Focus Notes PSA 120 210 220 300 315 320 PSQC1 Framework PDF

Sumalpong, Abigail B.
BSA -3 TTH 7:30-9:00am / 6:00-9:00pm
PHILIPPINE STANDARDS ON
AUDITING (PSA)
Description:
PSA deals with the auditor’s responsibility to form an opinion on the financial statements.
It established the independent auditor’s overall responsibilities when conducting an audit of
financial statements.
➢ PSAs are to be applied in the audit of financial statements and are to be applied to the
audit of other information to related services when necessary.
➢ Contains basic principles and essential procedures with related guidance in the form of
explanatory and other material.
➢ Issued by the Auditing Standards Practices Council are based on International Standards
on Auditing issued by the Auditing Practices Committee of the International Federation of
Accountants.
IN EXECEPTIONAL CIRCUMSTANCES, an auditor may judge if necessary, to depart

from a PSA to achieve the objective of an audit more effectively. Auditor should be
prepared to justify the departure.
Sumalpong, Abigail B. BSA -3 TTH 7:30-9:00am / 6:00-9:00pm
PHILIPPINE STANDARDS ON AUDITING 120:

FRAMEWORK OF PHILIPPINE STANDARDS ON
AUDITING
INTRODUCTION
• The Auditing Standards and Practices Council has been authorized to issue
Philippine Standards on Auditing.
• Purpose: Describe the framework within which PSAs are issued in relationship to
the services which may be performed by auditors.
• “Auditor” describes both auditing and related services which may be performed.
FINANCIAL REPORTING FRAMEWORK

Financial Statements – ordinarily prepared and presented annually and are directed towards the
common information needs of a wide range of users. Many of the users rely on financial
statements as their major source of information as they do not have the power to obtain additional
information to meet specific information needs.
• Must be prepared in accordance with one, or a combination of:

a) Accounting standards generally accepted in the Philippines
b) International Accounting Standards
c) Another Authoritative and Comprehensive financial reporting framework
FRAMEWORK FOR AUDITING AND RELATED SERVICES

**does not apply to other services provided by auditors (taxation, consultancy, and financial and accounting advice.
AUDITING RELATED SERVICES

❖ Nature of
Agreed-upon
service Audit Review Compilation
Procedures
❖ Comparative High, but not No assurance

Moderate
level of absolute (users assess
assurance (free
assurance assurance (free of the No assurance
of material
provided by material procedures
misstatement)
auditor misstatement) and findings)
Positive Negative Factual Identification of

❖ Report
assurance on assurance on findings of information
provided
assertions assertions procedures compiled
-Enable the -Enable the -Auditor is -Accountant is

auditor to express auditor to state engaged to engaged to
an opinion anything has carry out use accounting
whether the come to the procedures of expertise as
financial auditor’s an audit opposed to
statements are attention that nature to auditing
prepared in causes the which the expertise to
accordance with auditor to auditor and collect,
an identified believe that the the entity and classify, and
financial reporting financial any summarize
framework. statements are appropriate financial
not prepared in third parties information.
-Auditor obtains accordance have agreed
sufficient with an and to report
❖ Objectives
appropriate audit identified on factual
evidence to be financial findings.
able to draw reporting
conclusions on framework. -Restricted to
which to base that those parties
opinion -Comprises that have
inquiry and agreed to the
analytical procedures to
procedures be performed
since others
who were
unaware may
misinterpret
the results.
LEVEL OF ASSURANCE
Assurance – refers to the auditor’s satisfaction as to the reliability of an assertion being made by
one party for use by another party.
• Auditor assesses the evidence collected.

• The degree of satisfaction achieved, and therefore, the level of assurance which may be
provided is determined by the procedures performed and their results.
AUDITOR ASSOCIATION WITH FINANCIAL INFORMATION
• An auditor is associated with financial information when the auditor attaches a report
to that information or consents to the use of the auditor's name in a professional
connection.
• If auditor’s name is used inappropriately, auditor would require management to cease
doing so.1
1
https://aasc.org.ph/downloads/PSA/publications/PDFs/PSA-120.pdf

AGREEING THE TERMS OF AUDIT ENGAGEMENTS
INTRODUCTION
Scope
• This PSA deals with the auditor’s responsibilities in agreeing the terms of the audit
engagement with management and those charged with governance.
• includes establishing that certain preconditions for an audit, responsibility for which
rests with management and those charged with governance, are present.
OBJECTIVE
• The objective of the auditor is to accept or continue an audit engagement only

when the basis upon which it is to be performed has been agreed, through:
(a) Establishing whether the preconditions for an audit are present; and
(b) Confirming that there is a common understanding between the auditor
and management and, where appropriate, those charged with governance of the
terms of the audit engagement.
DEFINITIONS
Preconditions for an Audit - The use by management of an acceptable financial
reporting framework in the preparation of the financial statements and the agreement of
management and, where appropriate, those charged with governance to the premise on
which an audit is conducted
Management – “management and, where appropriate, those charged with governance”.
REQUIREMENTS
Preconditions for an Audit
• The auditor shall determine whether the financial reporting framework to be applied
in the preparation of the financial statements is acceptable and obtain the
agreement of engagement of management that it acknowledges and understands
its responsibility.
• If management or those charged with governance impose a limitation on the scope
of the auditor’s work in the terms of a proposed audit engagement such that the
auditor believes the limitation will result in the auditor disclaiming an opinion on the
financial statements, the auditor shall not accept such a limited engagement as an
audit engagement, unless required by law or regulation to do so.
• If the preconditions for an audit are not present, the auditor shall discuss the matter
with management
Agreement on Audit Engagement Terms

• The auditor shall agree the terms of the audit engagement with management or
those charged with governance, as appropriate.
• Agreed terms of the audit engagement shall be recorded in an audit engagement
letter or other suitable form of written agreement
Recurring Audits
• the auditor shall assess whether circumstances require the terms of the audit
engagement to be revised and whether there is a need to remind the entity of the
existing terms of the audit engagement.
Acceptance of a Change in the Terms of the Audit Engagement

• The auditor shall not agree to a change in the terms of the audit engagement where
there is no reasonable justification for doing.
• If terms of audit engagement are changed, auditor and management shall agree
and record the new terms in an ENGAGEMENT LETTER or other suitable form of
written agreement.
Additional Considerations in Engagement Acceptance
Financial Reporting Standards Supplemented by Law or Regulation

• Auditor shall determine whether there are any conflicts between the financial
reporting standards and the additional requirements.
• If the auditor has determined that the financial reporting framework prescribed by
law or regulation would be unacceptable but for the fact that it is prescribed by law
or regulation, the auditor shall accept the audit engagement only if management
agrees to provide additional disclosure in the financial statements.
Auditor’s Report Prescribed by Law or Regulation
• The auditor shall evaluate whether the users might misunderstand the assurance
obtained from the audit of financial statements and whether additional explanation
in the auditor’s report can mitigate possible misunderstanding.
APPLICATION AND OTHER EXPLANATORY MATERIAL

Scope
• This PSA deals with those matters (or preconditions) that are within the control of
the entity and upon which it is necessary for the auditor and the entity’s
management to agree.
• Assurance engagements (including audit engagements), may only be accepted

when the practitioner considers that relevant ethical requirements will be satisfied.
Preconditions for an Audit

• Criteria referred to in the definition of an assurance engagement are suitable and
available to intended users. Suitable criteria enable reasonably consistent
evaluation or measurement of a subject matter within the context of professional
judgment.
• Financial statements prepared in accordance with a financial reporting framework
designed to meet the common financial information needs of a wide range of users
are referred to as general purpose financial statements.
• IFRS by IASB, PFRS by FRSC, IPASs by IPSASB, other accounting principles
promulgated by an authorized by an authorized or recognized standard setting
organization in a particular jurisdiction.
• Financial reporting standards are often identified as the applicable financial
reporting framework in law or regulation governing the preparation of general-
purpose financial statements.
• One of the purposes of agreeing the terms of the audit engagement is to avoid
misunderstanding about the respective responsibilities of management and the
auditor.
• Management maintains such internal control as it determines is necessary to
enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
• An independent audit conducted in accordance with the PSAs does not act as a
substitute for the maintenance of internal control necessary for the preparation of
financial statements by management.
INTERNAL CONTROL - The term “internal control” encompasses a wide range of
activities within components that may be described as the control environment; the
entity’s risk assessment process; the information system, including the related
business processes relevant to financial reporting, and communication; control
activities; and monitoring of controls.
Agreement on Audit Engagement Terms

• The roles of management and those charged with governance in agreeing the
terms of the audit engagement for the entity depend on the governance structure
of the entity and relevant law or regulation.
• Auditor sends an engagement letter before commencement of audit to avoid
misunderstandings with respect to the audit.
• Law or regulation governing the operations of public sector audits generally
mandate the appointment of a public sector auditor and commonly set out the
public sector auditor’s responsibilities and powers, including the power to access
an entity’s records and other information.
Recurring Audits
• The auditor may decide not to send a new audit engagement letter or other written
agreement each period, however there are factors that may make it appropriate to
revise the terms of audit engagement or remind entity of existing terms.
Accepting of a Change in the Terms of the Audit Engagement
Requesting to Change terms of the Audit Engagement

• A request from the entity for the auditor to change the terms of the audit
engagement may result from a change in circumstances affecting the need for the
service, a misunderstanding as to the nature of an audit as originally requested or
a restriction on the scope of the audit engagement, whether imposed by
management or caused by other circumstances.
• Auditor considers the justification given for the request.
• Change in circumstances may be considered a reasonable basis for requesting a
change in the audit engagement.
Request to Change to a Review or a Related Service
• Auditor must consider any legal or contractual implications of the change.
Additional Considerations in Engagement Acceptance

• Law or regulation may supplement the financial reporting standards established by
an authorized or recognized standard setting organization with additional
requirements relating to the preparation of financial statements.
• PSAs require that the auditor shall not represent compliance with PSAs unless the
auditor has complied with all the PSAs relevant to the audit.
• In the public sector, specific requirements may exist within the legislation
governing the audit mandate.2
2
https://aasc.org.ph/downloads/PSA/publications/PDFs/PSA-210-Redrafted.pdf

QUALITY CONTROL FOR AN AUDIT OF FINANCIAL
STATEMENTS
INTRODUCTION
Scope
• this PSA deals with the specific responsibilities of the auditor regarding quality
control procedures for an audit of financial statements.
• Also addresses the responsibilities of the engagement quality control reviewer.
• Premised on the basis that the firm is subject to PSQC 1 or to national
requirements that are at least as demanding.
• Engagement teams have a responsibility to implement quality control procedures
applicable to the audit engagement and provide the firm with relevant information
to enable the functioning of that part of the firm’s system of quality control relating
to independence.
•
Effective Date
• Effective beginning on or after December 15, 2009.
OBJECTIVE
• The objective of the auditor is to implement quality control procedures at the

engagement level that provide the auditor with reasonable assurance that:
a) The audit complies with professional standards and regulatory and
legal requirements; and
b) The auditor’s report issued is appropriate in the circumstances.
DEFINITIONS
DEFINITION
a. Engagement The partner or other person in the firm who is responsible for the
Partner audit engagement and its performance, and for the auditor’s
report that is issued on behalf of the firm, and who, where
required, has the appropriate authority from a professional, legal
or regulatory body.
b. Engagement Quality A process designed to provide an objective evaluation, on or
Control Review before the date of the auditor’s report, of the significant
judgments the engagement team made and the conclusions it
reached in formulating the auditor’s report.
c. Engagement Quality A partner, other person in the firm, suitably qualified external
Control Reviewer person, or a team made up of such individuals, none of whom is
part of the engagement team, with sufficient and appropriate
experience and authority to objectively evaluate the significant

judgments the engagement team made and the conclusions it
reached in formulating the auditor’s report.
d. Engagement Team All partners and staff performing the engagement, and any
individuals engaged by the firm or a network firm who perform
audit procedures on the engagement. This excludes an auditor’s
external expert engaged by the firm or a network firm.
e. Firm A sole practitioner, partnership, or other entity of professional
accountants.
f. Inspection In relationship to completed audit engagements, procedures
designed to provide evidence of compliance by engagement
teams with the firm’s quality control policies and procedures.
g. Listed Entity An entity whose shares, stocks, or debt are quoted or listed on
a recognized stock exchange or are marketed under the
regulations of a recognized stock exchange or other equivalent
body.
h. Monitoring A process comprising an ongoing consideration and evaluation
of the firm’s system of quality control, including a periodic
inspection of a selection of completed engagements, designed
to provide the firm with reasonable assurance that its system of
quality control is operating effectively.
i. Network firm A firm or entity that belongs to a network.
j. Network A larger structure
i. that is aimed at cooperation, and
ii. That is clearly aimed at profit or cost-sharing or shares
common ownership, control or management, common
quality control policies and procedures, common
business strategy, the use of a common brand name, or
a significant part of professional resources.
k. Partner Any individual with authority to bind the firm with respect to the
performance of a professional service engagement.
l. Personnel Partners and staff.
m. Professional Philippine Standards on Auditing (PSAs) and relevant ethical
Standards requirements.
n. Relevant Ethical Ethical requirements to which the engagement team and
Requirements engagement quality control reviewer are subject, which
ordinarily comprise Parts A and B of the Code of Ethics for
Professional Accountants in the Philippines (Philippine
Ethics Code) related to an audit of financial statements together
with national requirements that are more restrictive.
o. Staff Professionals, other than partners, including any experts the firm
employs.
p. Suitably Qualified An individual outside the firm with the competence and
External Person capabilities to act as an engagement partner, for example a
partner of another firm, or an employee (with appropriate
experience) of either a professional accountancy body whose
members may perform audits of historical financial information
or of an organization that provides relevant quality control
services.
REQUIREMENTS
Leadership Responsibilities for Quality on Audit Firms
• Engagement partners shall take responsibility for the overall quality on each audit
engagement to which that partner is assigned.
Relevant Ethical Requirements

• The engagement partner shall remain alert, through observation and making
inquiries as necessary, for evidence of noncompliance with relevant ethical
requirements by members of the engagement team.
• If matters come to the engagement partner’s attention through the firm’s system of
quality control or otherwise that indicate that members of the engagement team
have not complied with relevant ethical requirements, the engagement partner, in
consultation with others in the firm, shall determine the appropriate action.
• The engagement partner shall form a conclusion on compliance with
independence requirement that apply to the audit engagement.
Acceptance and Continuance of Client Relationships and Audit Engagements

• The engagement partner shall be satisfied that appropriate procedures regarding
the acceptance and continuance of client relationships and audit engagements
have been followed and shall determine that conclusions reached in this regard
are appropriate.
Assignment of Engagement Teams

• The engagement partner shall be classified that the engagement team, and any
auditor’s experts who are not part of the engagement team, collectively have the
appropriate competence and capabilities to perform audit engagement in
accordance to professional standards and regulatory and legal requirements; and
enable auditor’s reports that is appropriate in the circumstances to be issued.
Engagement Performance
The engagement partner shall:
• take responsibility for direction, supervision, and performance of the audit

engagement in compliance with professional standards and legal requirements
• take responsibility for reviews being performed in accordance with the firm’s review
policies and procedures
• take responsibility for the engagement team undertaking appropriate consultation
on difficult or contentious matters, determine that conclusions resulting from such
consultations have been implemented.
• determine that an engagement quality control reviewer has been appointed and
discuss significant matters arising during the audit engagement (for listed entities)
• perform an objective evaluation of the significant judgments made by the
engagement team, and the conclusions reached in formulating the auditor’s report.
• Consider engagement team’s evaluation of the firm’s independence in relation to

the audit engagement.
• follow the firm’s policies and procedures for dealing with and resolving differences
of opinion when a difference in opinion arise within the engagement team.
Monitoring
• The engagement partner shall consider the results of the firm’s monitoring process
as evidenced in the latest information circulated by the firm and, if applicable, other
network firms and whether deficiencies noted in that information may affect the
audit engagement.
Documentation
• The auditor shall document issues identified with respect to compliance with
relevant ethical requirements and how they were resolved, conclusions on
compliance with independence requirements, conclusions reached regarding the
acceptance and continuance of client relationships and client engagements.
• The engagement quality control reviewer shall document the procedures required
by the firm policies on engagement quality control review have been performed,
engagement quality control review has been completed on or before the date of
auditor’s report, and that the reviewer is not aware of any unresolved matters.

System of Quality Control and Role of Engagement Team
• The system of quality control includes policies and procedures that address each
of the following elements:
a. Leadership responsibilities for quality within the firm – emphasize the
importance of audit quality and the fact that quality is essential in
performing audit engagements.
b. Relevant ethical requirements,
i. Integrity,
ii. Objectivity,
iii. Professional competence and due care,
iv. Confidentiality; and
v. Professional behavior.
c. Acceptance and continuance of client relationships and specific

engagements,
d. Human resources
e. Engagement performance - Appropriate teamwork and training assist less
experienced members of the engagement team to clearly understand the
objectives of the assigned work
f. Monitoring - establish a monitoring process designed to provide it with

reasonable assurance that the policies and procedures relating to the
system of quality control is relevant, adequate, and operating effectively.

• An engagement team also includes a member using expertise in a specialized area
of accounting or auditing, whether engaged or employed by the firm, if any, who
performs audit procedures on the engagement.
Documentation
• Documentation of consultations with other professionals that involve difficult or
contentious matters that is sufficiently complete and detailed contributes to an
understanding of:
• The issue on which consultation was sought; and
• The results of the consultation, including any decisions taken, the basis for those
decisions and how they were implemented.3
3

PLANNING AN AUDIT OF FINANCIAL STATEMENTS
INTRODUCTION
Scope
• This PSA is framed in the context of recurring audits. Additional considerations in
initial audit engagements are separately identified.
OBJECTIVE
• The objective of the auditor is to plan the audit so that it will be performed in an
effective manner.
REQUIREMENTS
Involvement of Key Engagement Team Members
• Engagement partner and other key members of engagement team shall be
involved in planning the audit, including planning, and participating in the
discussion among engagement team members.
Preliminary Engagement Activities

• Auditor shall perform procedures required by PSA 220 regarding continuance of
the client relationship and specific audit engagement and evaluating compliance
with ethical requirements.
Planning Activities
• Auditor shall establish an overall audit strategy that sets the scope, timing, and
direction of the audit, and that guides the development of the audit plan.
• Auditor shall update and change overall audit strategy and the audit plan as
necessary during the audit.
Documentation
• Auditor shall document overall audit strategy, the audit plan, and any significant
changes during the audit engagement.

The Role and Timing of Planning
• Planning an audit involves establishing the overall audit strategy for the
engagement and developing an audit plan.
• Planning includes consideration of the timing of certain activities and audit

procedures that need to be completed prior to the performance of further audit
procedures.
Involvement of Key Management Team Members

• Involvement of the engagement partner and other key members of the
engagement team in planning the audit draws on their experience and insight,
thereby enhancing the effectiveness and efficiency of the planning process.
Preliminary Engagement Activities

• Performing preliminary engagement activities at the beginning of the current audit
engagement assists the auditor in identifying and evaluating events or
circumstances that may adversely affect the auditor’s ability to plan and perform
the audit engagement.
Planning Activities
• Once the overall audit strategy has been established, an audit plan can be
developed to address the various matters identified in the overall audit strategy,
taking into account the need to achieve the audit objectives through the efficient
use of the auditor’s resources.
• The audit plan is more detailed than the overall audit strategy in that it includes the
nature, timing, and extent of audit procedures to be performed by engagement
team members.
• The auditor may need to modify the overall audit strategy and audit plan and
thereby the resulting planned nature, timing, and extent of further audit procedures,
based on the revised consideration of assessed risks.
Documentation
• The documentation of the audit plan is a record of the planned nature, timing and
extent of risk assessment procedures and further audit procedures at the assertion
level in response to the assessed risks.
• Record of the significant changes explains why the significant changes were made,
and the overall strategy and audit plan finally adopted for the audit.4
4

IDENTIFYING AND ASSESSING THE RISKS OF
MATERIAL MISSTATEMENT THROUGH
UNDERSTANDING THE ENTITY AND ITS
ENVIRONMENT
INTRODUCTION
• This PSA deals with the auditor’s responsibility to identify and assess the risks of
material misstatement in the financial statements, through understanding the entity
and its environment, including the entity’s internal control.
OBJECTIVE
• Auditor identifies and assesses the risks of material misstatement, whether due to
fraud or error, at the financial statement and assertion levels, through
understanding the entity and its environment, including the entity’s internal control,
thereby providing a basis for designing and implementing responses to the
assessed risks of material misstatement.
DEFINITIONS
DEFINITIONS
a. Assertions Representations by management, explicit or
otherwise, that are embodied in the financial
statements, as used by the auditor to consider
the different types of potential misstatements
that may occur.
b. Business Risk A risk resulting from significant conditions,
events, circumstances, actions, or inactions
that could adversely affect an entity’s ability to
achieve its objectives and execute its
strategies, or from the setting of inappropriate
objectives and strategies.
c. Internal Control The process designed, implemented and
maintained by those charged with
governance, management and other
personnel to provide reasonable assurance
about the achievement of an entity’s
objectives with regard to reliability of financial
reporting, effectiveness and efficiency of
operations, and compliance with applicable

laws and regulations. The term “controls”
refers to any aspects of one or more of the
components of internal control.
d. Risk Assessment Procedures The audit procedures performed to obtain
an understanding of the entity and its
environment, including the entity’s internal
control, to identify and assess the risks of
material misstatement, whether due to fraud or
error, at the financial statement and assertion
levels.
e. Significant Risk An identified and assessed risk of material
misstatement that, in the auditor’s judgment,
requires special audit consideration.
Significant risks often relate to significant non-
routine transactions or judgmental matters.
REQUIREMENTS
• The auditor shall perform risk assessment procedures to provide basis for the
identification and assessment of risks of material misstatement at the financial
statement and assertion levels.
• The engagement partner and other key engagement team members shall discuss
the susceptibility of the entity’s financial statements to material misstatement, and
the application of the applicable financial reporting framework to the entity’s facts
and circumstances. The engagement partner shall determine which matters are
be communicated to engagement team members not involved in the discussion.
• Auditor shall obtain understanding on the relevant industry, nature of entity, entity’s
application, and selection of accounting policies. Objectives and strategies, and
measurement and review of the entity’s financial performance.
• Auditor shall obtain an understanding of internal control relevant to the audit.
• Auditor shall obtain an understanding of entity’s control environment, risk
assessment process, information system, how the entity communicates financial
reporting roles and responsibilities and significant matters relating to financial
reporting, control activities relevant to the audit.
• Auditor shall obtain understanding on the major activities that the entity uses to
monitor internal control over financial reporting.
• The auditor shall identify and assess the risks of material misstatement at the
financial statement level, and the assertion level for classes of transactions,
account balances, and disclosures, provide a basis for designing and performing
further audit procedures.
• The auditor shall evaluate whether, based on the audit work performed, the auditor
has identified a material weakness in the design, implementation, or maintenance
of internal control.
• Auditor shall communicate material weaknesses in internal control identified during
the audit on a timely basis to management at an appropriate level of responsibility
• The auditor shall document the discussion among the engagement team, key
elements of the understanding obtained, the identified and assessed risks of
material misstatements of the financial statement level and at the assertion level,
and the risks identified and related controls about which the auditor has obtained
an understanding.
• Obtaining an understanding of the entity and its environment, including the entity’s
internal control (referred to hereafter as an “understanding of the entity”), is a
continuous, dynamic process of gathering, updating and analyzing information
throughout the audit.
• Information obtained by performing risk assessment procedures and related
activities may be used by the auditor as audit evidence to support assessments of
the risks of material misstatement.
• The auditor uses professional judgment to determine the extent of the
understanding required.
• Observation and inspection may support inquiries of management and others and
may also provide information about the entity and its environment (ex: entity’s
operations, documents, etc.).
• The auditor is required to determine whether information obtained in prior periods
remains relevant if the auditor intends to use that information for the purposes of
the current audit.
• Discussion among engagement team about the susceptibility of the entity’s
financial statements to material misstatement assist team members to gain a better
understanding of the potential for material misstatement of the financial statement
in the specific areas they are assigned.
• Communication plan agreed by the engagement partner may be useful.
Entity’s Internal Control

• An understanding of internal control assists the auditor in identifying types of
potential misstatements and factors that affect the risks of material misstatement,
and in designing the nature, timing, and extent of further audit procedures.
• Internal control is designed, implemented, and maintained to address identified
business risks that threaten the achievement of any of the entity’s objectives that
concern:
i. The reliability of the entity’s financial reporting,
ii. The effectiveness and efficiency of its operations, and
iii. Its compliance with applicable laws and regulations.
The way in which internal control is designed, implemented, and maintained varies
with an entity’s size and complexity.
• Internal control, no matter how effective, can provide an entity with only reasonable
assurance about achieving the entity’s financial reporting objectives.
COMPONENTS OF INTERNAL CONTROL

A. CONTROL ENVIRONMENT - The control environment includes the governance
and management functions and the attitudes, awareness, and actions of those
charged with governance and management concerning the entity’s internal control
and its importance in the entity. The control environment sets the tone of an
organization, influencing the control consciousness of its people.
B. RISK ASSESSMENT - The entity’s risk assessment process forms the basis for
how management determines the risks to be managed.
C. INFORMATION AND COMMUNICATION SYSTEM – consists of procedures and

records designed and established to initiate, record, process and report entity
transactions and process and account for system overrides or bypasses to
controls.
-Communication by the entity of the financial reporting roles and
responsibilities and of significant matters relating to financial reporting involves
providing an understanding of individual roles and responsibilities to internal
control over financial reporting.
D. CONTROL ACTIVITIES – Control activities are the policies and procedure that
help ensure that management directives are carried out.
E. MONITORING – is a process to assess the effectiveness of internal control

performance over time. It involves assessing the effectiveness of controls on a
timely basis and taking necessary corrective actions.
Identifying and Assessing the Risks of Material Misstatement

• Risks of material misstatement at the financial statement level refer to risks that
relate pervasively to the financial statements as a whole and potentially affect
many assertions
• Risks at the financial statement level may derive from a weak control environment.
• Risks of material misstatement at the assertion level for classes of transactions,
account balances, and disclosures need to be considered because such
consideration directly assists in determining the nature, timing, and extent of
further audit procedures at the assertion level necessary to obtain sufficient
appropriate audit evidence.
Material Weakness in Internal Control

• The types of material weaknesses in internal control that the auditor may identify
when obtaining an understanding of the entity and its internal controls may include:
➢ Risks of material misstatement that the auditor identifies and which the
entity has not controlled, or for which the relevant control is inadequate.
➢ A weakness in the entity’s risk assessment process that the auditor

identifies as material, or the absence of a risk assessment process in those
cases where it would be appropriate for one to have been established.
• Material Weaknesses may be identified in controls that prevent, or detect and
correct, error, or those to prevent and detect fraud.
Documentation
• The form and extent of the documentation is influenced by the nature, size and
complexity of the entity and its internal control, availability of information from the
entity and the audit methodology and technology used during the audit.5
• 5

MATERIALITY IN PLANNING AND PERFORMING AN
AUDIT
INTRODUCTION
Scope
• This PSA deals with the auditor’s responsibility to apply the concept of materiality
in planning and performing an audit of financial statements.
Materiality
• Misstatements, including omissions are material if they could reasonably be
expected to influence economic decisions of users taken based on the financial
statements.
• Judgements about materiality are made considering surrounding circumstances,
and are affected by the size or nature of a misstatement, or a combination of both
• The auditor’s determination of materiality is a matter of professional judgement and
is affected by the auditor’s perception of the financial information needs of users
of the financial statements.
• The concept of materiality is applied by the auditor both in planning and performing
the audit, and in evaluating the effect of identified misstatements on the audit and
of uncorrected misstatements, if any, on the financial statements and in forming
the opinion in the auditor’s report.
OBJECTIVE
• To apply the concept of materiality appropriately in planning and performing the

audit.
DEFINITION
PERFORMANCE MATERIALITY - the amount or amounts set by the auditor at less than
materiality for the financial statement to reduce an appropriately low level that
misstatements exceeds materiality for the financial statements as a whole.
REQUIREMENTS APPLICATION AND OTHER

EXPLANATORY MATERIAL
Determining The auditor should determine Determination of materiality
Materiality and the amount of misstatement for the financial statements in
that could be material to the an audit of the financial
Performance financial statement taken as statements of a public sector

Materiality when a whole. entity is influenced by
legislative and regulatory
Planning the -Auditor shall also determine requirements, and by the
Audit the materiality level to be financial information needs of
applied to those classes of legislators and the public in
transactions (for which relation to public sector
misstatements of lesser programs (public sector
amounts than materiality for entities).
the financial statements could
reasonably be expected to -Determining materiality
influence economic decisions involves the exercise of
of users) professional judgement.
Determining a percentage to
- The auditor shall determine be applied to a chosen
performance materiality for benchmark involves the
purposes of assessing the exercise of professional
risks of material judgment.
misstatement and
determining the nature, -In considering whether, in
timing, and extent of further the specific circumstances of
audit procedures the entity, such classes of
transactions, account
balances or disclosures exist,
the auditor may find it useful
to obtain an understanding of
the views and expectations of
those charged with
governance and
management
Revision as the The auditor shall revise -Materiality for the financial
Audit Progress materiality for the financial statements may need to be
statements and materiality revised as a result of change
levels for particular classes of in circumstances that
transactions (if applicable) in occurred during the audit,
the event of becoming aware new information, or a change
of information during the in the auditor’s understanding
audit that would have caused of the entity and its
the auditor to determine operations as a result of
different amount initially. performing further audit
procedures.
Documentation Auditor shall document the
following amounts and
factors:
a) Materiality for the
financial statements
as a whole
b) Materiality levels for
classes of
transactions
c) Performance
materiality
d) Any revision as the
audit progressed.
Materiality and Audit Risk

• Overall objective of auditor are to obtain reasonable assurance about whether the
financial statements are free from material misstatement, whether due to fraud or
error, enabling auditor to express an opinion on whether the financial statements
are prepared in accordance with an applicable financial framework; and report on
the financial statements and communicate in accordance with the auditor’s
findings.
• AUDIT RISK - risk that the auditor expresses an inappropriate audit opinion when
the financial statements are materially misstated.
-it is a function of the risks of material misstatement and detection risk.
• Materiality and audit risk are considered throughout the audit when:
(a) Identifying and assessing the risks of material misstatement,
(b) Determining the nature, timing, and extent of further audit procedures; and
(c) Evaluating the effect of uncorrected misstatements, if any, on the financial
statements and in forming the opinion in the auditor’s report.
Performance Materiality
• Performance materiality is set to reduce to an appropriately low level the probability
that the aggregate of uncorrected and undetected misstatements in the financial
statements exceeds materiality for the financial statements as a whole.
• The determination of performance materiality is not a simple mechanical
calculation and involves the exercise of professional judgment.
• It is affected by the auditor’s understanding of the entity, updated during the
performance of the risk assessment procedures; and the nature and extent of
misstatements identified in previous audits and thereby the auditor’s expectations
in relation to misstatements in the current period.6
6
https://aasc.org.ph/downloads/PSA/publications/PDFs/PSA-320-Revised-and-Redrafted.pdf
PHILIPPINE STANDARDS ON QUALITY CONTROL 1:

QUALITY CONTROL FOR FIRMS THAT PERFORM
AUDITS AND REVIEWS OF FINANCIAL STATEMENTS,
AND OTHER ASSURANCE AND RELATED SERVICES
ENGAGEMENTS
INTRODUCTION
Scope
• deals with a firm’s responsibilities for its system of quality control for audits and
reviews of financial statements, and other assurance and related services
engagements. This PSQC is to be read in conjunction with relevant ethical
requirements.
Authority of the PSQC

• applies to all firms of professional accountants in respect of audits and reviews of
financial statements, and other assurance and related services engagements. The
nature and extent of the policies and procedures developed by an individual firm
to comply with this PSQC will depend on various factors such as the size and
operating characteristics of the firm, and whether it is part of a network.
OBJECTIVE
The objective of the firm is to establish and maintain a system of quality control to provide
it with reasonable assurance that:
a) The firm and its personnel comply with professional standards and regulatory and
legal requirements; and
b) Reports issued by the firm or engagement partners are appropriate in the
circumstances.
DEFINITIONS
DEFINITION
a) Date of Report The date selected by the practitioner to date the
report.
b) Engagement Documentation The record of work performed, results obtained,
and conclusions the practitioner reached (terms
such as “working papers” or “workpapers” are
sometimes used).
c) Engagement Partner The partner or other person in the firm who is
responsible for the engagement and its
performance, and for the report that is issued on
behalf of the firm, and who, where required, has the

appropriate authority from a professional, legal or
regulatory body.
d) Engagement Quality Control Review A process designed to provide an objective
evaluation, on or before the date of the report, of
the significant judgments the engagement team
made and the conclusions it reached in formulating
the report. The engagement quality control review
process is for audits of financial statements of listed
entities, and those other engagements, if any, for
which the firm has determined an engagement
quality control review is required.
e) Engagement Quality Control Reviewer A partner, other person in the firm, suitably
qualified external person, or a team made up of
such individuals, none of whom is part of the
engagement team, with sufficient and appropriate
experience and authority to objectively evaluate
the significant judgments the engagement team
made and the conclusions it reached in formulating
the report.
f) Engagement Team –All partners and staff performing the engagement,
and any individuals engaged by the firm or a
network firm who perform procedures on the
engagement. This excludes external experts
engaged by the firm or a network firm.
g) Firm A sole practitioner, partnership, or other entity of
professional accountants.
h) Inspection In relation to completed engagements, procedures
designed to provide evidence of compliance by
engagement teams with the firm’s quality control
policies and procedures.
i) Listed Entity An entity whose shares, stock or debt are quoted
or listed on a recognized stock exchange or are
marketed under the regulations of a recognized
stock exchange or other equivalent body.
j) Monitoring A process comprising an ongoing consideration
and evaluation of the firm’s system of quality
control, including a periodic inspection of a
selection of completed engagements, designed to
provide the firm with reasonable assurance that its
system of quality control is operating effectively.
k) Network Firm A firm or entity that belongs to a network.
l) Network A larger structure: (i) That is aimed at cooperation,
and (ii) That is clearly aimed at profit or cost-
sharing or shares common ownership, control or
management, common quality control policies and
procedures, common business strategy, the use of
a common brand name, or a significant part of
professional resources.
m) Partner Any individual with authority to bind the firm with
respect to the performance of a professional
services engagement.
n) Personnel Partners and staff.
o) Professional Standards AASC Engagement Standards, as defined in the
AASC’s Preface to the Philippine Standards on
Quality Control, Auditing, Review, Other

Assurance and Related Services, and relevant
ethical requirements.
p) Reasonable Assurance In the context of this PSQC, a high, but not
absolute, level of assurance.
q) Relevant ethical requirements Ethical requirements to which the engagement
team and engagement quality control reviewer are
subject, which ordinarily comprise Parts A and B of
the Code of Ethics for Professional Accountants in
the Philippines (Philippine Ethics Code) together
with national requirements that are more
restrictive.
r) Staff Professionals, other than partners, including any
experts the firm employs.
s) Suitable qualified external person An individual outside the firm with the competence
and capabilities to act as an engagement partner,
for example a partner of another firm, or an
employee (with appropriate experience) of either a
professional accountancy body whose members
may perform audits and reviews of historical
financial information, or other assurance or related
services engagements, or of an organization that
provides relevant quality control services.
REQUIREMENTS
Applying, and Complying with, Relevant Requirements
• Personnel within the firm responsible for establishing and maintaining the firm’s
system of quality control shall understand the entire text of PSQC.
• Firm shall apply with each requirement of this PSQC, unless the requirement is not
relevant to the services provided in respect of audits and reviews of financial
statements, and other assurance and related service engagements.
Elements of a System of Quality Control

• The firm shall establish and maintain a system of quality control that includes
policies and procedures that addresses each of the following elements.
• Firm shall document its policies and procedures and communicate them to the
firm’s personnel.
Element a: Leadership Responsibilities for Quality within the Firm

• Firm shall establish policies and procedures designed to promote an internal
culture recognizing that quality is essential in performing engagements.
• Firm shall establish policies and procedures such that any person or persons
assigned operational for the firm’s system of quality control to assume that
responsibility.
Element b: Relevant Ethical Requirements

• Firm shall establish policies and procedures designed to provide it with reasonable
assurance that the firm and its personnel comply with relevant ethical and
independence requirement.
a) Communicate its independence requirements to its personnel and,

where applicable, others subject to them; and
b) Identify and evaluate circumstances and relationships that create
threats to independence, and to take appropriate action to eliminate
those threats or reduce them to an acceptable level by applying
safeguards, or, if considered appropriate, to withdraw from the
engagement, where withdrawal is permitted by law or regulation
Element c: Acceptance and Continuance of Client Relationships and Specific

Engagements
• firm shall establish policies and procedures for the acceptance and continuance of
client relationships and specific engagements, designed to provide the firm with
reasonable assurance that it will only undertake or continue relationships and
engagements where the firm is competent to perform the engagement, can comply
with relevant ethical requirements, and has considered the integrity of the client.
• The firm shall establish policies and procedures on continuing an engagement and
the client relationship, addressing the circumstances where the firm obtains
information that would have caused it to decline the engagement had that
information been available earlier.
Element d: Human Resources

• The firm shall establish policies and procedures designed to provide it with
reasonable assurance that it has sufficient personnel with the competence,
capabilities, and commitment to ethical principles necessary to perform
engagements in accordance with professional standards and regulatory and legal
requirements, and enable the firm or management partners to issue reports that
are appropriate in the circumstances.
Element e: Engagement Performance

• The firm shall establish policies and procedures which include matters relevant to
promoting consistency in the quality of engagement performance, supervision
responsibilities and review responsibilities.
• The firm shall establish policies and procedures for dealing with and resolving
differences of opinion within the engagement team, with those consulted and,
where applicable, between the engagement partner and the engagement quality
control reviewer.
• The firm shall establish policies and procedures designed to maintain the
confidentiality, safe custody, integrity, accessibility and retrievability of
engagement documentation.
Element f: Monitoring
• The firm shall establish a monitoring process designed to provide it with
reasonable assurance that the policies and procedures relating to the system of
quality control are relevant, adequate, and operating effectively
• Communicate deficiencies noted because of monitoring process and
recommendations for appropriate remedial action.
Documentation of the System of Quality Control

• The firm shall establish policies and procedures requiring appropriate
documentation to provide evidence of the operation of each element of its system
of quality control.

Elements of a system of Quality Control
• Communication of quality control policies and procedures to firm personnel
includes a description of the quality control policies and procedures and the
objectives they are designed to achieve, and the message that each individual has
a personal responsibility for quality and is expected to comply with these policies
and procedures.
Consideration Specific to Smaller Entities
• Documentation and communication of policies and procedures for smaller entities

may be less formal and extensive than larger firms.
Element a: Leadership Responsibilities for Quality within the Firm

• Sufficient and appropriate experience and ability enables the person or persons
responsible for the firm’s system of quality control to identify and understand
quality control issues and to develop appropriate policies and procedures.
Necessary authority enables the person or persons to implement those policies
and procedures.
Element b: Relevant Ethical Requirements

• The Philippine Ethics Code recognizes that the familiarity threat is particularly
relevant in the context of financial statement audits of listed entities. For these
audits, the Philippine Ethics Code requires the rotation of the key audit partner
after a pre-defined period, normally no more than five years, and provides related
standards and guidance.
Element c: Acceptance and Continuance of Client Relationships and Specific

Engagements
• Consideration of whether the firm has the competence, capabilities, and resources
to undertake a new engagement from a new or an existing client involves reviewing
the specific requirements of the engagement and the existing partner and staff
profiles at all relevant levels.
Element d: Human Resources

• Effective recruitment processes and procedures help the firm select individuals of
integrity who have the capacity to develop the competence and capabilities
necessary to perform the firm’s work and possess the appropriate characteristics
to enable them to perform competently.
• Competence can be developed through a variety of methods, including the

following:
➢ Professional education.
➢ Continuing professional development, including training.
➢ Work experience.
➢ Coaching by more experienced staff, for example, other members of the
engagement team.
➢ Independence education for personnel who are required to be
independent.
• Continuing competence of the firm’s personnel depends to a significant extent on

an appropriate level of continuing professional development so that personnel
maintain their knowledge and capabilities.
• Performance evaluation, compensation and promotion procedures give due
recognition and reward to the development and maintenance of competence and
commitment to ethical principles.
• Policies and procedures may include systems to monitor the workload and
availability of engagement partners to enable these individuals to have sufficient
time to adequately discharge their responsibilities.
Element e: Engagement Performance

Consistency in the Quality of Engagement Performance
• The firm promotes consistency in the quality of engagement performance

through its policies and procedures and is accomplished through written or
electronic manuals, software tools or other forms of standardized documentation,
and industry or subject matter-specific guidance materials.
Consultation
• Consultation helps to promote quality and improves the application of

professional judgment.
• Engagement documentation is property of the firm.
• Firm should obtain information necessary before accepting an engagement with

a new client, or in deciding to continue an existing engagement and when
considering the acceptance of a new engagement with an existing client and it
shall document how issues are resolved if there were any
Element f: Monitoring
• Monitoring the firm’s quality control policies and procedures is important to check
if it has been appropriately designed and effectively implemented.
• The inspection process includes the selection of individual engagements, some of
which may be selected without prior notification to the engagement team.
Complaints and Allegations
• Complaints and allegations may originate from within or outside the firm. They may
be made by firm personnel, clients or other third parties. They may be received by
engagement team members or other firm personnel.
• Partner supervising investigation of policies and procedures must have sufficient
and appropriate experience, authority within the firm and is otherwise not involve
in the engagement.
Documentation
The form and content of documentation evidencing the operation of each of the elements
of the system of quality control is a matter of judgment and depends on number of factors,
including the following:
• The size of the firm and the number of offices.
• The nature and complexity of the firm’s practice and organization.7
7
https://aasc.org.ph/downloads/PSQC/publications/PDFs/PSQC-Redrafted.pdf
PHILIPPINE FRAMEWORK FOR ASSURANCE

ENGAGEMENTS
INTRODUCTION
• This framework defines and describes the elements and objectives of an

assurance engagements and identifies engagements to which Philippine
Standards on Auditing (PSAs), Philippine Standards on Review Engagement
(PSREs), and Philippine Standards on Assurance Engagements (PSAEs) apply.
• It provides frames of reference for professional accountants in public practice when
performing assurance engagements, others involved with assurance
engagements (including intended users of an assurance reports and responsible
party), and the International Auditing and Assurance Standards Board (IAASB).
• This Framework deals with assurance engagements performed by practitioners. It
provides a frame of reference for practitioners and others involved with assurance
engagements, such as those engaging a practitioner (the “engaging party”).
DEFINITION AND OBJECTIVE OF AN ASSURANCE ENGAGEMENT

ASSURANCE ENGAGEMENT – an engagement in which a practitioner expresses a
conclusion designed to enhance the degree of confidence of the intended users other than
the responsible party about the outcome of the evaluation or measurement of a subject
matter against criteria.
• The outcome of the evaluation or measurement of a subject matter is the
information that results from applying the criteria to the subject matter.
ASSERTION-BASED ENGAGEMENTS – the evaluation or measurement of the subject
matter is performed by the responsible party, and the subject matter information is in the
form of an assertion by the responsible party that is made available to the intended users.
• In other assurance engagements, the practitioner either directly performs
the evaluation or measurement of the subject matter, or obtains a
representation from the responsible party that has performed the
evaluation or measurement that is not available to the intended users
REASONABLE ASSURANCE ENGAGEMENT – objective is a reduction in assurance
engagement risk to an acceptably low level in the circumstances of the engagement as
the basis for a positive form of expression of the practitioner’s conclusion.
LIMITED ASSURANCE ENGAGEMENT – objective is a reduction in assurance
engagement risk to a level that is acceptable in the circumstances of the engagement, but
where that risk is greater than for a reasonable assurance engagement, as the basis for
a negative form of expression of the practitioner’s conclusion.
SCOPE
• An assurance engagement may be part of a larger engagement, for example,

when a business acquisition consulting engagement includes a requirement to
convey assurance regarding historical or prospective financial information. In such
circumstances, this Framework is relevant only to the assurance portion of the
engagement.
REPORTS ON NON-ASSURANCE ENGAGEMENTS

• A practitioner reporting on an engagement that is not an assurance
engagement within the scope of this Framework, clearly distinguishes that
report from an assurance report.
ENGAGEMENT ACCEPTANCE
• A practitioner accepts an assurance engagement only where the practitioner’s

preliminary knowledge of the engagement circumstances indicates that relevant
ethical requirements, such as INDEPENDENCE and PROFESSIONAL
COMPETENCE will be satisfied, and exhibits characteristics suitable for
assurance engagement.
• Having accepted an assurance engagement, a practitioner may not change that
engagement to a non-assurance engagement, or from a reasonable assurance
engagement to a limited assurance engagement without reasonable justification.
ELEMENTS OF AN ASSURANCE ENGAGEMENT
A. THREE PARTY RELATIONSHIP

1. PRACTITIONER - may be requested to perform assurance engagement
on a wide range of subject matters. Some subject matters may require
specialized skills and knowledge beyond those ordinarily possessed by an
individual practitioner.
2. A RESPONSIBLE PARTY – responsible for the subject matter or the one
responsible for the subject matter information. Ordinarily provides the
practitioner with a written representation that evaluates or measures the
subject matter against the identified criteria, whether it is to be made
available as an assertion to the intended users
3. INTENDED USERS - are the person, persons, or class of persons for
whom the practitioner prepares the assurance report. The responsible
party can be one of the intended users, but not the only one. They are
involved with the intended users and the responsible party in determining
the requirements for engagement.
• The responsible party and the intended users may be from different entities or the
same entity.
B. AN APPROPRIATE SUBJECT MATTER

• The subject matter, and subject matter information, of an assurance engagement
can take many forms, such as:
➢ Financial performance or conditions (for example, historical or prospective
financial position, financial performance, and cash flows) for which the subject
matter information may be the recognition, measurement, presentation and
disclosure represented in financial statements.
➢ Non-financial performance or conditions (for example, performance of an
entity) for which the subject matter information may be key indicators of
efficiency and effectiveness.
➢ Physical characteristics (for example, capacity of a facility) for which the
subject matter information may be a specifications document.
➢ Systems and processes (for example, an entity’s internal control or IT system)
for which the subject matter information may be an assertion about
effectiveness.
➢ Behavior (for example, corporate governance, compliance with regulation,
human resource practices) for which the subject matter information maybe a
statement of compliance or a statement of effectiveness.
• Subject matters have different characteristics, including the degree to which
information about them is qualitative versus quantitative, objective versus
subjective, historical versus prospective, and relates to a point in time or covers a
period.
C. SUITABLE CRITERIA
• Criteria are the benchmarks used to evaluate or measure the subject matter
including, where relevant, benchmarks for presentation and disclosure.
• Criteria can be formal, may be PFRS, or the applicable law, regulation, or contract.
• Suitable criteria are required for reasonably consistent evaluation or measurement
of a subject matter within the context of professional judgment
• Characteristics:
➢ Relevance
➢ Completeness
➢ Reliability
➢ Neutrality
➢ Understandability
• Criteria need to be available to the intended users to allow them to understand
how the subject matter has been evaluated or measured.
D. SUFFICIENT APPROPRIATE EVIDENCE

• The practitioner plans and performs an assurance engagement with an attitude of
professional skepticism recognizing that circumstances may exist that cause the
subject matter information to be materially misstated.
Professional Skepticism
PROFESSIONAL SKEPTICISM - means the practitioner makes a critical
assessment, with a questioning mind, of the validity of evidence obtained and is
alert to evidence that contradicts or brings into question the reliability of documents
or representations by the responsible party.
Sufficiency and Appropriateness of Evidence
• Sufficiency is the measure of the quantity of evidence. Appropriateness is the

measure of the quality of evidence; that is, its relevance and its reliability. The
quantity of evidence needed is affected by the risk of the subject matter information
being materially misstated (the greater the risk, the more evidence is likely to be
required) and also by the quality of such evidence (the higher the quality, the less
may be required). Accordingly, the sufficiency and appropriateness of evidence
are interrelated. However, merely obtaining more evidence may not compensate
for its poor quality.
• The practitioner ordinarily obtains more assurance from consistent evidence
obtained from different sources or of a different nature than from items of evidence
considered individually.
Materiality
• When considering materiality, the practitioner understands and assesses what

factors might influence the decisions of the intended users.
Assurance Engagement Risk

ASSURANCE ENGAGEMENT RISK – is the risk that the practitioner expresses
an inappropriate conclusion when the subject matter information is materially
misstated.
- The level of assurance engagement risk is higher in a limited assurance
engagement than in a reasonable assurance engagement because of the different
nature, timing or extent of evidence gathering procedures.
-can be represented by the following components:
a) The risk that the subject matter information is materially
misstated (Inherent and Control risk)
b) Detection risk – the risk that the practitioner will not detect
a material misstatement that exists.
Nature, Timing and Extent of Evidence-Gathering Procedures
• Reasonable assurance is a concept relating to accumulating evidence necessary

for the practitioner to conclude in relation to the subject matter information taken
as a whole and is less than absolute assurance.
• Both reasonable assurance and limited assurance engagements require the

application of assurance skills and techniques and the gathering of sufficient
appropriate evidence as part of an iterative, systematic engagement process that
includes obtaining an understanding of the subject matter and other engagement
circumstances.
Quantity and Quality of Available Evidence
• Quantity and quality of available evidence is affected by the characteristics of the

subject matter information and circumstances of the engagement.
E. APPROPRIATE WRITTEN ASSURANCE REPORT

• The practitioner provides a written report containing a conclusion that conveys the
assurance obtained about the subject matter information.
• In a reasonable assurance engagement, the practitioner expresses the
conclusion in the positive form, for example: “In our opinion internal control is
effective, in all material respects, based on XYZ criteria.” This form of expression
conveys “reasonable assurance.”
• In a limited assurance engagement, the practitioner expresses the conclusion in
the negative form, for example, “Based on our work described in this report,
nothing has come to our attention that causes us to believe that internal control is
not effective, in all material respects, based on XYZ criteria.”. This conveys limited
assurance that is proportional to the level of the practitioner’s evidence-gathering
procedures given the characteristics of the subject matter and other engagement
circumstances described in the report.
• A practitioner does not express an unqualified conclusion for either type of
assurance engagement when there is a limitation on the scope of the practitioner’s
work, assertions is not fairly stated, and when it is discovered that the criteria are
unsuitable or the subject matter is inappropriate.
INAPPROPRIATE USE OF THE PRACTITIONER’S NAME
• A practitioner is associated with a subject matter when the practitioner reports on

information about that subject matter or consents to the use of the practitioner’s name in
a professional connection with that subject matter.
• If the practitioner is not associated in this manner, third parties can assume no
responsibility of the practitioner.
PUBLIC SECTOR PERSPECTIVE
• This Framework is relevant to all professional accountants in the public sector who are
independent of the entity for which they perform assurance engagements.8
8
https://aasc.org.ph/downloads/PSA/publications/PDFs/Philippine-Framework-for-Assurance-Engagements.pdf

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Sumalpong, Abigail B.

BSA -3 TTH 7:30-9:00am / 6:00-9:00pm

IN EXECEPTIONAL CIRCUMSTANCES, an auditor may judge if necessary, to depart

PHILIPPINE STANDARDS ON AUDITING 120:

FINANCIAL REPORTING FRAMEWORK

• Must be prepared in accordance with one, or a combination of:

FRAMEWORK FOR AUDITING AND RELATED SERVICES

AUDITING RELATED SERVICES

❖ Comparative High, but not No assurance

Positive Negative Factual Identification of

-Enable the -Enable the -Auditor is -Accountant is

• Auditor assesses the evidence collected.

AUDITOR ASSOCIATION WITH FINANCIAL INFORMATION

PHILIPPINE STANDARDS ON AUDITING 210:

• The objective of the auditor is to accept or continue an audit engagement only

Management – “management and, where appropriate, those charged with governance”.

Agreement on Audit Engagement Terms

Acceptance of a Change in the Terms of the Audit Engagement

Additional Considerations in Engagement Acceptance

Financial Reporting Standards Supplemented by Law or Regulation

APPLICATION AND OTHER EXPLANATORY MATERIAL

• Assurance engagements (including audit engagements), may only be accepted

Preconditions for an Audit

Agreement on Audit Engagement Terms

Accepting of a Change in the Terms of the Audit Engagement

Requesting to Change terms of the Audit Engagement

• Auditor must consider any legal or contractual implications of the change.

Additional Considerations in Engagement Acceptance

PHILIPPINE STANDARDS ON AUDITING 220:

• The objective of the auditor is to implement quality control procedures at the

experience and authority to objectively evaluate the significant

Relevant Ethical Requirements

Acceptance and Continuance of Client Relationships and Audit Engagements

Assignment of Engagement Teams

• take responsibility for direction, supervision, and performance of the audit

• Consider engagement team’s evaluation of the firm’s independence in relation to

APPLICATION AND OTHER EXPLANATORY MATERIAL

c. Acceptance and continuance of client relationships and specific

f. Monitoring - establish a monitoring process designed to provide it with

Assignment of Engagement Teams

PHILIPPINE STANDARDS ON AUDITING 300:

Preliminary Engagement Activities

APPLICATION AND OTHER EXPLANATORY MATERIAL

• Planning includes consideration of the timing of certain activities and audit

Involvement of Key Management Team Members

Preliminary Engagement Activities

PHILIPPINE STANDARDS ON AUDITING 315:

operations, and compliance with applicable

APPLICATION AND OTHER EXPLANATORY MATERIAL

Entity’s Internal Control

COMPONENTS OF INTERNAL CONTROL

C. INFORMATION AND COMMUNICATION SYSTEM – consists of procedures and

E. MONITORING – is a process to assess the effectiveness of internal control

Identifying and Assessing the Risks of Material Misstatement

Material Weakness in Internal Control

➢ A weakness in the entity’s risk assessment process that the auditor

PHILIPPINE STANDARDS ON AUDITING 320:

• To apply the concept of materiality appropriately in planning and performing the

REQUIREMENTS APPLICATION AND OTHER

Performance financial statement taken as statements of a public sector

Materiality and Audit Risk

PHILIPPINE STANDARDS ON QUALITY CONTROL 1:

Authority of the PSQC