THE PROFFESIONAL

STANDARDS
 When auditing financial statements, an auditor assumes certain professional
responsibilities. Auditor’s opinion must be based on an examination conducted
in accordance with professional standards. Failure to comply with these
standards exposes the auditor to risks such as loss of public respect or even
assessment of legal damages.
 Standards are established to measure the quality of performance of individuals
and organizations. Standards relating to the accounting profession concern
themselves with CPAs’ professionals qualities, the judgement exercise by the
CPA firm’s quality control policies and procedures.
 The Board of Accountancy promulgated ten generally accepted auditing
standards (GAAS) that establish required level of quality for performing
financial statements audits. These standards must be followed by the CPAs
when auditing financial statements.
 Philippine Standards on Auditing (PSAs) are issued to clarify the meaning of
these ten GAAS. Auditing procedures are the means used by the auditors in
attaining the quality required by the standards.
Generally Accepted Auditing Standards
(GAAS)

 GAAS represent measures of the quality of the

auditor’s performance. These standards should be
looked at a minimum standard of performance
that auditors should be follow. These ten GAAS
are group into general, fieldwork and reporting
standards.
General Standards

 The examination is to be performed by person or

persons having adequate technical training and
proficiency as an auditor.
 In all matters relating to an engagement, an
independence in mental attitude is to be
maintained by an auditor.
 Due professional care is to be exercised in the
performance of the audit and the preparation of
the report.
Standards of Fieldwork
 The work is to be adequately planned and assistants, if
any, are to be properly supervised.
 There is to be a proper study and evaluation of existing
internal control as a basis for reliance thereon and for the
determination of the resultant extent of the test to which
auditing procedures are to be restricted.
 Sufficient competent evidential matter is to be obtained
through inspection, observation, inquiries and
confirmations to afford a reasonable basis for an opinion
regarding the financial statements under examination.
Standards of Reporting
 The report shall state whether the financial statements are presented
in accordance with generally accepted accounting principles.
 The report shall identify those circumstances in which principles have
not been consistently observed in the current period in relation to the
preceding period.
 Informative disclosure are to be regarded as reasonably adequate
unless otherwise stated in the report.
 The report shall either contain an expression of opinion regarding the
financial statements, taken as a whole, or an assertion to the effect
that an opinion cannot be expressed. When an overall opinion cannot
be expressed, the reasons therefore should be stated. In all cases,
where an auditor’s name is associated with the financial statements,
the report should contain a clear-cut indication of the character of
the auditor’s examination if any and the degree of responsibility he is
taking.
PHILIPPINE STANDARDS ON AUDITING (PSAs)

 The Auditing and Assurance Standards Council

(AASC) has been given the task to promulgate
auditing standards, practices and procedures
which shall be generally accepted by the
accounting profession in the Philippines.
Adoption of International Standards
 To facilitate the preparation by the AASC of its pronouncements and
to attain uniformity of those pronouncements with international
auditing standards, the AASC has approved the adoption of the
International Standards on Auditing (ISASs), International Standards on
Assurance Engagements (ISAEs), International Standards on Review
Engagements (ISREs) and International Standards on Related Services
(ISRSs) issued by the International Auditing and Assurance Board
(IAASB) created by the International Federation of Accountants (IFAC).
 In addition to these standards, Practices Statements are also issued to
provide practical assistance to auditors in implanting the standards
and to promote good practice in the accountancy profession.
 In this connection, the AASC undertakes a review of the standards and
practices statements issued by IAASB to determine if these can be
adopted in the Philippines with or without changes, after considering
any local requirements imposed by law or practice.
SYSTEM OF QUALITY CONTROL

 If the public is to rely on the professional CPAs’ work, it is

essential that appropriate controls are put in place to
ensure that their work is consistently of high quality. The
need for practicing CPAs to implement and maintain
quality control policies and procedures that CPAs can
ensure that all members of the audit teams perform the
same level of quality of work.
 Quality controls are policies and procedures adopted by
the CPAs to provide reasonable assurance of conforming
with professional standards in performing audit and
related studies.
Under Philippine Standards on Quality Control (PSQC) 1, a firm has an
obligation to establish a system of quality control design to provide it
with reasonable assurance that the firm and its personnel comply with
professional standards and regulatory and legal requirements, and
that the report issued by the firm are appropriate in the
circumstances. In this regard, engagement teams:
 Implement quality control procedures that are applicable to audit
engagement
 Provide the firm with relevant information to enabling the
functioning of that part of the firm’s system of quality control
relating to independence; and
 Are entitled to rely on the firm’s system unless information
provided by the firm or other parties suggest otherwise.
Elements of a System of Quality Control

 PSA 220 states that audit firm should implement policies

and procedures designed to ensure that all audits are
conducted in accordance with PSAs.
 The quality control policies and procedures adopted by
audit firms vary depending on the firm’s size and nature
of its practice, cost benefit considerations and other
factors. PSA 220 has identified the following quality
control policies that may serve as a guide to audit firms in
establishing their own system of quality control.
LEADERSHIP RESPONSIBILITIES FOR QUALITY
ON AUDITS
 The firm should establish policies and procedures designed to
promote an internal culture based on recognition that quality is
essential in the performance of the engagements.
 The engagement partner should take responsibility for the overall
quality on each audit engagement to which the partner is assigned.
The engagement partner should set example regarding the quality
of audit by emphasizing through actions and messages the
importance of performing work that complies with professional
standards, complying with the firm’s quality control policies and
procedures, and issuing appropriate audit reports.

ETHICAL REQUIREMENTS
The firm should establish policies and procedures designed to provide it
with reasonable assurance that the firm and its personnel comply with
ethical requirements, which include:
 Integrity;
 Objectivity;
 Professional competence and due care;
 Confidentiality; and
 Professional behavior
The engagement partner should consider whether members of
engagement team have complied with these ethical principles. Any issues
involving engagement team member’s non-compliance with ethical
requirements must be properly resolved and documented.
INDEPENDENCE
 The firm should establish policies and procedures
designed to provide it with reasonable assurance that the
members of the engagement team, the firm and, where
applicable, the network firms maintain independence
when providing assurance services.
 The engagement partner should form a conclusion on
compliance with independence requirements that apply to
the audit engagement.
The engagement partner should
 Obtain relevant information to identify circumstances and
relationships that create threats to independence;
 Evaluate information on identified breaches of the firm’s
independence policies and procedures to determine
whether they create a threat to independence;
 Take appropriate safeguards to eliminate such threats or
reduce them to an acceptable level; and
 Document conclusions on independence and the basis for
such conclusion.
ACCEPTANCE AND CONTINUANCE OF CLIENT
RELATIONSHIPS

 The firm should establish policies and procedures for the acceptance and
continuance of client relationships and specific engagements, designed to
provide it with reasonable assurance that it will only undertake or continue
relationships and engagement where it:
 Has considered the integrity of the client;
 Is competent to perform the engagement and has the capabilities, time and
resources to do so; and
 Can comply with ethical requirements.
 The engagement partner should be satisfied that appropriate procedures
regarding the acceptance and continuance of client relationships and specific
audit engagement have been followed, and that conclusions reached in this
regard are appropriate and have documented.
HUMAN RESOURCES and ASSIGNMENT
The firm should establish policies and procedures designed to provide it with
reasonable assurance that it has sufficient personnel with the capabilities,
competence, and commitment to ethical principles necessary to perform the
engagement. Such policies and procedures should address issues concerning
personnel
 Recruitment
 Performance evaluation, compensation and promotion;
 Capabilities and competence;
 Career development; and
 Assignment of engagement teams
The engagement partner should be satisfied that the engagement team collectively
has the appropriate capabilities, competence and time to perform the audit
engagement in accordance with professional standards, and regulatory and legal
requirements, and to enable an auditor’s report that is appropriate in the
circumstances to be issued.
ENGAGEMENT PERFORMANCE
The firm should establish policies and procedures designed
to provide it with reasonable assurance
 That engagements are performed in accordance with
professional with professional standards and other
regulatory and legal requirements; and
 That the audit report issued is appropriate in the
circumstances.
The engagement partner should take responsibility for the
direction, supervision, review and overall performance of
the audit engagement.
QUALITY CONTROL REVIEW
 Recognizing the importance of professional accountants’ services to the society, the
government has also taken steps to ensure that CPAs work to the highest standards which
can reasonably be expected from them. The government thru the Professional Regulatory
Board of Accountancy (BOA) has required all the CPA firms and individual CPAs in public
practice to obtain a certificate of accreditation to practice public accountancy. Such
certificate is valid for three years and can be renewed after complying with the
requirements of the Board of Accountancy.
 As a condition to the renewal of the certificate of accreditation to practice public
accountancy, the Board requires individual CPAs and CPA firms to undergo a quality
control review to ensure that these CPAs comply with accounting and auditing standards
and practices.
 The PRC has created a Quality Review Committee (QRC) which shall conduct a quality
review on applicants for registration to practice public accountancy and shall
recommend the revocation of the certificate of registrations of CPAs who have not
observed the quality control measures or those who have not complied with the
standards of quality prescribed for the practice of public accountancy.