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LECTURE NOTES
Introduction undergo quality review conducted by Quality Review
Committee (QRC) before granting renewal of accreditation.
Public practitioners offer a wide array of professional
services to various clients, profit or non-profit, private or
Death, Disability, Dissolution and Liquidation
public, mainly dealing with its financial aspects. These
may include the traditional audit and review of FSs, tax The death or disability of an individual CPA and/or the
compliance and consulting, transaction and financial dissolution and liquidation of a firm or partnership of CPAs
advisory services, etc. Categorically, these services can be shall be reported to the BOA, in the form of affidavit, not
classified into two: assurance and non-assurance. later than 30 days from the date of such death, dissolution
or liquidation.
Practice of Public Accountancy
Ownership of Working Papers
RA 9298 defines practice of public accountancy as when a
person is skilled in the knowledge, science and practice of Confidential and privileged and remain the property of
accounting and as a qualified person to render professional such CPA in the absence of a written agreement between
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services as a CPA to more than one client on a fee basis. the CPA and the client, to the contrary unless such
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documents are required to be produced through subpoena
CPAs in public accountancy shall practice under individual issued by any court, tribunal, or government regulatory or
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capacity, firm (sole proprietorship) or partnership name,
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and shall not include any fictitious name, indicates
specialization, or is misleading as to the type of Seal and Use of Seal
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organization (proprietorship or partnership). The SEC shall
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The auditor’s reports shall be stamped with said seal,
not register any corporation organized for the practice of
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accountancy after attaining a minimum of three years partner of the partnership and in the middle of the
meaningful experience. smaller circle shall be engraved the letters “CPA”.
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Meaningful Experience
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Academe/ Teaching for at least three trimesters or In an assurance engagement, a practitioner expresses a
Education two semesters accounting related conclusion designed to enhance the degree of confidence
subjects. The accumulated teaching of the intended users other than the responsible party
experience on these subjects shall not be about the outcome of the evaluation or measurement of a
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less than three school years; or subject matter against criteria. Hence, an assurance
Government Significant involvement in general engagement is an independent professional service that
accounting, budgeting, tax administration, improves the quality (credibility) of information for
internal auditing, liaison with the CoA or decision makers.
any other related functions
Public practice At least one year as audit assistant and at Assurance services are very broad, and can be done by
least two years as auditor in charge of CPAs or by a variety of other professionals.
audit engagement covering full audit
functions of significant clients. Need for Unbiased Reporting and Independent
Assurance
Renewal of Certificate of Accreditation The demand for assurance services emanate from the
The registration shall be valid for a period of three years following reasons:
and may be renewed every three years on or before • Potential bias in providing information
September 30 in the year of expiry. The registration of • Remoteness between a user and the organization or
applicants approved during any month of the year shall trading partner
expire on December 31 in the third year following its • Complexity of the transactions, information or
approval. The BoA shall require public practitioners to processing systems
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• Investors need to manage their risk and thereby Appropriate subject matter
minimize financial surprises as consequences to
The subject matter, and subject matter information, of an
investors, and others, of relying on inaccurate
assurance engagement can take many forms, such as:
information can be quite significant. Assurance
a. Financial performance or conditions (for example,
engagements reduce information risks of the subject
historical or prospective financial statements)
matter.
b. Non-financial performance or conditions (for example,
performance key indicators of efficiency and
Types of Assurance Engagements
effectiveness of an entity)
1. As to level of assurance conveyed: c. Physical characteristics (for example, capacity of a
a. Reasonable assurance engagement. The objective facility)
is a reduction in assurance engagement risk to an d. Systems and processes (for example, an entity’s
acceptably low level as the basis for a positive internal control or IT system)
form of expression of the practitioner’s conclusion. e. Behavior (for example, corporate governance,
An example is audit of historical FSs. compliance with regulation, human resource practices)
b. Limited assurance engagement. The objective is a
reduction in assurance engagement risk to a level An appropriate subject matter is:
that is acceptable in the circumstances of the a. Identifiable, and capable of consistent evaluation or
engagement, but where that risk is greater than measurement against the identified criteria; and
for a reasonable assurance engagement, as the b. Such that the information about it can be subjected to
basis for a negative form of expression of the procedures for gathering sufficient appropriate
practitioner’s conclusion. An example is review of evidence to support a reasonable assurance or limited
historical FSs. assurance conclusion, as appropriate.
2. As to structure of engagement:
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Suitable criteria
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a. Assertion-based engagement. In this type of
engagement, the evaluation or measurement of Benchmarks used to evaluate or measure the subject
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the subject matter is performed by the responsible
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party, and the subject matter information is in the
form of assertion by the responsible party that is Examples of formal criteria are the following:
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made available to the intended users. • In the preparation of financial statements, the criteria
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Independent financial statements audit normally may be Philippine Financial Reporting Standards;
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falls under this type. • When reporting on internal control, the criteria may be
b. Direct reporting engagement. In this type of an established internal control framework; and
engagements, the practitioner either directly • When reporting on compliance, the criteria may be the
performs the evaluation or measurement of the applicable law, regulation or contract.
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evaluation or measurement that is not available to code of conduct or an agreed level of performance (such
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the intended users. The subject matter as the number of times a particular committee is expected
information is provided to the intended users in the to meet in a year).
assurance report.
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considered suitable:
d. Sufficient appropriate evidence; and
a. Relevance – relevant criteria contribute to conclusions
e. A written assurance report in the form appropriate to a
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Assurance engagements involve three separate parties: benchmarks for presentation and disclosure.
1. Practitioner – the person, who performs the c. Reliability – reliable criteria allow reasonably consistent
engagement, and is broader than the term “auditor” evaluation or measurement of the subject matter
which relates only to practitioners performing audit or including, where relevant, presentation and disclosure,
review engagements with respect to historical financial when used in similar circumstances by similarly
information. qualified practitioners.
2. Responsible party – is the person responsible for d. Neutrality – neutral criteria contribute to conclusions
a. Direct reporting engagement – subject matter; or that are free from bias.
b. Assertion-based engagement – a subject matter e. Understandability – understandable criteria contribute
information (the assertion), and may be the to conclusions that are clear, comprehensive, and not
subject matter. The responsible party may or may subject to significantly different interpretations.
not be the party who engages the practitioner (the
engaging party). The criteria need to be available to the intended users to
3. Intended users – for whom the assurance report is allow them to understand how the subject matter has been
prepared. The responsible party can be one of the evaluated or measured.
intended users, but not the only one.
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Sufficient appropriate evidence Non-assurance Engagements
Evidence is the information obtained by the practitioner in Engagements are considered non-assurance engagements
arriving at the conclusions on which the opinion is based. if they lack one or more of the five elements of an
assurance engagement.
The practitioner plans and performs an assurance
engagement with an attitude of professional skepticism. Common examples of non-assurance engagements are:
a. Agreed-upon procedures engagement;
In addition, the practitioner recognizes the existence of b. Compilations engagements;
assurance engagement risk (synonymous to audit risk) – c. Preparation of tax returns where no conclusion
the risk that the practitioner expresses an inappropriate conveying assurance is expressed;
conclusion when the subject matter information is d. Consulting (or advisory) engagements such as
materially misstated. management and tax consulting;
e. Engagements to testify in legal proceedings regarding
Written assurance report accounting, auditing, taxation or other matters; and
f. Engagements that include professional opinions not
The practitioner provides a written report containing a
intended to be an assurance report.
conclusion that conveys the assurance obtained about the
subject matter information.
Relevant Ethical Requirements
The practitioner’s conclusion can be worded depending on Relevant ethical requirements, to which the practitioners
the type of assurance engagement: are subject, ordinarily comprise Parts A and B of the Code
1. As to structure: of Ethics for Professional Accountants in the Philippines
a. Assertion-based engagement, either: together with national requirements that are more
i. In terms of the responsible party’s assertion restrictive.
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(for example: “In our opinion the responsible
party’s assertion that internal control is Fundamental Principles
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effective, in all material respects, based on
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XYZ criteria, is fairly stated”); or
and non-assurance engagements, are:
ii. Directly in terms of the subject matter and the
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a. Integrity – to be straightforward and honest in all
criteria (for example: “In our opinion internal
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professional and business relationships.
control is effective, in all material respects,
b. Objectivity – to not allow bias, conflict of interest or
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for example: “In our opinion internal control is professional services based on current developments in
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effective, in all material respects, based on XYZ practice, legislation and techniques and act diligently
criteria.” and in accordance with applicable technical and
b. Limited assurance engagement - negative form, for professional standards.
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example, “Based on our work described in this d. Confidentiality – to respect the confidentiality of
report, nothing has come to our attention that information acquired as a result of professional and
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causes us to believe that internal control is not business relationships and, therefore, not disclose any
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effective, in all material respects, based on XYZ such information to third parties without proper and
criteria.” specific authority, unless there is a legal or
professional right or duty to disclose, nor use the
The conclusions above are examples of an “unqualified information for the personal advantage of the
conclusion”. However, not all conclusions are unqualified. professional accountant or third parties.
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The highest level of assurance that may be provided by the Many threats fall into the following categories:
practitioner is reasonable assurance (less than absolute) a. Self-interest threat – the threat that a financial or
as a result of the following factors: other interest will inappropriately influence the
a. Use of selective testing; professional accountant’s judgment or behavior;
b. Use of judgment; b. Self-review threat – the threat that a professional
c. Inherent limitations of internal control; accountant will not appropriately evaluate the results
d. Persuasive evidence rather than conclusive; and of a previous judgment made or service performed by
e. In certain cases, characteristics of the subject matter. the professional accountant, or by another individual
within the professional accountant’s firm or employing
organization, on which the accountant will rely when
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forming a judgment as part of providing a current 2. Safeguards in the work environment.
service; • firm-wide safeguards; and
c. Advocacy threat – the threat that a professional • engagement specific safeguards.
accountant will promote a client’s or employer’s
position to the point that the professional accountant’s Conceptual Framework Approach to Compliance with
objectivity is compromised; Fundamental Principles
d. Familiarity threat ─ the threat that due to a long or
The circumstances in which professional accountants
close relationship with a client or employer, a
operate may give rise to specific threats to compliance
professional accountant will be too sympathetic to their
with the fundamental principles. A conceptual framework
interests or too accepting of their work; and
that requires a professional accountant to identify,
e. Intimidation threat – the threat that a professional
evaluate and address threats to compliance with the
accountant will be deterred from acting objectively
fundamental principles, rather than merely comply with a
because of actual or perceived pressures, including
set of specific rules, which may be arbitrary, is, therefore,
attempts to exercise undue influence over the
in the public interest. If identified threats are other than
professional accountant.
clearly insignificant, a professional accountant should,
where appropriate, apply safeguards to eliminate the
Safeguards Against Threats
threats or reduce them to an acceptable level, such that
Safeguards that may eliminate or reduce such threats to compliance with the fundamental principles is not
an acceptable level fall into two broad categories: compromised.
1. Safeguards created by the profession, legislation or
regulation; and
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The following table presents comparison of audit, review and related services (comprising agreed-upon procedures and
compilation engagements).
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Nature of service
Objective
Audit
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To enable the auditor
Review
To enable a practitioner to
Agreed-upon
To enable the
Compilation
To enable the
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obtain reasonable state whether anything has auditor carry out accountant to use
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assurance about come to the practitioner’s procedures of an accounting expertise,
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whether the financial attention that causes the audit nature to which as opposed to
statements, as a whole, practitioner to believe that the auditor and the auditing expertise, to
are free from material the financial statements are entity and any collect, classify and
misstatement, whether not prepared, in all material appropriate third summarize financial
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due to fraud or error, respects, in accordance with parties have agreed information.
and to express an the applicable financial and to report on
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factual findings
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Basic procedures Primarily, among Primarily inquiry and As agreed (Audit Reading the financial
others, risks analytical procedures nature) statements for
assessment procedures, obvious
tests of controls and misstatements
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substantive procedures
Independence Required Required Not required Not required
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REVIEW QUESTIONS
RA 9298 – Public Accountancy b. “Juan de la Cruz and Associates”
1. Which one of the following is not a logical function of a c. “Cruz, Isidro, Martin, and Company"
CPA in public accounting practice? d. “Cruz, Isidro, Martin, Inc."
a. Performing assurance services
b. Supervision of internal audit staff. 7. Below are names of four CPA firms and pertinent facts
c. Tax practice. relating to them. Unless otherwise indicated, the
d. Management consulting services. individuals named are CPAs and partners, and there
are no other partners. Which firm name and related
2. Practice of Public Accountancy shall constitute in a facts indicate a violation of RA 9298 and its IRR?
person: a. Dee, Lim and Sy, CPAs (Dee died about five years
a. When involved in decision making requiring ago; Lim and Sy are continuing the firm).
professional knowledge in the science of accounting, b. Cruz and Reyes, CPAs (The name of V. Valdes,
as well as the accounting aspects of finance and CPA, a third partner, is omitted from the firm
taxation or when he/she represents his/her name).
employer before government agencies on tax and c. Gomez and Castro, CPAs (Gomez died about three
other matters relating to accounting. years ago; Castro is continuing the firm as a sole
b. When he/she is appointed in an accounting proprietorship).
professional group in government or in a d. P. Reyes and Co., CPAs (The firm has ten other
government-owned and/or controlled corporation, partners who are all CPAs).
including those performing proprietary functions,
where decision-making requires professional 8. CPAs, firms and partnerships of CPAs engaged in the
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knowledge in the science of accounting practice of public accountancy, including partners and
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c. When he or she is involved in teaching of staff members thereof, shall register with the
accounting, auditing, management advisory Commission and the Board and obtain certificate of
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services, accounting aspect of finance, business law,
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taxation and other technically related subjects. meaningful experience.
d. When a person is skilled in the knowledge, science
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A meaningful experience shall be considered as
and practice of accounting and as a qualified person
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satisfactory compliance with the requirements of
to render professional services as a CPA
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c. A solo practitioner
teaching experience on these subjects shall not be less
d. A partnership of CPAs, with some non-CPA staff
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a. At least one of the partners must be a CPA. Section 28 if it is earned in Public Practice and shall
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b. All partners must be PICPA members. include at least two years as audit assistant and at
c. All partners must be CPAs. least one years as auditor in charge of the audit
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d. Firm name must contain names of partners only. engagement covering full audit functions of significant
clients.
5. Which of the following statements concerning the use a. True, True, False c. True, False, False
of firm or partnership name is incorrect? b. True, False, True d. True, True, True
is
BOA and the PRC and as printed in his/her CPA including partners and staff members thereof shall
certificate. register with the BOA and the PRC. If the application
b. In the case of a firm, it shall do business under its for registration of AB and Co., CPAs was approved on
duly registered and authorized firm name August 30, 2014, it shall file for renewal on or before
appearing in the registration documents issued by
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smaller circle. a. The objective is a reduction in assurance
c. Left and right portion of the space between the engagement risk to an acceptably low level as the
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bigger and smaller circle and in the middle of the
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smaller circle. practitioner’s conclusion.
d. Middle of the smaller circle. b. The objective is a reduction in assurance
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engagement risk to a level that is acceptable in the
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14. Affixing the CPA’s seal and signature is an indication of circumstances of the engagement, but where that
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d. Collection of the audit fees from the client. responsible party that is made available to the
intended users.
Definition, objective, demand and elements of an d. In this type of engagement, the practitioner either
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15. This document defines the elements and objectives of the subject matter, or obtains a representation
not, by itself, establish standards or provide procedural from the responsible party that has performed the
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requirements for the performance of assurance evaluation or measurement that is not available to
engagements. the intended users. The subject matter
a. Philippine Framework for Assurance Engagements information is provided to the intended users in the
b. Philippine Standards on Auditing assurance report.
is
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23. The subject matter of an assurance engagement may 30. Unlike consulting services, assurance services
take many forms, including: a. Make recommendations to management
a. b. c. d. b. Report on how to use information
Nonfinancial performance c. Report on the quality of information
or condition Yes Yes Yes No d. Are two-party contracts
Behavior Yes Yes Yes Yes
Financial performance or Assurance vs. Attestation vs. Audit
condition Yes Yes No Yes 31. Which of the following statements best describes the
Physical characteristics Yes No No No logical relationship among audits, attest engagements,
Systems and Processes Yes No Yes Yes and assurance engagements?
a. All attest engagements are audits, but not all
24. The characteristics for determining whether criteria are audits are attest engagements.
suitable include: b. All assurance engagements, including audits,
a. b. c. d. involve attestation.
Relevance Yes Yes Yes Yes c. An audit provides assurance but does not involve
Reliability Yes Yes Yes Yes attestation.
Completeness Yes Yes No Yes d. All audits are attest engagements, but not all
Neutrality Yes No No Yes attest engagements are audits.
Comparability Yes Yes No No
Feedback value Yes No No No 32. Attestation is any service that requires a CPA firm to
issue a report about the reliability of an assertion that
25. When the professional accountant has obtained is made by another party. Which of the following
sufficient appropriate evidence to conclude that the elements is the critical component that distinguishes
subject matter conforms in all material respects with an attest engagement from other forms of assurance
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identified suitable criteria, he or she can provide what engagements?
level of assurance? a. An accountable party
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a. None c. Moderate
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b. High d. Absolute c. A subject matter
d. An accountability relationship
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26. It is the risk that the practitioner expresses an
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inappropriate conclusion when the subject matter Relevant Ethical Requirements
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information is materially misstated. 33. In order to achieve the objectives of the accountancy
a. Business risk c. Detection risk profession, professional accountants have to observe a
b. Assurance engagement risk d. Audit risk number of prerequisites or fundamental principles.
The fundamental principles include the following,
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a. Is to enable the auditor to express an opinion b. Professional competence and due care
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b. Is to enable the auditor to state whether, on the 34. Statement 1: Independence is an attribute necessary
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basis of procedures which do not provide all the to perform assurance services and is only required for
evidence that would be required in an audit, assurance services providers.
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reporting framework.
b. True, false d. False, false
c. Is to carry out those procedures of an audit nature
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1. Most of the large national CPA firms III. Assurance services can be provided either on
a. Offer audit, tax, and management advisory information or processes.
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services. eH w a. I and III c. III only
b. Emphasize auditing to a lesser degree than do b. I and II d. I, II and III
smaller local and regional firms.
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c. Are organized as corporations to obtain the benefit 7. The subject matter of an assurance engagement may
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of limited liability. take many forms, including
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of public accounting. Which of the following is the best 8. Which one of the following is not a provider of
name of the firm? assurance services?
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financial or other information that improve the quality a. Confidence level c. Reasonableness level
of decision making are known as b. Assurance level d. Tolerable level
a. Internal auditing
b. Financial auditing 10. The decision as to whether the criteria are suitable
is
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12. Assurance services may include which of the following, c. The responsible party is the person or persons,
except? either as individuals or representatives of an
a. Attesting to financial statements entity, responsible for the subject matter.
b. Examination of the economy and efficiency of d. The intended user is the person or class of persons
governmental operations for whom the professional accountant prepares the
c. Evaluation of a division's performance for report for a specific use or purpose.
management
d. Tax preparation services 20. Safeguards in the work environment, include the
following except
13. Which of the following services would be most likely to a. Firm leadership that stresses the importance of
be structured as an assurance engagement? independence and the expectation that members
a. Advocating a client’s position in tax matter. of assurance teams will act in the public interest.
b. A consulting engagement to develop a new data b. External review of the firm’s quality control
base system for the revenue cycle. system.
c. An engagement to issue a report addressing an c. Policies and procedures to implement and monitor
entity’s compliance with requirements of specified quality control of assurance engagements.
laws. d. Policies and procedures that will enable the
d. The compilation of a client’s forecast information. identification of interests or relationships between
the firm or members of the assurance team and
14. Which of the following elements is most likely to be a assurance clients.
component of a direct reporting assurance
engagement? 21. In performing an attestation engagement, a CPA
a. Low level of assurance typically
b. Absolute assurance a. Supplies litigation support services
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c. A written assertion b. Assesses control risk at a low level
d. Auditor independence c. Expresses a conclusion about an assertion
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15. Which one of the following is not a key attribute
needed to perform assurance? 22. A service that always requires that a report is provided
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a. Subject matter knowledge to a third party is
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b. Independence a. Assurance c. Audit
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requirements for the performance of assurance 24. According to Philippine Standard on Auditing, the
ed d
18. The framework for auditing and related services as any form of assurance.
addressed by PSA excludes d. Less extensive than review procedures but more
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engagements? b. None
a. Professional accountants are those persons who c. Limited
are members of PICPA, who should be in public d. High, but not absolute
practice.
b. The responsible party and the intended user will ☺ - end of AT.0701 - ☺
often be from separate organizations but need not
be.
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