REPUBLIC ACT NO.

9298
The Philippine Accountancy Act of 2004
SEC. 1 THE PHILIPPINE ACCOUNTANCY ACT OF 2004
SEC. 2 DECLARATION OF POLICY:
The State recognizes the IMPORTANCE OF ACCOUNTANTS in NATION BUILDING and
DEVELOPMENT. Hence, it shall develop and nurture competent, virtuous, productive
and well-rounded professional accountants whose standards of practice and service
shall be excellent, qualitative, world class and globally competitive through
inviolable, honest, effective, and credible licensure examinations and through
regulatory measures, programs and activities that foster their professional growth
and development.
SEC. 3 OBJECTIVES: This Act shall provide for and govern:
a. The STANDARDIZATION and REGULATION of accounting education;
b. The EXAMINATION for REGISTRATION of CPAs; and
c. The SUPERVISION, CONTROL and REGULATION of the PRACTICE
ACCOUNTANCY in the Philippines.

OF

SEC. 4 SCOPE OF PRACTICE: shall include but not limited to practice of/in:
a. PUBLIC ACCOUNTANCY
c. EDUCATION and ACADEME
b. COMMERCE and INDUSTRY
d. GOVERNMENT
SEC. 5 BOARD OF ACCOUNTANCY: is the professional regulatory board for the
practice of accountancy under the supervision and administrative control of the
PRC, which is composed of:
From 5 nominees
3 recommendees
1 Chairman (President)
for each position (PICPA) for each position (PRC)
6 members 1 vicechairman
SEC. 6 QUALIFICATIONS of members of the BOA: must be
- Natural born citizen and resident of the Philippines
- CPA with at least ten (10) years of experience
- Of good moral character and not have been convicted of crimes involving moral
turpitude
- Not have any pecuniary interest in any entity conferring academic degree
necessary for admission to practice of accountancy
SEC. 7 TERM OF OFFICE of members of BOA:
Chairman and members - no person shall serve more than two (2) successive
terms but is eligible for re-appointment after lapse of one (1) year; Term is equal to
three (3) years.
- Vacancy shall be filled for remaining term only
Vice-chairman
- term of one (1) year
SEC. 8 COMPENSATION AND ALLOWANCE of the Board: provided for in
General Appropriations Act (GPA)
SEC. 9 POWERS AND FUNCTIONS of the Board:
- To PRESCRIBE and adopt RULES AND REGULATIONS necessary to carry out this
Act.
- To SUPERVISE the registration, licensure and PRACTICE OF ACCOUNTANCY in the
Philippines
- To ADMINISTER OATH
- To ISSUE, SUSPEND, REVOKE OR REINSTATE the CERTIFICATE OF REGISTRATION
for the practice of the profession
- To ADOPT OFFICIAL SEAL of the BOA
- To prescribe and ADOPT CODE OF ETHICS
- To MONITOR CONDITIONS AFFECTING THE PRACTICE of accountancy
- To conduct or OVERSIGHT with the QUALITY OF AUDITS of FS
- To INVESTIGATE VIOLATIONS of this Act
- To make such INVESTIGATIONS as it deems necessary

To ISSUE a CEASE AND DESIST ORDER to any person, association or partnership

engaged in violation of this Act
- To PUNISH FOR CONTEMPT of the Board, in accordance with the Rules of Court
- To PREPARE, ADOPT, ISSUE OR AMEND the SYLLABI of the subjects for
examination in consultation with the academe
- To ENSURE, in coordination with CHED
- To EXERCISE such OTHER POWERS provided by law
The policies, resolutions, rules and regulations issued by the Board should be
subject for review and approval of the Commission. However, the Boards decision,
resolutions or orders rendered in administrative cases shall be subject for review
only if on appeal.
SEC. 10 ADMINISTRATIVE SUPERVISION OF THE BOARD, CUSTODIAN of its
RECORDS, SECRETARIAT and SUPPORT SERVICES: PRC
SEC. 11 GROUNDS FOR SUSPENSION OR REMOVAL OF MEMBERS OF THE
BOARD:
- NEGLECT OF DUTY/INCOMPETENCE
- VIOLATION/TOLERANCE of VIOLATIONS OF THIS ACT/CPAs CODE OF ETHICS
and technical and professional standards.
- FINAL JUDGEMENT of crimes involving MORAL TURPITUDE
- MANIPULATION or rigging of the CPA LICENSURE EXAMINATIONS
Only the President can remove any member of the Board, per
recommendation of the Commission.
SEC. 12 ANNUAL REPORT shall be submitted to the President at close of each
calendar year.
SEC. 13 THE CPA LICENSURE EXAMINATIONS
SEC.
-

14 QUALIFICATIONS OF APPLICANTS FOR EXAMINATIONS:

Filipino Citizen
Of good moral character
Holder of a degree in BS-Accountancy
Not been convicted of any criminal offense involving moral turpitude

SEC. 15 SCOPE OF EXAMINATIONS:

Theory of Accounts
Auditing Problems
Practical Accounting I
Business Law and Taxation
Practical Accounting II
Management Advisory Services
Auditing Theory
The Board subject to the approval of the Commission, may revise or
exclude any subject and their syllabi, and add new ones as the need arises.
SEC. 16 RATING IN THE LICENSURE EXAMINATIONS:
GWA of 75% WITH NO GRADE BELOW 65%
- Passing
GWA of 75% with a grade below 65%
- Conditional and to
remaining subject within two (2) years from the preceding examination.

take

the

SEC. 17 REPORT OF RATINGS shall be submitted by the Board within ten (10)
calendar days after examination, unless extended for a just cause.
SEC. 18 FAILING CANDIDATES TO TAKE REFRESHER COURSE: After failing two
(2) CPA Licensure Examinations, a candidate must complete at least twenty four
(24) units of the subject given in CPA Licensure Examinations.
Conditional Passers- counted as one (1) examination taken.
SEC. 19 OATH shall be taken before any member of the BOA, government official
authorized by the Commission or any other person authorized by law, prior to
entering the practice of the profession.
SEC. 20 ISSUANCE OF THE CERTIFICATES OF REGISTRATION and
PROFESSIONAL IDENTIFICATION CARDS: subject to payment of fees prescribed
by the Commission.

CERTIFICATE OF REGISTRATION shall bear the signature of Chairperson of the

Commission and the Chairman and members of the Board, indicating the person
entitles to practice with all privileges appurtenant thereto. It shall remain in full
force and effect until withdrawn, suspended or revoked.
PROFESSIONAL IDENTIFICATION CARD bearing the Registration Number, Date of
Issuance, Expiry Date, signed by the Chairperson of the Commission renewable
every three (3) years.
SEC. 21 ROSTER OF CPAs: shall be prepared and updated by the Board, and
made available to any party deemed necessary.
SEC. 22 INDICATION OF CERTIFICATE OF REGISTRATION, IDENTIFICATION
CARD and PROFESSIONAL TAX RECEIPT when a CPA signs a document.
SEC. 23 REFUSAL TO ISSUE CERTIFCATE OF REGISTRATION and
PROFESSIONAL IDENTIFICATION CARD:
When the examinee has been: - Convicted of crimes involving moral
turpitude;
- Guilty of immoral and dishonorable conduct; or
- Of unsound mind
SEC. 24 SUSPENSION AND REVOCATION OF CERTIFCATE OF REGISTRATION
and PROFESSIONAL IDENTIFICATION CARD and CANCELLATION OF SPECIAL
PERMIT:
Grounds for the same shall be:
- Unprofessional/Unethical conduct
- Malpractice
- Violation of any of the provisions of this Act, its Implementing Rules and
Regulations, the CPA Code of Ethics; and the Technical and Professional
Standards.
SEC. 25 RE-INSTATEMENT, RE-ISSUANCE and REPLACEMENT of REVOKED or
LOST CERTIFICATES:
Revoked License
- Upon application for reasons deemed proper, the
Board after two (2) years may reinstate the validity of a revoked certificate.
Lost/Destroyed/Mutilated Certificate or License new Certificate may be
issued upon payment of fees.
SEC. 26 PROHIBITON IN THE PRACTICE OF ACCOUNTANCY:
No person shall practice accountancy in this country, or use the title CPA,
unless the person shall receive from the Board and Commission a CERTIFICATE OF
REGISTRATION/LICENSE and be issued a professional ID or a valid temporary
permit/special permit.
SEC. 27 VESTED RIGHTS: CPAs registered when this Law is passed shall have the
same force and effect, if such persons, are in good standing.
SEC. 28 LIMITATION OF THE PRACTICE OF PUBLIC ACCOUNTANCY:
CERTIFICATE OF ACCREDITATION - shall only be given to CPAs acquiring
three (3) years of meaningful experience in any areas of the profession,
including taxation.
NO CORPORATION for organized practice of public accountancy.
SEC. 29 OWNERSHIP OF WORKING PAPERS shall be treated confidential and
privileged and remain the property of the CPA, unless there is:
- A written agreement to the contrary; or
- Required by any court, tribunal, government regulatory or administrative
body.
SEC. 30 ACCREDITED PROFESSIONAL ORGANIZATION shall be registered with
the SEC as Nonprofit Organization. Membership is not a bar for membership in other
organizations.

SEC. 31 ACCREDITATION TO PRACTICE PUBLIC ACCOUNTANCY shall be

renewed every three (3) years.
QUALITY REVIEW COMMITTEE conducts oversight into the quality of audit of FS
thru review of Quality Control measures of CPAs.
All senior practitioners of Public Accountancy
1

APO

Commission BOA
APO:

Public

Practice 2
Academe
1
Commerce
1
Government
1
FUNCTIONS:
- Conduct Quality Review on applicants for registration to practice public
accountancy and render a report which shall be attached to the application
for registration.
- Recommend to the Board revocation of Certificates of Registration and
Professional Identification Card.
SEC. 32 CONTINUING PROFESSIONAL EDUCATION (CPE)
CPE Credit Units should have a:
- Minimum of sixty (60) units every three (3) years.
- Minimum of fifteen (15) units per year.
Exemption:
- Permanent CPA is sixty five (65) years old and above
- Temporary - at least two (2) years abroad prior to date of renewal
OBJECTIVE:
- To provide and ensure continuous advancement
- Too raise and maintain professionals capability for delivering professional
services
- To attain and maintain the highest standards and quality in the practice of the
profession
- To make the profession globally competitive
- To promote the general welfare of the public
CPE Council
From members of the Board and appointed by the Commission
Chairperson
terms are
-2 members
coterminus
May not vote and position must not be lower than Division Chief - Secretary
SEC. 33 SEAL AND USE OF SEAL: All licensed CPAs shall obtain and use a seal of
design prescribed by the BOA bearing the: Registrants Name, Registration Number,
and Title
Auditors Report shall be stamped with said seal indicating:
a. Professional Tax Receipt Number
b. Date and Place of payment
SEC. 34 FOREIGN RECIPROCITY
SEC. 35 COVERAGE OF TEMPORARY/SPECIAL PERMITS:
Temporary/Special Permits may be issued by the Board subject to the
approval of the Commission and payment of required fees:
a. Foreign CPA called for CONSULTATION/SPECIFIC PURPOSE which in judgment of
the Board, essential for the development of the country. Provided, there is no
Filipino CPA qualified for such consultation or specific purpose.
b. Foreign CPA engaged as PROFESSOR, LECTURER, CRITIC in fields essential to
accountancy education and engagement is confined to teaching only.

c. Foreign CPA who is internationally recognized EXPERT or with specialization in

any branch of accountancy essential for advancement of accountancy.
SEC. 36 PENAL PROVISION: Fine of not less than P50, 000.00 or by imprisonment
for a period not exceeding two years, or both.
SEC. 37 IMPLEMENTING RULES AND REGULATIONS
SEC. 39 ENFORCEMENT OF THE ACT:
Board and Commission
- has primary duty
Law Enforcement Agencies, LGUs, other political subdivisions
upon
call/request of the Board or Commission
Secretary of Justice or any duly designated representative render
legal
assistance
Any person may bring before the Commission/Board or aforementioned
officers, cases or illegal practice or violation of this Act.
SEC. 40 FUNDING PROVISION: General Appropriations Act (GPA)
SEC. 41 TRANSITORY PROVISION
- Incumbent chairman and members of the Board shall continue to serve under
the terms for which they have been appointed under Presidential Decree No. 692
- All graduates of Bachelors degree-major in Accounting shall be allowed to take
the CPA Licensure Examination within two (2) years upon effectivity of this Act.

PHILIPPINE STANDARDS SETTING COUNCIL

ACCOUNTING and AUDITING STANDARDS SETTING COUNCIL:
FINANCIAL REPORTING STANDARDS COUNCIL/FRSC
- accounting
standards setting council
AUDITING and ASSURANCE STANDARDS COUNCIL/AASC
- auditing
standards setting council
Chairman
BOA
SEC
BSP
BIR
COA

FRSC
AASC
(15)

APOs

APOs:
(15)
2
2
2

Public Practice

Commerce and Industry

1
Academe/Education
1
Government
1
FINEX/Other Org. of Major Users of FS
Other Org. of CPAs in Public Practice
BOA

PRC

EDUCATION TECHNICAL COUNCIL:

Functions:
a. Determine minimum standard curriculum
b. Establish teaching standards
c. Monitor the progress of the program in the study of accountancy
d. Evaluate periodically the performance of educational institutions
Chairman
APOs:
Organization of CPAs
Public Practice

1
1

Commerce and Industry

1
Government
1
Academe and Education (Public/Private) 2

AUDITING
AN OVERVIEW
PAS 200 defines Auditing by stating the objective of a financial statement audit, that
is, to enable the auditor to express an opinion whether the financial statements are
prepared, in all material respects, in accordance with an identified financial
reporting framework.
PRIMARY FUNCTION is to lend credibility to the FS prepared by the Client
management.
An audit is a systematic process of objectively obtaining and evaluating
evidence regarding assertions about economic actions and events to
ascertain the degree of correspondence between those assertions and
established criteria and communicating the results to interested users.
AAA
The definition conveys that:
a. Auditing is SYSTEMATIC PROCESS.
b. Audit involves obtaining and evaluating evidence about ASSERTIONS regarding
economic actions and events.
ASSERTIONS are representations made by an auditee.
c. Audit is CONDUCTED OBJECTIVELY. (without bias; impartial attitude)
d. Auditors ascertain the degree of correspondence between ASSERTIONS and
ESTABLISHED CRITERIA. (conformity)
ESTABLISHED CRITERIA is needed to judge the validity of the assertions:
Assertion is the fairness of the FS
Criteria is the Financial Reporting Framework/GAAP
e. Auditors communicate the results to various interested users.
Communication of AUDIT FINDINGS ON A TIMELY BASIS is the ultimate objective
of an Audit.
Although great majority of audit work today deals with audit of financial
statements, Operational and Compliance Auditing are becoming more and more
important. All audits possess the same general characteristics that they are:

a. Systematic examination and evaluation of evidence to ascertain whether

assertions comply with the established criteria; and
b. Communication of results of examination.
TYPES OF AUDIT:
ASSERTIONS

ESTABLISHED
CRITERIA
AUDITORS
REPORT
AUDITOR

FINANCIAL
AUDIT
FS are fairly
presented

COMPLIANCE
AUDIT
Organization
complied with
Laws, Regulations
or Contracts

Financial Reporting
Framework; GAAP
Opinion

Laws, Regulations
or Contracts
Degree of
Compliance
Government
Auditor; BIR
Examiners; COA

External Auditor

OPERATIONAL
AUDIT
Organizations
activities are
conducted
efficiently and
effectively
Objectives set by
the BOD
Recommendations
and Suggestions
Internal Auditor

Elements of THEORETICAL FRAMEWORK: (POSTULATES)

a. Audit function operates on the assumption that ALL FINANCIAL DATA ARE
VERIFIABLE
- All balances must have supporting documents or evidence to prove their
validity.
b. Auditor should always maintain INDEPENDENCE with respect to Financial
Statements under Audit
- essential in ensuring credibility
c. There should be NO LONG-TERM CONFLICT between the auditor and the client
management.
d. EFFECTIVE ACCOUNTING and INTERNAL CONTROL SYSTEMS reduces possibility
of errors and fraud affecting the FS
- The condition of accounting and internal control system directly affects the
reliability of the FS.
e. CONSISTENT APPLICATION of Generally Accepted Accounting Principles (GAAP) or
Financial Reporting Standards results in fair presentation of the FS
f. What was held true in the past will continue to hold true in the future in the
absence of known conditions to the contrary - Experience and knowledge
g. Audit BENEFITS THE PUBLIC meet the common needs of a wide range of users.
PROFESSIONAL STANDARDS
Auditors opinion must be based on an examination conducted in accordance
with the Professional Standards (GAAS).
GENERALLY ACCEPTED AUDITING STANDARDS
A. General Standards
1. The examination is to be performed by a person or persons having ADEQUATE
TECHNICAL TRAINING and PROFICIENCY as an Auditor.
2. In all matters relating to an engagement, an INDEPENDENCE IN MENTAL
ATTITUDE is to be maintained by the Auditor.
3. DUE PROFESSIONAL CARE is to be exercised in the performance of the audit
and in the preparation of the report.
B. Standards of Fieldwork
4. The work is to be ADEQUATELY PLANNED and assistants, if any, are to be
properly supervised.
5. There is to be a PROPER STUDY and EVALUATION of the EXISTING INTERNAL
CONTROL as a basis for reliance thereon and for the determination of the
resultant extent of the tests to which auditing procedures are to be restricted.
6. SUFFICIENT COMPETENT EVIDENTIAL MATTER is to be obtained through
inspection, observation, inquiries and conformations to afford a reasonable
basis for an opinion regarding the financial statements under examination.
C. Standards of Reporting
7. The report shall state whether the financial statements are presented in
ACCORDANCE with GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP).

8. The report shall IDENTIFY those CIRCUMSTANCES in which the PRINCIPLES

have NOT BEEN CONSISTENTLY OBSERVED in the current period in relation to
the preceding period.
9. INFORMATIVE DISCLOSURES are to be regarded as reasonably adequate
unless otherwise stated in the report.
10.The report shall contain an EXPRESSION OF OPINION regarding the financial
statements, taken as a whole, or an assertion to the effect that an opinion
cannot be expresses therefore should be stated. In all cases, where an
auditors name is associated with the financial statements, the report should
contain a clear-cut indication of the character of the auditors examination if
any and the degree of responsibility he is taking.
GAAP Financial Reporting Framework; issuances by the IFRSC/FRSC/IASC.
GAAS - minimum standard the auditor must follow
PSA - Philippine Standards on Auditing are auditing standards, practices and
procedures issued by the then Auditing Standards and Practices Council
(ASPC), and now the Auditing and Assurance Standards Council.
PAPS - Philippine Auditing Practices Statements provide practical assistance to
auditor in implementing PSAs to promote good practice in the field of
auditing.
THE AUDIT PROCESS
- is the sequence of different activities involved in an audit; may vary depending
upon a particular audit.
1. Accepting an Engagement
- require evaluation of auditors qualification,
as well as, auditability of prospective clients FS.
- Preliminary understanding of clients business and background investigation
of prospective client.
2. Audit Planning
- auditor obtains more detailed knowledge about
the clients business and industry in order to understand the transactions and
events affecting the FS, and to identify potential problems.
3. Considering the Internal Control
the stronger the Internal Control, the
more assurance it provides about the reliability of accounting data and financial
statements.
- Obtaining understanding of entitys internal control systems and assessing
the level of control risk.
4. Performing Substantive Tests - extent of Substantive Test is highly
dependent on the results of auditors consideration on internal controls.
5. Completing the Audit
- auditor must have sufficient appropriate evidence
in order to reach a conclusion on the fairness of the FS.
- Performs additional audit procedures, such as:
a. Review of subsequent events and contingencies
b. Assessing the going concern assumption
c. Performing overall analytical review procedure
d. Obtaining written representations
6. Issuing a Report
- auditor forms a conclusion
TYPES OF OPINION:
UNQUALIFIED
- issued when FS are fairly stated.
QUALIFIED - effects of any disagreement with the management, or limitation on
scope is not so material.
DISCLAIMER
- issued when the possible effect of a limitation on scope is so
material and pervasive that auditor has not been able to contain sufficient
appropriate evidence and cannot express an opinion.
ADVERSE - states that FS are not fairly presented in accordance with the financial
reporting framework/GAAP.

AUDIT OF FINANCIAL STATEMENTS

OBJECTIVE: To enable the auditor to EXPRESS AN OPINION whether the Financial
Statements are prepared in all material respects, in accordance with applicable
financial reporting framework.
SCOPE OF THE AUDIT refers to the audit procedures deemed necessary in the
circumstances to achieve the objective of the audit.
The procedures required to conduct an audit in accordance with the PSAs should be
determined by the AUDITOR having regard to the requirements of PSAs, relevant
professional bodies, legislation, regulations and, where appropriate, the terms of the
audit engagement and reporting requirements.
Conditions that Create a Demand for Auditing:
1. Conflict of Interest
2. Expertise
3. Remoteness of Information
4. Financial Consequences
General Principles Governing an Audit of Financial Statements: (PSA 200)
1. Code of Professional Ethics
2. PSA Compliance
3. Professional Skepticism

Assurance Provided by the Auditor:

An audit in accordance with PSAs is designed to provide REASONABLE
ASSURANCE that the financial statements taken as a whole are free from
material misstatement.
The OPINION IS NOT AN ASSURANCE as to the future viability of the entity nor
the efficiency or effectiveness with which management has conducted the affairs
of the entity.
Inherent Limitations of the Audit that affects the Auditors ability to
detect misstatements:
1. Use of Testing
2. Human Error
3. Nature of Evidence Persuasive not Conclusive.
4. Reliance on Management Representation
5. Internal Control Limitation

PRE-PLANNING PHASE
INTRODUCTION: An evaluation of prospective clients and a review, on an ongoing
basis, of existing clients is to be conducted in order to minimize the likelihood of
association with a client whose management lacks integrity.
Preliminary Planning Activities include:
1. Background investigation of prospective client or evaluate continuance of
relationship with an existing client.
2. Evaluate Auditors ability to meet ethical requirements.
3. Establish terms of engagement.
New Client Investigation Procedures:
1. Financial Information obtain and review available financial information.
2. Third parties inquire about the reputation of the prospective client from third
parties.
3. Predecessor auditor obtain client permission to communicate with the
predecessor auditor and inquire about:
a. Reason for change of auditors.
b. Any disagreement between predecessor auditor and prospective client.
c. Information about the integrity of prospective client.

The auditor and the client should agree on the terms of the engagement. The
agreed terms would need to be recorded in an ENGAGEMENT LETTER or other
suitable form of contract.
Importance of the Engagement Letter:
To help in avoiding MISUNDERSTANDING with respect to the engagement.
To CONFIRM and DOCUMENT the auditors acceptance of the appointment, the
objective and scope of the audit, the extent of the auditors responsibilities to
the client and the form of any reports.
Principal Contents of the Engagement Letter:
1. Objective
2. Management responsibility
3. Scope of the Audit
4. Limitations of the Audit
5. Forms of Report
6. Unlimited access to records
RECURRING AUDITS: The auditor does not normally send new engagement letter
every year. However, the following conditions may cause the auditor to send a new
engagement letter:
1. Indication that the Management misunderstands the objective and scope of the
audit.
2. Change in original arrangements.
3. Change in management, BOD, or ownership.
4. Significant change in the nature and size of the business.
5. Legal requirements.
AUDIT OF COMPONENTS: The principal auditor may or may not send a separate
engagement letter to the component. Factors that influence the decision whether to
send separate engagement letter to the component include:
1. Who appoints the auditor of the component.
2. The extent of work of the other auditor.
3. Whether a separate audit report will be issued.
4. Degree of ownership.
5. Legal requirements.
CHANGE IN ENGAGEMENT: An auditor who is engaged to perform an audit of
financial statements may sometimes be requested by the client to change the
nature of engagement to one which provides a lower level of assurance. Before the
auditor honors the clients request, the auditor should consider the appropriateness
of doing so. Factors to be considered before accepting a change in engagement
include:
1. Reason by the client
2. Legal and contractual implications
Reasonable justifications for a change in engagement:
Change in circumstances affecting the need for the service
Misunderstanding as to the nature of an audit or related service originally
requested
Unacceptable reason for changing the nature of the engagement:
Restriction on the scope of the auditors examination
Change that related to information that is incorrect, incomplete or otherwise
unsatisfactory

PLANNING THE AUDIT

AUDIT PLANNING involves developing a general strategy and a detailed approach
for the expected scope of the audit.
IMPORTANCE OF PLANNING THE AUDIT:
Helps ensure that appropriate attention is devoted to important areas of the
audit
Helps identify potential problems
Allows the work to be completed expeditiously
Assists in proper assignment and coordination of work
Helps ensure that the audit is conducted effectively and efficiently
SCOPE: The extent of planning will vary according to the size of the entity, the
complexity of the audit and the auditors experience with the entity and knowledge
of the business.
AUDIT PLANNING STEPS:

1. Obtaining understanding of the entity and its environment consists of

understanding the following aspect:
a. Entitys Industry
b. Operations
c. Objectives/Strategy/Business Risks
d. Measurement of Performance
e. Internal Control System
CONTINUING NATURE:
Obtaining the required knowledge of the business is a continuous and cumulative
process of gathering and assessing the information and relating the resulting
knowledge to audit evidence and information at all stages of the audit.
CONTINUING ENGAGEMENT:
For continuing engagements, the auditor would update and reevaluate information
gathered previously, including information in the prior years working papers. The
auditor would also perform procedures designed to identify significant changes that
have taken place since the last audit.
2. Make a preliminary judgment about materiality levels (financial
statement and account balance level)
IMPORTANCE: The auditor should make a preliminary estimate of materiality
because there is an INVERSE relationship between the amount the auditor considers
to be material and the audit work necessary to attest to the fairness of the financial
statements.
STEPS IN APPLYING MATERIALITY
a. Set materiality at the FS level.
b. Allocate materiality to the account balances. The allocated materiality to any
given account is called the TOLERABLE ERROR for the account.
c. Compare the uncorrected likely misstatements with the overall materiality. This
is done in the COMPLETION PHASE of the audit.
Since planning is usually done before year-end, annual financial statements
are not yet ready. In this case, the auditor may use the following financial
statements as a basis for computing materiality levels: Prior Years FS; Budgeted FS;
Annualized Interim Income Statement
3. Establish overall audit risk, and assess inherent risk
IMPORTANCE: The auditor should establish audit risk and assess its components to
determine the nature, timing and extent of substantive tests.
AUDIT Risk - the risk that the auditor may unknowingly fail to appropriately modify
the opinion on materially misleading financial statements.

AUDIT Risk Model: Audit Risk and its components may be expressed in an
equation:
AR = IR*CR*DR

or

DR = AR
IR*CR
From the above equation, it is safe to conclude that DR is directly related to
AR and inversely related to CR and IR.
Three Components of AUDIT Risk:
INHERENT Risk - Uncontrollable; the susceptibility of an assertion to material
misstatements, assuming no related internal controls.
CONTROL Risk - Uncontrollable; the risk that could occur will not be prevented
or detected by the entitys internal controls.
DETECTION Risk- Controllable; the risk that the auditor will not detect
misstatements in the financial statements.

STEPS IN USING THE AUDIT RISK MODEL:

a. Set the planned level of Audit Risk.
b. Assess the level of Inherent and Control Risk.
c. Determine the acceptable level of Detection Risk.
d. Design the nature, timing and extent of the substantive test.
Of the three components of audit risks, only DETECTION RISK can be
controlled by the auditor by modifying the nature, timing and extent of
SUBSTANTIVE TEST. Since INHERENT RISK and CONTROL RISK are functions of
management and its environment, auditor can only assess their levels.
RISK ASSESSMENT PROCEDURES include:
1. Inquiry
2. Observation
3. Inspection
4. Analytical Procedures
4. Conduct preliminary analytical procedures
IMPORTANCE: Analytical Procedures in the planning stage of the audit assist the
auditor in:
a. Identify areas representing specific risks.
b. Enhance understanding of clients business
5. Identify related parties and determine the need to rely on the work of
others (expert, internal auditors and other auditors)
6. Document the planning process
a. OVERALL AUDIT PLAN is an overview of the engagement, outlining the nature
and characteristics of the clients business operations and overall strategy.
b. AUDIT PROGRAM is a detailed list of the procedures to be performed in the
course of the audit.
ADDITIONAL CONSIDERATION ON INITIAL ENGAGEMENT: On initial
engagements, additional evidence about the opening balances must be obtained.
Accordingly PSA 510 requires the auditor to obtain sufficient appropriate evidence
that:
a. Prior years closing balance have been correctly brought forward
b. Opening balances do not contain material misstatements
c. Accounting Principles used is consistent with the preceding year.

INTERNAL CONTROL
NATURE OF INTERNAL CONTROL
DEFINITION OF INTERNAL CONTROL STRUCTURE:
Policies and procedures established to provide reasonable assurance of achieving
the following objectives: Operational; Compliance; and Financial Reporting
MANAGEMENT RESPONSIBILITY:
The management is responsible for installing and maintaining adequate internal
control structure.
REASONABLE ASSURANCE CONCEPT:
This concept recognizes that the cost of internal control should not exceed the
benefit expected to be derived.

INHERENT LIMITATIONS of Internal Control:

1. Management Override
4. Changing Conditions
2. Collusion among Employees
5. Human Error
3. Unusual Transactions
6. Cost-Benefit Consideration
COMPONENTS of Entitys Internal Control Structure:
1. Control Activities
4. Monitoring
2. Risk Assessment Procedures
5. Control Environment
3. Information and Communication
Systems
CONTROL ENVIRONMENT
- sets the tone of an organization.
- foundation for other elements of internal control
- reflects the overall attitude, awareness and actions of
directors and management regarding the importance of
internal control.
FACTORS INFLUENCING this include:
a. Commitment to competence
b. Human resources policies/procedures
c. Assignment of responsibility
d. Management philosophy and operating style
e. Participation of the BOD/Audit Committee
f. Integrity/Ethical Values
g. Organizational structure
CONTROL ACTIVITIES
- policies and procedures that help ensure that
management directives are carried out. Policies and procedures that maybe
relevant to the audit include:
a. Performance review
b. Information processing
c. Physical control
d. Segregation of duties
ACCOUNTING SYSTEM
objectives.

- information system relevant to financial reporting

- It consists of the methods and records established to
identify, assemble, analyze, classify, record, and report
an entitys transactions and to maintain accountability
for the related assets and liabilities.

CLASSIFICATION OFCONTROL PROCEDURES IN AN EDP ENVIRONMENT:

A. GENERAL CONTROLS are controls that apply to overall EDP operations.
a. Organizational
b. Systems Development
c. Access
Controls
d. Hardware
e. Data and other procedural
B. APPLICATION CONTROLS are controls that relate to specific use of the system.
a. Input
b. Processing
c. Output

Controls

CONSIDERATION OF INTERNAL CONTROL

PRIMARY OBJECTIVES:
1. To plan the audit
2. To determine the nature, timing, and extent of procedures to be performed
SECONDARY OBJECTIVE:
1. To provide use for constructive suggestions

STEPS WHEN CONSIDERING INTERNAL CONTROL:

1. Obtain and document the understanding of the Internal Control.
Understanding the internal control involves obtaining knowledge about the
systems DESIGN and IMPLEMENTATION but not on its OPERATING
EFFECTIVENESS.
a. Reading procedures manual and making inquiries of employees help the
auditor to obtain knowledge about the DESIGN of the system while
WALKTHROUGH TEST are performed to obtain knowledge about the
implementation of the control.
b. After obtaining sufficient understanding of the control, the auditor should
document such understanding. Commonly used forms of documentation
include:
- I.C. Questionnaire
- Narrative
- Flowchart
2. Make a preliminary assessment of control risk

MAXIMUM LEVEL = NO RELIANCE on Internal Control

No tests of controls will be performed but extensive substantive tests.
REASONS:
- Controls appear inadequate.
- Controls do not pertain to assertions.
- Insufficient to perform test of controls.

REQUIRED DOCUMENTATION:
- Understanding of Internal Control.
- Conclusion that Control Risk is at a maximum level.
BELOW THE MAXIMUM LEVEL = RELIANCE on Internal Control; Auditor
wants to rely on the Internal Control

Identify specific internal control policies or procedures that are likely to detect or
prevent material misstatements.
Perform test of controls to determine the effectiveness of the design and
operation of the internal control policies and procedures
REASONS:

- Efficient to perform test of controls

REQUIRED DOCUMENTATION:
Understanding
Conclusion
Basis for the conclusion

APPROACHES IN COMPUTER AUDIT

A. BLACKBOX Approach is a term used to describe the approach of manually
testing transaction data by focusing on the input documents and detailed
output; Auditing AROUND the Computer.
B. COMPUTER ASSISTED AUDITING TECHNIQUEs (CAATs) is a term used to
describe the approach of testing the clients application program; Auditing THRU
the Computer.
a. TEST DATA involves entering fictitious data through the clients computer
system and comparing results obtained with predetermined results.
b. INTEGRATED TEST FACILITY involves processing test transactions
simultaneously with actual transactions.
c. PARALLEL SIMULATION involves creating a program to process or access
clients data recorded in a machine language.
d. SNAPSHOTS involve taking a picture of a transaction as it flows through the
computer system.
e. SYSTEMS CONTROL AUDIT REVIEW FILES (SCARF) involves embedding
audit software modules within an application system to provide continuous

monitoring of the systems transactions.

3. Design Substantive Tests Based on the assessed level of control risk
(combines with the assessed level of inherent risk); the auditor will determine
the acceptable level of detection risk. Accordingly, the auditor will determine the
nature, timing, and extent of his substantive tests in order to address the
acceptable level of detection risk.
CONTROL STRUCTURE COMMUNICATIONS
REPORTABLE CONDITIONS are significant deficiencies in the design or
operation of ICS noted by the auditor in the course of auditing the financial
statements.
MATERIAL WEAKNESSES are weaknesses in the internal control that
significantly affects the entitys ability to prepare reliable financial statements.
COMUNICATION REQUIREMENTS:
1. Although the auditor is not responsible for identifying significant deficiencies in
the ICS, the auditor is required to communicate to the audit committee
reportable conditions that come to his attention during the audit of financial
statements.
2. Communication may be written or oral, but it should always be documented in
the working papers.
3. Since it is only incidental to the audit, communication may be made either
during the course of the audit or after the audit report is issued.

PERFORMING SUBSTANTIVE TESTS

ASSERTIONS are representations by the management, explicit or otherwise, that

are embodied in the financial statements.
Assertions used by the auditor fall into the following categories:
1. Transactions/Events (IS)
a. completeness b. occurrence c. classification d.
accuracy e. cut-off
2. Balances (BS)
a. completeness b. existence
c. rights
d.
valuation
3. Representation and
a. completeness
b. occurrence and
rights &
obligations
Disclosure (Notes)
c. classification and understandability d. valuation
and accuracy
CLASSIFICATION OF PROCEDURES:
1. RISK ASSESSMENT PROCEDURES
are designed to obtain understanding of the
entity and its environment including its internal control. (Required)
2. TEST OF CONTROLS
are designed to test the operating
effectiveness of controls. (Not required)
3. SUBSTANTIVE TESTS
are designed to detect misstatements in the
financial statements which include: (Required)
TEST OF DETAILS involves examination of the details or items that comprise the
account balance or transaction class.
ANALYTICAL REVIEW PROCEDURES consist of evaluations of financial information
made by a study of plausible relationships among both financial and nonfinancial data.
TEST OF CONTROLS ARE REQUIRED TO BE PERFORMED when:
1. Reliance
2. Evidence of Substantive Test is not sufficient
ANALYTICAL PROCEDURES:
Basic Premise: A basic premise underlying the use of analytical procedures is that
plausible relationship among data may be reasonably be expected to exist and
continue in the absence of known conditions to the contrary.
IMPORTANCE: Helps identify unusual transactions.
USES:
A. To assist the auditor in PLANNING the nature, timing and extent of other
auditing procedures. Analytical procedures applied at this stage should be
focused on:
a. Identify areas represent specific risk
b. Enhance understanding of clients business
B. As a SUBSTANTIVE TEST in the TESTING PHASE of the audit. Analytical
procedures applied as substantive tests are designed to obtain corroborative
evidence about particular assertions related to the account balance or
transaction class.
C. As an OVERALL REVIEW of the financial statements in the COMPLETION stage
of the audit. Analytical procedures in the completion phase of the audit would
include:
a. Identifying unusual transactions
b. Determining validity of conclusions
PSA REQUIREMENT: PSA requires that analytical procedures be applied in the
PLANNING and COMPETION phases of the audit.
STEPS IN APPLYING ANALYTICAL PROCEDURES:
1. Develop expectations
2. Compare these expectations with the financial statements
3. Investigate significant unexpected differences (unusual fluctuations)

INFORMATION USED TO DEVELOP EXPECTATIONS:

1. Prior years FS
4. Non-financial information
2. Anticipated results
5. Typical relationship among FS
3. Industry averages
elements
The effectiveness of analytical procedures is affected by the PREDICTABILITY
OF ACCOUNT BALANCES. Presumptions about predictability of the accounts include:
Income statement accounts are more predictable compared to Balance Sheet
accounts.
Accounts that are not subject to management discretion are predictable.
Relationships in stable environment are more predictable than those in a
dynamic or unstable environment.
RELATIONSHIP BETWEEN SUBSTANTIVE TESTS AND TESTS OF CONTROLS:
Tests of Controls provide the auditors with evidence as to whether prescribed
controls are in use and operating effectively. The results of these tests assist
the auditor in evaluating the likelihood of material misstatements
having occurred. Substantive tests are designed to detect material
misstatements.
Tests of controls are performed to restrict substantive tests and therefore, the
more tests of controls the auditor performs, the greater will be the reduction
in substantive tests.
DIFFERENT MEANS OF TESTING that can be used by the auditor include:
1. AUDIT SAMPLING
2. SELECTIVE TESTING
3. 100% EXAMINATION
AUDIT SAMPLING involves an application of an audit procedure to less than 100%
of the items in the account balance or transaction class such that all units have a
chance of selection.
IMPORTANCE: Audit sampling allows the auditor to draw conclusion about the
characteristics of the population just by examining sample of evidence.
ASSUMPTION: Audit sampling is performed on the assumption that the SAMPLE IS
REPRESENTATIVE OF THE POPULATION, meaning that the sample will possess
essentially the same characteristics as the population.
AUDIT SAMPLING CAN BE USED WHEN THERE IS AN AUDIT TRAIL:
1. TEST OF CONTROLS
2. SUBSTANTIVE TESTS Test of Details
RISKS INVOLVED:
SAMPLING RISK is the risk that the auditor may draw erroneous conclusions because
the sample is not truly representative of the population.
SAMPLING RISKS IN SUBSTANTIVE TESTS:
INCORRECT ACCEPTANCE
the risk that the sample supports the conclusion
that the recorded account balance is not materially misstated when it is, in fact,
materially misstated.
INCORRECT REJECTION
- the risk that the sample supports the
conclusion that the recorded account balance is materially misstated when, in
fact, it is not materially misstated.
SAMPLING RISKS IN TEST OF CONTROLS:
OVERRELIANCE
- the risk that the sample supports the auditors
planned degree of reliance on internal control when the true operating
effectiveness of the control does not justify such reliance; Assessing control risk
too low.
UNDERRELIANCE
- the risk that the sample will not support the
auditors planned degree of reliance on internal control when the true operating
effectiveness of the control justifies such reliance; Assessing control risk too high

TYPE 1/ ALPHA RISK

- the risk of incorrect rejection and the risk of
assessing control risk too high relate to the EFFICIENCY of the audit. This could
result to more procedures to be performed than necessary.
TYPE 2/ BETA RISK
- the risk of incorrect acceptance and the risk of
assessing control risk too low relate to the EFFECTIVENESS of the audit. This could
potentially result in materially misstated financial statements from not expanding
audit tests to a necessary level. This type of risk is of greater concern to the auditor.
NON-SAMPLING RISK is the risk that the auditor may draw incorrect conclusions
even if he will examine the entire population. It includes all aspects of audit risk that
are not due to sampling.
WAYS TO MINIMIZE THE RISKS:
SAMPLING RISKS
NON-SAMPLING RISKS
Increase sample size
Adequate planning
Use appropriate method of selecting Review and supervision
sample
SAMPLING IN PERFORMING AUDIT TESTS:
ATTRIBUTE SAMPLING is a sampling plan used to estimate the occurrence
rate. This is generally used when performing tests of controls to estimate
the rate of deviations from prescribed internal control policies and procedures.
VARIABLE SAMPLING is a sampling plan used to estimate a numerical
measurement of a population such as peso value. This is useful when
performing substantive tests to estimate the amount of misstatements in the
financial statements.
GENERAL APPROACHES TO AUDIT SAMPLING:
STATISTICAL SAMPLING is a sampling approach that uses random based
selection of sample; uses the law of probability to measure sampling risk
and evaluate sample results.
NON-STATISTICAL SAMPLING is a sampling approach that purely uses
auditors judgment in estimating the risk, determining the sample size and
evaluating sample results; JUDGMENTAL SAMPLING.

Similaritie
s:
Difference
s:

Advantag
es:

STATISTICAL SAMPLING
NON-STATISTICAL SAMPLING
Both methods are acceptable.
Both methods will require auditors judgment.
Both methods could provide sufficient, competent evidence.
Both methods cannot assure that the sample will be representative
of the population.
Uses law of probability in - Based on auditors judgment.
estimating sampling risk
Allows
measurement
of - Less costly
sampling risk
More efficient sample
- easier to apply
Objective evaluation of sample
results
Objective
measurement
of
sufficiency of evidence

FACTORS AFFECTING THE DETERMINATION OF SAMPLE SIZE:

TESTS OF CONTROLS
SUBSTANTIVE TESTS
RELATIONSHIP TO
SAMPLE SIZE
Acceptable
risk
of Acceptable
risk
of
Inverse
assessing control risk too incorrect acceptance
low
Tolerable deviation rate
Tolerable
Inverse
error/misstatement
Expected deviation rate
Expected error
Direct
Variance in the population
Direct
Confidence level
Direct
SAMPLE SELECTION Methods:

RANDOM NUMBER SELECTION is a method of sample selection that selects

sample by matching random numbers (generated by computer or based on
random number table) with population numbering system like document
number.
SYSTEMATIC SELECTION is a method of sample selection that uses a fixed
interval (computed by dividing the number of physical units in the population by
the sample size).
HAPHAZARD SELECTION is a method of sample selection that applies the
auditors professional judgment in deciding which items should be included in
the sample without any conscious bias or special reason for including or omitting
items from the sample.
BLOCK SELECTION selects a group of items as sampling units rather than
individual items.
PROBABILITY PROPORTIONAL TO SIZE is a method of sample selection that
treats each peso as one sampling unit. In this type of sampling, the probability of
the item to be selected is directly proportional to its size.

STRATIFICATION/STRATIFIED SAMPLING is the process of dividing the

population into sub-population in order to a) decrease the effect of the variance
in the population and b) to give emphasis to material items.
SAMPLING APPLICATIONS:
TESTS OF CONTROLS
Attribute Estimation
Sequential Sampling
Discovery Sampling

SUBSTANTIVE TESTS
Classical Variable Sampling
a. Ratio Estimation
b. Difference Estimation
c. Mean per Unit Estimation
Value weighted Sampling

EVIDENCE
Sufficient, appropriate evidence is to be obtained through inspection, observation,
inquiries and confirmations to afford a reasonable basis for an opinion regarding the
financial statements under examination.
AUDIT EVIDENCE - all information used by the auditor in arriving at the
conclusions on which the audit opinion is based. This may consist of:
ACCOUNTING RECORDS (ex. Books of Accounts, Accounting Manuals, informal
records)
OTHER CORROBORATING INFORMATION (ex. Confirmation replies, minutes of
meetings and comparable data from competitors)
QUALITIES OF EVIDENCE
A. SUFFICIENCY
- measure of the quantity/amount of evidence the auditor should
obtain
a. The more competent evidence is, the less amount of evidence needed.
b. The more material the account balance is, the greater amount of evidence is
needed.
c. The higher risk is involved, the greater amount of evidence is required.
B. APPROPRIATENESS
- measure of the quality of evidence needed to support
the auditors opinion. It has the following ingredients:
a. RELIABILITY - this is influenced by the nature of evidence, its source, and the
circumstances under which it is obtained.
Presumptions:
Evidence obtained from independent sources outside an entity is more
reliable than evidence secured solely within the entity.
The more effective the internal control structure, the more assurance it
provides about the reliability of the accounting data and financial statements.
The independent auditors direct personal knowledge, obtained through
physical examination, observation, computation and inspection, is more
reliable than information obtained indirectly.
b. RELEVANCE - refers to the timeliness of evidence and its relationship to the
auditors objective.
Ultimately, the decision as to the sufficiency and competence of evidence will
depend upon the auditors judgment.
AUDIT DOCUMENTATION
WORKING PAPERS are documentation of the audit procedures applied,
information obtained and conclusions reached. It may be in the form of data stored
on paper, film or other media.
PRIMARY PURPOSES:
1. Aid in conduct and supervision of engagement
2. Provide principal support for auditors report
3. Support auditors representation of compliance with PSA

CLASSIFICATIONS: Working papers are typically classified into:

CONTINUING/PERMANENT WORKING PAPER FILE contains information of continuing
significance to the auditor in performing recurring audit. (Example: Articles of
Incorporation and by-laws, copies of major contracts, engagement letter,
organizational chart, analyses of long-term accounts and internal control analyses)
CURRENT/TEMPORARY WORKING PAPER FILE contains evidence gathered and
conclusions reached relevant to the audit of a particular year. (Example: copy of
financial statements, audit program, correspondence with lawyers, customers, bank
and management, working trial balance, lead schedules, detailed schedules)
OWNERSHIP: Working
rights to the working
sometimes serve as a
auditor) but they should

papers are property of the auditor and the client has no

papers prepared by the auditor. Working papers may
reference source for the client (at the discretion of the
not be considered part or substitute for the clients records.

CONFIDENTIALITY: Working papers cannot be shown to third parties without the

clients consent except:
a. Security of the State ; or
b. Legal/Professional Responsibility requires.
CUSTODY: Working papers should be retained by the auditor for a period of time
sufficient to meet the needs of his practice and to satisfy any pertinent legal
requirements of record retention.
FORM AND CONTENT OF WORKING PAPERS: The extent of auditors
documentation should enable an experienced auditor, having no previous
connection with the audit to understand:
a. Nature, timing and extent of procedures performed
b. Audit evidence obtained
c. Significant matters identified during the audit and conclusions reached
GUIDELINES FOR THE PREPARATION OF WORKING PAPERS: The following
techniques may
1. HEADING indicates the name of the client, type of working paper, date or period
covered by the examination.
2. INDEXING is the use of lettering or numbering system
3. CROSS REFERENCING is providing a trail to facilitate the review of the working
papers.
4. TICKMARKS are symbols used by the auditor to describe the procedures
performed.

COMPLETING THE AUDIT

SUBSEQUENT EVENTS are material transactions or events that occur after the
balance sheet date prior to the issuance of the financial statements and the
auditors report, that require adjustment of or disclosure in the statements.
TYPES OF SUBSEQUENT EVENTS:
TYPE 1
- Events that provide evidence about conditions that existed as of the
balance sheet date. This type of event will require Adjustment.
TYPE 2
- Events that provide evidence about conditions that arose after the
balance sheet date. This type of event will require Disclosure.
Interim Period

Subsequent

Period

SUBSEQUENT EVENTS
TYPE 1

TYPE 2

Conditions Existing
Arising
ON or BEFORE
Balance Sheet Date
Date
ADJUST FS amounts
DISCLOSURE

Conditions
AFTER
Balance Sheet

Consider

PROCEDURES USED TO IDENTIFY SUBSEQUENT EVENTS:

1. Inquiry
2. Evaluating clients procedures
3. Reading the minutes of the BOD/stockholders meetings
4. Audit inquiry to clients lawyer
5. Compare latest available interim FS

for

NOTE

Beginning of
Issuance of
Current Year
Report

Balance Sheet

Last Day of

Date

Fieldwork

Audit

Perform Audit Procedures

Responsible Only for Information
To search for subsequent events.
Auditors Attention

Coming to

REPORTS ON FINANCIAL STATEMENTS

A. STANDARD UNQUALIFIED REPORT
B. MODIFICATION OF REPORT
Situation
GAAP Departure
Scope Limitation

IMMATERIAL
Unqualified
Unqualified

- affecting the auditors opinion

MATERIAL
Qualified
Qualified

PERVASIVE
Adverse
Disclaimer

MODIFICATION OF REPORT
- not affecting the auditors report;
Unqualified Report with an emphasis of a matter paragraph
Conditions:
a. Uncertainty
b. Going concern uncertainty
c. Justifiable departure from PFRS/PAS
d. Inconsistency: would normally require consistency paragraph
e. Changes affecting accounting principles
f. Changes in Reporting Entity
C. REPORTS ON CONSOLIDATED FINANCIAL STATEMENTS
a. Factors to be considered in deciding whether to act as the Principal Auditor:
1. Materiality of the portion of the FS audited
2. Risk of material misstatement of components FS
3. Degree of knowledge of overall opinion
b. Procedures to be performed when planning to use the work of other Auditor:
1. Competence
2. Independence
3. Adequacy of work performed
c. Additional procedures to be performed when planning to assume
responsibility for the work of other auditors:
1. Review of working papers
2. Discuss procedures applied by other auditor
3. Consider significant findings and discuss with components management
D. REPORTS ON COMPARATIVE FINANCIAL STATEMENTS

PSA 710 has identified two methods and presentations of comparatives. These
are:
a. CORRESPONDING FIGURES where amounts and other disclosures for the
preceding period are:
Not presented as complete financial statements capable of standing alone, but
Are not an integral part of the current period financial statements
b. COMPARATIVE FS where the amounts and other disclosures for the preceding
period are:
Included for comparison with the financial statements of the current period
Do not form part of the current period financial statements

E. OTHER INFORMATION
MATERIAL INCONSISTENCY exists when other information contradicts
information contained in the audited financial statements.
MATERIAL MISSTATEMENT exists when information, not related to matters
appearing in the audited financial statements, is incorrectly stated or presented.
F. SPECIAL PURPOSE AUDIT ENGAGEMENT INCLUDE:
a. FS Reports using other comprehensive basis of accounting
b. Reports on specific element/account of FS
c. Reports on compliance with contractual agreement
d. Report on summarized financial information

G. REPORTS ON PROSPECTIVE FINANCIAL STATEMENTS

- future oriented
a. FORECASTS are prospective financial statements that present an entitys
expected financial position, results of operations and cash flows.
b. PROJECTION are prospective financial statements that present an entitys
estimate of its financial position, results of operations and cash flows given
one or more hypothetical assumptions.
PROFESSIONAL RESPONSIBILITIES
Responsibility for the Financial Statements:
MANAGEMENT is responsible for preparing and presenting the financial
statements in accordance with the financial reporting framework.
AUDITOR is responsible for forming and expressing an opinion on the financial
statements.

AUDITORS RESPONSIBILITY FOR

FRAUD, ERROR AND NON-COMPIANCE WITH LAWS AND
REGULATIONS

Definition

Examples

Detection
Responsibilit
y

FRAUD/IRREGULA
RITY
Intentional
misstatements in
the financial
statements.
Management Fraud;
Collusion
a.
Assess the
risk of
misstatement
b.
Design the
audit to provide
reasonable
assurance of
detecting material
fraud

ERROR
Unintentional

NONCOMPLIANCE
Commission/Omissi
on contrary to
law/regulations

Oversight/misinterpret
ation of facts;
mistakes in processing
of data
a.
Assess the risk
of misstatement
b.
Design the
audit to provide
reasonable
assurance of
detecting material
fraud

Tax evasion;
violation of
occupational safety
and health law
a.
Understandin
g the legal
framework
b.
Perform
procedures
c.
Obtain
evidence of
compliance

 Reporting
Responsibilit
y

Withdrawal
from the
Engagement

a.
To the
appropriate level
of management
b.
To the users
of the financial
statements
c.
To successor
auditor
The auditor may
withdraw from the
engagement if the
management does
not take remedial
action the auditor
considers necessary

a.
To the
appropriate level of
management
b.
To the users of
the financial
statements
c.
To successor
auditor
The auditor may
withdraw from the
engagement if the
management does not
take remedial action
the auditor considers
necessary

a.
To the
appropriate level
of management
d.
To the users
of the financial
statements
e.
To successor
auditor
The auditor may
withdraw from the
engagement if the
management does
not take remedial
action the auditor
considers necessary

OTHER TYPES OF SERVICES

Nature of
Service
Level of
Assurance
Type of
Report
Basic
Knowledge
Basic
Procedures
Independenc
e
Requirement

AUDIT

REVIEW

High/Reasonab
le
Positive
Assurance

Moderate/Limit
ed
Negative
Assurance

AGREEDUPON
PROCEDURE

COMPILATION

None

None

Description
and Report

Identification
of FS compiled

Sufficient understanding of entitys FS

Audit
procedures
deemed
necessary

Inquiry/
Analytical
Procedures

Required

Agreed Upon
Procedure

None

Not required