AUDITING THEORY 3.
Academe or Education – if you are teaching
The Practice & Regulation of the Accounting
Profession
Republic Act 9298 (Philippine Accountancy act of
2004)
Regulatory act of accountancy
profession
Regulate the accountancy profession
(entrants & those who are in practice)
Scope of Practice
1. Public Practice – prestigious sector
A specific relationship should exist
between the provider of the service &
the recipient
Client – service provider relationship
 The service provider can adopt his own
set of policies and procedures (more
than one client on a FEE BASIS)
 May specific service na irerender – any
service requiring application of
accounting & auditing skills &
knowledge
Edge of CPA over non-CPA: once engaged in
public practice magiging limitless na sila, will
have wide opportunity
2. Commerce & Industry – private sector
Part of the organization, employer-
employee relationship
 Mandated to follow the policies &
procedure of the company
 Position being hold requires application
of accounting & auditing skills &
knowledge
Edge: aside from salary, specific provision (for
Supervisory Level)
 Entities with annual revenue of at
least P 10,000,000.00 and/or paid-up
capital of atleast P 5,000,000.00
 Incharge in reporting processes
is occupied by CPA
any subject given in the licensure examination
General Rule: CPAs are the primary person
teaching the subject in the board exam
Except: Lawyers may be allowed to teach business
law & taxation
Other Technically related subject (gumagamit ng
financial information):
 Finance
 Production Management
 Cost Management
Edge: Specific Provision (Deans & Department
Heads)
 Deans – for institution offering BSA
under an exclusive department
 Department Heads – for institutions
offering BSA together with other
business courses
4. Government – similar in Commerce & Industry
Sector
Employer – Government, GOCC,
LGU
Edge: salary, promotion in position
Regulation of the Accountancy Profession
Kilalanin ung may primary task in regulating
accountancy profession
All professions are regulated by the President
Republic Act 9298 (Philippine Accountancy Act of
2004)
Approved May 13, 2004
Prospective Application – those who have
benefits prior to the implementation of RA, ay
hindi mawawalan ng benefits na nakuha
 Regulatory act of the practice of accountancy in
the Phil.
Supersedes Presidential Decree No. 692,
otherwise known as Revised Accountancy Law
Specific Objective of RA 9298:
 Standardization & regulation of
accounting education
 Examination for registration of CPA
 Supervision, control and regulation of
the practice of accountancy
Composition of PRBOA:
Chairman and 6 members to be appointed by
the president of the Phil.
APO (Accredited National Professional Organization of
CPA) – represented by PICPA
In each vacant position, APO will submit 5
nominees
 Submitted to PRC within 60 days prior
to the expiration nung term nung
papalitan na Chairman or member
 Kapag hindi nakapasa within 60 days,
the PRC should still come up with list of
persons na irerecomend the President
From the nominees, the PRC will select 3
recommendees (in rank)
President will select 1 appointee
Among the members, they will be electing a
Vice Chairman for a term of 1 year (pwde mare-
elect)
PICPA – provides assistance to BOA
Term of Office:
Chairman & members of the Board shall hold
office for a term of 3 years (1complete term=3
years)
No person who has served two successive
complete terms shall be eligible to
reappointment until the lapse of 1 year
No person shall serve the Board for more than
12 years (maximum)
If there is a replacement of the person/member
who resigns, ang magiging term nlang nung
pumalit is ung tira dun sa 3 years (ex. may
nagresign na member at nka 1year palang, ung
pumalit sa knya ay may 2 years para maging
member
 Unexpired term not considered as a
complete term
Powers & Functions of the Board
Entrants
1. Educational Institution – adhering to
requirements of CHED
ETC – Education Technical Council
2. Syllabi – laman na topic sa board
 Revision should be not more than once
in every 3 years
3. Licensure Examination for CPA
4. Oathtaking – administer conduct of the oath
5. Certificate of Registration – primary proof of
being a CPA
Practice
1. Standards: Accounting & Auditing
 FRSC & AASC – created to give
assistance to the Board
2. Adopt a Code of Conduct/Ethics
3. Perform Quality Review
 Inaaudit ung auditor
 Conduct an oversight over the quality of
audit of FS
4. Conduct investigations
5. Take appropriate actions
Has the primary function to carry out the
provision of RA 9298 and its IRR
Adopt an official seal
Current files are with BOA. Permanent Files are
with PRC.
Custodian of Records is the Commission
BOA will submit annual report to the PRC
The President will decide whether to suspend or
remove any member
Makakakuha ng refresher course certificate, sa
mga educational institution offering BSA
program
Kapag nag fail ng 2 complete board exam ang
isang candidate, madidisqualify sia na magtake
ng panibago unless may maibigay sia na
refresher course certificate
Passed – if the general average is at least 75%,
with no grades below 65% in any given subject
Conditional – if the general average is less than
75%, has a grade of less than 65% or both, but
has obtained 75% and above in majority of
subject (4 out of 6) covered in the board exam,
itatake nia ung subject na lower than 75% within
two years from the preceding examination
Copies of rosters of CPA shall be made available
to any party as may be deemed necessary (may
valid basis; reasonable justification)
  Kapag may gusto ba makakuha ng copy,
ung Board ay kelangan magprovide ng
copy
 Mere publication in the official gazette
will not be deemed sufficient/complaint
with these
Certificate of Registration – proof na CPA na
ako
 Validity of COR is lifetime for citizen
CPA
 No two CPAs will have the same
registration number
Professional Identification Card – renewable
every 3 years
 Kung kelan nagparegister, add 3 years,
tapos kunin ang birthday dun maeexpire
(on or before expiration need na
magrenew)
Special or Temporary Permit – certificate of
registration for Foreign CPAs
 May certain validity date
 Dapat may foreign reciprocity
agreement between 2 countries wherein
they will be allowing the citizen of the
other country to practice accounting on
another country
 There should be an essential
contribution to the development of the
accountancy profession in the Phil.
Refusal to Issue (initial) – ung kakapasa mu
palang ay may grounds for refusal hindi ka
mabibigyan
Limitations of Practice of Public Accountancy
Single Practitioners & Partnerships for the
practice of public accountancy shall be
registered CPAs in the Phil.
Firm – indicates sole proprietorship (RA 9298)
ex. Ma. Cristy Broncate & Associates, CPAs
Pwde padin gamitin ung name ng partnership
kahiy may isang partner ang hndi nagpatuloy
 Kapag isa nlang sa partners ang naiwan,
pwde nia lang gamitin ung name ng
partnership for a period not exceeding 2
years after becoming a sole
proprietorship
 Hanggat partnership pwdeng gamiting
ung old name
Bawal gumamit ng fictitious name, maglagay ng
specification
Certificate of Accreditation – serves as a primary proof
that you are being allowed to engage in public practice
Valid for 3 years and shall be renewed on or
before the expiration of the validity date
 Individual Professionals – the
reckoning date of validity of the
certificate of accreditation shall be the
date of birth of the individual (same ng
sa Professional Identification card)
 Accounting Firms & Partnership – the
reckoning date of validity of certificate
of accreditation shall be the month of
their SEC Registration date. Also, all
CPA partners, members & staff of the
firm or partnership shall have valid
professional identification card at the
time of application
Ex: Individual CPA
OLD (RA 9298)
Date of Registration: June 15, 2022
Date of Expiration: December 31, 2024
*Counted as 1year ung date of registration, tapos
December 31
Date of Renewal (if Birthdate is Sept 1): on or befor
September 30, 2024
NEW (RA 10912)
Date of Registration: June 15, 2022
Date of Expiration: September 1, 2025
Date of Renewal: on or before September 1, 2025
 Purpose: para sabay sa pagrenew ng
lisensya
Partnership
Date of Registration: June 2022
SEC Registration: September 2022
OLD: same lang sa individual
NEW RA 10912: Date of Expiration: September 2025
Meaningful Experience (related to public practice)
 Public Practice – shall include at least
one year as audit assistant & at least
two years as auditor in charge of audit
engagement covering full audit
functions of significant clients
 Commerce & Industry – include
significant involvement in general
acctg., budgeting, tax administration,
internal auditing, liason with external
auditors, representing his/her employer
before government agencies on tax &
matters related to accounting or any
other related functions
 Significant involvement –
relate to position, supervisory
 position, tenure: at least 3 years
in service Renewal of PIC – 15 Credit units
 Academe/ Education – include Exemption:
teaching for at least 3 trimesters or 2  Professional working oversees
semesters subject in either financial (OFW)
acctg., business law and tax, auditing  First renewal ng mga newly
problems, auditing theory, financial licensed professionals
management & management services. For Accreditation – 120 Credit units
Provided, that the accumulated teaching
experience on these subjects shall not be Technical Competence 30
less than 3 school years Professional Skills 5
 Government – include significant Professional Values, ethics
involvement in general accounting, & attitudes 5
budgeting, tax administration, internal Flexible CPD units 80
auditing, liason with COA or any other Total 120
related functions
Old:
Use of Seal: it will make the document (public On or before 2016 – 60 credit units
document) anyone can rely from it (General) 2017 - 80 Credit units
Specific: Affixing the CPA’s seal & signature is 2018 - 100 credit units
an indication of compliance by the CPA of the requisites 2019 onwards - 120 credit units
accounting & auditing standards & rules (statement of
compliance) The required minimum units earned from each
of the previous years shall be 20 credit units
Certificate of Registration – indication of Old:
practice  60 credit units (15 credit units minimum
Seal – indication of compliance each year
 May permanently exempted: 65 years
Placed at the lower left of the paper old unless magpapa accredit for public
Working papers are confidential, privileged & practice (need mag earn ng 60 units)
property of CPA
Organizations Created thru 9298
 Foreign CPA ang may burden to prove na may
foreign reciprocity FRSC (Financial Reporting Standards Council)
 Main function is to establish generally
Penal Provision accepted accounting principles;
successor of Accounting Standards
any person who shall violate any of the Council
provisions of this act or its IRR as promulgated  Composed of 16 members (1 chairman
by the Board subject to the approval of the & 15 representative)
commission, shall upon conviction be punished  Board of Accountancy
by:  Bureau of Internal Revenues
 Fine of not less than P 50,000.00 or  Bangko Sentral ng Pilipinas
 Imprisonment for a period not exceeding  Commission on Audit
2 years  4 sectors of Practice (Public,
 Both Commerce & Industry,
Academe/ Education,
Enforcement of RA: both PRC & BOA, pero mas Government) 2 each
specific si BOA  Major user of FS (FINEX)
 Securities and Exchange
Republic Act 10912 (Continuing Professional Commission
Development Act of 2006  Insurance Commission
AASC (Auditing & Assurance Standards
CPD – way of regulators to provide assurance Council)
that the members of profession possess the skills &  an authority in establishing &
knowledge expected from a CPA promulgating auditing standards in the
 Phil. to enhance reliability, uniformity,
& acceptability of FS in the country;
OLD Name: Auditing Standards &
Practices Council (ASPC)
 composed of 15 members (1 chairman
& 14 representative)
 Board of Accountancy
 ACPAPP
 Bangko Sentral ng Pilipinas
 Commission on Audit
 APO
 Securities & Exchange
Commission
 Per BOA Resolution No. 22 Series of
2020, the members of AASC is
increased from 15 to 18 (1chairman &
17 representatives)
 Addition from Insurance
Commission
 Removal of Government
 2 from Public Practice must be
from small medium-sized
practitioner
QRC (Quality Review Committee)
 Help BOA to conduct an oversight into
the quality of audit of FS through a
review of the quality control measures
instituted by CPAs in order to ensure
compliance with accounting & auditing
standards & practices
 Nirereview si auditor kung sumusunod
ba sia sa requirements/standards of PSA
and applicable standards in performing
an audit engagement
 Composed of 7 members (1 chairman &
6 representatives)
 Concept only hndi nag materialize ung
creation
ETC (Education Technical Council)
 Related to regulation in accounting
education
 Composed of 7 members (1chairman &
6 representatives)
 Hndi din nagmaterialize ung creation
 All Four shall have a term of 3 years renewable
for another term
PICPA – Philippine Institute of Certified Public
Accountant
 Represent Filipino CPAs sa national
level
 Shall only be 15 members (pero sa
totoong buhay 25 members)
PRC-CPE Council – has the primary function to
monitor the implementation of CPD program
 Same with their term in BOA, PICPA
and organizations
Commission on Audit – Supreme Audit Institutions in
the Philippines
 Perform operational audit, compliance
audit ng mga GOCCs
Securities & Exchange Commission – regulates
partnership & corporations; nag require ng IFRS
RA 8981 – PRC Modernization Act of 2000, regarding
licensures
1 Credit Unit = 1 credit hour of CPD
program, activity or source
RA 9298: consolidation of Senate Bill No. 2748
& House Bill No. 6678 was finally passed by the
Senate & House of Representatives on February
6 and February 7, 2004, respectively
 Was signed and approved on May 13,
2004 by the President of the Philippines
Within 90 days after the effectivity of RA 9298,
the Board subject to the approval of the
Commission & in coordination with the APO,
shall adopt & promulgate such rules &
regulations to carry out the provisions of RA
9298 & which shall be effective 15 days
following their publication in the official gazette
or in any major daily newspaper of general
circulation
The APO shall submit its nominations with
complete documentations to the Commission not
later than 60 days prior to the expiry of the term
of an incumbent chairman or member
The death or disability of an individual CPA or
the dissolution of a firm or partnership shall be
reported to the BOA not later than 30 days from
the date of such death, dissolution or liquidation
For doctorate degree or equivalent, additional 30
credit units for compliance period upon
completion of post graduate degree will be
awarded
Those who failed to renew their professional
license for a period of 5 consecutive years from
initial registration or from last renewal shall be
declared delinquent & be dropped from rosters
of CPAs
October 2, 1975: Accreditation of PICPA (PRC
Accreditation No. 15)
 The Chairperson should be at least 40 years of
age, the other commissioner must be at least 35
years of age
The BSP monetary board is composed of 7
members appointed by the President of a Phil.
for a term of 3 years
The Chairman & commissioners of COA must
have at least 10 years of work experience
The commission proper of COA is appointed by
the president of the Phil. for a term of 7 years
Code of Ethics for Professional Accountant in the
Philippines
Ethics – simply stated, ethical ang isang Gawain kung un
ung tingin mung tamang gawin (subjective); kung ikaw
ay makakatulong kapag ginawa
 System of moral principles
Code of Ethics – represents a set of moral principles,
rules of conduct or values
 Prospective to the Profession – intended
to assist the members in understanding
the difference between right & wrong
and in applying that understanding to
their decision
 Will provide guidelines, but it is the
member’s judgment kung anu ung
ultimately nila na gagawin na action
There is a need of Code of Ethics:
To emphasize the acceptance of our
responsibility to the society
 We are governed by very strict set of
standards, value public interest (to meet
public interest requirements), hindi basta
barabara ung paggawa ng reports ng
CPA, to attain the highest level of
performance
Four Basic Requirements (CPCQ)
 Credibility – we should be able to
establish that there is a need for
credibility of information systems
 Professionalism – requires that there
should be individuals na acknowledge
by the stakeholders to be an expert on
this field
 Confidence – users of the report of PA
should feel confident, magiging basehan
in making economic decision
 Quality of the Service – services to be
rendered by those PA will have quality
Inherent Characteristics of Profession (an activity to
be recognized as professional dapat may Code of Ethics
 Master of a particular Professional
Skills, acquired by training & education
 Adherence by its members to a
common code of values and conduct
established by its administrating body,
including maintaining an outlook which
is essentially objective
 Acceptance of a duty to society as a
whole
The BOA has the power and function to prescribe
and/or adopt a Code of Ethics for the practice of
accountancy
PICPA become a member of IFAC (International
Federation of Accountants). It is required to follow
standards na sinusundan ni IFAC, one of it is Code
of Ethics.
IESBA (International Ethics Standards Board for
Accountant) – sumulat ng Code of Ethics, which is
adopted by IFAC
PICPA recommended the adoption of these
standards to BOA
FRSC & AASC will be subdivided into different
workgroups. Each workgroup will be assigned a
particular international standard na irereview nila
at ichecheck nila kung pwde iadopt sa Phil.
 Discussion Papers – will be used to
document the process of their review of
international standards
 Exposure Drafts – ieexpose dun sa
Public (stakeholders); bago maexpose sa
public magkakaroon muna ng botohan
 Accounting Standards
– FRSC ang
magbobotohan,
majority of the council
should approve the
exposure draft (atleast
60 days)
 Auditing Standards –
AASC ang
magbobotohan,
majority din dapat ang
mag approve (90 days
period); the public is
expected to provide
comments suggestions
or recommendations
 Final Drafts (wala pang approval) –
will then be submitted to BOA for
approval; bago marelease ung final draft
may botohan din (Accounting Standards
– majority; Auduting Standards – atleast
10 members of the council)
 The Professional Accountants should consider
the ethical requirements as the BASIC
PRINCIPLE which we should follow in
performing our work
Fundamental Principles (COBID)
1. Confidentiality
2. Objectivity
3. Professional Behavior
4. Integrity
5. Professional Competence and Due Care
Conceptual Framework (Threats)
1. Identify the threats
2. Evaluate the threats
3. Address the safeguards for the threats
International Independence Standards – the performance it’s better to withdraw
Assurance Services
Code of Ethics – approval of adaptation is December
2021
General Rule: All Professional Accountants in the Phil.
shall comply with the code
Conflicting Requirements of 2 Countries: apply the
code which will require more strict provision between
2 countries
Conflict with Local Laws: everytime na may conflict
ang international standards with a local law or national
statutory requirements, as far as the local country is
concerned, ung mas specific sa kanya ang iaapply which
is the Local Law (local law shall always prevail)
Breaches of the Code
The Professional Accountant who identifies a breach of
any other provision of the code shall (EAR):
 Evaluate the significance & impact of the breach
 Take whatever actions might be available
immediately to address the consequences
 Determine whether to Report the breach to the
relevant parties
Fundamental Principles
1. Integrity – must be straightforward & honest in
all professional & business relationship
 Should avoid people without integrity,
avoid information that lacks integrity
(magiging associated sa information
kapag we are the one who prepares the
information) you allow your name to be
associated with the information
 Information without integrity: if the
information is recklessly furnished,
intended to mislead, contains
misstatement
2. Objectivity – exercise of professional or
business judgment should be without bias,
conflict of interest or undue influence of others
3. Professional Competence & due care – attain
& maintain professional knowledge & skills to
perform a particular function (yung example na
kaya mung gawin ay kaya mung gawin)
 Pwedeng tanggapin ung performance ng
particular function kahit wala pa
maxado knowledge & skills provided
you will acquire the necessary skills &
knowledge as you perform the services
 Kapag hndi naacquire ung skilss during
from the engagement and may refer
another PA to perform it
 Experts – any person with knowledge
other than accounting & auditing
 All members of the accountancy
profession are professionally competent
2 Stages of Professional Competence (alam
dapat ung technical/ professional standards)
 Attainment of professional competence –
process of acquiring the necessary skills &
knowledge (education, training, OJT)
 Maintenance of Professional Competence –
continuing awareness of what you had
acquired
 To act diligently and in accordance with
applicable technical & professional
standards
 Due Care – applying technical/
professional standards, best support of
our claim that we had followed the
standards
4. Confidentiality – respect the confidentiality of
information acquired
 Not allowed to disclose information
which we acquired all throughout the
engagement except, acting with
appropriate consent & required legally
by law
5. Professional Behavior – should never engage in
any activity that would discredit the profession
Conceptual Framework – primarily intended to
provide safeguard dun sa fundamental principles
Circumstances that can threaten the Fundamental
Principles (IFASS):
Self Interest Threat – the threat that a financial
or other interest will inappropriately influence a
PA’s judgment or behavior
 Balikan ung reason kung bakit nagging
CPA, para kumita (financial or any
monetary benefits)
Self-Review Threat – a previous judgment
made by PA will be re-evaluated by himself
Advocacy Threat – promoting the entity to the
point that the accountant’s objectivity is
compromised
Familiarity Threat – PA will be too
sympathetic to their interest or too accepting of
their work because of close personal or business
relationship
 Example: from firm to client –
familiarity
 From client to firm – self-review
Intimidation Threat – being prohibited to
exercise your judgment freely by threat
Other Threats – if the circumstances cannot be
identified by the five threats
Three Steps Approach of Conceptual Framework
(IEA)
Identify the Threats – identify circumstances
that could possibly threaten fundamental
principles
Evaluate the Threats – assess the significance
of threats & the likelihood of occurrence of such
threats
 Other than clearly insignificant –
magiging concern kasi significant ung
threat
 Clearly insignificant – okay lang
maexpose kasi insihnificant nman ung
threat
Address the Threats – eliminating or reducing
them to an acceptable level (appropriate
safeguard), declining the engagement
 Eliminating the threat – not engaging to
the circusmtances
When applying the conceptual framework, the PA
shall:
Have an inquiring mind
Exercise professional judgment
Use the reasonable & informed third-
party test
BIAS – because of this our judgment becomes clouded,
hindi ganon ka objective
Anchoring Bias – kung anu ung una
niang natanggap un na ung basehan nia,
may tendency na hindi na papansin ung
ibang information
Automation Bias – generally mas
naniniwala sa information generated by
automated system kesa sa manual
information
Availability Bias – kung anu ung
available un na ung paniniwalaan
Confirmation Bias – may paniniwala na
even before makatanggap ng
information at may nagconfirm neto
Groupthink Bias
Overconfidence Bias – over estimate
one’s own ability to make accurate
assessment
Representation Bias – pattern of
experience that is assumed to be
representative
Selective Bias – iba ibang tao, iba iba
din ang judgment
Professional Accountants in Business (PAIB) –
employed in an organization as a professional accountant
 Identify who are the parties involved
kapag nag rerender ng tasks, identify the
activities, & its implications to these
parties to avoid conflict of interest
 Kapag may conflict of interest, required
idisclose ung conflict of interest to have
appropriate safeguards
Inducement – preferential treatment; best safeguard is to
not accept gift & hospitality
 You can accept if the value is clearly
insignificant
Basic Requirement for PAIB if there are
inducements:
a. Would it influence the judgment?
 YES – better not to accept it
 NO – we can accept it
b. PAIB should not also offer inducements if he has
intention of influencing the judgment of another
person inappropriately
 We should not allow ourselves to be
exposed in circumstances that will lead
us to violating our fundamental
principles
Communication Requirements: those in charge of
governance
a. Nature and importance of circumstances
b. Matter to be communicated
c. If a PA communicated with individuals who
have both management & governance
responsibility, the PA shall be satisfied that
 communication with those individual
adequately informs all of those in
governance role
Professional Accountants in Public Practice – kahit
anong service ung nirerender (assurance or non-
assurance); engage in public practice
 Pwdeng individual CPA, sole
proprietorship or partnership
Professional Appointments – focus on client’s
acceptance (integrity), engagement acceptance
(professional competence & due care) and
change in professional appointment
 If there is a request for a change in
professional appointment, and there is
reasonable justification for the request
we can agree to it. If there is no
reasonable justification, better not to
accept it, insist on continuing the
original appointment
Basic Requirement for withdrawal from engagement:
consider the necessity of communicating your reason
why you are withdrawing from the engagement
Second Opinion Engagement – nangyayari kapag may
existing accountant na pero ung client hindi naniniwala
sa opinion nung existing PA, manghihingi sia ng opinion
sa iba
Factors to consider when determining the amount of
fees to be charged to our clients:
Relative size (kung magkano) – level of skills,
knowledge, training, time to be spent, degree of
responsibility
 When you determine the amount of fee
to be charge to your client, it should not
be substantially higher or substantially
lower than the amount to be determined
by another PA if they are the one to be
performing it
 Substantially Higher – perceives as if
communicating to your clients that your
services are of higher quality (Price is
indicator of Quality)
 Substantially Low – could lead to lacks
of procedure, walang basis ung opinion
na inexpress
 We are not allowed to determine the
amount to be charge to our client based
on contingency or future event
 Overdue Fees – prior to the issuance of
current year’s report dapat bayaran na
muna ung overdue fees
 Commission – not allowed to give or
receive commissions without
performing procedures
Custody of Client’s Asset: Generally, we are not
allowed to take custody of our client’s assets, except
when we are required by law;
If we are the custodian of client’s assets
 At any given point in time, there should
be a complete separation of your assets
from your client’s assets – identify
which is yours and which is your client’s
assets
 There should be a complete accounting
of your client’s assets
 You are not allowed to use your client’s
asset without appropriate consent
Responding to NOCLAR in Audits of Financial
Statement
1. Becoming aware of the matter
2. Obtaining understanding of the matter
3. Addressing the matter
4. Communicate with respect to groups
5. Determining whether further action is needed
6. Determining whether to disclose to appropriate
authority
 Kung may effect sa FS, request to adjust
the FS, kung ayaw communicate to
those charged w/ governance, if ayaw pa
din modify the auditor’s report
7. Documentation Requirement
 Procedure na pinerform, information
obtained & conclusion reached
Independence is required for assurance engagement –
composed of independence of mind and independence in
appearance
Independence of mind (independence in fact) – the
state of mind that permits the expression of a conclusion
without being affected by influences that compromise
professional judgment, thereby allowing an individual to
act with integrity & exercise objectivity & professional
skepticism
 Evaluation ni auditor sa sarili nia
Independence in appearance (independence by
appearance) – the avoidance of facts & circumstances
that are significant that a reasonable & informed 3 rd party
would be likely to conclude that a firm or an audit or
assurance team member’s integrity, objectivity or
professional skepticism has been compromised
 Evaluation of knowledgeable informed
3rd party as to the independence of the
practitioner
 Both items should be present para masabi na
independent ung auditor (if ever only one is
present, ultimately si PA ang magdedecide if
may independence sia)
Period during which independence is required
 All throughout the engagement period
dapat independent si auditor (from time
na nagsimula sia ng procedure up to
the issuance of of the report kasama
ung period covered by FS under
audit)
 Applicable for both audit & review
Person involved in engagement that should be
independent:
 Engagement team
 Other members of the firm who will
have a participation in rendering of
service
 Network firms
Financial Interest – Direct Financial Interest, regardless
of materiality, independence is impaired, as long as nag
eexist ang direct financial interest hindi dapat tanggapin
ang engagement, to accept it you need to dispose direct
financial interest
Indirect Financial Interest – impaired ang
independence kapag material, kapag immaterial pwde
iaccept
Loans & Gurantees:
 If bank ang nagpautang, normal business, check
if it was made under normal lending procedure,
if YES, the amount involved should be
immaterial to both parties then acceptable, kapag
material need appropriate safeguards
 Hindi bank ang nagpautang, immaterial ung
amount both parties, acceptable
 Not a Public Interest Entity – firm shall
determine an appropriate period to address the
threats, judgment ng firm
If a breach of independence has been identified, the firm
shall (International Independence Standards):
a. End, suspend or eliminate the interest or
relationship
b. Consider whether any legal or
regulatory requirements apply to the
breach
c. Promptly communicate the breach in
accordance with its policies &
procedures
d. Evaluate the significance of the breach
& its impact on the firm’s objectivity to
issue an audit report
e. Depending on the significance of breach
determine whether;
1. To end the audit
engagement
2. It is possible to take
actions that addresses
the consequences
 If the assurance engagement is expexted to
recur, the period of the assurance engagement
end with the notification by either party that the
professional relationship has terminated or the
issuance of final assurance report, whichever is
Later.

Rotation Period
 Public Interest Entity – 7-year time on period –
key audit partner roles are not allowed for a
period more than 7 cumulative years
o on the 8th year dapat palitan na
o After the 7-year time on period, the
individual shall serve a cooling off
period as follows:
 5-year cooling off – engagement
partner
 3-year cooling off – engagement
quality control reviewer
(EQCR)
 2-year cooling off – other KAP
role