QUEZON CITY UNIVERSITY

Accountancy Department

AUDITING AND ASSURANCE

PRINCIPLES
ACPAUD1

5:00 PM – 8:00 PM
 AUDITING

ACPAUD1 Auditing and Assurance Principles

ACPAUD2 Auditing and Assurance: Concepts and
Applications 1
ACPAUD3 Auditing and Assurance: Concepts and
Applications 2
ACPAUD4 Auditing and Assurance: Specialized Industries
ACPAUD5 Auditing in CIS Environment`
 COVERAGE
Auditing This course is designed to expose students both to the
and demand for and the supply of the profession’s flagship
Assurance service - financial statement audits - and to the nature of
Principles the value added assurance services which decision makers
demand in the information age.
 COVERAGE
Auditing and - focus on financial statements audit.
Assurance: - detailed approaches: independent examination of
Concepts and cash, receivables, inventories, investments, prepaid
Applications expenses, deferred charges, property, plant and
1 equipment, intangibles.
Auditing and -detailed approaches; independent examination of
Assurance: liabilities, owners’ equity, and revenue and expenses.
Concepts and -It deals specifically with the application of auditing
Applications standards, techniques, and procedures;
2 -internal control evaluation;
-preparation of audit working papers;
-introduction of computer application in auditing;
-audit adjustments; and
-audit reports pertaining to a medium-sized
manufacturing or trading concern.
 COVERAGE
Auditing and -detailed approaches: independent examination in specialized
Assurance: industries like banking, insurance and extractive industries.
Specialized -It deals specifically with the application of auditing standards,
Industries techniques and procedures,
- evaluation of internal control,
- preparation of audit working papers with computer
application,
- audit adjustments pertaining to this type of industry.
Auditing in CIS -discusses information technology (IT) -related risks, security
Environment` and control mechanisms and techniques employed to address
the risks, and the impact of computer use on the audit.
- introduces computer assisted audit techniques (CAAT) & tools.
-In this course, students gain an appreciation of the particular
features and understanding of the risks involved in auditing in a
CIS environment, the CIS controls they would expect to find in
this particular area, how auditors use CAATS in this area.
- the students gain hands-on experience in the use of
computers in performing audits.
 COURSE DESCRIPTION

• This course is designed to expose students

both to the demand for and the supply of the
profession’s flagship service - financial
statement audits - and to the nature of the
value added assurance services which decision
makers demand in the information age.
 COURSE DESCRIPTION
• TOPICS INCLUDE:
– nature of the accounting profession, auditing and
assurance fundamentals:
– relationship among assurance, attestation, and audit
services;
– consulting vs. assurance services;
– types of attestation services (agreed-upon
procedures engagement and review engagement);
– types of audits (internal, external or financial
statement audits, government audit, and special
purpose audits);
 COURSE DESCRIPTION
– relationship of accounting and auditing;
– other services (operational audits, compliance audits,
and non-attest services);
– professional standards: assurance standards and
attestation and auditing standards;
– public sector regulation of accounting practice and
legal liability;
– the framework of financial statements auditing:
– risk-based approach as audit methodology;
– audit evaluation and planning, including the concept
of risk and materiality;
 COURSE DESCRIPTION
– assessing internal controls, and tests of controls including
internal controls in computer-based business systems;
– performance of an audit: evidence collection, analysis,
and substantive tests;
– reporting: reports on assurance services, attestation
services, and financial statement audits; and completing
the audit including communications with board of
directors and management concerning internal control
weaknesses.
– Also discussed in detail are the basic professional values
and the Code of Ethics for Professional Accountants and
SEC’s Code of Corporate Governance.
 COURSE DESCRIPTION
After successful completion of this course, the student is
expected to:
– Manifest understanding of the nature and value of financial
statement audits and the other non-attest services
– Be able to discuss the professional standards to be observed in
audits and non-attest services
– Be able to describe the audit process and the risks involved in
the audit
– Evaluate the strengths and weaknesses of a client’s internal
control system
– Exhibit understanding of the basic professional values and the
Code of Ethics for Professional Accountants and SEC’s Code of
Corporate Governance
 References
• Auditing Theory, A Guide in Understanding the
Philippine Standards of Auditing; 2018 Edition; by
Salosagcol, Tiu, and Hermosilla

• Auditing Theory; 2017 Edition; by Cabrera and Cabrera

• PICPA Website - http://www.picpa.com.ph/

• Auditing Standards and Assurance Council Website -

http://www.aasc.org.ph/
 Course Requirements

1. Class Participation
2. Assignments
3. Quizzes
4. Long Tests
5. Major Examinations
6. Submission of
Practice Set
 Grading System

Midterm Grade (MG) Pre-Final Grade (PFG)

Midterm Exam 40% Final Exam 40%
Class Standing Class Standing
Quizzes 15% Quizzes 15%
Recitation 10% Recitation 10%
Assignment 5% Assignment 5%
Seatwork 10% Seatwork 10%
Output 20% 60% Output 20% 60%

Total 100% Total 100%

Final Grade (FG)= (MG + PFG) / 2

 Grading System
POINT POINT
GRADE REMARKS GRADE REMARKS
Equivalent Equivalent
98-100 1.00 Excellent 77-79 2.75 Satisfactory
95-97 1.25 Excellent 75-76 3.00 Passed
92-94 1.50 Very Good Below 75 5.00 Fail
89-91 1.75 Very Good INC Incomplete
86-88 2.00 Good OD Officially Dropped
83-85 2.25 Good UD Unofficially Dropped
80-82 2.50 Satisfactory
 Expectations from Students
1. The student is responsible to come to each class prepared.
2. The student is expected to take all examinations on the date
scheduled.
3. The student should read the assigned chapter/s and solve
exercises/problems prior to class.
4. The student is expected to attended each class and
participate actively in the discussions.
5. The student is expected to do the seatwork/exercises that
will be assigned by the instructor inside the classroom.
• All students are expected to be honest. Cheating, lying, and
other forms of unethical behavior will not be tolerated.
Consistent with the University rules and regulations, the
following are considered major offenses and will be subject to
disciplinary action:
• Cheating during examination, quiz or test; plagiarism
– Unauthorized possession of notes or materials relative to examination,
whether the students use of them or not
– Copying from of allowing another to copy from one's examination
paper, report, term paper, etc.
– Having somebody else take the examination in place of another
student. Both students shall be liable
– Talking to another student without permission during the examination
– Submitting as one's work, assigned report, term paper, case analysis,
reaction paper, etc, copied from others
 Policy on Absences
1. A student is expected to attend all his/her classes promptly and regularly
from the first day of classes onwards.
2. A student will be marked late if s/he arrived within the 15-minutes grace
period.
3. A student will be considered absent if s/he arrives beyond the grace
period
4. Three instances of tardiness will be equivalent to one (1) absence
5. The maximum number of absences is 20% of the total hours allotted for
a subject in a semester or equivalent to 7 absences. A student who
incurs more than 7 absences shall be considered Unofficially Dropped.
 BSA Retention Policy
• A student admitted into the program should have no
failing grade in any of the subjects.

• On the 2nd year, must have no failing grade in any of

his subjects and have no grade lower than 2.25 in any
major subjects. Also, he/she must pass the qualifying
examination at the end of the 2nd Year, to move to the
3rd Year level.

• On the 3rd year, must have no failing grade in any

subject and must have no grade lower than 2.25 in any
accounting education subjects.
SESSION 1
AUDITING AND ASSURANCE
PRINCIPLES
 Auditor
• Auditor—The auditor is the person with final
responsibility for the audit.

• This term is also used to refer to an audit firm.

(For ease of reference, the term “auditor” is used
throughout the PSAs when describing both
auditing and related services which may be
performed. Such reference is not intended to
imply that a person performing related services
need necessarily be the auditor of the entity’s
financial statements.)

Source: Philippine Standards of Auditing

 AUDITING
• AUDIT—The objective of an audit of financial
statements is to enable the auditor to express an
opinion whether the financial statements are prepared,
in all material respects, in accordance with an
identified financial reporting framework.

• The phrase used to express the auditor’s opinion is

“present fairly, in all material respects.

• A similar objective applies to the audit of financial or

other information prepared in accordance with
appropriate criteria.

Source: Philippine Standards of Auditing

 What is Assurance
• Assurance refers to the auditor's satisfaction as to
the reliability of an assertion being made by one
party for use by another party. (PSA 120)

• Reasonable assurance—In an audit engagement,

the auditor provides a high, but not absolute,
level of assurance, expressed positively in the
audit report as reasonable assurance, that the
information subject to audit is free of material
misstatement.
Source: Philippine Standards of Auditing
 Auditing and Assurance Standards
Council
• The AASC was created by the Professional Regulation
Commission upon the recommendation of the Board of
Accountancy (BOA) to assist the BOA in the establishment and
promulgation of auditing standards in the Philippines.

• The AASC replaced the Auditing Standards and Practices

Council (ASPC) which was established by the Philippine
Institute of Certified Public Accountants and the Association
of 3 CPAs in Public Practice and previously set generally
accepted auditing standards in the Philippines, also based on
International Standards and Practice Statements.
 Auditing and Assurance Standards
Council
• The AASC has 15 regular members coming from the following:
No. of Members
– Chairman 1
– Board of Accountancy 1
– Securities and Exchange Commission 1
– Commission on Audit 1
– Association of CPAs in Public Practice 1
– Philippine Institute of CPAs:
• Public Practice 7
• Commerce and Industry 1
• Academe/Education 1
• Government 1
Total 15
 Auditing and Assurance Standards
Council
• The AASC is the body authorized to establish and promulgate generally
accepted auditing standards (GAAS) in the Philippines.
• At present, AASC pronouncements are mainly adopted from the standards
and practice statements issued by the International Auditing and
Assurance Standards Board (IAASB). Country-specific standards and
practice statements are developed to address specific auditing issues not
covered by the IAASB pronouncements.
• The main objective of the AASC in adopting IAASB standards and practice
statements is to attain uniformity of the local GAAS with the IAASB
pronouncements. This harmonization is expected to enhance the
reliability and acceptability of audited financial statements of Philippine
companies. The AASC's objectives, organization and working procedures
are set out in the Preface to Philippine Standards on Quality Control,
Auditing, Review, Other Assurance and Related Services.
• The AASC replaced the Auditing Standards and Practices Council (ASPC).
 The Big 5 Accounting and Auditing
Firms in the Philippines
1. SGV & Co. (SyCip Gorres Velayo & Co.) (affiliate of Ernst &
Young)
2. Manabat Delgado Amper & Co. (formerly C.L. Manabat &
Co.) (affiliate of Deloitte Touche Tohmatsu (DTT))
3. Isla Lipana & Co. (formerly Joaquin Cunanan & Co.) (affiliate
of PricewaterhouseCoopers)
4. Manabat Sanagustin & Co. (formerly Laya Mananghaya &
Co.) (affiliate of KPMG)
5. BDO Alba Romeo & Co. (Philippine Member Firm of BDO
International)
Note: Punongbayan & Araullo is another major accounting
company.
 The World's Big 4 Accounting and
Auditing Firms in Order of Revenue

1. Deloitte Touche Tohmatsu

2. PricewaterhouseCoopers
3. Ernst & Young
4. KPMG
• The Big Four accounting and auditing firms are the world’s
most credible accounting companies, providing audit, tax,
bookkeeping and all accounting services for private and
public corporations globally. They have networks and
affiliates in China, Jordan, Egypt, Indonesia, Israel, Japan,
Singapore, Malaysia, Korea, Brazil, Saudi Arabia, India,
Turkey, Pakistan, Philippines, Sri Lanka, Mexico, Argentina,
Bangladesh, and other countries.

• Once upon a time, the Big Four giant accountancy firms

group were known as the Big Eight. Then, through a series
of mergers, the group became the Big Five. The Big Five
became the Big Four in 2002 when the ENRON/Arthur
Andersen scandal shook the accounting world.

SOURCE: https://toughnickel.com/industries/Top-5-Accounting-Firms-in-the-Philippines-Best-Accounting-Firms
 PSA 120

FRAMEWORK OF
PHILIPPINE STANDARDS ON
AUDITING
• The AASC has been authorized to issue Philippine
Standards on Auditing (PSAs). The purpose of this
document is to describe the framework within which
PSAs are issued in relation to the services which may
be performed by auditors.

• For ease of reference, except where indicated, the term

“auditor” is used throughout the PSAs when describing
both auditing and related services which may be
performed. Such reference is not intended to imply
that a person performing related services need be the
auditor of the entity's financial statements.
 Financial Reporting Framework
• Financial statements are ordinarily prepared and
presented annually and are directed toward the
common information needs of a wide range of
users.

• Many of those users rely on the financial

statements as their major source of information
because they do not have the power to obtain
additional information to meet their specific
information needs.
• Thus, financial statements need to be
prepared in accordance with one, or a
combination of:
a) accounting standards generally accepted in the
Philippines;
b) International Accounting Standards; and
c) another authoritative and comprehensive
financial reporting framework which has been
designed for use in financial reporting and is
identified in the financial statements.
 Framework for Auditing and Related
Services
• This Framework distinguishes audits from related
services. Related services comprise reviews, agreed-
upon procedures and compilations.

• As illustrated in the diagram below, audits and reviews

are designed to enable the auditor to provide high and
moderate levels of assurance respectively, such terms
being used to indicate their comparative ranking.
Engagements to undertake agreed-upon procedures
and compilations are not intended to enable the
auditor to express assurance.
 LEVELS OF ASSURANCE
• Assurance refers to the auditor's satisfaction as to
the reliability of an assertion being made by one
party for use by another party.
• To provide such assurance, the auditor assesses
the evidence collected as a result of procedures
conducted and expresses a conclusion.
• The degree of satisfaction achieved and,
therefore, the level of assurance which may be
provided is determined by the procedures
performed and their results.
• In an audit engagement, the auditor provides
a high, but not absolute, level of assurance
that the information subject to audit is free of
material misstatement. This is expressed
positively in the audit report as reasonable
assurance.
• In a review engagement, the auditor provides
a moderate level of assurance that the
information subject to review is free of
material misstatement. This is expressed in
the form of negative assurance.
• For agreed-upon procedures, as the auditor
simply provides a report of the factual findings,
no assurance is expressed. Instead, 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.

• In a compilation engagement, although the users

of the compiled information derive some benefit
from the accountant's involvement, no assurance
is expressed in the report.
 AUDIT
• The objective of an audit of financial statements is to
enable the auditor to express an opinion whether the
financial statements are prepared, in all material
respects, in accordance with an identified financial
reporting framework. The phrase used to express the
auditor's opinion is “present fairly, in all material
respects.” A similar objective applies to the audit of
financial or other information prepared in accordance
with appropriate criteria.

• In forming the audit opinion, the auditor obtains

sufficient appropriate audit evidence to be able to
draw conclusions on which to base that opinion.
 Audit
• The auditor's opinion enhances the credibility
of financial statements by providing a high,
but not absolute, level of assurance.
– Absolute assurance in auditing is not attainable as
a result of such factors as the need for judgment,
the use of testing, the inherent limitations of any
accounting and internal control systems and the
fact that most of the evidence available to the
auditor is persuasive, rather than conclusive, in
nature.
 RELATED SERVICES

1. Reviews
2. Agreed-upon Procedures
3. Compilations
 1) Reviews
• The objective of a review of financial statements
is to enable an auditor is 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 an identified
financial reporting framework.
– A similar objective applies to the review of financial or
other information prepared in accordance with
appropriate criteria.
 1) Reviews
• A review comprises inquiry and analytical
procedures which are designed to review the
reliability of an assertion that is the responsibility
of one party for use by another party.
– While a review involves the application of audit skills
and techniques and the gathering of evidence, it does
not ordinarily involve an assessment of accounting
and internal control systems, tests of records and of
responses to inquiries by obtaining corroborating
evidence through inspection, observation,
confirmation and computation, which are procedures
ordinarily performed during an audit.
 1) Reviews
• Although the auditor attempts to become
aware of all significant matters, the
procedures of a review make the achievement
of this objective less likely than in an audit
engagement, thus the level of assurance
provided in a review report is correspondingly
less than that given in an audit report.
 2) Agreed-upon Procedures
• In an engagement to perform agreed-upon
procedures, an auditor3 is engaged to carry out
those 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.
– The recipients of the report must form their own
conclusions from the report by the auditor. The report
is restricted to those parties that have agreed to the
procedures to be performed since others, unaware of
the reasons for the procedures, may misinterpret the
results.
 3) Compilations
• In a compilation engagement, the accountant is
engaged to use accounting expertise as opposed to
auditing expertise to collect, classify and summarize
financial information.
– This ordinarily entails reducing detailed data to a
manageable and understandable form without a
requirement to test the assertions underlying that
information.
– The procedures employed are not designed and do not
enable the accountant to express any assurance on the
financial information.
– However, users of the compiled financial information
derive some benefit as a result of the accountant's
involvement because the service has been performed with
due professional skill and care.
 Auditor Association with Financial
Information
• An auditor is associated with financial
information when the auditor attaches a
report to that information or consents to the
use of the auditor's name in a professional
connection.
• If the auditor is not associated in this manner,
third parties can assume no responsibility of
the auditor.
 Auditor Association with Financial
Information
• If the auditor learns that an entity is
inappropriately using the auditor's name in
association with financial information, the
auditor would require management to cease
doing so and consider what further steps, if any,
need to be taken, such as informing any known
third party users of the information of the
inappropriate use of the auditor's name in
connection with the information.
• The auditor may also believe it necessary to take
other action, for example, to seek legal advice.
 Read and Study
• Republic Act No. 9298 - ..\Auditing
Theory\Accountancy Act.pdf

• Code of Ethics -..\Auditing Theory\Code of

Ethics.pdf
 Read and Study
• Glossary of Terms ..\Auditing Theory\PSA\Glossary-of-
Terms-December-2002.pdf
• Philippine Framework for Assurance Engagement
..\Auditing Theory\PSA\Philippine-Framework-for-
Assurance-Engagements.pdf
• Preface to the International Standards and Philippine
Standards on Quality Control, Auditing, Review, Other
Assurance And Related Services ..\Auditing
Theory\PSA\Preface-to-International-Standards-and-
Philippine-Standards.pdf
SEE YOU NEXT WEEK !