The Authority Attaching to Philippine Standards Issued by the AASC Engagement Standards| Application| 1. Philippine Standards on Auditing (PSAs)| * Audit of historical financial statements| 2. Philippine Standards on Review Engagements (PSREs)| * Review of historical financial information| 3. Philippine Standards on Assurance Engagements (PSAEs)| * Assurance engagements dealing with subject matters other than historical financial information| 4.
Philippine Standards on Related Services (PSRSs)| * Compilation engagements * Engagements to apply agreed-upon procedures to information * Other related services engagements as specified by the AASC| 1. PSAs, PSREs, PSAEs and PSRSs are collectively referred to as the AASC’s Engagement Standards. 2. Philippine Standards on Quality Control (PSQC) are to be applied for all services falling under the AASC’s engagement standards. 3. Philippine Standards are applicable to engagements in the Public Sector. The Authority Attaching to Practice Statements Issued by the AASC 1.
Philippine Practice Statements are issued to: * Provide interpretive guidance and practical assistance to professional accountants in implementing Philippine Standards; and * Promote good practice. 2. Professional accountants should be aware of and consider Practice Statements applicable to the engagement. 3. A professional accountant who does not consider and apply the guidance included in a relevant Practice Statement should be prepared to explain how the basic principles and essential procedures in the AASC’s Engagement Standard(s) addressed by the Practice Statement have been complied with.
PHILIPPINE FRAMEWORK FOR ASSURANCE ENGAGEMENTS 1. The Framework does not itself establish standards or provide procedural requirements for the performance of assurance engagements. 2. In addition to the Framework and PSAs, PSREs and PSAEs, practitioners who perform assurance engagements are governed by: * The Philippine Code of Ethics of Professional Accountants; and * Philippine Standards on Quality Control (PSQCs).
ASSURANCE ENGAGEMENTS 1. “Assurance engagement means an engagement in which a practitioner expresses a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party about the outcome of the evaluation or measurement of a subject matter against criteria. 2. “Subject matter information” refers to the outcome of the evaluation or measurement of a subject matter. 3.
In some assurance engagements, the evaluation or measurement of the subject matter is performed by the responsible party, and the subject matter information is in the form of an assertion by the responsible party that is made available to intended users (assertion-based engagements). 4. In other assurance engagements, the practitioner either directly performs the evaluation or measurement of the subject matter, or obtains a representation from the responsible party that has performed the evaluation or measurement that is not available to the intended users.
The subject matter information is provided to the intended users in the assurance report (direct reporting engagements). Two Types of Assurance Engagement 1. Reasonable assurance engagement – the objective is a reduction in assurance engagement risk to an acceptably low level in the circumstances of the engagement as the basis for a positive form of expression of the practitioner’s conclusion. 2.
Limited assurance engagement – the objective is a reduction in assurance engagement risk to a level that is acceptable in the circumstances of the engagement, but where the risk is greater than for a reasonable assurance engagement, as a basis for a negative form of expression of the practitioner’s conclusion. Scope of the Framework The following are non-assurance engagements and therefore are not covered by the Framework: 1. Engagements covered b y PSRSs such as agreed upon procedures engagements and compilations of financial or other information. 2.
The preparation of tax returns where no conclusion conveying assurance is expressed. 3. Consulting (or advisory) engagements, such as management and tax consulting. Elements of an Assurance Engagement 1. A three-party relationship involving: * A practitioner (CPA); CPA holds valid certificates issued by the Board of Accountancy (Public Practice, Industry, Commerce, Public Sector or Education) Fundamental Principles: * Integrity * Objectivity * Professional Competence and Due Care * Confidentiality * Professional Behavior * Application of Technical Standards * A responsible party; and * Intended users. . An appropriate subject matter; Forms * Financial/Non-financial Performance or Conditions; * Physical Characteristics * Capacity of Facilities * Systems and Processes * Behavior 3. Suitable criteria Characteristics * Relevance * Completeness * Reliability * Neutrality * Understandability 4. Sufficient appropriate evidence, and; Quantity and quality of evidences 5. A written assurance report in the form appropriate to a reasonable assurance engagement or a limited assurance engagement. OVERALL OBJECTIVES OF THE INDEPENDENT AUDITOR AND THE CONDUCT OF AN AUDIT IN ACCORDANCE WITH PSAs 1.
In conducting an audit of financial statements, the auditor’s OVERALL OBJECTIVE are: a) To obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, thereby enabling the auditor to express an opinion on whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework; and b) To report on the financial statements, and communicate as required by the PSAs, in accordance with the auditor’s findings. . The auditor SHALL: * Comply with all PSAs relevant to the audit. * Comply with relevant ethical requirements, including those pertaining to independence relating to financial statement audit engagements. * Plan and perform an audit with professional skepticism recognizing that circumstances may exist that cause the financial statements to be materially misstated. * Exercise professional judgment in planning and performing an audit of financial statements. * Obtain sufficient appropriate audit evidence to reduce audit risk to an acceptably low level.
ENGAGEMENTS TO REVIEW FINANCIAL STATEMENTS 1. The objective of a review of financial statements is to enable a practitioner 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 practitioner’s attention that causes the practitioner to believe that the financial statements are not prepared, in all matters respects, in accordance with an identified financial reporting framework (negative assurance). . 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 of another party. 3. A review 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. 4.
The level of assurance provided in a review report is less than that given in an audit report. ENGAGEMENTS TO PERFORM AGREED-UPON PROCEDURES REGARDING FINANCIAL INFORMATION 1. In an engagement to perform agreed-upon procedures, an auditor 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. 2. The recipients of the report must form their own conclusion form the report of the auditor. 3.
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. ENGAGEMENTS TO COMPILE FINANCIAL STATEMENTS 1. In a compilation engagement, the accountant is engaged to use accounting expertise as opposed to auditing expertise to collect, classify, and summarize financial information. 2. It ordinarily entails reducing detailed data to manageable and understandable form without a requirement to test the assertions underlying that information. 3.
The procedures performed are not designed and do not enable the accountant to express any assurance on the financial information. 4. Users of 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. Nature of Service| Audit| Review| Agreed-upon Procedures| Compilation| Level of Assurance Period| High, but not absolute assurance| Moderate assurance| No assurance| No assurance| Scope provided| Positive assurance on assertion(s) (Audit Report)| Negative assurance on ssertion(s) (Review Report)| Factual findings of procedures| Identification of information compiled (Compilation Report)| DEFINITION OF AUDITING An audit is a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between these assertions and established criteria and communicating the results to interested users. 1. Auditing is a systematic process. Auditing proceeds by means of an ordered and structured series of steps. . An audit involves obtaining and evaluating evidence about assertions regarding economic actions and events. Assertions are representations made by an auditee about economic actions and events. The auditor’s objective is to determine whether these assertions are valid. To satisfy this objective, the auditor performs audit procedures and gathers evidence that corroborates or refuse the assertion. 3. An audit is conducted objectively. The auditor should conduct the audit without bias.
Impartial attitude must be maintained by the auditor when evaluating evidence and formulating his conclusions. 4. Auditors ascertain the degree of correspondence between assertions and established criteria Established criteria are needed to judge the validity of the assertions. These criteria are important because they establish and inform the users of the basis against which the assertions have been evaluated or measured. In an audit, the auditor determines the degree by which the assertions conform to the established criteria.
For example, when auditing financial statements, the auditor judges the fair presentation of the financial statements (assertions) by comparing the statements with an identified financial reporting framework (criteria). 5. Auditors communicate the audit results to various interested users. The communication of audit findings is the ultimate objective of any audit. For the audit to be useful, the results must be communicated to interested users on a timely basis. Following a systematic process Independent Auditor Objectively obtains and evaluates evidence
Establishes the degree of correspondence between evidence Assertions Established Criteria Communicates the results to interested users Generally Accepted Auditing Standards (GAAS) represents measure of the quality of the auditor’s performance. There are ten GAAS and they are grouped into 3 groups namely: General Standards, Standard for Fieldwork and Standard for Reporting. General Standards 1. The examination is to be performed by person or persons having adequate technical training and proficiency as an auditor. 2.
In all matters relating to an engagement, an independence in mental attitude is to be maintained by the auditor. 3. Due professional care is to be exercised in the performance of the audit and in the presentation of the report. Standard for Fieldwork 4. The work is to be adequately planned and the assistants, if any, are to be properly supervised. 5. There is to be a proper study and evaluation of existing internal control as a basis for reliance thereon and for the determination of the resultant extent of test of which auditing procedures are to be restricted. . Sufficient competent evidential matter is to be obtained through inspection, observation, inquiries and confirmations to afford a reasonable basis to an opinion regarding the financial statements under examination. Standard for Reporting 7. The report shall state whether the financial statement is presented in accordance with generally accepted accounting principles. 8. The report shall identify those circumstances in which principles have not been consistently observed in the current period in relation to the preceding period. 9.
Informative disclosures are to be regarded as reasonably adequate unless otherwise stated in the report. 10. The report shall include either an expression of opinion regarding the financial statements, taken as a whole, or an assertion to the effect that an opinion can not be expressed. When an overall opinion cannot be expressed, the reasons therefore should be stated. In all cases, where an auditor’s name is associated with the financial statements, the report should contain a clear-cut indication of the character of the auditor’s examination if any and the degree of responsibility he is taking.