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.
 ASSIGMENT

• What are the Generally Accepted Auditing

Standards?
• Submit in ½ sheet of paper
 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-Decem
ber-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-S
tandards-and-Philippine-Standards.pdf
SEE YOU NEXT WEEK !