Chapter 4

Management of a Public
Accounting Practice
Group 6 3rd Reporter

Agno, Neal Mar

Cabilto, Lovely Jane
Guno, Shehara
Establishment and Organization of
Public Accountant Practice
Public accounting firms are usually organized as
sole proprietorships or partnerships. Whatever
the legal form of organization, the hierarchy in
the public accounting firm usually includes
partners, managers or supervisors, in-charge
auditors.
 This organizational structure of CPA firms
is influenced the following factors:

• Need to be independent from clients

• Need of structure to encourage competence
• Increased risk of litigation faced by auditors
Figure 4-1. Public Accounting Firm Organization
Auditing
Positions and
Task in a Public
Accounting Firm
Audit Partner
• Concerned with the overall quality of each audit.
• Signs the audit report, accepting ultimate
responsibility for each audit, and is generally involved
in maintaining client relationships, planning, audits,
and evaluating the audit findings.
Duties:
1. To plan and review all phases of an audit
engagement.
2. To sign audit report.
3. To approve the firm’s billing to the client.
4. To obtain/establish contracts with clients.
5. To determine office operating policies.
Audit Manager/Supervisor
• Audit Manager/Supervisor
• Administers important aspects of audit
engagements, scheduling the audit work to be done
with client personnel, assigning work to audit staff,
supervising staff, and reviewing staff work.
• Responsible for controlling staff time and
overseeing billing and collections.
Duties:
1. To act as a liaison officer between partners and other members
of the staff.
2. To discuss with the client problems that the audit.
3. To exercise direct supervision on seniors in charge of specific
audit may arise the course of engagements.
4. To review working papers and drafts of audit report.
5. To discuss reports and results’ of audit with clients.
6. To take direct charge of training programs.
In-charge (Senior) Auditor
• Work under the direction of audit managers
and assist them in administering the audit.
• Generally participate in audit planning and
provide direct supervision to staff auditors.
Duties:
1. To prepare audit program for an engagement subject to review.
2. To assign particular phases of the audit work to staff and to exercise
direct supervision over them.
3. To perform certain audit procedures requiring skills and experience.
4. To take up with the client or with the partner or principal, problems, or
questions that arise in the course of the audit.
5. To assemble the working papers in an audit, and prepare a draft of the
report and financial statements for review and approval by the partner or
supervisor.
In-charge (Senior) Auditor
•Perform various audit procedures and gather audit
evidence to use as a basis for the audit reports.
• They may perform procedures that relate to a
variety of aspects of a client’s activities.
Duties:
1. To prepare schedules and reports of findings.
2. To work on tax returns.
3. To check the accuracy of footings and extensions on books of
accounts and other records.
4. To check postings of entries from the journals to the ledger.
5. To examine vouchers supporting minor disbursements.
6. Generally, to serve as an assistant.
Marketing
Professional
Services
 Sections 250.1 and 250.2 of the revised Code of
Ethics for Professional Accountants in the Philippines

1. When a professional accountant in public practice solicits

new work through advertising or other forms of marketing,
there may be potential threats to compliance with the
fundamental principles.
2. A professional accountant in public practice should not
bring the profession into disrepute when marketing
professional services.
 Sources of Clients
1. Referrals from businessmen through active participation in civic and
community affairs.
2. Referrals from clients by maintaining his integrity and rendering prompt and
efficient services to them.
3. Referrals from financial and government institutions by keeping his
standards high.
4. Referrals from other CPAs by active involvement in professional
organizations.
5. Referrals from legal and other professional firms.
 Professional Fees
- CPAs in public practice shall comply with the provisions of section240 of the Revised
Code of Ethics for Professional Accountants and professional fees and other types of
remuneration.
1. 1. When entering into negotiations regarding professional services, a professional
accountant in public service may quote whatever fee deemed to be appropriate. The fact
that one professional accountant in public practice may quote a fee lower than another is
not in itself unethical.
2. 2. The significance of such threats will depend on the factors such as the level of fee
quoted and the services to which it applies. In view of these potential threats, safeguards
should be considered and applied to eliminate them or reduce them to an acceptable
level.
 Methods of Billing Clients
1. 1. Actual Time Charges of Per Diem basis
2. 2. Flat or Fixed Fee basis
3. 3. Maximum fee basis
4. 4. Retainer basis
02 REGULATION WITHIN THE
FIRM

System of Quality Control

To ensure that a public accounting firm adheres

to the standards of the accounting profession, it

shall establish and implement a system of quality

control.
The Philippine Standard on Quality Control (PSQC) was promulgated to
deal with the responsibilities of a frim for each system of quality control for
audits of financial statements and other services engagements.

Quality Control System- Is a set of policies and procedures

designed to provide reasonable assurance that the public
accounting firm complies with professional standards and
regulatory/legal requirements. The system should be design
to achieve the objective and the procedures necessary to
implement and monitor compliance with those policies.
 ELEMENTS OF A SYSTEM OF QUALITY CONTROL

The firm’s system of quality control shall include policies and

procedures addressing each other of the following elements:

(a)Leadership responsibilities for quality within the firm;

(b)Ethical requirements;
(c)Acceptance and continuance of client relationship and specific engagements;
(d)Human Resources;
(e)Engagement performance; and
(f)Monitoring
(a)Leadership responsibilities for quality within the firm

The firm shall establish policies and procedures

designed to promote an internal culture based on
the recognition that the quality 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 ultimate responsibility for
the firm’s system of quality control.
(b)Ethical requirements

The firm shall establish policies and procedures

designed to provide it with reasonable assurance
that the firm and its personnel comply with
relevant ethical requirements.
The Revised Code of Ethics for Professional Accountants in the Philippines
establishes the Fundamental Principles of Professional Ethics, which include:

 Integrity
 Objectivity
 Professional Competence and Due Care
 Confidentiality
 Professional Behavior
(c)Acceptance and continuance of client relationship and
specific engagements;

The firm shall establish policies and procedures for the

acceptance and continuance of client relationships and
specific engagements, designed to provide it with reasonable
assurance that will only undertake or continue relationships
and engagement where it:
(a) Is competent to perform the engagement and has the
capabilities, time and resources to do so; and
(b) Can comply with ethical requirements.
(c) Has considered the integrity of the client and does not
have information that would lead it to conclude that the
client lacks integrity.
 (d) Human Resources

The firm shall 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.
(a) To perform its engagements in accordance with
professional standards and regulatory and legal
requirements, and
(b) 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;
• Career Development;
• Promotion;
• Compensation; and
• The estimation of personnel needs
 Capabilities and competence are developed through a
variety of methods, including the following:

• Professional Education
• Continuing professional development, including training
• Work experience
• Coaching by more experienced staff, for example, other members
of engagement team
(E)

The firm….
 Audit Report Structure for Various Opinions

① Standard unqualified audit report:

Introduction paragraph + two responsibility paragraphs + opinion paragraph
② Unqualified audit report with an emphasis of matter paragraph:
Introduction Paragraph + Two Responsibilities Paragraphs + Opinion Paragraph +
③ Audit report with qualified opinion:
Introductory paragraph + two responsibility paragraphs + explanatory paragraph +

④ Negative opinion audit report:

Introductory paragraph + two responsibility paragraphs + explanatory paragraph +
⑤ Unable to express opinion audit report:
Introductory paragraph + Management's responsibility for the financial
When issuing an audit report with a qualified
03
Basic Types
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PART THR
 1. Unqualified audit report

(1) Standard unqualified audit

If the financial statement is considered to meet all of the following conditions, the
1. The financial statements have been prepared in accordance with the

2. The certified public accountant has planned and implemented the audit work
When issuing an unqualified auditor's report, the CPA should start the opinion
 Audit Report

• All shareholders of ABC Co., Ltd.:

• We have audited the attached financial statements of ABC Co.

1. Management’s Responsibility

It is the responsibility of the management of ABC Company to prepare financial

(1) Design, implement and maintain internal controls related to the preparation
(2) Select and apply appropriate accounting policies;
(3) Make reasonable accounting estimates.
 2. Responsibilities of Certified Public Accountants

Our responsibility is to express an opinion on the financial statements

An audit involves performing audit procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The
audit procedures selected depend on the auditor's judgment, including
We believe that the audit evidence we have obtained is sufficient and appropriate, providing a basis
 3. Audit opinion

We believe that the financial statements of ABC Company have been

XX accounting firm
(stamp) Chinese Certified Public Accountant: XXX
(signed and stamped)
Chinese Certified Public Accountant: XXX
(signature and seal) XX City, China
20××year×month×day
(2) Unqualified audit report with an emphasis of matter paragraph

When the certified public

When there are events or circumstances

01

When there are uncertain matters (except for

02

General Views: Qualified

 (2) Unqualified audit report with an emphasis of matter paragraph

3. Situations where the emphasis of matter

③If the previous audit report issued on the financial statements

⑤ If other information in the documents

2. Audit report with qualified opinion

If the accounting statements

The selection of accounting policies, the

01

Due to the limited scope

02

When issuing a qualified audit report, the

 2. Audit report with qualified opinion

3. Negative Opinion Audit

If it is believed that the accounting statements

When issuing an audit report with a negative opinion, the certified public accountant

4. Audit report with no

If the possible impact of the limited audit scope is so significant and extensive
When issuing a disclaimer of opinion audit report, the
04
Financial Statement
Review

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PART FOUR
Section 4 Review of Financial Statements

The purpose of the financial

01 The objective of the review of financial statements is for the

02 In the financial statement review business, the certified public

2. Review procedure

(1) Factors to be considered in determining the

1. Information learned from auditing or reviewing financial statements in previous periods.

2. Understanding of the audited unit and its environment, including applicable
3. Accounting information system.
4. The extent to which management's judgment affects a particular project.
5. The importance of various types of transactions and account balances.

(2) Specific review procedures

The review procedures are mainly

3. Handling of possible material misstatements in the financial statements

01 After performing the review procedures, if the

02
If, after expanding the inquiry and obtaining additional
4. Basic content of the review report

(1) TITLE. The title of the review report shall be uniformly standardized as "Review Report".
(2) Recipients. The recipient of the review report shall be the client of the review business.

(3) Introduction paragraph. The introductory paragraph of the

(4) Range segment. The scope paragraph of the review report should describe the

(5) Conclusion paragraph. It should be stated in the concluding paragraph:

V. Types of review conclusions and their applicable conditions

(1) Unqualified conclusion

01 The certified public accountant did not notice any

02 The certified public accountant has planned and conducted the review
 V. Types of review conclusions and their applicable conditions

(2) Reserve the conclusion

The certified public

The certified public accountant noticed certain matters that made him believe that the financial statements were not prepared in accordance with the
01 applicable accounting standards and relevant accounting systems, and failed to

02 There are significant scope limitations to the

V. Types of review conclusions and their applicable conditions

(3) Negative conclusion

If the certified public accountant notices certain matters and makes them believe that the financial

(4) Cannot provide any

If a material scope limitation exists

05
Preparation of Audit

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PART FIVE
1. General steps in preparing an audit report

01 Organize and analyze audit working

02 Propose the audited unit to adjust the

03 Determine the type and wording of the

04 Prepare and issue audit reports

2. Requirements for the preparation and use of audit reports

(1) The format should be standardized and the content should be complete
(2) The boundaries of responsibility should be clearly defined
CPAs shall be responsible for the authenticity and legitimacy of the audit

(3) The audit evidence should be conclusive and sufficient

(4) The use of the audit report should be appropriate
An audit report is an audit opinion issued by a certified public accountant on all important aspects related to the reflection of the
financial statements of the audited entity during a specific period
06
Special purpose audit

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PART SIX
1. Basic content of special purpose audit report

(1) Basic content of the audit report issued for the first

1. Title. The title of the audit report shall be uniformly standardized as "Audit Report".
2. Recipient. The recipient of the audit report refers to the object to whom the certified
3. Introduction paragraph. The introductory paragraph should explain the following: (1)

4. Range segment. The scope paragraph shall state the following: (1)
5. Audit opinion paragraph. The audit opinion paragraph should clearly state the audit
1. Basic content of special purpose audit report

6. The signature and seal of the certified public

7. The name, address and seal of the accounting firm;
8. Date of report. The date of the auditor's
(2) Basic content of the audit report issued on the summary financial statements

1. Title. The title of the audit report shall be uniformly standardized as "Audit Report".
2. Recipient. The recipient of the audit report refers to the object to whom the certified
3. Identify the audited financial statements on which the condensed financial statements are

4. Mention the date and type of opinion of the audit report issued on the audited financial
5. Audit opinion paragraph. The audit opinion paragraph should state whether the information
(2) Basic content of the audit report issued on the summary financial statements

6. Emphasis of matter paragraph. The emphasis of matter

7. Signature and seal of the certified public accountant.
8. The name, address and seal of the accounting firm.
9. Date of report.
2. Audit report on financial statements prepared on a special basis

Accounting statements may

Cash basis;

Tax basis;

Other special preparation

2. Audit report on financial statements prepared on a special basis

For financial statements prepared on a special basis, the

The certified public accountant should consider whether the title or

 3. Auditor’s report on the components of the financial statements

When issuing an audit report on a financial statement component, the auditor shall identify the basis for the preparation of the
financial statement component in the introductory paragraph of the auditor's

4. Audit report issued on compliance

When the certified public accountant issues an audit report on the compliance of the contract, he shall indicate in the
01 introductory paragraph of the audit report that he has audited the compliance of the

When a certified public accountant issues an audit report on the

02
V. Auditor's report on the summary financial statements

A certified public accountant may issue an audit report on the summary financial statements
The condensed financial statements should identify the audited financial statements

The certified public accountant shall specifically indicate the following items in the

The CPA should indicate in the opinion paragraph of the auditor's report whether the
The CPA should add an explanatory paragraph after the opinion paragraph, indicating that
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