The Auditing and Assurance Standards Council (AASC) was created in December 2005, under the

Philippine Accountancy Act of 2004, by the Professional Regulation Commission upon the recommendation
of the Board of Accountancy (BOA). The AASC is tasked to assist the BOA to establish and promulgate
auditing standards in the Philippines.
The AASC shall have 18 regular members with a term of three years, renewable for another term, coming
from the following:
  No. of members
Chairman 1
Board of Accountancy 1
Securities and Exchange Commission 1
Bangko Sentral ng Pilipinas 1
Commission on Audit 1
Association of CPAs in Public Practice 1
Philippine Institute of CPAs:  
Public Practice 9
Commerce and Industry 1
Academe/Education 1
Government 1
 
Total 18
The objectives, approach and working procedures in adopting AASC pronouncements are set out in
the Preface to Philippine Standards on Quality Control, Auditing, Review, Other Assurance and
Related Services.
The AASC replaced the Auditing Standards and Practices Council (ASPC). A brief history of ASPC is
also available.

Before the creation of the Auditing And Assurance Standards Council (AASC) in December 2005, the ASPC was
responsible for the promulgation of auditing standards, practices and procedures, considered as generally accepted
auditing standards in the Philippines

The ASPC was established by the Philippine Institute of Certified Public Accountants (PICPA) and the Association of
Certified Public Accountants in Public Practice (ACPAPP). In support of ASPC’s creation and operation, PICPA,
ACPAPP and the PICPA Foundation adopted a Joint Memorandum of Support signed on March 17, 1986 by
representatives of these organizations.

The Rules of Procedures set out the objectives and functions of the ASPC, its organization and membership, the
authority of its pronouncements and the working process involved in adoption of auditing standards.

The ASPC pronouncements were adopted mostly from the auditing standards and practice statements issued by the
International Auditing Practices Committee (IAPC) of the International Federation of Accountants (IFAC). IAPC was
later on replaced by the International Auditing and Assurance Board (IAASB).

 AASC Alert
AASC Bulletin
Philippine Standards on Auditing (PSAs)
Philippine Standards on Review Engagements (PSREs)
Philippine Standards on Assurance Engagements (PSAEs)
Philippine Standards on Related Services (PSRSs)
Philippine Standards on Quality Control (PSQCs)
Philippine Auditing Practice Statements (PAPSs)
International Standards on Auditing (ISA)
Final Pronouncements Pending Publication in the Official Gazette
Final Pronouncements Pending BOA/PRC Approval
Final Pronouncements Pending Submission to BOA/PRC
Codified Standards
 AASC Exposure Drafts (EDs)
AASC Projects
About AASC
IFAC Guides and Philippine Preface

International Standards on Auditing (ISAs)

 Handbook of International Quality Control, Auditing, Review, other Assurance, and Related Services
Pronouncements 2010 Edition
 Changes of Substance from the 2009 Edition of the Handbook and Recent Developments
 The International Federation of Accountants
 Preface to the International Standards on Quality Control, Auditing, Review, other Assurance and
Related Services
 IAASB Handbook Glossary
 IAASB Handbook Framework: International Framework for Assurance Engagements
 Handbook of International Quality Control, Auditing, Review, other Assurance, and Related Services
Pronouncements 2010 Edition (Part 1)
 Handbook of International Quality Control, Auditing, Review, other Assurance, and Related Services
Pronouncements 2010 Edition (Part 2)
 International Standard on Quality Control 1: Quality Control for Firms that Perform Audits and Reviews of
Financial Statements, and Other Assurance and Related Services Engagements
 ISA 200 – Overall objectives of the independent auditor and the conduct of an audit in accordance with
International Standards on Auditing
 ISA 210 – Agreeing the terms of audit engagements
 ISA 220 – Quality Control for an Audit of Financial Statements
 ISA 230 – Audit documentation
 ISA 240 – The auditor’s responsibilities relating to fraud in an audit of financial statements
 ISA 250 – Consideration of laws and regulations in an audit of financial statements
 ISA 260 – Communication with those charged with governance
 ISA 265 – Communicating deficiencies in internal control to those charged with governance and
management
 ISA 300 – Planning an audit of financial statements
 ISA 315 – Identifying and assessing the risks of material misstatement through understanding the entity and
its environment
 ISA 320 – Materiality in planning and performingan audit
 ISA 330 – The auditor’s responses to assessed risks
 ISA 402 – Audit considerations relating to an entity using a service organization
 ISA 450 – Evaluation of misstatements identified during the audit
 ISA 500 – Audit evidence
 ISA 501 – Audit evidence—Specific considerations for selected items
 ISA 505 – External confirmations
 ISA 510 – Initial audit engagements—Opening balances
 ISA 520 – Analytical procedures
 ISA 530 – Audit sampling
 ISA 540 – Auditing accounting estimates, including fair value accounting estimates, and related disclosures
 ISA 550 – Related parties
 ISA 560 – Subsequent events
 ISA 570 – Going concern
 ISA 580 – Written representations
 ISA 600 – Special considerations—Audits of group financial statements (including the work of component
auditors)
 ISA 610 – Using the work of internal auditors
 ISA 620 – Using the work of an auditor’s expert
 ISA 700 – Forming an opinion and reporting on financial statements
 ISA 705 – Modifications to the opinion in the independent auditor’s report
 ISA 706 – Emphasis of matter paragraphs and other matter paragraphs in the independent auditor’s report
 ISA 710 – Comparative information—Corresponding figures and comparative financial statements
  ISA 720 – The auditor’s responsibilities relating to other information in documents containing audited
financial statements
 ISA 800 – Special considerations—Audits of financial statements prepared in accordance with special
purpose frameworks
 ISA 805 – Special considerations—Audits of single financial statements and specific elements, accounts or
items of a financial statement
 ISA 810 – Engagements to report on summary financial statements
 IAPS 1000 – Inter-bank confirmation procedures
 IAPS 1004 – The relationship between banking supervisors and banks’ external auditors
 IAPS 1006 – Audits of the financial statements of banks
 IAPS 1010 – The consideration of environmental matters in the audit of financial statements
 IAPS 1012 – Auditing derivative financial instruments
 IAPS 1013 – Electronic commerce-Effect on the audit of financial statements
 IAPS 1014 – Reporting by Auditors on Compliance with International Financial Reporting Standards
 ISRE 2400 – Engagements to review financial statements
 ISRE 2410 – Review of interim financial information performed by the independent auditor of the entity
 ISAE 3000 – Assurance engagements other than audits or reviews of historical financial information
 ISAE 3400 – The examination of prospective financial information
 ISAE 3402 – Assurance reports on controls at a service organization
 ISRS 4400 – Engagements to perform agreed-upon procedures regarding financial information
 ISRS 4410 – Engagements to compile financial statements

THERE are three standards-setting and interpretation organizations in the Philippines that

recommend the standards, rules and interpretative pronouncements on accountancy and auditing.
These three organizations are: a) the Financial Reporting Standards Council; b) the Auditing and
Assurance Standards Council; and c) the Philippine Interpretations Committee. These three are
mandated under the Accountancy Law and the implementing rules to recommend to the Board of
Accountancy the standards and interpretations, for BOA approval. As of 2018, the Chairmen of
the councils are Roberto G. Manabat for the AASC, David L. Balangue for the FRSC and
Wilson P. Tan for the PIC.

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Accounting standards in the Philippines are adopted from the International Financial Reporting
Standards issued by the International Accounting Standards Board (IASB). The IFRS is a set of
accounting standards that are recognized by at least 120 countries (including the Philippines) and
provides a guide on how particular types of transactions and other events should be reported in
financial statements. The rationale for using the IFRS/Philippine Financial Reporting Standards
(PFRS) is to ensure consistency in recording, recognizing and measuring financial transactions,
which, if followed properly, will ensure stability and transparency throughout the financial
reporting process of the company. These standards are not enforceable as compliance is
voluntary.

The PFRS, our version of the IFRS with some minor modifications, and the Philippine
Accounting Standards are issued by the PFRS Council (formerly the Accounting Standards
Council [ASC]), under the oversight of the BOA. Hence, the PFRS and the PAS are our current
set of Generally Accepted Accounting Principles. GAAPs vary “from country to country due to
differences in the legal system, levels of inflations, culture, degrees of sophistication and use of
capital markets, and political and economic ties with other countries.” Entities registered with the
Securities and Exchange Commission (SEC) are required to apply PFRS as their financial
reporting framework.

The PAS corresponds to the adopted International Accounting Standards (IAS), while the PFRS
corresponds to the adopted IFRS. Previously, standards issued by the ASC were designated as
Statement of Financial Accounting Standards.

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The PFRSC is a standard-setting body created by the Professional Regulation Commission upon
the recommendation of the BOA under the implementing rules of Republic Act 9298 “Philippine
Accountancy Act of 2004”. It has a chairman, and representatives from the BOA, the SEC, the
Bangko Sentral ng Pilipinas, the Bureau of Internal Revenue, the Commission on Audit, a major
organization composed of preparers and users of financial statements (currently Finex), and two
representatives each from an accredited national professional organization of certified public
accountants in public practice, commerce and industry, academe, and the government. The
chairman and members shall have a term of three years and is renewable for another term.

The FRSC formed the Philippine Interpretations Committee  in August 2006 to assist the FRSC
in establishing and improving financial reporting standards in the Philippines. It is a mere
committee of the FRSC. The role of the PIC is principally to issue implementation guidance on
PFRS. The PIC members are appointed by the FRSC and include accountants in public practice,
academe and regulatory bodies, and users of financial statements. The PIC replaced the
Interpretations Committee created by the ASC in 2000.

Development of the Philippine standards

The first formal recognition of the accounting profession was through the enactment of the
Accountancy Law of 1923. Soon, in 1929, the Philippine Institute of Accountants was formed.
The initial Philippine standards was patterned after the US GAAP. Our standards were
essentially patterned after the standards of the United States Financial Accounting Standards
Board. By 1997, there was a move to transition from the US GAAP to international accounting
standards. This sentiment was brought about by the SEC’s membership in the International
Organization of Securities Commissions, which resolved to adopt international accounting
standards.

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In November 2004, the Philippines’s Accounting Standards Council resolved to adopt the PAS,
which was basically the revised version of the IAS, and the PFRS, which was basically the
revised version of the IFRS. It was implemented effective January 2005. By 2006, the ASC
became the FRSC, which was created under the implementing rules of the Philippine
Accountancy Act of 2004. Today, the FRSC monitors the technical activities of the IASB and
issues invitations to comment on exposure drafts of proposed
IFRSs issued by the IASB. If adopted, they are issued as PFRSs. Similarly, the issuances of the
International Financial Reporting Interpretations Committee, if adopted, are issued as Philippine
Interpretations.

Auditing the internal audit

Abigail Blanca M. Peña Internal Audit Director, PwC Philippines 03 May 2019
Did you know that May is International Internal Audit Awareness Month?

Internal auditors worldwide unite to raise awareness of the profession and its value to
the organization. They strive to not only inform the business community more about the
profession, but also on the major contributions of the internal audit (IA) function to the
effectiveness of the organizational governance, risk management and internal control
processes.

There are various creative ideas on how internal auditors raise awareness – from simply
customizing email signature and social media accounts with the International Internal
Audit Awareness Month digital icon, to conducting a lunch-and-learn with other
employees in the organization to explain what internal auditors do and why they do it,
and answer questions to clarify their perceptions.

Despite of all the awareness campaigns by internal auditors, a question still lingers at
the back of the minds of people being audited by these professionals: “Who audits the
internal auditors?”
Internal auditors are empowered by the audit committee of the board of directors to
examine many, if not all, parts of the organization. So it is but natural for stakeholders
and auditees to ask on who checks the quality of IA activities.

The Institute of Internal Auditors (IIA), an international professional organization that

serves as the voice, recognized authority, acknowledged leader, chief advocate and
principal educator of the profession provides internal audit professionals with
authoritative guidance in the form of the International Professional Practice Framework
(IPPF). The IPPF’s mandatory elements recognized in IA charters require internal audit
functions to develop and maintain a Quality Assurance and Improvement Program
(QAIP) that covers all aspects of IA activity.
According to the IPPF Implementation Guides, the QAIP is designed to evaluate the IA
activity’s conformance with the International Standards for the Professional Practice of
Internal Auditing (the Standards, for short) and the internal auditor’s compliance with the
IIA’s Code of Ethics. As such, it must include ongoing and periodic internal
assessments as well as external assessments by a qualified independent assessor or
assessment team.
It is the responsibility of the Chief Audit Executive (CAE) to have IA activities externally
assessed at least every five years.

The purpose of external assessment is for a qualified, independent assessor or

assessment team to validate the organization’s IA activities if they conform to the
Standards and if internal auditors apply the Code of Ethics. The assessor or
assessment team should be someone from outside the organization who is competent
in IA and the external assessment process. Normally, these are internal auditors from
outside the organization, independent consultants or audit firms, but preferably not
those who audit the financial statements or those that provide IA co-sourcing to the
organization. In the Philippines, the external assessment is usually done by audit firms
and IIA Philippines through its pool of professional resources.

According to the Global Internal Audit Common Body of Knowledge’s (CBOK) recent
closer look on Internal Audit Quality Assurance and Improvement, only 34 percent of
participating CAEs state that they fully conform to the requirement for an external
assessment, and many of them have not disclosed their non-conformance to their audit
committees.

Locally, the only industry with high rate of conformance with the external assessment
requirement is the banking industry, particularly the universal and commercial banking
institutions. This is due to the Bangko Sentral ng Pilipinas’ requirement for the IA
function to comply with sound IA standards such as the IIA’s International Standards for
the Professional Practice of Internal Auditing and other supplemental standards issued
by regulatory authorities/government agencies, as well as with relevant code of ethics.
 External assessment has also been on the radar of publicly listed companies these past
years in response to Recommendation 12.1 of the Code of Corporate Governance of
Publicly Listed Companies, i.e. “Company has an adequate and effective internal
control system in the conduct of its business”. The integrated annual corporate
governance report requires listing quality service programs for IA functions in response
to Recommendation 12.1.

It is true that regulators do not compel IA activities to undergo external assessment,

except for commercial and universal financial institutions. However,if the IA charter
recognizes the mandatory nature of the Core Principles for the Professional Practice of
Internal Auditing, the Code of Ethics, the Standards and the Definition of Internal
Auditing, it then follows that they should adhere to the conduct of external assessment
at least every five years.

The CBOK study raises a key point that failure to conform to quality standards may
have severe repercussions—both for the profession and for organizations served by
internal auditors. The study says that the IA professional’s failure to abide by and
enforce quality standards increases the risk that IAs will fail to identify and address
significant issues, and that it can lead to inefficient or ineffective use of resources.

The same study found out that IA functions conforming to the requirements of
QAIP and external assessment:
 were more likely to report functionally to a board, audit committee or equivalent

 were more likely to have complete and unrestricted access to information as appropriate
for the performance of audit activities
worked in organizations with more highly developed risk management processes
 used a wider variety of resources to develop audit plans

 made more use of technology in internal audit processes

 were more likely to have documented procedures in an IA manual

 received more hours of training and were more likely to have formalized training
programs

 were more likely to report that funding for the IA function was “completely sufficient”.

At the end of the day, the greatest value an external assessment can bring is the key
areas of improvement identified after the review. In addition, most external assessments
by audit firms include benchmarking IA operating practices with those of its peers. In
PwC, the external assessment of compliance with the Standards that is normally
delivered to clients is packaged with benchmarking with the other IA functions in the
same industry, and comparing the IA function’s operating practices with the perception
and expectations of key stakeholders.

We’ve learned from various audit committee presentations that members of the
committee are not only after conformance. They are also interested whether their IA
functions meet their stakeholders’ expectations in terms of overall value being delivered
to the organization.

Let me leave you with this quotation from the IIA’s Quality Assessment Manual for IA
activity: “A critical asset for an internal audit activity is its credibility with stakeholders.
To provide credible assistance and constructive challenge to management, internal
auditors must be perceived as professionals. Professionalism requires conforming to a
set of professional standards.”

Internal audit professionals, let’s continue to strengthen our credibility as we usher in

the International Internal Audit Awareness Month.
This content is for general information purposes only, and should not be used as a
substitute for consultation with professional advisors.
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Abigail Blanca M. Peña

Internal Audit Director, PwC Philippines
Tel: +63 (2) 8845 2728 ext. 2122
Email