Preliminary Engagement Activities

SECTION 1
PRELIMINARY ENGAGEMENT ACTIVITIES:
INTRODUCTION

I. AVP - Audio Visual Presentation

Shortclip prayer through hillsong.
II. Greetings
To greet everyone before starting the lecture proper.
III. Ice-Breaker
A game where in everyone will participate and to know their prior knowledge about the
topic.
IV. Lecture Proper
Defining the Commission on Audit
History of COA
Duties and Responsibility of COA
V. Preliminary engagement activities will involve:
1. Ensuring Engagement Team's Independence and Compliance with Ethical Standards
Conducting an Audit in accordance with the Standards and Ethical requirements.
Auditor's Declaration of independence and Compliance with Other Ethical Standards.
Audit Team's Implementation of quality control procedures at engagement level to have
reasonable assurance.
Threats to independence:
Conflict of interest
Individual values system; or
Familiarity with key management officials
Appropriate Competence and Capabilities of the Engagement Team
Due Professional care is Exercised

Comparative analysis: The same with External Audit, in COA, an Audit is also conducted in
accordance with the Standards and Ethical requirements that enables the auditor to form his
audit opinion. On the other hand, in terms of independence, in external audit, a person that must
possess independence (Independence of mind and Independence in appearance) is the
engagement partner or a partner inorder for an engagement to be independent, however in COA,
all of COA stakeholders must fill-up a form of independence or the Declaration of
Independence and Compliance with Other Ethical Standards to be confirmed by CD/RD inorder
for them to have independence, and in the event that any other circumstances arises during the
course of their audit that might appear to impair their independence, they are responsible to
make timely written notification.
2. Defining the term of Audit Engagement
Establishing the term of Engagement:

Engagement Letter

I. Definition and Importance of Engagement Letter

An engagement letter is a written agreement between a client and a professional. The
purpose of the engagement letter is to clearly communicate the expectations of both
parties, and to minimize misunderstandings and conflicts that may arise during the course
of the engagement.
II. Content of Engagement Letter
1. Audit Objective
Express an opinion on whether your financial statements are fairly presented, in all
material respects, in accordance with Standards (PPSAS)/(PFRS).
Communicate whether the internal control,
Communicate the results of tests of compliance
2. Auditors Responsibility
Conduct our audits in accordance with International Standards
Perform procedures to obtain audit evidence about amounts and disclosures in the
financial statements.
Communicate in writing any significant deficiencies and material weaknesses
3. Agency Financial Management Performance
Assessment of agency's financial management performance.
4. Audit Limitation
It is not designed and cannot be relied upon to disclose all fraud, defalcations, or other
irregularities.
5. Management Responsibilities
The preparation and fair presentation of the financial statements including Statement of
Comparison of Budget and Actual Amounts and submission of the deadlines set by the
Commission on Audit
Making all financial records and reports, and related information available.
Issuing the Management Representation Letter (MRL)
Submitting status of any pending claims and litigation involving the Agency and
breakdown of related party transactions.
Management is encouraged to confer with the Auditor as to the required formats of the
financial Statements

6. Assistance from Management

Request assistance for the Assignment of focal person/s, Preparing schedules or analyses,
Access to the work of internal auditors and in facilitating requirements of the audit team/s
assigned.
7. Audit Timelines
Expectation to complete the audit and transmit the required audited financial statements
and report to management on or before (indicate the prescribed period).
8. Auditee’s Feedback on Audit Teams Performance
After completion of the audit, the COA Central Office will send a Feedback Sheet to
assess the team's performance.

Comparative Analysis: Both COA and external auditor engagement letters provide
information about the purpose and scope of the audit and the audit standards that will be used.
However, the external auditor engagement letter may also include information about fees and
expenses.

Written representations
1. Written Representations as Audit Evidence
Written representations are an important source of audit evidence
2. Management from whom Written Representations Requested
Written representations are requested from those responsible for the preparation of the
financial statements.
3. Written Representations about Management’s Responsibilities
Audit evidence obtained during the audit that management has fulfilled the
responsibilities is not sufficient without obtaining confirmation from management that it
believes that it has fulfilled those responsibilities
4. Other Written Representations
Additional Written Representations about the Financial Statements
Additional Written Representations about Information Provided to the Auditor
Written Representations about Specific Assertions
5. Date of and Period(s) Covered by Written Representations
Because written representations are necessary audit evidence, the auditor’s opinion cannot
be expressed, and the auditor’s report cannot be dated, before the date of the written
representations.
6. Form of Written Representations
Management may be required by law or regulation to make a written public statement
about its responsibilities.
7. Doubt as to the Reliability of Written Representations and Requested
Written Representations Not Provided
Doubt as to the Reliability of Written Representations
Written Representations about Management’s Responsibilities
 Content of the Management representation

1. Letterhead of the audited agency

Includes the date that is near but not after the date of auditor’s report
2. Heading
Includes the name of the agency head, receiver, and address
3. Subject
The name of the audited agency
Purpose of the representation letter
4. Statement of management’s responsibility for the financial statements
Affirmation of the management responsibility to prepare the financial statements in
accordance with standards
Affirmation that relevant information and records are provided and available
5. Specific affirmations pertaining to the financial statements provided to the
commission on audit
Responsibility on the financial statements:
Fair presentation
Estimates
Related party relationship
Subsequent events
Legal claims
Uncorrected misstatements
Accounting policies
Control over assets, liabilities, intentions, laws
Going concern
Responsibility on Internal Control
Effectiveness of internal controls
Deficiencies
Changes
Compliance
Compliance with laws
Interpretation of requirements
Contracts and agreements
Effective operations
Information required
Access to relevant information
 Additional information
Complete recording
Disclosed risk assessment
Fraud
Non-compliance
Identity of RPT
Signature
Provided by the head of the agency and head of the agency’s finance group

Comparative Analysis: Just like in COA’s representation letter, external audit also includes
the letterhead, date, and heading. Included as well is the purpose of the representation letter
and on what period it is for. Also, both includes the acknowledgement of responsibility on the
fair presentation of the financial statements and specifies these assertions and the sign of the
executive officer and the head financial officer.

Communicating the terms of Engagement

The engagement letter shall be issued to management or those charged with governance. This
being issued to formally inform the auditee of the audit requirements, including the
responsibilities of the auditor and the auditee and as a matter of professional courtesy and
engagement direction.
Comparative Analysis:
Acceptance and continuance of client relationship - External audit Considering the important
element of firm’s quality control policies and procedure s In COA, Public sector auditors may not
have the option to decline or withdraw from the audit. However, in cases where management or
the legislature imposes a scope limitation prior to the start of the engagement, the effect of which
may result in the auditor disclaiming the opinion on the financial statements.

Considering the Integrity of the auditee - PSA 220 requires firm to conduct a background
investigation of the perspective client in order to minimize the likelihood of association with
clients whose management lacks integrity. In COA, a review of Auditee’s professional and ethical
practices as the result cannot be use as basis for deciding whether to accept or not and/or continue
with the engagement under ISSA 1220.
 Multiple Choice Questions

1. The preliminary engagement activities include all of the following except?

a. Multiple Choice Ensure that the audit team is independent.
b. Ensure that there is an independent audit committee.
c. Ensure that the audit firm is independent.
d. Determine the audit engagement team requirements.
2. Which of the following statements is correct with regard to the predecessor-successor
communications?
a. The successor auditor should contact the predecessor regardless of whether the
prospective client authorizes contact.
b. The successor auditor has no responsibility to contact the predecessor auditor.
c. The successor auditor need not contact the predecessor if the successor is aware of all
available relevant facts.
d. The successor auditor should obtain permission from the entity before contacting the
predecessor auditor.
3. Which of the following statements best represents the reason why auditors prepare
engagement letters to be signed by their auditees?
a. They provide documentation of management’s responsibility for the financial statements.
b. They help to limit auditor liability in the event of misunderstandings.
c. They communicate and clarify the expectations and responsibilities of both the auditee
and the auditor.
d. They document the audit fees and deadlines that have been agreed upon.
4. When establishing an understanding with the entity regarding the terms of the engagement, all
of the following should be discussed, except?
a. The audit committee.
b. The engagement letter.
c. The agreed upon limits on auditor liability for an improper audit.
d. The internal audit function.
5. Which of the following factors most likely would cause a CPA to decide not to accept a new
audit engagement?
a. The CPA's inability to determine whether related party transactions were consummated on
terms equivalent to arm's-length transactions.
b. The CPA's lack of understanding of the prospective client's internal audit function's audit
plan.
c. Management's refusal to permit the CPA to perform substantive tests before the year-end.
d. The prospective client refuses to let the predecessor auditor respond to communication
from the successor auditor

Preliminary Engagement Activities

6. Under this Presidential Decree or the Government Auditing Code of the Philippines, the COA
operates under the audit residency approach where government auditors and COA-assigned
administrative staff have the legal right to hold office in COA resident audit offices based in the
audited agencies.
a. PD 1445
b. PD 1444
c. PD 1455
d. PD 1145
7. S1: COA audits are mandated by law and the auditee has discretion to refuse audit.
S2: Unethical practices constitute “corrupt acts” under Republic Act 3019
S3: The engagement terms, which are contained in a formal letter issued to the Agency (discussed
in this Section), must be explained during the entrance conference for easy understanding and
review by the agency.
S4: Residency Audits are justified by the multifarious audit and non-audit functions performed on
a year-round basis by the COA Auditors.
a. All statements are true
b. 3 statements are true
c. 2 statements are true
d. Only statement is true
8. If a representation by management is contradicted by other audit evidence, the auditor should:
a. Consider whether his risk assessment of that area is still appropriate
b. Consider whether additional audit procedures are needed
c. If he has concerns about the integrity of management, document those concerns and
consider withdrawing from the audit.
d. All of the above
9. A representation to support other audit evidence may be appropriate where more reliable forms
of evidence are not available. Examples include:
a. Whether the selection and application of accounting policies are appropriate
b. Specific assertions about classes of transactions, accounts balances and disclosures
requiring management judgement.
c. Both A&B
d. None
10. Which of the following statements is correct?
a. Written representations cannot be a substitute for more reliable evidence that should be
available and do not constitute sufficient appropriate evidence on their own, about any of
the matters with which they deal.
b. Written representations should only be sought to support other audit evidence.
c. Both A&B
d. None
Preliminary Engagement Activities
11.S1. The Supervising Auditor/Regional Supervising Auditor, Audit Team leader and Audit team
members shall execute their respective Auditor's Declaration of Independence and Compliance
with Other Ethical Standards.
S2. Engagement Team collectively possess appropriate competence and capabilities to issue an
auditor's report that is insufficient in the circumstances.
S3. Throughout the audit engagement, the Cluster Director/Regional Director shall ensure that Due
Professional care is exercised, and shall ensure that members of the engagement team comply with
relevant ethical standards.
a. All statemand are true
b. All statements are false
c. Two statements are true
d. Only 1 statement is true
12.Threats to independence may take the form of the following, except:
a. Conflict of Interest
b. Individual Value System
c. Objectivity of the public sector auditors
d. Familiarity with key management officials
13. Preliminary engagement activities where the engagement letter shall be issued to management
or those charge with governance.
a. Communicating the terms of Engagment
b. Establishing the terms of Audit Engagement
c. Ensuring Engagement Team's Independence and Compliance with Ethical Standards
d. None of the above
14. Written engagement shall include the following except:
a. A. Objective and scope of the audit of financial statements
b. Responsibilities of auditor
c. Identification of applicable financial reporting standards
d. All are correct
15. S1: The terms of the engagement shall be established before the commencement of audit for
the period. Review of auditee's professional amd ethical practices can be used as basis whether to
accept engagement or not.
S2: The auditor should update the auditor's declaration of independence and compliance with other
ethical standards when circumstances arise that might umpair his independence with the audit.
a. First statement is true
b. Second statement is true
c. Both statements are true
d. Both statements are false

Preliminary Engagement Activities

Introduction

Every activity or undertaking entered into by a person has certain targets. In order to attain
these targets, one of the first things performed is to plan the courses of action needed to be taken.
Preparing for the future enables people to future enables people to consider the impact they would
like to have and to find a way to attain those targets. Planning helps people to identify and achieve
these targets through making or carrying out plans and avoiding doing some random activities.
Planning helps people to identify and achieve these targets through making or carrying out plans
and avoiding doing some random activities. This makes planning a very necessary and important
procedure in any undertaking.

Differences Similarities
External Audit COA Audit
Definition of Under ISSAI 1300, planning is
planning not a discrete phase of an audit
but rather a continual and
iterative process that often
begins shortly after the
completion of the previous and
continues until the completion
of the current audits.

Steps that the It does not have. The Corporate - Establishing an overall
planning But it highlights Manual provided audit strategy that sets
activities the following: steps in planning the scope, timing and
involves - Reducing activities direction for the audit,
the risk to 1. Conducting and that guides the
an Preliminary development of the
acceptably Risk more detailed audit
low level. Assessment plan. (Similar to Step 1)
2. Conducting - Develop an audit plan
Final Risk that addresses the
Assessment various matters
identified in the overall
audit strategy. (Similar
to Step 4)

In Establishing the audit strategy

establishing involves settings the scope,
the overall timing and direction of the
audit strategy audit towards the development
of an Audit Engagement Plan.
In establishing the overall audit
strategy, the auditor shall:
 a. Identify the
characteristics of the
engagement that define
its scope;
b. Ascertain the reporting
objectives of the
engagement to plan the
timing of the audit and
the nature of the
communications
required;
c. Consider the factors
that, in the auditor's
professional judgment,
are significant in
directing the
engagement team's
efforts
d. Consider the results of
preliminary
engagement activities
and, where applicable,
whether knowledge
gained on other
engagements performed
by the engagement
partner for the entity is
relevant
e. Ascertain the nature,
timing and extent of
resources necessary to
perform the
engagement.

Preparation of The standards • The overall

overall audit does not specify audit
strategy who are strategy is
responsible in prepared by
preparation, the Audit
review and Team
approval. Leader
• The
Supervisin
g
Auditor/Re
gional
 Supervisin
g Auditor
will review
it.
• The Cluster
Director/Re
gional
Director
will
approved it.

Modifying the Modifying is Modifying is

overall audit allowed allowed, but must
strategy be approved by the
CD/RD upon the
recommendation
of the SA/RSA.
Risk Agency Risk Risk
The threat that an Is the probability of an act or
event, action or event occurring that would
inaction will have an adverse effect in the
adversely affect the achievement of an achievement
agency’s ability to of an agency’s objectives.
successfully
achieve its Audit Risk
mandate and The risk that the auditor may
objectives and express an inappropriate
execute its opinion on the FS.
strategies.
Components of Audit Risks
a. Inherent risk is the
susceptibility of an
assertion, about a class
of transaction, account
balance or disclosure to
a misstatement that
could be material, either
individually or when
aggregated with other
misstatements, before
consideration of any
related controls.
(IRRBAM, par. 2.6.1
(b))
 b. Control risk is the risk
that a misstatement that
could occur in an
assertion about a class
of transaction, account
balance or disclosure
and that could be
material, either
individually or when
aggregated with other
misstatements will not
be prevented, or
detected and corrected,
on a timely manner by
the entity's internal
control. (IRRBAM, par.
2.6.1)

c. Detection risk is the risk

that the auditor's
procedures will not
detect a misstatement
that exists in an
assertion that could be
material, individually or
when aggregated with
misstatements.

Understandin PSA 315 requires The resident

g the Audit the auditor to auditors assigned
Entity obtain sufficient in their respective
understanding of agencies perform,
the entity and its among others,
environment financial and
including its compliance audits.
internal control. Thus, auditors
Such have practically
understanding broad knowledge
involves obtaining of agency
knowledge, about operations which
entity’s: should be
• Industry, summarized in the
regulatory, UTA Template
and other
external
factors,
 including The UTA template
financial may include the
reporting following
framework a A general
• Nature of overview of the
the entity, entity's
including organization and
entity’s operations,
selection b. The agency's
and main activities and
applicatio critical processes;
n of c.
accounting Projects/Programs/
policies. Activities
• Objective d. Results of
and previous audit
strategies e. Auditor's notes
and the on any component
related that may be
business significant to the
risk that conduct of
may financial audit
resulting a
material
misstatem
ent of the
financial
statements
• Measurem
ent and
review of
the
entity’s
performan
ce
• Internal
Control
Control • Management and staff
Environment demonstrate personal
and professional
integrity and ethical
values;.
• Management sets the
“tone at the top” (i.e.
management’s
 philosophy and
operating style);
• Management
establishes an
appropriate government
organizational
structure;
• Management and staff
exhibit commitment to
competence; and,
Management establishes
human resource policies and
practices.
Risk • Management identifies
Assessment and defines appropriate
objectives and risk
tolerance in specific and
measurable terms;
• Management identifies,
evaluates and assesses
agency’s risks; and,
Management determines
appropriate response to the
identified, evaluated, and
assessed agency’s risks.
Information • Management develops
and and maintains reliable
Communicati and relevant financial
on System and non-financial
information;
• Management
communicates
information throughout
the agency; and,
• Management
communicates
information with
external parties.

Control • Management designs

Activities control activities which
are appropriate,
function consistently
according to plan
throughout the period,
cost effective,
 comprehensive,
reasonable and directly
relate to the control
objectives and to
address risks;
• Management develops
control activities which
include a range of
diverse policies and
procedures; and,
• Management develops
an effective information
technology control
activities.
.
Monitoring • Management
establishes and operates
activities to monitor the
internal control system
and evaluates the
results; and,
• Monitoring activities
ensure that audit
findings and
recommendations are
adequately and
promptly resolved
The Auditor • Inquiring
uses The • Observing
Understandin • Inspecting relevant
g of Internal documents
Control To.
Classification Preventive Controls
of Internal - Controls are designed to
Controls discourage errors or
According to irregularities from
Purpose occurring.
Detective Controls
- Controls are designed to
find errors or
irregularities after they
have occurred.
Considering • The The internal auditor may be
The Work of internal presumed to be objective if the
Internal auditor is following criteria are met and
Auditors the internal auditor’s function is
 sufficiently established by legislation or
removed regulation:
from • The internal auditor is
political accountable to top
pressure to management and to
conduct those charged with
audits and governance;
• The internal auditor
report
reports the audit results
observation
both to top management
s, opinions, and those charged with
and governance;
conclusions • The internal audit unit is
objectively located organizationally
without outside the staff and
fear of management function
political of the unit under audit;
reprisal; • The top management
permits internal
auditors to audit
operations for which
they have previously
been responsible for to
avoid any perceived
conflict of interest; and,
The internal auditor has access
to those charged with
governance.
General External audit and COA audit
Accounting are both using the walkthrough
Plan analysis in in establishing the
general accounting plan.
Financial Two types of FS Two types of FS
Statement analysis analysis
Analysis 1. Horizontal 1. Variance
analysis analysis
2. Vertical 2. Tie in
analysis analysis
Understandin Misstatements in the FS can
g Fraud Risks rise from either fraud or error.
Although fraud is a broad legal
concept, the auditor is
concerned with fraud that
causes a material statement in
the FS.
 Two types of intentional
misstatements
1. Misstatements resulting
from fraudulent financial
reporting
2. Misstatements resulting
from misappropriation of
assets

Non- Transactions, Non-compliance by the entity

compliance which are non- with laws and regulations may
with laws and compliant with result in a material
regulations existing laws and misstatement of the FS
regulations, are
considered illegal
and irregular and,
thus, disallowed in
audit as required
under existing
COA regulations.
Related parties pertain to
i. Persons or other entities
that have control or
significant influence,
directly or indirectly
through one or more
intermediaries, over the
reporting entity.
ii. Entities over which the
reporting entity has
Assessing
control or significant
Related
influence, directly or
Parties
indirectly through one
or more intermediaries.
iii. Other entities under
common control with
the reporting entity
through having
common controlling
ownership and common
key management.

Assertions in The potential misstatements

considering may be groups into three
misstatements categories considering the
following assertions
 CATEGO ASSERTION
RY
Occurrence
Transactio Completeness
n level Accuracy
assertions Cutoff
Classification
Existence
Rights and
Account Obligations
balance Accuracy,
assertions valuation and
allocation
Classification
Presentation
Presentati Understandabil
on and ity
other Accuracy
disclosure Completeness
Occurrence
III.
Conducting
Final Risk
Assessment
Materiality is
defined in
accounting
Materiality
literature in the
threshold pertains
following terms:
to the amount of
“Information is
materiality set as
material if its
benchmark to
Materiality omission or
evaluate the
misstatement
significance of
could influence
misstatements or
the economic
omissions noted
decision of users
during audit.
taken on the basis
of the financial
statements.”
Materiality may ISSAI 1320
be viewed as: explains that
 ➢ The misstatements and
largest omissions are
amount of considered to be
misstatem material if they,
ent that the individually or in
auditor aggregate, could
could reasonably be
tolerate in expected to
the influence the
financial economic
statements decisions of users
; or of the FS.
The smallest The users are
aggregate amount considered as a
that could misstate group of users of
any one of the FS rather than as
financial individual users.
statements.
According to PSA The concept of
320, materiality materiality is
should be applied both in
considered by the planning and
auditor: performing the
➢ In the audit, and also in
planning evaluating the
stage, to effect of identified
determine misstatement in the
the scope FS.
of audit
procedures It is also based on
; and the concept that
➢ In the items of little
completio importance do not
n phase of require to be
the audit, audited since these
to evaluate will not affect the
the effect judgment or action
of of a reasonable FS
misstatem user.
ents on the
financial While materiality
statementsis primarily based
. on the auditor’s
professional
The auditor judgment, such
should determine judgment should
the amount of consider both
misstatement that qualitative and
could be material quantitative
to the financial aspects to reduce
statements taken the risk of audit
as a whole. decisions which
are either overly
Materiality is a liberal or
matter of conservative.
professional
judgement and
necessarily
involves
quantitative
factors (amount of
the item in
relation to the
financial
statements) and
qualitative factors
(the nature of
misstatement).
Items of little
importance are
considered trivial.
If the materiality Clearly trivial as
level is set too mentioned in
low, auditor will ISSAI 1450, par.
be wasting his A2 does not mean
time auditing “not material.”
accounts that are Misstatements that
not important. are clearly trivial
However, if will be of wholly
materiality level is different (smaller)
set too high, order of
auditor may not be magnitude, or of a
able to detect wholly different
misstatements that nature than those
could be material that would be
to some readers of determined to be
the financial material, and will
statements. be misstatements
that are clearly
inconsequential,
whether taken
individually or in
the aggregate and
whether judged by
any criteria of size,
nature or
circumstances.
ISSAI 1320 describes
qualitative considerations
specific to determining
materiality levels in the public
sector: When determining
whether a particular class of
transactions, account balance,
disclosure, or other assertion
which is part of the financial
reporting framework, is
material by virtue of its nature,
public sector auditors take into
account qualitative aspects
such as:
a) The context in which the
matter appears; for example, if
the matter is also subject to
compliance with authorities,
legislation or regulations, or if
law or regulation prohibits
overspending of public funds,
regardless of the amounts
involved;
b) The needs of the various
stakeholders and how they use
the financial statements;
c) The nature of the transactions
that are considered sensitive to
users of the financial
statements;
d) Public expectations and
public interest, including
emphasis placed on the
particular matter by relevant
committees in the legislature,
such as a public accounts
committee, including the
necessity of certain disclosures;
e) The need for legislative
oversight and regulation in a
particular area; and
 f) The need for openness and
transparency; for example, if
there are particular disclosure
requirements for frauds or other
losses.
The auditor
Quantitative
should determine
materiality
the amount of
thresholds or the
misstatement that
maximum errors
could be material
are established at
to the financial
three levels:
statements taken
a. Overall
as a whole.
materiality (for the
FS as a whole) is an
If the materiality
amount set to
level is set too
establish whether
low, auditor will
or not the financial
be wasting his
statements can be
time auditing
regarded as
accounts that are
materially
not important.
misstated.
However, if
Misstated,
materiality level is
individually or in
set too high,
aggregate, above
auditor may not be
this threshold is
able to detect
considered
misstatements that
significant enough
could be material
to influence the
to some readers of
decision of users
the financial
and thus,
statements.
considered the FS
materially
Planning the audit
misstated. This can
solely based on
be changed during
the materiality
the audit
guidelines
depending on the
discussed in the
information
preceding section
received by the
leaves no margin
Auditor. This is
for possible
used to determine
undetected
the level of
misstatements.
performance
When auditing
materiality and
financial
specific
statements, it is
materiality.
common for
auditors to b. Performance
exercise prudence materiality is the
by setting amount set at less
materiality at an than the overall
amount lower than materiality to
the overall lower the risk of
materiality. By not being able to
using a lower detect uncorrected
level of and undetected
materiality in the misstatements
performance of which in the
the audit, the aggregate, may be
extent of the audit considered
procedures is material for the
increased thereby overall financial
reducing the risk statements. Some
that the amount of known advantages
uncorrected and of setting
undetected performance
misstatements materiality
will exceed the include:
overall i. Providing some
materiality. The assurance that the
reduced level of undetected and
materiality which uncorrected
the auditors use misstatements will
both at the not accumulate to
financial reach an amount
statement and that would cause
account balance the FS to be
level is. called the materially
"performance misstated;
materiality". ii. Serving as a
guide to the
The determination Auditor to require
of performance adjustment in the
materiality FS, aggregate
involves the errors reaching this
exercise of amount;
professional iii. Assessing the
judgment. It is risks of material
affected by the misstatement and
auditor's determining the
understanding of nature, testing and
the entity, updated extent of further
during the
performance of audit procedures;
the risk and
assessment iv. Serving as the
procedures; and assertion testing
the nature and level/threshold to
extent of identify high value
misstatements items or as
identified in sampling interval
previous audits when selecting
and thereby the items for testing or
auditor's calculating sample
expectations in size. The audit has
relation to to cover all items
misstatements in or transactions or
the current period. accounts above the
Also, the level of value set as
performance performance
materiality can be materiality.
set at different c. Specific
levels for different materiality refers
accounts. to the amount or
amounts set at less
than overall
materiality for
particular classes
of transactions,
account balance or
disclosures which
may reasonably be
expected to
influence the
economic
decisions of users
taken on the basis
of FS.
Specific
Materiality could
relate to sensitive
areas such as
particular note
disclosures (that is,
management
remuneration or
entity key-specific
data), compliance
with legislation or
certain terms in a
contract, or
transactions upon
which
remunerations are
based. It could also
relate to the nature
of a potential
misstatement such
as an illegal act,
non-compliance
with loan
covenants and
statutory/regulator
y reporting
requirements.
Some of the
disclosures that
would normally be
subject to a
Specific
Materiality level
are:
i. Related party
transactions and
balances;
ii. Significant
management
estimates or
valuations;
iii. Non-
compliance with
legislation or terms
in a contract;
iv. Significant
events and
important changes
in operations (e.g.,
expansion or
discontinued
operations, new
services);
v. Significant
accounting policies
or changes in
accounting
policies; and,
vi. Sensitive
income and
expense accounts
such as
management fees
and research and
development costs.
The Audit Team Leader shall
determine the materiality
thresholds particular to the
audited entity, subject to the
review of the Supervising
Auditor and to the approval of
the Cluster/Regional Director
concerned.
In an audit of the financial
statements of stand-alone
agencies (not a
component/regional/head
office), the Audit Team Leader
shall determine and use the
overall materiality,
performance materiality,
specific materiality (if
applicable), and testing
threshold throughout the audit.
In an audit of a
consolidated/combined FS of
groups with components or
agencies with regional offices:
i. The Audit Team
Leaders in the
head/component/region
al office preparing ML/
SAOR (whichever may
be applicable) shall
determine and compute
the overall materiality,
performance
materiality, specific
materiality and testing
threshold using their
respective FS. In case of
separate FS for each
 type of fund (e.g.,
General Fund, Special
Education Fund, Trust
Fund), the auditor shall
compute materiality
thresholds using the
specific FS for each
fund.
ii. The Supervising Auditor
(head of audit group) preparing
the CAAR and issuing the IAR
shall determine the overall
materiality, performance
materiality, specific materiality
and testing threshold (if
applicable) based on the
consolidated/combined
financial information of the
whole group/agency. The
computed overall materiality
will be used in determining
whether the
consolidated/combined FS is
misstated or not, and in
determining the type of audit
opinion to be issued on the
consolidated/combined FS.
Calculating materiality is
established through these steps:
a. selecting an
appropriate benchmark;
b. identifying
appropriate financial
data for the selected
benchmark; and,
c. calculating materiality based
on established percentages.
Among the factors that may
Step 1. affect the identification of an
Selecting an appropriate benchmark include
Appropriate the elements of the FS (for
Benchmark example, assets, liabilities,
equity, revenue, expenses).
ISSAI 1320 (A9) notes that in
an audit of public sector entity,
the total cost or net cost
(expenses less revenues or
expenditures less receipts) may
be appropriate benchmarks for
program activities. Where a
public sector has custody of
public assets, these may be the
appropriate benchmark. There
are no hard and fast rules for
determining whether an agency
is to be considered as asset or
expenditure driven. However,
the following may facilitate in
identifying where the agency is
driven:
a. The agency mandate
and even the targeted
outputs will determine
the appropriate
benchmark.
For instance, if outputs
are identified in terms
of physical assets such
as number of buildings,
kilometers of roads
among others, then it
must be asset driven. If
outputs are in terms of
number of workshops,
number of trainings,
number of services
rendered, then it must
be expenditure driven.
b. If the agency’s targets are
both in terms of physical assets
and expenditures, the auditor
may consider the mandate or
major activity of the agency,
whether assets acquisition or
expenditures.
The ATL shall determine the
benchmark to be used, either
total expenditures or total assets
or total revenues, subject to the
review of the SA/RSA and
approval of the CD/RD. This
benchmark shall be consistent
 yearly unless the agency’s
mandate is changed.

The benchmark figures shall be

Step 2. based on the unaudited FS for
Identifying the current year-end unless the
Appropriate same is not available. In such
Financial case, the audited FS figures for
Data for the the past year-end is used to be
Selected adjusted upon availability of
Benchmark the current year-end unadjusted
FS.
If the base is asset, the total
assets of the latest year-end
SFPos available is used.
If the base is expenditure or
revenue, the reported total
expenditure or revenues of the
latest yearend SFPer is used.
The levels of materiality
thresholds are set and applied in
the following manner, unless a
different materiality
benchmark/computation is
required thru the issuance of a
materiality circular or
guidelines:
Step 3. a. The overall materiality shall
Calculating be set at 1 percent of the total
Materiality selected benchmark.
Based on b. The performance materiality
Established shall be set at 50 percent of the
Percentages overall materiality. Testing
threshold for high value items
shall be set at 25 percent of
performance materiality.
c. The specific materiality shall
be set at 0.20 percent for the
chosen class of transactions,
account balances or
disclosures.
 The percentage set for overall
materiality can be increased up
to 2 percent upon the
recommendation of the
SA/RSA and approval by the
CD/RD. The decision to change
the rate shall be based on
assessment that the entity has a
strong internal control and has
implemented audit
recommendations to address
misstatements and ensure
reliability of FS.
The performance materiality
and specific materiality can be
decreased upon the
recommendation of the
SA/RSA and approval by the
CD/RD.
To illustrate how these levels
are computed, the following
financial information based on
the latest FS are used as sample:
Assessing The steps are broken into: (a)
Risks and performing risk assessment;
Determining and (b) determining risk
Risk responses.
Responses
a. Performing As discussed in the preliminary
Risk risk assessment, the SRPIR
Assessment becomes the initial basis for
further risk assessment. The
Auditor shall conduct
Audit risk model: Risk assessment
Audit Risk = involves the
Inherent Risk * identification of
Control Risk * sources of risk and
Detection Risk assessment as to
whether
information
obtained could
result in a material
misstatement in the
financial
statements. Risk of
material
 misstatement at the
assertion level (risk
that the financial
statements are
materially
misstated prior to
audit) consists of
inherent risks and
control risks which
were discussed
earlier. (ISSAI
1003)
The Auditors should, however,
not limit their evaluation on the
risks identified during
Preliminary Assessment as
there could be intervening
events or circumstances that
may need equal attention. This
include material items in the FS
even if initially, they have no
risk as these should eventually
be included in the audit plan.
Steps involved The standard does Six steps:
in a risk not indicate the a. Inherent risk
assessment. steps involved in identification;
risk assessment. b. Inherent risk
assessment;
c. Identification of
significant risk;
d. Understanding
internal control;
e. Evaluating
internal control
design and
implementation of
internal controls;
and,
f. Final risk
assessment.
Step 1. In standard, There are two
Inherent Risk inherent risk is major
Identification one components classifications of
of risk material inherent risk:
misstatement agency risk and
(RMM) together fraud risk.
with control risk.
Step 2. They both assess the level of
Inherent Risk inherent risk such as:
Assessment a) Low
b) Medium, or
c) High
PSA 315 requires the auditor to
assess inherent risk at the FS
and account balance.
Risk Assess Level of There are two
assessment Inherent Risk such attributes:
consideration as Low, Medium, (i) the likelihood of
about or High a
inherent risk misstatement
occurring as a
result of the risk
with the
probability rated as
high, moderate or
low.; (ii)
the magnitude
(monetary impact)
if the risk would
occur.
Significant In the standard the Significant risks or
Risk significant risk of pervasive risks
relating to risk of affecting the FS as
material a whole are
misstatement due segregated
to fraud.
Step 3. Require special audit
Identification consideration as in these cases:
of Significant a. large non-routine
Risks transactions;
b. matters requiring judgment
or management intervention
such as changes in accounting
impairment policies;
c. error or fraud is high;
d. non-compliance with laws
and regulations; or,
e. unreliable internal control.
Step 4. The auditor shall Not all control
Understandin obtain an activities are
g Internal understanding of relevant to the
Control internal control audit, an
understanding of
 relevant to the the controls related
audit. to the
• The risk of
reliability misstatement is
of the necessary to ensure
entity’s that the relevant
financial control is
identified. This is
reporting;
initially
• The undertaken during
effectiven the preliminary
ess and risk identification.
efficiency
of its
operations
; and
Its compliance
with applicable
laws and
regulations
Step 5. There is no The operating
Evaluation of specified Internal effectiveness of
Internal Control Design in internal control
Control the Standard but design can be
Design and there are Five (5) tested in the
Implementati Consideration of following manner,
on of Internal Internal Control, among others:
Controls which are: a. Identifying
1. Obtaining appropriate
understan controls to be
ding of the tested.
internal b. Deciding on the
control appropriate testing
2. Document technique.
ing the c. Determining the
understan appropriate
ding of documents to be
accounting tested.
and d. Determining the
internal level of test (period
control to be covered,
system representative
3. Assessing sample, extent).
the level of
control
risk
 4. Performin
g the test
of
controls,
and
5. Document
ing the
assessed
level of
control
risk
Step 6. Final It does not specify Review the results
Risk in the standard. of the risk
Assessment assessment
procedures
performed, and
assess the risks of
material
misstatements at
the FS level and the
assertion level for
classes of
transactions and
disclosures guided
by the Risk
Decision Table.
b. The acceptable Responses to the
Determining level of detection results of the risk
Risk risk depends on assessment are
Responses the assessed level based on the
of inherent risk decision model.
and control risk Risk responses:
(Inverse a. When both
relationship). inherent
The auditor’s and control
reaction to level of risks are
detection risk: low, the
a. Lower overall
acceptable RMM is
level of also low.
detection b. When the
risk, inherent
higher risk is low
but the
assurance.
control risk
is
Higher acceptable moderate, a
level of detection low overall
risk, low RMM is
assurance. established.
c. When
inherent
risk is low
but control
risk is high,
the RMM is
moderate.
d. When
inherent
risk is
moderate
and control
risk is low,
the RMM is
low.
e. When both
inherent
and control
risks are
moderate,
the RMM is
also
moderate.
f. When
inherent
risk is
moderate
and control
risk is high,
the RMM is
high.
g. When
inherent
risk is high
and control
risk is low,
the RMM is
moderate.
h. When
inherent
risk is high
and control
 risk is
moderate,
RMM is
high.
When both
inherent and
control risks are
high, RMM is
high.
Fundamental ISSAI 1450 requires the auditor
elements in to revise the overall audit
preparing the strategy if:
audit (a) the nature of identified
engagement misstatements and the
plan: circumstances of their
A. Updating occurrence indicate that other
the Overall misstatements may exist that,
Audit when aggregated with
Strategy misstatements accumulated
during the audit, could be
material; or
(b) the aggregate misstatements
accumulated during the audit,
approaches the materiality level
determined in accordance with
ISSAI 1320.
B. Preparing An audit program contains the
the Audit audit procedures to be
Program performed for a specific audit
objective for the
financial account and the risks
identified by assertion. Audit
Program for each audit areas
included in
the overall audit strategy should
be prepared.
C. Preparing There is no EPM sets out the
the specified EPM in objectives of the
Engagement the standard. audit and spells out
Planning how the auditor
Memorandum aims to achieve
these objectives.
This Memorandum
contains the
following:
Part 1 – Audit
Coverage,
Objective and
Methodology
a. Audit
Scope/coverage-
should be clearly
described;
b. Audit objectives
-should be clearly
defined; and,
c. Audit
methodology-
should be clearly
established
supported with
audit programs.
Part 2 -
Significant
contents of the
Overall Audit
Strategy
A brief narration of
the major activities
to be performed
supported by the
final overall audit
strategy updated
brought about by
new conditions,
unforeseen events,
or audit evidence
obtained from the
results of audit
procedures which
includes the
following, among
others:
a. Materiality
thresholds;
b. The number of
staff to conduct the
audit;
c. The major
timelines: entrance
conference, exit
conference,
securing
management
representation
letter, audit report
issuance;
d. Coordination
activities relative
to a nationwide
audit;
e. Inspections to be
conducted; and,
f. External
confirmations to be
performed.
Part 3 – Summary
of major accounts
and assertions for
audit
considerations
a. Accounts and
Assertions with
high risks of
material
misstatements and
significant risks
identified in the
final risk
assessment
template.
(Appendix 2-8)
b. Other Material
Accounts (OMA)
refer to financial
statement accounts
above or equal to
the performance
materiality but
were not
considered as
significant based
on the results of the
Final Risk
Assessment.
c. Special
Considerations:
 Related Parties,
Litigation and
Claims, Segment
Reporting and
Subsequent Events
Part 4 – Audit
Program

MULTIPLE QUESTIONS
1. An analysis that will show whether the figures presented and disclosed are reliable and
properly presented
A. Vertical Analysis
B. Horizontal Analysis
C. Tie-in Analysis
D. Variance Analysis
Answer: C
2. If the auditor is unable to determine whether non-compliance has occurred because of
limitations imposed by the circumstances rather than by management or those charged with
governance
A. The auditor shall, in accordance with ISSAI 1705, express a qualified opinion or an
adverse opinion on the FS
B. The auditor shall evaluate the effect on the auditor’s opinion in accordance with ISSA
1705
C. The auditor shall express a qualified opinion or disclaim an opinion on the FS on the
basis of a limitation on the scope of the audit in accordance with ISSA 1705
D. The Auditor will cry
Answer: B
3. S1. Although the auditor may suspect, or in rare cases, identify the occurrence of fraud, the
auditor does not make legal determinations of whether fraud has actually occurred.
S2. Non-compliance by the entity with laws, rules and regulations may result in a material
misstatement of the financial statement.
S3. If the auditor concludes that the non-compliance has a material effect on the FS, and
has not been adequately reflected in the FS, the auditor shall express an adverse opinion or
a qualified opinion.
A. All statements are false
B. 3 statements are true
C. 2 statements are true
D. Only 1 statement is true
Answer: B
 4. Statement 1. Establishing the audit strategy involves settings the scope, timing and
direction of the audit towards the development of an Audit Engagement Plan.
Statement 2. In establishing the overall audit strategy, the auditor shall consider the results
of preliminary engagement activities and, where applicable, whether knowledge gained on
other engagements performed by the engagement partner for the entity is relevant.
Statement 3. The overall audit strategy is prepared by the Audit Team Leader while the
Regional Supervising Director will approve it.
Statement 4. Modifying the overall audit strategy is allowed, but must be approved by the
Regional Supervising Director.

a. One statement is false

b. Two statements are false
c. Three statements are false
d. All the statements are false

Answer: B, Statement 3 and 4 are False it should be Cluster Director/Regional Director.

5. Statement 1. Risk is the probability of an act or event occurring that would have an adverse
effect in the achievement of an achievement of an agency’s objectives.
Statement 2. Agency Risk defines as threat that an event, action or inaction will adversely
affect the agency’s ability to successfully achieve its mandate and objectives and execute
its strategies.
Statement 3. The components of Audit risks are Inherent, Control and Detection Risk.
Statement 4. One of the bases in preliminary assessment of control risk is obtaining
information from the results of walkthrough procedures in understanding the process
activity

a. One statement is true

b. Two statements are true
c. Three statements are true
d. All the statements are true

Answer: D
6. Which of the following is incorrect regarding the developing of the audit program?
a. The auditor may use standard audit programs or audit completion checklist but should
appropriately tailor to suit the circumstances on particular engagement.
b. It provides a proof that the audit was adequately planned.
c. An audit program at the beginning of the audit process is temporary because a complete
audit program for an engagement generally should be developed before evaluation of
internal control.
d. The form and content of audit program may vary for each particular engagement.
Answer: C. An audit program at the beginning of the audit process is temporary because a
complete audit program for an engagement generally should be developed before evaluation of
internal control.
 7. The risk that financial statements are likely to be misstated materially without regard to the
effectiveness of internal control is which type of risk?
a. Agency risk
b. Significant risk
c. Audit risk
d. Inherent risk
Answer: D. Inherent risk
8. S1: When both inherent and control risk are low, the overall RMM is also low. Hence,
further testing of controls is performed to firm up the audit conclusion reached together
with a low level of substantive tests.
S2: When inherent risk is moderate and control risk is low, the RMM is moderate. More
tests of controls are performed to firm up the audit conclusion, with a low level of
substantive tests.
S3: When inherent risk is moderate and control risk is high, the RMM is moderate. Hence
no reliance is placed on controls meaning, no tests of controls are necessary. A high level
of substantive tests is however needed.
S4: When inherent risk is moderate and control risk is high, the RMM is low. Hence no
reliance is placed on controls meaning, no tests of controls are necessary. A high level of
substantive tests is however needed
a. All statements are true c. 2 statements are true
b. 3 statements are true d. Only 1 statement is true
Answer: D. Only 1 statement is true. When both inherent and control risk are low, the overall
RMM is also low. Hence, further testing of controls is performed to firm up the audit conclusion
reached together with a low level of substantive tests.

9. To enhance the Auditor’s understanding of the audit entity, the following steps shall be
undertaken except?
a. Creating a general overview of the entity’s organization and operations
b. Assessing related parties transactions
c. Assessing other matters for consideration
d. Updating information base for financial audit and conducting preliminary risk
assessment.

Answer: A

10. It is an integral process that is effected by an agency’s management and personnel, and is
designed to address risks and provide reasonable assurance that in pursuit of the agency’s
mission, the general objectives are being achieved.
a. Test of data
b. Substantive test
 c. Internal control
d. Analytical procedure
Answer: C
11. Which statement is not correct regarding the component of internal control?
a. Information & Communication is effective processes and systems that identify, capture
and report operational, financial and compliance-related information in a form and
timeframe that enable people to carry out their responsibilities.
b. Monitoring is the process that assesses the quality of the internal control system’s
performance over time.
c. Risk Assessment is process of identifying and analysing relevant risks to the
achievement of the agency’s objectives and determining the appropriate response.
d. Control Activates is sets the tone of an organization, influencing the control
consciousness of its staff. It is the foundation for all other components of internal
control, providing discipline and structure.
Answer: D
12. what do you call the templates the use in evaluation of Internal Control structure?
a. Agency-Level Controls Checklist
b. Agency-Lower Controls Checklist
c. Account-Level Controls Checklist
d. Agency-Level Controls Check
Answer: A
13. These are examples of controls risk, except
a. Non preparation of bank reconciliation
b. Non-preparation of monitoring reports
c. Unreconciled accounts
d. Delay in recording transactions such as liquidation reports, issuances of supplies and failure to
recognize book reconciling items

Answer: B

14. Materiality is primarily based on the auditor’s professional judgment, such judgment should
consider:
a. Qualitative factors only
b. Quantitative factors only
c. Both quantitative and qualitative factors
d. Monetary factors

Answer: C
15. If its omission or misstatement could influence the economic decision of users taken on the
basis of the financial statements, it is
a. Material
b. Relevant
c. Significant
d. Threshold

Answer: A
 Audit Execution Phase

I. Execute Audit Test

A. Determining the Nature, Timing, and Extent of Audit Procedures

● Nature of an audit procedure

● Timing of an audit procedure
● Extent of an audit procedure

Comparative Analysis: In executing the audit test, determining the nature,

timing, and extent of audit procedures is important during this phase, and they
have similarities and differences. The first similarity between the external audit
and the COA audit is that they both either test of controls or conduct substantive
testing in their audit procedures. Secondly, both of them, depending on the timing
of their audit procedures, may perform audit procedures at an interim date or at
the end of the period. Lastly, both of their auditors ordinarily increase the extent
of substantive procedures as the risk of material misstatement increases. They also
have differences in the nature of their audit procedures. In an external audit, the
test of controls generally consists of one (or a combination) of the following
evidence techniques: inquiry, observation, inspection, and reperformance. On the
other hand, in a COA audit, the procedures usually pertain to tests of controls
classified as inspection, observation, inquiry, and confirmation.

. B. Performing Audit Procedures

● Steps in performing audit procedures

○ Step 1: Determining the extent of test to be performed
■ The auditor may apply non-sampling or sampling technique
● Non-sampling
● Audit sampling
○ Statistical sampling <Appendix 1 of ISSAI
1530>
○ Non-statistical sampling
○ Step 2: Selecting the sample items
■ ISSAI 1530 recommends in selecting the sample items
■ Examples of factors influencing sample size for test of
details <Appendix 2 of ISSAI 1530>
■ Sampling Risk

Comparative Analysis: In performing audit procedures, COA Audit and External

Audit both may apply non-sampling or sampling techniques. They also both select
items for the sample in such a way that each sampling unit in a population has a
chance of selection. In external audits, sampling is defined by PSA 530, while in
COA audits, it is defined by ISSAI 1530.

○ Step 3: Performing the Planned Procedures on the Selected Items

■ Performing test of controls

Financial Audit Manual External Auditor

They use working paper that The nature of the test of

shows the description of the controls consists of one or
control, assertion, deviation combination of inquiry,
and the accepted deviation and observation, inspection and
a decision whether to accept reperformance to obtain audit
the controls and additional evidence.
revisions to the audit plan

(Illustration 5 Working Paper-

Test of Control)

Comparative analysis: COA audit and external auditors both uses test of controls
in order to obtain evidence about the effectiveness. In example, in COA, they use
working paper containing a sample size that is designed to provide a high level of
assurance that a control is operating effectively so long as one or fewer control
deviations can be observed for each control activity tested. The working paper
includes the description of the control, assertion, deviation and the accepted
deviation and a decision whether to accept the controls and additional revisions to
the audit plan. On the other hand, external auditors uses the attribute sampling
wherein the sample size is determines by considering factors such as risk of
assessing control risk too low, tolerable deviation rate, expected population
deviation rate. An increase in risk of assessing control risk too low and tolerable
deviation rate will decrease the sample size and an increase in the expected
population deviation rate will increase the sample size.

■ Performing substantive tests

1. Test of details

1.1 Test of transaction

1.2 Test of details of account balances and disclosure

 FAM External
Auditor

Objective of the test ✓

Define the population and the ✓

sampling unit

Select an appropriate audit ✓

sampling technique

Determine the sample size ✓ ✓

Determine the sample selection ✓ ✓

method

Performing the sampling plan ✓ ✓

Evaluating the sample results and ✓ ✓

establishing conclusion

Document the sampling procedure ✓

Comparative analysis: COA audit and External auditors uses sampling. They are
comparatively almost the same except In the determination of the sample size. In
COA audit, the auditor must only consider what represents the population for
testing the circumstances. It can be the entire population of an account balance,
class of transactions or disclosures: or specific items composed of high value or
unusual items, or selecting sample size from the whole population. On the other
hand, external auditors consider these factors in the determination of sample size for
substantive test of detail. These factors are, acceptable risk of incorrect acceptance,
acceptable risk of incorrect rejection, tolerable error, expected error, variation
within the population. The increase in risk of incorrect acceptance and rejection,
reliance on other substantive procedures and tolerable misstatement will result to a
decrease in sample size. While the increase in the expected misstatement, variation
in the population and increase in auditor’s assessment of control risk will result in
increase of sample size.
 2. Analytical procedures

Comparative Analysis: Both COA and external auditors conduct analytical

procedure. These procedures are the trend analysis, ratio analysis and reasonable
testing. Comparatively, the two don’t have any significant difference under this
procedure.

○ Step 4: Evaluating the sample results and establishing conclusion

1. Relationship of the result of the substantive analytical
procedures with the conclusion of the audit.
2. Relationship of test of controls with substantive tests

C. Gathering Audit Documentation and Evidence

Comparative analysis: Both COA audit and External auditors must necessarily
have sufficient and appropriate audit documentation. The documentation serves as an
evidence that the audit is performed in accordance to the appropriate regulatory body
which is ISSAI for COA and PSA for external audit.

C.1 Audit Documentation

Their documentation serves a similar purpose such as:

A. Assisting the engagement team to plan and perform the audit.

B. Assisting members of the engagement team responsible for
supervision to direct and supervise the audit work, and to
discharge their review responsibilities in accordance with ISSAI
1220.
C. Enabling the engagement team to be accountable for its work.
D. Retaining a record of matters of continuing significance to future
audits.
E. Enabling the conduct of quality control reviews and inspections in
accordance with ISQC 1 or national requirements that are at least
as demanding.
F. Enabling the conduct of external inspections in accordance with
applicable legal, regulatory or other requirements.

C.2 Organization of working papers

Comparative analysis: COA audit involves creating two copies of

the same working paper. One copy for the office file and one for ATL.
The audit team’s custodian of the WPs shall be responsible for the
updating/upgrading of the audit files and providing a back-up copy
 for the ATL. On the other side, External auditors are only owned by
the auditor and not the client.

The working paper of the COA audit includes the signature of the
preparer and the reviewer, and on the other side, external auditor
practices confidentiality under the code of ethics of professional
accountants.

Both the COA and external auditor has 2 classification of working

paper mainly the permanent audit file(PAF) and the current audit
file(CAF). Current Audit File (CAF) contains working papers relating
to a single audit engagement. Permanent Audit File (PAF) is a set of
records that serves as an ongoing reference for successive audit.
However, under the COA audit manual, the CAF is subdivided into 5
which is preliminary activities, planning phase, execution phase and
reporting phase.(TABLE 9 page 95).

C.3 Audit Evidence

Comparative analysis: COA and the external auditors must

document their audit evidence under their working papers. Both of
them did not defer in obtaining evidences.

D. Addressing Risk Areas that Need Specific Consideration

1. Inventory in Public Sectors

2. Litigation and Claims
a. Contingent Asset
b. Contingent Liability
c. Audit Procedure:
i. Obtain from management a description and evaluation of litigation
and claims.
ii. Examine the documents.
iii. Review the legal expense account.
iv. Evaluate the outcome.
3. Segment Information
4. Related Party Transactions
5. Accounting Estimates
6. Subsequent Events
7. Audit of Group Financial Statements
 Comparative Analysis:
In addressing potential risks in various aspects, COA and External
Auditors are guided by documents coming from the management. In cases where
physical appearance is needed, particularly in checking inventories under COA
Audit, violations are based on the State Audit Code, rather than on the policy of
the management. When it comes to litigations and claims, both COA and External
Auditors follow the same procedures. Moreover, evaluating disclosures in
financial statements is practiced as well by both COA and external auditors. In
case there is an intentional nondisclosure of related party transactions, both COA
and external auditors are to be alerted of possible fraud risks, and COA is to be
guided by the requirements of ISSAI 1240. In accounting estimates, both COA
and external auditors obtain appropriate evidence from the management
indicating their decisions based on their assumptions. Furthermore, when it comes
to subsequent events, there is no significant difference in how COA and external
auditors conduct their procedures. Lastly, COA is guided by ISSAI 1600 when it
comes to auditing reports on group financial statements and the head office of the
agency is the one to prepare the financial statement, while in external auditing, the
parent company is the one responsible for preparing the financial statement.

E. Summarizing Proposed Audit Adjustments and Evaluating Effects in the Audit

Opinion

Illustration 9 will be presented showing the summary of the proposed

audit adjustments, which will be given by the Audit Team to the Chief Accountant of
the management.

II. Summarize Audit Observations and Recommendations and Communicate with

Those Charged with Governance

A. Areas for Consideration in Summarizing Audit Observations

● Summary of Audit Observations and Recommendations (Appendix 3-1)

● Misstatement
● Consideration of Identified Misstatements as the Audit Progresses
● Uncorrected misstatements
● Evaluating the Effect of Uncorrected Misstatements
○ List of Circumstances that may affect the evaluation include the
extent to which the misstatement (A-K)
● Significant Related Party Matters

Comparative Analysis: The standard procedures used for completing the

audit under an external audit, such as all of the outlines above except the
summary of audit observations and recommendations, are identical to the
 procedures done by COA. They include recommendations that do not apply to
external auditing, as the auditor’s objective is only to obtain a reasonable
assurance that the financial statements are free from material misstatements.
Thus, the auditor performs audit procedures to obtain sufficient appropriate
evidence to support his claims and is not required to make a recommendation.

B. Elements of Audit Observation

● COA Format for Audit Summary

● Elements of Audit Observation (5Cs)
○ Criteria.
○ Condition
○ Cause
○ Consequence/effect
○ Corrective action or Recommendation
● ABC Diagramming Tool

Comparative Analysis: For audit observation, COA used the 5Cs technique
or the ABC Diagramming Tool, which is used in internal audit. This enables
the auditor to provide a recommendation that addresses both the causes and
consequences of the observation. This diagramming tool is not used in
external auditing since it assists the auditor in making a recommendation.
Under external audit, we instead perform substantive tests to examine
documents and gather evidence to obtain sufficient appropriate evidence to
support our conclusion.

C. Performing Review of Overall Audit Work

● Affirmation of Audit Team’s independence (Appendix 3-2)

● Consideration of subsequent events
● Performing final analytical review
● Adequacy of work performance

Comparative Analysis:

During the preliminary engagement activities, both COA and external

conform to the ethical requirements and independence. Although the COA
affirms that the audit team is still independent through a letter and in an
external audit, it was emphasized through the audit report in the title section to
point out that the auditor is independent. Reviewing overall audit work in
COA is identical to the procedures in external, the auditor performs an
analytical review, considers the subsequent events, and evaluates the
 procedures performed to see if adequate to support their conclusion before
formulating an opinion.

D. Tracking Status of Prior Years Recommendation

● Preparation of Recommendation Tracking Sheet (RTS)

● Format of the Recommendation Tracking Sheet (Appendix 3-3)
● Unimplemented Recommendations
● Reasons for Unimplemented Recommendations

Comparative Analysis: In addition to existing COA regulation, the audit

team prepares Recommendation Tracking Sheet to monitor progress of
recommendation and reasons for unimplemented recommendation. In
comparison, external auditor does not provide a Recommendation Tracking
Sheet and other documents that tracks the status of prior years
recommendation.

III. Conduct Exit Conference

● Points to be discussed during the exit conference (A-I)

Comparative Analysis: At the conclusion of the audit, a formal meeting is

held with the department head being audited to present the audit report and
discuss the findings and recommendations in detail. The Audit Team Leader
will discuss the misstatements identified, observations, recommendations and
other important matters, this procedure is done the same with the External
Auditors’ Exit Conference.

Wrap Up Exercises

1. It can either be analytical procedures or test of details

A. Test of controls
B. Substantive procedures
C. Audit procedures
D. Material misstatement

Answer: B

2. Statistical sampling is an approach with two characteristics:

A. random selection of the sample units and the use of probability theory
B. random application of the sample units and the use of probability theory
 C. random selection of the sample items and the use of probability theory
D. random application of the sample items and the use of probability theory

Answer: C

3. In determining the extent of tests to be performed, the auditor may

A. Statistical sampling and non-statistical sampling
B. Analytical procedures and test of details
C. Test of controls and substantive procedures
D. Non-sampling and sampling technique

Answer: D

4. The most common types of analytical procedures conducted are

A. Trend Analysis, Ratio Analysis and Forecast
B. Budget, Forecast and Reasonableness Testing
C. Trend Analysis, Ratio Analysis and Reasonableness Testing
D. Trend Analysis and Budget

Answer: C

5. The analysis of changes over time

A. Trend Analysis
B. Forecast
C. Reasonableness Testing
D. Ratio Analysis

Answer: A

6. In determining the extent of test to be performed, the auditor may apply

A. Non sampling technique
B. Sampling Techniques
C. Non sampling or Sampling Techniques
D. None of the Above

Answer: C

7. In evaluating an entity’s accounting estimates, one of the auditor’s objectives is to

determine whether the estimates are
A. Not subject to bias.
B. Consistent with industry guidelines.
C. Based on objective assumptions.
D. Reasonable in the circumstances.
 Answer: D

8. An auditor generally obtains from a client a formal written statement concerning the
accuracy of inventory. This particular letter of representation is used by the auditor to
A. Reduce the scope of the auditor’s physical inventory work but not the other inventory
audit work that is normally performed.
B. Confirm in writing the valuation basis used by the client to value the inventory at the
lower of cost or net realizable value.
C. Lessen the auditor’s responsibility for the fair presentation of balance sheet
inventories.
D. Remind management that the primary responsibility for the overall fairness of the
financial statements rests with the management and not with the auditor.

Answer: D

9. Which of the following auditing procedures most likely would assist an auditor in
identifying related party transactions?
A. Retesting ineffective internal control procedures previously reported to the audit
committee.
B. Sending second requests for unanswered positive confirmations of accounts
receivable.
C. Reviewing accounting records for nonrecurring transactions recognized near the end
of the reporting period.
D. Inspecting communications with law firms for evidence of unreported contingent
liabilities.

Answer: C

10. It explains whether the criteria were followed or not based on evidence gathered.
A. Criteria
B. Cause
C. Condition
D. Effect

Answer: C

11. In performing review of overall audit work, the auditor shall consider all of the
following, except:
A. Subsequent events
B. Adequacy of work performance
C. Affirmation of Audit Team’s Independence
D. Write the Independent Auditor’s Report
 Answer: D

12. Statement 1: All uncorrected misstatements accumulated during the audit shall be
included in the summary of audit observations and recommendations.
Statement 2: Cause is the reason for the existing condition and unmet criteria.
Statement 3: Recommendations should address both causes and effects of the
observation and may consider inputs from management.

A. All statements are true

B. 3 statements are true
C. 2 statements are true
D. Only 1 statement is true

Answer: A

13. Which of the following is not a factor in preventing the auditee to implement the agreed
upon actions?
A. Funding Issues
B. Lack of Staff
C. Recommendation is not practical and doable
D. Lack of initiative

Answer: D

14. All audit issues with unimplemented recommendations should be ______ in findings
and observations of the current year's audit report if the existing condition still exists and
affects the audit opinion.
A. Closed
B. Reiterated
C. Deleted
D. Reversed

Answer: B

15. Statement 1: Non- implementation of recommendation for no valid reason and without
any alternative action taken to address the problem is not a criterion for
decreasing the performance rating of an agency.
Statement 2: If the audit issues intended to be addressed by the unimplemented
recommendations are no longer existing due the status can be considered
closed.
A. Both statement are true
B. Both statement are false
C. 1 statement is true
D. 1 statement is false

Answer: C
 PAPER OUTLINE

COMPARISON OF
THE REPORTING PHASE OF
THE COMMISSION ON AUDIT
AND
EXTERNAL AUDITING

______________________________

Our Lady of the Pillar College Cauayan

College of Accountancy
BS Accountancy 3

______________________________

Group 4- Reporting Phase

Banan, Rusteen Jay
Cabacungan, Dorothy Mae
Fernandez, Ela Mae
Panganiban, Diane Rose
Ramiro, Kim Trisha Lyka
 After sufficient and appropriate audit evidence has been obtained, the auditor is now
ready to compare the independent auditor’s report on the audit of the financial statements of
the Agency/ Local Government Unit/ Corporation for the Audit Process of the Commission on
Audit and for the Client Entity/ Responsible Party for External Audit
.

The exhibit shows the graphic form the decision the auditor has to make in preparing
the auditor’s report. The process of reporting for the External Audit and the audit of COA is
essentially the same however, there are slighty differences which will be highlighted in the
succeeding part of this material.

It is essential that the auditor has to determine that sufficient appropriate audit evidence
has been obtained, and no additional work is required. Otherwise, the auditor should undertake
additional risk assessment to address such matters as:

a. those that affect the original audit plan;

b. those that have material impact on the auditor’s report;
c. those changes that affect the overall materiality threshold arrived at in the planning
phase; and,
d. those which necessitates application of additional audit procedures.

Essentially, Reporting Phase involves (1) Evaluating evidence obtained, and (2) Preparation of
the Auditor’s Report.
 I. WRITE THE INDEPENDENT AUDITOR’S REPORT:

OBJECTIVES OF THE AUDITOR:

COA AUDIT EXTERNAL AUDIT
a. To form an opinion on opinion on the financial statements the financial statements, based on an
evaluation of the conclusions drawn from the audit evidence obtained; and
b. to express clearly that opinion through a written report that also describes the basis for that
opinion.

A. Evaluating audit evidence obtained

COA AUDIT EXTERNAL AUDIT

ISSAI 1700 (Revised), paragraphs 10-13 provide PSA 700 provides reasonable assurance that the FS
that the auditor shall form an opinion on whether taken as a whole are free from material
the FS are prepared, in all material respects, in misstatement and evaluates whether the FS
accordance with the applicable FRF (Financial conform to the applicable reporting framework.
Reporting Framework). In order to form that
opinion, the auditor shall conclude as to:
a. whether sufficient appropriate audit
a. Whether sufficient appropriate audit evidence has been obtained
evidence has been obtained; b. to provide reasonable assurance that the
b. Whether uncorrected misstatements are financial statements taken as a whole are
material, individually or in aggregate; and free from material misstatement and
c. Whether the FS are prepared in accordance evaluates
with the requirements of the applicable and c. whether the financial statements conform to
appropriate FRF the applicable financial reporting
framework.
 B. Considering materiality of uncorrected misstatements

COA AUDIT EXTERNAL AUDIT

Pertinent paragraphs of ISSAI 1450- PSA 450 defines misstatements as a
Evaluation of Misstatements difference between the amount,
identified during the Audit that guides classification, presentation, or disclosure
the evaluation of the effect of of a reported financial statement item and
misstatements. the amount, classification, presentation, or
disclosure that is required for the item to
be in accordance with the applicable FRF.
Objective of the (a) The effect of identified misstatements on the audit; and
auditor is to (b) The effect of uncorrected misstatements, if any, on the financial statements.
evaluate:
Requirements ✓ Accumulation of identified ✓ Accumulation of identified
misstatements. misstatements.
✓ Consideration of Identified ✓ Consideration of Identified
misstatements as the audit misstatements as the audit
progresses. progresses.
✓ Communication and ✓ Communication and correction of
correction of misstatements. misstatements.
✓ Evaluating the effect of ✓ Evaluating the effect of
uncorrected misstatements. uncorrected misstatements.
✓ Written representations ✓ Written representations
✓ Documentation ✓ Documentation
For agencies/ corporations
with FOUs wth complete
sets of books, the FOU
Team leader submits to the
RSA, the Summary of
Uncorreted Misstatements
(Illustration 12) for
consideration and
submission to the SA at the
Head Office.
 C. Evaluating financial statements prepared using the appropriate financial reporting
framework

Before determining what appropriate opinion to render, the auditor must evaluate the audit
evidence obtained if:

a. Financial Statments are prepared in accordance with the applicable Financial Reporting
Framework:

COA AUDIT EXTERNAL AUDIT

National Government Agencies, Non GBEs GAAP
under the CGS, and Local Government Philippine Financial Reporing
Units Frameworks (PFRS)
 PPSAS (Philippine Public Sector PFRS for SMEs
Accounting Standards) PFRS for SEs
Government Business Enterprise and
Corporate Government Sector
 PFRS

✓ Appropriate presentation and classifications of individual and group of accounts;

✓ Complete set of Financial Statements;

COA AUDIT EXTERNAL AUDIT

1. Statement of Financial Position 1. Statement of Financial Position
2. Statement of Financial Performance/ Statement of 2. Statement of Financial Performance/ Statement
Comprehensive Income of Comprehensive Income
3. Statement of Changes in Net Assets/ Equity 3. Statement of Changes in Net Assets/ Equity
4. Statement of Cash Flows 4. Statement of Cash Flows
5. A separate Statement of Comparison of Budget and 5. Notes Comprising a summary of significant
Actual amounts or a Budget Column in the Financial accounting policies and other explanatory notes.
Statements(for PPSAS users only)
6. Notes Comprising a summary of significant
accounting policies and other explanatory notes.

✓ Minimum required disclosure in the FS and/or in the notes to FS

b. Accounting policies are appropriate and are consistent with applicable financial
framework

c. Adequate disclosure of significant accounting policies

d. Reasonable use of accounting estimates

e. Relevant, reliable, comparable and understandable presentation of information

f. Appropriate use of terminologies

2 FORMS OF AUDITOR’S REPORT

The COA Manual and External Audit has similar definition of the two (2) forms of
Auditor’s Report:

1. Unmodified/unqualified report
2. Modified report

Unmodified Auditor’s Report

 The auditor shall express an unmodified opinion when the auditor concludes that the
financial statements are prepared, in all material respects, in accordance with the
applicable FRF.

Modified Auditor’s Report

 the auditor:

a. concludes that the Financial statements are not free from material misstatements; or
b. is unable to obtain sufficient appropriate audit evidence to conclude that the FS as a
whole are free from material misstatament

✓ the auditor’s opinion in a modified Auditor’s Report is considered modified

if he/she issued qualified or adverse opinion or disclaim an opinion

A. Qualified Opinion
▪ The auditor, having obtained sufficient appropriate audit evidence,
concludes that misstatements, individually or in the aggregate, are
MATERIAL BUT NOT PERVASIVE, to the Financial statements; or
▪ The auditor is unable to obtain sufficient appropriate audit evidence on
which to base the opinion, but the auditor concludes that the possible effects
on the FS of undetected misstatements, if any, could be MATERIAL BUT
NOT PERVASIVE.

B. Adverse Opinion
▪ Misstatements are both MATERIAL AND PERVASIVE to the Financial
Statements
▪ Pervasive if:
(a) they are not confined to specific elements, accounts or item of the FS;
(b) if so confined, they represent or could represent a substantial proportion
of the FS; (c) in relation to disclosures, they are fundamental to user’s
understanding of the FS.

C. Disclaimer of Opinion – unable to obtain sufficient appropriate audit evidence

▪ It is not possible to form an opinion on the FS due to the potential interaction
of the uncertainties and their possible cumulative effect on the FS
 TABLE OF COMPARISON

SUMMARY OF MODIFICATIONS OF THE INDEPENDENT AUDITOR’S REPORT

COA AUDIT EXTERNAL AUDIT

EFFECTS EFFECTS
A. AFFECTS THE UNMODIFIED OPINION
M but not M and P M but not M and P
P P
1. Material Qualified Adverse 1. Material Qualified Adverse
misstatements misstatements
(subject matter or (subject matter or
assertion) assertion)
2. Scope Limitation Qualified Disclaimer 2. Scope Limitation Qualified Disclaim an
- Imposed by of Opinion - Imposed by opinion or
the entity the entity resign from
- Imposed by - Imposed by the
circumstances circumstances engagement

3. Disagreement with Qualified Adverse 3. Disagreement with Qualified Adverse

management (pp management
122; B.2.1.)
4. Criteria are Qualified Adverse
unsuitable or
inappropriate, thus
misleading users
B. DO NOT AFFECT THE UNMODIFIED OPINION
1. Uncertainties 1. Uncertainties If adequately accounted
(M12 pp 7) for and disclosed in the
notes to FS, consider
modifying the report by
adding an Emphasis of
Matter paragraph to
highlight the material
uncertainty.
2. Going Concern If disclosed in the Notes 2. Going Concern
Assumption to FS, Unmodified Assumption
Opinion with Emphasis a. Appropriate a. Unmodified
of Matter Paragraph and no Opinion if
material adequate
uncertainty disclosures are
exists made by the entity
and there are no
other issues
involved.

b. Appropriate b. Unmodified
and material Opinion with a
separate section
 uncertainty “Material
exists uncertainty related
to going concern”
if the auditor
concludes that
adequate
disclosure.

-Qualified or
adverse opinion
and state the reason
for the
modification in the
“Basis for
Qualified or
adverse opinion” if
the auditor
concludes that
material concern
uncertainty is not
adequately
disclose.
c. Adverse Opinion if
c. Inappropriate the entity insists on
using the GCA
d. Disclaim an
d. Multiple opinion instead of
uncertainties adding an
affecting the Emphasis of
FS Matter paragraph
3. Inconsistencies 3. Material • Qualified or an
Inconsistency adverse opinion if
an amendment is
necessary in the FS
and the entity
refuses to make the
amendment.
• If an amendment is
necessary in the
other information
and the entity
refuses to amend
the other
information to
eliminate the
material
inconsistency, the
auditor should
consider issuing a
report that contains
 a disclaimer of
opinion on the FS
because such
refusal casts doubt
on the integrity of
management and
those charge with
governance as to
call into question
the reliability of
audit evidence in
general; or
withdrawing from
the engagement.
4. Justifiable 4. FS prepared
departure from using more than
PPSAS/PFRS one financial
frameworks
5. Further 5. Limiting the use
explanation on of the auditor’s
auditor’s report
responsibilities
in the audit
6. FS intended for 6. Subsequent “Other Matter”
specific purpose discovery of facts Communicate matter other
but presented in than those that are
accordance with If not disclosed in the presented or disclosed in
general purpose notes to FS, Unmodified the FS
framework Opinion with Other
7. Material Matter Paragraph 7. Reporting on
inconsistency in Comparative
other Information
information not
issued to
management
8. Updating of
prior year
modified
opinion to
unmodified
opinion
 II. ELEMENTS OF THE INDEPENDENT AUDITOR’S REPORT

COA AUDIT EXTERNAL AUDIT

SPECIFIC ELEMENTS OF THE BASIC ELEMENTS OF THE UNMODIFIED
INDEPENDENT AUDITOR’S REPORT REPORT
a. Title a. Title
b. Addressee b. Addressee (shareholders, board of directors, 3 rd
c. Report on the audit of FS party)
c.1. Opinion Section c. Auditor’s Opinion
c.2. Basis for Opinion d. Basis for Opinion
c.3. Key Audit Matters e. Responsibilities for the financial statements (mgt)
c.4. Emphasis of Matter f. Auditor’s responsibilities for the audit of the
c.5. Other Matter financial statements
c.6. Other information g. Other reporting responsibilities
c.7. Responsibilities of management for the h. Auditor’s Signature
FS i. Auditor’s Address
c.8. Auditor’s responsibilities for the audit j. Date of the Report
of FS
d. Report on other legal and regulatory
requirements
• Refers to other reporting responsibilities not
addressed under the reporting
responsibilities required by the ISSAIs as
part of the report.
e. Name of the engagement partner
• Refers to other reporting responsibilities not
addressed under the reporting
responsibilities required by the ISSAIs as
part of the report
f. Signature of the Auditor
• The IAR shall be signed by the supervising
auditor or duly authorized signatory.
g. Auditor’s address
h. Date of the Independent Auditor’s Report
• It shall be dated not earlier than the date
when the auditor has obtained sufficient
appropriate evidence.

a. Title – The title of Independent Auditor’s Report under the COA Audit and External Audit
are similar. The auditor’s must have a title that clearly indicates that it is the report of an
independent auditor. This is done in order to:
a. Distinguish the auditor’s report from the reports that might be issued by others; and
b. emphasize the independence of the auditor with respect to client being audited.

b. Addressee- Same as through with the Title, the Adressee of the Independent Auditor’s
Report under the COA Audit and External Audit are essentially the same. The auditor’s report
is normally addressed to those for whom the report is prepared, often either to the shareholders
or to those charged with governance of the entity whose FS are being audited.

c. Report on the Audit of Financial Statements:

c.1. Opinion Section- The Opinion section of the Independent Auditor’s Report under
the COA Audit and External Audit are also similar. The Auditor’s report should include
a section with a heading “Opinion”.

✓ Unmodified Opinion- This section should state that the financial statements
are “presented fairly in all material respects” in accordance with the
applicable financial reporting framework.
✓ Qualified Opinion Due to Material Misstatement- State in the auditor’s
opinion, “except for” the effects of the matter describes in the basis for
qualified opinion section, the financial statements present fairly, in all
material respects, the FS in accordance with the applicable financial
reporting framework.
✓ Qualified Opinion Due to Scope Limitation- State that, in the auditor’s
opinion, “except for” the possible effects of the matter described in the Basis
for Qualified opinion section, the financial statements present fairly, in all
material respects, the FS in accordance with the applicable financial
reporting framework.
✓ Adverse Opinion- State that, in the Auditor’s opinion, because of the
significance of the matter described on the basis for adverse opinion section,
the financial statements “do not present fairly the FS in accordance with the
applicable financial reporting framework.”
✓ Disclaimer of Opinion- State that the auditor “does not express an opinion.”

Refer to the summary of modifications of the independent auditor’s reporting the table
of comparison for the summarized matters which (A) does affect the unmodified
opinion, its effect on the financial statement, and the opinion which should be
expressed.

This section should have a heading Opinion and should:

COA AUDIT EXTERNAL AUDIT

a. The Agency audited a. Identify the name of the entity whose financial
statements have been audited.
b. The FS audited, identify the title b. State that the FS have been audited
of each statements
c. The Notes to FS, including the c. Identify the title of each of the FS audited
summary of significant including the date and period covered by the FS
accounting policies; and
The date of or period covered by d. Refer to the summary of significant
each FS. accounting policies and explanatory notes.

c.2. Basis for Opinion- The auditor’s report should have a section with the heading
“Basis for opinion”. This part of the report describes the framework for an audit that
enables the auditor to express an opinion on the financial statements. In case of
modified Opinion, this section shall state the basis for modification as the first
paragraph.

This is presented immediately after the Opinion section and should:

COA AUDIT EXTERNAL AUDIT
a. State that the audit was conducted in a. State that the audit was conducted in
accordance with ISSAI; accordance with PSA;
b. Refers to the section of the auditor’s b. Refers to the section of the auditor’s
report that describes the auditor’s report that describes the auditor’s
responsibilities under the auditing responsibilities under the PSA;
standards;
c. Includes a statement that the auditor is c. Includes a statement that the auditor
independent of the entity in accordance with is independent of the entity in
the relevant ethical requirements relating to accordance with the relevant ethical
the audit and has fulfilled the auditor’s other requirements relating to the audit and
responsibilities under those ethical has fulfilled the auditor’s other
requirements. The statement shall identify responsibilities under those ethical
the jurisdiction of origin of the relevant requirements.
ethical requirements; and,
d. States whether the auditor believes that d. States whether the auditor believes
the audit evidence the auditor has obtained that the audit evidence the auditor has
is sufficient and appropriate to provide a obtained is sufficient and appropriate to
basis for the auditor’s opinion. provide a basis for the auditor’s opinion.

c.3. Key Audit Matters- are those that, in the auditor’s professional judgment, were of
most significance in the audit of the financial statements of the current period.

COA AUDIT EXTERNAL AUDIT

Similar in terms of using professional judgment
✓ ISSAI 1701 applies to audit of ✓ For Audits of complete sets of general
complete sets of general purpose financial statements of listed
purpose FS of listed entities, entited, the auditor shall communicate
thus making this section a key audit matters in the auditor’s
requirement for listed entities report in accordance with PSA 701.
only. ✓ The auditor’s report should not
✓ The Auditor is prohibited include key audit matters when the
under ISSAI 1705 (Revised) auditor disclaims an opinion on the
from communicating KAM financial statements.
when the Auditor disclaims an
opinion on the FS, unless such
reporting is required by law or
regulations.

c.4. Emphasis of Matter- It may be appropriate for the auditor to include in the report
to give emphasis on an important matter affecting the financial statement of the
auditor’s report. The addition of the paragraphs does not negate the auditor’s
unmodified opinion and is not to be construed as a modification to the opinion or a
substitute for the modified opinion. Under the Audit of COA and External Auditing, it
is included in the report to draw the reader’s attention to a matter presented or disclosed
in the FS that, in the auditor’s judgment, is of such importance that it is fundamental to
the reader’s understanding. The use of Emphasis of Matter paragraph should be limited
only to matters presented or disclosed in the financial statements.

Refer to the summary of modifications of the independent auditor’s report that does not
affect the unmodified opinion in the table of comparison for the treatment and
differences of the circumstances where the auditor may consider it necessary to include
an Emphasis of Matter Paragraph.

c.5. Other Matter- these are instances when the auditor considers it necessary to
communicate a matter other than those that are presented or disclosed in the FS that, in
the auditor’s judgment, is relevant to user’s understanding of the audit, the auditor’s
responsibilities or the auditor’s report.

Refer to the summary of modifications of the independent auditor’s report that does not
affect the unmodified opinion in the table of comparison for the treatment and
differences of the circumstances where the auditor may consider it necessary to
communicate a matter other than those that are presented or disclosed in the FS.

c.6. Other Information

COA AUDIT EXTERNAL AUDIT

✓ ISSAI 1720 (Revised), The ✓ All informatiion included in the annual
Auditor’s Responsibilities report, other than the financial statements
Relating to Other and the auditor’s report thereon, are
Information, requires referred to as “other information” in PSA
reporting on other 720.
information, financial or
non-financial information ✓ PSA 720 requires the auditor to read the
included in an entity’s other information to consider:
annual report.
✓ The auditor shall read the a. Whether material inconsistencies exist
other information and, in between the other information and the
doing so shall: financial statements; and
b. Whether material inconsistency exists
a. Consider whether there is a between the other information and the
material inconsistency auditor’s knowledge of the entity
between the other obtained in the audit.
information and the FS;
and
b. Consider whether there is a
material inconsistency
between the other
information and the
auditor’s knowledge
obtained in the audit.
c.7. Responsibilities of Management and Those Charged with Governance for the
financial statements – The heading need not refer specifically to “Management” but
may also refer to “Those Charged with Governance” or such term that is appropriate in
the context of the legal framework in the particular jurisdiction. Those responsible for
the oversight of the financial reporting process, if different from those responsible for
preparing the FS shall also be identified in this section.

This section shall describe management's responsibility for:

COA AUDIT EXTERNAL AUDIT

a. Preparing the FS in a) The management's responsibility for the
accordance with the preparation and fair presentation of the
applicable FRF, and for such financial statements in accordance with
internal control as the applicable financial reporting
management determines is framework, and for such internal control
necessary to enable the necessary to enable the preparation of
preparation of F$ that are free financial statements that are free from
from material misstatements material misstatement;
whether due to fraud or error; b) The responsibility of the management in
and, assessing the entity's ability to continue
b. Assessing the entity's ability as a going concern and whether the use
to continue as a going concern of the going concern basis of accounting
and whether the use of the is appropriate as well as disclosing, if
going concern basis of applicable, matters relating to going
accounting is appropriate as concern; and
well as disclosing, if c) The responsibility of those charged with
applicable, matters relating to governance for overseeing the financial
going concern. The reporting process
explanation of management's
responsibility for this
assessment shall include a
description of when the use of
the going concern basis of
accounting is appropriate.

c.8. Auditor’s responsibilities for the audit of financial statements- the same with
the management’s responsibilities, no modification is needed or required in this section
if he expresses a qualified or an adverse opinion. However, if he disclaims an opinion,
this section should be modified.

COA AUDIT EXTERNAL AUDIT

a) The objectives of the audit are a. State the objectives of the auditor are to:
to: ✓ Obtain reasonable assurance
✓ Obtain reasonable assurance about whether the financial
about whether the FS as a statements as a whole are free
whole are free from material from material misstatement
misstatement, whether due to whether due to fraud or error;
fraud or error; and and
✓ Issue an IAR that includes an Issue a report that includes the auditor's
opinion. opinion.
b) Reasonable assurance is a high b. State that misstatement can arise from
level of assurance, but is not a fraud and error and either:
guarantee that an audit ✓ Describe that they are
conducted in accordance with considered material individually
ISSAls will always detect a or in aggregate, they could
material misstatement when it reasonably expected to influence
exists; the economic decisions of users-
taken on the basis of the
financial statements; or
✓ Provide definition or description
of materiality in accordance
with the applicable financial
reporting frameworkState the
reasonable assurance is a high
level of assurance, but is not a
guarantee that an audit
conducted in accordance with
PAs will always detect a
material misstatement when it
exists; and

c) State that misstatement can c. Misstatements can arise from fraud or

arise from fraud and error and error and are considered material if,
either: individually or in the aggregate, they
✓ Describe that they are could reasonably be expected to
considered material influence the economic decisions of
individually or in users taken on the basis of these FS;
aggregate, they could
reasonably expected to
influence the economic
decisions of users-taken
on the basis of the
financial statements; or
✓ Provide definition or
description of
materiality in
accordance with the
applicable financial
reporting framework
d) The auditor exercises d. State that, as part of the audit in
professional judgment and accordance with PS's, the auditor
maintains professional exercises professional judgement and
skepticism throughout the maintains professional skepticism
audit; throughout the audit; and
e) The auditor’s responsibilities e. Describe an audit by stating that the
are: auditor's responsibilities are;
✓ To identify and assess ✓ To identify and assess the risks
the risks of material of material misstatement of the
misstatements of the FS, financial statements;
 whether due to fraud or ✓ To obtain an understanding of
error, internal control relevant to the
✓ To obtain an audit in order to design
understanding of appropriate audit procedures;
internal control relevant ✓ To evaluate the appropriateness
to the audit in order to of the accounting policies used
design audit procedures and the reasonableness of the
that are appropriate in accounting estimates and related
the circumstances, but disclosures
not for the purpose of ✓ To conclude on the
expressing an opinion on appropriateness of the
the effectiveness of the management's use of the going
agency's internal concern basis of accounting; and
control. ✓ To evaluate the fair presentation
✓ To evaluate the of the financial statements
appropriateness of
accounting policies used
and the reasonableness
of accounting estimates
and related disclosures
made by management.
✓ To conclude on the
appropriateness of
management's use of the
going concern basis of
accounting; and
✓ To evaluate the overall
presentation, structure
and content of the FS,
including the
disclosures, and whether
the FS represent the
underlying transactions
and events in a manner
that achieves fair
presentation.
f) The Auditor communicates f. State that the auditor communicates with
with those charged with those charged with governance the
governance regarding, among planned scope and timing of the audit
other matters, the planned and significant audit findings including
scope and timing of the audit any significant deficiencies in internal
and significant audit control identified during the audit.
observations, including any
significant deficiencies in
internal control that he
identifies during the audit.
g) The auditor provides those
charged with governance with a
statement that he has complied
with relevant ethical
 requirements regarding
independences, and
communicate with them all
relationships and other matters
that may reasonably be thought
to bear on his independence,
and where applicable, related
safeguards.
h) From the matters
communicated with those
charged with governance, the
auditor determines those
matters that were of most
significance in the audit of the
FS of the current period and are
therefore the key audit matters.
i) In cases of group audits where
ISSAI 1600, par 14 applies, the
auditor’s responsibilities in
group audit are:
✓ To obtain sufficient appropriate
audit evidence regarding the
financial information of the
entities and business activities
within the group to express an
opinion on the group FS;
✓ For the direction, supervision
and performance of the group
audit; and
✓ To remain solely responsible
for the auditor’s opinion

d. Report on Other Legal and Regulatory Requirements

COA AUDIT EXTERNAL AUDIT

✓ This refers to other responsibilities not ✓ The form and content of this section of the
addressed under the reporting auditor’s report would vary depending on
responsibilities required by the ISSAIs the nature of the auditor’s other reporting
as part of the report. (ISSAI 1720) responsibilities prescribed by local law,
regulation, or national auditing standards.
The matters addressed by other law,
regulation or national auditing standards
(referred to as “other reporting
Responsibilities”) shall be addressed within
this section unless the other reporting
responsibilities address the same topics as
those presented under the reporting
responsibilities required by the PSAs as part
of the Report on the Audit of the
Consolidated Financial Statements section.
 ✓ The Auditor is required to report on
other regulatory requirements, such as
the entity's inclusion in the Notes to FS
information on taxes, duties and license
fees paid or accrued during the taxable
year. It may also include applicable
requirements from other regulatory
bodies.

e. Name of the engagement partner

COA AUDIT EXTERNAL AUDIT

✓ "COMMISSION ON AUDIT", placed ✓ The name of the engagement partner shall
before the signature and name of the be included in the auditor's report for audits
Supervising Auditor. of complete sets of general purpose
financial statements of listed entities unless,
in rare circumstances, such disclosure is
reasonably expected to lead to a significant
personal security threat.

f. Signature of the Auditor

COA AUDIT EXTERNAL AUDIT

✓ The IAR shall be signed by the Supervising ✓ The report should be signed in the name of
Auditor or duly authorized signatory. the audit firm or the personal name of the
auditor as appropriate.

g.Auditor’s Address

COA AUDIT EXTERNAL AUDIT

✓ This represents the official address of ✓ The auditor's report shall name the location
the Auditor. It is usually a part of the in the jurisdiction where the auditor
letterhead hence, no need to include this practices.
after the signature of the Auditor.

h.Date of the Auditor’s Report

COA AUDIT EXTERNAL AUDIT

✓ It shall be dated not earlier than the ✓ The auditor's report shall be dated no earlier
date when the auditor has obtained that the date on which the auditor has obtained
sufficient appropriate audit evidence, sufficient appropriate evidence on which to
usually after fieldwork or after the exit base the auditor's opinion on the financial
conference if there are still procedures statements, including evidence that.
to be undertaken as a result of what has
been discussed, as basis of the auditor's a. All the statements that comprise the financial
opinion on the FS. statements, including the related notes, have been
prepared; and
 b. Those with the recognized authority have
asserted that they have taken responsibility for
those financial statements.

Auditor’s Report on Consolidated Financial Statements

✓ For consolidated FS where auditors are required to render an auditor's report, the
wordings on the auditor's report are the same except in the title and opinion paragraph
where it is specifically stated that the FS and the Notes to FS are consolidated.
✓ Consolidated financial statements are the FS of a group presented as those of a single
economic entity (PFRS 10-Consolidated Financial Statements). It is presented by the
parent corporation in which it consolidates its FS with its investments in subsidiaries in
accordance with PFRS 10.
Auditor’s Report on Comparative Financial Statements
✓ The Auditor is required to render an auditor's report on comparative information.
PPSAS states that Management must disclose comparative information in respect of
the previous period for all amounts reported in the FS. Comparative information shall
be included for narrative and descriptive information when it is relevant to an
understanding of the current period's FS.
III. COMPARATIVE INFORMATION

A. Corresponding Figures and Comparative Financial Statements

A.1. Corresponding Figures

COA AUDIT EXTERNAL AUDIT

Under ISSAI 1710, when corresponding figures Under PSA 710, when corresponding figures are
are presented, the auditor’s opinion shall not presented, the auditor’s opinion shall not refer to
refer to the corresponding figures except in the the corresponding figures except in the
circumstances described below: circumstances described below:
a. If the auditor’s report on the prior period a. If the auditor’s report on the prior period,
included a modified opinion and the as previously issued, included a qualified
matter which gave rise to modification opinion, a disclaimer of opinion, or an
when the effects or possible effects of adverse opinion and the matter which
the matter on the current period’s FS. gave rise to the modification is
b. If the auditor obtains audit evidence that unresolved, the auditor shall modify the
a material misstatement exists in the auditor’s opinion on the current period’s
prior period FS on which an unmodified FS.
opinion has been previously issued, and b. If the auditor obtains audit evidence that
the corresponding figures have not been a material misstatement exists in the prior
properly restated or appropriate period FS on which an unmodified
disclosures have not been made, the opinion has been previously issued, and
auditor shall express a qualified opinion the corresponding figures have not been
or adverse int the auditor’s report on the properly restated or appropriate
current period FS, modified with disclosures have not been made, the
respect to the corresponding figures auditor shall express a qualified opinion
included therein. or an adverse opinion in the auditor’s
c. If the prior period FS were not audited, report on the current period FS, modified
the auditor shall state in an Other Matter with respect to the corresponding figures
Paragraph in the auditor’s report the included therein.
corresponding figures are unaudited. c. If the prior period FS were not audited,
the auditor shall state in an Other Matter
paragraph in the auditor’s report that the
corresponding figures are unaudited.

✓ When the auditor’s report on the prior period, as previously issued, included a modified
opinion(qualified, disclaimer, adverse) and the matter which gave rise to the modified
opinion is resolved and properly accounted for or disclosed in the FS in accordance
with the applicable FRF the auditor’s opinion on the current period need not refer to
the previous modification.
 A.2. Comparative Financial Statements
When comparative FS are presented, the auditor's opinion shall refer to each period for which
FSare presented and on which an audit opinion is expressed.

COA AUDIT EXTERNAL AUDIT

When reporting on prior period FS in When reporting on prior period FSin connection
connection with the current period's audit, if the with the current period’s audit, if the auditor’s
auditor's opinion on such prior period FS opinion on such prior period FS differs from the
differs from the opinion the auditor previously opinion the auditor previously expressed, the
expressed, the auditor shall disclose the auditor shall disclose the substantive reasons for
substantive reasons for the different opinion in the different opinion in an Other Matter
an Other Matter paragraph in accordance with paragraph in accordance with PSA 706.
ISSAI 1706.
If the prior period FS were not audited, the
If the prior period FS were not audited, the auditor shall state in an Other Matter paragraph
auditor shall state in an Other Matter paragraph that the comparative FS are unaudited.
that the comparative FS are unaudited.

● Government entities adopt the PPSAS

or PFRS as their FRF. These standards
require that comparative information
shall be disclosed in respect of the
previous period for all amounts
reported in the FS.

III. SPECIAL CONSIDERATIONS

Audit of Financial Statements Prepared in Accordance with Special Purpose Frameworks

COA AUDIT EXTERNAL AUDIT
Audit of Financial Statements Prepared in Accordance with Special Purpose Frameworks

✓ When forming an opinion and reporting on ✓ When forming an opinion and reporting on
special purpose FS, the auditor shall apply special purpose financial statements, the auditor
the requirements of ISSAI 1700 (Revised). shall apply the requirements in PSA 700
The Auditor's Report shall describe the (Redrafted)
purpose for which the FS are prepared and if ✓ PSA 700 (Redrafted) requires the auditor to
necessary, the intended users or refer to a evaluate whether the financial statements
note in the special purpose FS that contains adequately refer to or describe the applicable
that information. financial reporting framework
✓ If management has a choice of FRFs in the ✓ PSA 700 (Redrafted) deals with the form and
preparation of such FS, the explanation of content of the auditor’s report. In the case of an
management's responsibility for the FS shall auditor’s report on special purpose financial
also make reference to its responsibility for statements:
determining that the applicable FRF is o The auditor’s report shall also describe
acceptable in the circumstances. the purpose for which the financial
✓ The auditor's report shall include an statements are prepared and, if necessary,
Emphasis on Matter paragraph (ISSAI 1720) the intended users, or refer to a note in
 alerting users that FS are prepared in the special purpose financial statements
accordance with a special purpose that contains that information; and
framework and that, as a result, the FS may
not be suitable for another purpose. The o If management has a choice of financial
auditor shall include this paragraph under an reporting frameworks in the preparation
appropriate heading. of such financial statements, the
explanation of management’s8
responsibility for the financial statements
shall also make reference to its
responsibility for determining that the
applicable financial reporting framework
is acceptable in the circumstances.
✓ The auditor's report shall include an Emphasis on
Matter paragraph alerting users that FS are
prepared in accordance with a special purpose
framework and that, as a result, the FS may not
be suitable for another purpose. The auditor shall
include this paragraph under an appropriate
heading.

IV. TYPES OF AUDIT REPORT

The audit report considers the management’s comments during the exit conference which
should be reduced in writing and formed part of documentation. This may be in the form
of:

a. Annual Audit Report (AAR) - a report prepared at year-end on the results of an audit
on the accounts and operations of an Agency/Unit/Corporation/Project. This report is
transmitted to the Agency Head by the CD/RD. In the case of GOCCs, the AAR is also
transmitted to the governing board.
b. Management Letter (ML) - an audit report on the results of audit of the regional/branch
offices, FOUs, staff bureau, and line office with a complete set of books of accounts.
This is addressed to the Regional/Branch/Office Head and transmitted by the
Supervising Auditor/Regional Supervising Auditor (SA/RSA).
c. Summary of Audit Observations and Recommendations (SAOR)- a report/matrix that
summarizes the audit observations, recommendations, management comments and
auditor's rejoinder. This report is transmitted to the Agency Head by the SA/RSA. The
SAOR shall be the basis/input for the consolidation of Management Letter or Annual
Audit Report (ML/AAR).

✓ The audit observations and recommendations are reviewed by the SA/RSA and
Cluster Director or Regional Director (CD/RD) to ensure that the same are based
on the results of audit and duly documented, and all material issues and concerns
noted during the audit are included in the report and/or cleared by the CD/RD.
✓ The guidelines on the preparation of audit report including the transmittal of reports
and requirements for the agency to submit the financial statements and documents
are prescribed under pertinent COA issuances.
MULTIPLE CHOICE QUESTIONS:

1. It is essential that the auditor has to determine that sufficient appropriate audit evidence
has been obtained, and no additional work is required. Otherwise, the auditor should
undertake additional risk assessment to address for. Which is least likely to be
considered in this matter?

a. Those that affect the original audit plan.

b. Changes that affect the overall materiality threshold arrived at in the planning phase
c. Those that have material impact on the auditor’s report
d. None

Correct Answer: d. None

2. The evaluation of audit evidence obtained would address the following matters except?

a. Materiality
b. Risk
c. Relevance
d. Misstatements

Correct Answer: c. Relevance

3. S1:The auditor may disagree with management about certain matters such as the
acceptability of accounting policies, method of application, or adequacy of disclosures
in the financial statements resulting in the misstatements of the FS.
S2: When the auditor is unable to perform necessary audit procedures or the auditor
is unable to gather sufficient appropriate evidence, limitations on the scope of the audit
may arise.
S3: When there are uncertainties, going concern uncertainties, justifiable PPSAS/PFRS
departure, and inconsistencies that are adequately disclosed in the Notes to the financial
statements which results in an unmodified opinion with an addition of emphasis of
matter paragraph.
S4: Changes affecting accounting principles and estimates may result in inconsistency
of financial statement presentation.

a. Only 1 statement is true

b. 2 statements are true
c. 3 statements are true
d. All statements are true
Correct Answer: d. All statements are true
4. In corresponding figures, if the auditor obtains audit evidence that the material
misstatement exist in the prior period FS on which an unmodified has been previously
issued, and the corresponding figures have not been properly restated. What appropriate
opinion shall auditor express in the current period financial statement?

a. Unmodified
b. Qualified or adverse
c. Disclaimer
d. None
Correct answer: b. Qualified or adverse

5. It is a report/matrix that summarizes the audit observations, recommendations,

management comments and auditor's rejoinder.
a. Annual Audit Report
b. Management Letter
c. Summary of Audit Observations and Recommendations
d. Quarterly Audit Report

Correct answer: b. Summary of Audit Observations and Recommendations

6. An specific element of the independent auditor’s report that consist both the opinion
section and basis for opinion.

a. Report on the audit of FS

b. Auditor’s opinion
c. Basis for opinion
d. Report on other legal and regulatory requirements

Correct answer: a. Report on the audit of FS

7. An specific element of the independent auditor’s report where the “COMMISION ON

AUDIT” is placed beofre the signature and name of the supervising auditor.

a. Signature of the Auditor

b. Title
c. Addressee
d. Name of the engagement partner

Correct answer: d. Name of the engagement partner

8. If the prior period FS were not audited, (which of the following is true)

a. comparative information shall be disclosed in respect of the previous period for

all amounts reported in the FS.
b. the auditor shall state in an Other Matter paragraph that the comparative FS are
unaudited.
c. the auditor shall not disclose the substantive reasons for the different opinion in
an Other Matter paragraph
d. the auditor shall state in an Emphasis of a Matter paragraph that the
comparative FS are unaudited.

Correct answer: b. the auditor shall state in an Other Matter paragraph that the
comparative FS are unaudited.

9. The following includes the minimum disclosure of a summary of significant accounting

policies except:

a. The extent to which the entity has applied any transitional provisions in any PPSAS
b. Accounting policies used that are relevant to an understanding of the FS
c. The scope of the effects of any changes in the accounting policies used
d. The measurement basis/bases used in the preparation of the FS
Correct answer: C- The scope of the effects of any changes in the accounting policies used

10. XYZ Agency adopted the straight line method of depreciating its assets in 20x3 and in
20x4 its policy was changed to SYD method. The management refused to restate the
prior year FS and the auditor determined that such refusal would result to material
misstatements in the FS. What opinion would the auditor most likely give?

a. Unqualified Opinion
b. Qualified Opinion
c. Adverse Opinion
d. Disclaimer of Opinion
Correct answer: B- Qualified Opinion
11. S1: The auditor is required to render and auditor's report on comparative information.
S2: Two broad approaches to the auditor's reporting responsibilities in respect of
comparative information are corresponding FS and corresponding figures.
S3: The level of detail presented in the corresponding amounts and disclosures is
primarily dictated by its reliability to the current figures.
a. All statements are correct
b. 2 statements are correct
c. 1 statement is correct
d. All statements are wrong
Correct answer: C-1 statement is correct (S2 and S3 are wrong)
12. The final step in the audit process that seeks to evaluate the audit evidence obtained,
consider the impact of misstatements, and form an audit opinion is the

a. Planning Phase
b. Audit Execution Phase
c. Quality Control Review
d. Reporting Phase
Correct answer: D- Reporting Phase

13. The objectives of evaluating audit evidence are to decide, after considering all relevant
data obtained, to address such objectives, the important questions to ask and consider
under evaluating audit evidence are all of the following except;
a. Does the audit evidence need to be copious?
b. Has sufficient appropriate audit evidence been obtained?
c. Are the accounting estimates made by management reasonable?
d. Did the analytical procedures performed at or near the end of the audit corroborate
conclusions formed during the audit?
Correct answer: a. Does the audit evidence need to be copious?

14. A modified auditor’s report is rendered if the auditor:

S1: concludes that the FS are not free from material misstatements;
S2: is unable to obtain sufficient appropriate audit evidence to conclude that the FS as
a whole are free from material misstatement;
S3: The auditor’s opinion in a modified auditor’s report is considered modified if he/she
issued qualified or adverse opinion or disclaim an opinion.

a. All statement is false

b. All statement is true
c. 2 statements are true
d. Only 1 statement is true

Correct answer: b. All statement is true

 15. Which of the following is not true about key audit matters in the audit report;
a. Provide users a basis to further engage with management and those in charge of
governance, about certain matters related to the entity, the audited FS, or the audit that was
performed.
b. Increase transparency about the audit that was performed. Communicating KAM
provides additional information to intended users of the FS to assist them in understanding
those matters that, in the auditor’s professional judgment, were of most significance in the
audit of the FS of the current period.
c. in the auditor’s professional judgment, are of most significant in the audit of FS of the
current period. These matters are addressed in the context of the audit of the FS as a whole.
d. A substitute for reporting in accordance with ISSAI 1570 when a material uncertainty
exists relating to event or condition that may cast significant doubt on an entity’s ability to
continue as a going concern
Correct answer: d. A substitute for reporting in accordance with ISSAI 1570 when a
material uncertainty exists relating to event or condition that may cast significant doubt
on an entity’s ability to continue as a going concern
Comparison of the Financial Statement Audit
performed by the Commission on Audit
and External Audit Firm

Our Lady of the Pillar College Cauayan

College of Accountancy
BSA 3

Group 5
Cassandra Dazelle Batallones
Aireen Faye Leongson
Precious Ann Foronda
Vernard Franz Mejia
Clarisse Joy Rivera
 QUALITY CONTROL REVIEW

To preserve and maintain quality, standards prescribed a structure that will manage the achievement of
quality objectives. A system of quality control consists of policies designed to achieve the objectives of
compliance with professional standards and issuance of appropriate reports and procedures necessary to
implement and monitor compliance with those policies.

COA EXTERNAL AUDIT

QUALITY CONTROL

Provides reasonable assurance that the audit engagement is performed in compliance with professional
standards and applicable legal and regulatory requirements, and the audit report is appropriate in the
circumstances

RESPONSIBILITY FOR QUALITY CONTROL SYSTEM

The Supreme Audit Institution has an obligation to The firm has an obligation to establish and maintain a
establish and maintain a system of quality control to system of quality control to provide reasonable
provide reasonable assurance that: assurance that:
a. The SAI and its personnel comply with a. The firm and its personnel comply with
professional standards and applicable legal professional standards and applicable legal and
and regulatory requirements; and regulatory requirements; and
b. Reports issued by the Auditors are b. Reports issued by the Auditors are appropriate
appropriate in the circumstances. in the circumstances.

Different firms have different quality control

procedures.

RESPONSIBILITY FOR QUALITY CONTROL PROCEDURES

The audit teams are responsible for: The engagement teams are responsible for:
a. Implementing quality control procedures a. Implementing quality control procedures that
that are applicable to the audit engagement are applicable to the audit engagement
b. Provide the Supreme Audit Institution with b. Provide the firm with relevant information to
relevant information to ensure that quality enable the functioning of that part of the firm’s
controls relating to independence are system of quality control relating to
functional. independence.
c. Are entitled to rely on the firm’s system’s
unless information provided by the firm or
other parties suggest otherwise.
 ELEMENTS OF A SYSTEM OF QUALITY CONTROL (HEAL ME Doc)

Conducted in accordance with ISQC 1 Conducted in accordance with PSQC

1. Leadership Responsibilities
➢ Establish policies and procedures designed to promote internal culture.
➢ Engagement partner should take responsibility for the overall quality on each audit
engagement
➢ What are the things that we should do:
-Performance Evaluation
-Assignment of Management Responsibilities
-Provision of Sufficient Resources

COA EXTERNAL AUDIT

It does not include incentive systems Demonstrate its commitment to quality by
As salaries are fixed based having policies and procedures addressing
. their performance evaluation, compensation
and promotion (including incentive systems)

2. Relevant Ethical Requirements

The firm and its personnel comply with the ethical requirements, which include:
➢ Integrity,
➢ Objectivity
➢ Professional competence and due care
➢ Confidentiality
➢ Professional behavior
➢ Includes independence

Independence

 Policies and procedures on  Establish policies and procedures on

independence do not include experts independence that includes experts contracted
of the firm as COA itself has its own by the firm
experts within its jurisdiction.  Withdrawal from the engagement when there
 Cannot withdraw from the are threats in independence
engagement.  Take action regarding identified threats to
 Take action on threats that are not at independence by eliminating them or reducing
an acceptable level. them to an acceptable level
 Personnel are hired based on high
 Provides independence education to personnel
qualification and skills who are
experienced in their respective fields. who are required to be independent.
 3. Acceptance and Continuance of Client 3. Acceptance and Continuance of Client
Relationships and Specific Engagements Relationships and Specific Engagements
Information affecting conclusion include: Information affecting conclusion include:
a. Integrity of those charged with a. Integrity of those charged with
governance governance
b. Competence of the engagement team b. Competence of the engagement team
c. Compliance with relevant ethical c. Compliance with relevant ethical
requirements requirements
d. Significant matters that have arisen d. Consider the aggressive concerns of the
during the current or previous audit client regarding the maintenance of its
engagements. firm's fees that are as low as possible

Acceptance and Continuance of Client Relationships and Specific Engagements

Only undertake or continue where the firm:

 Is competent, capable and has resources to perform the engagement.

 Can comply with ethical requirements
 Consider the integrity of the client

Note! There should be an agreement on the terms of the engagement. It cannot start without the engagement
letter.

4. Human Resources
The audit team must have appropriate competence and capabilities such as experience with audit
engagements of a similar nature, understanding of professional standards and applicable legal and
regulatory requirements, technical expertise, and ability to apply professional judgment.

Such policies and procedures address the following personnel issues:

 Recruitment;
 Performance evaluation;
 Capabilities;
 Competence;
 Career development;
 Promotion;
 Compensation; and
 The estimation of personnel needs

5. Engagement Performance
The engagement partner should take responsibility for the direction, supervision, review and overall
performance of the audit engagement.
a. Directions
b. Supervisions
c. Review
d. Consultation
 e. Appropriateness of Audit Report
The engagement shall have:
 Procedures to promote consistency in quality.
 Supervision responsibilities
 Review Responsibilities

Note: The work of less experienced team members is reviewed by more experienced engagement team
members

 Engagement Quality Control Review

1.Discussion of significant matters with the engagement partner

2.Review of subject mater information and proposed report
3.Review of significant judgments and conclusions reached
4.Evaluation of appropriateness of audit report.

Note! Complete quality control review before audit report

 Qualified and Objective reviewer

 Documentation of quality control review
 Differences of Opinion

 Document and implement conclusion

 Resolution before audit report

 Engagement Documentation

 Timely completion of the assembly of engagement files

 Confidentiality, safe custody, integrity, accessibility, retrievability. -Retention of engagement
documentation -Engagement documentation is the property of the firm.

6. Monitoring
Policies and procedures must be adopted to provide reasonable assurance that the system of quality
control are relevant, adequate, and operating effectively.

A. Inspection-evidence of compliance to the quality control system

-At least one for each engagement partner
-It includes neither the engagement partner and engagement quality control reviewer

A. Deficiencies
-Not necessarily insufficient quality control system
-Systemic, repetitive or other systemic deficiencies

C. Policies for complaints and allegations

-Non-compliance to professional standards and regulatory requirements.
-Non-compliance to the firm's system of quality control.

Documentation
The firm should establish policies and procedures requiring appropriate documentation to provide
evidence of the operation of each element of its system of quality control.
 QUALITY CONTROL REVIEW PROCESS

Outputs prepared Reviewed and signed Outputs Reviewed and

by by prepared by signed by
Audit Team Engagement Team Engagement
Audit Team Leader
Member Member Senior-in-charge

Audit Team Leader Supervising Auditor Engagement Engagement

Senior-in-charge Manager
Supervising Cluster/Regional Engagement Engagement
Auditor Director Manager Partner

QUALITY CONTROL REVIEW PERTAINING

TO PROFESSION

The government thru Professional Board of

Accountancy (BOA) has required all CPA
firms and individual CPAs in public practice to
obtain a certificate of accreditation to practice
public accountancy.

The PRC has created a Quality Review

Committee (QRC) which shall conduct quality
control review on
a. Applicants for registration to practice
public accountancy
b. Recommend revocation of certificate of
registrations of CPA
 QUALITY CONTROL DOCUMENTS

Auditor’s Declaration of Independence and The auditor must prepare documentation in connection
Compliance with Other Ethical Standards with each engagement conducted pursuant to the
- Preliminary Engagement Phase, it is signed standards. Also, the documentation should be
by all members of the team, confirmed by appropriately organized to provide a clear link to the
the SA/RSA during Execution Phase and significant findings or issues.
concurred by the CD/RD serves as an
assurance that the audit is performed by a
team composed of competent and
professional auditors.

Ethical standard
- Professionalism Ethical standard
- Competence - Professional behavior
- Confidentiality and transparency - Objectivity
- Integrity - Professional competence and due care
- Independence - Confidentiality
- Political neutrality and partisan politics - Integrity
- Responsiveness to the public - Independence
- Nationalism and patriotism
- Commitment to democracy
- Simple living
- Work dedication and commitment in the
highest degree
- Commitment to public interest
- Justness and sincerity

Engagement Letter
- COA formally informs the Auditee of its Engagement Letter
audit requirements well ahead of time as a - Preferably before the commencement of the
matter of professional courtesy and engagement, to help in avoiding
engagement direction. misunderstandings with respect to the
Person responsible: engagement.
Cluster Director/ Supervising Auditor/Audit Person responsible:
Team Leader/ Audit Team Member (CD/ Auditor
SA/ATL/ATM)
-
 Written representations Management letter
Prepared and By appropriate level of management (e.g. By the auditor
signed CEO and CFO)
Addressee Auditor Client's management
Required Yes. Required to be obtained by the No. Optional and no standard format or
preparation auditor approach
Date Concurrent with the auditor's report date As timely as practicable

Content Confirmation of various representations May Include recommendations that are

made by management to the auditor and intended to help the client operate its
reduces the possibility of business effectively
misunderstanding between the client and
the auditor
Importance Reminder of management of its primary Encourage a better relationship between
responsibility for the financial statements the auditor and the management

Can serve as audit evidence when such Suggest additional tax and management
representation may be the only evidence services that the auditor can provide.
that can reasonably be expected to be
available

Engagement Planning Memorandum

- Serves as supervision and monitoring tool for the SA/RSA and the CD/RD.
- The progress of work by the team members, the audit procedures performed and the timing of audit
activities can be kept track through the Plan.

QUALITY CONTROL REVIEW DOCUMENTS

Completion Compliance Checklist There’s no specific format followed by the external

- Enables the SA/RSA and the CD/RD to audit but the firm is required to provide appropriate
check that all the required key, sign-off and documentation as an evidence of the operation of each
quality control procedures from the element of its system of quality control.
Preliminary Engagement Phase to the
Reporting Phase were performed. Compliance Review Checklists
 It is for the Audit firm to check and review
An Auditee Feedback Sheet whether the firm complies with its system of
quality control.
- Designed to assess the audit team’s
performance in the field. It should be sent The client’s audit committee assess the performance of
directly by the CD/RD to the Auditee. the external auditor (engagement partner) whereas the
- This Sheet should be addressed to the engagement partner is responsible in evaluating the
Agency Head who is requested to respond performance of its audit team as to whether they
within a given timeframe. comply with the applicable standards and established
policies and procedures.
Director’s Evaluation Form
- The Audit Team’s performance and the
SA/RSA will be assessed based on the
Completion Compliance Checklist and the
Auditee Feedback Sheet by the CD/RD with
the assessment evaluation to the Assistant
Commissioner concerned.
- This allows the CD/RD and the Assistant
Commissioner to have a reasonable basis for
taking appropriate action to ensure the
quality of financial audit performed by the
audit teams.

Financial Management Performance Rating

- This assesses the quality of an Auditee’s
financial management performance using
the results of the audit performed, including
internal control review.
 Multiple Choice Test Answer Key.

1. The Supervising Auditor/ Regional Supervising Auditor is responsible for the following, except

a. Ensuring that all necessary audit procedures have been completed, reviewed, and sufficiently
and appropriately documented.

b. Ensuring that all significant changes made to the audit strategy and audit plan are justified and
appropriately documented and approved.

c. Ensuring that all significant changes made to the audit strategy, engagement letter and
audit plan are reviewed by the management

d. Reviewing audit conclusions, recommendations, and professional judgments made by the

audit team.

2. This serves as a tool to ensure COA’s commitment to quality service through quality staff. It is designed to
assess audit team’s performance in the field.

a. Director’s Evaluation Form

b. Audit Team’s Feedback Sheet

c. Auditee Evaluation Form

d. Auditee Feedback Sheet

3. S1: The responsibility for quality of an audit and resulting Audit report rests with the Audit Team Leader

S2: BOA formally informs the Auditee of its audit requirements well ahead of time as a matter of
professional courtesy and engagement direction.

S3: The progress of work by the team members, the audit procedures performed and the timing of audit
activities can be kept track through the Engagement Letter

S4: While Quality Control and Quality Assurance are used interchangeably, there is a clear difference.

a. All statements are true

b. 3 statements are true

c. 2 statements are true

d. Only 1 statement is true

4. Within the context of the SAI’s system of quality control, who are responsible for implementing quality
control procedures that are applicable to the audit engagement and provide the SAI with relevant information to
ensure that quality controls relating to independence are functional?

a. Commission On Audit

b. Audit Teams

c. Management

d. Senior Supervising Auditor/ Regional Supervising Auditor

5. It is implemented by the Supreme Audit Institution to ensure that audit results, as well as the means to
achieve them, are within the desired level of quality. Both Quality Control and Quality Assurance operate
within this approach

a. Quality Management approach

b. Quality Assurance Approach

c. Quality Engagement Approach

d. Quality Audit Approach

6. Following the Revised Guidelines in the Implementation of the Unified Audit Approach, there are three
levels of quality control review implemented in all the phases of the audit, except

a. Outputs prepared by Audit team member are reviewed and signed by Audit Team Leader

b. Outputs prepared by Audit Team Leader are reviewed and signed by Cluster Director/
Regional Director

c. Outputs prepared by Supervising Auditor/ Regional Supervising Auditor are reviewed and
signed by Cluster Director/ Regional Director

d. Outputs prepared by Audit Team Leader are reviewed and signed by Supervising Auditor/
Regional Supervising Auditor
7. Quality control policies and procedures are relevant, adequate, and operating effectively. This statement
defines the quality control element of

a. Relevant ethical requirements

b. Leadership responsibilities for quality

c. Monitoring

d. Engagement performance

8. Quality controls are established at what phase of the audit

a. Planning Phase

b. Quality Control Review Phase

c. Reporting Phase

d. All phases of the audit

9. What level of Quality Control Review when review should sufficiently satisfy the requirements that the
audit documentation contains adequate evidence of the work done and conclusions reached, and provide a
reasonable basis for an opinion.

a. Audit team member level

b. Audit Team Level

c. Supervising Auditor/ Regional Supervising Auditor level

d. Cluster Director/ Regional Director

10. The Supreme Audit institution has an obligation to establish and maintain a system of quality control to
provide reasonable assurance that:

S1: The Supreme Audit institution and its personnel comply with professional standards and applicable legal
and regulatory requirements

S2: The continued adequacy and operational effectiveness of quality control policies and procedures are to be
observed and documented
S3:Reports issued by the Auditors are appropriate in the circumstances.

S4: There is sufficient direction performed at all levels to meet the appropriate standard of quality

a. All statements are true

b. Only S1 and S2 are true

c. Only S2 and S3 are true

d. Only S1 and S3 are true

11. S1: Management shall take responsibility for the overall quality of audit

S2: Fundamental principles of professional ethics are integrity, objectivity, professional competence and
due care, confidence, and professional behavior.

S3: The audit team must have appropriate competence and capabilities such as experience with audit
engagements of a similar nature, understanding of professional standards and applicable legal and
regulatory requirements, technical expertise, and ability to apply professional judgment.

S4: Direction of the engagement team involves discussion with all members of the team, appropriate
teamwork and training, and supervision.

a. All statements are true

b. 3 statements are true

c. 2 statements are true

d. Only 1 statement is true

12. This quality control review tool allows the CD/RD and the Assistant Commissioner to have a reasonable
basis for taking appropriate action to ensure the quality of financial audit performed by the audit teams.

a. Director’s Evaluation Form

b. Auditee Feedback Sheet

c. Director’s Feedback Sheet

d. Auditee Evaluation Form

13. It involves policies and procedures through which a SAI ensures that the audit is carried out in compliance
with the SAI auditing standards, rules and procedures in line with the best international practices while quality
assurance is a process through which a SAI monitors and ensures that quality control is working effectively.

a. Quality Assurance

b. Quality Control

c. Internal Control

d. None of the above

14. S1: It is important to seek explanation of the audit team on negative feedback to make them aware of
actions considered unprofessional and/or unethical by the Auditee.

S2: The accomplished Completion Compliance Checklist serves as basis for the CD/RD in rating the
performance of the audit team along with the Auditee performance rating on the audit team.

S3: Auditee Feedback Sheet should be addressed to the Agency Head who is requested to respond
within a given timeframe.

S4: When necessary, the results of Financial Management Performance Rating may be provided to the
Department of Budget and Management as one of the bases for reviewing the Auditee’s performance.

a. All statements are true

b. 3 statements are true

c. 2 statements are true

d. Only 1 statement is true

15. In auditee feedback sheet, the results especially for audit teams receiving negative feedback should be
acted upon by

a. Audit Team Leader

b. Commission on Audit

c. Cluster Director/Regional Director

d. Supervising Auditor