ACP 314 Auditing and Assurance Principles Week 1 - 3

UNIVERSITY OF MINDANAO
College of Accounting Education
Program: Bachelor of Science in Accountancy (BSA)
Physically Distanced but Academically Engaged
Self-Instructional Manual (SIM) for

Self-Directed Learning (SDL)
Course/Subject: ACP 314 – Auditing and Assurance Principles
Name of Teacher: Lord Eddie I. Aguilar, MBA, CPA
THIS SIM/SDL MANUAL IS A DRAFT VERSION ONLY; NOT

FOR REPRODUCTION AND DISTRIBUTION OUTSIDE OF ITS
INTENDED USE. THIS IS INTENDED ONLY FOR THE USE OF
THE STUDENTS WHO ARE OFFICIALLY ENROLLED IN THE
COURSE/SUBJECT.
EXPECT REVISIONS OF THE MANUAL.
THIS IS NOT FOR COMMERCIAL USE.
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TABLE OF CONTENT
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Page
Cover Page 1
Table of Content 2
Course Outline 3
Course Outline Policy 3
Course Information 6
Big Picture – Week 1 to 3 7
Unit Learning Outcome A 7
Self-Help 18
Let’s Check 18
Let’s Analyze 19
In a Nutshell 22
Q&A 23
Keywords Index 23
Unit Learning Outcomes B and C 24
Self-Help 28
Let’s Check 28
Let’s Analyze 29
In a Nutshell 31
Q&A 31
Keywords Index 31
Unit Learning Outcomes D to G 32
Self-Help 42
Let’s Check 42
Let’s Analyze 42
In a Nutshell 44
Q&A 45
Keywords Index 45
Unit Learning Outcomes H 46
Self-Help 53
Let’s Check 53
Let’s Analyze 53
In a Nutshell 55
Q&A 56
Keywords Index 56
Unit Learning Outcomes I to M 57
Self-Help 70
Let’s Check 70
Let’s Analyze 70
In a Nutshell 75
Q&A 76
Keywords Index 76
Course Schedule 77
Online Code of Conduct 77
COURSE OUTLINE: ACP 314 – Auditing and Assurance Principles
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Course Coordinator : Lord Eddie I. Aguilar
Email : aguilar_lordeddie@umindanao.edu.ph
Student Consultation : By BlackBoard LMS Message
Mobile :
Phone : c/o UM CAE 305-0645
Effectivity Date : May 25, 2020 (Summer/Term)
Mode of Delivery : Blended (On-Line with Face-to-Face or Virtual Sessions)
Time Frame : 54 Hours
Student Workload : Expected Self-Directed Learning
Requisites : ACC 221 – Intermediate Accounting 3
Credit :3
Attendance Requirements : A minimum of 95% attendance is required at all scheduled
virtual or face-to-face sessions.
COURSE OUTLINE POLICY
Area of Concern Details

Contact and Non-Contact This 3-unit course self-instructional manual is designed for blended
Hours learning mode of instructional delivery with scheduled face-to-face or
virtual sessions. The expected number of hours will be 54, including
face-to-face or virtual sessions. The face-to-face sessions shall include
the summative assessment tasks (examinations) since this course is
crucial in the CPA licensure examination (CPALE).
Assessment Task rd th, th, th

Submission of assessment tasks shall be on the 3 , 5 7 and 9
Submission
week of the term. The assessment paper shall be attached with a
cover page indicating the title of the assessment task (if the task is a
performance), the name of the course coordinator, date of
submission, and the name of the student. The document should be
emailed to the course coordinator. It is also expected that you already
paid your tuition and other fees before the submission of the
assessment task.
If the assessment task is done in real-time through the Blackboard

Learning Management System's features, the schedule shall be
arranged ahead of time by the course coordinator.
Since this course is included in the licensure examination for

accountants, you will be required to take the Multiple-Choice
Question exam inside the University. This should be scheduled ahead
of time by your course coordinator. This is non-negotiable for all
licensure-based programs.
Turnitin Submission (if All assessment tasks are required to be submitted through Turnitin
necessary) with a maximum similarity index of 30% to ensure honesty and
authenticity. This means that if your paper goes beyond 30%, the
students will either redo her/his paper or explain in writing addressed
to the course coordinator the reasons for the similarity. In addition, if
the paper has reached more than 30% similarity index, the student
may be called for disciplinary action in accordance with the
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University's OPM on Intellectual and Academic Honesty.
Please note that academic dishonesty such as cheating and

commissioning other students or people to complete the task for you
have severe punishments (reprimand, warning, expulsion).
Penalties for Late The score for an assessment item submitted after the designated time
Assignments/Assessment on the due date, without an approved extension of time, will be
s reduced by 5% of the possible maximum score for that assessment
item for each day or part-day that the assessment item is late.
However, if the late submission of the assessment paper has a valid

reason, a letter of explanation should be submitted and approved by
the course coordinator. If necessary, you will also be required to
present/attach evidence.
Return of Assessment tasks will be returned to you two (2) weeks after the
Assignments/Assessment submission. This will be returned by email or via the Blackboard
s portal.
For group assessment tasks, the course coordinator will require some
or few of the students for online or virtual sessions to ask clarificatory
questions to validate the originality of the assessment task submitted
and to ensure that all the group members are involved.
Assignment Resubmission You should request in writing addressed to the course coordinator
his/her intention to resubmit an assessment task. The resubmission is
premised on the student's failure to comply with the similarity index
and other reasonable grounds such as academic literacy standards or
other reasonable circumstances, e.g., illness, accident, financial
constraints.
Re-marking of You should request in writing addressed to the program coordinator

Assessment Papers and your intention to appeal or contest the score given to an assessment
Appeal task. The letter should explicitly explain the reasons/points to contest
the grade. The program coordinator shall communicate with the
students on the approval and disapproval of the request.
If disapproved by the course coordinator, you can elevate your case to

the program head or the dean with the original letter of request. The
final decision will come from the dean of the college.
Grading System All culled from BlackBoard sessions and traditional contact:
Course Discussion/Exercises – 30%
1st formative assessment – 10%
2nd formative assessment – 10%
rd
3 formative assessment – 10%
All culled from on-campus/on-site sessions (to be announced):

Final Exam (summative assessment) – 40%
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Submission of the final grades shall follow the usual University system
and procedures.
Preferred Referencing Harvard Referencing Style

Style
Student Communication You are required to create a umindanao email account, which is
required to access the BlackBoard portal. Then, the course
coordinator will enroll the students to have access to the materials
and resources of the course. All communication formats: chat,
submission of assessment tasks, requests, etc. shall be through the
portal and other university recognized platforms.
You can meet the course coordinator in person through the scheduled
face-to-face sessions to raise your issues and concerns.
For students who have not created their student email, please contact
the course coordinator or program head.
Contact Details of the Lord Eddie I. Aguilar

Dean Email: aguilar_lordeddie@umindanao.edu.ph
Phone: (082) 3050645 local 137
Contact Details of the Mary Grace S. Sombilon

Assistant Dean and the (BSA, BSMA)
Program Head Email: sombilon_marygrace@umindanao.edu.ph
Phone: (082) 3050645 local 137
Devzon U. Porras
(BSIA, BSAIS)
Email: dporras@umindanao.edu.ph
Phone: (082) 3050645 local 137
Jade D. Solaña
(BSA, BSMA)
Email: jd_solana@umindanao.edu.ph
Phone: (082) 3050645 local 137
Student with Special Students with special needs shall communicate with the course
Needs coordinator about the nature of their special needs. Depending on the
nature of the need, the course coordinator, with the program
coordinator's approval, may provide alternative assessment tasks or
extension of the deadline for submission of assessment tasks.
However, alternative assessment tasks should still help achieve the
desired course learning outcomes.
Online Tutorial Through LMS or PM Chats
Blackboard Help Desk blackboardclass@umindanao.edu.ph
Instructional Help Desk cae@umindanao.edu.ph
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Library and Information Brigida E. Bacani
Center (LIC) Resource Email: library@umindanao.edu.ph
09513766681
for inquiries, you can email

at umlic.eresources@gmail.com, raphael_digal@umindanao.edu.ph o
r
chat with us here http://library.umindanao.edu.ph/
Facebook page: https://www.facebook.com/UM-Learning-and-
Information-Center-Davao-City-962331877193048/
Well-Being Welfare Ronadora E. Deala

Support Help Desk Email: Ronadora_deala@umindanao.edu.ph
09212122846
GSTC Facilitator
Zerdszen P. Rañises
Emai: gstcmain@umindanao.edu.ph
09058924090
GSTC Facebook Page:

https://facebook.com/UM-GSTC-Main-CAE-111901303784349/?
modal=admin_todo_tour
COURSE INFORMATION – see/download course syllabus in the BlackBoard LMS
Course Coordinator Voice: Hello, future auditor! Welcome to our ACP 314 course – Auditing and
Assurance Principles. This is your one of your major courses in your chosen
profession. For the past semesters, you are being oriented to the works of an
accountants. For this course, we will dwell on the works of an external auditor. You
will be doing the examination of the financial statements and discuss the result of
the examination to the key executives in the company and helping them in to come
up with a realiable financial statements.
Course Outcomes: Our goal here is for you to be acquainted with the works of an auditor examining
the financial statements. In your intermediate accounting, you learned on the
process of making a financial statements. In this course, you will learn the principles,
concepts, and processes involved in auditing, other assurance and related services as
required by the engagement standards and other regulatory, legal and ethical
pronouncements. Moreover, you are going to solve issues commonly faced by
professional accountant in the conduct of their services through case analysis.
Finally, you are going to prepare an appropriate audit report.
Let us begin!
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Big Picture
Week 1-3: Unit Learning Outcomes (ULO): At the end of the unit, you are expected to
a. Describe assurance services and explain the elements of assurance engagements.

b. Describe the preface of the Philippine Standards on Auditing, Quality Control, Review, Other
Assurance and Related Services.
c. Explain the works of the Auditing and Assurance Standards Council (AASC).
d. Explain the objective of conducting an audit of financial statements.
e. Explain how information risk can be reduced through the examination of the financial
statements.
f. Explain the demands for auditing.
g. Describe the type, nature, and characteristics of auditing.
h. Explain the quality control for audits of historical financial information.
i. Discuss why adequate audit planning is important.
j. Describe the need to maintain professional skepticism when conducting an audit.
k. Make a client acceptance decisions and perform initial audit planning.
l. Understand the overall audit strategy and audit program.
m. Understand the nature and purpose of audit documentation.
FRAMEWORK OF ASSURANCE ENGAGEMENT
Big Picture:
ULO A: Describe Assurance Services and Explain the Elements of Assurance Engagement.
Metalanguage
Metalanguage is the essential term relevant to the topic. This is the operational definition to
establish a common frame of reference on how to use the term.
Adverse Opinion – is an opinion when the auditor, having obtained sufficient appropriate audit
evidence, concludes that misstatements, individually or in the aggregate, are both material and
pervasive to the financial statements.
Assertions – is a statement made by management in financial statements that relates to economic

actions and events.
Assurance Engagement – 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.
Criteria – are the benchmarks used to evaluate or measure the subject matter.
Disclaimer of Opinion – is when the auditor is unable to obtain sufficient appropriate audit evidence
on which to base the opinion, and the auditor concludes that the possible effects on the financial
statements of undetected misstatements, if any, could be both material and pervasive.
Consulting Engagements – is an analytical process that involves some combination of activities

relating to: objective-setting, fact-finding, definition of problems or opportunities, evaluation of
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alternatives, development of recommendations including actions, communications of results, and
sometimes implementation and follow-up. This is performed solely for the benefit of the client.
Intended Users – are the entity/ies for whom the practitioner prepares the assurance report.
Practitioners – the professional accountants in public practice or auditor.
Professional skepticism – means the practitioner makes a critical assessment, with a questioning
mind, of the validity of evidence obtained and is alert to evidence that contradicts or brings into
question the reliability of documents or representations by the responsible party.
Qualified opinion when:

a. The auditor, having obtained sufficient appropriate audit evidence, concludes that
misstatements, individually or in the aggregate, are material, but not pervasive, to the
financial statements; or
b. The auditor is unable to obtain sufficient appropriate audit evidence on which to base the
opinion, but the auditor concludes that the possible effects on the financial statements of
undetected misstatements, if any, could be material but not pervasive.
Reasonable assurance – is a concept relating to accumulating evidence necessary for the practitioner
to conclude in relation to the subject matter information taken as a whole.
Responsible Party – is responsible for the subject matter (for a direct reporting engagement) or is
responsible for the subject matter information (the assertion) and may be responsible for the
subject matter.
Subject matter information – means the outcome of the evaluation or measurement of a subject
matter
Unqualified opinion – is an opinion expressed by the auditor when the auditor concludes that the
financial statements are prepared, in all material respects, in accordance with the applicable
financial reporting framework.
Essential Knowledge
Essential knowledge is a detailed discussion of the topic or concept.
Framework of Assurance Engagement
Introduction
The framework defines and describes the elements and objectives of an assurance engagement, and
identifies engagements to which Philippine Standards on Auditing (PSAs), Philippines Standards on
Review Engagements (PSREs), and Philippine Standards on Assurance Engagements (PSAEs) apply. It
provides a frame of reference for:
a. Professional accountants in public practice (called practitioners) when performing assurance

engagements.
b. Others involved with assurance engagements, including the intended users of an assurance
report and responsible party.
c. The Auditing and Assurance Standard Council in its promulgation of PSAs, PSREs, and PSAEs.
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The framework does not in itself establish standards or provide procedural requirements for the
performance of assurance engagements. PSAs, PSREs, and PSAEs contain basic principles, essential
procedures and related guidance, consistent with the concepts in the framework, for the
performance of assurance engagements.
The framework covers:
a. Introduction (as discussed above).

b. Definition and objective of an assurance engagement.
c. Scope of the Framework
d. Engagement Acceptance
e. Elements of an Assurance Engagement
f. Inappropriate use of the Practitioner’s Name
In addition to the framework and PSAs, PSREs, and PSAEs, practitioners who perform assurance
engagements are governed by
a. The Code of Ethics for Professional Accountants (the Code), which establishes fundamental
ethical principles for professional accountants; and
b. Philippine Standards on Quality Control (PSQCs), which establish standards and provide
guidance on a firm’s system of quality control.
Definition and Objective of an Assurance Engagement
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.
The outcome of the evaluation or measurement of a subject matter is the information that results
from applying the criteria to the subject matter. For example:
 The recognition, measurement, presentation and disclosure represented in the financial

statements (outcome) result from applying a financial reporting framework for recognition,
measurement, presentation and disclosure, such as International Financial Reporting
Standards, (criteria) to an entity’s financial position, financial performance and cash flows
(subject matter).
 An assertion about the effectiveness of internal control (outcome) results from applying a
framework for evaluating the effectiveness of internal control, such as Committee on
Sponsoring Organization (COSO) or Criteria of Control (CoCo) to internal control, a process
(subject matter).
Subject matter information means the outcome of the evaluation or measurement of a subject
matter. It is the subject matter information about which the practitioner gathers sufficient
appropriate evidence to provide a reasonable basis for expressing a conclusion in an assurance
report.
Subject matter information can fail to be properly expressed in the context of the subject matter and
the criteria, and can therefore be misstated, potentially to a material extent. This occurs when the
subject matter information does not properly reflect the application of the criteria to the subject
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matter. For example, when an entity’s financial statements do not give a true and fair view of (or
present fairly, in all material respects) its financial position, financial performance and cash flows in
accordance with International Financial Reporting Standards. Another example is when an entity’s
assertion that its internal control is effective is not fairly stated, in all material respects, based on
COSO or CoCo.
Assertion-Based Engagement VS Direct Reporting Engagements
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 the intended users. These engagements are called
“assertion-based engagements.”
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. These engagements
are called “direct reporting engagements.”
Two Types of Assurance Engagement
Under this Framework, there are two types of assurance engagement a practitioner is permitted to
perform:
a. A reasonable assurance engagement

The objective of a reasonable assurance engagement 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.
b. A limited assurance engagement.

The objective of a limited assurance engagement is a reduction in assurance engagement
risk to a level that is acceptable in the circumstances of the engagement, but where that risk
is greater than for a reasonable assurance engagement, as the basis for a negative form of
expression of the practitioner’s conclusion.
Reasonable assurance is a concept relating to accumulating evidence necessary for the practitioner
to conclude in relation to the subject matter information taken as a whole.
Reasonable assurance is less than absolute assurance. Reducing assurance engagement risk to zero
is very rarely attainable or cost beneficial as a result of factors such as the following:
 The use of selective testing.
 The inherent limitations of internal control.
 The fact that much of the evidence available to the practitioner is persuasive rather than
conclusive.
 The use of judgment in gathering and evaluating evidence and forming conclusions based on
that evidence.
 In some cases, the characteristics of the subject matter when evaluated or measured against
the identified criteria.
Circumstances of the engagement include the terms of the engagement, including the type of
assurance engagements, the characteristics of the subject matter, the criteria to be sued, the needs
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of the intended users, responsible party and other matters like events, transactions, conditions and
practices that may have a significant effect on the engagement.
Scope of the Framework
Not all engagements performed by practitioners are assurance engagements. The following are not
covered in the framework, therefore, not an assurance engagement even though performed by the
practitioners:
a. Engagements covered by Philippine Standards for Related Services, such as agreed-upon

procedures and compilations of financial or other information engagements.
b. Preparation of tax returns where no conclusion conveying assurance is expressed.
c. Consulting or advisory engagements, such as management and tax consulting.
An engagement to perform agreed-upon procedures may involve the auditor in performing certain
procedures concerning:
a. Individual items of financial data (for example, accounts payable, accounts receivable,
purchases from related parties and sales and profits of a segment of an entity);
b. A financial statement (for example, a balance sheet), or
c. Even a complete set of financial statements.
Compilation engagement is an engagement in which a practitioner applies accounting and financial

reporting expertise to assist management in the preparation and presentation of financial
information of an entity in accordance with an applicable financial reporting framework, and reports
as required by this Philippine Standard on Related Services (PSRS).
An assurance engagement may be part of a larger engagement. For example, when a business
acquisition consulting engagement includes a requirement to convey assurance regarding historical
or prospective financial information. In such circumstances, this Framework is relevant only to the
assurance portion of the engagement, and not on the consulting services.
The following may meet the definition of assurance engagement but should not be performed in
accordance with the framework:
a. Engagements to testify in legal proceedings regarding accounting, auditing, taxation or other

matters; and
b. Engagements that include professional opinions, views or wording from which a user may
derive some assurance, if all of the following apply:
I. Those opinions, views or wording are merely incidental to the overall engagement;
II. Any written report issued is expressly restricted for use by only the intended users
specified in the report;
III. Under a written understanding with the specified intended users, the engagement is
not intended to be an assurance engagement; and
IV. The engagement is not represented as an assurance engagement in the professional
accountant’s report.
Engagement Acceptance
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A practitioner accepts an assurance engagement only where the practitioner’s preliminary
knowledge of the engagement circumstances indicates that:
a. Relevant ethical requirements, such as independence and professional competence are

satisfied; and
b. The engagement exhibits all of the following characteristics:
I. The subject matter is appropriate;
II. The criteria used are suitable and are available to the intended users;
III. The practitioner has access to sufficient appropriate evidence to support the
practitioner’s conclusion;
IV. The practitioner’s conclusion, in the form appropriate to either a reasonable
assurance engagement or a limited assurance engagement, is to be contained in a
written report; and
V. The practitioner is satisfied that there is a rational purpose for the engagement.
If there is a significant limitation on the scope of the practitioner’s work, it may be unlikely that the
engagement has a rational purpose.
Specific PSAs, PSREs or PSAEs may include additional requirements that need to be satisfied before
accepting an engagement.
When a potential engagement cannot be accepted as an assurance engagement because it does not
exhibit all the characteristics in the previous paragraph, the engaging party may be able to identify a
different engagement that will meet the needs of intended users. For example:
a. If the original criteria were not suitable, an assurance engagement may still be performed if:
I. The engaging party can identify an aspect of the original subject matter for which
those criteria are suitable, and the practitioner could perform an assurance
engagement with respect to that aspect as a subject matter in its own right. In such
cases, the assurance report makes it clear that it does not relate to the original subject
matter in its entirety; or
II. Alternative criteria suitable for the original subject matter can be selected or
developed.
b. The engaging party may request an engagement that is not an assurance engagement, such
as a consulting or an agreed-upon procedures engagement .
Having accepted an assurance engagement, a practitioner may not change that engagement to a
non-assurance engagement, or from a reasonable assurance engagement to a limited assurance
engagement without reasonable justification. A change in circumstances that affects the intended
users’ requirements, or a misunderstanding concerning the nature of the engagement, ordinarily will
justify a request for a change in the engagement. If such a change is made, the practitioner does not
disregard evidence that was obtained prior to the change.
Elements of an Assurance Engagement
The following are the elements of an assurance engagement:
a. A three party relationship involving a practitioner, a responsible party, and intended users;
b. An appropriate subject matter;
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c. Suitable criteria;
d. Sufficient appropriate evidence; and
e. A written assurance report in the form appropriate to a reasonable assurance engagement
or a limited assurance engagement.
Three party Relationship
An assurance engagements involve three separate parties: a practitioner, a responsible party and
intended users.
The responsible party and the intended users may be from different entities or the same entity. As
an example of the latter case, in a two-tier board structure, the supervisory board may seek
assurance about information provided by the management board of that entity. The relationship
between the responsible party and the intended users needs to be viewed within the context of a
specific engagement and may differ from more traditionally defined lines of responsibility. For
example, an entity’s senior management (an intended user) may engage a practitioner to perform an
assurance engagement on a particular aspect of the entity’s activities that is the immediate
responsibility of a lower level of management (the responsible party), but for which senior
management is ultimately responsible.
The term “practitioner” is broader than the term “auditor” which relates only to practitioners
performing audit or review engagements with respect to historical financial information.
The responsible party is the person (or persons) who:
a. In a direct reporting engagement, is responsible for the subject matter; or

b. In an assertion-based engagement, is responsible for the subject matter information (the
assertion), and may be responsible for the subject matter.
An example of when the responsible party is responsible for both the subject matter information
and the subject matter, is when an entity engages a practitioner to perform an assurance
engagement regarding a report it has prepared about its own sustainability practices.
An example of when the responsible party is responsible for the subject matter information but not
the subject matter, is when a government organization engages a practitioner to perform an
assurance engagement regarding a report about a private company’s sustainability practices that the
organization has prepared and is to distribute to intended users.
The responsible party may or may not be the party who engages the practitioner (the engaging
party).
The ‘intended users’ are the entity/ies for whom the practitioner prepares the assurance report. The
responsible party can be one of the intended users, but not the only one.
Whenever practical, the assurance report is addressed to all the intended users, but in some cases
there may be other intended users. The practitioner may not be able to identify all those who will
read the assurance report, particularly where there is a large number of people who have access to
it. In such cases, intended users may be limited to major stakeholders with significant and common
interests. Intended users may be identified in different ways, for example, by agreement between
the practitioner and the responsible party or engaging party, or by law.
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Subject Matter
The subject matter, and subject matter information, of an assurance engagement can take many
forms, such as:
 Financial performance or conditions (for example, historical or prospective financial position,

financial performance and cash flows) for which the subject matter information may be the
recognition, measurement, presentation and disclosure represented in financial statements.
 Non-financial performance or conditions (for example, performance of an entity) for which
the subject matter information may be key indicators of efficiency and effectiveness.
 Physical characteristics (for example, capacity of a facility) for which the subject matter
information may be a specifications document.
 Systems and processes (for example, an entity’s internal control or IT system) for which the
subject matter information may be an assertion about effectiveness.
 Behavior (for example, corporate governance, compliance with regulation, human resource
practices) for which the subject matter information may be a statement of compliance or a
statement of effectiveness.
The characteristics of an appropriate subject matter is:
a. Identifiable, and capable of consistent evaluation or measurement against the identified

criteria; and
b. Be subjected to procedures for gathering sufficient appropriate evidence to support a
reasonable assurance or limited assurance conclusion, as appropriate.
Criteria
Criteria are the benchmarks used to evaluate or measure the subject matter. Criteria can be formal.
Examples for formal criteria:
 For the preparation of financial statements, the criteria may be the Philippine Financial
Reporting Standards (PFRS);
 when reporting on internal control, the criteria may be an established internal control
framework or individual control objectives specifically designed for the engagement; and
 when reporting on compliance, the criteria may be the applicable law, regulation or
contract.
Examples of less formal criteria are an internally developed code of conduct or an agreed level of
performance (such as the number of times a particular committee is expected to meet in a year).
Suitable criteria are required for reasonably consistent evaluation or measurement of a subject
matter within the context of professional judgment. Without the frame of reference provided by
suitable criteria, any conclusion is open to individual interpretation and misunderstanding.
Suitable criteria are context-sensitive, that is, relevant to the engagement circumstances. Even for
the same subject matter there can be different criteria. For example, one responsible party might
select the number of customer complaints resolved to the acknowledged satisfaction of the
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customer for the subject matter of customer satisfaction; another responsible party might select the
number of repeat purchases in the three months following the initial purchase.
Suitable criteria exhibit the following characteristics:
a. Relevance
Relevant criteria contribute to conclusions that assist decision-making by the intended
users.
b. Completeness
Criteria are sufficiently complete when relevant factors that could affect the conclusions in
the context of the engagement circumstances are not omitted. Complete criteria include,
where relevant, benchmarks for presentation and disclosure.
c. Reliability
Reliable criteria allow reasonably consistent evaluation or measurement of the subject
matter including, where relevant, presentation and disclosure, when used in similar
circumstances by similarly qualified practitioners.
d. Neutrality:
Neutral criteria contribute to conclusions that are free from bias.
e. Understandability:
Understandable criteria contribute to conclusions that are clear, comprehensive, and not
subject to significantly different interpretations.
Evidence
The practitioner plans and performs an assurance engagement with an attitude of professional
skepticism to obtain sufficient appropriate evidence about whether the subject matter information is
free of material misstatement. The practitioner considers materiality, assurance engagement risk,
and the quantity and quality of available evidence when planning and performing the engagement,
in particular when determining the nature, timing and extent of evidence-gathering procedures.
An attitude of professional skepticism means the practitioner makes a critical assessment, with a
questioning mind, of the validity of evidence obtained and is alert to evidence that contradicts or
brings into question the reliability of documents or representations by the responsible party.
For example, an attitude of professional skepticism is necessary throughout the engagement process
for the practitioner to reduce the risk of overlooking suspicious circumstances, of over generalizing
when drawing conclusions from observations, and of using faulty assumptions in determining the
nature, timing and extent of evidence gathering procedures and evaluating the results thereof.
An assurance engagement rarely involves the authentication of documentation, nor is the

practitioner trained as or expected to be an expert in such authentication. However, the practitioner
considers the reliability of the information to be used as evidence, for example photocopies,
facsimiles, filmed, digitized or other electronic documents, including consideration of controls over
their preparation and maintenance where relevant.
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Sufficiency and Appropriateness of Evidence
Sufficiency is the measure of the quantity of evidence. Appropriateness is the measure of the quality
of evidence; that is, its relevance and its reliability. The quantity of evidence needed is affected by
the risk of the subject matter information being materially misstated (the greater the risk, the more
evidence is likely to be required) and also by the quality of such evidence (the higher the quality, the
less may be required). Accordingly, the sufficiency and appropriateness of evidence are interrelated.
However, merely obtaining more evidence may not compensate for its poor quality.
The reliability of evidence is influenced by its source and by its nature, and is dependent on the
individual circumstances under which it is obtained. Generalizations about the reliability of various
kinds of evidence can be made; however, such generalizations are subject to important exceptions.
Even when evidence is obtained from sources external to the entity, circumstances may exist that
could affect the reliability of the information obtained. For example, evidence obtained from an
independent external source may not be reliable if the source is not knowledgeable. While
recognizing that exceptions may exist, the following generalizations about the reliability of evidence
may be useful:
 Evidence is more reliable when it is obtained from independent sources outside the entity.
 Evidence that is generated internally is more reliable when the related controls are effective.
 Evidence obtained directly by the practitioner (for example, observation of the application of
a control) is more reliable than evidence obtained indirectly or by inference (for example,
inquiry about the application of a control).
 Evidence is more reliable when it exists in documentary form, whether paper, electronic, or
other media (for example, a contemporaneously written record of a meeting is more reliable
than a subsequent oral representation of what was discussed).
 Evidence provided by original documents is more reliable than evidence provided by
photocopies or facsimiles.
Assurance Report
The practitioner provides a written report containing a conclusion that conveys the assurance
obtained about the subject matter information. PSAs, PSREs and PSAEs establish basic elements for
assurance reports.
In an assertion-based engagement, the practitioner’s conclusion can be worded either:
a. In terms of the responsible party’s assertion (for example: “In our opinion the responsible
party’s assertion that internal control is effective, in all material respects, based on XYZ
criteria, is fairly stated”); or
b. Directly in terms of the subject matter and the criteria (for example: “In our opinion internal
control is effective, in all material respects, based on XYZ criteria”).
In a direct reporting engagement, the practitioner’s conclusion is worded directly in terms of the
subject matter and the criteria.
A practitioner will not express an unqualified conclusion for either type of assurance engagement
when the following circumstances exist and, in the practitioner’s judgment, the effect of the matter
is or may be material:
17
a. There is a limitation on the scope of the practitioner’s work. The practitioner expresses a
qualified conclusion or a disclaimer of conclusion depending on how material or pervasive
the limitation is. In some cases the practitioner considers withdrawing from the
engagement.
b. When it is discovered that the criteria are unsuitable or the subject matter is not appropriate
for an assurance engagement. The practitioner expresses:
I. A qualified conclusion or adverse conclusion depending on how material or pervasive
the matter is, when the unsuitable criteria or inappropriate subject matter is likely to
mislead the intended users; or
II. A qualified conclusion or a disclaimer of conclusion depending on how material or
pervasive the matter is, in other cases.
In some cases the practitioner considers withdrawing from the engagement.
Unqualified opinion is an opinion expressed by the auditor when the auditor concludes that the
financial statements are prepared, in all material respects, in accordance with the applicable
Qualified opinion when:

a. The auditor, having obtained sufficient appropriate audit evidence, concludes that
misstatements, individually or in the aggregate, are material, but not pervasive, to the
financial statements; or
b. The auditor is unable to obtain sufficient appropriate audit evidence on which to base the
opinion, but the auditor concludes that the possible effects on the financial statements of
undetected misstatements, if any, could be material but not pervasive.
Adverse Opinion is an opinion when the auditor, having obtained sufficient appropriate audit
evidence, concludes that misstatements, individually or in the aggregate, are both material and
pervasive to the financial statements.
Disclaim an Opinion is when the auditor is unable to obtain sufficient appropriate audit evidence on
which to base the opinion, and the auditor concludes that the possible effects on the financial
statements of undetected misstatements, if any, could be both material and pervasive.
Inappropriate Use of the Practitioner’s Name
A practitioner is associated with a subject matter when the practitioner reports on information
about that subject matter or consents to the use of the practitioner’s name in a professional
connection with that subject matter.
If the practitioner is not associated in this manner, third parties can assume no responsibility of the
practitioner. If the practitioner learns that a party is inappropriately using the practitioner’s name in
association with a subject matter, the practitioner requires the party to cease doing so. The
practitioner also considers what other steps may be needed, such as informing any known third
party users of the inappropriate use of the practitioner’s name or seeking legal advice.
18
Self-Help: You can also refer to the following sources to help you further
understand the lesson.
Philippine Framework for Assurance Engagements
https://aasc.org.ph/downloads/PSA/publications/PDFs/Philippine-Framework-for-Assurance-
Engagements.pdf
Philippine Standards on Related Services 4400 – Engagements on Agreed-Upon Procedures

https://aasc.org.ph/downloads/PSRS/publications/PDFs/PSRS-4400-previously-PSA-920.pdf
Philippine Standards on Related Services 4410 – Engagements to Compile Financial Information

https://aasc.org.ph/downloads/PSRS/publications/PDFs/PSRS-4410-previously-PSA-930.pdf
The Five Elements of an Assurance Engagement

https://www.icaew.com/technical/audit-and-assurance/assurance/process/scoping/assurance-
decision/the-five-elements
Let’s Check
EXERCISE 1
Link the correct definition to each term.
a. Accountable i. Qualified Opinion
b. Steward j. Persuasiveness of Evidence
c. Practitioner k. Compilation
d. True l. Agreed-upon procedures
e. Fair m. Auditing
f. Materiality o. Criteria
g. Assertion-based assurance report p. Reasonable Assurance
h. Disclaimer of Opinion
1. An expression of the relative significance or importance of a particular matter in the context of

the financial statements as a whole.
2. A person employed to provide a particular service.
3. Evidence that is generated internally is more reliable when the related controls are effective.
4. Factual and conforming with reality. In conformity with relevant standards and law and correctly
extracted from accounting records.
5. The fact that much of the evidence available to the practitioner is persuasive rather than
conclusive.
6. Benchmarks used to evaluate or measure the subject matter.
7. A person employed to manage other people's property.
8. Unable to obtain sufficient appropriate audit evidence on which to base the opinion.
9. Free from discrimination and bias and in compliance with expected standards and rules.
Reflecting the commercial substance of underlying transactions.
10.Applies accounting and financial reporting expertise to assist management in the preparation and
presentation of financial information.
11.Being required or expected to justify actions and decisions.
19
12.In our opinion the responsible party’s assertion that internal control is effective, in all material
respects, based on XYZ criteria, is fairly stated”.
EXERCISE 2
TRUE OR FALSE
1. The practitioner expresses reasonable assurance in a negative form of

opinion.
2. The practitioner must not issue an oral conclusions about a subject matter
based on the identified suitable criteria and the evidence obtained
3. Consulting services help enhance the credibility of the subject matter
information.
4. The objective of a reasonable assurance engagement is a reduction in
assurance engagement risk to an acceptably low level in the circumstances of the engagement as
the basis for a negative form of expression of the practitioner’s conclusion.
5. Moderate level of assurance refers to the professional accountant having
obtained sufficient appropriate evidence to conclude that the subject matter conforms in all
material respects with identified suitable criteria.
6. In compilation, the practitioner expresses his or her conclusion on the
subject matter information.
7. A limited assurance engagement, the practitioner expresses either a positive
form of opinion or the negative form of opinion, depending on the circumstance.
8. Philippine Framework for Assurance Engagement provides a frame of
reference for the Auditing and Assurance Standards Council in its adoption of International
Standards on Auditing, International Standards on Review Engagements and International
Standards on Assurance Engagements for application in the Philippines.
9. Assurance Engagement is Is a systematic process of objectively obtaining
and evaluating evidence regarding assertions about economic actions and events to ascertain the
degree of correspondence between those assertions and established criteria and communicating
the results to interested users.
10. Assertions are the representations of management as to the reliability of the
information system.
Let’s Analyze
Multiple Choice Questions
11. Which of the following is not one of the major categories of practitioner’s
services?
a. Compilation engagement.
b. Assurance engagements on subject matters other than historical financial information.
c. Related service framework.
d. Compilation engagement.
12. An example of an assurance engagement is

a. Labor data for union contact negotiation.
b. Audit of financial statements of a medium size company.
c. Regulator’s questionnaire on business ethics and conduct.
d. Insurance claims data.
20
13. Which of the following is not one of the five elements exhibited by
assurance engagements?
a. The subject matter.
b. Suitable criteria.
c. Sufficient appropriate evidence
d. A multi-party relationships.
14. What does an auditor do?

a. Provide a guarantee on the ongoing viability of a company.
b. Provide an independent opinion on the financial report.
c. Help management to produce the financial report.
d. Ensure that the financial report contains no fraud or error.
15. Which of the following is an accurate statement regarding assurance

services?
a. Assurance services improve the quality of information for decision makers.
b. Assurance services must be performed by a CPA.
c. An attestation service is not a type of assurance service.
d. Assurance services can only be performed on financial data.
16. Subject matter and subject matter information of an assurance engagement

can take all of the following, except:
a. Physical characteristics.
b. Non-financing performance or conditions.
c. Litigation planning.
d. Financial performance or conditions.
17. Assurance services differ from consulting services in that they
Involved Monitoring of
Focus on Outcomes One Party by Another
a. Yes Yes
b. Yes No
c. No Yes
d. No No
18. What is the type of assurance engagement that has as its subject matter a
non-historical financial information?
a. Special purpose engagement.
b. Agreed-upon procedures.
c. Review of financial statements.
d. Prospective financial information.
19. The following statements relate to assurance engagements. Choose the

incorrect statements.
1. The objective of an assurance engagement is for a professional accountant to evaluate
or measure a subject matter that is the responsibility or another party against identified
suitable criteria, and to express a conclusion that provides the intended user with a level
of assurance about the subject matter.
21
2. Assurance engagements performed by professional accountants are intended to
enhance the credibility of information about a subject matter.
3. Assurance engagements involve two parties: a professional accountant and an intended
user.
4. The subject matter of an assurance engagement is limited to historical or prospective
financial information.
5. The intended user in an assurance engagement is the person or class of persons for
whom the professional accountant prepares the report for a specific use or purpose.
a. 2, 3 ,4, and 5
b. 2, 4 and 5
c. 3 and 4
d. 1, 2, 3, and 4
20. How does the related services framework differ from the assurance
framework?
a. Related services claim compliance with PSAs.
b. Related services engagements do not result in an opinion.
c. Related services enhance the degree of confidence intended users can have.
d. Related services claim compliance with PSAEs.
21. Which of the following is not true about the subject matter of an assurance
engagement?
a. It is the topic about which the assurance is conducted.
b. It could be information such as financial statements, statistical information and non-financial
performance indicators.
c. It could be the Philippine Financial Reporting Standards.
d. It could be systems and processes or behavior.
22. A responsible party does each of the following, except:

a. Selects the audit procedures.
b. Determines the subject matter.
c. Selects criteria.
d. Engages the practitioner.
23. The characteristics for assessing whether criteria are suitable are all the
following, except
a. Reliability.
b. International acceptance.
c. Understandability
d. Neutrality
24. Sufficiency of evidence is

a. Evidence which is adequate.
b. The measure of the quality of evidence.
c. The measure of the quantity of evidence.
d. Evidence which is material.
25. In a limited assurance engagement, the practitioner

a. Has obtained sufficient appropriate evidence to reduce assurance engagement risk to an
acceptably low level.
22
b. Expresses the conclusion in a positive form.
c. Expresses the conclusion in the negative form.
d. Conveys reasonable assurance.
26. Professional judgement is the application of relevant training, knowledge

and experience, within the context provided by ____________, in making informed decisions
about the courses of action that are appropriate in the circumstances of the audit engagement.
a. Philippine Financial Reporting Standards.
b. Philippine Standards on Auditing.
c. The Code of Professional Ethics of an Accountants.
d. Auditing, accounting and ethical standards.
27. The Philippine Framework for Assurance Engagements

a. Establishes standards and provides procedural requirements for the performance of
assurance engagements.
b. Contains basic principles, essential procedures, and related guidance for the performance of
assurance engagements.
c. Provides a frame of reference for CPAs in public practice when performing audits, reviews,
and compilations of historical financial information.
d. Defines and describes the elements and objectives of an assurance engagement, and
identifies engagements to which PSAs, PSREs, and PSAEs apply.
28. The auditor is required to prepare audit documentation sufficient to enable

an experienced auditor, having no previous connection with the audit, to understand the
________ in reaching conclusions on significant matters arising during the audit.
a. Confirmation letters.
b. Significant professional judgments made.
c. The total evidence gathered.
d. The interviews conducted with employees and management.
29. Absolute assurance is generally not attainable as a result of various factors,

such as
a. The use of sampling in performing tests of controls and substantive tests.
b. Internal control systems are subject to the risk of collusion and management override. No
system is fool-proof.
c. There are some assertions for which the only evidence comes from management
representations, such as the completeness of minutes of meetings of the board of directors.
d. All of these.
30. An assurance report

a. Provides reasonable assurance to the responsible party.
b. Has a format that is uniquely different from PSA audit opinions.
c. Is prepared by the responsible party.
d. Provides a written report containing a conclusion that conveys the assurance obtained about
the subject matter information.
In a Nutshell
ACTIVITY 1
23
After learning the framework of assurance engagement, reading the articles found in the Self-Help,
and using other resources, what is the reason for a practitioners only provide reasonable assurance
and not absolute assurance ? (50 words)
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
ACTIVITY 2
After learning the framework of assurance engagement, reading the articles found in the Self-Help,
and using other resources, describe and differentiates the difference services offered by the
practitioners? (50 words)
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
Q&A LIST
Do you have any questions for clarification?
Questions/Issues Answers
1. 1.
2. 2.
3. 3.
4. 4.
5. 5.
KEYWORDS INDEX
This section lists down the keywords that help you for recall the discussions.
Adverse Opinion Direct Reporting Engagements Reasonable Assurance
24
Appropriate Subject Matter Disclaimer of Opinion Responsible Party
Assertion-Based Engagement Framework of Assurance Subject Matter Information
Engagements
Assertions Intended Users Sufficient Appropriate
Evidence
Assurance Engagement Limited Assurance Three Party Relationship
Assurance Report Practitioners Unqualified Opinion
Consulting Engagements Professional Skepticism
Criteria Qualified Opinion
PREFACE TO PHILIPPINE STANDARDS ON AUDITING, QUALITY CONTROL,

REVIEW, OTHER ASSURANCE AND RELATED SERVICES
Big Picture:
ULO B: Describe the Preface of the Philippine Standards on Auditing, Quality Control, Review,
Other Assurance and Related Services.
ULO C: Explain the Works of the Auditing and Assurance Standards Council (AASC).
Metalanguage
AASC – is the Philippine council for the auditing and assurance standards.
Board of Accountancy – also known as the Professional Regulation Board of Accountancy (PRBOA). A
regulatory body for Accountancy professionals in the Philippines.
Exposure Draft – is a document published by the AASC to solicit comments from the public on the
proposed new auditing standards prior to its release as a final document or pronouncement.
Standards – contain basic principles and essential procedures together with related guidance in the
form of explanatory and other material, including appendices. For auditing, it is known as Philippine
Standards on Auditing (PSAs).
Practice Statements – provides an interpretive guidance and practical assistance to professional

accountants in implementing PSAs and to promote good practice.
Essential Knowledge
25
Introduction
The Preface to Philippine Standards on Quality Control, Auditing, Other Assurance and Related
Services is issued to facilitate understanding of the objectives and operating procedures of the
Auditing and Assurance Standards Council (hereinafter referred to as “AASC” or “Council”) and the
scope and authority of the documents issued by the Council.
The mission of the AASC as set out in its Rules of Procedures is “the promulgation of auditing
standards, practices and procedures which shall be generally accepted by the accounting profession
in the Philippines.”
It is the stated policy of the AASC to make the International Standards and Practice Statements
issued by the International Auditing and Assurance Standard Board (IAASB) the applicable standards
and practice statements in the Philippines.
To facilitate the implementation in the Philippines, the International Standards and Practice
Statements are made Philippine-specific and are described as “Philippine standards and practice
statements”. This process involves making Philippine-specific those paragraphs or sections in
International Standards and Practice Statements that are addressed in broad terms to the
international community as a whole to make them clearly applicable in the Philippines.
It also involves providing additional information in certain paragraphs or sections, whenever

necessary, to facilitate and clearly establish the application in the Philippines of the International
Standards and Practice Statements. There are currently no fundamental differences between the
IAASB International pronouncements and the equivalent AASC Philippine pronouncements and no
such differences are expected in the future.
The pronouncements of the ASPC shall be in the form of:
 Philippine Standards on Quality Control (PSQCs)

 Philippine Standards on Auditing (PSAs)
 Philippine Standards on Review Engagements (PSREs) Philippine Standards on Assurance
Engagements (PSAEs)
 Philippine Standards on Related Services (PSRSs)
 Philippine Auditing Practice Statements (PAPSs)
 Philippine Review Engagement Practice Statements (PREPSs) Philippine Assurance
 Engagement Practice Statements (PAEPSs)
 Philippine Related Services Practice Statements (PRSPSs)
The 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 CPAs in Public Practice and previously set generally accepted auditing standards in the Philippines,
also based on International Standards and Practice Statements.
The AASC has 15 regular members coming from the following:
26
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: 10
Public Practice 7
Commerce and Industry 1
Academe/Education 1
Government 1 __
Total 15
The Chairman and the members of the AASC shall have a term of three years renewable for another
term.
The Authority Attached to Philippine Standards Issued by the AASC
As set forth in the AASC’s Rules of Procedures, “pronouncements on generally accepted auditing
standards, interpretations, and opinions issued by the AASC apply whenever an independent
examination of financial statements of any entity, whether profit-oriented or not, and irrespective of
size or legal form, when such examination is conducted for the purpose of expressing an opinion
thereon. They may also have application, as appropriate, to other related activities of auditors.”
Philippine Standards on Auditing (PSAs) are to be applied, as appropriate, in the audit of historical
Philippine Standards on Review Engagements (PSREs) are to be applied in the review of historical
Philippine Standards on Assurance Engagements (PSAEs) are to be applied in assurance

engagements dealing with subject matters other than historical financial information.
Philippine Standards on Related Services (PSRSs) are to be applied to compilation engagements,

engagements to apply agreed-upon procedures to information and other related services
engagements as specified by the ASPC.
PSAs, PSREs, PSAEs and PSRSs are collectively referred to as the ASPC’s Engagement Standards.
Philippine Standards on Quality Control (PSQCs) are to be applied for all services falling under the
AASC’s Engagement Standards.
The AASC’s Standards contain basic principles and essential procedures (identified in bold type
lettering) together with related guidance in the form of explanatory and other material, including
appendices. The basic principles and essential procedures are to be understood and applied in the
context of the explanatory and other materials that provide guidance for their application. It is
therefore necessary to consider the whole text of a Standard to understand and apply the basic
principles and essential procedures.
27
The nature of the Philippine Standards issued by the AASC requires professional accountants to
exercise professional judgment in applying them. In exceptional circumstances, a professional
accountant may judge it necessary to depart from a basic principle or essential procedure of an
Engagement Standard to achieve more effectively the objective of the engagement. When such a
situation arises, the professional accountant should be prepared to justify the departure.
With respect to International Standards, in circumstances where specific International Standards or

guidance contained in an International Standard are not applicable in a public sector environment,
or when additional guidance is appropriate in such an environment, IFAC’s Public Sector Committee
so states in a Public Sector Perspective (PSP). When no PSP is added, the International Standard is to
be applied as written to engagements in the public sector. With respect to Philippine Standards, this
guidance is also applicable. Hence, Philippine Standards are to be applied as written to engagements
in public sector, unless so stated that they do not apply in a public sector environment or they are
not appropriate in such an environment.
The Authority Attached to Practice Statements Issued by the AASC
Philippine Auditing Practice Statements (PAPSs) are issued to provide interpretive guidance and
practical assistance to professional accountants in implementing PSAs and to promote good practice.
Philippine Review Engagement Practice Statements (PREPSs), Philippine Assurance Engagement
Practice Statements (PAEPSs), and Philippine Related Services Practice Statements (PRSPSs) are
issued to serve the same purpose for implementation of PSREs, PSAEs and PSRSs, respectively.
Professional accountants should be aware of and consider Practice Statements applicable to the
engagement. 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 Engagement Standard(s) addressed by the Practice Statement have been complied
with.
Other Papers Published by the AASC
Other papers, for example Discussion Papers, are published to promote discussion or debate on
auditing, assurance and related services and quality control issues affecting the accounting
profession, present findings, or describe matters of interest relating to auditing, assurance, related
services and quality control issues affecting the accounting profession. They do not establish any
basic principles or essential procedures to be followed in audit, assurance or related services
engagements.
Adoption of Philippine Standards and Practice Statements by the AASC
Approach
To facilitate the implementation in the Philippines of International Standards and Practice

Statements, the AASC undertakes a review of the existing International pronouncements and those
that may be issued in the future to make them Philippine-specific. When changes are made to the
28
original International pronouncements to make them Philippine-specific, these changes are shown
clearly in the AASC exposure drafts, such that deletions are stricken through with one line and
additions are italicized and underlined. In addition, any significant changes to the International
pronouncements are explained both in the AASC exposure drafts and final Philippine Standards or
Practice Statements.
Working Procedures
To facilitate the initial work in adopting the existing International Standards and Practice Statements,
the AASC members have been assigned to workgroups, each with a designated group leader. Each
workgroup is assigned specific International Standards and Practice Statements, or IAASB’s exposure
drafts, to review and has the initial responsibility for the preparation and drafting of the exposure
draft on the proposed Philippine Standard or Practice Statement for consideration by the AASC en
banc.
If approved by the AASC, the exposure draft is widely distributed to interested organizations and
persons for comment. The exposure draft shall also be published in the PICPA Accounting Times and
ACPAPP Bulletin to give it further exposure. Adequate time is allowed (generally not shorter than 90
days) for each exposure draft to be considered by the organizations and persons to whom it is sent
for comment.
Interested parties may send their comments direct to IAASB, with a copy to AASC, on exposure
drafts which are still under exposure by the IAASB. Interpretations, if issued by the AASC, need not
be exposed for comment, except when it is deemed desirable, in which case the exposure period will
normally be the same as that of a proposed Philippine Standard or Practice Statement.
Issuance of exposure drafts requires approval by a majority of the members of the Council; issuance
of final Philippine Standards and Practice Statements, as well as interpretations, requires approval of
at least ten members.
Each final Philippine Standard and Practice Statement, as well as interpretations, shall be submitted
to the Professional Regulation Commission through the Board of Accountancy for approval after
which the pronouncements shall be published in the Official Gazette. After publication, the AASC
pronouncement becomes operative from the effective date stated therein.
Numbering of Philippine Standards and Practice Statements
Philippine Standards and Practice Statements adopted from International pronouncements will use
the same numbers as their counterpart International pronouncements. Philippine Standards and
Practice Statements that are Philippine specific and are not adopted from International
pronouncements will be numbered consecutively with suffix “Ph” as follows:
 For Philippine Standards – starting from 100Ph

 For Philippine Practice Statements – starting from 1000Ph
29
Preface to Philippine Standards on Quality Control, Auditing, Review, Other Assurance and Related
Services
https://aasc.org.ph/downloads/aasc/publications/PDFs/Preface_to_Philippine_Standards.pdf
Let’s Check
EXERCISE 3
1. PSAs, PSREs, PSAEs, PSRSs, and PSQC are collectively known as an engagement standards.
2. Exposure drafts issued by the AASC, and not coming from the IAASB, still need to be exposed for
comments within 90 days.
3. The AASC may extend the exposure draft to more than 90 days if approved by the majority of the
council members.
4. The issuance of exposure drafts requires an approval of at least ten members.
5. All final Philippine Standards and Practice Statement including interpretations shall be submitted
to the Board of Accountancy for approval.
6. Engagement standards are under the scope of the Framework of Assurance Engagements.
7. Philippine Standards on Auditing and its practice statements are collectively called auditing
standards.
8. All existing issuance from the IAASB will be reviewed by all members of the council before
exposure drafts will be facilitated.
9. After approval of the Philippine Standards and Practice Statements, the pronouncements
becomes effective 15 days after the publication of the office gazette.
10.There will be differences between the IAASB international pronouncements and the AASC
Philippine pronouncement. AASC is mandated to make exposure drafts for the differences for
resolution.
Let’s Analyze
1. Specifically, the Board of Accountancy is officially represented in the AASC by

a. Secretary of the BOA
b. Chair, BOA
c. Chair, PRC
d. BOA member who handles auditing theory subject
2. How many members of AASC are needed to approve the exposed draft of Philippine Standards in
Auditing as Philippine Standards on Auditing?
a. Majority of the regular members
b. At least eight
c. At least ten
d. At least twelve
3. Which of the following is a correct statement?

a. AASC should normally expose a proposed interpretation of statement
b. AASC should normally expose its opinion on specific queries from a practicing CPA
c. To make the statement on Philippine Standards on Auditing operative, the final statement
shall be submitted to the Board of Accountancy for approval
30
d. When it is deemed necessary to expose for a comment on proposed interpretations of
statements, the exposure period is understandably shorter than those of the regular drafts of
standards.
4. What is the overriding objective of the International Auditing Standards that are issued by the
International Auditing Practices Committee of the International Federation of Accountants?
a. To improve the uniformity of auditing practices and related practices services
throughout the world.
b. To override a count’s regulations governing the audit of financial statements.
c. To replace the generally accepted auditing standards.
d. To provide uniformity of specific audit procedures that are acceptable worldwide.
5. Which of the following statements about the standards on assurance engagement is (are) valid?
I. The Philippine Standards of Assurance Engagements always apply to an assurance
engagement being performed by a professional accountant.
II. Where a professional accountant in Public Practice performs an engagements
intended to provide a high level of assurance for which no specific standards exist, the
appropriately applicable standard included in the standards on Assurance Engagements are
the followed.
III. Whenever there is a conflict between the standards on Assurance Engagements and
an Existing Philippine Standards on Auditing, the professional accountant should follow the
requirements of the standard on Assurance Engagement.
a. I
b. II
c. I, II
d. II and III
6. The Auditing and Assurance Standards Council (AASC) was established by the
A. Professional Regulation Commission (PRC) upon the recommendation of the Board of
Accountancy (BOA).
B. PICPA.
C. PICPA and the Association of CPAs in Public Practice (ACPAPP).
D. International Federation of Accountants (IFAC).
7. This is published to promote discussion or debate on auditing, assurance and related services and
quality control issues affecting the accounting profession, present findings, or describe matters of
interest relating to auditing, assurance, related services and quality control issues affecting the
accounting profession.
a. Technical papers.
b. Exposure drafts.
c. Discussion papers
d. Practices statements.
8. The chairperson of the AASC shall be appointed by

a. The President of the Republic of the Philippines.
b. The Professional Regulatory Board of Accountancy.
c. The Professional Regulation Commission.
d. The Philippine Institute of Certified Public Accountants.
31
9. The following statements related to Philippine Standards on Auditing. Choose the statement
that best describes the meaning of PSAs.
a. PSAs are acts to be performed by the professional accountant.
b. PSAs are measures of the quality of the professional accountant’s performance.
c. PSAs are procedures to be used to gather evidence to support management assertions.
d. PSAs always apply whenever a CPA performs an engagement.
10.A professional accountant who does not consider and apply the guidance in a relevant Practice
Statement should be prepared to
a. Explain to the Board of Accountancy tribunal why the practice statement was not complied
with.
b. Bear the consequences of such non-compliance, such as suspension or revocation of license,
plus imprisonment of not more than two years.
c. Face the shareholders of the entity, and explain in the meeting why such practice statement
was not complied with, provided that the explanation is also put in writing, and signed in the
presence of the Chairperson of the Auditing and Assurance Standard Council.
d. Explain how the basic principles and essential procedures in the Engagement standards
addressed by the Practice Statements have been complied with.
In a Nutshell
ACTIVITY 3
After learning the preface of Philippine standards on auditing, quality control, review, other
assurance and related services, reading the articles found in the Self-Help, and using other
resources, discuss the how AASC promulgate a standards applicable to the Philippines? (50 words)
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
Q&A LIST
1. 1.
2. 2.
3. 3.
4. 4.
5. 5.
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KEYWORDS INDEX
Auditing and Assurance Standard Council Official Gazette

(AASC)
Board of Accountancy (BOA) Practice Statements
Discussion Papers Professional Regulation Commission
Engagement Standards Pronouncements
Exposure Drafts Standards
Interpretations
AUDITING: An Overview
Big Picture:
ULO D: Explain the Objective of Conducting an Audit of Financial Statements.
ULO E: Explain How Information Risk Can be Reduced through the Examination of the Financial
Statements.
ULO F: Explain the Demands for Auditing.
ULO G: Describe the Type, Nature, and Characteristics of Auditing.
Metalanguage
Applicable Financial Accounting Framework – is the financial reporting framework adopted by

management and, where appropriate, those charged with governance in the preparation and
presentation of the financial statements that is acceptable in view of the nature of the entity and the
objective of the financial statements.
Attestation – is a communicated statement of opinion, based upon convincing evidence by an

independent, competent, authoritative person, concerning the degree of correspondence in all
material respects of accounting information communicated to an entity (individually, firm, or
governmental unit) with established criteria.
33
Audit Report – a medium where the auditor conveys his or her expression of opinion on the financial
statements subjected for audit or examination.
Audit Risk – is the risk that the auditor expresses an inappropriate opinion when the financial
statements are materially misstated.
Auditing – 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
Financial statement assertions – expressed or implied representations by management that are

reflected in the financial statement components.
Management – is the person(s) with executive responsibility for the conduct of the entity’s
operations. For some entities in some jurisdictions, management includes some or all of those
charged with governance, for example, executive members of a governance board, or an owner-
manager.
Risk of Material Misstatement – is the risk that the financial statements are materially misstated
prior to audit.
Those Charged with Governance – are the person(s) or organization(s), for example a corporate
trustee, with responsibility for overseeing the strategic direction of the entity and obligations related
to the accountability of the entity. This includes overseeing the financial reporting process. For
some, those charged with governance may include management personnel, for example, executive
members of a governance board of a private or public sector entity, or an owner-manager.
Essential Knowledge
Auditing Defined
The American Accounting Association (AAA) developed a definition that is concise and unambiguous
and was able to capture the expanding scope of audit engagement. AAA defined auditing as:
“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.”
Auditing follows a systematic and objective process in obtaining and evaluating evidence. These
elements are particularly important to this process.
 First, the process of auditing is to gather evidence to test assertions, usually made by
management, regarding financial results and transactions.
 Second, the audit process is systematic. It involves steps that starts with an entity’s (client)
request for audit services and ends in giving a reasonable conclusion. A methodology must be in
34
place to gather audit evidence to ensure that a sufficient amount of relevant evidence is
gathered.
 Third, an audit must be objective; that is, the auditor must be independent and the process
of gathering audit evidence must be unbiased. Unlike a lawyer who gathers evidence and filters
through it to present a client’s position in the best way possible, the auditor cannot be the
client’s advocate, but must objectively gather and evaluate evidence.
After the auditor systematically and objectively gathered evidence, he or she then ascertain if the
assertion (evidence gathered) conformed to the established criteria. An assertion is a positive
statement about an action, event, condition, or performance over a specified period of time. It
refers to the representation by management that is embodied in the financial statements
component, record, or system.
To have unbiased and clear communication, criteria must exist whereby independent observers can
assess whether such assertions are appropriate. Relevant financial reporting framework provide
those criteria for financial statement audits. Other criteria exist for other kinds of audits. An
internal auditor may refer to management’s policies and procedures as useful criteria in determining
the effectiveness and efficiency of a department’s operations. An internal revenue agent (BIR
examiner) will refer to the tax code to determine if taxable income is correctly computed.
When management prepares financial statements, they are asserting that those statements are
fairly presented in accordance with applicable accounting framework. Thus, an auditor wishing to
test that assertion will obtain and evaluate evidence regarding the fairness of management-
prepared financial statements as measured against the criteria implicit in applicable accounting
framework.
The assertions embodied in the financial statements provide directions for the design of the financial
statement audit. For example, in the financial statement disclosure “Inventory…. P2,000,000”,
management makes the following assertions: Inventory physically exists (existence), inventory
pertain to the company (occurrence), includes all products on hand and in transit (completeness), the
amount and transactions are recorded appropriately (accuracy), is represented by rights of
ownership (rights and obligations), is stated at lower of cost or NRV (valuation and allocation), and is
classified properly as a current asset (presentation and disclosure).
The conclusion reached by the auditor with regards to management assertions will be
communicated to the users of financial statements in a form of a written report. This report is
known as audit report. The opinion an auditor conveys in an audit report is referred to as an
attestation or the attest function. Attestation is defined by the AICPA’s Committee on Basic Auditing
Concept is:
“A communicated statement of opinion, based upon convincing evidence by an independent,

competent, authoritative person, concerning the degree of correspondence in all material respects of
accounting information communicated to an entity (individually, firm, or governmental unit) with
established criteria.”
This simply means that attestation is a written communication that expresses an “expert” conclusion
about the reliability of a written assertion that is the responsibility of another party.
Report is of the essence to the audit or other assurance (i.e. review) engagements because they
inform users what the auditor did and the conclusion reached. To minimize misunderstandings, the
35
communication generally follow a prescribed format by clearly outlining the nature of the work
performed and the conclusion reached. A financial statement audit results in an audit report
directed to the shareholders or the board of directors of the client organization. The report
delineates the responsibilities of both management and the auditor, summarizes the audit process,
and expresses the auditor’s opinion on the financial statements. Most audit result in audit reports
that do not contain any reservations (qualifications) about the fairness of the organization’s
presentation of its financial results. This is known as the standard unqualified audit report and is
shown in Exhibit 1. Variations of standard unqualified audit report will be discussed later.
Exhibit 1: Standard Unqualified Audit Report

INDEPENDENT AUDITOR’S REPORT
To the Shareholders of ABC Company [or Other Appropriate Addressee]
Report on the Audit of the Financial Statements
Opinion
We have audited the financial statements of ABC Company (the Company), which comprise the statement of
financial position as at December 31, 20X1, and the statement of comprehensive income, statement of
changes in equity and statement of cash flows for the year then ended, and notes to the financial statements,
including a summary of significant accounting policies.
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial
position of the Company as at December 31, 20X1, and its financial performance and its cash flows for the year
then ended in accordance with Philippine Financial Reporting Standards (PFRSs).
Basis for Opinion
We conducted our audit in accordance with Philippine Standards on Auditing (PSAs). Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements
section of our report. We are independent of the Company in accordance with the International Ethics
Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) together with the
ethical requirements that are relevant to our audit of the financial statements in the Philippines, the Code of
Ethics for Professional Accountants in the Philippines (Philippine Code of Ethics), and we have fulfilled our other
ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit
of the financial statements of the current period. These matters were addressed in the context of our audit of
the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate
opinion on these matters.
[Description of each key audit matter in accordance with PSA 701.]
Responsibilities of Management and Those Charged with Governance for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance
with PFRSs, and for such internal control as management determines is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Company’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the going
36
concern basis of accounting unless management either intends to liquidate the Company or to cease
operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our
opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with PSAs will always detect a material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with PSAs, we exercise professional judgment and maintain professional
skepticism throughout the audit. We also:
a. Identify and assess the risks of material misstatement of the financial

statements, whether due to fraud or error, design and perform audit procedures responsive to those risks,
and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of
not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as
fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal
control.
b. Obtain an understanding of internal control relevant to the audit in
order to design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control.
c. Evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures made by management.
d. Conclude on the appropriateness of management’s use of the going
concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast significant doubt on the Company’s ability to continue
as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in
our auditor’s report to the related disclosures in the financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the
date of our auditor’s report. However, future events or conditions may cause the Company to cease to
continue as a going concern.
e. Evaluate the overall presentation, structure and content of the
financial statements, including the disclosures, and whether the financial statements represent the
underlying transactions and events in a manner that achieves fair presentation.
We communicate with those charged with governance regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in internal control
that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other matters that
may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were
of most significance in the audit of the financial statements of the current period and are therefore the key
audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not
be communicated in our report because the adverse consequences of doing so would reasonably be expected
to outweigh the public interest benefits of such communication.
Report on Other Legal and Regulatory Requirements
37
[The form and content of this section of the auditor’s report would vary depending on the nature of the
auditor’s other reporting responsibilities prescribed by local law, regulation, or national auditing standards.
The matters addressed by other law, regulation or national auditing standards (referred to as “other reporting
responsibilities”) shall be addressed within this section unless the other reporting responsibilities address the
same topics as those presented under the reporting responsibilities required by the PSAs as part of the Report
on the Audit of the Financial Statements section. The reporting of other reporting responsibilities that address
the same topics as those required by the PSAs may be combined (i.e., included in the Report on the Audit of the
Financial Statements section under the appropriate subheadings) provided that the wording in the auditor’s
report clearly differentiates the other reporting responsibilities from the reporting that is required by the PSAs
where such a difference exists.]
The engagement partner on the audit resulting in this independent auditor’s report is [name].
[Signature in the name of the audit firm, the personal name of the auditor, or both, as appropriate]
[Auditor Address]
[Date]
An Audit of Financial Statements
The purpose of an audit is to enhance the degree of confidence of intended users in the financial
statements. This is achieved by the expression of an opinion by the auditor on whether the financial
statements are prepared, in all material respects, in accordance with an applicable financial
reporting framework. In the case of most general purpose frameworks, that opinion is on whether
the financial statements are presented fairly, in all material respects, in accordance with the
framework. An audit conducted in accordance with PSAs and relevant ethical requirements enables
the auditor to form that opinion.
The auditor’s opinion on the financial statements deals with whether the financial statements are
prepared, in all material respects, in accordance with the applicable financial reporting framework.
Such an opinion is common to all audits of financial statements. The auditor’s opinion therefore
does not assure, for example, the future viability of the entity nor the efficiency or effectiveness with
which management has conducted the affairs of the entity.
An audit in accordance with PSAs is conducted on the premise that management and, where
appropriate, those charged with governance have responsibility:
a. For the preparation and presentation of the financial statements in accordance with the
applicable financial reporting framework; this includes the design, implementation and
maintenance of internal control relevant to the preparation and presentation of financial
statements that are free from material misstatement, whether due to fraud or error; and
b. To provide the auditor with:

I. All information, such as records and documentation, and other matters that are
relevant to the preparation and presentation of the financial statements;
II. Any additional information that the auditor may request from management and,
where appropriate, those charged with governance; and
III. Unrestricted access to those within the entity from whom the auditor determines it
necessary to obtain audit evidence.
38
c. Identify the applicable financial reporting framework, the preparation and presentation of
the financial statements in accordance with that framework, and adequate desription of that
framework to the financial statements.
The applicable financial reporting framework often encompasses financial reporting standards
established by a recognized standards setting organization. In the Philippines, the accounting
standard setting body is the Financial Reporting Standard Council (FRSC). This is the financial
reporting framework adopted by management and, where appropriate, those charged with
governance in the preparation and presentation of the financial statements that is acceptable in
view of the nature of the entity and the objective of the financial statements. At present, the FRSC
issued three frameworks:
a. Framework for Full PFRS;

b. Framework for PFRS for Small and Medium Entities (SMEs); and
c. Framework for PFRS for Small Entities.
The audit of the financial statements does not relieve management or those charged with
governance of those responsibilities.
Basis of Auditor’s Opinion
As the basis for the auditor’s opinion, PSAs require the auditor to obtain reasonable assurance about
whether the financial statements as a whole are free from material misstatement, whether due to
fraud or error. Reasonable assurance is a high level of assurance. It is obtained when the auditor has
obtained sufficient appropriate audit evidence to reduce audit risk to an acceptably low level.
However, reasonable assurance is not an absolute level of assurance, because there are inherent
limitations of an audit which result in most of the audit evidence on which the auditor draws
conclusions and bases the auditor’s opinion being persuasive rather than conclusive.
Inherent Limitation of an Audit
The auditor is not expected to, and cannot, reduce audit risk to zero and cannot therefore obtain
absolute assurance that the financial statements are free from material misstatement due to fraud
or error. This is because there are inherent limitations of an audit, which result in most of the audit
evidence on which the auditor draws conclusions and bases the auditor’s opinion being persuasive
rather than conclusive.
Evidence Rely Heavily on Management Representations
The preparation of financial statements involves judgment by management in applying the

requirements of the entity’s applicable financial reporting framework to the facts and circumstances
of the entity. In addition, many financial statement items involve subjective decisions or assessments
or a degree of uncertainty, and there may be a range of acceptable interpretations or judgments
that may be made. Consequently, some financial statement items are subject to an inherent level of
variability which cannot be eliminated by the application of additional auditing procedures. For
example, this is often the case with respect to certain accounting estimates. Nevertheless, the PSAs
require the auditor to give specific consideration to whether accounting estimates are reasonable in
the context of the applicable financial reporting framework and related disclosures, and to the
39
qualitative aspects of the entity’s accounting practices, including indicators of possible bias in
management’s judgments.
The Cost-Benefit Relationships (Also known as Reasonable Assurance Concept)
There are practical and legal limitations on the auditor’s ability to obtain audit evidence.
For example:
 There is the possibility that management or others may not provide, intentionally or
unintentionally, the complete information that is relevant to the preparation and
presentation of the financial statements or that has been requested by the auditor.
Accordingly, the auditor cannot be certain of the completeness of information, even though
the auditor has performed audit procedures to obtain assurance that all relevant
information has been obtained.
 Fraud may involve sophisticated and carefully organized schemes designed to conceal it.
Therefore, audit procedures used to gather audit evidence may be ineffective for detecting
an intentional misstatement that involves, for example, collusion to falsify documentation
which may cause the auditor to believe that audit evidence is valid when it is not. The
auditor is neither trained as nor expected to be an expert in the authentication of
documents.
 An audit is not an official investigation into alleged wrongdoing. Accordingly, the auditor is
not given specific legal powers, such as the power of search, which may be necessary for
such an investigation.
The matter of difficulty, time, or cost involved is not in itself a valid basis for the auditor to omit an
audit procedure for which there is no alternative or to be satisfied with audit evidence that is less
than persuasive. Appropriate planning assists in making sufficient time and resources available for
the conduct of the audit. Notwithstanding this, the relevance of information, and thereby its value,
tends to diminish over time, and there is a balance to be struck between the reliability of
information and its cost. Therefore, there is an expectation by users of financial statements that the
auditor will form an opinion on the financial statements within a reasonable period of time and at a
reasonable cost, recognizing that it is impracticable to address all information that may exist or to
pursue every matter exhaustively on the assumption that information is in error or fraudulent until
proved otherwise.
Consequently, it is necessary for the auditor to:
 Plan the audit so that it will be performed in an effective manner;

 Direct audit effort to areas most expected to contain risks of material misstatement,
whether due to fraud or error, with correspondingly less effort directed at other areas; and
 Use testing and other means of examining populations for misstatements.
Human Factor
Human weaknesses, such as fatigue and carelessness, can cause auditors to overlook pertinent
evidence, examine the wrong type of evidence, or draw the wrong conclusions from the evidence
examined.
Overall Objectives of the Auditor
40
In conducting an audit of financial statements, the overall objectives of the auditor 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.
In all cases when reasonable assurance cannot be obtained and a qualified opinion in the auditor’s
report is insufficient in the circumstances for purposes of reporting to the intended users of the
financial statements, the PSAs require that the auditor disclaim an opinion or withdraw from the
engagement, where withdrawal is legally permitted.
Information Risk
Businesses makes decisions every day - decision to purchase or sell goods or services, borrowed
money, hiring of employees, entering into an agreements with other entities. These decisions
require quality of information since it affects business risks. Business risk is a risk that an entity will
fail to meet its objectives, which is to earn profits.
To minimize these risks, decision makers should be provided with timely, relevant, and reliable
information. A further complication in effective decision making is the presence of information risk.
Information risk reflects the possibility that the information upon which the business risk decision
was made was inaccurate or misleading. A likely cause of information risk the possibility of
inaccurate financial statements. This demand of reliable information give rise to the demand for
auditing.
Demand for Auditing
Conflicts of Interests
A company’s financial statements are prepared by its directors and these directors are essentially
reporting on their own performance. Users of the financial statements want the statements to
portray the company’s financial performance, position, and cash flows as accurately as possible.
However, they perceive that the directors may bias their report so that it reflects favorably on their
management of the company’s affairs.
Thus, it can be seen that there is a potential conflict of interest between the preparers and users of
the financial statements. The audit plays a vital role in helping to ensure that directors provide, the
users are confident in receiving information which is a fair representation of the company’s financial
affairs.
41
If users of a company’s external financial statements base their decision on unreliable information,
they may suffer serious financial loss as a result. Therefore, before making decisions on financial
statement information, they wish to be assured that the information is reliable and safe to act upon.
Remoteness
In general, as a consequence of legal, physical and economic factors, users of company’s external
financial statements are not able to verify for themselves the reliability of the information contained
in the financial statements. Even if, for example, they are major shareholders in the company, they
have no legal right to access to the company’s books and records. Further, they may be many miles
distant from the company which prevents easy access to it, and/or they may not be able to afford
the time and expense which would be involved in checking the information personally, should they
have the legal right to do so.
As a result of legal, physical and economic factors preventing users of external financial statements
from examining personally the information provided by a company’s directors, an independent party
is needed to assess the reliability of the information of their behalf.
Complexity
As companies have grown in size, the volume of their transactions has increased. Further, especially
in recent years, economic transactions, and the accounting systems which capture and process
them, have become very complex. As a result of these changes, errors are more likely to creep into
the accounting data and the resulting financial statements. Additionally, with the increasing
complexity of transactions, accounting systems, and financial statements, users of external financial
statements are less able to evaluate the quality of the information for themselves. Therefore, there
is a growing need for the financial statements to be examined by an independent qualified auditor,
who has the necessary competence and expertise to understand the entity’s business, its
transactions, and its accounting system
Other Types of Audit
The definition of audit that we previously discussed is referred to the financial statements audit. Its
objective, as provided in PSA 200, is to enable the auditor to express an opinion whether the
financial statements are prepared, in all material respects, in accordance with an established
accounting framework. This type of audit is normally done by a licensed and accredited Certified
Public Accountant (CPA). His or her responsibility is to examine the client’s financial statement and
gather sufficient appropriate evidence to render an opinion regarding the client’s financial
statements.
In addition to financial statement audits performed by a professional accountant, other types of

audits are performed for business entities and governmental agencies. Among them are operation
audits and compliance audits. The main emphasis of our discussion throughout this book is on
independent audit and the performance of financial statements audit.
Operational Audit
Most definitions of operational audit include reference to efficiency (minimize expenditures of

resources), effectiveness (accomplishment of the desired results), economy, or performance of an
entity. Operational audit, therefore, is a review of an entity’s operating procedures and methods to
42
determine their efficiency and effectiveness. It is designed to assess the efficiency and effectiveness
of management’s operating procedures and methods rather than the fair presentation of
management’s financial statements.
Operational auditors ask such questions as: Have specific policies and objectives been defined? Are
established policies being followed and are established objectives being met? Are desired results
being obtained? Thus, operational auditing is concerned with why transactions occur in the first
place and whether there are economical alternatives.
A review of company’s computerized accounting system, assessment of its efficiency or reliability

and recommendations for improving the system would constitute an operational audit. It focuses on
the operational procedures, not on recorded amount of the financial statement. At the completion
of an operational audit, recommendations to management for improving operations are normally
expected.
Operational audit is sometimes referred to as performance audit, management audit,

comprehensive audit, or program results audit. The value-for-money audit is the term frequently
used international term for the operational audit. Internal auditor is normally hired as full-time
employee of the entity to conduct these types of audit.
Compliance Audit
All audits are, in a sense, a form of compliance audit. In financial audits, a determination is made of
whether financial statements comply with generally accepted accounting principles. In operational
audits, a determination is made of whether an entity’s performance conforms with standard of
efficiency developed by management or the operational auditor. In the auditing literature, however,
compliance audit has a narrower definition. It refers to the determination of whether transactions
and events conform to laws and regulations. Compliance audit has added significance in audits of
government entities because generally, there are more compliance requirements than in audit of
non-government entities.
The purpose of compliance audit is to determine whether the auditee is following specific
procedures, rules, or regulations set down by higher authority. The criteria could be a law
prohibiting bribes or a code and accompanying regulations (such as the National Internal Revenue
Code). The audit of income tax return is a prime example of compliance audit in which the Bureau
of Internal Revenue is determining a person’s or entity’s adherence to tax regulation.
Philippine Standard on Auditing 200 (Revised and Redrafted) – Overall Objectives of the Independent
Auditor and the Conduct of an Audit in Accordance with Philippine Standards on Auditing
https://aasc.org.ph/downloads/PSA/publications/PDFs/PSA-200-Revised-and-Redrafted.pdf
Philippine Standard on Auditing 700 (Redrafted) – Forming an Opinion and Reporting on Financial
Statements
https://aasc.org.ph/new_std_sept2016/PSA%20700%20(Revised)%20-%20clean.pdf
Louwers, T. J., Blay, A. D., Sinason, D. H., Strawser, J. R. & Thibodeau, J. C. (2018). Auditing and
Assurance Services. 17th Edition. New York: McGraw-Hill Education.
43
Whittington, R. O. and Pany K. (2020). Principles of Auditing & Other Assurance Services. 20 th Edition.
New York: McGraw-Hill Education.
Let’s Check
EXERCISE 4
Identification
_________________1. It deals with whether the financial statements are prepared, in all material
respects, in accordance with the applicable financial reporting framework. Such an opinion is
common to all audits of financial statements.
_________________2. It likely cause the possibility of inaccurate financial statements.
_________________3. A review of company’s computerized accounting system, assessment of its

efficiency or reliability and recommendations for improving the system would constitute this type of
audit.
_________________4. This is achieved by the expression of an opinion by the auditor on whether

the financial statements are prepared, in all material respects, in accordance with an applicable
_________________5. As a result of legal, physical and economic factors preventing users of

external financial statements from examining personally the information provided by a company’s
directors, an independent party is needed to assess the reliability of the information of their behalf.
Let’s Analyze
1 Users of a company’s financial statements demand independent audits because

a. Users demand assurance that fraud does not exist.
b. Management may not be objective in reporting.
c. Users expect auditors to correct management errors.
d. Management relies on the auditor to improve internal control.
2. S1 Information risk refers to the risk that the auditor may express an unqualified opinion on the
financial statements when in fact the financial statements are materially misstated
S2 The biases and motives of the information provider may be a cause of information risk
S3 The assumption underlying an audit of financial statements is that they will be used by
different groups for similar purposes
a. False, false, true
b. False, true, false
c. False, true, true
d. True, false, false
3. The Philippine Standards on Auditing issued by ASPC

a. Are applicable only when an independent audit involving an expression of an opinion on
financial statements is carried out
44
b. Are the only authoritative source of auditing standards for members of the accountancy
profession in the Philippines
c. Are general guideline to help auditors
d. Require that in no circumstances would an auditor may judge it necessary to depart from a
PSA even though such a departure may result to more effective achievement of the objective
of an audit
4. Which of the following statements does not describe a condition that creates a demand for
auditing?
a. Conflict between an information preparer and a user can result in biased information
b. Information can have a substantial economic consequences for a decision maker
c. Expertise is often required for information preparation and verification
d. Users can directly assess the quality of information
5. The expertise that distinguishes auditors from accountants is in the

a. Ability to interpret generally accepted accounting principles.
b. Requirement to possess education beyond the Bachelor’s degree.
c. Accumulation and interpretation of evidence.
d. Ability to interpret ASC Statements.
6. The primary goal of the CPA in performing the attest function is to

a. Investigate the incidence of fraud
b. Examine all the individual transactions for his to issue an opinion about the fairness of
presentation of an entity’s financial statements
c. Determine whether the client’s assertions that are embodied in the financial statements are
fairly presented
d. Prevent an issuance of improperly prepared financial statements
7. The concept of reasonable assurance as expressed by the auditor on his report means
a. The auditor just considers material misstatements when he prepares his audit report.
b. It indicates that the auditor is not an insurer or guarantor of the correctness of the financial
statements.
c. The cost of doing the audit should not exceed the professional fee charged.
d. The auditor has to observe reasonable care when he performs the audit and prepares his
audit report.
8. S1 A typical objective of an operational audit is for the auditor to determine whether the
financial statements fairly present the entity’s financial position, results of operations and cash
flows
S2 In performing compliance audits, a CPA issues a report on the degree of compliance with the
criteria used for the engagement (for example, laws, rules or regulations which have been set by
the auditor)
S3 Independent auditors are expected by management to be experts who actively participate in
management decision-making.
a. False, false, true c. False, true, false
b. True, false, false d. False, false, false
9. Information asymmetry seldom occurs.
Conflicts of interest often occur between absentee owners and managers.
45
a. Both statements are true.
b. Both statements are false.
c. First statement is true; second statement is false.
d. First statement is false, second statement is true.
10. Compliance auditing often extends beyond audits leading to the expression of opinion on the
fairness of financial presentation and includes audits of efficiency, economy, effectiveness, as
well as
a. Accuracy.
b. Evaluation.
c. Adherence to specific rules or procedures.
d. Internal control.
In a Nutshell
ACTIVITY 4
After learning the overview of auditing, reading the articles found in the Self-Help, and using other
resources, discuss nature and characteristics of the framework for full PFRS, PFRS for SMEs, and
PFRS for Small Entities? (50 words)
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
ACTIVITY 5
After learning the overview of auditing, reading the articles found in the Self-Help, and using other
resources, discuss the factors that may make an audit necessary and potentially valuable for the
company based on the situation given below. Make sure to consider the concept of information risk?
(50 words)
Charmaine Flowers, a small grower of tropical flowers in Davao City is planning to expand its
business to other parts in the Philippines. Sales for the past five years of operation has been steadily
growing with all the innovations introduce by Charmaine, the owner, to the business. So far, the
company has no debt. The expansion requires a huge amount of capital through loans. The
expansion will also limit the involvement of Charmain to the day-to-day operations of the business
especially in areas far from Davao City.
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
Q&A LIST
46
1. 
2. 
3. 
4. 
5. 
KEYWORDS INDEX
Applicable Financial Accounting Framework Financial Statement Assertions

Attestation Information Risk
Audit Report Inherent Limitations
Audit Risk Management
Auditing Operational Risk
Business Risk Risk of Material Misstatement
Compliance Audit Those Charged with Governance
Cost-Benefit Relationship (Reasonable
Assurance Concept)
QUALITY CONTROL FOR AUDITS OF FINANCIAL STATEMENTS
Big Picture:
ULO H: Explain the Quality Control for Audits of Historical Financial Information.
Metalanguage
Engagement partner – is the partner or other person in the firm who is responsible for the audit
engagement and its performance, and for the auditor’s report that is issued on behalf of the firm.
47
Engagement quality control review – is a process designed to provide an objective evaluation, on or
before the date of the auditor’s report, of the significant judgments the engagement team made and
the conclusions it reached in formulating the auditor’s report. The engagement quality control
review process is only for audits of financial statements of listed entities and those other audit
engagements, if any, for which the firm has determined an engagement quality control review is
required.
Engagement quality control reviewer – is a partner, other person in the firm, suitably qualified
external person, or a team made up of such individuals, none of whom is part of the engagement
team, with sufficient and appropriate experience and authority to objectively evaluate the significant
judgments the engagement team made and the conclusions it reached in formulating the auditor’s
report.
Engagement team – is all partners and staff performing the engagement, and any individuals
engaged by the firm or a network firm who perform audit procedures on the engagement. This
excludes an auditor’s external expert engaged by the firm or a network firm.
Firm – is a sole practitioner, partnership, or other entity of professional accountants.
Listed entity – is an entity whose shares, stock or debt are quoted or listed on a recognized stock
exchange, or are marketed under the regulations of a recognized stock exchange or other equivalent
body.
Monitoring – is a process comprising an ongoing consideration and evaluation of the firm’s system of
quality control, including a periodic inspection of a selection of completed engagements, designed to
provide the firm with reasonable assurance that its system of quality control is operating effectively.
Network firm – is a firm or entity that belongs to a network.
Network – A larger structure:

I. That is aimed at cooperation, and
II. That is clearly aimed at profit or cost-sharing or shares common ownership, control or
management, common quality control policies and procedures, common business
strategy, the use of a common brand name, or a significant part of professional
resources.
Partner – is any individual with authority to bind the firm with respect to the performance of a
professional services engagement.
Professional standards – Philippine Standards on Auditing (PSAs) and relevant ethical requirements.
Quality Control – are set of policies and procedures implemented by the CPA firm to provide
reasonable assurance that the firm and its personnel comply with professional standards and reports
issued by the firm is appropriate in the circumstances.
Staff – professionals, other than partners, including any experts the firm employs.
Suitably qualified external person – is an individual outside the firm with the competence and
capabilities to act as an engagement partner, for example a partner of another firm, or an employee
(with appropriate experience) of either a professional accountancy body whose members may
48
perform audits of historical financial information or of an organization that provides relevant quality
control services.
Essential Knowledge
System of Quality Control and Role of Engagement Teams
Quality control systems, policies and procedures are the responsibility of the audit firm. Under PSQC
1 (Redrafted), the firm has an obligation to establish and maintain a system of quality control to
provide it with reasonable assurance that:
a. The firm and its personnel comply with professional standards and regulatory and legal
requirements; and
b. The reports issued by the firm or engagement partners are appropriate in the
circumstances.
Within the context of the firm’s system of quality control, engagement teams have a responsibility
to implement quality control procedures that are applicable to the audit engagement and provide
the firm with relevant information to enable the functioning of that part of the firm’s system of
quality control relating to independence.
Engagement teams are entitled to rely on the firm’s system of quality control. Unless information
provided by the firm or other parties suggests otherwise. the engagement team may rely on the
firm’s system of quality control in relation to, for example:
 Competence of personnel through their recruitment and formal training.

 Independence through the accumulation and communication of relevant
 independence information.
 Maintenance of client relationships through acceptance and continuance systems.
 Adherence to regulatory and legal requirements through the monitoring process.
The standard does not require a specific quality control procedures. The specific quality control of a
CPA firm depends on the size of the firm and the nature of the firm’s practice.
Elements of Quality Control
PSQC 1 (Redrafted), deals with the firm’s responsibilities to establish and maintain its system of
quality control for audit engagements. The system of quality control includes policies and
procedures that address each of the following elements:
 Leadership responsibilities for quality within the firm;

 Relevant ethical requirements;
 Acceptance and continuance of client relationships and specific engagements;
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 Human resources;
 Engagement performance; and
 Monitoring.
The elements of quality control are regarded as the areas that is consider as desirable for CPA firm to
establish quality control procedures.
Leadership Responsibilities for Quality on Audits
The engagement partner shall take responsibility for the overall quality on each audit engagement to
which that partner is assigned. The actions of the engagement partner and appropriate messages to
the other members of the engagement team, in taking responsibility for the overall quality on each
audit engagement, emphasize:
a. The importance to audit quality of:

I. Performing work that complies with professional standards and regulatory and legal
requirements;
II. Complying with the firm’s quality control policies and procedures as applicable;
III. Issuing auditor’s reports that are appropriate in the circumstances; and
IV. The engagement team’s ability to raise concerns without fear of reprisals; and
b. The fact that quality is essential in performing audit engagements.
Relevant Ethical Requirements
Throughout the audit engagement, the engagement partner shall remain alert, through observation
and making inquiries as necessary, for evidence of noncompliance with relevant ethical
requirements by members of the engagement team. The Philippine Ethics Code establishes the
fundamental principles of professional ethics, which include:
a. Integrity;
b. Objectivity;
c. Professional competence and due care;
d. Confidentiality; and
e. Professional behavior.
If matters come to the engagement partner’s attention through the firm’s system of quality control
or otherwise that indicate that members of the engagement team have not complied with relevant
ethical requirements, the engagement partner, in consultation with others in the firm, shall
determine the appropriate action.
A good procedure for this element is the annual written confirmation of compliance on
independence policies to all engagement team members.
The Professional Code of Ethics will be discussed in other course.
Acceptance and Continuance of Client Relationships and Specific Audit Engagements
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The engagement partner shall be satisfied that appropriate procedures regarding the acceptance
and continuance of client relationships and audit engagements have been followed, and shall
determine that conclusions reached in this regard are appropriate.
PSQC 1 (Redrafted) requires the firm to obtain information considered necessary in the
circumstances before accepting an engagement with a new client, when deciding whether to
continue an existing engagement, and when considering acceptance of a new engagement with an
existing client. Information such as the following assists the engagement partner in determining
whether the conclusions reached regarding the acceptance and continuance of client relationships
and audit engagements are appropriate:
 The integrity of the principal owners, key management and those charged with governance
of the entity;
 Whether the engagement team is competent to perform the audit engagement and has the
necessary capabilities, including time and resources;
 Whether the firm and the engagement team can comply with relevant ethical requirements;
and
 Significant matters that have arisen during the current or previous audit engagement, and
their implications for continuing the relationship.
If the engagement partner obtains information that would have caused the firm to decline the audit
engagement had that information been available earlier, the engagement partner shall
communicate that information promptly to the firm, so that the firm and the engagement partner
can take the necessary action.
Human Resources
Assignment of Engagement Teams
The engagement partner shall be satisfied that the engagement team, and any auditor’s experts who
are not part of the engagement team, collectively have the appropriate competence and capabilities
to:
a. Perform the audit engagement in accordance with professional standards and regulatory
and legal requirements; and
b. Enable an auditor’s report that is appropriate in the circumstances to be issued.
When considering the appropriate competence and capabilities expected of the engagement team
as a whole, the engagement partner may take into consideration such matters as the team’s:
 Understanding of, and practical experience with, audit engagements of a similar nature and
complexity through appropriate training and participation.
 Understanding of professional standards and regulatory and legal requirements.
 Technical expertise, including expertise with relevant information technology and specialized
areas of accounting or auditing.
 Knowledge of relevant industries in which the client operates.
 Ability to apply professional judgment.
 Understanding of the firm’s quality control policies and procedures.
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Engagement Performance
Direction, Supervision, and Performance
The engagement partner shall take responsibility for:
a. The direction, supervision and performance of the audit engagement in compliance with
professional standards and regulatory and legal requirements; and
b. The auditor’s report being appropriate in the circumstances.
Direction of the engagement team involves informing the members of the engagement team of
matters such as:
 Their responsibilities, including the need to comply with relevant ethical requirements, and
to plan and perform an audit with professional skepticism as required by PSA 200 (Revised
and Redrafted).
 Responsibilities of respective partners where more than one partner is involved in the
conduct of an audit engagement.
 The objectives of the work to be performed.
 The nature of the entity’s business.
 Risk-related issues.
 Problems that may arise.
 The detailed approach to the performance of the engagement.
Discussion among members of the engagement team allows less experienced team members to
raise questions with more experienced team members so that appropriate communication can occur
within the engagement team. Appropriate teamwork and training assist less experienced members
of the engagement team to clearly understand the objectives of the assigned work.
Supervision includes matters such as:
 Tracking the progress of the audit engagement.

 Considering the competence and capabilities of individual members of the engagement
team, including whether they have sufficient time to carry out their work, whether they
understand their instructions, and whether the work is being carried out in accordance with
the planned approach to the audit engagement.
 Addressing significant matters arising during the audit engagement, considering their
significance and modifying the planned approach appropriately.
 Identifying matters for consultation or consideration by more experienced engagement
team members during the audit engagement.
Reviews
On or before the date of the auditor’s report, the engagement partner shall, through a review of the
audit documentation and discussion with the engagement team, be satisfied that sufficient
appropriate audit evidence has been obtained to support the conclusions reached and for the
auditor’s report to be issued.
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Timely reviews of the following by the engagement partner at appropriate stages during the
engagement allow significant matters to be resolved on a timely basis to the engagement partner’s
satisfaction on or before the date of the auditor’s report:
 Critical areas of judgment, especially those relating to difficult or contentious matters

identified during the course of the engagement;
 Significant risks; and
 Other areas the engagement partner considers important.
The engagement partner need not review all audit documentation, but may do so. However, as
required by PSA 230 (Redrafted), the partner documents the extent and timing of the reviews.
Consultation
The engagement partner shall:
a. Take responsibility for the engagement team undertaking appropriate consultation on

difficult or contentious matters;
b. Be satisfied that members of the engagement team have undertaken appropriate
consultation during the course of the engagement, both within the engagement team and
between the engagement team and others at the appropriate level within or outside the
firm;
c. Be satisfied that the nature and scope of, and conclusions resulting from, such consultations
are agreed with the party consulted; and
d. Determine that conclusions resulting from such consultations have been implemented.
Engagement Quality Control Review
For audits of financial statements of listed entities, and those other audit engagements, if any, for
which the firm has determined that an engagement quality control review is required, the
engagement partner shall:
a. Determine that an engagement quality control reviewer has been appointed;

b. Discuss significant matters arising during the audit engagement, including those identified
during the engagement quality control review, with the engagement quality control
reviewer; and
c. Not date the auditor’s report until the completion of the engagement quality control review.
PSA 700 (Redrafted) requires the auditor’s report to be dated no earlier than the date on which the
auditor has obtained sufficient appropriate evidence on which to base the auditor’s opinion on the
financial statements. In cases of an audit of financial statements of listed entities or when an
engagement meets the criteria for an engagement quality control review, such a review assists the
auditor in determining whether sufficient appropriate evidence has been obtained.
Conducting the engagement quality control review in a timely manner at appropriate stages during
the engagement allows significant matters to be promptly resolved to the engagement quality
control reviewer’s satisfaction on or before the date of the auditor’s report.
Differences of Opinion
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If differences of opinion arise within the engagement team, with those consulted or, where
applicable, between the engagement partner and the engagement quality control reviewer, the
engagement team shall follow the firm’s policies and procedures for dealing with and resolving
differences of opinion.
Monitoring
An effective system of quality control includes a monitoring process designed to provide the firm
with reasonable assurance that its policies and procedures relating to the system of quality control
are relevant, adequate, and operating effectively. The engagement partner shall consider the results
of the firm’s monitoring process as evidenced in the latest information circulated by the firm and, if
applicable, other network firms and whether deficiencies noted in that information may affect the
audit engagement.
Documentation
The auditor shall document:
a. Issues identified with respect to compliance with relevant ethical requirements and how
they were resolved.
b. Conclusions on compliance with independence requirements that apply to the audit
engagement, and any relevant discussions with the firm that support these conclusions.
c. Conclusions reached regarding the acceptance and continuance of client relationships and
audit engagements.
d. The nature and scope of, and conclusions resulting from, consultations undertaken during
the course of the audit engagement.
Documentation of consultations with other professionals that involve difficult or contentious matters
that is sufficiently complete and detailed contributes to an understanding of:
 The issue on which consultation was sought; and

 The results of the consultation, including any decisions taken, the basis for those decisions
and how they were implemented.
The engagement quality control reviewer shall document, for the audit engagement reviewed, that:
a. The procedures required by the firm’s policies on engagement quality control review have
been performed;
b. The engagement quality control review has been completed on or before the date of the
auditor’s report; and
c. The reviewer is not aware of any unresolved matters that would cause the reviewer to
believe that the significant judgments the engagement team made and the conclusions they
reached were not appropriate.
Philippine Standard on Auditing 220 (Redrafted) – Quality Control for an Audit of Financial
Statements
https://aasc.org.ph/downloads/PSA/publications/PDFs/PSA-220-Redrafted.pdf
54
Let’s Check
EXERCISE 5
True or False
1. An engagement quality control review is required for all completed audit engagement.
2. Promotion of a culture of quality is related to the element of monitoring.
3. Quality controls are policies and procedures adopted by a firm to provide a reasonable
assurance that the audits done by the firm is being carried out in accordance with the objective
and general principles governing an audit of financial statements.
4. The primary purpose of establishing quality control policies and procedures for deciding
whether to accept or reject a new client is to minimize the likelihood of a firm associating with
clients whose management lacks integrity.
5. The audit work performed by assistants should be reviewed to determine whether it was
adequately formed and to evaluate whether the results are consistent with the conclusions to
be presented in the auditor’s report.
6. The Philippine Standards on Quality Control (PSCQs) are to be applied to all services that fall
under the AASC’s engagement standards.
7. In reviewing the audit work performed, the engagement partner need not review all audit
documentation, but may do so.
8. An engagement quality control review ordinarily involves discussion with the engagement
partner, a review of the financial statements or other subject matter information and the
report, and, in particular, consideration of whether the report is appropriate.
9. The firm should obtain written confirmation of compliance with its policies and procedures on
independence from all firm personnel required to be independent by relevant ethical
requirements at least annually.
10. The review conducted by the quality control reviewer reduces the responsibilities of the
engagement partner.
Let’s Analyze
1. The main purpose of implementing quality control policies and procedures is

a. To have a favorable peer review.
b. To comply with regulatory agency.
c. To standardize the policies and procedures of the audit firm.
d. To provide reasonable assurance that audit will be conducted in accordance with PSA.
2. The firm’s system of quality control should include policies and procedures that address each of
the following, except
a. Control environment.
b. Human resources.
c. Relevant ethical requirements.
55
d. Monitoring.
3. In pursuing a firm’s quality control objectives, a firm should adopt policies and procedures to
enable it to identify and evaluate circumstances and relationships that create threats to
independence, and to take appropriate action to eliminate those threats or reduce them to an
acceptable level by applying safeguards, or, if considered appropriate, to withdraw from the
engagement. Which quality control element would this be most likely to satisfy?
a. Ethical requirements
b. Human resources
c. Monitoring
d. Leadership responsibilities for quality within the firm
4. PSQC 1 applies to both assurance and non-assurance services.

PSA 220 applies to both audit and review of financial statements.
a. True, true
b. True, false
c. False, true
d. False, false
5. The auditor is most likely to discover omitted audit procedures during

a. Preparation of the management letter.
b. Follow-up procedures performed in compliance with generally accepted auditing
standards.
c. The conference held with the client prior to issuing the audit report.
d. A post engagement review performed as part of the firm’s quality control inspection
program.
6. A requirement that working papers be reviewed by the supervision, and any deficiencies be
discussed with the preparer is an example of a quality control procedure in the area of
a. Acceptance and continuance of client relationships and specific engagements.
b. Human resources.
c. Relevant ethical requirements.
d. Engagement performance.
7. The objective of quality control mandates that a public accounting firm should establish policies
and procedures for professional development which provide reasonable assurance that all
entry-level personnel
a. Prepare working papers which are standardized in form and content.
b. Have the knowledge required to enable them to fulfill responsibilities assigned.
c. Will advance within the organization.
d. Develop specialties in specific areas of public accounting.
8. In pursuing a firm’s quality control objectives, a firm should adopt policies and procedures to
enable it to identify and evaluate circumstances and relationships that create threats or reduce
them to an acceptable level by applying safeguards, or, if considered appropriate, to withdraw
from the engagement. Which quality control element would be most likely to satisfy?
a. Monitoring.
b. Ethical requirements
c. Human resources
d. Acceptance and continuance of client relationships.
56
9. Maintaining or providing access to adequate reference libraries and other authoritative sources
is a procedure that is most likely performed to comply with the policy on
a. Assignment. c. Monitoring
b. Consultation. d. Supervision.
10. The work performed by the assistants should be reviewed by personnel of at least equal
competence to consider all of the following, except:
a. The objectives of the audit have been achieved.
b. The work was adequately performed and documented.
c. The conclusions expressed are consistent with the results of the work performed.
d. The engagement personnel maintained independence in the performance of the
examination.
In a Nutshell
ACTIVITY 6
After learning the quality control for an audit of financial statements, reading the articles found in
the Self-Help, and using other resources, prepare a concept map in order to summarize the key
areas of quality control?
Q&A LIST
1. 1.
57
2. 2.
3. 3.
4. 4.
5. 5.
KEYWORDS INDEX
Acceptance and Continuance Engagement Team Partner

of Client Relationships
Consultations Firm Professional Standards
Differences of Opinion Human Resources Quality Control
Documentation Leadership Responsibility for Relevant Ethical Requirements
Quality Within the Firm
Engagement Partner Listed Entity Staff
Engagement Performance Monitoring Suitably Qualified External
Person
Engagement Quality Control Network Supervision
Review
Engagement Quality Control Network Firm
Reviewer
AUDIT PLANNING
Big Picture:
ULO I: Discuss Why Adequate Audit Planning is Important.
ULO J: Describe the Need to Maintain Professional Skepticism when Conducting an Audit.
58
ULO K: Make a Client Acceptance Decision and Perform Initial Audit Planning.
ULO L: Understand the Overall Audit Strategy and Audit Plan.
ULO M: Understand the Nature and Purpose of Audit Documentation.
Metalanguage
Audit Documentation – the record of audit procedures performed, relevant audit evidence obtained,
and conclusions the auditor reached. Also known as working papers or workpapers.
Audit File – one or more folders or other storage media, in physical or electronic form, containing
the records that comprise the audit documentation for a specific engagement.
Audit Plan – is more detailed than the overall audit strategy in that it includes the nature, timing and
extent of audit procedures to be performed by engagement team members.
Code of Ethics – sets out the fundamental principles of ethics, reflecting the professional’s
recognition of its responsibility to the public.
Engagement Letter – is a medium where the auditor and the client sets out their understanding on
the audit engagement.
Further Audit Procedures – are test of controls and substantive tests.
Internal Control – as defined by the COSO “is a process effected by an entity’s board of directors,
management and other personnel designed to provide reasonable assurance of the achievement of
objectives in the following categories:
a. Operational Effectiveness and Efficiency
b. Financial Reporting Reliability
c. Applicable Laws and Regulations Compliance
Overall Audit Strategy – sets the scope, timing and direction of the audit, and that guides the
development of the audit plan
Predecessor Auditor – the auditor of a previous audit.
Public – refers to the users of the financial statements.
Successor Auditor – the auditor of a current audit.
Essential Knowledge
Audit Process: An Overview
59
Exhibit 2 illustrates an overview of the whole audit process. We will be using this overview all
throughout the discussion of the audit engagement. As discussed previously, auditing consist of a
systematic process of evidence gathering with the aim of expressing an opinion on the financial
statements. The process starts with the decision whether to accept or reject a client to the issuance
of the audit report. Each of this process will be discussed thoroughly in this self-instructional manual
(SIM).
Exhibit 2: The Overview of Audit Process
PRE-PLANNING
Assess PHASE
Compliance to Ethical
Accept or Reject a Client? Setting the Terms of Engagement
Requirements
PLANNINGRisk Assessment Other Considerations in

Audit Strategy Audit Plan
Procedures Planning
EXECUTION OF THE PLAN (Evidence Gathering)

Test of Control Substantive Testing
COMPLETION OF AUDIT
ISSUANCE OF AUDIT REPORT
The Role and Timing of Planning
Planning an audit involves establishing the overall audit strategy for the engagement and developing
an audit plan. Adequate planning benefits the audit of financial statements in several ways, including
the following (PAS 300, par 2):
a. Helping the auditor to devote appropriate attention to important areas of the audit. 
b. Helping the auditor identify and resolve potential problems on a timely basis.
c. Helping the auditor properly organize and manage the audit engagement so that it is
performed in an effective and efficient manner.
d. Assisting in the selection of engagement team members with appropriate levels of
capabilities and competence to respond to anticipated risks, and the proper assignment of
work to them.
e. Facilitating the direction and supervision of engagement team members and the review of
their work. 
f. Assisting, where applicable, in coordination of work done by auditors of components and
experts.
The nature and extent of planning activities will vary according to the size and complexity of the
entity, the key engagement team members’ previous experience with the entity, and changes in
circumstances that occur during the audit engagement.
60
Planning is not a discrete phase of an audit, but rather a continual and iterative process that often
begins shortly after the completion of the previous audit and continues until the completion of the
current audit engagement. Planning, however, includes consideration of the timing of certain
activities and audit procedures that need to be completed prior to the performance of further audit
procedures. For example, planning includes the need to consider, prior to the auditor’s identification
and assessment of the risks of material misstatement, such matters as:
 The analytical procedures to be applied as risk assessment procedures. 

 Obtaining a general understanding of the legal and regulatory framework applicable to the
entity and how the entity is complying with that framework. 
 The determination of materiality. 
 The involvement of experts. 
 The performance of other risk assessment procedures.
The auditor may decide to discuss elements of planning with the entity’s management to facilitate
the conduct and management of the audit engagement. For example, to coordinate some of the
planned audit procedures with the work of the entity’s personnel. Although these discussions often
occur, the overall audit strategy and the audit plan remain the auditor’s responsibility.
When discussing matters included in the overall audit strategy or audit plan, care is required in order
not to compromise the effectiveness of the audit. For example, discussing the nature and timing of
detailed audit procedures with management may compromise the effectiveness of the audit by
making the audit procedures too predictable.
Involvement of Key Engagement Team Members
The engagement partner and other key members of the engagement team shall be involved in
planning the audit, including planning and participating in the discussion among engagement team
members. Their involvement in planning the audit draws on their experience and insight, thereby
enhancing the effectiveness and efficiency of the planning process (PAS 300, par 5).
Professional Skepticism in Conducting an Audit
The potential conflict of interest between the client and users, along with some issues of frauds in
the financial statements leads the users to be naturally skeptic. This is the reason users are
dependent on the information provided by an auditor. Independent auditors are objective
intermediaries that lends credibility to the financial statements after it was examined by them. And
being an objective intermediaries between the preparers and users of information found in the
financial statements, the auditor shall conduct the audit engagement with professional skepticism.
As discussed previously, the auditor plans and performs an engagement with an attitude of
professional skepticism. This means that auditor makes a critical assessment, with a questioning
mind, of the validity of evidence obtained and is alert to evidence on the contrary. This attitude is
necessary throughout the entire audit process to reduce the risk of overlooking suspicious situations,
of over generalizing when drawing a conclusions, and of using faulty assumptions in determining the
nature, timing and extent in gathering audit evidence and in evaluating the results.
Preliminary Engagement Activities
The auditor shall undertake the following activities at the beginning of the current audit engagement
(PAS 300, par 6):
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a. Performing procedures required by PSA 220 regarding the
continuance of the client relationship and the specific audit engagement;
b. Evaluating compliance with relevant ethical requirements,
including independence, in accordance with PSA 220; and
c. Establishing an understanding of the terms of the engagement
as required by PSA 210.
Performing the preliminary engagement activities at the beginning of the current audit engagement
assists the auditor in identifying and evaluating events or circumstances that may adversely affect
the auditor’s ability to plan and perform the audit engagement.
Client Acceptance or Continuance of the Audit Engagement
A firm normally investigate a prospective client before accepting them. As prescribed in PSA 220, the
firm should come up with policies and procedures in accepting a client. This mechanism is focus on
understanding and managing risk to the firm with the aim of mitigating business risk. This is to
assure the firm that they will not be the next Arthur Andersen which is involved in Enron fiasco in
early 2000.
When a prospective client has previously been audited by a predecessor auditor, the successor
auditor should make certain inquiries of the predecessor auditor before accepting the engagement.
This is to know if the problematic or has an integrity issue. The successor auditor should seek
permission from the client to communicate the predecessor auditor due to confidentiality
requirement as prescribed in the Code of Professional Ethics of Accountants. The Code of Ethics does
not allow an auditor to disclose any confidential information without the client’s consent. The
successor auditor should make the following inquiries of the predecessor auditor:
 The predecessor auditor’s understanding on the reason for the change of auditors.
 Disagreements with management about accounting policies, auditing procedures, or
other similarly significant matters.
 Any information that might bear on the integrity of management like fraud,
noncompliance with laws or regulation, or significant deficiencies and material weaknesses
in internal control.
When the client refuses to permit the predecessor auditor to respond, the successor auditor should
consider such situation a serious questions on management’s integrity. The successor auditor may
look for other information outside the predecessor auditor to assess whether to accept or reject the
prospective like. These information may be found from the client’s business associates like major
suppliers, customers, and key personnel in the entity. If the successor auditor finds it acceptable to
accept the prospective client as per firm’s policy, then the firm should evaluate compliance with the
Code of Professional Ethics for Accountants
Evaluating Compliance with Ethical Requirements
As mentioned clearly in PSA 300, the firm should evaluate compliance with ethical requirements,
including independence. These two are vital to every audit engagement to protect the interest of the
public. Ethics refers to a system based on moral principles - knowing what is good or bad, that
indicate how we should behave. Professionalism is a the conduct or qualities that characterize a
professional person in the workplace. The Code of Ethics for Professional Accountants or “the Code”
sets out the fundamental principles of ethics, reflecting the professional’s recognition of its
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responsibility to the public. A major part of the Code are actions that may impar auditors’
independence.
Independence is an absence of any significant conflict of interest. It is state of being unbiased or

being objective thereby allowing auditor to act with integrity. It comprises independence of mind
and independence in appearance. Independence of mind (also known as independent in fact) is the
state of mind that permits the expression of a conclusion without being affected by influences that
compromise professional judgment, thereby allowing an individual to act with integrity, and exercise
objectivity and professional skepticism. It is the appreciation of the auditor that indeed he or she is
independent. Independence in appearance is the avoidance of facts and circumstances that are so
significant that a reasonable and informed third party would be likely to conclude that an auditors’
integrity, objectivity or professional skepticism has been compromised. Here, it is the public’s
appreciation that the auditor is independent. Just to emphasize, for the firm to be independent, all
the audit team members should be independent of mind and in appearance.
You will discussed thoroughly this topic in your other subject. What we need to emphasize here is
that the firm should carefully evaluate compliance on these ethical requirements before accepting a
prospective client or continue an existing client to assess the auditability of the client.
Setting the Terms of Engagement
When the firm decide to accept a prospective client or continue an existing client, the next step is to
set a terms of the engagement. This set forth the understanding with the clients on the engagement
which include the following:
a. Objectives of the engagement;

b. Auditor’s responsibilities;
c. Management’s responsibilities;
d. Identification of the applicable financial reporting framework for
the preparation of the financial statements; and
e. Reference to the expected form and content of any reports to
be issued by the auditor.
The setting of the terms of engagement might be made orally or in writing. As a rule, to make any
contract enforceable before the court of law, it must be made in writing. In this case, the auditor
should prepare an engagement letter. This engagement letter establish whether the preconditions
for an audit are present and confirming that there is a common understanding between the auditor
and client of the terms of the audit engagement. Although, the PSA does not required an
engagement letter, it is encourage to have one for future legal issues.
This topic will be discussed thoroughly in the succeeding chapter.
The Overall Audit Strategy and the Audit Plan
The Overall Audit Strategy
The auditor shall establish an overall audit strategy that sets the scope, timing and direction of the
audit, and that guides the development of the audit plan (PSA 300, par 7).
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In establishing the overall audit strategy, the auditor shall (PSA 300, par 8):
a. Identify the characteristics of the engagement that define its scope;

b. Ascertain the reporting objectives of the engagement to plan the timing of the audit and the
nature of the communications required;
c. Consider the factors that, in the auditor’s professional judgment, are significant in directing
the engagement team’s efforts;
d. Consider the results of preliminary engagement activities and, where applicable, whether
knowledge gained on other engagements performed by the engagement partner for the
entity is relevant; and
e. Ascertain the nature, timing and extent of resources necessary to perform the engagement.
The process of establishing the overall audit strategy assists the auditor to determine, subject to the
completion of the auditor’s risk assessment procedures, such matters as:
 The resources to deploy for specific audit areas, such as the use of appropriately experienced
team members for high risk areas or the involvement of experts on complex matters; 
 The amount of resources to allocate to specific audit areas, such as the number of team
members assigned to observe the inventory count at material locations, the extent of review
of other auditors’ work in the case of group audits, or the audit budget in hours to allocate
to high risk areas; 
 When these resources are to be deployed, such as whether at an interim audit stage or at key
cutoff dates; and 
 How such resources are managed, directed and supervised, such as when team briefing and
debriefing meetings are expected to be held, how engagement partner and manager
reviews are expected to take place (for example, on-site or off-site), and whether to
complete engagement quality control reviews. 
Appendix A list examples of consideration in establishing the overall audit strategy.
The Nature, Timing and Extent of Audit Procedures
The audit plant sets forth the nature, timing and extent of the audit procedures to be performed in
the audit engagement. This is referred as the “scope” of the audit procedures in the public practice.
Nature refers to what procedures are performed; timing is when the audit work is done, whether at
year-end or interim; and extend refers to how many samples are used or how much work is done.
The nature and extent of the planning activities depends on the nature of the client’s business and
the auditor’s previous experienced with the client. The auditor should be guided by the results of
the client’s acceptance decision, procedures performed to gain understanding the business of the
client and the industry they belong and other pre-planning and planning activities.
The Audit Plan
Once the overall audit strategy has been established, an audit plan (also known as audit program)
can be developed to address the various matters identified in the overall audit strategy, taking into
account the need to achieve the audit objectives through the efficient use of the auditor’s resources.
The establishment of the overall audit strategy and the detailed audit plan are not necessarily
discrete or sequential processes, but are closely inter-related since changes in one may result in
consequential changes to the other.
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The auditor shall develop an audit plan that shall include a description of (PAS 300, par 9):
a. The nature, timing and extent of planned risk assessment procedures, as determined under
PSA 315.
b. The nature, timing and extent of planned further audit procedures at the assertion level, as
determined under PSA 330.
c. Other planned audit procedures that are required to be carried out so that the engagement
complies with PSAs.
The audit plan is more detailed than the overall audit strategy in that it includes the nature, timing
and extent of audit procedures to be performed by engagement team members. Planning for these
audit procedures takes place over the course of the audit as the audit plan for the engagement
develops. For example, planning of the auditor’s risk assessment procedures occurs early in the audit
process. However, planning the nature, timing and extent of specific further audit procedures
depends on the outcome of those risk assessment procedures. In addition, the auditor may begin
the execution of further audit procedures for some classes of transactions, account balances and
disclosures before planning all remaining further audit procedures.
Elements of Audit Program
Every firm has its own audit plan and the standard does not prescribe a specific audit plan.
Regardless of the audit plan prepared by the firm, it consists of the following elements.
a. Specific Audit Objectives – this is an assertion-based objectives

which is a result of the risk assessment procedures (RAP) and other considerations in audit.
For example, if during the RAP, the auditor identifies risks on the valuation of the accounts
receivable, then the auditor should include this in their audit plan.
b. Audit Procedures – this is the specific procedures to address the
specific audit objective.
c. Personnel Involved – this is the assign person who will do the
procedure.
d. Period Involved – this is the period when the procedures is
conducted.
Exhibit 3 illustrates a partial audit program of substantive tests of Accounts Receivable.
As a result of unexpected events, changes in conditions, or the audit evidence obtained from the
results of audit procedures, the auditor may need to modify the overall audit strategy and audit
plan. PSA 300, par 10 provides that the auditor shall update and change the overall audit strategy
and the audit plan as necessary during the course of the audit. This may be the case when
information comes to the auditor’s attention that differs significantly from the information available
when the auditor planned the audit procedures. For example, audit evidence obtained through the
performance of substantive procedures may contradict the audit evidence obtained through tests of
controls.
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Exhibit 3: Audit Program: Substantive Tests of Accounts Receivable
Specific Audit Objectives:
a. To determine the validity (existence and occurrence) and proper
valuation of Accounts Receivable at year-end.
Audit Procedures: Done By Date/Time

1. Obtain the year-end aged accounts receivable trial balance and
1.1 Foot the trial balance and agree total to accounts receivable
control account. __________ _________
1.2 Randomly select 40 accounts from the aged trial balance; agree
the information per the aged trial balance to the original sales
invoice and determine if the invoice was included in the
appropriate aging category. __________ _________
2. Confirm a sample of accounts receivable

2.1 For all responses with exception, follow up on the cause of the error. __________ _________
2.2 For all nonresponses, examine subsequent cash receipts and/or
supporting documents. __________ _________
2.3 Summarize the sampling test results. __________ _________
2.4 Summarize the confirmation results. __________ _________
3.Test the reasonableness of the allowance for doubtful accounts by the

following:
3.1 Using past percentages on doubtful accounts. __________ _________
3.2 Test for subsequent cash receipts for any large accounts in the aged
trial balance greater than 120 days old. __________ _________
4.Prepare summary of the tests, results, and conclusions _________ ________
Documentation in Planning
The auditor shall include in the audit documentation (PAS 300, par 12):
a. The overall audit strategy;

b. The audit plan; and
c. Any significant changes made during the audit engagement to the overall audit strategy or the
audit plan, and the reasons for such changes.
The documentation of the overall audit strategy is a record of the key decisions considered
necessary to properly plan the audit and to communicate significant matters to the engagement
team. For example, the auditor may summarize the overall audit strategy in the form of a
memorandum that contains key decisions regarding the overall scope, timing and conduct of the
audit.
The documentation of the audit plan is a record of the planned nature, timing and extent of risk
assessment procedures and further audit procedures at the assertion level in response to the
assessed risks. It also serves as a record of the proper planning of the audit procedures that can be
reviewed and approved prior to their performance. The auditor may use standard audit programs or
audit completion checklists, tailored as needed to reflect the particular engagement circumstances.
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A record of the significant changes to the overall audit strategy and the audit plan, and resulting
changes to the planned nature, timing and extent of audit procedures, explains why the significant
changes were made, and the overall strategy and audit plan finally adopted for the audit. It also
reflects the appropriate response to the significant changes occurring during the audit .
Audit Documentation
Audit documentation is the record of the audit procedures performed, the obtained audit evidence,
and the conclusion reach by the auditor on the reliability of the financial statements. These
documentations may be in a form of a recorded paper, or on electronic or other media. The auditor
shall prepare audit documentation on a timely basis (PAS 230, par 7). Preparing sufficient and
appropriate audit documentation on a timely basis helps to enhance the quality of the audit and
facilitates the effective review and evaluation of the audit evidence obtained and conclusions
reached before the auditor’s report is finalized. Documentation prepared after the audit work has
been performed is likely to be less accurate than documentation prepared at the time such work is
performed.
Audit documentation serves a number of additional purposes, including the following:
 Assisting the engagement team to plan and perform the audit.

 Assisting members of the engagement team responsible for supervision to direct and
supervise the audit work, and to discharge their review responsibilities.
 Enabling the engagement team to be accountable for its work.
 Retaining a record of matters of continuing significance to future audits.
 Enabling the conduct of quality control reviews and inspections.
 Enabling the conduct of external inspections in accordance with applicable legal, regulatory
or other requirements.
Form, Content and Extend of Audit Documentation
The auditor shall prepare audit documentation that is sufficient to enable an experienced auditor,
having no previous connection with the audit, to understand (PAS 230, par 8):
a. The nature, timing, and extent of the audit procedures performed to comply with the PSAs
and applicable legal and regulatory requirements;
b. The results of the audit procedures performed, and the audit evidence obtained; and
c. Significant matters arising during the audit, the conclusions reached thereon, and significant
professional judgments made in reaching those conclusions.
The form, content and extent of audit documentation depend on factors such as:
 The size and complexity of the entity.

 The nature of the audit procedures to be performed.
 The identified risks of material misstatement.
 The significance of the audit evidence obtained.
 The nature and extent of exceptions identified.
 The need to document a conclusion or the basis for a conclusion not readily determinable
from the documentation of the work performed or audit evidence obtained.
 The audit methodology and tools used.
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Audit documentation may be recorded on paper or on electronic or other media. Examples of audit
documentation include:
 Audit programs.
 Analyses.
 Issues memoranda.
 Summaries of significant matters.
 Letters of confirmation and representation.
 Checklists.
 Correspondence (including e-mail) concerning significant matters.
The auditor may include abstracts or copies of the entity’s records (for example, significant and
specific contracts and agreements) as part of audit documentation. Audit documentation, however,
is not a substitute for the entity’s accounting records.
The auditor need not include in audit documentation superseded drafts of working papers and
financial statements, notes that reflect incomplete or preliminary thinking, previous copies of
documents corrected for typographical or other errors, and duplicates of documents.
Oral explanations by the auditor, on their own, do not represent adequate support for the work the
auditor performed or conclusions the auditor reached, but may be used to explain or clarify
information contained in the audit documentation.
Current File VS Permanent File
The auditor maintain two files of working paper for each client, a current file and a permanent file. A
current file pertains solely to the current year’s audit, while permanent file are those documents
that can be used for future engagement.
Current files include the draft of client’s financial statements, the auditor’s report, working trial
balance, adjusting and reclassification entries, and working papers supporting the balances and
other representations in the financial statements. Permanent files include copies of article of
incorporation and by-laws, long-term contracts, patent agreements, pension plan, entity’s
administrative and accounting policies, and other relevant documents that has a continuing audit
significant. For an initial audit, auditors normally spend considerable time in gathering information
about the company. The documents containing such information is a permanent file.
A sample of a working paper is shown in Exhibit 3.
Assembly of the Final Audit File
The auditor shall assemble the audit documentation in an audit file and complete the administrative
process of assembling the final audit file on a timely basis after the date of the auditor’s report (PAS
230, par 14).
The firm requires to establish policies and procedures for the timely completion of the assembly of
audit files. An appropriate time limit within which to complete the assembly of the final audit file is
ordinarily not more than 60 days after the date of the auditor’s report.
The completion of the assembly of the final audit file after the date of the auditor’s report is an
administrative process that does not involve the performance of new audit procedures or the
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drawing of new conclusions. Changes may, however, be made to the audit documentation during
the final assembly process if they are administrative in nature. Examples of such changes include:
 Deleting or discarding superseded documentation.

 Sorting, collating and cross-referencing working papers.
 Signing off on completion checklists relating to the file assembly process.
 Documenting audit evidence that the auditor has obtained, discussed and agreed with the
relevant members of the engagement team before the date of the auditor’s report.
After the assembly of the final audit file has been completed, the auditor shall not delete or discard
audit documentation of any nature before the end of its retention period (PAS 230, par 15).
The firms requires to establish policies and procedures for the retention of engagement
documentation. The retention period for audit engagements ordinarily is no shorter than five years
from the date of the auditor’s report, or, if later, the date of the group auditor’s report.
Exhibit 3: Working Paper for Cut-Off Test of Cash

ABC Corporation
Proof of Cash
September 30, 202X
Aug. 31: Receipt Disbursement Sept 30:

Unadjusted balances, per bank 485,000 µ 1,955,000 µ 1,655,000 µ 785,000 µ
Undeposited collections – Aug 450,000 / (450,000) /
Undeposited collections – Sept 240,000 / 240,000 /
Outstanding checks – Aug (180,000) / (180,000) /
Outstanding checks – Sept 220,000 / (220,000) /
Bank error – Aug (80,000) / (80,000) /
675,000 ¶ 1,745,000 ¶ 1,615,000 ¶ 805,000 ¶
June 30: Receipt Disbursement July 31:

Unadjusted balances, per book 640,000 µ 1,795,000 µ 1,800,000 µ 635,000 µ
Unrecorded credit – Aug 200,000 / (200,000) /
Unrecorded credit – Sept 250,000 / 250,00 /
Unrecorded debit – Aug (120,000) / (120,000) /
Unrecorded debit – Sept 80,000 / (80,000) /
Book Error – Aug (45,000) / (45,000) /
Book Error – Sept/Correction – (100,000) / (100,000) /
Sept
675,000 ¶ 1,745,000 ¶ 1,615,000 ¶ 805,000 ¶
¶ - footed
µ - agreed to GL and bank statement
/ - traced
Auditor’s Conclusion: Based on the cut-off test of cash, the adjusted balance of cash account appears
to be adequate. No adjusting entry necessary.
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Appendix A (PSA 300)
Considerations in Establishing the Overall Audit Strategy

This appendix provides examples of matters the auditor may consider in establishing the overall
audit strategy. Many of these matters will also influence the auditor’s detailed audit plan. The
examples provided cover a broad range of matters applicable to many engagements. While some of
the matters referred to below may be required by other PSAs, not all matters are relevant to every
audit engagement and the list is not necessarily complete.
Characteristics of the Engagement

 The financial reporting framework on which the financial information to be audited has been
prepared, including any need for reconciliations to another financial reporting framework.
 Industry-specific reporting requirements such as reports mandated by industry regulators.
 The expected audit coverage, including the number and locations of components to be
included.
 The nature of the control relationships between a parent and its components that
determine how the group is to be consolidated.
 The extent to which components are audited by other auditors.
 The nature of the business segments to be audited, including the need for
 specialized knowledge.
 The reporting currency to be used, including any need for currency translation for the
financial information audited.
 The need for a statutory audit of standalone financial statements in addition to an audit for
consolidation purposes.
 Whether the entity has an internal audit function and if so, whether, in which areas and to
what extent, the work of the function can be used for purposes of the audit.
 The entity’s use of service organizations and how the auditor may obtain evidence
concerning the design or operation of controls performed by them.
 The expected use of audit evidence obtained in previous audits, for example, audit evidence
related to risk assessment procedures and tests of controls.
 The effect of information technology on the audit procedures, including the availability of
data and the expected use of computer-assisted audit techniques.
 The coordination of the expected coverage and timing of the audit work with any reviews of
interim financial information and the effect on the audit of the information obtained during
such reviews. 
 The availability of client personnel and data. 
Reporting Objectives, Timing of the Audit, and Nature of Communications

 The entity’s timetable for reporting, such as at interim and final stages.  
 The organization of meetings with management and those charged with governance to
discuss the nature, timing and extent of the audit work. 
 The discussion with management and those charged with governance regarding the
expected type and timing of reports to be issued and other communications, both written
and oral, including the auditor’s report, management letters and communications to those
charged with governance. 
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 The discussion with management regarding the expected communications on the status of
audit work throughout the engagement. 
 Communication with auditors of components regarding the expected types and timing of
reports to be issued and other communications in connection with the audit of components
 The expected nature and timing of communications among engagement team members,
including the nature and timing of team meetings and timing of the review of work
performed.
 Whether there are any other expected communications with third parties, including any
statutory or contractual reporting responsibilities arising from the audit.
Significant Factors, Preliminary Engagement Activities, and Knowledge Gained on Other

Engagements
 The determination of materiality in accordance with PSA 320 and, where applicable: 
- The determination of materiality for components and communication thereof to
component auditors in accordance with PSA 600.
- The preliminary identification of significant components and material classes of
transactions, account balances and disclosures.
 Preliminary identification of areas where there may be a higher risk of material
misstatement.
 The impact of the assessed risk of material misstatement at the overall financial statement
level on direction, supervision and review. 
 The manner in which the auditor emphasizes to engagement team members the need
maintain a questioning mind and to exercise professional skepticism in gathering and
evaluating audit evidence. 
 Results of previous audits that involved evaluating the operating effectiveness of internal
control, including the nature of identified deficiencies and action taken to address them. 
 The discussion of matters that may affect the audit with firm personnel responsible for
performing other services to the entity. 
 Evidence of management’s commitment to the design, implementation and maintenance of
sound internal control, including evidence of appropriate documentation of such internal
control. 
 Volume of transactions, which may determine whether it is more efficient for the auditor to
rely on internal control. 
 Importance attached to internal control throughout the entity to the successful operation of
the business. 
 Significant business developments affecting the entity, including changes in information
technology and business processes, changes in key management, and acquisitions, mergers
and divestments. 
 Significant industry developments such as changes in industry regulations and new reporting
requirements. 
 Significant changes in the financial reporting framework, such as changes in accounting
standards. 
 Other significant relevant developments, such as changes in the legal environment affecting
the entity.
Nature, Timing and Extent of Resources

 The selection of the engagement team (including, where necessary, the engagement quality
control reviewer) and the assignment of audit work to the team members, including the
assignment of appropriately experienced team members to areas where there may be
higher risks of material misstatement.
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 Engagement budgeting, including considering the appropriate amount of time to set aside
for areas where there may be higher risks of material misstatement.
Philippine Standard on Auditing 230 (Redrafted) – Audit Documentation
https://aasc.org.ph/downloads/PSA/publications/PDFs/PSA-230-Redrafted.pdf
Philippine Standard on Auditing 300 (Redrafted) – Planning an Audit of Financial Statements

https://aasc.org.ph/downloads/codified-standards/publications/PDFs/PSA-300-with-conf-amend.pdf
Let’s Check
EXERCISE 6 (Adapted)
Each of the following quality control policies and procedures is typical of ones that can be found in
public accounting firms’ systems of quality control. Identify each of them with one of the six
elements of quality control identified by PSCQ 1.
1. Assign management responsibilities in such a manner that commercial considerations do not

override the quality of work performed.
2. Establish policies and procedures for resolving differences of opinion among firm personnel that
arise during professional engagements.
3. Develop policies and procedures to ensure that professionals are provided appropriate
professional development opportunities.
4. Review engagement documentation, reports, and the client’s financial statements.
5. Develop effective performance evaluation, compensation, and advancement procedures.
6. Identify circumstances and relationships that create threats to independence and take
appropriate action to eliminate those threats or reduce them to an acceptable level.
7. Identify whether the firm possesses the competency, capability, and resources to appropriately
serve a specific client.
8. Devote sufficient resources to develop, communicate, and support the firm’s quality control
procedures.
9. Retain engagement documentation for a sufficient period of time to satisfy the needs of the firm,
professional standards, laws, and regulations.
Let’s Analyze
1. The element of the audit planning process most likely to be agreed upon with the client before
implementation of the audit strategy is the determination of the
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a. Methods of statistical sampling to be used in confirming accounts receivable.
b. Pending legal matters to be included in the inquiry of the client's attorney.
c. Evidence to be gathered to provide a sufficient basis for the auditor's opinion.
d. Schedules and analyses to be prepared by the client's staff.
2. Which of the following is not a component of audit planning?

a. Observing the client's annual physical inventory taking and making test counts of selected
items.
b. Making arrangements with the client concerning the timing of audit field work and use of
the client's staff in completing certain phases of the examination.
c. Obtaining an understanding of the business.
d. Developing audit programs.
3. An auditor judged an item to be immaterial when planning an audit. However, the auditor may
still include the item if it is subsequently determined that:
a. Sufficient staff is available.
b. Adverse effects related to the item are likely to occur.
c. Related evidence is reliable.
d. Miscellaneous income is affected.
4. Which of the following concepts is most useful in assessing the scope of an auditor's program
relating to various accounts?
a. Attribute sampling.
b. Materiality.
c. The reliability of information.
d. Management fraud.
5. Which of the following is not a factor that affects the auditor's judgment, during audit planning,
as to the quantity, type, and content of working papers?
a. The auditor's preliminary assessment of control risk.
b. The auditor's preliminary evaluation of inherent risk based on discussions with the client.
c. The nature of the client’s business.
d. The type of report to be issued by the auditor.
6. How can the audit program best be described at the beginning of the audit process?
a. Tentative.
b. Conclusive.
c. Comprehensive.
d. Optional.
7. The auditor's analytical procedures will be facilitated if the client

a. Uses a standard cost system that produces variance reports.
b. Segregates obsolete inventory before the physical inventory count.
c. Corrects material weaknesses in internal control before the beginning of the audit.
d. Reduces inventory balances to the lower of cost or market.
8. Which of the following matters would an auditor least likely consider when setting the direction
of the audit?
a. The selection of the engagement team and the assignment of audit work to the team
members.
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b. The engagement budget which includes consideration of the appropriate amount of time to
allot for areas where there may be higher risks of material misstatement.
c. The availability of client personnel and data.
d. The manner in which the auditor emphasizes to engagement team member the need to
maintain a questioning mind and to exercise professional skepticism in the gathering and
evaluation of audit evidence.
9. In planning an audit engagement, the audit is required to develop and document an

I. Overall audit strategy
II. Audit plan
a. I only
b. II only
c. Both I and II
d. Neither I and II
10. Which of the following activities should be performed by the auditor at the beginning of the
current audit engagement?
I. Perform procedures regarding the continuance of the client relationship and the specific
audit engagement.
II. Evaluate compliance with the requirements of the Code of Ethics for Professional
Accountants in the Philippines, including independence.
III. Establish an understanding of the terms of the engagement.
a. I and II only
b. II and III only
c. I and III only
d. I, II, and III
11. Which of the following factors or conditions is an auditor least likely to plan an audit to discover?
a. Financial pressures affecting employees
b. Inadequate monitoring of significant controls
c. High turnover of senior management
d. Inability to generate positive cash flows from operations
12. Which of the following tasks should be performed prior to the final audit?
a. Determining the fairness of property, plant, and equipment.
b. Confirming accounts receivable.
c. Testing internal control.
d. Collecting and evaluating evidence supporting the fairness of
inventory values.
13. The four major steps in conducting an audit are:

a. Testing internal controls
b. Audit report
c. Planning
d. Testing transactions and balances
The proper sequence in applying the above steps is:

a. cadb b. cdab c. bcda d. adcb
14. Which of the following procedures should be performed by the auditor prior to starting an initial
audit?
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I. Perform procedures regarding he acceptance of the client relationship and the specific
audit engagement.
II. Communicate with the previous auditor, where there has been a change of auditors, in
compliance with relevant ethical requirements.
a. I only.
b. II only.
c. Both I and II.
d. Neither I nor II.
15. When selecting staff for the audit engagements

a. Only staff members who are CPAs should be assigned to the audit.
b. Only managers and above need to have appropriate competence and capabilities to
perform the audit.
c. Continuity of staff members from year to year should not be a factor.
d. Staff assigned to the audit must be knowledgeable about the client’s industry.
16. Which of the following procedures would an auditor least likely perform in planning a financial
statement audit?
a. Selecting a sample of vendors’ invoices for comparison to receiving reports.
b. Coordinating the assistance of entity personnel in data preparation.
c. Discussing matters that may affect the audit with firm personnel responsible for non-
audit services to the entity.
d. Reading the current year interim financial statements.
17. When approached to perform an audit for the first time, the CPA should make inquiries of the
predecessor auditor. This is a necessary procedure because the predecessor may be able to
provide the successor with information that will assist the successor in determining
a. Whether the predecessor’s work should be used.
b. Whether the company follows the policy of rotating its auditors.
c. Whether in the predecessor’s opinion internal control of the company has been satisfactory.
d. Whether the engagement should be accepted.
18. What is the responsibility of a successor auditor with respect to communicating with the
predecessor auditor in connection with a prospective new audit client?
a. The successor auditor has no responsibility to contact the predecessor auditor.
b. The successor auditor should obtain permission from the prospective client to contact the
predecessor auditor.
c. The successor auditor should contact the predecessor auditor regardless of whether the
prospective client authorizes contact.
d. The successor auditor need not contact the predecessor if the successor is aware of all
available relevant facts.
19. In planning an audit, the auditor’s knowledge about the design of relevant controls should be
used to
a. Identify the types of potential misstatements that could occur.
b. Assess the operational efficiency of internal control.
c. Determine whether controls have been circumvented by collusion.
d. Document the assessed level of control risk.
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20. Marlon, CPA, discussed selected elements of the overall audit plan and certain audit procedures
with the audit committee, management, and staff of Jabla Traders, his audit client. This move by
the auditor has the following benefits, except
a. The overall audit plan and the audit program becomes a shared responsibility between the
auditor and the client’s management.
b. The audit can be performed with improved effectiveness and efficiency.
c. Coordination of audit procedures with work of the entity’s personnel can be initiated.
d. Improved business relationship between the client and the auditor is established.
21. An entity’s accounting records generally include the records of initial entries and supporting
records including
a. Confirmations from third parties.
b. Information obtained by the auditor from such audit procedures as inquiry, observation,
and inspection.
c. Worksheets and spreadsheets supporting cost allocations.
d. Other information developed by, or available to, the auditor to permit him/her to reach
conclusions through valid reasoning.
22. Which of the following factors would least likely affect the form, content, and extent of an
auditor’s working papers?
a. The content of the representation letter.
b. The identified risks of material misstatement.
c. The audit methodology and tools used.
d. The significance of the audit evidence obtained.
23. The primary purpose of audit working papers is to

a. Provide evidence of the planning and execution of audit procedures performed.
b. Comply with the generally accepted auditing standards in the Philippines.
c. Document weaknesses in internal control with recommendations to management for
improvement.
d. Serve as a means for the preparation of the financial statements.
24. The following statements relate to the form and content of working papers. Which is false?
a. The auditor should prepare working papers which are sufficient complete and detailed
to provide an overall understanding of the audit.
b. The auditor should include in the working papers information on planning the audit
work; the nature, timing, and extent of the audit procedures performed and the results of
such procedures; and the conclusions drawn from the audit evidence obtained.
c. Working papers should include documentation of every matter the auditor considers
during the audit.
d. Working papers should include the auditor’s reasoning on all significant matters which
require the exercise of judgment, together with his/her conclusion thereon.
25. An audit supervisor reviewed the work performed by the staff to determine if the audit was
adequately performed. The supervisor accomplished this by primarily reviewing which of the
following?
a. Checklist
b. Working Papers
c. Analytical procedures
d. Financial statements
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26. Documentary evidence is one of the principal types of corroborating information used by an
auditor to substantiate an opinion. Which one of the following examples of documentary
evidence would be most reliable?
a. Time tickets
b. Material requisition slips
c. Copies of sales invoices
d. Bank statements
27. Which of the following is usually included or shown in the auditor’s working papers?
a. The procedures used by the auditor to verify the personal financial status of members of
client’s management team.
b. Analyses that are designed to be a part of, or a substitute for, the client’s accounting records.
c. Experts from authoritative pronouncements that support the underlying accounting policies
used in preparing the financial statements.
d. The manner in which exceptions and unusual matters disclosed by the auditor’s procedures
were resolved or treated.
28. The following statements relate to audit working papers. Which statement is incorrect?
a. The auditor is prohibited from utilizing schedules, analyses and other documentation
prepared by the entity.
b. The nature and complexity of the business of the audit client may affect the form and content
of working papers.
c. The term “documentation” in PSA 230 means the material (working papers) prepared by and
for, or obtained and retained by the auditor in connection with the performance of the audit.
d. The extent of working papers is a matter of professional judgment since it is neither necessary
nor practical to document every matter the auditor considers.
29. Audit documentation should possess certain characteristics. Which of the following is one of the
characteristics?
Audit documentation should be indexed Audit documentation should be organized
and cross-reference to benefit the client’s staff
A. Yes Yes
B. No Yes
C. Yes No
D. No Yes
30. Which of the following is the least persuasive documentation in support of an auditor’s opinion?
a. Notation of interferences drawn from ratios and trends.
b. Notation of appraisers’ conclusions documented in the auditor’s working papers.
c. Lists of negative confirmation requests for which no response was received by the auditor.
d. Schedules of details of physical inventory counts conducted by the client.
In a Nutshell
ACTIVITY 7
After learning the audit documentations, reading the articles found in the Self-Help, and using other
resources, evaluate the issues underlying these arguments below: (50 words)
“Working papers should contain facts and nothing but facts,” said student A. “Not at all” replied
student B. “The audit working papers may also include expression of opinion. Facts are not always
available to settle all issues.” “In my opinion,” said student C, “a mixture of facts and opinions in the
77
audit working papers would be most confusing if the papers were produced as a means of
supporting the auditors’ opinion when their report has been challenged.” (Adapted)
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
ACTIVITY 8 (Adapted)
After learning the pre-planning activities, reading the articles found in the Self-Help, and using other
resources, evaluate the issues underlying these arguments below: (50 words)
The president of Allpurpose Loan Company had a genuine dislike for external auditors. Almost any
conflict generated a towering rage. Consequently, the company changed auditors often.
The firm of Wells & Ratley (W&R), CPAs, was recently hired to audit the 2017 financial statements.
W&R succeeded the firm of Canby & Company (C&C), which had obtained the audit after Albrecht &
Hubbard (A&H) had been fired. A&H audited the 2016 financial statements and rendered a report
that contained an additional paragraph explaining an uncertainty about Allpurpose Loan Company’s
loan loss reserve. Goodbye A&H! The president then hired C&C to audit the 2017 financial
statements, and Chris Canby started the work, but before the audit could be completed, Canby was
fired and W&R was hired to complete the audit. C&C did not issue an audit report because the audit
was not finished.
Does the Wells & Ratley firm need to initiate communications with Canby & Company? With
Albrecht & Hubbard? With both? Explain your response in terms of the purposes of communications
between predecessor and successor auditors.
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
Q&A LIST
1. 1.
2. 2.
3. 3.
4. 4.
5. 5.
78
KEYWORDS INDEX
Audit Documentation Engagement Letter Planning Phase

Audit File Execution of the Plan Pre-Planning Phase
Audit Plan Further Audit Procedures Predecessor Auditor
Auditing Planning Internal Control Professional Skepticism
Client Acceptance or Issuance of Audit Report Public
Continuance
Code of Ethics Nature, Timing and Extent of Setting the Terms of
Audit Procedures Engagement
Completion of Audit Overall Audit Strategy Specific Audit Procedures
Compliance with Ethical Overview of Audit Process Successor Auditor
Requirements
Current File Permanent File Working Papers
Course Schedule
This section calendars all the activities and exercises, including readings and lectures, as well as time
for making assignments and doing other requirements.
Activity Date Where to Submit

Orientation Aug. 17, 2020 BlackBoard LMS
ULO A – All activities, except Q Aug. 20, 2020 BlackBoard LMS
&A
ULO B and C – All activities, Aug. 24, 2020 BlackBoard LMS
except Q & A
ULO D to G – All activities, Aug. 26, 2020 BlackBoard LMS
except Q & A
ULO H – All activities, except Q Sept. 29, 2020 BlackBoard LMS
&A
ULO I to M – All activities, Sept. 2, 2020 BlackBoard LMS
except Q & A
Q&A Anytime BlackBoard LMS
1st Formative Assessment Sept. 4, 2020 BlackBoard LMS
Online Code of Conduct

1. Students are expected to abide by and honor code of conduct, and thus everyone and all are
exhorted to exercise self-management and self-regulation.
2. All students are guided by professional conduct as learners in attending On-Line Blended
Delivery (OBD) course. Any breach and violation shall be dealt with properly under existing
guidelines, specifically in Section 7 (Student Discipline) in the Student Handbook.
3. Professional conduct refers to the embodiment and exercise of the University’s Core Values,
specifically in the adherence to intellectual honesty and integrity; academic excellence by giving
due diligence in virtual class participation in all lectures and activities, as well as fidelity in doing
and submitting performance tasks and assignments; personal discipline in complying with all
deadlines; and observance of data privacy.
79
4. Plagiarism is a serious intellectual crime and shall be dealt with accordingly. The University
shall institute monitoring mechanisms online to detect and penalize plagiarism.
5. Students shall independently and honestly take examinations and do assignments, unless
collaboration is clearly required or permitted. Students shall not resort to dishonesty to improve
the result of their assessments (e.g. examinations, assignments).
6. Students shall not allow anyone else to access their personal LMS account. Students shall
not post or share their answers, assignment or examinations to others to further academic
fraudulence online.
7. By enrolling in OBD course, students agree and abide by all the provisions of the Online Code
of Conduct, as well as all the requirements and protocols in handling online courses.
80

ACP 314 Auditing and Assurance Principles Week 1 - 3

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UNIVERSITY OF MINDANAO

College of Accounting Education

Program: Bachelor of Science in Accountancy (BSA)

Physically Distanced but Academically Engaged

Self-Instructional Manual (SIM) for

Course/Subject: ACP 314 – Auditing and Assurance Principles

Name of Teacher: Lord Eddie I. Aguilar, MBA, CPA

THIS SIM/SDL MANUAL IS A DRAFT VERSION ONLY; NOT

THIS IS NOT FOR COMMERCIAL USE.

COURSE OUTLINE POLICY

Area of Concern Details

Assessment Task rd th, th, th

If the assessment task is done in real-time through the Blackboard

Since this course is included in the licensure examination for

Please note that academic dishonesty such as cheating and

However, if the late submission of the assessment paper has a valid

Re-marking of You should request in writing addressed to the program coordinator

If disapproved by the course coordinator, you can elevate your case to

All culled from on-campus/on-site sessions (to be announced):

Preferred Referencing Harvard Referencing Style

Contact Details of the Lord Eddie I. Aguilar

Contact Details of the Mary Grace S. Sombilon

Online Tutorial Through LMS or PM Chats

Blackboard Help Desk blackboardclass@umindanao.edu.ph

Instructional Help Desk cae@umindanao.edu.ph

for inquiries, you can email

Well-Being Welfare Ronadora E. Deala

GSTC Facebook Page:

COURSE INFORMATION – see/download course syllabus in the BlackBoard LMS

a. Describe assurance services and explain the elements of assurance engagements.

FRAMEWORK OF ASSURANCE ENGAGEMENT

Assertions – is a statement made by management in financial statements that relates to economic

Assurance Engagement – an engagement in which a practitioner expresses a conclusion designed to

Consulting Engagements – is an analytical process that involves some combination of activities

Practitioners – the professional accountants in public practice or auditor.

Qualified opinion when:

Framework of Assurance Engagement

a. Professional accountants in public practice (called practitioners) when performing assurance

The framework covers:

a. Introduction (as discussed above).

Definition and Objective of an Assurance Engagement

Assurance Engagement means an engagement in which a practitioner expresses a conclusion

 The recognition, measurement, presentation and disclosure represented in the financial

Assertion-Based Engagement VS Direct Reporting Engagements

Two Types of Assurance Engagement

a. A reasonable assurance engagement

b. A limited assurance engagement.

Scope of the Framework

a. Engagements covered by Philippine Standards for Related Services, such as agreed-upon

Compilation engagement is an engagement in which a practitioner applies accounting and financial

a. Engagements to testify in legal proceedings regarding accounting, auditing, taxation or other

a. Relevant ethical requirements, such as independence and professional competence are

Elements of an Assurance Engagement

The following are the elements of an assurance engagement:

Three party Relationship

The responsible party is the person (or persons) who:

a. In a direct reporting engagement, is responsible for the subject matter; or

 Financial performance or conditions (for example, historical or prospective financial position,

The characteristics of an appropriate subject matter is:

a. Identifiable, and capable of consistent evaluation or measurement against the identified

Suitable criteria exhibit the following characteristics:

An assurance engagement rarely involves the authentication of documentation, nor is the

In an assertion-based engagement, the practitioner’s conclusion can be worded either: