Name: Elijah Joyce M.

Anilao
Student No.: A18-25446

1. Provide a SUMMARY of understanding of the following for the Banking Industry:

a. NATURE OF OPERATIONS (PSA 315 a22)

Banking Industry serves as a financial intermediary for individuals and organization by

facilitating the movement of money from people with surplus capital to those who needs
capital. As a financial intermediary they have a crucial function on the growth of the economy
by empowering innovation and funding new ideas. Banking industries have multitude products
and services categorized into different types, most common are the commercial banks
supervising deposits, loans and mortgages, investment banks that helps business raise capital
through stock or bond market and credit unions which operates through membership of a
specific category of people such as members of a church. In 2020, BSP recognizes digital
banking as a new banking category whereas products and services are process through digital
platform without physical branch, an innovation pushed through amidst the pandemic.

As a financial intermediary bank operations moves circular wherein individuals and

organizations can be both the supplier and customer. Central banks also cater the government
by serving as agent and advisor of the government. Moreover, modern banking brings forth IT
technologists as unique supplier on implementing digital systems for physical free transactions.
Employees serves as suppliers to as a source of labor.

The emergence of digital banking became a game changer shaping the future of the
industry. Technology has helped banks generate additional revenue, reduce expenses, and
manage risk exposure in a more proficient manner. But it has also opened the door for a myriad
of competitors, both large and small. However, security and money laundering risk is in
question pushing banks to adopt with an extensive security control yielding impressive results.
It is without a doubt that digital banking is the future of the industry administering remote
financial services.
 Financial Reporting:

Philippine Financial Reporting Standard (PFRS) 9, 7 and 15-

Disclosure of the nature and effect of changes in accounting policies:

Entities are required to describe the nature and effect of initially applying the new
standards. This will involve providing the transition disclosures in IFRS 7 Financial Instruments:
Disclosures (as introduced by IFRS 9) and IFRS 15. Disclosures may differ depending on the
transition method chosen by the entity for implementing the new standards. In addition, when
entities choose not to restate comparative information, they may need to separately disclose
their significant accounting policies for previous periods presented.

Ongoing Disclosure

The new “business as usual” disclosures included in IFRS 7 (as amended by IFRS 9) and
IFRS 15 are required of entities. New or extended disclosures about credit risk, predicted credit
losses, hedge accounting, information on investments in equity instruments marked at fair
value through other comprehensive income, and important judgements are among the new or
expanded disclosures for financial instruments. For revenue from contracts with customers,
these include disaggregation of revenue and information on contract balances, performance
obligations and significant judgements in the application of the standard.

Philippine Financial Reporting Standard (PFRS) 15 – Revenue from Contracts with Customers

The core principle of this standard is that the entity recognizes revenue to reflect the
transfer of goods or services measured to which amount the entity expects to be entitled. Th
The standard poses several implications on the banking industry regarding which costs to be
capitalized and how to identify and allocate revenue. The standard introduces specific criteria
on capitalizing certain costs distinguished from obtaining and fulfilling the contract. This is
significant for banking industry for these significant costs such as commissions that are only
payable if the contract was paid will be capitalized impacting operating profits. Moreover,
requires revenue from contract to be allocated to distinct goods that may impact bank industry
for services are often integrated.

b. Industry, regulatory, and other external factors

INDUSTRY FACTORS

In the banking industry, cutting-edge technology is critical. It aids in the introduction of

novel items in response to consumer demand. Technology can be utilized to reduce transaction
costs while also improving product quality. Due to significant technical advancements, online
banking is becoming increasingly popular. It reduced overhead costs and improved client
convenience by providing service 24 hours a day, seven days a week. Likewise, the market
position of the bank should also be considered through assessments of the bank's market
shares and sizes in key business, bank's existing products, future products, and market
expansion.

REGULATORY FACTORS
Regulatory bodies such as the Bangko Sentral ng Pilipinas, Securities and Exchange
Commission, PDIC and Bureau of Internal Revenue supervise the banking industry by mandating
provisions of law to safeguard the interest of the public. Likewise serving as a basis for auditing
their financial information amidst the pandemic. Some provisions are stated below.
SEC Memorandum Circular No. 32 EREAS, the Bangko Sentral ng Pilipinas (BSP) issued a Memorandum to all
Banks1 allowing regulatory relief measures, as follows: a)Staggered booking of allowance for credit losses
over a maximum period of five years; b)Reclassification of debt securities measured at fair value to amortized
cost category; c)Exclusion of eligible loans from past due and non-performing classification until 31 December
2021; and d)Any other regulatory relief that will be issued for prudential reporting due to COVID-19
pandemic.

REPUBLIC ACT No. 3591 Section 4. Any bank or banking institution which is engaged in the business of
receiving deposits as herein defined on the effective date of this Act, or which thereafter may engage in the
business of receiving deposits, may insure its deposit liabilities with the Corporation. Before approving the
application of such bank to become an insured bank, the Board of Directors shall give consideration to the
factors enumerated in Section 5 and shall determine upon the basis of a thorough examination of such bank,
that its assets in excess of its capital requirements are adequate to enable it to meet all its liabilities to
depositors and other creditors as shown by the books of the bank.

EXTERNAL FACTORS
 Financial performance of the banking sector is hampered by external factors such as
inflation and gross domestic product. According to the inflation report of BSP the inflation rate
for the 2nd quarter is 4.4% higher than last years 2.3%, increased inflation rate leads to a
decrease in demand for bank loans that significantly affect the banks financial performance.
Purchasing power of money to be paid will decrease while the interest rate increases, an
undesirable situation for the borrower. On the other hand, the GDP for the 1st quarter this year
declined by 4.2% which implies that the buying power of the people decreases consequently
diminish savings and deposits to the banking sector hampering the cash inflow of the industry.

2. At least 3 implications of item no. 1 in the conduct of audit, specify which part of the audit
process.
ETHICAL REQUIREMENTS
Before considering accepting the audit engagement the auditor should consider the
ethical requirements and integrity of the banking industry. The goal is to express reasonable
level of assurance and it could hamper the audit process if the client has a bad reputation from
the start. Moreover, this ethical requirement is applicable to both the client and auditor. On the
client’s side, if auditor quality is undermined, the audit report provides a lower level of
assurance to financial statement users that the financial statements accurately reflect the firm's
business reality, as well as a higher likelihood that the firm's earnings and book values have
been overstated without being flagged by its auditor. The regulatory factors mentioned above
will guide both parties.

CHANGING ACCOUNTANCY POLICIES

Gathering evidence is the most crucial part of the audit process and since accounting
policies are changing the accounting information are vulnerable for errors and misstatements
Thus, substantive testing or test of controls will take place in order to analyze for unusual
transactions or plausible relationships through ratios and trends. Many factors should be
analyzed From capitalization until disclosures that will identify how strong the internal control
of the company.

INDUSTRY SPECIALIZATION
 There are fundamental differences in characteristics of errors and methods of error
detection in banking industry and thus, auditors who have industry specific expertise are better
equipped to detect errors or abnormalities than those auditors without such expertise. This
expertise will be quiet handful during the risk assessment stage of audit process. Low (2004),
found that auditor’s knowledge of client’s industry improves audit risk assessments, and
facilitates the refinement of the elements of audit knowledge, which in turn is expected to help
auditors anticipate potential misstatements.

3. Look for an audited financial statement (AFS) of a company under the specialized industry in
the Philippines and list down observations from audit report and the financial statements.
The AFS should be from 2019 or onwards
Ratio capital to asset
Ratio mamaintain
Notes bsp
Instructions for submission:

REFERENCES:
Banking Fundamentals - Overview, How Banks Work, Types (corporatefinanceinstitute.com)
Banking Industry | Encyclopedia.com
BSP recognizes ‘digital banks’ as a new bank category | GMA News Online (gmanetwork.com)
The Future Of Banking The Growth Of Technology | S&P Global (spglobal.com)
IFRS 15 Revenue for the Banking sector - KPMG Greece (home.kpmg)
The Effects of Industry Specialization on Audit Risk Assessments and Audit‐Planning Decisions | The
Accounting Review (allenpress.com)

file (pefindo.com)
IR2qtr_2021.pdf (bsp.gov.ph)