Auditing Theory Cabrera Reviewer
Auditing Theory Cabrera Reviewer
Auditing Theory Cabrera Reviewer
Prohibitions on the usage of the CPA title AASC (Auditing and Assurance
o Article IV, Section 26 Standards Council)
education, passes an extensive examination and o The agency that audits or determines
If the measurement of subject matter is given by the Elements of an Assurance Engagement (3SSSW)
responsible party, it takes the form of assertions if it is 1. A three-party relationship involving the
disclosed to the intended users and then practitioner is practitioner, responsible party, and intended
asked to affirm such assertions of the responsible party. users;
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
However, if the practitioner performs the measurement of engagement
subject matter himself OR obtains the representation from
the responsible party who has conducted the
measurement of subject matter where such evaluation A Three-Party Relationship
was not disclosed to intended users by the responsible Practitioner
party then measurement of subject matter will be 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
Types of Assurance Engagements or review engagements with respect to
(based on PFAE) historical financial information)
Responsible party
1. Reasonable assurance engagement o In a direct-reporting engagement—
a. Not absolute responsible for the subject matter
b. Aims to reduce the assurance 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 Criteria are made available to the intended users
o Are the people for whom the in one or more of the following ways:
practitioner prepares the assurance (a) Publicly
report (b) Through inclusion in a clear manner in
the presentation of the subject matter
Appropriate Subject Matter information
Can take any forms such as (c) Through inclusion in a clear manner in
o Financial performance or conditions the assurance report
o Non-financial performance or conditions (d) By general understanding (e.g. general
o Physical characteristics measurement of time)
o Systems and processes
o Behavior 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 Precision of the evaluation of the subject to obtain sufficient appropriate evidence) The
matter practitioner considers (1) materiality, (2) assurance
o Persuasiveness of available evidence engagement risk, and the (3) quantity and quality of
An appropriate subject matter is: available evidence when planning and performing the
o Identifiable and capable of consistent engagement.
eval or msrmt against the identified Professional Skepticism
criteria o Means that the practitioner makes a
o 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
Suitable Criteria reliability of documents ore
Are benchmarks used to evaluate or measure the representations by the responsible party
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 Sufficiency and Appropriateness of Evidence
o Established internal control o Sufficiency is the measure of the
framework/objectives specifically quantity of evidence
designed for engagements Risk of material misstatement
o Applicable law, regulation, or contract Quality
Should exhibit the following characteristics: o Appropriateness is the measure of the
o Relevance: assist decision-making quality of evidence
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 The greater the risk, the more evidence
o Neutrality: free from bias is likely to be required
o Understandability: conclusions that are o The higher the quality, the less may be
clear, comprehensive, and not subject to required
significantly different interpretations Materiality
o Relevant when the practitioner o CPAs prepare corporate and individual
determines the nature, timing, and tax returns for both audit and non-audit
extent of evidence-gathering clients.
procedures, and when assessing whether o Primary types:
the subject matter information is free of Tax compliance—includes the
misstatement preparation of tax returns for
Assurance Engagement Risk individuals, corporations, estates
o The risk that the practitioner expresses and trusts, and others
an inappropriate conclusion when the Tax planning—determines the
subject matter information is materially tax consequences of planned or
misstated potential transactions and
o The risk that the subject matter suggests the desirable course of
information is materially misstated action to minimize the tax
Inherent risk: susceptibility to liability while achieving the
material misstatement client’s objectives
Control risk: the risk that a Management Consulting/Advisory Services
material misstatement will not o Professional services that employ the
be prevented by related internal practitioner in a consulting engagement
controls Accounting and Data Processing or Information
Detection risk: the risk that Technology System Services
material misstatements will not o Accountants being outsourced by small
be detected clients with limited accounting staff
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,
PSREs, or PSAEs
Non-Assurance Engagements Inappropriately using the words assurance, audit,
These are engagements not covered by the Philippine or review
Framework on Assurance Engagements Including a statement that could reasonably be
Agreed-upon Procedures Services mistaken for a conclusion designed to enhance
o 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
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
o 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
Systematic process
o A structured, logical, and organized
Audit examination—the process employed to
series of steps and procedures
establish the reliability or unreliability of the
o Consists of a series of sequential steps
financial statements and supporting records
o Include information testing system and
Auditing of financial records has become an
testing of transactions and balances
important factor in the dissemination of financial
Competent, independent person
information and the services of the independent
o The auditor must be qualified…to know
certified public accountant are considered
how and what evidence to accumulate
indispensable (absolute necessary).
o Proper conclusion
Auditing is a form of attestation.
o Independent metal attitude
Attestation
o Impartial and objective thinking.
o GENERAL SENSE: an expert’s
Objectively obtains and evaluates evidence
communication about the reliability of
o Means examining the bases for the
someone else’s assertion.
assertions (representations)
o NARROWER SENSE: a written
o Judiciously evaluating the results
communication that expresses a
without bias or prejudice
conclusion about the reliability of about
Assertions about economic actions and events
the reliability of a written assertion that
is the responsibility of another party.
o These are the representations made by (a) Involves the application of analytical skills,
the individual or entity under audit professional judgment, and professional
o They comprise the subject matter of skepticism;
auditing (b) Is usually performed by a team of professionals,
o Assertions—information contained in directed with managerial skills;
the financial statements, internal (c) Uses appropriate forms of technology and
operating reports, and tax returns. adheres to a methodology;
o Assertions are the representations of (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 (ISQCs), IFRS, International Public Sector
o 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
o 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
assertions or representations are judged
o Criteria—specific rules prescribed by a
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) To enable the auditor to express an opinion
Communicating the results whether the FS are prepared in accordance to
o Attestation standards
o Audit report—the final stage in the audit “present fairly, in all material respects”
process wherein the findings are
communicated to the users Why Independent Auditing is necessary Information
o 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 Factors that contribute to information risk:
through a written report a. Remoteness of information users from
Interested users information providers
o Individuals who use or rely on the b. Potential bias and motives of information
auditor’s findings provider
o Ex. stockholders, management, creditors, c. Voluminous data
government agencies, the public d. Complex exchange transactions
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, Government Audit
recommendations, and pertinent comments Nature
concerning the activities reviewed Involves the determination of whether
Responsibility and Authority government funds are being handled properly
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 Scope
Independence Financial and Compliance Audit
Independence is essential to the effectiveness of o Determines whether financial operations
internal auditing. are properly conducted, financial reports
Obtained primarily through organizational status are presented fairly, and entity has
and objectivity complied with laws and regulations.
Organizational status of the IA function and the Economy and Efficiency Audit
support accorded to it by management are o Determines whether the entity is
major determinants of its range and value managing and utilizing its resources
Objectivity is essential to audit function economically and efficiently
Internal Approach and Techniques (Types) Program Results
Operational audit 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
o 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. Compliance audit—laws and regulation
organizational objectives 2. Financial audit—reliability of recorded financial
Management audit data
o Future-oriented, independent, and 3. Performance Audit—fin and operational
systematic evaluation of the activities of performance
all levels of management a. Management Audit (Economy and
o For the purpose of improving Efficiency Audit)—appraisal of
organizational profitability and management performance; least cost
increasing the attainment of the other POV; cost-benefit analysis
organizational objectives b. Program Results Audit (Effectiveness
Financial audit Audit)—evaluation of program results
o Historically-oriented, independent Comprehensive audit
evaluation Consists of a proper balance among compliance,
financial, and performance audits
Commission on Audit auditing—the effectiveness of
The highest and final authority in state auditing attaining entity objectives
Created under Sec. 1, Art XII-D of the Philippine o Line functions—an internal auditor must
Constitution be independent of line functions
Highest audit office of the RP Government Auditors
o Ex. COA, BIR
Special Audits: Other Audits or o COA Auditors—Compliance
Limited Assurance Engagements Determines whether gov’t
Nature agencies present FS fairly in
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 BIR Examiners—Compliance
(a) Audits of FS prepared on another Determines whether the
comprehensive basis of accounting taxpayers have complied with
(b) Audits of specified elements, accounts, or items the tax laws
in a financial statement o Regulatory Auditors
(c) Audits of information accompanying the basic SEC, BSP, Cooperative
financial statements (PSA 720) Commission, Office of Insurance
(d) Compliance with contractual agreements Commission, other government
(e) Summarized financial statements agency examiners
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
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
sole proprietorships or partnerships avoid biased conclusions
Whatever the legal form, the hierarchy in the (2) The need of a structure to encourage
public accounting firm usually includes partners, competence—to conduct audits efficiently and
managers or supervisors, in-charge auditors effectively
(sometimes called senior and staff auditors) (3) The increased risk of litigation
1. To plan and review all 1. To act as a liaison 1. To prepare the audit 1. To prepare schedules
phases of an audit officer between program to review by and reports on
engagement partners and other the partner, principal, findings
2. To sign the audit members of the staff or supervisor 2. To work on tax returns
report 2. To discuss with the 2. To assign particular 3. To check the accuracy
3. To approve the firm’s client problems that phases of the audit of footings and
billing to the client may arise in the course work to staff and to extensions on books of
4. To obtain/establish of the audit exercise direct accounts and other
contracts with clients 3. To exercise direct supervision records
5. To determine office supervision on seniors 3. To perform certain 4. To check the postings
operating policies in charge of specific audit procedures of entries from the
audit engagements requiring skill and journals to the ledger
4. To review working experience such as: 5. To examine vouches
papers and drafts of a. Review of articles of supporting minor
audit report incorporation, by disbursements
5. To discuss reports and laws, and other 6. Generally, to serve as
results of audit with nonfinancial an assistant
clients records
6. To take direct charge b. Verification of
of training programs assets and liabilities
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
Quality control for firms that perform audits and review quoted or listed on a recognized stock exchange
of financial statements, and other assurance and related (j) Monitoring—ongoing consideration and
services engagements (Philippine Standard on Quality evaluation of the firm’s system of QC, periodic
Control 1) inspection
(k) Network firm—a firm or entity belonging to a
Applicable to: network
Audits (l) Network—a larger structure aimed at
Reviews corporation and aimed at profit or cost-sharing
Other assurance services (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
(a) The firm and its personnel comply with level of assurance
professional standards and regulatory and legal (q) Relevant ethical requirements—ethical
requirements; and requirements to which the engagement team
(b) Reports issued by the firm or engagement and EQCR are subject
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” Requirement (highlights only)
(c) Engagement partner—responsible for the The firm shall comply with each requirement
engagement and its performance unless the requirement is not relevant in the
(d) Engagement quality control review—objective circumstances
evaluation, on or before date of report, is for Requirements are designed to enable the firm to
audits of FS of listed entities and other achieve the objectives of the PSQC
engagements determined by the firm necessary
to be reviewed Elements of a system of quality control (LRAHEM)
(e) Engagement quality control reviewer—partner, Leadership responsibilities for quality within the
other person in the firm, suitably qualified firm
external person, etc., with sufficient appropriate Relevant ethical requirements
experience to objectively evaluate the significant Acceptance and continuance of client
judgments made relationships and specific engagements
(f) Engagement team—all partners and staff Human resources
performing the engagement, and any individuals Engagement performance
engaged by the firm. Excludes external experts Monitoring
(g) Firm—a sole practitioner, partnership, or other The firm shall document its policies and
entity of professional accountants procedures and communicate them to
(h) Inspection—in relation to completed the firm’s personnel
engagements, designed to provide evidence of 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 Independence
system of quality Policies and procedures designed to provide it
o 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 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
Reward high quality work o Engagement partners should provide
Training seminars, meetings, formal or informal the firm with relevant info about client
dialogue, mission statements, newsletters, engagements
briefing memoranda, etc o Personnel to promptly notify the firm of
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
subject to the overriding requirement for the taken
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 Can determine whether they
procedures addressing performance satisfy independence
evaluation, compensation, and requirements
promotion (incentive systems) Can maintain and update its
o Assignment of mgmt. responsibilities so records relating to
that commercial considerations do not independence
override the quality of work performed Can take appropriate actions
o Provision of sufficient resources for the regarding threats to
devt, docu, and support of its QCPP independence that are not at an
Requirements for persons responsible for SQPP acceptable level
o Sufficient and appropriate experience Policies and procedures designed to provide it
o Ability with reasonable assurance that it is notified of
breaches of independence requirements, and
Relevant Ethical Requirements enable it to take appropriate actions to resolve
Policies and procedures designed to provide it such situations. It shall include requirements for:
with reasonable assurance that the firm and its o Personnel to notify the firm of
independence breaches
o Firm to communicate identified o A process for dealing with non-
breaches to: compliance
Engagement partner Firm, network, and network firm
Other relevant personnel, the Firm
network, and those subject to o A sole practitioner or partnership of
independence requirements professional accountants
o Prompt communication to the firm by o An entity that controls such parties
the engagement partner and the above through ownership, management, or
individuals to the actions taken to other means
resolve the matter o An entity controlled by such parties
At least annually, the firm shall obtain written through ownership, management, or
confirmation of compliance with its policies and other means
procedures in independence from all firm Written confirmation
personnel required to be independent by 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 Setting out criteria for determining the the firm demonstrates importance to
need for safeguards to reduce familiarity independence
threat to an acceptable level when using Familiarity threat
the same senior personnel on an The threat that may be created by using the
assurance engagement over a long same senior personnel on an assurance
period of time engagement over a long period of time
o Requiring, for audits of FS of listed Appropriate criteria to address familiarity threat
entities, the rotation of the ff. after a o Nature of engagement and the extent to
specified period in compliance with REE which it involves a matter of public
Engagement partner interest
Individuals responsible for EQCR o The length of service of the senior
Others subject to rotation personnel on the engagement
requirements
Compliance with REE Rotating the senior personnel or
Fundamental principles of professional ethics requiring an EQCR are examples of
(IOPCP) safeguards
o Integrity PEC recognizes that the familiarity threat is
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 defined period
Part B of Phil. Code of Ethics Considerations specific to public sector audit
o Provides how the conceptual framework organizations
is to be applied in specific situations Statutory measures may provide safeguards for
o 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
o 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
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 The possibility of withdrawing from the
Policies and procedures for the acceptance and engagement or from both the
continuance of client relationships and specific engagement and the relationship
engagements, designed to provide the firm with Competence, capabilities, and resources
reasonable assurance that it will only undertake Include whether:
or continue relationships and engagements o Firm personnel have knowledge of
where the firm: relevant industries or subject matters
o Is competent to perform the o Firm personnel have experience with
engagement and has the capabilities, relevant regulatory or reporting
including time and resources to do so requirements, of the ability to gain the
o Can comply with relevant ethical necessary skills and knowledge
requirements effectively
o Has considered the integrity of the client o Firm has sufficient personnel with the
and does not have information that necessary competence and capabilities
would lead it to conclude that the client o Expert are available if needed
lacks integrity o Individuals meeting the criteria and
Such policies and procedures shall require eligibility requirements to perform
o 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 Integrity of Client
an existing client Matters to consider regarding integrity of client
o The firm to determine whether it is 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 Nature of client operations and business
o The firm to document how the issues practices
were resolved if there were issues that 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
fees as low as possible reasons of such
o Indications of an inappropriate limitation o Considering whether there is a PSRLR for
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
criminal activities for such withdrawal, to authorities
o Reasons for the proposed appointment o Documenting significant matters,
of the firm and non-reappointment of consultations, conclusions, and the basis
the previous firm for the conclusions
o The identity and business reputation of Considerations specific to public sector audit
related parties organizations
The extent of knowledge a firm will have 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 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
o Inquiry of other firm personnel or third
parties such as bankers, legal counsel, Human Resources
and industry peers Policies and procedures designed to provide it
o 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 Perform engagements in accordance
relationship includes consideration of significant with PSRLR; and
matters that have arisen during the previous or o Enable the firm or engagement partners
current engagements, and their implications for to issue reports that are appropriate in
continuing the relationship (e.g. a client may the circumstances
have started to expand its business operations Assignment of engagement teams
into an area where the firm does not possess the The firm shall assign responsibility for each
necessary expertise) engagement to an engagement partner and
Withdrawal shall establish policies and procedures requiring
W/drawal from engagement or both address that:
issues that include the following: o The identity and role of the partner are
o 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 The partner has appropriate
that the firm might take competence, capabilities, and authority
o Discussing with the appropriate level of to perform the role
client’s management and those charged
o The responsibilities of the engagement The firm may use a SQEP when internal technical
partner are clearly defined and and training resources are unavailable
communicated to that partner 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 Making personnel aware of firm
the circumstances expectations regarding performance and
Personnel issues relevant to the firm’s PP related ethical principles
to HR include: o Providing personnel with evaluation of
o Recruitment and counseling on performance,
o Performance evaluation progress, and career development
o Capabilities, including time to perform o Helping personnel understand
assignments 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
Effective recruitment processes and action
procedures help the firm select individuals of Considerations specific to smaller firms
integrity with the capacity to develop 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 Assignment of engagement partners
Competence can be developed through a variety Policies and procedures may include systems to
of methods, including the following: 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 Assignment of engagement teams
o Independence education for personnel The firm’s assignment of engagement teams and
required to be independent 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 including knowledge of relevant IT
capabilities
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 Require an engagement quality control
o Understanding of the firm’s QCPP review for all audits of FS of listed
entities
Engagement Performance o Set out criteria against which audits,
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 Require an EQCR for all engagements
partner issues reports that are appropriate in the meeting the criteria established in
circumstances. Such policies and procedures previous item
shall include: The firm shall establish policies and procedures
o 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 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 Discussion of significant matters with
reviewed by more experienced engagement the engagement partner
team members o Review of the FS or other subject matter
Consultation information and the proposed report
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
o Appropriate consultation takes place on and the conclusions it reached
difficult contentious matters o Evaluation of the conclusions reached in
o Sufficient resources are available to formulating the report and
enable appropriate consultation to take consideration of whether the proposed
place report is appropriate
o The nature and scope of, and EQCR of audits of financial statements of listed
conclusions resulting form, such entities must also include:
consultations are documented and are o Engagement team’s evaluation of the
agreed by both the individual seeking firm’s independence in relation to the
consultation and the individual specific engagement
consulted o Whether appropriate consultation has
o Conclusions resulting from consultations taken place on matters involving
are implemented differences of opinion or other difficult
Engagement quality control review or contentious matters and the
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
Criteria for the eligibility of EQC reviewers reports have been finalized
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 The firm shall establish PP for the
and authority) retention of engagement
o 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
without compromising the reviewer’s required by law or regulation
objectivity Consistence in the quality of engagement performance
The firm shall establish PP designed to maintain The firm promotes consistency in the quality of
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
Documentation of the EQCR industry or subject matter-specific guidance
PP on documentation of the EQCR which require materials. Matters addressed may include:
documentation that: o How engagement teams are briefed on
o The procedures required by the firm’s the engagement
policies on EQCR have been performed o Processes for complying with applicable
o The EQCR has been completed on or engagement standards
before the date of report; and o Processes of engagement supervision,
o The reviewer is unaware of unresolved staff training, and coaching
matters that would cause him to believe 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 Appropriate documentation of the work
Differences of opinion performed and of the timing and extent
The firm shall establish PP for dealing with and of the review
resolving differences of opinion within the o Processes to keep all policies and
engagement team, with those consulted, and procedures current
where applicable, between the engagement 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 Conclusions reached be documented assigned work
and implemented Supervision
o Report not be dated until the matter is Tracking the progress of the engagement
resolved Considering the competence and capabilities of
Engagement documentation 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 The issue on which consultation was
team members during the engagement sought
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
Significant matters have been raised for implemented
consideration Considerations specific to smaller firms
Appropriate consultations have taken place and 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
reached and is appropriately documented provide relevant QC services
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
Consultation provider is suitably qualified for that
Includes discussion at the appropriate purpose
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 Identification of unusual circumstances
other matters within or outside the firm, if or risks in an engagement or class of
applicable can be achieved when those engagements
consulted: o Whether laws or regulations require an
o Are given all relevant facts that will EQCR
enable them to provide informed advice Nature, timing, and extent of the EQCR
o Have appropriate knowledge, seniority, The engagement report is not dated until the
and experience 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
EQCR of a listed entity individual within the firm or a suitably qualified
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.
include: Objectivity of the EQC reviewer
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:
o Judgments made, particularly with o Must not be selected by the
respect to materiality and significant engagement partner, where practicable
risks o Does not participate in the engagement
o The significance and disposition of during the period of review
corrected and incorrect misstatements o Does not make decisions for the
identified during the engagement engagement team
o 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 Considerations specific to smaller firms
These other matters may also be applicable 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 Alternatively, some sole practitioners or small
Sufficient and appropriate technical expertise, firms may wish to use other firms to facilitate
experience, and authority engagement quality control reviews. Where the
o What constitutes SATEEA depends on firm contracts SQEP
the circumstances of the engagement Considerations specific to public sector audit
Consultation with an EQC reviewer organizations
The engagement partner may consult the 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
ability of the engagement quality control personal nature are concerned.
reviewer to provide an objective evaluation. Whether engagement documentation is in
Differences of opinion paper, electronic or other media, the integrity,
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 o Enable the determination of when and
Law or regulation may prescribe the time limits by whom engagement documentation
by which the assembly of final engagement files was created, changed or reviewed;
for specific types of engagement is to be o Protect the integrity of the information
completed. If no time limits are prescribed by 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;
60 days after report o Prevent unauthorized changes to the
Where two or more different reports are issued engagement documentation; and
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
report as if it were for a separate engagement. responsibilities.
This may, for example, be the case when the firm Controls to maintain CSCIAR of engagement
issues an auditor’s report on a component’s documentation
financial information for group consolidation o Password among team members
purposes and, at a subsequent date, an auditor’s o Appropriate backup routines for
report on the same financial information for electronic documentation at stages
statutory purposes. o Procedures for proper distribution
o Procedures for access restriction
Confidentiality, safe custody, integrity, accessibility, and Procedures designed to maintain IAR of scanned
retrievability of engagement documentation documentation
Relevant ethical requirements establish an o Generate scanned copies that reflect
obligation for the firm’s personnel to observe at entire content
all times the confidentiality of information
o Integrate scanned copies into and appropriate experience and
engagement files authority
o Enable scanned copies to be retrieved o Require that those performing the
and printed engagement or the EQCR are not
Retention of engagement documentation 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
engagement and the firm’s circumstances, for are either
example, whether the engagement o Instances that do not necessarily
documentation is needed to provide a record of indicate that the firm’s system of QC is
matters of continuing significance to future insufficient
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
Ownership of engagement documentation actions for deficiencies include the following:
Engagement documentation is the property of o Taking action in relation to an individual
the firm unless otherwise specified by law or engagement or member of personnel
regulation. The firm may, at its discretion, make o Communication of findings to those
portions of, or extracts from, engagement responsible for training and prof devt
documentation available to clients, provided o Changes to QCPP
such disclosure does not undermine the validity o 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 monitoring procedures indicate that a report
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
including, on a cyclical basis, inspection legal advice.
of at least one completed engagement The firm shall communicate at least annually the
for each engagement partner results of the monitoring. Information
o Require responsibility for the monitoring communicated shall include the following:
process to be assigned to a partner, o Description of the monitoring
partners, or other persons with sufficient 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 Communication to appropriate firm
deficiencies and of the actions taken to 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 Follow-up by appropriate firm personnel
o The network communicate the overall so that necessary modifications are
scope, extent, and results of the promptly made to the QCPP
monitoring process to appropriate Inspection cycle policies may (for example)
individuals at least annually specify a cycle that spans three years. The
o 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 Size of the firm
The firm shall establish PP designed to provide it o Number and geographical location of
with reasonable assurance that it deals offices
appropriately with o Results of previous monitoring
o Complaints and allegations that work procedures
performed fails compliance with PSRLR o Degree of authority both personnel and
o Allegations of noncompliance with QC offices have
Firm shall take appropriate actions when o Nature and complexity of the firm’s
complaints, allegations, and deficiencies are practice and organization
identified o Risks associated with the firm’s clients
Monitoring the firm’s QCPP and specific engagements
The purpose of monitoring compliance is to The inspection process includes the selection of
provide an evaluation 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
o 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
Ongoing consideration and evaluation of system monitoring program.
of QC include matters such as the following Considerations specific to smaller firms
o Analysis of: 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
o Determination of corrective actions and monitoring activities.
improvements to be taken including 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 The firm shall establish PP requiring
specific engagements concerned, although there documentation of complaints and allegations
may be cases where such identification may be and the responses to them
necessary for the proper discharge of the 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 Nature and complexity of the firm’s
Complaints and allegations may originate from practice and organization
within or outside the firm. They may be made by Appropriate documentation relating to
firm personnel, clients, or other third parties. monitoring includes
They may be received by engagement team o Monitoring procedures including the
members or other firm personnel. procedure for selecting completed
Investigation policies and procedures engagements to be inspected
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 designed and effectively
experience implemented
o Has authority within the firm Whether the firm’s QCPP have
o Is otherwise not involved in the been appropriately applied
engagement o Identification of the deficiencies noted,
The partner supervising the investigation an evaluation of their effect, and the
may involve legal counsel as necessary basis for determining what further
Considerations specific to smaller firms action is necessary
It may not be practicable, in the case of firms Consideration specific to smaller firms
with few partners, for the partner supervising the Smaller firms may use more informal methods in
investigation not to be involved in the the documentation of their system QC such as
engagement. These small firms and sole manual notes, checklists, forms
practitioners may use the services of a suitably
qualified external person or another firm to carry
out the investigation into complaints and
allegations.
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 Scope
financial information This PSA deals with the specific responsibilities
Entails reducing detailed data to a manageable of the auditor regarding quality control
and understandable form without requirement procedures for an audit of financial statements
to test the assertions This also addresses the responsibilities of the
Procedures employed are not designed and do engagement quality control reviewer
not enable the accountant to express any System of quality control and role of engagement teams
assurance on financial information PSQC 1 requires a system of QCPP to establish
Service is performed with professional due care and maintain a system of quality control to
Auditor Association with Financial Information provide reasonable assurance that:
An auditor is associated with financial o The firm and its personnel comply with
information when the auditor attaches a report 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 Staff—professionals other than partners
Objective including experts that the firm employs
“The objective of the auditor is to implement QC SQEP—individual outside the firm; with
procedures at the engagement level that provide competence and capabilities to act as an
the auditor with reasonable assurance that”: engagement partner
o The audit complies with PSRLR Requirements
o Auditor’s report issued is appropriate in 1. Leadership responsibilities for quality on audits
the circumstances 2. Relevant ethical requirements
Definitions (keywords only) 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 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
to perform audit; excludes external expert recruitment and formal training
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 Maintenance of client relationship—
engagement acceptance and continuance systems
Listed entity—entity whose shares are listed on a o Adherence to RLR—through the
recognized stock exchange monitoring process
Monitoring—ongoing consideration of the firm’s
system of QC, periodic inspection of a selection Leadership Responsibilities for Quality on Audits
of completed engagements 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 Application
o Aimed at profit or cost sharing 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 o The importance to audit quality of:
requirements
Performing work that complies PEC defines the firm as
with PSRLR o Sole practitioner or partnership of
Compliance to QCPP professional accountants
Issuing audit reports o Entity that controls parties
appropriate in the circumstances o Entity controlled by parties
The team’s ability to raise Threats to independence
concerns without fear of reprisal The engagement partner may identify a threat to
o 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 In such case, the engagement partner reports to
Engagement partner shall remain alert (through the relevant persons within the firm to
observation and inquiry) for evidence of determine appropriate actions
noncompliance with REE by team members Considerations specific to public sector entities
Engagement partner, in consultation with others 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
Independence auditors may need to adopt their approach in
Engagement partner shall form a conclusion on order to promote compliance
compliance with independence requirements Where the public sector auditor’s mandate does
that apply to the audit engagement and shall not permit withdrawal from engagement,
o 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 Engagement partner shall be satisfied that
audit engagement appropriate procedures of acceptance and
o 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
acceptable level by applying safeguards regard are appropriate
or withdrawal if appropriate and If the engagement partner obtains info that
permitted by law would have cause the firm to decline the
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
o Integrity Application
o Objectivity The ff. information assists the engagement
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 engagements are appropriate:
The definitions of firm, network, or network firm o Integrity of owners, key management
in relevant ethical requirements may differ from and those charged with governance
those set out in this PSA.
o Whether engagement team is o The team’s technical expertise, including
competent to perform the audit expertise with relevant information
engagement and has the necessary technology and specialized areas in
capabilities, time, and resources accounting and auditing
o Whether the firm and the engagement o Knowledge of relevant industries in
team can comply with relevant ethical which the client operates
requirements o Ability to apply professional judgment
o Significant matters that have arisen o Understanding of the firm’s QCPP
during the current or previous audit Considerations specific to public sector entities
engagement Additional appropriate competence may include
Considerations specific to public sector entities skills that are necessary to discharge the terms
In the public sector, auditors may be appointed of the audit mandate in a particular jurisdiction
in accordance with statutory procedures 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
process described may be valuable to public include:
sector for risk assessments and carrying out o some aspects of performance auditing
reporting responsibilities o comprehensive assessment of
compliance with legislative authorities
Assignment of Engagement Teams o preventing and detecting fraud and
The engagement partner shall be satisfied that corruption
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 The engagement partner shall take responsibility
accordance with PSRLR for:
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 o The auditor’s report being appropriate in
A team also includes a member using expertise the circumstances
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 Reviews
and capabilities of the engagement team as a 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 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
o The team’s understanding of PSRLR done through a review of the audit
documentation and discussion with the o Engagement team’s evaluation of the
engagement team firm’s independence
Consultation o Whether appropriate consultation has
The engagement partner shall taken place on matters involving
o Take responsibility for the engagement differences of opinion
team undertaking consultation o Whether audit documentation selected
o Be satisfied that members of the for review reflects the work performed
engagement team have undertaken Differences of opinion
appropriate consultation during the If differences of opinion arise within the
course of the engagement, both within 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.
o Be satisfied that the nature, scope, and Application
conclusions or and from such Direction, supervision, and performance
consultations agree with the party Direction of the engagement team involves
consulted informing the team members of the ff. matters:
o Determine that conclusions resulting o Their responsibilities
from such consultations have been o Responsibilities of respective partners
implemented o Objectives to be performed
Engagement quality control review 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
o Determine than an EQC reviewer has o Detailed approach to the performance
been appointed of the engagement
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
o 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
reached in formulating the auditor’s report. Such assigned work
evaluation shall involve: Supervision includes matters such as
o Discussion of significant matters o Tracking the progress of the audit
o Review of the FS and proposed auditor engagement
report o Considering the competence and
o Review of selected audit documentation capabilities of each member
o Evaluation of the conclusions reached in o Addressing significant matters
formulating the report and o Identifying matters for consultation
consideration of whether it is Reviews
appropriate Review responsibilities
For audits of FS of listed entities, the EQCR shall Under PSQC 1, the firm’s review responsibility
also consider 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
members those consulted:
A review consists of consideration whether o Are given all the relevant facts
o Work has been performed in accordance o Have appropriate knowledge, seniority
with PSRLR and experience
o Significant matters have been raised It may be appropriate for the engagement team
o Appropriate consultations have taken to consult outside the firm if there is lack of
place, documented, and implemented appropriate internal resources
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 Auditor’s report should be dated no earlier than
conclusions reached and is appropriately 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.
appropriate to support auditor report Conducting review at appropriate stages allows
o Objectives have been achieved significant matters to be promptly resolved to
The engagement partner’s review of work performed the satisfaction of the EQCR
Timely reviews of the following by the Documentation of the EQCR may be completed
engagement partner at appropriate stages after the date of the auditor’s report
o Critical areas of judgment
o Significant risks Nature, timing, and extent of EQCR
o Other areas 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 an engagement partner responsibilities of the engagement partner.
Considerations relevant where a member of the EQCR of listed entities
engagement team with expertise in a specialized area of Matters relevant to evaluating the significant
accounting or auditing is used judgments made by the engagement team that
Where ditto, direction, supervision and review of may be considered in an EQCR may include
the team member’s work may include matters Significant risks identified during the
such as engagement and the responses to those
o Agreeing with the member the nature, including assessment and response to fraud
scope, and objectives of that member’s Judgments made with respect to materiality and
work: and the respective roles of, and significant risks
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
o Evaluating the adequacy of that Matters to be communicated to management
member’s work, including the relevance and those charged with governance
and reasonableness of that member’s Considerations specific to smaller entities
findings In addition to the audits of financial statements
Consultation 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 A deficiency in the firm’s system of QC does not
audit engagements may meet the criteria that necessarily indicate that a particular audit
would subject them to such a review. engagement was not performed in accordance
Considerations specific to public sector entities with PSRLR or that the auditor’s report was not
A statutorily appointed auditor or other SQEP appropriate
may act in a role equivalent to that of
engagement partner with overall responsibility Documentation
for public sector audits The auditor shall document:
In such circumstances, the selection of the EQC o Issues identified with respect to
reviewer includes consideration of the need for compliance with REE and how they were
independence from the audited entity and the resolved
ability of the EQC reviewer to provide an 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. o Nature, scope, and conclusions from
There are no fixed objective criteria on which the consultations
determination of significances is based. Despite The EQCR shall document that
that, public sector auditors evaluate which o The procedures required by the firm’s
entities may be of sufficient significance to 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 The issue on which consultation was
control are relevant, adequate, and operating sought
effectively 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 PSA 200 (Overall objectives of the independent
Application auditor and the conduct of an audit in accordance
In considering deficiencies that may affect the with PSA)
audit engagement, the engagement partner may
have regard to measures the firm took to rectify Introduction
the situation that the engagement partner Scope of this PSA
This PSA establishes the independent auditor’s The auditor is not responsible for the detection
overall responsibilities when conducting an audit of misstatements that are not material to the
of FS in accordance with PSAs. financial statements as a whole
It sets out the overall objectives of the
independent auditor designed to enable 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
of intended users in the financial statements
Such will be achieved by the expression of an
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
whether due to error or fraud
Reasonable assurance—high level of assurance.
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
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
Three phases of the audit process risks
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. (1.0) Audit risk—give unqualified opinion on
Auditor’s standard report: materially misstated FS
We conducted our audits in accordance with PSA. 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
audit to obtain reasonable assurance (there is still client selection and retention
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 Incentive to management to misstated
planning the audit and designing the audit approach. financial statements
Complexity of transactions
Risk-based audit approach—an audit approach that Internal control
begins with an assessment of the types and likelihood of 4. (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
Account-based audit—auditors first obtain an Geographic location
understanding of control and assess control risk for
particular types of errors and frauds in specific accounts The auditor can control audit risk in two different ways:
and cycle 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
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. 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.
2. There are no issues with management integrity
that may affect auditor’s willingness to continue Before accepting an engagement with a new client,
3. There is no misunderstanding with the client as the CPA firm shall assess whether it (CRI)
to the terms of the engagement
1. 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
2. Can comply with the relevant ethical which a report may differ from its expected form
requirements and content.
3. Has considered the integrity of the client and
does not have information that would lead it to Recurring Audits
conclude that the client lacks integrity 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. Whether the financial reporting framework to be engagement
applied in the financial statements are The auditor shall not agree to the change in the
acceptable terms of the audit engagement where there is
2. Agreement of management that it acknowledges no reasonable justification for doing so
and understands its responsibility Auditor and management shall agree on and
a. 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
presentation, If the auditor is unable to agree to a change and not
b. 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. Withdraw from the audit engagement where
statements that are free from material possible under applicable law or regulation
misstatement whether due to fraud or 2. Determine whether there is any obligation, either
error, and contractual or otherwise, to report the
c. To provide the auditor with circumstances to other parties such as those
i. Access to all information charged with governance, owners, or regulators
ii. Additional information
iii. Unrestricted access to persons