Today, we are going to discuss chapter 2 the professional practice of accountancy in

the Philippines. In this presentation, we will again be touching on significant portions of

the law that is republic act number 9298 (Philippine Accountancy Act) and as well as
PSA 120. As always, in the practice of accountancy we should remember to be always
professional, perform effectively and efficiently, follow standards and document our
work adequately and properly.

As you can see, on the slide a picture of the face based copy of the law RA 9298, this
law defines the scope of practice of accountancy in the Philippines. RA 9298 is also
known by its short title the Philippine Accountancy Act of 2004. They say it's short but
still, it's really a mouthful to say. Article 1 defines the policy objective and scope of
practice of the profession. In section four, it lists there the extent to what an accountant
can practice his profession.

1) Practice of Public Accountancy

It says you can be a partner or staff of an audit or accounting firm, you can also
be an accountant in a private company, overseeing bookkeeping on the counter to
conduct review engagement whether internally or externally, or as an accountant doing
consultative function to clients or management. The phrase “other matters related to
accounting and accounting procedures, recording or end presentation of financial
statements” pretty much includes most of the types of job you can apply in when you
are becoming you become a registered accountant.

 Partner or Staff in an Accounting/Auditing Firm

 Employee of private businesses

2) Practice in Commerce and Industry

Scope number two in section 4b is rather an extract from 4a. The emphasis of 4b
is the decision-making aspect of the use of financial information. This precludes
that to be involved in the decision making process, such an accountant must be
holding management positions in an organization (Management and Executives.
So scope 4b is practically limited to those accountants who are working in private
organizations holding management or key positions or executive positions in the
organization. Those that are charged with the decision making.

 Decision-making requiring professional knowledge

3) Practice in Education/Academe
Scope number three practice in education in academia involves the teaching of
accounting and allied subjects in the academic setting and that is in the colleges or the
universities (Teachers in H.E.I.s) or other schools or institutions that are recognized by
the regulatory bodies or the government. An example of an accountant who is in this
profession is of course me.

 Teaching technical Accounting and related subjects

4) Practice in Government
Scope 4d practice in government relates to practice of any one of the things
mentioned in 4a and 4b except that it is dispensed while the accountant or auditor is
employed by the government either as a state auditor or an employee of any
government organization or a government-owned encore or controlled corporation. In
one of those positions in the government organizations has corresponding civil service
eligibility which may not be covered by our RA 9298.

 In government, GOCC
 Decision-making requiring professional knowledge
 CSC eligibility requires a CPA

It is one of the diagrams that is very familiar or any account that can relate to when
discussing assurance and auditing services. What is our key takeaway from this
diagram? – that auditing is a kind of attestation service which in turn attestation is a type
of assurance service. Although that is the case, audits are the most common and
thus forms the most significant part of assurance services and that is because you
cannot go into other assurance services without being first annotated because
companies usually get in contact and get to know the auditors when they are in audit
engagement. So while they are in the audit engagement, the auditors can show their
expertise in areas of consultancy and after the audit then these clients, they need the
services of such experts, they tend to enlist or hire the services of the auditors that they
have worked with.

The focus of our course is audit since the CPA board exam syllabus, out of all types of
assurance service is mainly focused on the audit of financial statements. That is so
because the other types of assurance services can be performed only by auditors if they
already have earned relevant and significant experience in the field of audit. Thus in
a way we can say that audit is the stepping stone to performing other assurance
services. Some of which command higher fees than audit itself. What we earn from
audit when you compare to what you can earn when you are doing consultancy services
is just a small portion of the other assurance service. So there's not much money in
audit but if you have the expertise, you can earn more when you do consultancy
service. It is hard to go into the consultancy arena without having significant experience
in the field of audit.

We have blown portions of the other related services into review and then we have
agreed-upon procedures and then we have compilation (extensively discussed in
PSA 120). So this is a combination of the previous diagram and that one that is found in
page two. We might want to look at the page of the Philippine standards on audit it's in
on page two. I also enhanced it so that it looks more professional. You may read about
the definitions, objectives and scope of work required for auditing and other
assurance services. In pages six to eight of PSA 120, our focus is about the level of
assurance that auditor provides in each of the engagements. Assurance in the context
of this framework refers to the auditor's satisfaction as to the reliability of an assertion
being made by one party for use by another partner. To provide such assurance, the
auditor assesses the evidence that was provided by the party, preparing the
information, collects the evidence as a result of the procedures conducted and then
analyzes this evidence and expresses a conclusion. The degree of satisfaction
achieved and therefore the level of assurance which may be provided is determined by
the procedures performed and the results.

In an audit engagement, the auditor provides a high, but not absolute level of
assurance that the information subject, usually the financial statement is free of
material misstatement. This is expressed as a positive opinion in the auditor audit
report as reasonable assurance.

In a review engagement, the auditor provides a moderate level of assurance that the
information subject to review is free of material misstatement. This is expressed in the
form of a negative assurance. A negative assurance is an auditor's written
statement that the audit did not uncover any signs of fraud or violations of laws
or accounting rules. The negative assurance tells shareholders that the auditor could
not find any evidence of material misstatements in our financials. In the real world,
negative assurances occur most often when an auditor is interrupted to review another
auditor's work for a company. The usual proponents of this service, the ones who
usually hire auditors for negative assurances are underwriters as a condition of closing
our registered offering of securities. So this underwriters, they're actually involved in the
IPL’s. Why do we give weight to a negative assurance? Well, it's actually a very good
thing, it is important to know that a negative insurance does not mean that the
audited company has not committed fraud or violated accounting rules. They may
but the auditor may not have found it out. It simply means that the auditor could not
find evidence of those. The auditor might suspect that there is probably fraud that has
been committed by people within the organization but if he cannot find any evidence to
support such a suspicion, then the auditor will simply issue a negative assurance but he
will not say in the report that he suspects that there is probably fraud committed within
the organization. We cannot say that in the report, he can only say that he could not find
any evidence supporting pertinent activity. Negative assurances also helped
establish and defends the claims that investors might bring under certain specific
laws.

AUP stands for agreed upon procedures. In this engagement, the auditor simply
provides a report of factual findings and no assurance is expressed instead users
of the report assess for themselves. The procedures and findings and reported by
the auditor and draw their own conclusion from the auditor's work. So this is similar to
audit and review except that the auditor himself will not provide any report on the level
of insurance. It will be the users of the report who will draw their own evaluation.
They will have their own evaluation of their level of assurance based on the procedures
performed by the auditor and the findings in the report issued by the auditor.

In a compilation engagement, although the users of the compiled information derive

some benefit from the accountant's involvement, like in the agreement procedures, no
assurance is expressed in the report. So the AUP and compilation are simply
procedural engagement that the auditor performs and in the end, any conclusion is
not reported. There is no conclusion and therefore there is no level of assurance
included in the auditor’s report.

Types of Auditors

1) External Auditors
These are the ones who audit the published historical financial statements. Their
main objective is doing audits. As set up in PSA 200 is to obtain reasonable assurance
about whether the financial statement as a whole is free from material misstatements.

PSA 200 Objective of the Audit: Obtain reasonable assurance whether the FS as a
whole is free from MATERIAL misstatements.

This type of auditors must have no connection to the organization they audit.
Independent in mind as well as in appearance. The works performed by these
auditors are those typically required by investors and lenders who rely on information
and data that is accurate and fair. In most cases, the auditor of an organization's
financial statement leads to the auditors being hired in other engagements such as
management consultancy in the areas of operation and compliance to company
governance policies and laws and regulations.

 Audit of published HFS of publicly-traded companies and most other types

business organizations
 Management Consultancy Services e.g., operational and compliance audit
 Truly independent in mind and appearance

2) Internal Auditors
These are auditors who are not really independent of the organization that
hired them as employees. Their services are primarily for the top management of the
organization who may want appraisal of aspects of the operations of the organization.
Some aspects of the areas of the organizations, we have the areas of management and
then areas of performance and compliance with government policies. The
independence of these auditors are only with regards to the division and the
departments that they audit. (Independent only as to the organizational unit they
audit.

 Hired by the entity they audit

 Independent appraisal within the organization as service to management
 Concerned with financial as well as other data
 Evaluates (1) efficiency of resource utilization (operational audit) (2)
effectiveness of attaining objectives (management, performance, or compliance
audit)

3) Government Auditors
In the Philippines, they are divided into three subcategories:
 State auditors of COA
Government expenditures – emphasis on compliance to law (operational
efficiency and effectiveness of government programs)
 Examiners of BIR
Individuals and businesses – emphasis on compliance to law
 Regulatory auditors of the various regulatory agencies of governments
SEC, BSP, Office of Insurance Commission (OIC) and other agencies that has
oversight of private as well as public businesses and individuals

The most ones we are familiar with are again the commission on audit state auditors.
We're not much familiar with the examiners of the Bureau of Internal Revenue. And
then we have the ones that are almost invisible are the regulatory body editors. The
purpose of their own is related to the oversight functions that they dispense.

4) Forensic Auditor
 These are auditors that are specially trained to detect and investigate and
deter fraud and white-collar crimes. And then we also have forensic auditors that are
hired to reconstruct account balances for example, when fire happens during some
warehouse and then they have to submit to the insurance company the value of the
inventory that has been destroyed by fire then forensic auditors sometimes, they are
hired to perform reconstruction of the account balances. Also if you are an insurance
company who wants to investigate the veracity of an insurance claim, then you can also
hire forensic monitors.

Types of Audit

1) Financial Statement Audit

PSA 120, page six paragraph 20: the objective of the audit of financial statement
is to enable the auditor to express an opinion whether the financial statements are
prepared in all material respects in accordance with an identified financial reporting
framework. The phrase used to express the author's opinion is present fairly in all
material respects. A similar objective applies to all the
financial or other information prepared
in accordance with appropriate criteria
so those are the words from psc-128
financial statement audit is concerned
with a question is the financial
statement fairly presented by management
internal audit is an independent
objective assurance and consulting
activity within the organization
designed to earn value and improve on
organizations operations
it goes beyond the examination of
accounting and financial records
in the evaluation of corporate
governance policies and processes
and it does the review with the aim of
evaluating and recommending to
management ways in which their policies
and procedures
or the policies and the
accompanying business processes ways
that they may be
either improved to add value or they may
be removed to free up and redirect
significant resources to other
value chains that they need that need
resources
the question is that the internal
auditors are most interested in is
are management controls and processes
effective
efficient and are they being complied
with
compliance audits are all added that a
the degree of compliance of an
organization to national and local laws
and regulations
it provides an assurance to government
that businesses are following the rules
and regulation of a specific agreement
for example sec requires that
corporation publish the salaries and
benefits of executives
be disclosed
making sure that the investing public
those that
those people who have
shares in the company is provided with
full and fair disclosure of material
information which is of course
the material information here is the
salaries and benefits of executives
on which to base inform investing and
especially voting
investing and especially voting
decisions on the part of the
shareholders
thus invariably an auditor engaged in
compliance audit asks the question
does the entity follow established rules
and regulations
operational audit is almost exclusively
performed by internal auditors
and because they have the in-depth
knowledge of the business processes as
well as the supporting systems of an
organization
and because they are there in the
organization every day because they are
employees of the organization they can
see
the inner workings of the operations
so they are the best uh the best
auditors in position to perform a
professional audit
it is the operator that is the
operational audit is future oriented in
the sense that the recommendations of
the internal auditors on how to improve
effective and efficient use of resources
are recommended now
and plan then planned and then executed
later by management
in the future
they will improve the operations by
uh implementing the recommendations that
were where
proposed by the internal auditors the
main question that internal auditors
have when they do compliance all it is
are the company resources being used
effectively and efficiently
and lastly forensic audit is a highly
specialized audit
that involves tracing and tracking of
evidences of wrongdoing or
irregularities therefore the foremost
concern of the auditor is how do we
detect fraud
and deter the condition of it
so there it is chapter 2 thanks for
listening and stay safe always