AUDITING THEORY John Michael Pasamonte

Chapter 1
* The credibility added to the information by independent auditor actually reduces the decision makers risk.
*Ernest Greenwood in his article Attributes of Profession sets forth 5 major characteristics of ideal profession.
1. Systematic Theory for accountancy profession are financial accounting and reporting standards & practices
and auditing standards, a science of validation.
2. Professional Authority the basis of CPAs authority is his expertise in the systematic theory of accounting and
auditing.
3. Community Sanction to be a CPA, you must satisfy government educational and experience requirements and
pass the CPA board exam regulated by PRC through BOA and professional performance should be judged by the
standards established by the profession itself.
4. Regulations Code to avoid monopoly through the powers and privileges given to CPAs, Rules of Professional
Conduct or Code of Ethics have been promulgated by Accountancy Law.
5. Culture CPA is a time honored profession and its status is affected by the behavior of its members.
**Code of Ethics states that a profession is distinguished by characteristics such as A. Mastery of peculiar
intellectual skill, B. Adherence by its members to a common code of conduct and C. Acceptance of a duty of society
in return for restriction in use of title or in granting of a qualification.

Professional Accountant - PA in Public Practice (audit, tax or consulting) and PA in Business (commerce and
industry, education and government)
Scope of Practice Philippine Accountancy Act of 9298, Article 1, Section 4 spell out the scope of practice of
accountancy:
A. Practice of Public Accountancy - one skilled in knowledge, science and practice of accounting, and
qualified person to render professional services as a CPA such as audit or verification of accounting records,
preparation , signing and certification of FS and reports of audit, design, installation of accounting system, tax
practice, representing clients to government and other services.
B. Practice in Commerce and Industry person involved in decision making requiring professional
knowledge in accounting and when such employment or position requires that the holder of position is a CPA.
C. Practice in Education/Academe person teaching accounting and other related subjects.
D. Practice in Government person who is appointed in government or GOCC where decision making
requires professional knowledge in accounting and where civil service eligibility as a CPA is pre-requisite.

Requirements to Enter the Accountancy Profession

*Be a holder of BSA degree which cover accounting, finance and related knowledge; organizational and business
knowledge and IT knowledge and competencies.
*It should also include professional skills such as intellectual skills (critical thinker), technical and functional skill
(numeracy and risk analysis), personal skill (professional skepticism) and interpersonal and communication skill
(team player) and general education.
*It should also include values and attitude (commitment to public interest, lifelong learning, reliability and
responsibility and laws and regulation) and professional ethics.

*Qualify and pass the CPA board exam (Article II Section 13-18)
**must be a Filipino citizen, good moral character, BSA graduate and not involve in any criminal offense
with moral turpitude.
**FAR, AFAR, MAS, TAX, RFBT, APAT
**GWA of 75% with no grades lower than 65%. Conditional if obtains 75% rating in majority of subjects
provided will have 75% GWA and no grades lower than 65% on re-examination to pass, otherwise fail and within 2
years only.

*Satisfy all legal and regulatory requirements such as they are required to take oath before any member of the
Board or government official authorized by the Commission.
 ** Certificate of Registration (Lifetime) is to be issued to CPAs with the signature of the chairperson of
the Commission and chairman of the Board, the seal of the Commission and the Board and your name.
**Professional Identification Card bearing registration number, date of issue and expiration duly signed
by the chairperson of the Commission, is issued renewable every after 3 years.
**Must include certificate of registration number, issuance, duration of validity, the Professional tax
receipt number on all documents you sign.

Developing capabilities and competence AFTER admission on the Profession

- It includes advanced professional education; off the Job training and experience; OJT and Continuing
Professional Development (CPD) courses and activities

Competency Requirement for PA in Public Practice

** knowledge on audit of historical financial information at an advanced level which includes best
practices on audit of historical FS, current issues and developments; ISA and International Auditing Practices
Statements (IAPS) and other related standards.
**Financial accounting and reporting at an advanced level which includes financial accounting process
and practice, IFRS and other standards or law.
**Information technology system for financial reporting and framework for evaluating controls and risk in
accounting system
**Practical Experience to acquire necessary professional knowledge, values, attitudes and ethics.
Substantial portion of experience should be on audit side to acquire the required competence.

Competency Requirement for PA in Business

Five different areas that CPAs mindset should embrace are:
** 1. Professionalism and Ethical Behavior high ethical standards in accordance with COE with
emphasis on ethical behavior as well internalization of principles of integrity
**2. Professional Judgment quick and intuitive decision making with a need for evidence based
decisions and reconciling conflicting commercial, financial and sustainability interest and should be able to
influence decision makers.
**3. Organization and Environmental Awareness aligning economic, environmental and social
performance supporting the needs of government and management
**4. An Investor and Wider Stakeholder Focus lead in managing relationships with investors and other
funders and regulators. They need to be positioned to address to challenges and to establish how various interest
could be aligned in the longer term.
**5. Change, Uncertainty and Complexity able to adapt changing environment and judgment to
ambiguous and imperfect information They need to be prepared to manage uncertainty, complexity and strategic
decision making within an overall context of heightened focus on effective governance, risk management and
control.
*There are some specific development programs a company may give such as exposure to various parts of
organization; formal and informal training and synchronization of development with organization maturity.

Increased Globalization of Accounting and Auditing

*Global Harmonization of Accounting Standards use of uniform standard (PFRS) which increased glocal
economy, use of single set of standards that facilitates investment, increases market efficiency and reduces cost of
capital.
*Expanded Accountability the demand for accountability has grown to include public reports of internal
control over financial reporting.
*More Detailed Reporting demand for more current information. SEC, BSP and other regulatory
agencies have been issuing memoranda on more detailed information to be disclosed in FS.
*Increased Risk Reporting - demand for risk based reporting
*Global Audit Standards - standards accepted globally wherein auditors are expected to find fraud;
enforce accounting principles that best portrays the spirit of the concepts adopted by IASB and be neutral to
others.
CPA Horizons 2025: A Road Map for the Future
*CPAs agree to the theme Making sense of a changing and complex world
*Professions core values remained substantially unchanged
*Professions core competencies evolved.
*Various and diverse CPA services that the core services is no longer representative of profession.
10 Insights and Directions
*Technology Understand and leverage relevant technology in conjunction with CPA services to deliver
superior services.
*Pre-Certification and Lifelong Learning Evolve and develop framework to keep pace with the changing
dynamics of business, government and our profession.
*Worldwide Profession expand globally and asses the trend toward outsourcing overseas to expand
services.
*Pride in the Profession encourage pride among CPA and uphold integrity of the profession and
maintain high standards
*Trusted Attester stay vigilant in defending its unique role as providers of audit and attest services.
*Trusted Advisor develops solutions to complex problems by integrating expertise and resources.
*Market Permission Leverage the strength of the profession to expand market (specialization and
globalization)
*Marketplace address continual changes in marketplace, economy, business and regulations through
the help of lifelong learning
*Value Proposition increase the visibility of the professions value profession by demonstrating the
professions core values.
*Demographic Shift opportunities to enhance the professions appeal and address global and local shift.

Core Values - essentials and enduring beliefs that it upholds over time. Core Values enable CPAs to retain their
unique character and values as they embraces dynamic environment. (CROLIC)
1. Integrity honesty
2. Competence superior technical proficiency thru high level of expertise and experience
3. Lifelong learning continually pursue new and broad skills and knowledge.
4. Objectivity maintains impartiality and intellectual honesty, free of personal bias and conflict of
interest
5. Commitment to Excellence deliver exemplary and high quality services.
6. Relevance in the Global Marketplace meeting ever changing needs of the world.

Core Competencies unique combination of skills, knowledge and technology that provides value and results to
users; Enhancing CC sustains competitive and differential advantage on the marketplace. (SCALIC)
1. Communication Skills effectively exchange reliable and meaningful skills using interpersonal skills
2. Leadership Skills influencing, motivating and inspiring others
3. Critical Thinking and Problem Solving Skills CPAs are skillful in evaluating facts, challenging
assumptions and applying judgment to develop relevant solutions.
4. Anticipating and Serving Evolving Needs identifying strategic directions and opportunities to meet
evolving needs of users.
5. Synthesizing Intelligence to Insight connecting data, performing analysis and provide guidance for
decision making.
6. Integration and Collaboration building strategic alliances and working collaboratively