AL-BASIR J.

BANDAHALA
BS ACCOUNTANCY II

MIDTERM EXAMINATION (AUDITING AND ASSURANCE)

1. Describe briefly the practice of public accountancy as provided for in

the Philippine Accountancy Act of 2004.
Practice of public accountancy is provided for in the Philippine
Accountancy Act of 2004, it shall constitute in a person, be it in his/her
individual capacity, or as a partner or as a staff member in an accounting
or auditing firm, holding out himself/herself as one skilled in the
knowledge, science and practice of accounting, and as a qualified person
to render professional services as a certified public accountant; or
offering or rendering or both, to more than one client on a fee basis or
otherwise, services such as the audit or verification of financial
transaction and accounting records; or the preparation, signing, or
certification for clients of reports of audit, balance sheet, and other
financial, accounting and related schedules, exhibits, statements or
reports are to be used for publication or for credit purposes, or to be filed
with a court or government agency or to be used for any other purpose; or
the design, installation, and revision of accounting procedures; or when
he/she represents clients before government agencies on tax and other
matters related to accounting or renders professional assistance in matters
relating to accounting procedures and the recording and presentation of
financial facts or data.
Article IV, Section 26 of the same law provides:
“No person shall practice accountancy in this country, or use the title
“Certified Public Accountant”, or use the abbreviated title “CPA” or
display or use any title, sign, card, advertisement, or other device to
indicate that such person practices or offers to practice accountancy, or is
a certified public accountant, unless such person shall receive from the
Board a certificate of registration/professional license and be issued a
professional identification card or a valid temporary/special permit duly
issued to him/her by the Board and the Commission.”
 2. How does one become a CPA?
Generally, to be a CPA one must meet certain education requirements,
and pass the CPA exam.
The CPA examination is prepared and graded twice each year. It is
generally recognized as an academic examination. Before the effectivity
of PRC-BOA Resolution No. 262, series of 2015 on May 2016, it
includes multiple-choice questions in the following subjects namely, Theory
of Accounts, Practical Accounting I, Practical Accounting II, auditing
Theory, Auditing Problems, Management Services, Business Law and
Taxation. So starting May 2016, it covers, but are not limited to, the
following six (6) subjects: Financial Accounting and Reporting,
Advanced Financial Accounting and Reporting; Management Advisory
Services, Auditing, Taxation and, Regulatory Framework for Business
Transaction.
3. What are the qualification requirements that a prospective examinee
must satisfy before taking the CPA Licensure examination?
The “Philippine Accountancy Act of 2004” (RA 9298) Article II, Section
13 to 18 provides for the requirements for the Examination, (Registration
and Licensure) for the Practice of Accountancy as follows:
Any person applying for examination shall establish the following pre
requisites to the satisfaction of the Board that he/she:
a) Is a Filipino citizen;
b) Is of good moral character;
c) Is a holder of the degree of BSA conferred by a school, college,
academy or institute duly recognized and/or accredited by the
CHED or other authorized government offices; and
d) Has not been convicted of any criminal offense involving moral
turpitude.

4. What are the requirements that a CPA in public practice must

comply with before he is issued a certificate of accreditation by the
Board of Accountancy?

The law specifically requires a certificate of accreditation from the Board

of Accountancy for all those who will be engaged in the practice of
public accountancy, whether as individual practitioner, firms or
partnership, including the partners and staff members thereof. The certificate of
accreditation shall be issued only upon showing, in accordance with rules
 and regulations, that such registrant has acquired a minimum of three
years meaningful experience in any of the areas of public practice, including
taxation. The Certificate of Accreditation is subject to renewal every
three years.
5. What are the major components of the BSA Curriculum?
The BSA Curriculum under the CHED Memo no. 27, Series of 2017
consists of the following components:
1. General Education (GE) Courses, 36 Prescribed Units
2. National Service Training Program (NSTP), 6 Prescribed Units
3. Physical Education (PE) Courses, 8 Prescribed Units
4. Common Business and Management Education Courses, 6 Units
5. Core Accounting Education Courses, 81 Units
6. Cognates / Major / Professional Courses, 36 Units
6. What are the qualification requirements that an individual must
meet to be able to take the CPA licensure examination?
The “Philippine Accountancy Act” (RA 9298) Article II, Section 13 to 18
provide for the requirements for the Examination, Registration and
Licensure for the Practice of Accountancy as follows.
Qualification of Applicants for the Licensure Examination
a. a Filipino Citizen
b. of good moral character
c. a holder of the degree of Bachelor of Science in Accountancy
conferred by a school, college, academy or
institute duly recognized and/or accredited by the CHED other
authorized government offices: and
d. has not been convicted of any criminal offense involving moral
turpitude.
7. How may a professional accountant develop and sustain the required
capabilities and competence after admission to the profession?
To acquire the capabilities and competence required of professional
accountants, individuals may need further education and development
beyond that needed to qualify as professional accountants.
 Education and development for acquiring and maintaining the capabilities
of professional accountants can include:
(a) Advanced professional education pursued at academic institutions or
through the programs of professional bodies;
(b) On-the-job-training and experience programs;
(c) Off-the-job-training; and
(d) Continuing professional development (CPD) courses and activities.
8. Explain briefly the competency requirements for professional
accountants in business.
A professional accountant in business shall comply with the fundamental
principles. There may be times, however, when a professional
accountant’s responsibilities to an employing organization and
professional obligations to comply with the fundamental principles are in
conflict. A professional accountant in business is expected to support the
legitimate and ethical objectives established by the employer and the rules
and procedures drawn up in support of those objectives. Nevertheless, where
a relationship or circumstance creates a threat to compliance with the
fundamental principles, a professional accountant in business shall apply
the conceptual framework approach.
As a consequence of responsibilities to an employing organization, a
professional accountant in business may be under pressure to act or
behave in ways that could create threats to compliance with the
fundamental principles. Such pressure may be explicit or implicit; it may
come from a supervisor, manager, director or another individual within
the employing organization.
9. Name the core competencies required in the public accounting
profession.
Core competencies are a unique combination of human skills, knowledge
and technology that provides value and results to the user, Enhancing the
profession’s core competencies is a key to sustaining a competitive and
differential advantage in the marketplace.
 Communication Skills
 Leadership Skills
 Critical-Thinking and Problem-Solving Skills
 Anticipating and Serving Evolving Needs
 Synthesizing Intelligence to Insight
  Integration and Collaboration

10. Comment upon each of the following statements you heard in a

conversation between two hired staff auditors.

a) “Of course, I’m qualified to be assigned to this engagement. I

have an accounting degree from a top university and was an honors
graduate. I know some of the accounting rules have changed since
I graduated, but I’ll be able to figure that out as we go through the
audit’.
While university-level training is important, it is also necessary
that professionals continue their education throughout their careers, as
accounting and auditing standards will change. In this particular
case, the staff member would need to stay abreast of current
developments in order to meet the competence and capabilities
element of the responsibilities principle.
b) “It doesn’t really matter what other think… I’m completely
independent of Chiva Industries and should be a member of the
audit team. While I own some stock, it is small and I’m holding it for a
long term, anyway”.

Auditors need to be both independent in fact and independent in

appearance. While a small financial investment might not impair
the auditors’ actual state of mind (independence in fact), it is unlikely
that financial statement users will perceive the auditor to be
independent (independence in appearance). Professional standards
would not consider the auditor independent in this case, as no
direct financial interests in clients are permitted.

11. Describe the role of the various organizations that affect the
practice of the accounting professionals in the Philippines.

The role of the various organizations is primarily responsible for: (i)

promoting and maintaining high professional and ethical standards among
accountants by adopting a Code of Ethics for its members; (ii) developing
and improving the accountancy education; (iii) protecting the CPA
designation.
 12. Give and explain briefly at least five (5) initiatives to address the
credibility crisis in the accountancy profession.
1. Setting requirements to ensure that only people are admitted to
the accounting practice through the accreditation by the Board of
Accountancy.
2. Establishing and complying with international standards for
accounting, reporting and auditing services.
3. Adopting the Revised Code of Ethics for Professional
Accountants.
4. Requiring practicing accountants to comply with continuing
professional development programs.
5. Requiring regular, periodic reviews of auditor’s compliance with
professional standards through the quality assurance review (QAR)
by the Board of Accountancy.
13. Under what conditions may a foreigner be allowed to practice
accountancy in the Philippines?
citizens of foreign countries 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. A person
who is not a citizen of the Philippines shall not be allowed to practice
accountancy in the Philippines unless he/she can prove, in the manner
provided by the rules of court that, by specific provision of law, the
country of which he/she is a citizen, subject or national admits citizens of
the Philippines to the practice of the same profession without restriction.
14. What factors have caused litigations against auditors to increase”
1. The growing awareness of the responsibilities of public
accountants on the part of users of financial statements.
2. An increased consciousness on the part of the SEC regarding its
responsibility for protecting investors' interests.
3. The greater complexities of auditing and accounting due to the
increasing size of businesses, the globalization of business, and the
intricacies of business operations.
4. Society's increasing acceptance of lawsuits.
 5. Large civil court judgments against CPA firms, which have
encouraged attorneys to provide legal services on a contingent fee
basis.
6. The willingness of many CPA firms to settle their legal
problems out of court.
7. The difficulty courts have in understanding and interpreting
technical accounting and auditing matters
15. What is due care? How does it affect auditor’ liability?
Due care is the degree of care that an ordinary and reasonable person
would normally exercise, and is applied as a test of liability for
negligence. The concept has been adopted within the AICPA Code of
Professional Conduct, and involves the duty to observe the technical
and ethical standards of the profession, to continually improve one’s
competence, and to discharge one’s responsibilities to the best of
one’s ability. A person exercising due care should always be concerned with
the best interests of clients, consistent with the responsibility of the
profession to the public at large.
Auditors who are negligent in conducting their audit are liable for losses
that result from reliance on misstated financial statements. ... Thus, the
vague specification of due care enables auditors to commit to audit
quality as pronounced in auditing standards.
16. Under what circumstances can an auditor be criminally liable for
the results of an audit?
If an auditor makes any false statement or omits any material fact known
to him intentionally, in any Return, certificate, report, balance sheet,
prospectus etc.
17. Identify specific actions an auditor can undertake to reduce the
potential for litigation.
 Get rid of high risk clients and troublemakers.  Continuing to serve
clients that are risky, that require constant hand-holding, that are
uncooperative or that argue over fees limits productivity of CPA firm
personnel and often creates a “crisis-oriented” culture.  It also builds a
client portfolio of less- than-quality clients and increases the likelihood of
lawsuit!
 Make sure in-charge accountants and engagement leaders know what
they are doing.  Due to employee turnover, business growth or other reasons,
 staff personnel are frequently promoted to these leadership positions
without adequate experience and training.  The strongest defense against
the likelihood of performing substandard work is the knowledge and
experience of in-charge accountants and other engagement leaders. 
Training investments are the best malpractice insurance!
Restrict the use of reports in high risk circumstances.  Normally,
restrictions on the use of reports are appropriate when the accountant or
auditor has concern about unqualified or unauthorized persons utilizing
financial statements and footnotes.  For reports on financial information
in specialized industries, and for other high risk circumstances, professional
liability can be reduced by restricting the use of audit, review or
compilation reports.
Offer the lowest level of assurance on supplementary information
whenever possible.  Compiling supplementary information for reviews
and disclaiming assurance on supplementary information for audits reduces
the amount of the accountant’s or auditor’s work and also limits professional
liability.
18. How does the prudent person concept affect the liability of the
auditor?
The prudent person concept states that a person is responsible for
conducting a job in good faith and with integrity, but is not infallible.
Therefore, the auditor is expected to conduct an audit using due care, but
does not claim to be a guarantor or insurer of financial statements.
19. What is the body that issued international Pronouncements
providing auditing procedural and reporting guidance?
The body that issues international pronouncements providing auditing
procedural and reporting guidance is the International Auditing and
Assurance Standards Board.
20. Who has the primary responsibility for the adequacy of
disclosure in the financial statements of a publicly held company?
The primary responsibility for the adequacy of disclosure in the financial
statements of a publicly-held company rest with the management of the
company.