College of Accountancy

PROFESSIONAL STANDARDS
Contents:
1. Overview
2. Generally Accepted Auditing Standards
3. Standards in the Accounting Profession
4. Philippine Standards on Auditing
5. Philippine Standards on Quality Control (Overview)

1. Overview
Standards relating to the accounting profession concern themselves with the
professional qualities of CPAs, the judgement in the performance of their professional
engagements, and the Accounting firm’s system of quality control. Standards provide a
measure of quality of the work performed by the auditor and the consistency with which
this level of quality is achieved.
In the conduct of audit of financial statements, an auditor assumes certain
professional responsibilities. The opinion expressed by the auditor must be based on an
examination conducted in accordance with the professional standards. Failure to comply
with these standards exposes the auditor to risk such as loss of respect or even assessment
of legal damages.
The Board of Accountancy (BOA) promulgated 10 generally accepted auditing
standards (GAAS) that establish the required level of quality for performing financial
statement audits. These standards must be followed by CPAs when auditing financial
statements. Furthermore, Philippine Standards on Auditing (PSAs) are issued to clarify
the meaning of these ten GAAS. Standards that establish and provide guidance for a CPA
firm’s quality control policies and procedures are set forth in the Philippine Standards on
Quality Control (PSQC).
2. Generally Accepted Auditing Standards
The Generally Accepted Auditing Standards (GAAS) represent measure of
quality of the auditor’s performance. These standards should be looked at as a minimum
standard of performance that auditors should follow. In the conduct of an audit, an
auditor is assumed to follow the provisions of the GAAS in order to say that the audit
was done in a manner that is efficient, effective, and with quality.
The ten GAAS are group into three classifications:
a. General Standards (3);
- General standards are concerned with the auditor’s qualifications and the
quality of his or her work. These standards are personal in nature in that
they deal with auditor’s training and proficiency, auditor’s independence,
and the need for due professional care. These standards apply to all parts
of the audit, including fieldwork and reporting.
b. Standards of Fieldwork (3); and
- Standards of fieldwork relate to the actual conduct of the audit. These
standards provide the conceptual background for the audit process. They
relate to planning the audit, obtaining an understanding of the entity and
its environment, and obtaining sufficient appropriate audit evidence.
c. Standards of Reporting (4)
- Standards of reporting establish some specific directives for the
preparation of the audit report. These standards require that the auditor
considers each of the following issues before rendering the audit report:

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• Whether the financial statements are presented in accordance with

generally accepted accounting principles (GAAP);
• Whether those principles are consistently applied;
• Whether all informative disclosures have been made; and
• What degree of responsibility is the auditor taking and the
character of the auditor’s work
GAAS Summary
General Standards: (TIP)
1. The audit is to be performed by a person or persons having adequate training
and proficiency as an auditor. (Technical training and proficiency)
2. In all matters relating to the assignment, an independence in mental attitude is
to be maintained by the auditor or auditors. (Independence)
3. Due professional care is to be exercised in the planning of the audit and the
preparation of report. (Professional care)
Standards of Field Work: (PIE)
1. The work is to be adequately planned and assistants, if any, are to be properly
supervised. (Planning)
2. A sufficient understanding of internal control is to be obtained to plan the audit
and to determine the nature, timing, and extent of tests to be performed.
(Internal Control)
3. Sufficient, competent evidential matter is to be obtained through inspection,
observation, inquiries, and confirmations to afford a reasonable basis for an
opinion regarding the financial statements under audit. (Evidential matter)
Standards of Reporting: (GIDO)
1. The report shall state whether the financial statements are presented in
accordance with generally accepted accounting principles. (Generally accepted
accounting principles)
2. The report shall identify those circumstances in which such principles have
been consistently observed in the current period in relation to the preceding
period. (Inconsistency)
3. Information disclosures in the financial statements are to be regarded as
reasonably adequate unless otherwise stated in the report. (Disclosure)
4. The report shall contain either an expression of opinion regarding the financial
statements taken as a whole, or an assertion to the effect that an opinion, cannot
be expressed. When an overall opinion cannot be expressed, the reasons
therefore should be stated. In all cases, where an auditor’s name is associated
with financial statements, the report should contain a clear-cut indication of the
character of the auditor’s work, if any, and the degree of responsibility the
auditor is taking. (Opinion)

General Standards #1:

The first general standard recognizes that an individual must have adequate
technical training and proficiency as an auditor. This is gained through formal
education, continuing education programs, and experience. This requirement is
usually interpreted to mean college or university education in accounting and
auditing, participation in continuing professional education programs, seminars,
trainings, and substantial public accounting experience. A technical knowledge of
the industry in which the client operates is also part of the personal qualifications
of the auditor. It should be recognized that this training is ongoing, with a
requirement on the part of the auditor to stay up-to-date with current accounting
and auditing pronouncements. Auditors should also stay current with
developments in the business world that may affect their clients.

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General Standard #2:

The second general standard requires that the auditor maintain an attitude of
independence on an engagement. Independence is one of the most important traits and
characteristics that a practitioner must possess, as this confers in them public trust and
public confidence. An opinion by an independent public accountant as to the fairness of a
company’s financial statements is of questionable value unless the accountant is truly
independent. This ethical consideration perhaps embodies the most essential factor in the
existence of a public accounting profession.
General Standard #3:
The third standard focuses on due professional care. In simple terms, due care means that
the auditor plans and performs his or her duties with a degree of skill commonly
possessed by others in the profession. This standard requires the auditors to plan and
carry out every step of the audit engagement in an alert and diligent manner. Full
compliance with this standard would rule out any negligent acts or material omissions by
the auditors. However, this standard does not require auditor to be infallible.
Standards of Fieldwork #1:
The first standard of fieldwork deals with planning and supervision. Proper planning
leads to a more effective audit that is more likely to detect material misstatements and
assists in completing the engagement within reasonable period of time. This standard also
requires that assistants on the engagement to be properly supervised.
It is emphasized that adequate planning is essential to have a satisfactory audit. Without
planning, the audit is likely to be done in sporadic manner. Supervision is also important
in the conduct of an audit. Most of the fieldwork of an audit is carried out by staff
members with limited professional experience. Successful use of relatively new staff
members relies on close supervision at every level. These concepts extend from
providing a specific written audit program to staff members all the way to review of the
work by the partner in charge of the engagement.
Standards of Fieldwork #2:
The second standard of fieldwork requires that the auditor gain sufficient understanding
of the auditee’s internal control to plan the audit. The degree to which the auditor relies
on the auditee’s internal control directly affects the nature, timing, and extent of the work
performed by the independent auditor.
The auditor’s understanding of the client and its environment allows him to determine
what can go wrong to have materially misstated financial statements. The auditors must
plan and perform more extensive audit procedures in areas where the risk of material
misstatement is high. Such procedures may comprise test of internal controls or
procedures to substantiate the financial statement amounts.
Internal control provides assurance that the client’s records are reliable. When the auditor
find that internal control is effective, the quantity of other evidence required to
substantiate the financial statement amounts is much less than if controls are weak. This
emphasizes that the auditor’s assessment of internal control has a substantial impact on
the nature of the audit process. In addition, if the auditor can identify areas of weakness
in a client’s internal control, this information can help him focus on areas where
misstatements are more likely to occur.
Standards of Fieldwork #3:

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The focus of the third standard of fieldwork is sufficient, complete audit evidence. The
bulk of the work of the auditor in the conduct of the audit is obtaining and evaluating
audit evidence and the performance of audit procedures to afford a reasonable basis for
the expression of an opinion on the financial statements.
Sufficiency relates to the quality of audit evidence, while appropriateness relates to the
quality of evidence, that is, its relevance and reliability. When an audit evidence is judged
to be both sufficient and appropriate, that evidence is considered competent. These
evidences will be used by auditors to evaluate and support management assertions in the
financial statements.
3. Standards in the Accounting Profession
The Auditing and Assurance Standards Council (AASC) has been given the task to
promulgate auditing standards, practices, and procedures which shall be generally
accepted by the accountancy profession in the Philippines. To facilitate the preparation
by the AASC of its pronouncements and to attain uniformity of those pronouncements
with international auditing standards, the AASC has approved the adoption of the
International Standards on Auditing (ISAs), International Standards on Assurance
Engagements (ISAEs), International Standards on Review Engagements (ISREs), and
International Standards on Related Services (ISRSs) issued by the International Auditing
and Assurance Board (IAASB) created by the International Federation of Accountancts
(IFAC). These standards were “Philippinezed” to suit the requirements of the Philippines,
and thus were named PSAs, PSAEs, PSREs, and PSRSs.
• Philippine Standards on Auditing (PSAs) – for audits of historical financial
information
• Philippine Standards on Assurance Engagements (PSAEs) – for assurance
engagements that deal with subject matters other than historical information
• Philippine Standards on Review Engagements (PSREs) – for the review of
historical financial information
• Philippine Standards on Related Services (PSRSs) – for compilation
engagements, engagement to apply agreed-upon procedures to information and
other related services engagements as specified by the AASC
In addition to these standards, Practice Statements are also issued to provide practical
assistance to auditors in implementing the standards and to promote good practice in the
accountancy profession.
In this connection, the AASC undertakes a review of the standards and practice
statements issued by IAASB to determine if these can be adopted in the Philippines with
or without changes, after considering any local requirements imposed by law or practice.
Structure of the AASC Pronouncements
AASC Pronouncements
Framework for Assurance Engagements Related Services
Audit Review Other Agreed-upon Compilation
Assurance Procedures Engagements
Engagements Engagements
Phil. Phil. Phil. Phil. Standards on Related Services
Standards on Standards on Standards on PSRSs 4000 - 44699
Auditing Review Assurance
PSAs 100 - Engagements Engagements
999 PSREs 2000 - PSAEs 3000
2699 - 3699

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Phil. Auditing Phil. Review Phil. Phil. Related Services Practice

Practice Engagement Assurance Statements
Statements Practice and PRSPSs 4700 - 4999
PAPSs 1000 - Statements Engagement
1999 PREPSs 2700 Practice
- 2999 Statements
PAEPSs
3700 - 3999

4. Philippine Auditing Standards

How to Apply PSAs
The PSAs, taken together, provide the standards for the auditor’s work in fulfilling the
overall objectives of the auditor. The PSAs deal with the general responsibilities of the auditor,
as well as the auditor’s further considerations relevant to the application of those responsibilities
to specific topics.
In addition to objectives and requirements (requirements are expressed in the PSAs using
“shall”), a PSA contains related guidance in the form of application and other explanatory
material. It may also contain introductory material that provides context relevant to a proper
understanding of the PSA, and definitions. The entire text of a PSA, therefore, is relevant to an
understanding of the objectives stated in a PSA and the proper application of the requirements of
a PSA.
Where necessary, the application and other explanatory material provides further
explanation of the requirements of a PSA and guidance for carrying them out. In particular, it
may:
• Explain more precisely what a requirement means or is intended to cover.
• Include examples of procedures that may be appropriate in the circumstances.
While such guidance does not in itself impose a requirement, it is relevant to the proper
application of the requirements of a PSA. The application and other explanatory material may
also provide background information on matters addressed in a PSA.
Appendices form part of the application and other explanatory material. The purpose and
intended use of an appendix are explained in the body of the related PSA or within the title and
introduction of the appendix itself.
Introductory material may include, as needed, such matters as explanation of:
• The purpose and scope of the PSA, including how the PSA relates to other PSAs.
• The subject matter of the PSA.
• The respective responsibilities of the auditor and others in relation to the subject matter of
the PSA.
• The context in which the PSA is set.
A PSA may include, in a separate section under the heading “Definitions,” a description
of the meanings attributed to certain terms for purposes of the PSAs. These are provided to assist
in the consistent application and interpretation of the PSAs, and are not intended to override
definitions that may be established for other purposes, whether in law, regulation or otherwise.
Unless otherwise indicated, those terms will carry the same meanings throughout the PSAs. The
Glossary of Terms relating to Philippine Standards issued by the Auditing and Assurance
Standards Council contains a complete listing of terms defined in the PSAs. It also includes
descriptions of other terms found in PSAs to assist in common and consistent interpretation and
translation.
Complying with PSAs Relevant to the Audit

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The auditor shall comply with all PSAs relevant to the audit. APSA is relevant to
the audit when the PSA is in effect and the circumstances addressed by the PSA exist.
The auditor shall have an understanding of the entire text of aPSA, including its
application and other explanatory material, to understand its objectives and to apply its
requirements properly.
The auditor shall not represent compliance with PSAs in the auditor’s report
unless the auditor has complied with the requirements of this PSA and all other PSAs
relevant to the audit.
Objectives Stated in Individual PSAs
To achieve the overall objectives of the auditor, the auditor shall use the
objectives stated in relevant PSAs in planning and performing the audit, having regard to
the interrelationships among the PSAs, to:
a. Determine whether any audit procedures in addition to those required by the PSAs
are necessary in pursuance of the objectives stated in the PSAs; and
b. Evaluate whether sufficient appropriate audit evidence has been obtained.
The requirements of the PSAs are designed to enable the auditor to achieve the
objectives specified in the PSAs, and thereby the overall objectives of the auditor. The
proper application of the requirements of the PSAs by the auditor is therefore expected to
provide a sufficient basis for the auditor’s achievement of the objectives. However,
because the circumstances of audit engagements vary widely and all such circumstances
cannot be anticipated in the PSAs, the auditor is responsible for determining the audit
procedures necessary to fulfill the requirements of the PSAs and to achieve the
objectives. In the circumstances of an engagement, there may be particular matters that
require the auditor to perform audit procedures in addition to those required by the PSAs
to meet the objectives specified in the PSAs.
The auditor is required to use the objectives to evaluate whether sufficient
appropriate audit evidence has been obtained in the context of the overall objectives of
the auditor. If as a result the auditor concludes that the audit evidence is not sufficient and
appropriate, then the auditor may follow one or more of the following approaches:
• Evaluate whether further relevant audit evidence has been, or will be, obtained as
a result of complying with other PSAs;
• Extend the work performed in applying one or more requirements; or
• Perform other procedures judged by the auditor to be necessary in the
circumstances.
Where none of the above is expected to be practical or possible in the
circumstances, the auditor will not be able to obtain sufficient appropriate audit evidence
and is required by the PSAs to determine the effect on the auditor’s report or on the
auditor’s ability to complete the engagement.
Failure to Achieve an Objective
If an objective in a relevant PSA cannot be achieved, the auditor shall evaluate
whether this prevents the auditor from achieving the overall objectives of the auditor and
thereby requires the auditor, in accordance with the PSAs, to modify the auditor’s
opinion or withdraw from the engagement. Failure to achieve an objective represents a
significant matter requiring documentation in accordance with PSA 230 (Redrafted)
Complying with Relevant Requirements
The auditor shall comply with each requirement of aPSA unless, in the
circumstances of the audit:
a. The entire PSA is not relevant; or

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b. The requirement is not relevant because it is conditional and the condition does
not exist.
In exceptional circumstances, the auditor may judge it necessary to depart from a
relevant requirement in aPSA. In such circumstances, the auditor shall perform
alternative audit procedures to achieve the aim of that requirement. The need for the
auditor to depart from a relevant requirement is expected to arise only where the
requirement is for a specific procedure to be performed and, in the specific circumstances
of the audit, that procedure would be ineffective in achieving the aim of the requirement.

5. Philippine Standards on Quality Control

If the public is to rely on the work of the CPA, it is essential that appropriate
controls are put in place to ensure that the work is consistently of high quality. The need
for practicing CPAs to implement and maintain quality control measures is based on the
premise that audits are usually conducted by audit teams. Through implementing quality
control policies, CPAs and accounting firms can ensure that all members of the audit
team perform the same level of quality or work. Quality controls are the policies and
procedures adopted by CPAs to provide reasonable assurance of conformance with
professional standards in performing audit and related services.
The purpose of the Philippine Standards on Quality Control (PSQC) 1 is to
establish standards and provide guidance regarding a firm’s responsibilities for its system
of quality control for audits and reviews of historical financial information and for other
assurance and related services engagements. The PSQC 1 is to be read in conjunction
with the Code of Ethics for Professional Accountants in the Philippines.
PSQC 1 provides that a firm should establish a system of quality control designed
to provide it with reasonable assurance that the firm and its personnel comply with
professional standards, and regulatory and legal requirements, and that the report issued
by the firm is appropriate in the circumstances, in this regard, engagement teams:
• Implement quality control procedures that are applicable to the audit
engagement;
• Provide the firm with relevant information to enable the functioning of the
part of the firm’s system of quality control relating to independence; and
• Are entitled to rely on the firm’s systems unless information provided by the
firm or other parties suggest otherwise.
A system of quality control consists of:
a. Policies design to achieve the objectives of compliance with professional
standards and issuance of appropriate reports; and
b. Procedures necessary to implement and monitor compliance with those policies.
PSQC 1 applies to all firms. The nature of the policies and procedures developed
by individual firms to comply with the PSQC will depend on various factors such as the
size and operating characteristics of the firm, and whether it is part of a network.
Elements of a System of Quality Control
As provided in PSQC 1, the firm’s system of quality control should include
policies and procedures addressing each of the following elements:
• Leadership responsibilities for the quality within the firm
• Ethical requirements
• Acceptance and continuance of client relationships and specific engagements

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• Human resources
• Engagement performance
• Monitoring

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