College of Accounting Education ‘EF Fecunda Hall B& E Bly, ‘Matina, Davao Cty Phiopines indansS Phrane No. (082) 305-0645 ‘Auditing Theory: Session 7 Other Assurance and Related Services, PSQC 1, RA 9298 PSRE 2400 - ENGAGEMENT TO REVIEW FINANCIAL STATEMENTS The objective of a review of financial statements is to enable an auditor to state whether, on the basis of procedures which do not provide all the evidence that would be required in an audit, anything has come to the auditor's attention that causes the auditor to believe that the financial statements are not prepared, in all material respects, in accordance with generally accepted accounting principles in the Philippines (negative assurance). The auditor should plan and perform the review with an attitude of professional skepticism recognizing that circumstances may exist which cause the financial statements to be materially misstated, For the purpose of expressing negative assurance in the review report, the auditor should obtain sufficient appropriate evidence primarily through inquiry and analytical procedures to be able to draw conclusions. {In planning a review of financial statements, the auditor should obtain or update the knowledge of the business including consideration of the entity's organization, accounting systems, operating characteristics, and the nature of its assets, liabilities, revenues and expenses. The auditor should apply the same materiality considerations as would be applied if an audit opinion on the financial statements were being given. Although there is a greater risk that misstatements will not be detected in a review than in an audit, the judgment as to what is material is made by reference to the information on which the auditor is reporting and the needs of those relying on that information, not to the level of assurance provided. Procedures for the review of financial statements will ordinarily includ ‘+ Obtaining an understanding of the entity's business and the industry in which it operates. ‘+ Inquiries concerning the entity's accounting principles and practices. ‘+ Inquiries concerning the entity's procedures for recording, classifying and summarizing transactions, accumulating information for disclosure in the financial statements and preparing financial statements. Inquiries concerning all material assertions in the financial statements. Analytical procedures designed to identify relationships and individual items that appear unusual, Such procedures would include: = Comparison of the financial statements with statements for prior periods. = Comparison of the financial statements with anticipated results and financial position. = _ Study of the relationships of the elements of the financial statements that would be expected to conform to a predictable pattern based on the entity's experience or industry norm. In applying these procedures, the auditor would consider the types of matters that required accounting adjustments in prior periods. ‘+ Inquiries concerning actions taken at meetings of shareholders, the board of directors, committees of the board of directors and other meetings that may affect the financial statements. ‘+ Reading the financial statements to consider, on the basis of information coming to the auditor's attention, whether the financial statements appear to conform with the basis of accounting indicated. ‘+ Obtaining reports from other auditors, if any and if considered necessary, who have been engaged to audit or review the financial statements of components of the entity. ‘+ Inquiries of persons having responsibilty for financial and accounting matters concerning, for example: 2° semester 2021-2022College of Accounting Education ‘EF Fecunda Hall B& E Bly, ‘Matina, Davao Cty Phiopines “of Mindanao Phrane No. (082) 305-0645 - Whether all transactions have been recorded. = Whether the financial statements have been prepared in accordance with the basis of accounting indicated. - Changes in the entity's business activities and accounting principles and practices. = Matters as to which questions have arisen in the course of applying the foregoing procedures. = Obtaining written representations from management when considered appropriate. REPORTING The report on a review of financial statements should contain the following basic elements, ordinary in the following layout: (@) title; (b) addressee; (© opening or introductory paragraph including: (i) identification of the financial statements on which the review has been performed; and (i) a'statement of the responsibility of the entity's management and the responsibilty of the auditor; (d) scope paragraph, describing the nature of a review, including: (i) arreference to this Philippine Standard on Auditing applicable to review engagements; Gi) a statement that a review is limited primarily to inquiries and analytical procedures; and (ii) statement that an audit has not been performed, that the procedures undertaken provide less assurance than an audit and that an audit opinion is not expressed; (@) statement of negative assurance; (0) date of the report; (9) auditor's address; and (h) auditor's signature, SAMPLE REVIEW ENGAGEMENT REPORT We have reviewed the accompanying balance sheet of ABC Company at December 31, 20XX, and the related statements of income, changes in equity and cash flows for the year then ended. These financial statements are the responsibilty of the Company's management. Our responsibilty is to issue a report on these financial statements based on our review. We conducted our review in accordance with the Philippine Standard on Auditing applicable to review engagements. This Standard requires that we plan and perform the review to obtain moderate assurance as. to whether the financial statements are free of material misstatement. A review is limited primarily to inquiries Cf company personnel and analytical procedures applied to financial data and thus provides less assurance than an audit. We have not performed an audit and, accordingly, we do not express an audit opinion, Based on our review, nothing has come to our attention that causes us to believe that the accompanying financial statements are not presented fairly, in all material respects in accordance with generally accepted ‘accounting principles in the Philippines. PSRS 4400 - ENGAGEMENTS TO PERFORM AGREED-UPON PROCEDURES REGARDING FINANCIAL INFORMATION ‘An engagement to perform agreed-upon procedures may involve the auditor in performing certain procedures concerning: ‘+ _ Individual items of financial data (for example, accounts payable, accounts receivable, purchases from related parties and sales and profits of a segment of an entity). ‘+ Afinancial statement (for example, a balance sheet). 2° semester 2021-2022College of Accounting Education ‘EF Fecunda Hall B& E Bly, ‘Matina, Davao Cty Phiopines indansS Phrane No. (082) 305-0645 + Acomplete set of financial statements. ‘The objective of an agreed-upon procedures engagement is for the auditor to carry out procedures of an audit nature to which the auditor and the entity and any appropriate third parties have agreed and to report on factual findings. {As the auditor simply provides a report of the factual findings of agreed-upon procedures, no assurance is ‘expressed. Users of the report assess for themselves the procedures and findings reported by the auditor and draw their own conclusions from the auditor's work. ‘The report is restricted to those parties that have agreed to the procedures to the performed since others, Unaware of the reasons for the procedures, may misinterpret the results. Independence is not a requirement for an agreed-upon procedures engagement. ‘The procedures applied in an engagement to perform agreed-upon procedures may include: ‘© Inquiry and analysis Recomputation, comparison and other clerical accuracy checks. Observation. Inspection. Obtaining confirmations. The report on an agreed-upon procedures engagement needs to describe the purpose and the agreed-upon Procedures of the engagement in sufficient detail to enable the reader to understand the nature and the ‘extent of the work performed, ‘The report of factual findings should contain: © Tite; Addressee (ordinarily the client who engaged the auditor to perform the agreed-upon procedures); Identification of specific financial or non-financial information to which the agreed-upon procedures have been applied; AA statement that the procedures performed were those agreed upon with the recipient; ‘A statement that the engagement was performed in accordance with the Philippine Standard on Related Services applicable to agreed-upon procedures engagements; AA statement that the auditor is not independent of the entity if such is the case; Identification of the purpose for which the agreed-upon procedures were performed; AAlisting of the specific procedures performed; ‘A description of the auditor's factual findings including sufficient details of errors and exceptions found; ‘+ Astatement that the procedures performed do not constitute either an audit or a review and, as such, no assurance is expressed; ‘+ Astatement that had the auditor performed additional procedures, an audit or a review, other ‘matters might have come to light that would have been reported; ‘+ Astatement that the report is restricted to those parties that have agreed to the procedures to be performed; ‘+ Astatement (when applicable) that the report relates only to the elements, accounts, items or financial and non-financial information specified and that it does not extend to the entity's financial statements taken as a whole’ ‘+ Date of the report; + Auditor's address; and ‘+ Auditor's signature. 2° semester 2021-2022College of Accounting Education ‘EF Fecunda Hall B& E Bly, ‘Matina, Davao Cty Phiopines indansS Phrane No. (082) 305-0645 SAMPLE REPORT REPORT OF FACTUAL FINDINGS To (those who engaged the auditor) We have performed the procedures agreed with you and enumerated below with respect to the accounts payable of ABC Company as at (date), set forth in the accompanying schedules (not shown in this example). (ur engagement was undertaken in accordance with the Philippine Standard on Related Services applicable to agreed-upon procedures engagements. The procedures were performed solely to assist you in evaluating the validity of the accounts payable and are summarized as follows: 1. We obtained and checked the addition of the trial balance of accounts payable as at (date) prepared by ‘ABC Company, and we compared the total to the balance in the related general ledger account. 2. We compared the attached list (not shown in this example) of major suppliers and the amounts owing at (date) to the related names and amounts in the trial balance. 3. We obtained suppliers’ statements or requested suppliers to confirm balances owing at (date). 4. We compared such statements or confirmations to the amounts referred to in 2. For amounts which did not agree, we obtained reconciliations from ABC Company. For reconciliations obtained, we identified and. listed outstanding invoices, credit notes and outstanding checks, each of which was greater than Proxx. We located and examined such invoices and credit notes subsequently received and checks subsequently paid and we ascertained that they should in fact have been listed as outstanding on the reconciliations. We report our findings below: a) With respect to iter 1 we found the addition to be correct and the total amount to be in agreement. b) With respect to item 2 we found the amounts compared to be in agreement. ©) With respect to item 3 we found there were suppliers’ statements for all such suppliers. ) With respect to item 4 we found the amounts agreed, or with respect to amounts which did not agree, we found ABC Company had prepared reconciliations and that the credit notes, invoices and outstanding cchecks over Pxxx were appropriately listed as reconciling items with the following exceptions: (Detail the exceptions) Because the above procedures do not constitute either an audit or a review made in accordance with Philippine Standards on Related Services, we do not express any assurance on the accounts payable as of (date). Had we performed additional procedures or had we performed an audit or review of the financial statements in accordance with Philippine Standards on Auditing, other matters might have come to our attention that would have been reported to you. Our report is solely for the purpose set forth in the first paragraph of this report and for your information and is not to be used for any other purpose or to be distributed to any other parties. This report relates only to the accounts and items specified above and does not extend to any financial statements of ABC Company, taken as a whole, AUDITOR Date Address 2° semester 2021-2022College of Accounting Education ‘EF Fecunda Hall B& E Bly, ‘Matina, Davao Cty Phiopines “The Universigy of Mindanas Phrane No. (082) 305-0645 PSRS 4410 - ENGAGEMENTS TO COMPILE FINANCIAL INFORMATION ‘A compilation engagement would ordinarily include the preparation of financial statements (which may or may not be a complete set of financial statements) but may also include the collection, classification and ‘summarization of other financial information; The objective of a compilation engagement is for the accountant to use accounting expertise, as opposed to auditing expertise, to collect, classify and summarize financial information. ‘The procedures employed are not designed and do not enable the accountant to express any assurance on the financial information. Independence is not a requirement for a compilation engagement. However, where the accountant is not independent, a statement to that effect would be made in the accountant's report. ‘The accountant should obtain a general knowledge of the business and operations of the entity and should be familiar with the accounting principles and practices of the industry in which the entity operates and with the form and content of the financial information that is appropriate in the circumstances. The accountant is not ordinarily required to: ‘+ Make any inquiries of management to assess the reliability and completeness of the information provided; ‘+ Assess internal controls; © Verify any matters; or = Verify any explanations. If the accountant becomes aware that information supplied by management is incorrect, incomplete, or ‘otherwise unsatisfactory, the accountant should consider performing the above procedures and request management to provide additional information. If management refuses to provide additional information, the accountant should withdraw from the engagement, informing the entity of the reasons for the withdrawal. The accountant should read the compiled information and consider whether it appears to be appropriate in form and free from obvious material misstatements. The accountant should obtain an acknowledgement from management of its responsibilty for the appropriate Presentation of the financial information and of its approval of the financial information. The financial information compiled by the accountant should contain a reference such as “Unaudited,” “Compiled without Audit or Review,” or "Refer to the Compilation Report” on each page of the financial information or on the front of the complete set of financial statements. Contents of Report on Compilation Engagements: a) title; b) addressee; ©) a statement that the engagement was performed in accordance with the PSRS applicable to compilation engagements; ) a statement that the accountant is not independent of the entity if such is the case; ) identification of the financial information noting that itis based on information provided by management; ) a statement that management is responsible for the financial information compiled by the accountant; 9) a statement that neither an audit nor a review has been carried out and that accordingly no assurance is expressed on the financial informatior 2° semester 2021-2022College of Accounting Education ‘EF Fecunda Hall B& E Bly, ‘Matina, Davao Cty Phiopines indansS Phrane No. (082) 305-0645 fh) a paragraph, when considered necessary, drawing attention to the disclosure of material departures from generally accepted accounting principles in the Philippines; 1) date of the report; 3) accountant’s address; and k)_accountant’s signature. Example of a Report on an Engagement to Compile Financial Statements COMPILATION REPORT TO. On the basis of information provided by management we have compiled, in accordance with the Philippine ‘Standard on Auditing applicable to compilation engagements, the balance sheet of ABC Company as of December 31, 20XX and statements of income, changes in equity and cash flows for the year then ended. Management is responsible for these financial statements. We have not audited or reviewed these financial statements and accordingly express no assurance thereon. Accountant: Date Address PSAE 3400 - THE EXAMINATION OF PROSPECTIVE FINANCIAL INFORMATION “PROSPECTIVE FINANCIAL INFORMATION” means financial information based on assumptions about events that may occur in the future and possible actions by an entity. It can be in the form of a forecast, @ Projection, or a combination of both, for example, a one year forecast plus a five year projection. A“FORECAST” means prospective financial information prepared on the basis of assumptions as to future events which management expects to take place and the actions management expects to take as of the date information is prepared (best-estimate assumptions). ‘A*PROJECTION" means prospective financial information prepared on the basis of: ‘+ Hypothetical assumptions about future events and management actions which are not necessarily expected to take place, such as when some entities are in a start-up phase or are considering a major change in the nature of operations; or ‘+ Amixture of best-estimate and hypothetical assumptions. Prospective financial information can include financial statements or one or more elements of financial statements and may be prepared: ‘+ As an internal management tool, for example, to assist in evaluating a possible capital investment; or ‘+ For distribution to third parties. Management is responsible for the preparation and presentation of the prospective financial information, including the identification and disclosure of the assumptions on which itis based. In an engagement to examine prospective financial information, the auditor should obtain sufficient appropriate evidence as to whether: ‘+ Management's best-estimate assumptions on which the prospective financial information is based are not unreasonable and, in the case of hypothetical assumptions, such assumptions are consistent with the purpose of the information; 2° semester 2021-2022College of Accounting Education ‘EF Fecunda Hall B& E Bly, ‘Matina, Davao Cty Phiopines “The Universigy of Mindanas Phrane No. (082) 305-0645 ‘+ The prospective financial information is properly presented and all material assumptions are adequately disclosed, including a clear indication as to whether they are best-estimate assumptions or hypothetical assumptions; and ‘+ The prospective financial information is prepared on a consistent basis with historical financial statements, using appropriate accounting principles. ‘The auditor should not express any opinion as to whether the r hown in the prospective financial information will be achieved. When reporting on the reasonableness of management's assumptions, the auditor provides only a moderate level of assurance. ‘The auditor should not accept, or should withdraw from, an engagement when the assumptions are clearly Unrealistic or when the auditor believes that the prospective financial information will be inappropriate for its intended use. ‘The auditor should obtain written representations from management regarding the intended use of the prospective financial information, the completeness of significant management assumptions and management's acceptance of its responsibilty for the prospective financial information. Elements on Reports on Prospective Information (@) title; (b) addressee; (©) identification of the prospective financial information; (@) a reference to the Philippine Standard on Auditing applicable to the examination of prospective financial information; (©) a statement that management is responsible for the prospective financial information including the assumptions on which it is based; (9) when applicable, a reference to the purpose and/or restricted distribution of the prospective financial information; (@) a statement of negative assurance as to whether the assumptions provide a reasonable basis for the prospective financial information; (h) an opinion as to whether the prospective financial information is properly prepared on the basis of the assumptions and is presented in accordance with generally accepted accounting principles in the Philippines; (appropriate caveats concerning the achievabilty ofthe results indicated by the prospective financial information; 2. The report should state that actual results are likely to be different from the prospective financial information since anticipated events frequently do not occur as expected and the variation could be materia b. When the prospective financial information is expressed as a range, it would be stated that there can be no assurance that actual results wil fll within the range. ©. Inthe case of a projection, the prospective financial information has been prepared for (state purpose), using a set of assumptions that include hypothetical assumptions about future events and management's actions that are not necessarily expected to occur. Consequently, readers are cautioned that the prospective financial information is not used for purposes other than that described. (i). date of the report which should be the date procedures have been completed; (k) auditor's address; and () signature 2° semester 2021-2022College of Accounting Education ‘EF Fecunda Hall B& E Bly, ‘Matina, Davao Cty Phiopines “The Universigy of Mindanas Phrane No. (082) 305-0645 When the auditor believes that the presentation and disclosure of the prospective information is not adequate, the auditor should express a qualified or adverse opinion or withdraw from the engagement as appropriate. When the auditor believes that one or more significant assumptions do not provide a reasonable basis for the prospective financial information, the auditor should either express an adverse opinion or withdraw from the engagement as appropriate. When the examination is affected by conditions that preclude application of one or more procedures considered necessary in the circumstances, the auditor should either withdraw from the engagement or disclaim the opinion describe the scope limitation in the report on the prospective financial information. Extract from an unmodified report on a forecast: We have examined the forecast in accordance with Philippine Standard on Auditing applicable to the ‘examination of prospective financial information. Management is responsible for the forecast including the assumptions set out in Note X on which itis based. Based on our examination of the evidence supporting the assumptions, nothing has come to our attention which causes us to believe that these assumptions do not provide a reasonable basis for the forecast. Further, in our opinion the forecast is properly prepared on the basis of the assumptions and is presented in accordance with generally accepted accounting principles in the Philippines. Actual results are likely to be different from the forecast since anticipated events frequently do not occur as expected and the variation may be material. Extract from an unmodified report on a projection: We have examined the projection in accordance with Philippine Standard on Auditing applicable to the ‘examination of prospective financial information. Management is responsible for the projection including the assumptions set out in Note X on which itis based. ‘This projection has been prepared for (describe purpose). As the entity is in a start-up phase the projection has been prepared using a set of assumptions that include hypothetical assumptions about future events and management's actions that are not necessarily expected to occur. Consequently, readers are cautioned that this projection may not be appropriate for purposes other than that described above. Based on our examination of the evidence supporting the assumptions, nothing has come to our attention which causes us to believe that these assumptions do not provide a reasonable basis for the projection, ‘assuming that (state or refer to the hypothetical assumptions). Further, in our opinion the projection is properly prepared on the basis of the assumptions and is presented in accordance with generally accepted ‘accounting principles in the Philippines. Even if the events anticipated under the hypothetical assumptions described above occur, actual results are still likely to be different from the projection since other anticipated events frequently do not occur as expected and the variation may be material. 2° semester 2021-2022College of Accounting Education ‘EF Fecunda Hall B& E Bly, ‘Matina, Davao Cty Phiopines indanse Phrane No. (082) 305-0645 PSQC 1—QUALITY CONTROL FOR FIRMS THAT PERFORM AUDITS AND REVIEWS OF HISTORICAL FINANCIAL INFORMATION, AND OTHER ASSURANCE AND RELATED SERVICES ENGAGEMENTS PSA 220 PSQC 1 sac Individual Audit Audit Firm Policies | Control Procedures and Procedures Figure 1 Relationship between PSQC 1 and PSA 220 ‘The purpose of this Philippine Standard on Quality Control (PSQC) is to establish basic principles and essential procedures and to provide guidance regarding a firm's responsibilities for its system of quality control for audits and reviews of historical financial information, and for other assurance and related services engagements. The firm should establish a system of quality control designed to provide it with reasonable assurance that the firm and its personnel comply with professional standards and regulatory and legal requirements, and that reports issued by the firm or engagement partners are appropriate in the circumstances. ‘This PSQC applies to all firms. The nature of the policies and procedures developed by individual firms to ‘comply with this PSQC will depend on various factors such as the size and operating characteristics of the firm, and whether itis part of a network. Elements of a System of Quality Control ‘The firm's system of quality control should include policies and procedures addressing each of the following elements: (LEAHEM) (a) Leadership responsibilities for quality within the firm. (b) Ethical requirements. (©) Acceptance and continuance of client relationships and specific engagements. (d) Human resources. (e) Engagement performance. (f) Monitoring. Leadership Responsibilities for Quality Within the Firm ‘The firm should establish policies and procedures designed to promote an internal culture based on the recognition that quality is essential in performing engagements. Such policies and procedures should require the firm’s chief executive officer (or equivalent) or, if appropriate, the firm’s managing board of partners (or equivalent), to assume uitimate responsiblity forthe firm’s system of quality contro. 2° semester 2021-2022College of Accounting Education ‘EF Fecunda Hall B& E Bly, ‘Matina, Davao Cty Phiopines indansS Phrane No. (082) 305-0645 ‘Any person or persons assigned operational responsibilty for the firm’s quality control system by the firms chief executive officer or managing board of partners should have sufficient and appropriate experience and ability, and the necessary authority, to assume that responsibility. Ethical Requirements ‘The firm should establish policies and procedures designed to provide it with reasonable assurance that the firm and its personnel comply with relevant ethical requirements. At least annually, the firm should obtain written confirmation of compliance with its policies and procedures (on independence from all firm personnel required to be independent by the Philippine Code. Accordingly, the firm should establish policies and procedures: ‘a. Setting out criteria for determining the need for safeguards to reduce the familiarity threat to an acceptable level when using the same senior personnel on an assurance engagement over a long period of time; and b. For all audits of financial statements of listed entities, requiring the rotation of the engagement partner after a specified period in compliance with the Philippine Code. Acceptance and Continuance of Client Relationships and Specific Engagements ‘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 wil only undertake or continue relationships and engagements where it: ‘a. Has considered the integrity of the client and does not have information that would lead it to conclude that the client lacks integrity. b. Is competent to perform the engagement and has the capabilities, time and resources to do so; and Can comply with ethical requirements. ‘The firm should obtain such information as it considers necessary in the circumstances before accepting an engagement with a new client, when deciding whether to continue an existing engagement, and when. considering acceptance of a new engagement with an existing client. Where issues have been identified, and the firm decides to accept or continue the client relationship or a specific engagement, it should document how the issues were resolved. Information on integrity of the client may come from, for example: ‘* Communications with existing or previous providers of professional accountancy services to the client in accordance with the Philippine Code, and discussions with other third parties. ‘+ Inquiry of other firm personnel or third parties such as bankers, legal counsel and industry peers (predecessor auditor) ‘+ Background searches of relevant databases. Human Resources ‘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 its engagements in accordance with professional standards and regulatory and legal requirements, and to enable the firm or engagement partners to issue reports that are appropriate in the circumstances. ‘Such policies and procedures address the following personnel issues: Recruitment; ‘+ Performance evaluation; + Capabilities; + Competence; 10 2° semester 2021-2022College of Accounting Education ‘EF Fecunda Hall B& E Bly, ‘Matina, Davao Cty Phiopines indansS Phrane No. (082) 305-0645 Career development; Promotion; ‘Compensation; and The estimation of personnel needs. Assignment of Engagement Teams The firm should assign responsibility for each engagement to an engagement partner. The firm should establish policies and procedures requiring that: ‘a. The identity and role of the engagement partner are communicated to key members of client ‘management and those charged with governance; b. The engagement partner has the appropriate capabilities, competence, authority and time to perform the role; and The responsibilities of the engagement partner are clearly defined and communicated to that partner. The firm should also assign appropriate staff with the necessary capabilities, competence and time to perform engagements in accordance with professional standards and regulatory and legal requirements, and to enable the firm or engagement partners to issue reports that are appropriate in the circumstances. Engagement Performance ‘The firm should establish policies and procedures designed to provide it with reasonable assurance that engagements are performed in accordance with professional standards and regulatory and legal requirements, and that the firm or the engagement partner issue reports that are appropriate in the circumstances. Considerations include consultation, differences in opinion, and engagement quality control review. Monitoring The firm should establish policies and procedures designed to provide it with reasonable assurance that the Policies and procedures relating to the system of quality control are relevant, adequate, operating effectively ‘and complied with in practice. Such polices and procedures should include an ongoing consideration and evaluation ofthe firms system of quality control, including a periodic inspection ofa selection of completed engagements. ‘At least annually, the firm should communicate the results of the monitoring of its quality control system to engagement partners and other appropriate individuals within the firm, including the firm’s chief executive officer of, if appropriate, its managing board of partners. Such communication should enable the firm and these individuals to take prompt and appropriate action where necessary in accordance with their defined roles and responsibilities. Information communicated should include the following: ‘a. Adescription of the monitoring procedures performed. b. The conclusions drawn from the monitoring procedures. Where relevant, a description of systemic, repetitive or other significant deficiencies and of the actions taken to resolve or amend those deficiencies. Documentation ‘The firm should establish policies and procedures requiring appropriate documentation to provide evidence of the operation of each element of its system of quality control. un 2° semester 2021-2022College of Accounting Education ‘EF Fecunda Hall B& E Bly, ‘Matina, Davao Cty Phiopines indanse Phrane No. (082) 305-0645 REPUBLIC ACT NO. 9298 - PHILIPPINE ACCOUNTANCY ACT OF 2004 (AND ITS IMPLEMENTING RULES AND REGULATIONS) AN ACT REGULATING THE PRACTICE OF ACCOUNTANCY IN THE PHILIPPINES, REPEALING FOR THE PURPOSE PRESIDENTIAL DECREE NO. 692, OTHERWISE KNOWN AS THE REVISED ACCOUNTANCY LAW, APPROPRIATING FUNDS THEREFOR AND FOR OTHER PURPOSES Objectives of the Philippine Accountancy Act ‘a. The standardization and regulation of accounting education; b. The examination for registration of CPAs; and The supervision, control, and regulation of the practice of accountancy in the Philippines. ‘Scope of Practice ‘The practice of accountancy shall include, but not limited to, the following: (a) Practice of Public Accountancy - shall constitute a person, be It his/her individual capacity, 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 or more than one client on a fee basis or otherwise, services as such as ‘+ the audit or verification of financial transaction and accounting records; ‘+ the preparation, signing, or certification for clients of reports of audit, balance sheet, and other financial, accounting and related schedules, exhibits, statement of reports which 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 purposes; the design, installation, and revision of accounting system; the preparation of income tax returns when related to accounting procedures; when he/she represent clients before government agencies on tax and other matters relating to accounting ‘+ render professional assistance in matters relating to accounting procedures and the recording and presentation of financial facts or data, (b) Practice in Commerce and Industry — Practice in commerce and industry shall constitute in a person: ‘* Involved in decision making requiring professional knowledge in the science of accounting, (as well as the accounting aspects of finance and taxation); or ‘+ When the CPA represents his employer before government agencies on tax and other matters related to accounting ‘+ When such employment or position requires that the holder thereof must be a CPA. WNet@: The IRR provides that business or company in the private sector should employ a duly registered CPA if (a) Paid-up capital is at least P5.0 million; and/or (b) Annual revenue is at least P10.0 million. (©) Practice in Education / Academe ~ Practice in education or the academe shall constitute in a person in ‘an educational institution which involve teaching of accounting, auditing, management advisory services, finance, business law, taxation, and other technically related subjects. Note: A CPA is considered to be engaged in the practice of accountancy in education / academe if he/she is employed in educational institutions as teachers of accounting, auditing, MAS, (accounting aspects of) finance, business law, taxation and other technically related subjects. ‘+ Members of the Integrated Bar of the Philippines (BP) may be allowed to teach business law and taxation subjects. ‘+ The position of either the Dean or department chairman (or its equivalent) that supervises the BSA program of an educational institution is deemed to be in practice of accountancy in the academic 2 2° semester 2021-2022College of Accounting Education ‘EF Fecunda Hall B& E Bly, ‘Matina, Davao Cty Phiopines indanse Phrane No. (082) 305-0645 education and therefore must be occupied only by a duly registered CPA. (@) Practice in Government ~ Practice in the government shall constitute in a person who holds, or is appointed to, a position in an accounting professional group in government or in a government-owned and/or controlled corporation, including those performing proprietary functions, where decision making requires Professional knowledge in the science of accounting, or where a civil service eligibility as a CPA's a prerequisite. ns of the Practice of Public Accountancy: ‘+ Single practitioners (Individual CPAs) and Partnership of CPAs shall be registered CPAs in the Philippines. ‘+The SEC shall not register any corporation organized for the practice of public accountancy. In other words, corporation form of CPA firm is not allowed. ‘+A certificate of accreditation issued only after showing that the registrant has acquired the minimum 3 years meaninaful experience in any of the areas of accountancy (whether in the public accountancy, ‘commerce and industry, education/academe and government) Definition of Meaningful Experience: In Public practice | Shall include: ‘Atleast 1 year as audit assistant and ‘+ At least 2 years as auditor-in-charge of audit engagements covering full audit functions of significant clients In Commerce and | Includes significant involvement in: Industry '* General accounting, budgeting and tax administration ‘= Internal auditing and liaison officer ‘+ Representing his/her employer before government agencies on tax and matters related to accounting or any other related functions Inthe Academe or | Shall include: Education ‘+ Teaching for at least 3 trimesters or 2 semesters subjects in either financial accounting, business law and tax, auditing problems, auditing theory, financial management and management services ‘= Provided, that the accumulated teaching experience on these subjects shall not be less than 3 school years. In Government Includes significant involvement in: + General accounting = Budgeting ‘= Tax administration ‘= Internal auditing + Liaison with the COA + Any other related functions Prohibition in the Practice of Accountancy: Non-CPAs: ‘+ Are not allowed to practice accountancy in the Philippines ‘+ Cannot use the title "Certified Public Accountant” or “CPA” ‘+ Should not indicate (thru display or use any title, sign, card, advertisement, or other device) that he practices or offers to practice accountancy or that he is a CPA Non-Filipino professional accountants/CPAs: ‘+ Are also not allowed to practice accountancy in the Philippines, unless: a. Through foreign reciprocity (without restriction) 1B 2° semester 2021-2022College of Accounting Education ‘EF Fecunda Hall B& E Bly, ‘Matina, Davao Cty Phiopines indansS Phrane No. (082) 305-0645 b. With valid temporary/special permit duly issued by the BOA and the PRC (limited to what was permitted) Professi ‘+ The BOA is the official government agency empowered to enforce RA 9298, ‘+ BOA Is under the supervision and administrative control of the Professional Regulation Commission (PRC) Regulatory Board of Accountancy (BOA) ‘Composition of BOA: ‘* BOA shall be composed of a chairman and 6 members (all of which are to be appointed by the President of the Philippines) ‘+ BOA shall elect a vice-chairman from among its members for a term of 1 year. According to the IRR, the 4 sectors in the practice of accountancy shall as much as possible be equitably represented in the BOA. Qualifications of BOA members: At the time of appointment, he/she must be: ‘Natural-born citizen and a resident of the Philippines; Duly registered CPA with at least 10 years of work experience in any scope of practice of accountancy (Of good moral character and must not have been convicted of crimes involving moral turpitude Not have any pecuniary interest, directly or indirectly, in any school, college, university or institution conferring an academic degree necessary for admission to the practice of accountancy (those that offer BSA degree) or where review classes in preparation for the licensure examination are being offered or conducted (such as RESA, PRTC and CPAR), nor shall he/she be a member of the faculty or administration thereof at the time of his/her appointment to the BOA, and fe. Not be a director/officer of the APO (PICPA) at the time of his/her appointment - this is an additional requirement under the IRR Term of office of BOA members: The Chairman and the members of the BOA members shall hold office for a term of 3 years. ‘+ Any vacancy during the term of a member shall be filled up for the unexpired portion of the term only. Appointment to fil up an unexpired term is not to be construed as a complete term. ‘+ No person who has served 2 successive complete terms shall be eligible for reappointment until the lapse of 1 year. ‘+ No person shall serve in the BOA for more than 12 years. (addition under the IRR) * The President's power to appoint carries with it the power to suspend or removed a BOA member based on the abovementioned grounds. * When a member of the BOA has been sued of crimes involving moral turpitude, itis not a valid ground for suspension or removal of BOA members. CPA Examinations All applicants for registration for the practice of accountancy shall be required to undergo a licensure ‘examination to be given by the BOA in such places and dates as the PRC may designate subject to ‘compliance with the requirements prescribed by the PRC in accordance with Republic Act No. 8981. Qualifications of Applicants for CPA Examinations ‘a. Must be a Filipino citizen b. Must be of good moral character Must be 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 2° semester 2021-2022College of Accounting Education ‘EF Fecunda Hall B& E Bly, ‘Matina, Davao Cty Phiopines indansS Phrane No. (082) 305-0645 Rating in the CPA Examinations ‘+ To pass the CPA exams ~ 75%; 65%: A candidate must obtain at least a general average of 75%, with no grades lower than 65% in any given subject. ‘+ Conditional status: If a candidate obtains a rating of 75% and above in at least a majority of the subjects tested, he/she will be given conditional credits for the subjects passed. ACPA examinee is considered “Conditional Passer” if he or she attained an overall average score of 75% or above, with a rating of 75% or above in at least four subjects AND a rating of below 65% on one or two other subjects. Removal Examination ‘+ The candidates with conditional status shall take an examination in the remaining subjects within 2 years from the preceding examination. ‘+ If the candidate fails to obtain at least a general average of 75% and a rating of at least 65% in each of the subjects reexamined, he/she shall be considered as failed in the entire examination. ‘+The original exam and the removal exam are counted as one exam only. Candidates required to take Refresher Course ‘+ Any candidate who fails in 2 complete CPA exams shall be disqualified from taking another set of ‘examinations unless he/she submits evidence to the satisfaction of the BOA that he/she enrolled in and completed a refresher course with at least 24 units of subjects given in the CPA exams. ‘+The examination in which the candidate was conditioned together with the removal examination on the subject in which he/she failed shall be counted as one complete examination. ‘+The IRR provides that the required refresher course (whether regular or special refresher course) shall be offered only by an educational institution granting a degree of BSA. Issuance of Certificates of Registration and Professional Identification Card + Certificate of Registration - a certificate under seal bearing a registration number, issued to an individual, by the PRC, upon recommendation by the BOA, signifying that the individual has complied with all the legal and procedural requirements for such issuance including, in appropriate cases, having successfully passed the CPA licensure examination © Acertificate of registration shall be issued to examinees who passed the CPA licensure examination subject to payment of fees prescribed by the PRC. ©. The Certificate of Registration shall bear the signature of the chairperson of the PRC and the chairman and members of the BOA, stamped with the official seal of the PRC and of the BOA, indicating that the person named therein is entitled to the practice ofthe profession with all the privileges appurtenant thereto. The said certificate shall remain in full force and effect until withdrawn, suspended or revoked. ‘+ Professional Identification Card ~ a card with validity of 3 years bearing the registration number, date of issuance with an expiry date, due for periodic renewal, duly signed by the Chairperson of the PRC issued by the PRC toa registered CPA upon payment of the annual registration fees for 3 years Grounds for Refusal to Issue Certificate of Registration and Professional ID ‘The BOA shall not register and issue a certificate of registration and professional identification card to any successful examinee due to the following grounds: ‘a. Convicted by a court of competent jurisdiction of a criminal offense involving moral turpitude or . Guilty of immoral and dishonorable conduct or OF unsound mind Note: ‘+The BOA shall not register either, any person who has falsely sworn, or misrepresented himself/herself in his/her application for examination. 15 2° semester 2021-2022College of Accounting Education ‘EF Fecunda Hall B& E Bly, ‘Matina, Davao Cty Phiopines indansS Phrane No. (082) 305-0645 ‘+ Registration shall not be refused and a name shall not be removed from the roster of CPAs on conviction for a political offense (or for an offense, in the opinion of the BOA, that does not disqualify .@ person from practicing accountancy) ‘Suspension and Revocation of Certificates of Registration and Professional Identification Card and Cancellation of Special Permit ‘The BOA shall have the power, upon due notice and hearing, to: ‘a. Suspend or revoke the practitioner's certificate of registration and professional identification card b. Suspend him/her from the practice of his/her profession Cancel his/her special permit (Causes o Grounds for Suspension/Revocation/Cancellation: Convicted by a court of competent jurisdiction of a criminal offense involving moral turpitude or Guilty of immoral and dishonorable conduct or Of unsound mind Any unprofessional or unethical conduct, Malpractice Violation of any of the provisions of this Act and its IRR Violation of the CPA's Code of Ethics and the technical and professional standards of practice for CPAS Foreign Reciprocity person not a ctizen ofthe Philipines may be allowed to practice accountancy inthe Philipines: Where there is foreign reciprocity (in accordance with provisions of existing laws, international treaty obligations including mutual recognition agreements entered into by the Philippine government with other countries) ‘+ Upon presentation of proof that his country admits citizens of the Philippines to the practice of accountancy without restriction Continuing Professional Education (CPE) Program: Rationale Voluntary compliance with the CPE program is an effective and credible means of ensuring competence, integrity and global competitiveness of professional in order to allow them to continue the practice of their profession. CPE Objective: ‘a. To provide and ensure the continuous education of a registered professional with the latest trends in the profession brought about by modernization and scientific and technological advancements; To raise and maintain the professional's capability for delivering professional services; To attain and maintain the highest standards and quality in the practice of his profession; To make the profession globally competitive; and To promote the general welfare of the public. For Certified Public Accountants, pursuant to Resolution No. 254, s. 2017, of the Professional Regulatory Board of Accountancy, the following is the transitory period for the compliance of their CUs: Required Required Minimum Units Year of | number Earned from the Previous Renewal | of CPD Year(s) for License Units Renewal July 1 December 80 40 40 0 2017 16 2° semester 2021-2022College of Accounting Education ‘EF Fecunda Hall B& E Bly, ‘Matina, Davao Cty Phiopines indanse Phrane No. (082) 305-0645 20 units earned from the Ged ~ - 60 | immediately preceding year 20 units earned from each of 2019 120 40 80 | the 2 immediately preceding years _ 20 units earned from each of 120 40 80 | the 3 immediately preceding onwards jor ‘The CPD Activities for Accountancy shall be divided into three (3) major areas with corresponding minimum required credit units which all CPAs have to comply within a compliance period, as follows: A. TECHNICAL COMPETENCE Required units: 30 CUs Coverage of the Area 1) 2 Standards Applicable to Professional Practice which includes but not limited to the following: a) Current and recent issuance of the respective area of practice of the profession, e.g. those from the standard-setting bodies on: i) Financial Accounting and Reporting; ji) Assurance & Auditing; Related practice statements & interpretations; and. iv) Pronouncements related to Taxation, depending on area of practice of the professional. b) IFAC Pronouncements issued through IFAC member bodies Laws, Rules & Regulations affecting Professional Practice which includes but not limited to: a) ssuances of government/ regulating bodies, such as, but not limited to: |). Professional Regulation Commission and Board of Accountancy (which covers provisions of the Philippine Accountancy Act & IRR, new resolutions and regulations issued by PRC & BOA, and other issuances pertaining to registration, licensing & professional reguiatory regimes); ii) Securities and Exchange Commission, Bangko Sentral ng Plipinas, Insurance Commission, Bureau of Internal Revenue, Cooperative Development Authority; it) Commission on Higher Education and Department of Education; and iv) Commission on Aucit, Department of Budget and Management, Civil Service Commission, for CPAs in government sector. ) ASEAN and other international treaties affecting the practice of Filipino CPAs; and ©). Other laws and regulations that govern diferent forms of legal entities Environment of the Practice which includes Frameworks, models, best practices, benchmarks, information technology advances, tools & techniques espoused by professional & other organizations that affect the operations & management of clients & business entities of the professional. PROFESSIONAL SKILLS Required units: 5 CUs Coverage of the Area Professional development activities that enhance the CPA's intellectual, interpersonal, communication, personal and organizational skills, which includes but not limited to: Oral & written communication; Presentation, negotiation & facilitation skills; Teamwork enhancement; Personality & Social graces; Decision making, leadership, management & supervision; Conflict resolution, cultural immersion programs, language learning programs, time and resources ‘management, work or process innovations and problem solving skills; 9. For CPAs in the Education Sector, teaching techniques and other education-related CPD learning activities; and 17 2° semester 2021-2022College of Accounting Education ‘EF Fecunda Hall B& E Bly, ‘Matina, Davao Cty Phiopines indansS Phrane No. (082) 305-0645 fh. Gender and development C. PROFESSIONAL VALUES, ETHICS AND ATTITUDES Required units: 5 CUs Coverage of the Area ‘a. Code of Ethics for Professional Accountants; b. Quality standards based on issuances of bodies affecting the professional practice; Governance principles and intervention; and d. Social responsibilty, principles and interventions. Who are not covered by the CPD Requirement? During the transition period, the following are not covered by the CPD requirement: ‘+ Professionals working overseas. However, they need to provide proof such as valid Certificate of Employment or Overseas Employment Certificate duly approved by POEA. ‘+ Newly licensed professionals for the first renewal cycle (3 years) after obtaining their license. 18 2° semester 2021-2022