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BM2110

NAME: Tammy I. Manaligod DATE: SCORE:

AUDIT CONSIDERATIONS: (60 points)

Direction: Choose two (2) industries given in the handout. Research the specific consideration for each
industry. Write your answer on another sheet of paper by following the format below:

I. Industry

 Banking
 Mining

II. Industry Overview.

Banking is a network of financial institutions whose principal activity is taking deposits and borrowing for
lending and investing. It is regulated by the Bangko Central ng Pilipinas (BSP). Thus, the compliance of the
banks with the reportorial requirements of the BSP must be considered in auditing the financial statement of
the banks. Some of the relevant standards of the companies in the banking industries are PFRS 7 – Financial
Instruments: Disclosure, PFRS 9 – Financial Instruments, and Philippine Auditing Practice Statements (PAPS)
1006 – Audits of Financial Statements of Banks. Examples of companies in the banking industries are Bank of
the Philippine Islands (BPI), Banco De Oro (BDO), Unibank, Philippine National Bank (PNB), and Asian
Development Bank (ADB).

Mining includes companies that are involved in the extraction of precious minerals and other geological
materials. The extracted materials are transformed into a mineralized form that serves as economic benefit to
the prospector or miner. The typical activities in the mining industry include metals production, metals
investing, and metals trading. Some of the relevant standards for companies in the mining industry are PAS 16
– Property, Plant, and Equipment (PPE), PFRS 16 – Leases, and PFRS 6 – Exploration for and Evaluation of
Mineral Resources. Example of mining companies in the Philippines are the Republic Cement and Building
Materials Inc., Agata Mining Ventures Inc., Coral Bay Nickel Corporation, and Holcim Mining and Development
Corp.

III. Audit Considerations.

a.) Banking

 Competence

Paragraph 6 lists some of the characteristics that are unique to banks and indicates the areas where the auditor
and assistants may require specialist skills. In considering the objective and scope of the audit and the extent of
the responsibilities, the auditor considers his own skills and competence and those of his assistants to conduct
the engagement. In doing so, the auditor considers the following factors:

o The need for sufficient expertise in the aspects of banking relevant to the audit of the bank’s business
activities
o The need for expertise in the context of IT systems and communication networks the bank uses.
o The adequacy of resources or inter-firm arrangements to carry out the work necessary at the number
of domestic and international locations of the bank at which audit procedures may be required.
 Audit Planning

The auditor should plan the audit work so that the audit will be performed in an effective manner. Plans should
be made to cover, among other things:
o Performing risk assessment procedures to obtain an understanding of the entity and its environment,
including its internal control.
o Assessing the level of audit risk which includes the risk that material misstatements will occur and the
risk that any remaining material misstatements will not be detected by the auditor.
o Determining and programming the nature, timing, and extent of the audit procedures to be performed.
o Considering the going concern assumption regarding the entity’s ability to continue in operation for the
foreseeable future, generally for a period not exceeding one year after the balance sheet date.

Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatements amplify that
principle, primarily in the context of recurring audits. Obtaining an understanding of the bank entity and its
environment will require the auditor to understand:
o The economic and regulatory environment prevailing for each of the countries in which the bank
operates.
o The market conditions existing in each of the sectors in which the bank operates.
Similarly, the auditor will need to acquire and maintain a good working knowledge of the products and services
offered by the bank. In developing an overall audit plan, the auditor needs to give particular attention to:
o The determination of materiality
o The assessment of the risk of material misstatement
o The expected degree of reliance on internal control
o The extent of CIS and EFT systems used by the bank.
o The work of internal audit
o The complexity of transactions undertaken by the bank and the documentation in respect thereof
o The existence of significant areas of audit concern not readily apparent from the bank’s financial
statements
o The existence of related party transactions
o The involvement of other auditors
o Management representations
o The work of supervisors

 Reliance on Experts

Due to the volume of transactions, virtually all banks support the treasury transactions cycle using IT systems.
Due to the complexity of systems in use and the procedures involved, the auditor ordinarily seeks the
assistance of IT experts to supply appropriate skills and knowledge in the testing of systems and relevant
account balances.

In addition, the auditor considers the need for, and adequacy of, provisions against financial instruments, such
as liquidity risk provision, modeling risk provision, and reserve for operational risk. The complexity of certain
instruments requires specialist knowledge. If the auditor does not have the professional competence to
perform the necessary audit procedures, advise is sought from appropriate experts.

 Laws and Regulations

The relevant provisions of applicable laws:


o The General Banking Law of 2000
o Republic Act No. 8792 “Electronic Commerce act of 2000”
o BSP guidelines on electronic banking activities
o BSP Circulars (e.g., Circular No. 210; Circular No. 212; Circular No. 245, as amended by Circular No. 318;
Circular No. 268; and Circular No. 313)
o Republic Act No. 9160, “Anti-Money Laundering Law”

b.) Mining

 Competence

The auditor is required to acquire knowledge of the organization and subject matter being audited and to
prepare a risk-based audit plan. In practice, this means that once the decision to audit the completeness of
revenues from the extraction of minerals has been made, the audit team needs to start conducting research
and interviewing officials to acquire or further develop a sound knowledge of business and an understanding of
the risks facing the organizations being audited. The information collected will be used to determine what the
main risk areas are and where audit efforts should be directed.

 Audit planning

The first step in the audit planning process is to determine the audit focus (what should be audited in the
mining sector?). To make this decision, auditors will need to undertake two initial research and analysis tasks:

o Acquire knowledge of business by gathering and analyzing relevant information on the mining sector
and on government responsibilities in regulating, monitoring, and overseeing the sector.
o Identify and assess risk factors that could prevent the government from carrying out its responsibilities
in this sector effectively and meeting its objectives.
o Review performance audits on the mining sector that have been previously published by their office or
other jurisdictions.
To be able to make sound scoping decisions for a performance audit of the mining sector, auditors need to
clearly understand the diversity and extent of government responsibilities in overseeing the sector:

o Evaluating mining development options


o Ensuring the responsibility development of natural resources
o Monitoring natural resource extraction
o Collecting revenues from natural resource extraction
o Collecting financial assurances for site remediation and monitoring financial

All performance audits need clearly stated objectives that are worded in a manner that allows auditors to
conclude against them. Audit objective should be realistic and achievable and give sufficient information to
audited organizations about the focus of the audit. The auditor should also select audit criteria which represent
the standards that audited organizations are expected to meet.

 Reliance on experts

Depending on the nature and complexity of the IT systems used by responsible departments and agencies,
audit teams may need the help of an IT expert to complete their audit procedures. This may be particularly
useful when there is a highly automated royalty process in place. In such a case, an IT expert can review IT
general controls and validate application controls for the calculation of royalties. A review of audit trail
functions may also help auditors to identify risk areas.

The mining industry is a complex, often heavily guarded sector. Auditors who intend to audit revenues from the
extraction of minerals may need access to specialized knowledge and expertise to conduct specialist, a lawyer,
or engineer.
 Laws and Regulations

Mining industries shall adhere to:

o Philippine Mining Act of 1995


o Republic Act (RA) No. 7942 (Mining Act) and its Implementing Rules and Regulations
o Department of Environment and Natural Resources (DENR) Administrative Order No. 2010-21
o Republic Act No. 8731 Indigenous People’s Rights Act
o Republic Act No. 7076 People’s Small-Scale Mining Act
o Republic Act No. 7160 Local Government Code 1991

Environmental Statuses such as:

o Presidential decree No. 1586 Environmental Compliance Certificate


o Department of Environment and Natural Resources (DENR) Administrative Order No. 2003-30
o Republic Act No. 9275 Clean Water Act 2004
o Republic Act No. 8749 Clean Air Act 1999
o Department of Environment and Natural Resources (DENR) Administrative Order No. 35 Revised
Effulgent Regulations 1990
o Republic Act No. 6969 Toxic Substance and Hazardous and Nuclear Waste Control Act 1990
o Republic Act No. 8749 Ecological Solid Waste Management Act
o Republic Act No. 7586 National Integrated Protected Areas System (NIPAS)
o 2020 Philippine Mineral Reporting Code

IV. References. It shall contain references to the research.

https://aasc.org.ph/downloads/paps/publications/pdfs/paps-1006.pdf

https://www.bis.org/publ/bcbs06a.pdf

https://www.accaglobal.com/in/en/student/exam-support-resources/professional-exams-study-
resources/p7/technical-articles/specialised-industries.html

https://iclg.com/practice-areas/mining-laws-and-
regulations/philippines#:~:text=The%20main%20mining%20legislation%20is,2010%2D21.

https://www.studocu.com/ph/document/polytechnic-university-of-the-philippines/bachelor-of-science-in-
accountancy/audit-considerations-specialized-industries-mining-industry/20873290

Rubric for grading each industry:


CRITERIA PERFORMANCE INDICATORS POINTS
Overview Provided a comprehensive overview of each industry. 5
Audit Considerations Provided pieces of evidence and a comprehensive 20
discussion of each audit consideration.
Citations and References Provided proper citations and references. 5
Total 30
01 Task Performance 1 *Property of STI
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