentation of consultations with other
engagement, considering their significance and
professionals that involve difficult or contentious
modifying the planned approach appropriately
matters that is sufficiently complete and detailed
Identifying matters for consultation or
contributes to an understanding of
consideration by more experienced engagement
o
Review (consists of whether)


o
The results of the consultation, including
Work has been performed in accordance with
any decisions taken, the basis for those
PSRLR
decisions and how they were
implemented
Significant matters have been raised for
consideration

The issue on which consultation was
sought
team members during the engagement
Appropriate consultations have taken place and
Considerations specific to smaller firms

A firm without appropriate internal resources
the resulting conclusions have been
needing to consult externally may take
documented and implemented
advantage of advisory services provided by
There is need to revise the nature, timing, and
o
Other firms
extent of work performed
o
Professional and regulatory bodies

The work performed supports the conclusions
o
Or commercial organizations that

The evidence obtained is sufficient and
Before contracting such services,
appropriate to support the report
consideration of the competence and

The objectives of the engagement procedures
capabilities of the external provider helps
have been achieved
the firm to determine whether the external

provide relevant QC services
reached and is appropriately documented
provider is suitably qualified for that
Consultation

purpose
Includes discussion at the appropriate
professional level, with individuals within or
outside the firm who have specialized expertise

Uses appropriate research resources as well as
Engagement quality control reviewer
the collective experience and technical expertise
of the firm. It helps promote quality and


Criteria for an engagement quality control
improves the application of professional
review (criteria for determining which
judgment. Appropriate recognition of
engagements other than audits of FS of listed
consultation in the firm’s policies and
entities are to be subject to an EQCR may
procedures help promote a culture in which
include:)
consultation is recognized as a strength and
o
Nature of the engagement and extent to
encourages personnel to consult on difficult or
which it involves a matter of public
contentious matters
interest
Effective consultation on technical, ethical, and
o
engagements
applicable can be achieved when those
consulted:
o
Are given all relevant facts that will
o
Have appropriate knowledge, seniority,
enable them to provide informed advice
and experience
Identification of unusual circumstances
or risks in an engagement or class of
other matters within or outside the firm, if
o
Whether laws or regulations require an
EQCR
Nature, timing, and extent of the EQCR

The engagement report is not dated until the
completion of the EQCR. However,
And when conclusions resulting from
documentation of EQCR may be dated after such
consultations are appropriately documented
date
and implemented


Conducting the EQCR in a timely manner at
judgment made by the engagement partner will
appropriate stages during the engagement
be acceptable to the engagement quality control
allows significant matters to be promptly
reviewer. Such consultation avoids identification
resolved to the EQCR’s satisfaction on or before
of differences of opinion at a late stage of the
the date of the report
engagement and need not compromise the
The extent of the EQCR may depend on the
engagement quality control reviewer’s eligibility
complexity of the engagement, whether the
to perform the role. Where the nature and extent
entity is a listed entity, and the risk that the
of the consultations become significant the
report might not be appropriate in the
reviewer’s objectivity may be compromised
circumstances. The performance of EQCR does
unless care is taken by both the engagement
not reduce the responsibilities of the
team and the reviewer to maintain the reviewer’s
engagement partner
objectivity. Where this is not possible, another
individual within the firm or a suitably qualified
EQCR of a listed entity

Other matters relevant to evaluating the
external person may be appointed to take on the
significant judgments made by the engagement
role of either the engagement quality control
team that may be considered in an EQCR of an
reviewer or the person to be consulted on the
audit of financial statements of listed entity
engagement.
Objectivity of the EQC reviewer
include:
o
o
Significant risks identified during

The firm is required to establish PP designed to
engagement and the responses to those
maintain objectivity of the EQC reviewer and
risks
such PP must provide that the EQC reviewer:
Judgments made, particularly with
o
respect to materiality and significant
risks
o
o
The significance and disposition of
Does not participate in the engagement
during the period of review
corrected and incorrect misstatements
o
identified during the engagement
o
Must not be selected by the
engagement partner, where practicable
Does not make decisions for the
engagement team
Matters to be communicated to
o
Is not subject to other considerations
management and those charged with
that would threaten the reviewer’s
governance and, where applicable, other
objectivity
parties such as regulatory bodies
These other matters may also be applicable
Considerations specific to smaller firms

It may not be practicable, in the case of firms
for EQCR of audits of FS of other entities,
with few partners, for the engagement partner
reviews, and other assurance services
not to be involved in selecting the engagement
Considerations specific to public sector audit
quality control reviewer. Suitably qualified
organizations
external persons may be contracted where sole

Certain public sector entities may be of sufficient
practitioners or small firms identify engagements
significance to warrant performance of an EQCR
requiring engagement quality control reviews.
Criteria for the eligibility of EQCR

firms may wish to use other firms to facilitate
experience, and authority
engagement quality control reviews. Where the
o
What constitutes SATEEA depends on
the circumstances of the engagement
Consultation with an EQC reviewer

Alternatively, some sole practitioners or small
Sufficient and appropriate technical expertise,
The engagement partner may consult the
firm contracts SQEP
Considerations specific to public sector audit
organizations

In the public sector, a statutorily appointed
engagement quality control reviewer during the
auditor (for example, an Auditor General, or
engagement, for example, to establish that a
other suitably qualified person appointed on
behalf of the Auditor General) may act in a role
contained in engagement documentation, unless
equivalent to that of engagement partner with
specific client authority has been given to
overall responsibility for public sector audits. In
disclose information, or there is a legal or
such circumstances, where applicable, the
professional duty to do so. Specific laws or
selection of the engagement quality control
regulations may impose additional obligations
reviewer includes consideration of the need for
on the firm’s personnel to maintain client
independence from the audited entity and the
confidentiality, particularly where data of a
personal nature are concerned.
ability of the engagement quality control
reviewer to provide an objective evaluation.

paper, electronic or other media, the integrity,
Differences of opinion


Effective procedures encourage identification of
accessibility or retrievability of the underlying
differences of opinion at an early stage, provide
data may be compromised if the documentation
cear guidelines as to the successive steps to be
could be altered, added to or deleted without
taken thereafter, and require documentation
the firm’s knowledge, or if it could be
regarding the resolution of the differences and
permanently lost or damaged. Accordingly,
the implementation of the conclusions reached
controls that the firm designs and implements to
Procedures to resolve such differences may
avoid unauthorized alteration or loss of
include consulting with another practitioner or
engagement documentation may include those
firm, or a professional or regulatory body
that:
Engagement documentation

Whether engagement documentation is in
o
was created, changed or reviewed;
by which the assembly of final engagement files
for specific types of engagement is to be
o
at all stages of the engagement,
law, the firm must establish time limits that
especially when the information is
reflect the need to complete the assembly of
shared within the engagement team or
final engagement files on a timely basis. If audit,
transmitted to other parties via the
the time limit would ordinarily not be more than
Internet;
o
Prevent unauthorized changes to the
engagement documentation; and
Where two or more different reports are issued
in respect of the same subject matter
o
Allow access to the engagement
information of an entity, the firm’s policies and
documentation by the engagement
procedures relating to time limits for the
team and other authorized parties as
assembly of final engagement files address each
necessary to properly discharge their
responsibilities.
report as if it were for a separate engagement.
This may, for example, be the case when the firm

Controls to maintain CSCIAR of engagement
documentation
issues an auditor’s report on a component’s
financial information for group consolidation
o
purposes and, at a subsequent date, an auditor’s
o
statutory purposes.
Confidentiality, safe custody, integrity, accessibility, and
retrievability of engagement documentation
Relevant ethical requirements establish an
obligation for the firm’s personnel to observe at
all times the confidentiality of information
Password among team members
Appropriate backup routines for
electronic documentation at stages
report on the same financial information for

Protect the integrity of the information
completed. If no time limits are prescribed by
60 days after report

Enable the determination of when and
by whom engagement documentation
Law or regulation may prescribe the time limits

o
Procedures for proper distribution
o
Procedures for access restriction
Procedures designed to maintain IAR of scanned
documentation
o
Generate scanned copies that reflect
entire content
o
o
Integrate scanned copies into
and appropriate experience and
engagement files
authority
Enable scanned copies to be retrieved
o
Retention of engagement documentation

Require that those performing the
engagement or the EQCR are not
and printed
involved in inspecting the engagements
The needs of the firm for retention of
Evaluating, communicating, and remedying identified
engagement documentation, and the period of
deficiency
such retention, will vary with the nature of the

Deficiencies should be evaluated whether they
are either
engagement and the firm’s circumstances, for
example, whether the engagement
o
Instances that do not necessarily
indicate that the firm’s system of QC is
documentation is needed to provide a record of
insufficient
matters of continuing significance to future
engagements. The retention period may also
o
Systemic, repetitive, or other significant
depend on other factors, such as whether local
deficiencies that require prompt
law or regulation prescribes specific retention
corrective action
periods for certain types of engagements, or

whether there are generally accepted retention
The firm shall communicate to relevant engagement
periods in the jurisdiction in the absence of
partners and other appropriate personnel deficiencies
specific legal or regulatory requirements.
noted as a result of the monitoring process and
In the specific case of audit engagements,
recommendations for appropriate remedial action.
retention period would ordinarily be more than
7 years from report date


Recommendations for appropriate remedial
actions for deficiencies include the following:
Ownership of engagement documentation
Engagement documentation is the property of
o
Taking action in relation to an individual
engagement or member of personnel
the firm unless otherwise specified by law or
regulation. The firm may, at its discretion, make
o
Communication of findings to those
responsible for training and prof devt
portions of, or extracts from, engagement
documentation available to clients, provided
o
such disclosure does not undermine the validity
o
Changes to QCPP
Disciplinary action against those who fail
of the work performed, or, in the case of
to comply with PP especially those who
assurance engagements, the independence of
do so repeatedly
the firm or its personnel.

The firm shall establish policies and procedures
to address cases where the results of the
monitoring procedures indicate that a report
Monitoring

The firm shall establish a monitoring process
may be inappropriate or that procedures were
designed to provide it with reasonable assurance
omitted during the performance of the
that the policies and procedures relating to the
engagement. Such policies and procedures shall
system of quality control are relevant, adequate,
require the firm to determine what further action
and operating effectively. This process shall:
is appropriate to comply with relevant
o
Include an ongoing consideration and
professional standards and regulatory and legal
evaluation of the firm’s system of QC
requirements and to consider whether to obtain
legal advice.
including, on a cyclical basis, inspection
of at least one completed engagement
o

The firm shall communicate at least annually the
for each engagement partner
results of the monitoring. Information
Require responsibility for the monitoring
communicated shall include the following:
process to be assigned to a partner,
partners, or other persons with sufficient
o
Description of the monitoring
procedures performed
o
Conclusions drawn from the procedures
provision of feedback into the firm’s PP
o
Where relevant, a description of
regarding education and training
systemic, repetitive, or other significant

o
personnel of weaknesses identified in
resolve or amend those deficiencies
the system, in the level of understanding
The firm’s PP in network monitoring procedures
of the system, or compliance with it
shall require:
o
o
so that necessary modifications are
scope, extent, and results of the
promptly made to the QCPP

Inspection cycle policies may (for example)
individuals at least annually
specify a cycle that spans three years. The
The network communicate promptly
manner in which the inspection cycle is
deficiencies in the system of QC
organized depends on many factors such as
Complaints and allegations

o
The firm shall establish PP designed to provide it
o
with reasonable assurance that it deals
o
Complaints and allegations that work
o
o
Allegations of noncompliance with QC
o
o
Monitoring the firm’s QCPP
Nature and complexity of the firm’s
Risks associated with the firm’s clients
and specific engagements

provide an evaluation of:
The inspection process includes the selection of
individual engagements, some of which may be
o
Adherence to PSRLS
selected without prior notification to the
o
Whether the system of QC has been
engagement team. In determining the scope of
appropriately designed and effectively
inspections, the firm may take into account the
implemented
scope or conclusions of an independent external
Whether the firm’s QCPP have been
inspection program. However, an IEIP does not
appropriately applied
act as a substitute for the firm’s own internal
o

Degree of authority both personnel and
practice and organization
identified
The purpose of monitoring compliance is to
Results of previous monitoring
offices have
Firm shall take appropriate actions when
complaints, allegations, and deficiencies are

Number and geographical location of
procedures
performed fails compliance with PSRLR

Size of the firm
offices
appropriately with
o
Follow-up by appropriate firm personnel
The network communicate the overall
monitoring process to appropriate
o
Communication to appropriate firm
deficiencies and of the actions taken to
monitoring program.
Ongoing consideration and evaluation of system
of QC include matters such as the following
o
o
Analysis of:
Considerations specific to smaller firms

In the case of small firms, monitoring procedures

New developments in PSRLR
may need to be performed by individuals
and how they are reflected in PP
responsible for design and implementation of

Written confirmation of
the firm’s quality control policies and procedures
compliance with PP on
or who may be involved in performing the EQCR.
independence
A firm with a limited number of persons may

CPD, including training
choose to use a SQEP or another firm to carry

Decisions related to acceptance
out engagement inspections and other
and continuance of client
monitoring procedures. Alternatively, the firm
relationships and specific
may establish arrangements to share resources
engagements
with other appropriate organizations to facilitate
Determination of corrective actions and
improvements to be taken including
monitoring activities.
Communicating deficiencies

The reporting of identified deficiencies to
with its system of QC, or for a longer period if
individuals other than relevant engagement
required by law or regulation
partners need not include an identification of the

and the responses to them
may be cases where such identification may be
necessary for the proper discharge of the
The firm shall establish PP requiring
documentation of complaints and allegations
specific engagements concerned, although there

The form and content of documentation is a
responsibilities of the individuals other than the
matter of judgment and depends on a number
engagement partners.
of factors including the following:
o
Size of the firm and the number of
offices
Complaints and allegations

o
practice and organization
Complaints and allegations may originate from
within or outside the firm. They may be made by

Appropriate documentation relating to
monitoring includes
firm personnel, clients, or other third parties.
They may be received by engagement team
o
Monitoring procedures including the
procedure for selecting completed
members or other firm personnel.
engagements to be inspected
Investigation policies and procedures

Nature and complexity of the firm’s
PP established for the investigation of
o
A record of evaluation of
complaints and allegations may include that the

Adherence to PSLRS
partner supervising the investigation

Whether SQC is appropriately
o
Has sufficient and appropriate
o
Has authority within the firm
o
Is otherwise not involved in the
designed and effectively
implemented
experience

been appropriately applied
engagement
o
an evaluation of their effect, and the
may involve legal counsel as necessary
basis for determining what further
It may not be practicable, in the case of firms
with few partners, for the partner supervising the
action is necessary

Smaller firms may use more informal methods in
the documentation of their system QC such as
engagement. These small firms and sole
manual notes, checklists, forms
qualified external person or another firm to carry
out the investigation into complaints and
allegations.
Documentation of the System of Quality Control
The firm shall establish PP requiring appropriate
documentation to provide evidence of the
operation of each element of its system of QC

Consideration specific to smaller firms
investigation not to be involved in the
practitioners may use the services of a suitably

Identification of the deficiencies noted,
The partner supervising the investigation
Considerations specific to smaller firms

Whether the firm’s QCPP have
The firm shall establish PP that require retention
of documentation for a period of time sufficient
to permit those performing monitoring
procedures to evaluate the firm‘s compliance
Chapter 8: Philippine Standards on Auditing

Audit engagement—high but not absolute level
of assurance that the info subject to audit is free
of material misstatement; expressed positively in
PSA 120 (Framework of Philippine Standards on
the audit report as reasonable assurance
Auditing)

Review engagement—moderate level of
assurance that the info subject to review is free
Introduction
of material misstatement

The Auditing Standards and Practices Council

“Auditor”—describes both auditing and related
provides a report of the factual findings, no
services which may be performed. Does not
assurance is expressed. It is the user himself
imply that a person performing related services
assessing the procedures and findings reported
(ASPC)—authorized to issue PSAs

by the auditor and draw their own conclusions
need be the auditor of FS
Financial Reporting Framework


Financial statements need to be prepared in
Accounting standards generally
Compilation engagement—users of compiled
information derive benefit from the accountant,
no assurance is expressed
accordance with one or a combination of:
o
Agreed-upon procedures—the auditor simply

To distinguish compilation engagements from
accepted in the Philippines
audits and other related services, the term
o
International accounting standards
“accountant” rather than “auditor” has been
o
Another authoritative and
used to refer to a professional accountant in
public practice
comprehensive FR framework designed
for use in FR and is identified in the FS
Framework for Auditing and Related Services
Audit

Objective of audit of FS—to enable auditor to

Audits are distinguished from related services
express opinion; “present fairly, in all material

Audit—high level of assurance
respects’

Related services:

o
Review—moderate level of assurance
o
Agreed-upon procedures—no assurance
o
Compilation—no assurance

In forming audit opinion, auditor obtains
sufficient appropriate audit evidence to draw
conclusions

Auditor’s opinion enhances credibility of FS by
The framework does not apply to other services
providing a high, but not absolute, level of
provided by audits such taxation, consultancy,
assurance
and financial and accounting advise

Absolute assurance is not attainable for the ff.
reasons:
o
Use of testing
o
Inherent limitations of accounting and
internal control
o
Most evidence available to auditor is
persuasive rather than conclusive in
nature
Related Services
Reviews

The objective of a review of financial statements
is to enable an auditor to state whether, on the
Level of assurance

basis of procedures which do not provide all the
Assurance—the auditor’s satisfaction as to the
evidence that would be required in an audit,
reliability of an assertion being made by one
anything has come to the auditor's attention
party for use by another party
that causes the auditor to believe that the
financial statements are not prepared, in all

material respects, in accordance with an
to that information or consents to the use of the
identified financial reporting framework
auditor’s name in a professional connection
Review—comprised of inquiry and analytical

auditor
an assertion that is the responsibility of one
party for use of intended users

If the auditor is not associated in this manner,
third parties can assume no responsibility of the
procedures designed to review the reliability of

If the auditor learns that his name is
Difference from audit, a review does not
inappropriately being used, the auditor should
ordinarily involve:
require management to cease doing so and
consider what further steps to take such as:
o
an assessment of accounting and
internal control system
o
Informing third party
o
tests of records
o
Seeking legal advice
o
responses to inquiries by obtaining
evidence through inspection,
observation, confirmation, and
computation

The procedures of a review make the
achievement of its objective less likely than in an
audit engagement

The level of assurance provided in a review
report is less than in an audit report
Agreed-upon procedures

Carry out procedures of an audit nature to which
the auditor and the entity and any appropriate
third parties have agreed and to report on
factual findings.

Recipients of the report must form their own
conclusions from the auditor’s report

Report is restricted to the parties in agreement
and awareness of the procedures to be
performed
Compilations

PSA 220 (Quality Control for an Audit of Financial
Where an accountant is engaged to use
Statements)
accounting expertise as opposed to auditing
expertise to collect, classify, and summarize
financial information

of the auditor regarding quality control
procedures for an audit of financial statements

Service is performed with professional due care
Auditor Association with Financial Information
An auditor is associated with financial
information when the auditor attaches a report
This also addresses the responsibilities of the
engagement quality control reviewer
Procedures employed are not designed and do
assurance on financial information

This PSA deals with the specific responsibilities
and understandable form without requirement
not enable the accountant to express any


Entails reducing detailed data to a manageable
to test the assertions

Scope
System of quality control and role of engagement teams

PSQC 1 requires a system of QCPP to establish
and maintain a system of quality control to
provide reasonable assurance that:
o
The firm and its personnel comply with
PSRLR
o
Reports issued by the firm or

Relevant ethical requirements—ethical
engagement partners are appropriate in
requirements subjecting engagement teams and
the circumstances
EQC reviewers; comprised of Parts A and B of the

This PSA is premised on the basis that the firm is
Code of Ethics for professional accountants in
subject to PSQC
the Philippines (Philippines Ethics Code together

Within the system of QC, engagements teams
with national requirements that are more
have a responsibility to implement quality
restrictive
control

Objective

including experts that the firm employs
“The objective of the auditor is to implement QC

procedures at the engagement level that provide
o
The audit complies with PSRLR
o
Auditor’s report issued is appropriate in
the circumstances
Definitions (keywords only)


engagement partner
Requirements
1.
Leadership responsibilities for quality on audits
2.
Relevant ethical requirements
3.
Acceptance and continuance of client
Engagement partner —responsible for the audit
relationships and audit engagements
engagement and its performance; has
4.
Assignment of engagements
appropriate authority
5.
Engagement performance
EQCR—objective evaluation; only for audits of FS
6.
Monitoring
of listed entities and those other audit
7.
Documentation
engagements that require it
Application
EQC reviewer—not part of the team, with
System of quality control and role of engagement teams
sufficient appropriate experience and authority

SQEP—individual outside the firm; with
competence and capabilities to act as an
the auditor with reasonable assurance that”:

Staff—professionals other than partners

Unless otherwise suggested, the engagement
to objectively evaluate the significant judgments
team may rely on the firm’s system of QC in
Engagement team—all partners and staff
relation to
performing the engagement and those engaged
o


Competence of personnel —through
recruitment and formal training
to perform audit; excludes external expert
Firm—sole prac, partnership, entity of
o
Independence—through the
professional accountants
accumulation and communication of
Inspection—for completed engagements,
relevant independence information
designed to provide evidence of compliance by
o

Listed entity—entity whose shares are listed on a

Monitoring—ongoing consideration of the firm’s
o
of completed engagements
Adherence to RLR—through the
monitoring process
recognized stock exchange
system of QC, periodic inspection of a selection
Maintenance of client relationship—
acceptance and continuance systems
engagement
Leadership Responsibilities for Quality on Audits

The engagement partner shall take responsibility

Network firm—belongs to a network
for the overall quality on each audit engagement

Network—a larger stricter
to which that partner is assigned
o
Aimed at cooperation
o
Aimed at profit or cost sharing
Application

The actions of the engagement partner and

Partner—any individual with authority to bind
appropriate messages to other members of the
the firm
team in taking responsibility for the overall

Personnel—partners and staff
quality on each audit engagement emphasize:

Professional standards—PSA and relevant ethical
requirements
o
The importance to audit quality of:

Performing work that complies

PEC defines the firm as
with PSRLR

Compliance to QCPP

Issuing audit reports

The team’s ability to raise
o
professional accountants
appropriate in the circumstances
concerns without fear of reprisal
o
Sole practitioner or partnership of
o
Entity that controls parties
o
Entity controlled by parties
Threats to independence

The engagement partner may identify a threat to
The fact that quality is essential in
independence regarding the audit that
performing audit engagements
safeguards may not eliminate or reduce to
acceptable level.
Relevant Ethical Requirements

the relevant persons within the firm to
observation and inquiry) for evidence of
determine appropriate actions
Engagement partner, in consultation with others
Considerations specific to public sector entities

Statutory measures may provide safeguards for
in firm, shall determine appropriate action if
the independence of public sector auditors.
team members have not complied with REE
Public sector auditors auditing for statutory
auditors may need to adopt their approach in
Independence

In such case, the engagement partner reports to
Engagement partner shall remain alert (through
noncompliance with REE by team members


order to promote compliance
Engagement partner shall form a conclusion on
compliance with independence requirements

o
Where the public sector auditor’s mandate does
not permit withdrawal from engagement,
that apply to the audit engagement and shall
Obtain relevant information from the
auditor shall disclose through a public report the
firm to identify and evaluate
circumstances that have arisen that will case a
circumstances and relationships that
private sector auditor to withdraw.
create threats to independence
o
Evaluate information on identified
Acceptance and continuance of client relationship
breaches and determine whether they
and audit engagements
create a threat to independence of the
o

Engagement partner shall be satisfied that
audit engagement
appropriate procedures of acceptance and
Take appropriate action to eliminate
continuance systems have been followed and
such threats or reduce them to an
shall determine that conclusions reached in this
regard are appropriate
acceptable level by applying safeguards
or withdrawal if appropriate and

If the engagement partner obtains info that
would have cause the firm to decline the
permitted by law
Application
engagement, the engagement partner shall
Compliance with relevant ethical requirements
communicate that information promptly to the

Philippines Ethics Code establishes the
firm so that the firm and the engagement
fundamental principles of professional ethics
partner can take the necessary action
Integrity
Objectivity
o
Professional competence due care
partner in determining whether the conclusions
o
Confidentiality
reached regarding the acceptance and
o
Professional behavior
continuance of client relationships and audit
Definition of firm, network, and network firm

Application
o
o
The definitions of firm, network, or network firm
in relevant ethical requirements may differ from
those set out in this PSA.

The ff. information assists the engagement
engagements are appropriate:
o
Integrity of owners, key management
and those charged with governance
o
o
Whether engagement team is
o
expertise with relevant information
engagement and has the necessary
technology and specialized areas in
capabilities, time, and resources
accounting and auditing
Whether the firm and the engagement
o
requirements
Significant matters that have arisen
during the current or previous audit
engagement



Ability to apply professional judgment
o
Understanding of the firm’s QCPP
Additional appropriate competence may include
skills that are necessary to discharge the terms
of the audit mandate in a particular jurisdiction
In the public sector, auditors may be appointed
in accordance with statutory procedures
o
Considerations specific to public sector entities
Considerations specific to public sector entities

Knowledge of relevant industries in
which the client operates
team can comply with relevant ethical
o
The team’s technical expertise, including
competent to perform the audit

Such competence may include an understanding
Certain of the requirements and considerations
of the applicable reporting arrangements,
regarding acceptance and continuance in this
including reporting to the legislature or other
PSA may be irrelevant
governing body or in the public interest
Nonetheless, info gathered as a result of the

The wider scope of a public sector audit may
include:
process described may be valuable to public
sector for risk assessments and carrying out
o
reporting responsibilities
o
some aspects of performance auditing
comprehensive assessment of
compliance with legislative authorities
Assignment of Engagement Teams

o
preventing and detecting fraud and
corruption
The engagement partner shall be satisfied that
the engagement team and any auditor’s experts
not part of the team collectively have the
Engagement Performance
appropriate competence and capabilities to:
Direction, supervision, and performance
o
Perform the audit engagement in

o
Enable an auditor’s report that is
o
The direction, supervision, and
appropriate in the circumstances to be
performance of the audit engagement in
issued
compliance with PSRLR
Application

The engagement partner shall take responsibility
for:
accordance with PSRLR
o
The auditor’s report being appropriate in
the circumstances
A team also includes a member using expertise
in a specialized area of accounting or auditing
whether engaged by the firm, who performs
audit procedures on the engagement

When considering the appropriate competence
and capabilities of the engagement team as a
Reviews

The engagement partner shall take responsibility
whole, the ff. should be considered by the
for reviews being performed in accordance with
engagement partner:
the firm’s review policies and procedures
o
o
The team’s understanding of, and

On or before the date of the auditor’s report, the
practical experience with audit
engagement partner shall be satisfied that
engagements of a similar nature and
sufficient appropriate audit evidence has been
complexity through appropriate training
obtained to support the conclusions reached
and participation
and for the auditor’s report to be issued. All
The team’s understanding of PSRLR
done through a review of the audit
documentation and discussion with the
o
Consultation

o
differences of opinion
Take responsibility for the engagement
team undertaking consultation
o
appropriate consultation during the
o
o
Differences of opinion

engagement team, with those consulted, or
the engagement team and also between
between partner and EQC reviewer, the
engagement team and others at the
engagement team shall follow the firm’s policies
appropriate level within or outside the
and procedures for dealing with and resolving
firm
differences of opinion.
Be satisfied that the nature, scope, and
Application
conclusions or and from such
Direction, supervision, and performance

Direction of the engagement team involves
informing the team members of the ff. matters:
consulted
Determine that conclusions resulting
o
Their responsibilities
from such consultations have been
o
Responsibilities of respective partners
implemented
o
Objectives to be performed
o
Nature of the entity’s business
For audits of FS of listed entities and those
o
Risk-related issues
requiring review, the engagement partner shall
o
Problems that may arise
Engagement quality control review

If differences of opinion arise within the
course of the engagement, both within
consultations agree with the party
o
o
Determine than an EQC reviewer has
o
o
o
Discuss significant matters arising during

Discussion among members of the engagement
the audit engagement and those
team allows less experienced team members to
identified during the EQCR
raise questions with more experienced team
Not date the auditor’s report until EQCR
members so that appropriate communication
is completed
can occur within the engagement team
The EQC reviewer shall perform an objective

Appropriate teamwork and training assist less
evaluation of the significant judgments made by
experienced members of the engagement team
the engagement team and the conclusions
to clearly understand the objectives of the
assigned work
reached in formulating the auditor’s report. Such
evaluation shall involve:
o
Discussion of significant matters
o
Review of the FS and proposed auditor
o
Review of selected audit documentation
o
Evaluation of the conclusions reached in

Supervision includes matters such as
o
Tracking the progress of the audit
engagement
report
o
Considering the competence and
capabilities of each member
formulating the report and

Detailed approach to the performance
of the engagement
been appointed

Whether audit documentation selected
for review reflects the work performed
Be satisfied that members of the
engagement team have undertaken
Whether appropriate consultation has
taken place on matters involving
The engagement partner shall
o
Engagement team’s evaluation of the
firm’s independence
engagement team
o
Addressing significant matters
o
Identifying matters for consultation
consideration of whether it is
Reviews
appropriate
Review responsibilities
For audits of FS of listed entities, the EQCR shall
also consider

Under PSQC 1, the firm’s review responsibility
policies and procedures are determined on the
basis that work of less experienced team
members is reviewed by more experienced team


Effective consultation can be achieved when
those consulted:
members
A review consists of consideration whether
o
Are given all the relevant facts
o
Have appropriate knowledge, seniority
o
Work has been performed in accordance
o
Significant matters have been raised
o
Appropriate consultations have taken
o
There is a need to revise the nature,
Engagement quality control review
tiing, and extend of work performed
Completion of the EQCR before dating the auditor report
o
The work performed supports the
and experience
with PSRLR

to consult outside the firm if there is lack of
appropriate internal resources
place, documented, and implemented

the date on which there is already sufficient
documented
appropriate evidence on which to base the
o
Evidence obtained is sufficient and
auditor’s opinion on the FS.
o
Objectives have been achieved

Timely reviews of the following by the
the satisfaction of the EQCR


o
Critical areas of judgment
Significant risks
o
Other areas
Nature, timing, and extent of EQCR

Remaining alert for changes in circumstances
The engagement partner need not review all
allows the engagement partner to identify
audit documentation but may do so
situations in which an EQCR control is necessary
An engagement partner taking over an audit

The extent of the EQCR may depend on the
during the engagement may apply the review
complexity of the audit engagement, whether
procedures to review the work performed to the
the entity is a listed company, and the risks that
date of a change in order to assume the
the auditor’s report does not reduce the
responsibilities of the engagement partner.
responsibilities of an engagement partner
Considerations relevant where a member of the
engagement team with expertise in a specialized area of
EQCR of listed entities

may be considered in an EQCR may include
Where ditto, direction, supervision and review of
the team member’s work may include matters

including assessment and response to fraud
Agreeing with the member the nature,
scope, and objectives of that member’s

the NTE of communication between that

Significance and disposition of corrected and
member and other members of the
uncorrected misstatements identified during the
engagement team
audit
Evaluating the adequacy of that

and reasonableness of that member’s
findings
Matters to be communicated to management
and those charged with governance
member’s work, including the relevance
Consultation
Judgments made with respect to materiality and
significant risks
work: and the respective roles of, and
o
Significant risks identified during the
engagement and the responses to those
such as
o
Matters relevant to evaluating the significant
judgments made by the engagement team that
accounting or auditing is used

Documentation of the EQCR may be completed
after the date of the auditor’s report
engagement partner at appropriate stages
o
Conducting review at appropriate stages allows
significant matters to be promptly resolved to
The engagement partner’s review of work performed

Auditor’s report should be dated no earlier than
conclusions reached and is appropriately
appropriate to support auditor report

It may be appropriate for the engagement team
Considerations specific to smaller entities

In addition to the audits of financial statements
of listed entities, an engagement quality control
review is required for audit engagements that
meet the criteria established by the firm that
considers are sufficient in the context of that
subjects engagements to an engagement quality
audit
control review. In some cases, none of the firm’s

necessarily indicate that a particular audit
would subject them to such a review.
engagement was not performed in accordance
with PSRLR or that the auditor’s report was not
Considerations specific to public sector entities

A deficiency in the firm’s system of QC does not
audit engagements may meet the criteria that
appropriate
A statutorily appointed auditor or other SQEP
may act in a role equivalent to that of
engagement partner with overall responsibility
for public sector audits

Documentation

In such circumstances, the selection of the EQC
o
compliance with REE and how they were
independence from the audited entity and the
resolved
o
Conclusions on compliance with
objective evaluation.
independence requirements that apply
Listed entities are not common in the public
to the audit engagement
sector. However, there may be other public
o
Conclusions reached regarding
sector entities that are significant due to size,
acceptance and continuance of client
complexity or public interest aspects, and which
relationships and audit engagements
consequently have a wide range of stakeholders.

Issues identified with respect to
reviewer includes consideration of the need for
ability of the EQC reviewer to provide an

The auditor shall document:
o
There are no fixed objective criteria on which the
determination of significances is based. Despite
Nature, scope, and conclusions from
consultations

that, public sector auditors evaluate which
The EQCR shall document that
o
entities may be of sufficient significance to
The procedures required by the firm’s
policies on EQCR have been performed
warrant performance of an EQCR
o
The EQCR has been completed on or
before date of auditor’s report
o
The reviewer is not aware of unresolved
matters
Documentation of consultations
Monitoring


Documentation of consultations with other
An effective system of quality control includes a
professionals that involve difficult or contentious
monitoring process designed to provide the firm
matters that is sufficiently complete and detailed
with reasonable assurance that its policies and
contributes to an understanding of
procedures relating to the system of quality
o
sought
control are relevant, adequate, and operating
effectively

The issue on which consultation was
o
The results of the consultation including
The engagement partner shall consider the
decisions taken and the basis for those
results of the firm’s monitoring process as
decisions and how they were
evidenced in the latest information circulated by
implemented
the firm

And whether deficiencies noted in that info may
affect the audit engagement
Application

PSA 200 (Overall objectives of the independent
auditor and the conduct of an audit in accordance
In considering deficiencies that may affect the
with PSA)
audit engagement, the engagement partner may
Introduction
have regard to measures the firm took to rectify
the situation that the engagement partner
Scope of this PSA


This PSA establishes the independent auditor’s
of FS in accordance with PSAs.
financial statements as a whole
It sets out the overall objectives of the
independent auditor to meet those objectives
Explains the scope, authority, and structure of
the PSA and includes requirements establishing
the general responsibilities of the independent
auditor applicable in all audits, including the
obligation to comply with the PSAs

The independent auditor is referred to as the
auditor hereafter

PSAs are written in the context of an audit of FS
by an auditor. They are to be adapted as
necessary in the circumstances when applied to
audits of other historical financial info
An audit of financial statements

Purpose—to enhance the degree of confidence

Such will be achieved by the expression of an
of intended users in the financial statements
opinion by the auditor on whether the financial
statements are prepared, in all material respects,
in accordance with the framework (an audit
conducted in accordance with PSAs and relevant
ethical requirements)

FS subject to audit are those of the entity,
prepared and presented by their management
with oversight from those charged with
governance

The audit of the financial statements does not
relieve management or those charged with
governance of those responsibilities

Auditor’s opinion—on material misstatement

Reasonable assurance—high level of assurance.
whether due to error or fraud
Obtained by:
o
Auditor obtaining sufficient appropriate
audit evidence to reduce audit risk

Materiality—applied in audit planning and
performance and in evaluating the effect of
identified misstatements on the audit and of
uncorrected misstatements

The auditor is not responsible for the detection
of misstatements that are not material to the
independent auditor designed to enable the


overall responsibilities when conducting an audit
Misstatements, including omissions, are
considered to be material if, individually or in
aggregate, they could reasonably be expected to
influence the economic decisions of users
Chapter 9: Overview of Risk-Based Process
4.
Assessment of the risks that the processes will
not meet the goals and controls related to those
risks
Three phases of the audit process
1.
Risk assessment (planning stage)
2.
Risk response (testing stage)
Four critical components of risk that are relevant to
3.
Reporting (conclusion)
conducting the audit:
1.
materially misstated FS
Auditor’s standard report:
We conducted our audits in accordance with PSA.
(1.0) Audit risk—give unqualified opinion on
2.
(2.0) Engagement risk—economic risk that a CPA
Those standards require that we comply with the
firm is exposed to; reputations, default of client
ethical requirements and plan and perform the
fees, financial loss, etc. controlled by careful
client selection and retention
audit to obtain reasonable assurance (there is still
some risk) about whether the financial statements
3.
(3.0) Financial reporting risk—risks directly
are free of material misstatements (auditor’s
related to the recording of transactions and
responsibility is limited to material financial
presentation of financial data
information).

Competence and integrity of
management
Materiality and risk —fundamental concepts important to

Risk-based audit approach —an audit approach that
begins with an assessment of the types and likelihood of
Incentive to management to misstated
financial statements
planning the audit and designing the audit approach.
4.

Complexity of transactions

Internal control
(3.0) Business risk—risk that affect operations
misstatements in an account balance and then adjusts
and potential outcomes of organizational
the amount and type of audit work, to the likelihood of
activities
material misstatements occurring in account balances.

Economic climate
Activities in terms of risks  strategies and

Technological change
objectives  management’s plans and processes

Competition

Business volatility

Geographic location
Account-based audit—auditors first obtain an
understanding of control and assess control risk for
particular types of errors and frauds in specific accounts
and cycle
The auditor can control audit risk in two different ways:
1.
Avoid audit risk by not accepting certain
companies as client (reduce ER to 0)
Risk—a concept used to express uncertainty about
2.
Set audit risk at a level that the auditor believes
events and/or their outcomes that could have a material
will mitigate the likelihood that the auditor will
effect on the organization
fail to identify material misstatements
Performed by the auditor in a risk-based audit
approach (IEIA)
1.
Identification of the client’s strategy and the
The Risk-Based Audit Process
I. Risk assessment activities (PPP)
a.
activities to decide whether to accept or
processes for developing that strategy
2.
3.
continue an audit engagement
Examination of the core business process and
resource management
b.
Planning the audit to develop an overall
c.
Performance of risk assessment
audit strategy and audit plan
Identification for each of the key processes (as
well as sub-processes) the objectives, inputs,
activities, outputs, systems, and transactions
Performance of preliminary engagement
procedures to identify or assess risk of
II.
material misstatement through
Initial procedures on both client continuance and
understanding the entity
evaluation of ethical requirements (including
Risk response (DI)
a.
independence) are completed prior to the performance
Designing overall responses and further
of other significant activities for the current audit
audit procedures to develop appropriate
engagement.
responses to the assessed risk of
b.
material misstatement
For continuing audit engagements, such initial
Implementing responses to assessed risk
procedures often occur shortly after (or in connection
of material misstatement to reduce audit
with) the completion of the previous audit.
risk to an acceptable low level
III. Reporting (EF)
PURPOSE OF PERFORMING PEA: To help ensure that
a.
Evaluating the audit evidence obtained
the auditor has considered any events or circumstances
to determine what additional audit work
that may adversely affect the auditor’s ability to plan and
(if any) is required
perform the audit engagement to reduce audit risk to an
Forming an opinion based on audit
acceptably low level. It ensures that:
b.
findings and preparing the auditor’s

Necessary independence and ability to
perform the engagement is maintained
report

No issues with management integrity

No misunderstanding with the client
At the beginning of the current audit engagement,
the auditor should perform the following activities (QC,
The auditor’s consideration of client continuance and
ER-independence, terms of engagement) QET:
ethical requirements including independence occurs
1.
Perform procedures required by PSA 220
throughout the performance of the audit engagement as
(QCoaAoFS) regarding the continuance of the
conditions and changes in circumstances occur.
client relationship and the specific audit
engagement.
2.
Evaluate compliance with ethical requirements,
including independence.
3.
Establish an understanding of the terms of
engagement as required by PSA 210 (Agreeing
the Terms of Audit Engagements).
Some new engagements are easily obtained through:
1. Business transactions such as acquisition of a
company by an existing client
2. (competitively) Through social contacts which
lead to a request that the CPA firm submit a
proposal for performing the company’s annual
Performing the preliminary engagement activities at the
audit
beginning of the current audit engagement assists the
auditor in identifying and evaluating events or
It is essential for a CPA firm to maintain its INTEGRITY,
circumstances that may adversely affect the auditor’s
OBJECTIVITY, and REPUTATION FOR PROVIDING HQ
ability to plan and perform the audit engagement.
SERVICES.
Performing PEA enables the auditor to plan an audit
An important element of a public accounting firm’s
engagement where:
QCPP is a system for deciding whether to accept a new
1.
2.
3.
The auditor maintains necessary independence
client and, on a continuing basis, deciding whether to
and ability to perform the engagement
continue providing services to existing clients.
There are no issues with management integrity
that may affect auditor’s willingness to continue
Before accepting an engagement with a new client,
There is no misunderstanding with the client as
the CPA firm shall assess whether it (CRI)
to the terms of the engagement
1.
2.
3.
Is competent to perform the engagement and
e.
Reference to the expected form and content of
has the capabilities including time and resources
any reports to be issued by the auditor and a
to do so
statement that there may be circumstances in
Can comply with the relevant ethical
which a report may differ from its expected form
requirements
and content.
Has considered the integrity of the client and
does not have information that would lead it to
conclude that the client lacks integrity
Recurring Audits

The auditor shall assess whether circumstances
require the terms of the audit engagement to be
The CPA firm shall check whether the preconditions for
revised and whether there is a need to remind
an audit are present such as:
the entity of the existing terms of the audit
1.
engagement
Whether the financial reporting framework to be
applied in the financial statements are

terms of the audit engagement where there is
acceptable
2.
no reasonable justification for doing so
Agreement of management that it acknowledges
and understands its responsibility
a.
The auditor shall not agree to the change in the

Auditor and management shall agree on and
For the preparation of financial
record the new terms of the engagement in an
statements in accordance with
engagement letter or other suitable form of
applicable financial reporting framework
written agreement
including where relevant to their fair
b.
presentation,
If the auditor is unable to agree to a change and not
For such internal control as
permitted by management to continue the original audit
management determines is necessary to
engagement, the auditor shall:
enable the preparation of financial
1.
possible under applicable law or regulation
statements that are free from material
misstatement whether due to fraud or
c.
Withdraw from the audit engagement where
2.
Determine whether there is any obligation, either
error, and
contractual or otherwise, to report the
To provide the auditor with
circumstances to other parties such as those
i. Access to all information
ii. Additional information
iii. Unrestricted access to persons
The engagement letter shall include: (ORRIRs)
a.
Objective and scope of the audit of FS
b.
Responsibilities of auditor
c.
Responsibilities of management
d.
Identification of applicable financial reporting
framework for the prep of FS
charged with governance, owners, or regulators
sa
o
Philippine Standards on Quality Control,
Auditing, Review, Other Assurance and
PSA Summary
Related Services


PSA
o

o
PSA 200
o
Overall Objectives of the Independent
Auditor and the Conduct of an Audit in
PSRE
o

Philippine Standard on Auditing
Overall Objectives of the Auditor
Philippine Standards on Review
Accordance with Philippine Standards
Engagements
on Auditing
PSAE
o

Philippine Standard on Assurance
Engagements
Revised Code of Ethics for Professional
Accountants in the Philippines

Institute of Auditor’s Statement of
Responsibilities
Chapter 2



Scope of the practice of public accountancy
o
Section 4
o
Philippine Accountancy Act of 2004
Article IV, Section 26
o
Philippine Accountancy Act of 2004

PRC

BOA
o



Philippine Accountancy Act of 2004
Philippine Framework for Assurance
o
2006
Review of Financial Statements
o
PSRE 2400
o
PSRE 2410
Other Assurance Services
PSAE 3000
Assurance services on other types of information
Special Committee on Assurance
Services of the AICPA

Compilation Services
o
PSRS 4410 (formerly PSA 930)
Chapter 3

Objective of Auditing
o
PSA 120
o
Framework of Philippine Standards on
Auditing

AASC Standards
o
Creation of the Commission on Audit
o
Sec. 1, Art. XII-D of the Philippine
Constitution
o
o
By the PICPA Committee on GAAS
Standards) in 1984

PSA 720—audits of information accompanying

PSAs 800, 805, 810 —standards in connection
the basic financial statements for special audits
Assurance
o
Government Accounting and Auditing in
(Government Accounting and Auditing
PRC Modernization Act of 2000
Engagements

Primer
o
o

o
o
the Philippines
Prohibitions on the usage of the CPA title
o
Three divisions of state audit
Preface
with special purpose audit engagements