Chapter 4 – Regulation of the Practice of Public Accountancy

Assurance Principles (Chapter 3 & 4)

Team Challenge #1 – 1st sem. 2019-20
November 18, 2020

1. What do you call the process employed to establish the reliability or unreliability of the financial
statements and supporting records. Audit examination
2. In attestation, the auditor is communicating about the reliability of what statements of
management? Assertion
3. During the audit sampling verification, what needs to be done by the auditors if they unearthed
a serious infraction by management which can lead to financial statement misrepresentation?
Expand the sampling verification to determine the full extent of the violations
4. What do you call the standards against which the assertions or representations are judged?
Established criteria
5. The user should not assume that the auditor’s opinion is an assurance as to the future viability
of the entity nor an opinion as to the efficiency or effectiveness with which management has
conducted the affairs of the entity. True or False True
6. Can you cite one reason why decision makers, almost always, do not get first-hand knowledge
about the business enterprise with which they do business?
Owners are divorced from management; directors are not involved in day-to-day operations
or decisions, business may be dispersed among numerous geographic locations and complex
corporate structure
7. The Chief Audit Executive (CAE) is held accountable to the Board of Directors through what body
in order to maintain their independence in the organization? Audit Committee
8. What needs to be gathered by the auditors in order to substantiate the representations in the
financial statements? Audit Evidence
9. What are the four (4) testing procedures that an auditor can use to gather the existence and
validity of assets, liabilities, overall reasonableness of other account balances in the financial
statements? Inquiry, observation, confirmation and inspection
10. Can you cite the three (3) inherent limitations in an audit that affect the auditor’s ability to
detect material misstatements? use of testing, limitations of accounting and internal control
system as the possibility of collusion, and the fact that audit evidence is not conclusive but
rather only persuasive
11. The work undertaken by the auditor to form an opinion is normally subject to limitations such as
what aspect of the auditor’s state of mind is utilized in the gathering of audit evidence like in
deciding the nature, timing, and extend of audit procedures; and drawing of conclusions based
on audit evidence gathered? Judgment limitation
12. In a real world, the auditor lives in a conflicting pressure in his work environment in the sense
that he is selected and paid by someone affected by his work, he has intimate knowledge of
many of management’s actions, decisions, and judgements because of their significant effect on
financial statements. As a result, what guidance should independent auditors as a group should
have adopted and be bounded for? Code of professional ethics and professional standards
13. Once the audit of the financial statements is finished and audit reports highlighting
management’s infractions are furnished, management is relieved of its responsibilities. True or
false. False
14. How can a public practitioner/auditor gain a heads up on where the specific areas in the
organization are the weakest link in the conduct of his audit engagement? previous audit
report
15. The internal audit should be given a free and full access to all of the organization’s record,
properties, and personnel relevant to the subject under review. Therefore, the internal audit
review and appraisal does not in any way relieve other persons in the organization of the
responsibilities assigned to them. True or False True
16. Auditors found guilty of not complying with the minimum standards of performance established
by law are subject to penalty. Can you give me one kind of penalty? payment of damages for
injury, public censure, injunction, suspension, temporary or permanent loss of license to
practice
17. What are the terms of office of the chairman and members of the Board of Accountancy? 3
years
18. Who has the legal grounds to suspend or remove a member of the Board from office? The
President of the Philippines, upon the recommendations of the Commission.
19. The Securities and Exchange Commission shall register any corporation or partnership for the
practice of public accountancy. True or False False, not corporation
20. What is the minimum number of years of meaningful experience in any of the areas of public
practice including taxation before a certificate of accreditation can be issued to CPA in public
practice? (3 years)
21. To whom do all the working papers, schedules and memoranda made by CPA and his staff in the
course of an examination, including those prepare and submitted to client incident to or in the
course of an examination by such CPA belong? to the CPA
22. Can a foreign national be allowed to practice accountancy in the Philippines? They may be
allowed to practice accountancy in the Philippines in accordance with the provisions of
existing laws, international treaty obligations including mutual recognition agreements
entered into by the Philippine government with other countries; if it can be proven that
country of which a foreign national is a citizen admits citizens of the Philippines to the practice
of the same profession without restriction
23. What about a foreign national called for consultation, can they practice? Yes, provided the
practice shall be limited only for the particular work that he is being engaged and that there is
no Filipino CPA qualified for such consultation
24. Under the CPA’s legal liability, what are the main reasons why professional accountants will
become liable to their clients? Negligence or breach of contracts where CPAs fail to provide
the services or not exercise due care in their performance; examples are CPAs did not discover
an employee defalcation as a result of negligence and did not complete the audit on agreed
on date; inappropriate withdrawal from an audit
25. What are the reasons, for the nth time, why auditors cannot be held responsible for preventing
non-compliance resulting to material misstatements of the financial statements not detected?
Laws and regulations that do not have material effect on financial statements and are not
captured by accounting and internal control system; effectiveness of audit procedures is
 affected by the inherent limitation of the accounting and internal control system and by the
use of testing; much of the evidence obtained by the auditor is persuasive rather than
conclusive; noncompliance may involve conduct designed to conceal it as in collusion, forgery,
deliberate failure to record transaction, senior management override of controls or
intentional misrepresentations being made to the auditor
26. Can you name some of the procedures that should have been done by CPAs so as not to put
them into a compromising situation for possible client’s noncompliance with laws and
regulations which should be brought to the auditor’s attention? reading minutes, inquiring of
the entity’s management and legal counsel concerning litigations, claims and assessments,
and performing substantive test of details of transactions or balances. CPA should obtain
written representations that management has disclosed to the auditor all known actual or
possible noncompliance with laws and regulations whose effects should be considered when
preparing financial statements.
27. To whom should the auditor report in case there is a finding of substantial noncompliance with
regulatory policy or audit standards? to Audit Committee, Board of Directors and senior
management. If the auditor believes that his non-compliance audit report will not be acted
upon, he should consider seeking legal advice
28. Is information obtained by the auditor from the client considered as privileged information?
Under common law, information obtained by a CPA from a client is not privileged.
Confidential discussions between the client and auditor cannot be withheld from the court
29. Although the basic purpose of an audit is to render an opinion on the fairness of the financial
statements and not to detect fraudulent acts by employees, what are the instances that an
auditor cannot be absolved from losses suffered by management or third parties? If an
undetected fraud is so widespread and of such magnitude as to cause the financial statement
to be materially misstated, the argument may be advanced that the auditor’s procedures
were not adequate and that the auditor is deem negligent.
30. What should a practicing CPA do when he believes that there is suspected fraud or error that
could have material effect on the financial statement? Auditor should perform modified and
additional audit procedure as he determines appropriate to confirm or dispel such suspicion.
Moreover, the auditor should communicate his findings to management on a timely basis if he
believes fraud may exist or fraud or significant error is actually found to exist