Professional Documents
Culture Documents
INTRODUCTION
1
expression to the public in maintaining or enhancing their confidence in the government
agencies from the outcomes and services provided by governmental audit lead by COA.
The researchers conduct this study because they believe that this study has not
been done before. They want to convey how COA’s auditors lend credibility to the
financial statements prepared by the government agencies. They want to gather enough
information on how these auditors act as guardians of public interest considering the
Code of Ethics given by the standards. The CPA’s paramount concern is the public.
They are viewed as guardians of the public interest. By providing assurance to financial
statements and other subject matter, they serve as the connecting arm between the
financial statements prepared by the management, and the public (Ireneo, 2018).
Auditing is one of the realistic business courses of the researchers that is why
they have decided to conduct a study relating to it for them to have a better
understanding about it. Conducting this study also enables the researchers to interact
well with the people in the field of auditing.
The overall objective of this study is to assess the responsibilities of COA’s
auditors in enhancing public confidence in financial report. The research study also
wants to find out how auditors provide public confidence in financial reporting of the
government agencies. Moreover, they want to determine the safeguards they are
applying in order to eliminate the threats they are facing. In addition, the researchers
want to know how the management of the government agencies prepares its financial
statements to achieve its goals and objectives.
Auditing was driven by the demand of the external users. The researchers want
to help individuals be enlightened and be free from ignorance. This study helps the
professors to be competent enough in every lessons they will impart to their students.
Also, for the accounting students as well as the researchers to have a deeper
understanding about audit which will help them visualize and be ready for their future
careers. Furthermore, the researchers want to recommend this study to the future
researchers who will conduct study related to it.
2
1. What are the responsibilities of COA’s auditors in enhancing public
confidence in financial report?
2. What are the safeguards they are applying in order to eliminate the threats
they are facing during the audit?
3. How does the management of the government agencies helps in achieving its
goals and objectives?
3
An article, “The corporate governance effects of audit committees” written by
Stuart Turley and Mahbub Zaman (2014), It is clear that there is no automatic
relationship between the adoption of audit committee structures or characteristics and
the achievement of particular governance effects, and caution may be needed over
expectations that greater codification around factors such as audit committee members’
independence and expertise as the means of ‘‘correcting’’ past weaknesses in the
arrangements for audit committees.
4
audit committee disclosures: the annual report of the audit committee; reporting of
the audit committee charter in the proxy statement at least once every three years;
and disclosure in the proxy statement of whether the audit committee had fulfilled its
responsibilities as specified in the charter. This study conducts a content analysis
on audit committee disclosures of Fortune 100 companies.
5
is directed towards those who are interested in different audit models and ways of
organizing the audit. Since we aim to suggest effective ways in performing an audit, this
document can be the researcher’s basis for coming up with an effective audit.
In the journal, “Ensuring Confidence in Audit” which was written by Nagoya, et. Al
(2016), with regards to the recent cases of accounting fraud, it has been pointed out
that the ability to detect corporate fraud had been insufficient at the individual
accountant level as well as on an organizational level. It is a major issue how CPAs with
the ability to detect corporate fraud and high spirits for squarely facing management and
expressing opinions without flinching when finding the indication of fraud should be
cultivated and secured in order to prevent a recurrence of this sort of circumstance. In
addition, it is necessary to improve robust audit systems under the effective governance
and management that functions effectively as well as enhance the ability of the
individual CPAs so that audit firms can appropriately respond to corporate fraud as an
organization.
6
Philippine Constitution created the Commission on Audit that is one of the three
constitutional commissions that prevents the irregular use of government funds and
properties. This article also said that the Commission on Audit according to report
released of PCTC, serves as a watchdog of the financial operations of the government.
COA is empowered to examine, audit, and settle all accounts pertaining to the revenue
and receipts of, and expenditure or uses of funds and property under the custody of
government agencies and instrumentalities. It also promulgates accounting and auditing
rules and regulations for the prevention and disallowance of irregular. Unnecessary,
excessive, extravagant, or unconscionable expenditures, or use of government funds
and properties.
An article, “COA pushes for a more effective use of Disaster Funds” which was
written by the Commission On Audit Philippines (2014), which stated that Commission
on Audit improves transparency and accountability on the use of disaster funds by
launching the Disaster Risk Reduction and Management (DRRM) Accounting and
Reporting Guidelines to all government agencies in line with its constitutionally
mandated duty of promulgating accounting and auditing rules and regulations. It also
expressed that the set of guidelines formulated by COA, in partnership with the
Australian Embassy, establishes the proper decorum on the receipt and utilization of
DRRM funds. The guidelines, benchmarked against international standards on
accounting and audit, will ensure that all disaster related funds and donations are
properly accounted for and that DRRM funds are properly utilized for the purpose.
7
access to finance, legislation was enacted to support the objective of increasing the
integrity of private sector financial reporting through improved audit quality. Accordingly,
the Board of Accountancy was mandated with the power to conduct oversight into the
quality of audits of financial statements through a review of the quality control measures
instituted by auditors in order to ensure compliance with the accounting and auditing
standards and practices. . However, the injunction remains in place and, accordingly,
implementation of the mandated Quality Assurance Review Program may not move
forward. Several concrete steps should be taken in order to effectively move forward
with the rollout of a comprehensive system of public oversight including audit quality
assurance in the Philippines. These include (1) reforming the legal framework to
establish an effective audit oversight system with sufficient legal power and authority (2)
rationalizing the statutory audit threshold to minimize the conditions contributing to low
quality audits, (3) building support among key stakeholder groups by properly
addressing their concerns to the extent possible, (4) ensuring coordination of efforts
among regulators to eliminate gaps and overlaps and foster collaboration among the
group, and (5) establishing a dedicated Project Management Office to oversee the
rollout of a Quality Assurance Review Program over audit practitioners.\
8
Alex B. Brillantes, Jr. and Maricel T. Fernandez (2013), this talks about what is the state
of trust of the public to the Government and tackles about how we can restore this trust
and build integrity in Government. This literature provides the researchers additional
ideas of how to accomplish the objective of Enhancing public confidence.
Office of the President (2014), this State Audit Code of the Philippines by the
Office of the President will be a big help for the researchers in enlightening us about
what the Commission on Audit. This provides the general provisions of the duties and
functions of the COA who performs governmental audit.
9
interest uses and expectations form the financial statement prepared by directors of the
company. The stakeholders of the professional accountant includes and is not limited to
the general public, shareholders-potential and existing, government at various level,
creditors, debtors, employees, management, etc.
10
In the study “Auditors ’Ethics and their Impact on Public Trust” written bv
Alexandra Ardelean (2013), the well-known and widely publicized series of financial
scandals have revealed that public trust was deeply eroded with regards to the public’s
perception of the audit process. The growing mistrust led to questioning the auditor’s
role as well as his contribution to the social warfare, since the auditor is perceived as an
agent acting in the public interest. This raising concern prompted us to investigate within
this study if and how the perceived ethics of auditors influence the trust bestowed on the
profession by the wide public. The methodology we employed in our demarche
consisted in a constructivist analysis and thus, this paper investigates if auditors’ ethics
were compromised by conflicts of interest, which could have prevented them from
acting as agents of trust. Results show that growing efforts the auditors display cast a
positive gleam on public trust. Also, increased regulation, as well as communication
between auditors and regulatory bodies is likely to have a positive effect on public trust.
In conclusion, growing attention to ethics derives from higher attention to quality.
According to the study entitled “Ensuring Confidence in Audit” which was written
by Yoshikazu Wakita et al (2016), stressed that it is expected that the relevant parties
involved with audit will work toward the realization of these recommendations, leading to
a virtuous cycle as follows: ・ Audit firms make management work effectively under the
effective governance and implement high-quality and transparent audit along with
companies; ・ Companies and their shareholders appropriately evaluate audit quality
and begin to request to audit firms for audits based on such evaluation; and ・ This
trend leads to the increase of incentives to provide audits with higher quality and the
improvement of audit fee of audit firms resulting from finding value in high quality audit
by shareholders and companies. It is desired that the development of this virtuous cycle
will lead to the continuous improvement of audit quality in the market as a whole.
Furthermore, it is also expected that as audit firms conducting audits of large listed
companies, etc., increase, with this improvement of the quality and transparency of
audits, large listed companies, etc., and their shareholders will be able to select audit
firms among a wider range of options based on the appropriate evaluation. We expect
that the relevant parties will promptly carry forward work for the implementation for
11
recommendations that are able to be conducted immediately, and we will follow the
progress. In addition, we request that the relevant parties will promptly carry out survey
on recommendations that require further research and analysis. We will conduct further
study as necessary considering the results of research and analysis. Various
discussions over the systems of audit are now being held. We expect that the relevant
parties will continuously make positive discussions, and we will keep a close watch on
these discussions and add further consideration on the systems of audit as necessary,
from the viewpoint that audit will appropriately play a role as essential infrastructure for
the capital market.
In the study, “Solved: Ethics and Corporate Social Responsibility” which was
witten by Philip (2018), much more stress is placed on auditors in the perspective of
corporate governance because in most of cases, auditors will be the first person to spot
corporate abuse. This is due to the nature of auditing function and the purpose of
auditing company accounts. It can also be a case of the only person who is aware of the
misuse besides the wrongdoers. Thus, in many cases the auditors prefer to fall short to
discover the wrongdoing at the expense of their duties and obligations. Auditor has to
be bold enough to bring forth all the facts in his report and there should be no hesitation
on his part in disclosing the defects, defaults, irregularities, discrepancies etc., even if
the management of the company is involved in the same. He must perform his duties in
right earnest and honestly. For the same, audit committee should monitor auditor’s
performance. The audit committee should discuss various matters with the auditor
related to their independence and what audit committee expects from auditor in interest
of shareholders and other stakeholders except management. But it is not only expected
from auditor to do his duties diligently but also audit committee should have guts to ask
questions to management regarding any matter which is related to shareholders and
investing community.
According to the study entitled, “Corporate Governance and Its Impact on Audit
Practice” which was written by Ruja (2016), corporate governance means acceptance of
12
management as trustees on behalf of the shareholders and to secure their rights as the
true owners of corporation. It is about maintaining commitments to code and conduct,
ethics and values in organization, as corporate governance is nothing but ethics and
moral duties. Code of corporate governance enhances the effectiveness of audit in the
interests of stockholders and stakeholders and that is why they are relying on auditor
heavily. Auditor has power to detect wrongdoer in management and report on the
company objectively. An independent auditor can play his role effectively and maintain
good governance. They can also remove bias from company’s financial reports. But on
the availability and effectiveness of quality auditors, some argue that East Asian
auditors lack expertise or willingness to supply quality audits. There is also some
concern that auditors’ monitoring role may be in conflict with their consulting activities
with client firms, an issue not unique to Asia. Also, the disciplinary mechanisms for
auditors may be poor, which may have diluted the independence of auditors in Asia.
Furthermore, initiatives have been taken by drawing up the Code in ensuring that the
Board of Directors is responsible and accountable. So the independent directors in
auditing committee can encourage auditor to perform his role diligently and honestly.
13
theoretical framework, defining what “good government auditing” consists of, in order to
study if such auditing has positive effects on public sector performance. The paper
presents a definition of good government auditing which builds on three core principles:
independence, professionalism and recognizing the people as the principal, which is
operationalized and tested empirically in the paper. Using data from a unique worldwide
expert survey, covering 122 countries, the results clearly demonstrate that good
government auditing has a distinct positive and statistically significant effect of the
performance of the public sector. These findings indicate that merely conducting audits
of the public sector is not sufficient, auditing also needs to be organized according to
certain principles, in order to contribute to well-functioning public administrations.
In the study, “Balancing the Public and the Private Interest – A Dilemma of
Accounting Profession” which was written by Adriana Tiron Tudor (2013), aims to
discuss about public interest. It says that public interest is highly important to the
accounting profession. It is because, according to the professions code of ethics, “a
label of the accountancy profession is its acceptance of the responsibility to act in the
public interest"(IFAC, 2013), but there is not a common consensus on what exactly is in
the public interest. In the same time, the accountancy profession includes individuals
and private companies profit oriented. In this circumstance, the objective of the study is
to explain the concept of public interest from both sides: the accounting profession, and
expectations of the interested parties.
A study, “Auditors’ Ethics and their Impact on Public Trust” written by Alexandra
Ardelean (2014), talks about the growing importance of ethics within the audit
profession is due to the highly resonating financial scandals which had a negative
impact on the auditors. The consequence was that the auditors’ integrity and morality
were questioned by users of audit services. Moreover, reserves were expressed with
regards to auditors’ legitimacy on the market, as their ethics appeared as having been
compromised.
14
Related Studies (Local)
In the study written by Maria Fe Villamejor (2015) which entitled “Policy Reforms
to Improve the Quality of Public Sectors in the Philippines”, studied about the changes
or reforms that could be applied in this country to be able to compete, reach its goal and
to have success. This study stated solutions that could be made in order to remove or
just even lessen the problems that this country is facing. The study aspire to improve
the quality of public services that includes governance that aims to curb corruption ,
improve the delivery of public services especially to the poor, enhance the business and
economic environment of the country as a whole.
Rufo Mendoza, PHD, CPA (2016) on his study “ Research Competencies and
Interests of Accounting Educators in the Philippines” A national survey to determine the
level of research competency of accounting teachers was conducted from July to
September 2007 through the assistance of the Association of CPAs in Education
(ACPAE) and the Philippine Institute of Certified Public Accountants (PICPA). A total of
132 accounting teachers responded. Overall findings showed that the similarity of
fundamental accounting processes with certain research processes enhances the
competency of accounting teachers in business research. Accounting teachers have a
15
“practitioner” level of competency in the five research processes: conceptualization,
operationalization, data collection, data processing and analysis, and research
application. This indicates that accounting educators in general have an ‘average’
knowledge and are capable and ready to use their competency but lack the speed and
flexibility of the proficient researcher. Thus, their skills must be enhanced to transform
them into ‘experts’. There are different ways of learning research and all of these are
regarded as very important by the respondents. Actual research experience is the
predominant source of knowledge and skills. This indicates the need for educational
institutions to provide avenues for its faculty to conduct research. Unless a teacher
engages himself or herself in the actual nitty-gritty of scientific research, he remains an
amateur. Actual research should be supplemented by trainings and seminars sponsored
by the school. Moreover, Masteral courses are important in preparing the faculty
extensively for research. This can be supplemented by the self-study or reading of
reference materials on research. Schools have two-fold expectations from accounting
educators: to come up with research outputs and to teach students how to conduct
research. These expectations can be met only if the research competency of accounting
educators is at a level that can enable production of research outputs. At the same time,
it is important that a research agenda be crafted by both the school administrators and
teachers to balance the thrusts of the former and the interests of the latter. Such a
research agenda would provide the concrete framework that will guide both the
educational institutions and individual researchers. Needless to say, professional
organizations involved in accounting education should unify their efforts to pursue the
common goal of enhancing research in accounting education.
16
number of government agencies are unable to officially establish an internal audit unit
(IAU). This paper answers the following questions: (1) What initiatives have been
undertaken by the Philippine government to institutionalize internal audit services (IAS)?
(2) What are the issues that continue to confront government agencies in establishing
and enhancing IAUs? (3) What prospects remain in store for internal auditing in the
Philippine government?
The Aquino III administration took office at the time when corruption was
perceived to have undermined the economy and the credibility of the country .The
President believed that the nation needed transformational change and a vision of
governance beyond political survival and self-enrichment Turning these challenges as
opportunities to change mindsets and systems, the administration instituted a
comprehensive set of policy reforms and good governance initiatives that aspires to
engender a culture of integrity, accountability and transparency in the country. This was
anchored on Aquino III’s campaign slogan of “tuwid na daan” (literally translated as “the
straight path”) arguing that “kung walang corrupt, walang mahirap” (, i.e., “if there is no
corruption, there are no poor”). Recently, such strategy seems to have bore fruits. The
Philippines has been among the dynamically emerging markets in the region with its
sound economic fundamentals and highly skilled workforce. Growth in the Philippines is
on average about 5% since 2002, significantly higher than the rate achieved in the
previous two decades (http://www.worldbank.org/en/country/philippines/overview). Amid
global uncertainties and a string of calamities that hit the country that included typhoon
Haiyan (Yolanda), the economy posted 7.2% GDP growth in 2013, driven by the robust
services and industry sector, and boosted by strong household consumption and
government spending. Growth momentum was maintained at 6% in the first half of
17
2014, and remained one of the fastest in East Asia region, surpassed only by China
(7.4%) and Malaysia (6.3%) (Ibid) While the country is making headway in the economic
front, inclusive growth is not yet felt by many of the Filipinos in the bottom of the
pyramid. Also, some 25% of our population is still poor (Philippine Statistical Authority
2014). Thus the Philippine government needs to intensify efforts in reducing poverty,
achieving universal primary education and in improving child and maternal health. It
also needs to address the lack of good jobs among low- income earners, especially
those from rural area where many poor people reside
(http//www.worldbank.org/en/country/philippines/overview). It has also to deliver public
services to its growing population not only efficiently and effectively, but also
satisfactorily better in the new norms of good public administration and governance.
These challenges have been approached based on the Aquino III’s philosophy of “good
governance is good economics”, which as earlier mentioned, is anchored on his
campaign slogan of “kung walang corrupt…walang mahirap.” (Fig. 1). Literally, this
means, “if there is no corruption, there are no poor.” This basically summarizes his
Social Contract with the Filipino people, which subscribe to good governance and anti-
corruption as prerequisites to inclusive growth and poverty alleviation and all the
progressive collaterals of development, e.g., lasting peace and the rule of law, integrity
of the environment. A Governance Cluster within the Cabinet was also formed in 2011
under E.O. 43, which was tasked to pursue the following: 3 1. Upholding transparency
in government transactions and commitment to combating graft and corruption 2.
Strengthening of the capacity of government institutions to link their respective budgets
with performance outcomes and enabling citizens and civil society to monitor and
evaluate these 3. A professional, motivated, and energized bureaucracy with adequate
means to perform their public service missions 4. Improvement of public sector asset
and resource management and revenue performance 5. Establishing an improved
policy and regulatory environment that will reduce the cost of doing business in the
country and improve competition (E.O. 43 s 2011).
18
the World Bank-IMF joint initiative on Reports on the Observance of Standards and
Codes (ROSC). The assessment focused on the institutional arrangements that
underpin the quality of accounting and auditing practices. In addition, a cross section of
country stakeholders, under the leadership of the Board of Accountancy (BOA), took
part in a self-assessment exercise in May and June 2001 to review local accounting and
auditing standards against the benchmarks of the International Accounting Standards
(IASs) and the International Standards on Auditing (ISAs).
19
In the study, “The State of Internal Audit Practice in Selected Philippine
Government” written by Cecilia Junio-Sabio, DPA (2013), it is the researcher’s belief
that there is a need to intensify and accelerate the current state of internal audit practice
in the government especially if the goal is to achieve an efficient and economical public
service and minimizing, if not eliminating graft and corruption in the government.
The review of related literature and studies gives the researchers a detailed
background and ideas related to the present study to be conducted. The gathered
related literature that were provided by online articles which discussed information and
data relating to the different inventory valuation method.
To add, the related studies gathered by the researchers that were from other
researches, case studies and dissertations which are directly related in the present
study, worked as the complement of related literature to provide a solid foundation on
the supporting ideas for them.
THEORETICAL FRAMEWORK
Auditor’s Independence
Legitimacy Theory
Theory of Agency
rational
Theory
expectations
20
Auditor’s Experiences
Figure 1
The figure shows how theories connect to each other on relation to the main focus of the
study.
CONCEPTUAL FRAMEWORK
Over the years, issues concerning corruption and misuse of government funds
constantly arise. This means an ethical line has been crossed. Governments can’t act
freely and democracy can’t function. Our trust in politicians is damaged and questioned.
Even when such illegal activities continually emerge and all of them who do this end up
in the same spot, they are still persistent in doing this kind of activity. That is why they
designed a tool for effective reporting, to hold management to strict accountability for all
acts during their preparation of financial statements which is the Commission on Audit.
They apply “a systematic process of objectively obtaining and evaluating evidence
regarding assertions about economic actions and events to ascertain the degree of
correspondence between assertions and established criteria” called Auditing (American
Accounting Association’s). This study tackles the procedures of COA’s auditors in
examining the financial statements of the government agencies that will help enhance
the public confidence.
HYPOTHESIS
DEFINITION OF TERMS
CHAPTER II
22
METHODS
This chapter details out the research methodology used by the researcher in
completing the present study. This includes research design, source of data, population
and sampling technique, data gathering procedure, data analysis, administration and
retrieval of the instrument and statistical treatment of the study. The research
methodology has to be robust in order to minimize errors in data collection and analysis.
RESEARCH DESIGN
Similarly, the present study opines that research design is a scheme that is used
by the researcher for specific structure and strategy in investigating and evaluating the
relationships existing among variables of the study so as to enable the researchers
collect the data, to be used for the study. It must, however, be borne in mind the fact
that the design chosen must measure appropriately the phenomena that is of interest
and obtain data that will lead to a useful conclusion.
The exploratory and descriptive research design was adopted due to the nature
of the study. Exploratory research provides insights into and comprehension of an issue
or situation. Exploratory research is a type of research conducted because a problem
has not been clearly defined. Exploratory research helps to determine the best research
design, data collection method and selection of subjects. While descriptive research,
also known as statistical research, describes data and characteristics about the
population or phenomenon being studied. Descriptive research answers the questions
who, what, where, when and how. The researchers used the Descriptive Research
Method wherein the study dealt primarily in knowing the roles of Commission on Audit in
auditing government agencies. This involves descriptive data gathering which is a vital
method because of the fact that this type of research method’s main purpose is to get
23
appropriate data derived from the respondents. In order to satisfy the objectives of the
study, a qualitative research was held. The main characteristic of qualitative research is
that it is mostly appropriate for small samples, while its outcomes are not measurable
and quantifiable. Its basic advantage, which also constitutes its basic difference with
quantitative research, is that it offers a complete description and analysis of a research
subject, without limiting the scope of the research and the nature of participant’s
responses (Collis & Hussey, 2003).
Thus, on the basis of the above, the two research designs were appropriate for
the present study as it was important to measure the development in enhancing
confidence and credibility of governmental audit.
SOURCE OF DATA
The researchers will gather the data from the auditors of Commission on Audit
through distribution of survey questionnaires via e-mail to each of the respondents.
The method of purposive sampling was used to develop the sample of the
research under discussion. Since the researchers are bounded by time and money,
and because of these limitations, and to randomly sample the entire population is
not possible. According to this method, which belongs to the category of non-
probability sampling techniques, sample members are selected on the basis of their
knowledge, relationships and expertise regarding a research subject (Freedman et
al., 2007).
The study aims at auditors in the Commission on Audit main office who have
experienced work in the field of auditing. Ten (10) to twenty (20) auditors will be asked
to answer questions relevant to the present study. The sample members are selected
by the researchers with the help of their co-author. They are selected on the basis of
their accessibility or by the purposive personal judgment of the researchers.
24
DATA GATHERING PROCEDURE
The researchers are to send an e-mail to the available auditors to formally ask
them to answer the distributed questionnaires. They are to collect data from the
questionnaires distributed to auditors. Relevant documents-audit plans, audit programs,
working papers, audit reports, audit manuals and auditing standards which serve as
means of generating secondary data. The researchers will also use email and
telephone in order to reach out the respondents in case of any additional information
are needed.
DATA ANALYSIS
The method to be used in analyzing and interpreting the data gathered is the
qualitative data analysis. It is simply the process of examining qualitative data to
derive an explanation for a specific phenomenon. The researchers also used
deductive approach to qualitative analysis. Research questions serve as a guide in
grouping and analyzing the data.
APPENDIX I
25
Bibliography
Commission On Audit. COA pushes for a more effective use of Disaster. Philippines,
2014.
Bartleby The Issue of Accounting Entity Definition in Regards to Noms in the Area
of a Public Company in the UK. South Africa, 2016.
26
Oyebisi, O. Impact of Public Sector Auditing in Promoting Accountability and
Transparency in Nigeria. Nigeria, 2017.
The Committee of Public Accounts (2012–81). First Special Report ‘The Role of the
Comptroller and Auditor General’ (HC 115): 11th Report of the Expenditure
Committee (1976–77, HC 535).
White (2015).www.cambridge.org/core/journals/legal-studies/article/audit-
accountability-and-independence-the-role-of-the-audit-commission
27
Restoring_Public_Confidence_in_Capital_Markets_through_Auditor_Rotation
[accessed Jul 09 2018].
28
K. Sambile (2018) Auditors’ Ethics and their Impact on Public Trust. Available
from:
https://www.researchgate.net/publication/275537624_Auditors'_Ethics_and_their_
Impact_on_Public_Trust [accessed Jul 09 2018].
29