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AT 1701 Auditing Theory Discussion PDF
AT 1701 Auditing Theory Discussion PDF
LECTURE NOTES
Introduction
CPAs shall first obtain a certificate of accreditation from the Boa/PPRC before
they can be allowed to practice public accountancy after attaining a minimum
of three years meaningful experience.
Meaningful Experience
The registration shall be valid for a period of three years and may be renewed
every three years on or bfore September 30 in the year of expiry. The
registration of applicants approved during any month of the year shall expire
on December 31 in the third year following its approval. The BoA shall require
public practitioners to undergo quality review conducted by Quality Review
Committee (QRC) before granting renewal of accreditation.
Assurance services are very broad, and can be done by CPAs or by a variety
of other professionals.
The demand for assurance services emanate from the following reasons:
2. As to structure of engagement:
c. Suitable criteria;
Three-party Relationship
Assurance engagements involve three separate parties:
1. Practitioner – the person, who performs the engagement, and is
broader than the term “auditor” which release only to practitioners
performing audit or review engagements with respect to historical
financial information.
2. Responsible party – is the person responsible for
a. Direct reporting engagement – subject matter; or
b. Assertion-bassed engagement – a subject matter information
(the assertion), and may be the subject matter. The responsible
party may or may not be the party who engages the practitioner
(the engaging party).
3. Intended party – for whom the assurance report is prepared. The
responsible party can be one of the intended users, but not the only
one.
Suitable criteria
Benchmark used to evaluate or measure the subject matter.
Examples of formal criteria are the following:
In the preparation of financial statements, the criteria may be Philippine
Financial Reporting Standards;
When reporting on internal control, the criteria may be an established
internal control frameworks; and
When reporting on compliance, the criteria may be the applicable law,
regulation or contact.
II. Directly in terms of the subject matter and the criteria (for
example: “In our opinion internal control is effective, in all
material respects, based on XYZ criteria”).
2. As to level of assurance:
Non-assurance Engagements
Engagements are considered non-assurance engagements if they lack one or
more of the five elements of an assurance engagement.
Common example of non-assurance engagements are;
a. Agreed-upon procedures engagement;
b. Compilations engagements;
c. Preparation of tax returns where no conclusion conveying
assurance is expressed;
d. Consulting (or advisory) engagements such as management and
tax consulting;
e. Engagement to testify in legal proceedings regarding accouting,
auditing, taxation or other matters and;
f. Engagemennts that include professional opinions not intended to
be an assurance report.
Fundamental Principles
The fundamental priinciples applicable to both assurance and non-assurance
engagements, are:
1. Integrity. A professional accountant should be straightforward and
honest in all professional and business relationship.
2. Objectivity. A professional accountant should not allow bias, conflict of
interest or undue influence of others to override professional or
business judgments.
3. Professional competence and due care. A professional accountant has
a contunuing duty to maintain professional knowledge and skill at the
level required to ensure that a client or employer recieves competent
professional service based on current developmets in practice,
legislation and techniques. A professional accountant should be act
diligently and in accordance with applicable technical and professional
standards when providing professional services.
4. Confidentiality. A professional accountant respect the confidentiality of
information acquired as a result of professional and business
relationships and should not disclose any such information to third
parties without proper and specific authority unless there is a legal or
professional right or duty to diclose.
5. Professional behavior. A professional accountant should comply with
relevant laws and regulations and should avoid any action that
discredits the profession.
Independence
In addition to fundamental principles, the code also requires professional
accountants to be independent when performing assurance engagements. It is
not requires for non-assurance engagements. Independence comprises
independence of mind and in appearance.
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