PPENDIX A — APPI CPALE Syllabus and Table of Specifications (TOS) in Auditing THE PROPOSED CPA LICENSURE EXAMINATION SYLLABUS AUDITING Effective October 2022 Examination This subject covers the candidates’ knowledge of the principles and concepts of auditing and attestation and the practical application of these principles and concepts. There shall be two parts of this subject: Theory on Auditing and Attestation Services and Auditing Practice. THEORY ON AUDITING AND ATTESTATION SERVICES This part covers the candidates’ conceptual knowledge and understanding of auditing and attestation services performed by professional accountants. Candidates should know and understand auditing and attestation services, with emphasis to: independent audits of financial statements or against related standards, assertions or applicable criteria; professional, ethical, quality management and governance responsibilities; the use of risk-based audit process in planning, responding to risks and reporting thereon. Inall the areas included, the candidate shall apply the appropriate standards on auditing and attestation, quality management, ethical and governance standards, and other regulatory laws and regulations, issued by Philippine and professional standard-setting and regulatory bodies in effect at the time of examination. AUDITING PRACTICE ; in applying ri . This part covers the candidate's proficiency in applying risk-based audit and i niques, and procedures to a typical i ment standards, techniq n wd de mt audit of a medium-sized service, trading or manufacturing concern, that use either a manual or automated business process, or a combination of both. is lop a plan and perform an audit, i ble to assess risk, develop a | , Candidstes shall be aisible errors and irregularities or nonconformance to nalyze data for , ‘or criteria, perform root cause analysis, perform other Standards, assertion idence and formulate adjusting entries, prepare audit veaures, obtain municate results of audit, prepare audit reports, and jorking papers, complete the audit. . the candidate shall apply the appropriate standards on , ethical and governance iti ion, quality management, auditing and atte latory laws and regulations, issued by Philippine and aniards me od setting and regulatory bodies in effect at the time of rofessional standare-: &xamination. ‘n all the areas included,APPENDIX A - CPALE Syllabus and Table of Specifications (TOS) in Auditing Candidates should be able to demonstrate awareness- or Proficient-level knowledge of the competencies cited above. Entry level Professional accountants should be able to address the fundamental requirements of the various parties that the candidates will be interacting professionally in the future, The candidates must also be able to communicate effectively such matters ertaining to the audit work. . ; New laws, standards and other issuances which are effective as of the date of the examination shall supersede the related topic listed in the syllabus and will be included in the examination, unless there is an advisory from the Board of Accountancy to the contrary. The examination shall have seventy (70) multiple choice questions. The syllabus for the subject is presented below. 1.0 Theory on Auditing and Attestation Services 1.1 Fundamentals of Auditing and Assurance Services 1.1.1 Introduction to assurance engagements 1.1.1.1 Nature, objective and elements 1.1.1.2 Types of assurance engagements (audits, reviews, other assurance engagements 1.1.2 Introduction to auditing 1.1.2.1 Nature, philosophy, and objectives 1.1.2.2 Types of audit 1.1.2.2.1 According to nature of assertion/data (financial statements audit, operational audit, and compliance audit) 1.1.2.2.2 According to types of auditor (external independent financial statements audit, internal audit, and government audit) 1.2 The Risk-based Financial Statement Audit — Client Acceptance, Audit Planning, Supervision and Monitoring 1.2.1 Overview of the risk-based audit process 1.2.2 Pre-engagement procedures 1.2.3 Scope and purposes of audit planning 1.2.3.1 Essential planning requirements 1.2.3.1.1 Knowledge of the business 1.2.3.1.2 Preliminary analytical procedures 1.2.3.1.3 Materiality ate Assessing and managing audit risks “3-1-5 Overall audit plan and audit program (experts, cet internal auditor, other independent auditors 1.2.4 Direction, supervision and reviewapplicable financi ; uinmarsncrnee—t 3.1.2 Objecti 1343 Mone rategies and related business risks ae jew of the entity’s financial 1.3.2 Internal Control a ene concepts i elements of internal control rene on of accounting and internal control systems 3:21.28 jerstanding and documentation 1.3.2.2.2 Assessment of control risks 1,3.2.2.2.1 Test of controls 1.3.2.2.2.2 Documentation 1.3.3 Assessing the risks of material misstatement 1.3.3.1 Fraud and errors 1.3.3.2 Risk assessment procedures 1.3.3.3 Discussion among the engagement team 1.3.3.4 Significant risks that require special audit consideration 1.3.3.5 Risks for which substantive procedures alone do not provide sufficient appropriate audit evidence 4.3.3.6 Revision of risk assessment 1.3.4 Communicating with those charged with governance and management 1.4 Audit Objectives, Procedures, 1.4.1 Nature and significance 1.4.2 Evidential matters ; ; ; ; 1.4.3 Audit procedures/techniques, including audit selection it i ers, 1.4.4 Audit working Pap’ nsksides i e Audit/Post-Audit Resp : ' CO tn the audit and audit report preparation 15.11 Analytical procedures for overall review 1.5.1.2 Related party transactions 15.1.3 Subsequent events review 15.1.4 Assessment cof ongoing concer su y's obtaining client's representation letter | 1.5.1.5 Evaluating findings, formulating an opinion and drafting 1.5.1.6 Ev: the audit report i sibilities 1.5.2 Post-audit respons’ covery of facts 1.5.2.1 Su! f omitted procedures 1.5.2.2 Subs 1.6 Reports on Audite’ Evidences and Documentation ‘n assumptionAPPENDIX A—CPALE Syllabus and Table of Specifications (T (OS) in Auditing 1.6.1 The unqualified auditor's report 1.6.2 Basic elements of the unqualified auditor’s report 1.6.3 Modified auditor’s report 1.6.3.1 Matters that do not affect the auditor's opinion 1.6.3.2 Matters that do affect the auditor's opinion 1.6.4 Report on comparatives 1.6.5 Key audit matters 1.7. Auditing in a Computerized Information ‘Systems (CIS) Environment 1.7.1 Internal control in a CIS environment 1.7.1.1 Introduction 1.7.1.2 Impact of computers on accounting and internal control systems 1.7.1.2.1 General Controls 1,7.1.2.2 Application controls 1.7.1.3 Unique characteristics of specific CIS 1,7.1.3.1 Stand alone 1,7.1.3.2 On-line 1.7.1.3.3 Database system 1.7.2 Basic approach to the audit of CIS environment 1.7.2.1 Introduction 1.7.2.2 Effects of computers on the audit process 1.7.2.3 Computer assisted audit techniques 1.7.2.4 Electronic commerce 1.7.3 Auditing new technologies 1.8 Attestation Services 1.8.1 Procedures and reports on special purpose audit engagements 1.8.1.1 General considerations 1.8.1.2 Audit of financial statements prepared in accordance with comprehensive basis of accounting other than GAAP in the Philippines 1.8.1.3 Audit of a component of financial statements 1.8.1.4 Reports on compliance with contractual agreements 1.8.1.5 Reports on summarized financial statements 1.8.2 Attestation and related services 1.8.2.1 Examination of prospective financial information 1.8.2.2 Engagements to review financial statements 1.8.2.3 Engagements to perform agreed-upon procedures regarding financial information 1.8.2.4 Engagements to prepare or compile financial information 1.8.2.5 Service organization controls and the service auditor * report a 1.8.2.6 Engagements performed in accordance with other ="APPENDIX A —~CPALE Syllabus and Tabk 1.8.3 The role Of CPAs j ete and attestation) 2.0 Auditing Practice 2.1 Governance, Ethics and Quality Management 2.1.1 Corporate governance . Seta standards and responsibilities of professional accountants os quality management 2.1.3.1 Elements of a system of quality management 2 Leadership responsibilities 3 Ethical requirements 4 Acceptance and continuance 5S Human resources 6 Engagement performance 2.1.3.7 Monitoring 2.1.3.8 Documentation of the System of Quality Management 2.1.4 Regulatory requirements related to the practice, accreditation and regulation of public accounting and auditing services 2.2 Planning the Audit and Performing Risk Assessment Procedures 2.2.1 Risk-based audit — overview 2.2.2 Risk assessment — overview 2.2.3 Preliminary activities 2.2.3.1 Engagement acceptance and continuance 2.2.4 Planning the audit 2.2.4.1 Overall audit strategy 2.2.4.2 Determining and using materiality 2.2.4.3 Audit team discussions 2.2.4.4 Understanding and auditing business processes 2.2.4.4.1 Order to cash 2.2.4.4.2 Purchase to pay 2.2.4.4.3 Plan to inventory 2.2.4.4.4 Hire to retire 2.2.4.4.5 Acquire to retire 2.2.4.4.6 Record to report 22.4.4.7 Close, consolidate and report 2.2.4.4.8 Financial planning and analysis 2.2.4.4.9 Other business processes 2.2.5 Performing risk assessment procedures — entity wide and Pecifications (TOS) in Auditing In rendering other services (aside from auditing NNNNN i level business process 2.2.5.1 Identification and ass 37'5.2 Identifying objectives and key risks 2.2.5.3 Understanding internal control 2 25.4 Evaluating internal control sessment of inherent risksCC APPENDIX A — CPALE Syllabus and Table of Specifications (TOS) in Auditing 2.2.5.5 Communicating deficiencies in internal control 2.2.5.6 Concluding the risk assessment phase 2.3 Risks Response 2.3.1 Risk response — overview 2.3.2 Developing the risk-based audit plan 2.3.3 Determining the extent of testing 2.3.4 Documenting work performed 2.3.4.1 Preparation of audit working papers 2.3.4.2 Preparation of analysis worksheets 2.3.4.3 Formulation of adjusting and correcting entries 2.3.5 Written representations 2.3.6 Engagement supervision and consultation 2.4 Audit Communication and Reporting 2.4.1 Reporting overview 2.4.2 Evaluating audit evidence 2.4.3 Communicating results 2.4.3.1 Criteria and quality of communications 2.4.3.2 Disseminating results 2.4.3.3 Communicating with those charged with governance 2.4.4 Preparing the audit report 2.4.4.1 Modifications to the auditor's report 2.4.4.2 Emphasis of matter and other matter paragraphs 2.4.4.3 Comparative information 2.4.5 Monitoring and closing the engagement THE PROPOSED TABLE OF SPECIFICATIONS AUDITING Effective October 2022 Examination Auditing Auditing Theory Problems —Total Knowledge, Skills and Values (30%) 9 12 21 Application (50%) 19 16 35 Degree of Independence (20%) 6 8 14 Total number of items 34 36 70luresfoud ypne pue vex! ypne Ye0r0 S'VETE ‘su yore Bubevew pue Busseesy y'C TL Apemen CLT seinpecoss jonKeue Kreutunaid ZETL SpouENA a8 JO BEPOMMOU VET L ‘Sanpsooid Suse aqvesse aig ssnosip pur aU, FETT soupne yo sedhy a Buproooy TET ‘tore scveyduco pur Yone uence “ypne sewers jenueUy) eapuoueree ariel ol SapOay LZZL-L wpe jo sodky oy Aquap) ZZ hb senpeigo pur “Aydosojnd “aumeu ey ssrOSIQ FZ FL Suen 9 rorPaML 4 (costoben SQUBINSSE JeLgO “SMaLAaL ‘SypNe) ‘swewebetue eoveunsse yo sodA au AnvePL ZL LL ‘Siaume pur nook one aa ered Lb Tunetetue enter GUANA CL aN ssweTasY poe Buapry jo sau TT ‘seo;ueg UopEeny pus BURY vo KGL a eos Oy ejge oq Venu SeeUNUENS oul CPAI LE Syllabus and Table of Specifications (TOS) in Auditing oe woneangay een ene sae wate ‘sewooing pur soxdoy 0 eee oN | Bien ea APPENDIX A ~ vopeunwexg 220z 1090190 eAnoeya, ‘onwiany SNOUWolsIDadS JO T1EVL‘APPENDIX A~CPALE Syllabus and Table of Specifications (TOS) in Auditing RTT SPOT TERETE WH POO TTS odes pre pur yore oe opera TONGS “Seded Bunpom yore svedaig 77 b oy fa exmunc um palin tag uom Neuen pue sideouco ose] OW Ue pue AWE LTEL fing feu erie pus ee 80 ZC Iwoumy opeaidde aq Supnpul “Sope) jewepr eu puw Kontos “Ayenou Ol ESOSIP PU OUR FEL eumON jo SRI OB GuREEEsy pu jamIED UN 51 Supneu weurcmua i put Aug out Bupuneepun SommRIsuOTEON TY wOAIETY au CUBBOOD ST ue seouepig sanpencig ‘saxDaG0 YMY FbCPALE Syllabus and Table of Specifications (TOS) in Auditing APPENDIX A — ‘Songerediucn uo yoda S280 oe fiedalg Sripne on peut opine smeAnieN TES sooypne eu 104 009 9 wmLEW AO LES ‘yoda Ssoupne paypow e eqinseq ©8 veda ‘Ssovpne poyrenbun ovo saws aseq BAIR TOL ‘vod $s0ypne payenbun we 9.06901 9 L ‘SuausyagRoueuspavenyvosiodoy gt |_| “sainpsco amwo jo Karcosip enbesops ssS9Q ZZSL ‘Spe jo Aercosp wenbescps ss 1 TFL ‘Seopa ojara 4 x ogee pur ssOm] OLS 221) ‘onequasaida: sjuayp URG Woy UMAR $151 svodunsse lutzouca Bujo8 jo waurssosse OWISSOAD FSTsematuadsas yspery E12 meinen ep sweues 1! out TS Tuauebevery LENO pu ‘Say eoueaeroS T vuosssone pue Buaipne Woy opis) soayias Jogo Bupapuoy ut sy¥go 10 ora! 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There Theory and Auditing Problems. AUDITING THEORY This part covers the candidates' conceptual knowledge and understanding of assurance and related services performed by professional accountants. Candidates should know and understand the nature of assurance and related services particularly independent audits of financial statements, the responsibilities of professional accountants, the audit process, audit objectives, evidence, procedures, auditing standards, and the elements of the independent auditors’ report. In all the areas included, the candidate shall apply the Philippine Standards on Auditing (PSA) and other regulatory laws and regulations in effect at the time of examination. AUDITING PROBLEM This part covers the candidate’s proficiency in applying audit standards, techniques, and procedures to a typical independent audit of a medium-sized service, trading or manufacturing concern. Candidate shall be able to plan and perform an audit, analyze data for possible errors and irregularities, formulate adjusting entries, resolve audit issues, prepare audit working papers and complete the audit including the preparation of the audit report. In all the areas included, the candidate shall apply the Philippine Standards on Auditing (PSA) and other regulatory laws and regulations in effect at the time of examination. , i ies cited above is that of an e candidates in the competencies cit The knowledge of fhe who can address the fundamental requirements of the Samy ieeel erpeunaae 3 interacting professionally in the future, Various parties that the candidates will b The candidates must also be able to communicate effectively matters pertaining ah be handled. i is hall be included in the interpretations and other issuances s ome ese ae effect for at least six (6) months at the date of the examinations i examination. The examination shall have seventy (70) to the audit work that will multiple choice questions.APPENDIX A - CPALE Syllabus and Table of Specifications (TOS) in Auditing AUDITING THEORY 1.0 Fundamentals of Auditing and Assurance Services APPLICABLE STANDARDS: Glossary of Terms (December 2002) \AASB — Interim Terms of Reference (August 2004); Philippine Framework for Assurance Engagement Preface to International Standards and Philippine Standards PSA 120 - Framework of Philippine Standards on Auditing 1.1 Introduction to assurance engagements 1.1.1 Nature, objective and elements 1.1.2 Types of assurance engagements (audits, reviews, other assurance engagements) 1.1.3 Assurance service vis-a-vis attestation services 1.2 Introduction to auditing 1.2.1 Nature, philosophy, and objectives 1.2.2 Types of audit 1.2.2.1 According to nature of assertion / data (financial statements audit, operational audit, and compliance audit) 1.2.2.2 According to types of auditor (external independent financial statements audit, internal audit, and government audit) 2.0 The Financial Statements Audit -Client Acceptance, Audit Planning, Supervision and Monitoring ‘APPLICABLE STANDARDS: PSA 200 (Revised and Redrafted) — Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with International Standards on Auditing PSA 210 (Redrafted) — Agreeing the Terms of Audit Engagements PSA 300 (Redrafted) — Planning an Audit of Financial Statements PSA 240 (Redrafted) — The Auditor's Responsibility to Consider Fraud in an Audit of Financial Statements PSA 250 (Redrafted) — Consideration of Laws and Regulations in an Audit of Financial Statements PSA 600 (Revised and ree ~ Special Considerations-Audits of Group inancial Statements (Including the Work it PSA 610 teccetdh Using the Work of intameludins — PSA 620 (Revised and Redrafted) — Usi 2.1 Overview of the audit a “sing the Work of an Expert 2.2 Pre-engagement procedures 2.3 Scope and purposes of audit planning 2.3.1 Essential planning requirements 2.3.1.1 Knowledge of the business:NDIX A — PPE! Crate Sylabus and Table of Specifications (TOS) in Auditing --< Preliminary analytical procedures 2.3.1.3 Materiality 2314 Assessing and managing audit risks 3.1.5 Overall audit plan and audit program (experts, internal auditor, other independent auditors) 2.4 Direction, supervision and review 3.0 Understanding the Entity and its Environment Including its Internal Control and Assessing the Risks of Material Misstatement APPLICABLE STANDARDS: PSA 260 (Revised and Redrafted) - Communication with Those Charged with Governance PSA 265 (New) - Communicating Deficiencies in Internal Control to Those Charged with Governance and Management PSA 315 (Redrafted) — Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment PSA 320 (Revised and Redrafted) — Materiality in Planning and Performing an Audit 3.1 Industry, regulatory and other external factors, including the applicable financial reporting framework 3.1.1 Nature of the entity 3.1.2 Objectives and strategies and related business risks 3.1.3 Measurement and review of the entity's financial performance 3.2 Internal control 3.2.1 Basic concepts and elements of internal control 3.2.2 Consideration of accounting and internal control systems Understanding and documentation 2 Assessment of control risks 3,2.2.2.1 Test of controls 3,2.2.2.2 Documentation 3.3 Assessing the risks of material misstatement 3.3.1 Fraud and errors 3.3.2 Risk assessment procedures 33.3 Discussion amongthe engagement team 3.3.4 Significant risks that require special audit consideration — 3.3.5 Risks for which substantive procedures alone do not provide > a afficient appropriate audit evidence is t ision of risk assessmen' | 3.4 oo cating with those charged with governance and managementa APPENDIX A — CPALE Syllabus and Table of Specifications (TOS) in Auditing 4.0 Audit Objectives, Procedures, Evidences and Documentation APPLICABLE STANDARDS: PSA 230 (Redrafted) - Audit Documentation PSA 330 (Redrafted) - The Auditor's Responses to Assessed Risks PSA 500 (Redrafted) - Audit Evidence PSA 501 (Redrafted) ~ Audit Evidence - Additional Considerations on Specific Items PSA SOS (Revised and Redrafted) — External Confirmations PSA 510 (Redrafted) — Initial Audit Engagements-Opening Balances PSA 520 (Redrafted) — Analytical Procedures PSA 530 (Redrafted) — Audit Sampling PSA S40 (Revised and Redrafted) — Auditing Accounting Estimates, Including | Fair Value Accounting Estimates, and Related Disclosures PSA 550 (Revised and Redrafted) ~ Related Parties 4.1 Nature and significance 4.2 Evidential matters 4.3 Audit procedures/techniques 4.4 Audit working papers 5.0 Completing the Audit/ Post-Audit Responsibilities APPLICABLE STANDARDS: PSA S60 (Redrafted) — Subsequent Events PSA 570 (Redrafted) — Going Concern PSA 580 (Revised and Redrafted) — Written Representations 5.1 Completing the audit and audit report preparation 5.1.1 Analytical procedures for overall review 5.1.2 Related party transactions 5.1.3 Subsequent events review 5.1.4 Assessment of going concern assumption 5.1.5 Obtaining client's representation letter 5.1.6 Evaluating findings, formulating an opinion and drafting the audit report 5.2 Post-audit responsibilities 5.2.1 Subsequent discovery of facts 5.2.2 Subsequent discovery of omitted procedures 6.0 Reports on Audited Financial Statements APPLICABLE STANDARDS: PSA 700 (Redrafted) ~The Independent Auditor's Report on a Complete Set of General-Purpose Financial Statements PSA 705 (Revised and Redrafted) - Modifications to the Opinion in the Independent Auditor's ReportAPPENDIX A - CPALE Syllabus and Table of Specifications (TOS) in Auditing PSA 706 (Revised and Redrafted) - Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor's Report PSA 710 (Redrafted)~ Comparative Information-Corresponding Figures and Comparative Financial Statements PSA 720 (Redrafted) — The Auditor's Responsibilities Relating to Other Information in Documents Containing Audited Financial Statements PSA 800 (Revised and Redrafted) — Special Considerations-Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks PSA 805 (Revised and Redrafted) - Special Considerations-Audits of Single Financial Statements and Specific Elements, Accounts or Items of a Financial Statement PSA 810 (Revised and Redrafted) - Engagements to Report on Summary Financial Statements 6.1 The unqualified auditor's report 6.2 Basic elements of the unqualified auditor's report 6.3 Modified auditor's report 6.3.1 Matters that do not affect the auditor's opinion 6.3.2 Matters that do affect the auditor's opinion 6.4 Report on comparatives 7.0 Auditing in a Computerized Information Systems (CIS) Environment APPLICABLE STANDARDS: PSA 402 (Revised and Redrafted) — Audit Considerations Relating to Entities Using Service Organizations 7.1 Internal control in a CIS environment 7.1.1 Introduction 7.1.2 Impact of computers on accounting and internal control systems 7.1.2.1 General controls 7.1.2.2 Application controls 7.1.3 Unique characteristics of specific CIS 7.1.3.1 Stand-alone 7.1.3.2 On-line 7.1.3.3 Database system 7.2 Basic approach to the audit of CIS environment 7.2.1 Introduction ; 7.2.2 Effects of computers on the audit process 7.2.3 Computer assisted audit techniques 8.0 Other Assurance and Non-assurance Services APPLICABLE STANDARDS: ; a PSA 220 (Redrafted) — Quality Control for Audits of Historical Financial Statements . ; 8.1 Procedures and reports on special purpose audit engagementsAPPENDIX A ~ CPALE Syllabus and Table of Specifications (TOS) in Auditing 8.1.1 General considerations 8.1.2 Audit of financial statements prepared in accordance with a comprehensive basis of accounting other than GAAP in the Philippines 8.1.3 Audit of a component of financial statements 8.1.4 Reports on compliance with contractual agreements 8.1.5 Reports on summarized financial statements 8.2 Non-audit engagements: procedures and reports 8.2.1 Examination of prospective financial information 8.2.2 Engagements to review financial statements. 8.3 Non-assurance engagements 8.3.1 Engagements to perform agreed-upon procedures regarding financial information 8,3.2 Engagements to compile financial information 9.0 Updates on Special Concerns 9.1 Globalization 9.2 Digital and Information Technology 9.3 Governance and Ethics 9.4 Regulatory Requirements and Considerations 9.5 Effective Business Communication AUDITING PROBLEM 1.0 Evidence Accumulation and Evaluation — Substantive Tests of Transactions and Balances 1,1 Audit of the revenue and receipt cycle 1.1.1 Audit of sales and revenue transactions 1.1.2 Audit of receivable balances 1.2 Audit of expenditure and disbursement cycle 1.2.1 Audit of acquisitions and purchases 1.2.2 Audit of payroll transactions 1.2.3 Audit of inventory balances 1.2.4 Audit of trade payable balances 1.2.5 Audit of prepaid expenses and accrued liabilities 1.3 Audit of production cycle 1.3.1 Audit of conversion activities 1.3.2 Audit of inventory balances: work-in-process and finished goods 1.3.3 Audit of cost of goods sold balance 1.4 Audit of the financing cycle 1.4.1 Audit of financing cycle transactions 1.4.2 Audit of non-trade liability balances 1.4.3 Audit of interest expense and finance cost balances 1.4.4 Audit of equity accounts 1.5 Audit of investing cycleAPPENDIX A~ CPALE Syllabus and Table of Specifications (TOS) in Auditing 15.1 Audit of investing transactions 1.5.2 Audit of investment account balances 15.3 Audit of property, plant and equipment account balances 1.5.4 Audit of intangible account balances 1.6 Audit of cash balances 1.6.1 Audit of cash ‘receipt transactions balance 1.6.2 Audit of cash disbursement transactions biAPPENDIX A — CPALE Syllabus and Table of Specifications (TOS) in Auditing Sys ypne ssasse pus ‘saunpaaaud jeonAjeue uuopad? 2 ‘mainai pue uoisin:adns ‘Busuueld wpne wewabeBue-aid asudwio yey} sainpasoud 1 z L 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AUDIT PLANNING MEMORANDUM DATE: PURPOSE: To summarize the overall audit strategy in the form of a memorandum that contains key decisions regarding the overall scope, timing and conduct of the audit. ENGAGEMENT CHARACTERISTICS: Engagement Name Period-end Nature of the Business and Industry Financial Reporting Framework Regulatory/Industry Specific Reporting Requirements Functional Currency and Presentation Currency _ AUDIT PLANNING MEMORANDUM: No. Key Decisions/Particulars Prepared by/Date Comments, WP Ref ‘Acceptance and Continuance B Based on the procedures performed, conclude on whether it is appropriate to accept, or continue, the professional services to the client. Ph manner. Document how the engagement team (including, where necessary, the engagement quality control reviewer) was selected and formed and on how the assignment of audit work to the team members, including the assignment of appropriately experienced team members to areas where there may be higher risks of material misstatement, were determined. Conclude on the adequacy of time and resources to conduct the audit in an effective and efficientAPPENDIX B 4 ~ Mustrative Audit Planning Memorandum Document the considerations of independence requirements telating to this planned professional service to the client, ting Objectives, Timing of the Audit and Nature of Determine how the entity's timetable for | reporting, such as at interim and final stages, has been considered to properly plan the audit. Organize and = manage interactions _ with management and those charged with governance to discuss the nature, timing and extent of audit work. This may include, but are not limited to: Scheduled fieldwork dates Final audit report deadline Dates of meetings with the client to discuss the progress of the audit Internal turnaround time of review of working Papers Reporting milestone dates Expected type and timing of reports such as: Auditor’s report, Management letters and Communications to those charged with governance Others Consider whether each engagement staff has sufficient technical competence to perform his or her assigned role and that the member's knowledge and skills are matched to his respective role. (Key Cy |__ reporting requ Business Updates ; Consider the impact of the key business updates of the entity on the execution of the audit. This i limited to: may include but are not ; Significant business developments affecting the entity, including changes in information technology and business processes, changes key management, and acquisitions, in livestments. mergers and dives Significant industry developments such as changes in industry regulations and new irements, || changes in the legal environment affecting the entity. Materiality 9 | Determine the amounts of materiality and performance materiality to be used by considering the knowledge and understanding of the entity and the key financial line items that greatly influence the decision-making process of users. 10| Perform a re-assessment of materiality levels based on new information that affects the initially determined materiality decisions. Engagement Specific Considerations 11| Consider the specific auditing requirements that apply to this engagement based on the industry that it is in. Overall Audit Risk Conclusion 12) Based on the results of the risk assessment procedures performed, determine the overall risk level assessment for the audit engagement. Effect of Information Technology 13 Ifthe financial reporting system of the company is heavily reliant on information technology, assess the impact and document the relevant audit approach relating to this. Involvement of Internal Audit and Specialists 14] Determine if the use of the work of specialists {eg., Information Technology and Professional Valuation Specialists) in the engagement is appropriate. 2 a If involvement is deemed necessary, document the results of the discussions with the specialists and the agreement on the following matters: Nature, scope and objective of the work Roles and responsibilities Nature Timing and Extent of communications |__| Confidentiality __APPENDIX B ~ Illustrative Audit Planning Memorandum | Significant Risks of Material Misstatements, Matters, Findings and © 6| Determine the significant risks of material | _ : | misstatements present in the audit engagement | | and document the planned audit approach to | address these significant risks, | Note: When identifying and assessing the risks of material | misstatement due to fraud, the auditor shall, based on a presumption that there are risks of fraud in revenue | recognition, evaluate which types of revenue, revenue | transactions or assertions give rise to such risks. Where the |_| auditor concludes that the presumption is not applicable in the circumstances of the engagement and, accordingly, has not identified revenue recognition as a risk of material misstatement due to fraud, the documentation of the rebuttal shall likewise be present in the audit file. The auditor shall treat those assessed risks of material misstatement due to fraud as significant risks and accordingly, to the extent not already done so, the auditor shall obtain an understanding of the entity's related controls, including control activities, relevant to such risks. Moreover, Management is in a unique position to perpetrate fraud because of management's ability to ‘manipulate accounting records and prepare fraudulent financial statements by overriding controls that otherwise ‘appear to be operating effectively. Although the level of risk of management override of controls will vary from entity to entity, the risk is nevertheless present in all entities, Due to the unpredictable way in which such | override could occur, itis a risk of material misstatement | due to fraud and thus a significant risk. Risk of Material Misstatements. (Other than Significant Risks) 17] Identify risks of material misstatements, identify d plan the audit approach. || relevant controls an | | mote: this portion will contain or be referred fo specie | ‘audit programs that present the mapping of the an | account balances, classes of transactions and disclosures | oe relevant assertions co the identified risk of materint | Mrisstotements, relevant controls and planne a | | approaches. A portion of these auelt approaches have ooronvered in chapter 7 Transaction cycles and in Ye | | respective Applied Auditing courses, These may ir ae the | | following and would vary depending 2° ee | enn: | vue and Receipt cycle ~ Test of Controls A ye Reven' ai ofa 1 Fest of Transactions and SubstantivéAPPENDIX B - Illustrative Audit Planning Memorandum "| Audit of the Expenditure and Disbursement Cycle ~ Test of Controls and Substantive Test of Transactions | Audit of the Human Resources and Payroll Cycle ~ Test of | Controls and Substantive Test of Transactions | Audie of the Production Cycle - Test of Controls and | Substantive Test of Transactions Audit of the Financing and Investing Cycle - Test of Controls ‘and Substantive Test of Transactions Substantive Tests of Account Balances, Classes of Transactions and Disclosures Cash ond Cash Equivalents Receivables and Sales Inventories and Cost of sales Investments Property, Plant and Equipment Intangible assets Prepaid expenses and deferred charges Liabilities Shareholder’s Equity Other income statement accounts Off-balance sheet items Required disclosures Other Significant Matters 18] Present any significant matters identified during the audit planning which may include: Those relating to the selection, application and consistency of accounting principles Those relating to key estimation uncertainties Those relating to key judgments Those relating to material litigation and claims involving the entity Those relating to non-compliance by the entity with laws and regulations New Accounting Standards and Changes in the Financial Reporting Framework 19] Consider and discuss the impact of any changes within the applicable financial reporting framework, such as changes in accounting standards, which may involve significant new or _| revised disclosures Consultations __ 20] Determine the need for any accounting, auditing, regulatory or legal consultations that are planned in relation to the engagement. Document the classification of the consultation conducted, the consulted topic, consulted parties _| and the results of the consultation process, —APPENDIX B ~ Illustrative Audit Planning Memorandum [ Disagreements 22) With regard to conclusions reached on significant accounting and/or auditing matters, discuss and document any disagreements among members of the engagement team and how they were resolved. Overall Audit Strategy 23] Document any modifications on the overall audit strategy arising from any matter, findings, issues or changes in the course of the audit. PREPARER AND REVIEWER SIGN-OFFS: Prepared by: DAN RENDEL CRUZ Audit Senior DANA LORREN AMUTAN Audit Manager Reviewed by: REIN RONALD BERCASIO Audit Partner RAYMUND FRANCIS ESCALA Engagement Quality Control ReviewsAPPENDIX C — Fraud Risk Factors and Indications of Non-compliance FRAUD RISK FACTORS AND INDICATIONS OF NON-COMPLIANCE FRAUD RISK FACTORS The following are examples of fraud risk factors that may be faced by auditors in a broad range of situations (lifted from PSA 240). Separately presented are examples relating to the two types of fraud relevant to the auditor's consideration, that is, fraudulent financial reporting and misappropriation of assets. For each of these types of fraud, the risk factors are further classified based on the three conditions generally present when material misstatements due to fraud occur: (a) incentives/pressures, (b) opportunities, and (c) attitudes/rationalizations. Risk Factors Relating to Misstatements Arising from Fraudulent Financial Reporting The following are examples of risk factors relating to misstatements arising from fraudulent financial reporting. Incentives/Pressures 1. Financial stability or profitability is threatened by economic, industry, or entity operating conditions, such as (or as indicated by) the following: * High degree of competition or market saturation, accompanied by declining margins. © High vulnerability to rapid changes, such as changes in technology, product obsolescence, or interest rates. Significant declines in customer demand and increasing business failures in either the industry or overall economy. © Operating losses making the threat of bankruptcy, foreclosure, oF hostile takeover imminent. « Recurring negative cash flows from operations or an inability to generate cash flows from operations while reporting earnings and earnings growth. * Rapid growth or unusual profitability especially compared to that of other companies in the same industry, « New accounting, statutory, or regulatory requirements. 2. Excessive pressure exists for management to meet the requirements OF expectations of third parties due to the following: © Profitability or trend level expectations of investment analysts, institutional investors, significant creditors, or other external partiesAPPENDIX C ~ Fraud Risk Factors and Indications of Non-compliance (particularly expectatior including expectations overly optimistic press re Ns that are unduly aggressive or unrealistic), created by management in, for example, leases or annual report messages. ooN ‘i ‘ Need to obtain additional debt or equity financing to stay petitive, including financing of major research and development or capital expenditures, Marginal ability to meet exchange listing requirements or debt repayment or other debt covenant requirements. Perceived or real adverse effects of reporting poor financial results on significant pending transactions, such as business combinations or contract awards. 3. Information available indicates that the Personal financial situation of management or those charged with governance is threatened by the entity’s financial performance arising from the following: * Significant financial interests in the entity. * Significant portions of their compensation (for example, bonuses, stock options, and earn-out arrangements) being contingent upon achieving aggressive targets for stock price, operating results, financial position, or cash flow. © Personal guarantees of debts of the entity. 4. There is excessive pressure on management or operating personnel to meet financial targets established by those charged with governance, including sales or profitability incentive goals. Opportunities . : . 1. The nature of the industry or the entity’s operations provides opportunities to engage in fraudulent financial reporting that can arise from the following: . 7 «Significant related-party transactions not in the ordinary course of business or with related entities not audited or audited by another . fire financial presence or ability to dominate a certain industry oe that allows the entity to dictate terms or conditions to supple or customers that may result in inappropriate or non-arm’s sup, ions. -_ length tr ansatties revenues, or expenses based on significant . neces 5 that involve subjective judgments or uncertainties that are estimate: difficult to corroborate.APPENDIX C~ Fraud Risk Factors and Indications of Non-compliance * Significant, unusual, or highly complex transactions, especially those close to period end that pose difficult “substance over form” questions. * Significant operations located or conducted across international borders in jurisdictions where differing business environments and cultures exist. * Use of business intermediaries for which there appears to be no clear business justification. © Significant bank accounts or subsidiary or branch operations in tax haven jurisdictions for which there appears to be no clear business justification. 2. The monitoring of management is not effective as a result of the following: * Domination of management by a single person or small group (in a non-owner-managed business) without compensating controls. © Ineffective oversight by those charged with governance over the financial reporting process and internal control. 3. There is a complex or unstable organizational structure, as evidenced by the following: * Difficulty in determining the organization or individuals that have controlling interest in the entity. * Overly complex organizational structure involving unusual legal entities or managerial lines of authority, © High turnover of senior management, legal counsel, or those charged with governance. 4, Internal control components are deficient as a result of the following: * Inadequate monitoring of controls, including automated controls and controls over interim financial reporting (where external reporting is required). High turnover rates or employment of ineffective accounting, internal audit, or information technology staff. * Ineffective accounting and information 5 ! ‘ ystems, including situations involving material weaknesses in interna I control,APPENDIX C— Fraud Risk Fa Attitudes/Rationalizations ictors and Indications of Non-compliance Com icati ; . entity’ vale implementation, support, or enforcement of the Values or ethical standards by management or the ce i i 1 . ‘Ommunication of inappropriate values or ethical standards, that are not effective. Nonfinancial management’s excessive participation in or preoccupation with the selection of accounting policies or the determination of significant estimates. Known history of violations of securities laws or other laws and regulations, or claims against the entity, its senior management, or those charged with governance alleging fraud or violations of laws and regulations. Excessive interest by management in maintaining or increasing the entity’s stock price or earnings trend. A practice by management of committing to analysts, creditors, and other third parties to achieve aggressive or unrealistic forecasts. Management failing to correct known material weaknesses in internal control on a timely basis. An interest by management in employing inappropriate means to minimize reported earnings for tax-motivated reasons. Low morale among senior management. The owner-manager makes no distinction between personal and business transactions. | Dispute between shareholders ina closely held entity. Recurring attempts by management to justify marginal or inappropriate accounting on the basis of materiality. The relationship between management and the current or tor is strained, as exhibited by the following: redecessor audi E 4 Frequent disputes with the current or predecessor auditor on i iti i tters. ting, auditing, or reporting ma b. Cnreasonable demands on the auditor, such as unreasonable : time constraints regarding the completion of the audit or the ' s i of the auditor's report. el informal restrictions on the auditor that t access to people or information or the cate effectively with those charged with c. Formal oF orm inappropriately limit ability to. communi governance. ring management i dealing with the auditor, i agement behavior in : d. Domineering ly involving attempts to influence the scope of the rec ork or the selection or continuance of personnel auditor's ned to or consulted on the audit engagement. assig!APPENDIX C - Fraud Risk Factors and Indications of Non-compliance Risk Factors Arising from Misstatements Arising from Misappropriation of Assets Risk factors that relate to misstatements arising from misappropriation of assets are also classified according to the three conditions generally present when fraud exists: (a) incentives/pressures, (b) opportunities, and (c) attitudes/rationalizations. Some of the risk factors related to misstatements arising from fraudulent financial reporting also may be present when misstatements arising from misappropriation of assets occur. For example, ineffective monitoring of management and weaknesses in internal control may be present when misstatements due to either fraudulent financial reporting or misappropriation of assets exist. The following are examples of risk factors related to misstatements arising from misappropriation of assets. Incentives/Pressures 1. Personal financial obligations may create pressure on management or employees with access to cash or other assets susceptible to theft to misappropriate those assets. 2. Adverse relationships between the entity and employees with access to cash or other assets susceptible to theft may motivate those employees to misappropriate those assets. For example, adverse relationships may be created by the following: * Known or anticipated future employee layoffs. * Recent or anticipated changes to employee compensation or benefit plans, * Promotions, compensation, or other rewards inconsistent with expectations. Opportunities 1. Certain characteristics or circumstances may increase the susceptibility of assets to misappropriation. For example, opportunities to misappropriate assets increase when there are the following: * Large amounts of cash on hand or processed. * Inventory items that are small in size, of high value, or in high demand. * Easily convertible assets, such as bearer bonds, diamonds, °F computer chips. . Fixed assets which are small in size, marketable, or lacking observable identification of ownership.APPENDIX C — Fraud Risk Factor: 2 S and Indications of Non-compliance Inadequate i Y iseetrenecarnel Control over assets may increase the susceptibility of ’ Priation of those assets. For example, misappropriation of asses Ss may Occur because there is the following: = irae Segregation of duties or independent checks. inadequate oversight of senior management expenditures, such as travel and other reimbursements. Inadequate management oversight of employees responsible for assets, for example, inadequate supervision or monitoring of remote locations. Inadequate job applicant screening of employees with access to assets. Inadequate record keeping with respect to assets. Inadequate system of authorization and approval of transactions (for example, in purchasing). * Inadequate physical safeguards over cash, investments, inventory, or fixed assets. * Lack of complete and timely reconciliations of assets. * Lack of timely and appropriate documentation of transactions, for example, credits for merchandise returns. * Lack of mandatory vacations for employees performing key control functions. * Inadequate management understanding of information technology, which enables information technology employees to perpetrate a misappropriation. * Inadequate access controls over automated records, including controls over and review of computer systems event logs. Attitudes/Rationalizations + Disregard for the need for monitoring or reducing risks related to misappropriations of assets. / - Disregard for internal control over misappropriation of assets by overriding existing controls or by failing to correct known internal deficiencies. : | ; ; . srior indicating displeasure or dissatisfaction with the entity or i nt of the employee. “~ - Genes behavior or lifestyle that may indicate assets have been misappropriated. * Tolerance of petty theft.APPENDIX C — Fraud Risk Factors and Indications of Non-compliance EXAMPLES OF CIRCUMSTANCES THAT INDICATE THE POSSIBILITY OF FRAUD The following are examples of circumstances that may indicate the possibility that the financial statements may contain a material misstatement resulting from fraud. Discrepancies in the accounting records, including the following: * Transactions that are not recorded in a complete or timely manner or are improperly recorded as to amount, accounting period, classification, or entity policy. * Unsupported or unauthorized balances or transactions. * Last-minute adjustments that significantly affect financial results. * Evidence of employees’ access to systems and records inconsistent with that necessary to perform their authorized duties. * Tips or complaints to the auditor about alleged fraud. Conflicting or missing evidence, including the following: * Missing documents. * Documents that appear to have been altered. * Unavailability of other than photocopied or electronically transmitted documents when documents in original form are expected to exist. * Significant unexplained items on reconciliations. Unusual balance sheet changes, or changes in trends or important financial statement ratios or relationships, for example receivables growing faster than revenues. * Inconsistent, vague, or implausible responses from management or employees arising from inquiries or analytical procedures. * Unusual discrepancies between the entity's records and confirmation replies. * Large numbers of credit entries and other adjustments made to accounts receivable records. * Unexplained or inadequately explained differences between the accounts receivable sub-ledger and the control account, or between the customer statements and the accounts receivable sub-ledger- * Missing or non-existent cancelled checks in circumstances where cancelled checks are ordinarily returned to the entity with the bank statement. * Missing inventory or physical assets of significant magnitude. * Unavailable or missing electronic evidence, inconsistent with the entity's record retention practices or policies.APPENDIX C~ Fraud Risk Factors and Indic: Problematic or unusual relatio including the following: ions of Non-compliance Fewer responses to Confirmations than anticipated or a greater number of responses than anticipated. Inability to produce evidence of key systems development and Program change testing and implementation activities for current- year system changes and deployments. nships between the auditor and management, Denial of access to records, facilities, certain employees, customers, vendors, or others from whom audit evidence might be sought. Undue time pressures imposed by management to resolve complex or contentious issues. Complaints by management about the conduct of the audit or Management intimidation of engagement team members, Particularly in connection with the auditor's critical assessment of audit evidence or in the resolution of potential disagreements with management. Unusual delays by the entity in Providing requested information. Unwillingness to facilitate auditor access to key electronic files for testing through the use of computer-assisted audit techniques. Denial of access to key IT operations staff and facilities, including security, operations, and systems development personnel, An unwillingness to add or revise disclosures in the financial statements to make them more complete and understandable. An unwillingness to address identified weaknesses in internal control ona timely basis. Other includes the following: Unwillingness by management to permit the auditor to meet privately with those charged with governance. Accounting policies that appear to be at variance with industry norms. ; Frequent changes in accounting estimates that do not appear to i tances. result from changes circumstance Tolerance of violations of the entity’s code of conduct.APPENDIX C — Fraud Risk Factors and Indications ‘of Non-compliance INDICATIONS THAT NONCOMPLIANCE MAY HAVE OCCURRED Examples of the type of information that may come to the auditor's attention that may indicate that noncompliance with laws or regulations has occurred are listed below (lifted from PSA 250): © Investigation by government departments or payment of fines or penalties. * Payments for unspecified services or loans to consultants, related parties, employees or government employees. © Sales commissions or agent's fees that appear excessive in relation to those ordinarily paid by the entity or in its industry or to the services actually received. © Purchasing at prices significantly above or below market price. * Unusual payments in cash, purchases in the form of cashiers’ checks payable to bearer or transfers to numbered bank accounts. Unusual transactions with companies registered in tax havens. * Payments for goods or services made other than to the country from which the goods or services originated. Payments without proper exchange control documentation. Existence of an accounting system which fails, whether by design or by accident, to provide an adequate audit trail or sufficient evidence. Unauthorized transactions or improperly recorded transactions. * Adverse media comment. End