Audit Reviewer

kunware, kapag sinabe ko kay crezell na nagawa ko na assignment ko, ang assurance nya is kapag
nacheck na ng teacher to make sure na tapos ko na talaga.
What is Assurance?
-refers to the practitioners' satisfaction as to the reliability of an assertion being made by one party for use by
another party
FUNDAMENTALS OF ASSURANCE SERVICES

ASSURANCE ENGAGEMENT – designed to enhance the degree of confidence of the
intended users; lend credibility to the subject matter through a conclusion (giving advice)
di man makapagprovide ng formal opinion
ASSURANCE NON-ASSURANCE best use
but can help you understand how make the
Output: Assurance in the form of an Output: Recommendation on how to use

opinion whether it's reliable and accurate the information
Enhance the credibility of the subject Comments, suggestions, or
matter recommendations on how to use the info
The auditor and management or a
3-party contract 2-party contract third party agree that the auditor will
- Audit provides highest level of assurance at dapat free from
-
material misstatements and comply with accounting standards
Agreed-upon procedures apply his or her judgement to
determine procedures to be performed.
- Review
limited assurance that FS do not
contain any material misstatements - Compilation
- Examination of prospective - Prep of tax returns pag oorganize lang ng F
helps users evaluate for making
future decisions
financial information - M.A.S. information ng maayos without
giving an opinion on its accuracy
filling out tax forms based sa F
ELEMENTS OF ASSURANCE ENGAGEMENT 3SECC

information na provided ng client
para maensure yung compliance
sa regulations and etc.
1. 3-PARTY RELATIONSHIP (PRI)
 PRACTITIONER – someone engaged in public practice; must be independent
 RESPONSIBLE PARTY – preparers of the subject matter (F/S), subject matter
information, or both
 INTENDED USERS
could be financial statements, compliance with regulations, performance
metrics, internal controls, or any other aspect that requires evaluation or
2. APPROPRIATE SUBJECT MATTER assurance.
SUBJECT MATTER – nature of the assertion the practitioner gathers sufficient evidence
SUBJECT MATTER INFORMATION – outcome of the evaluation or measurement of a
subject matter
CHARACTERISTICS OF A SUBJECT MATTER TO BE CONSIDERED APPROPRIATE:

- Financial performance or conditions If it is making enough money and managing finances well
- Non- financial performance or conditions should be environmentally, socially responsible and follow ethical
should act - Physical characteristics practices
properties should be in good shape and suitable for their purpose
responsibly, make - Systems and processes
things are organized and done should be efficient, effective, and follow
good decisions, - Behavior proper procedures.
and work together
positively.
ELEMENTS:
- Identifiable clear and easy to understand should allow for fair and accurate assessment that can
- Capable of consistent evaluation/measurement be compared over time
- Capable of being subjected to procedures should be able to go through specific steps or methods for
evaluation
3. CRITERIA
FORMAL – PFRS, laws and regulations
LESS FORMAL – internally developed; para sakanila lang
ESTABLISHED – embodied in laws; general ang scope so if sakop ka, comply ka
SPECIFICALLY DEVELOPED – designed for particular entity; internal control procedures;
by laws
CHARACTERISTICS OF A SUITABLE CRITERIA: (RUN CR)
- Relevance should be related to what we are looking at. They should help us understand the subject matter better.
- Understandability should be easy to understand by everyone involved. They should be clear and not complicated.
- Neutrality should be fair and not biased. They should give an unbiased view of the subject matter.
- Completeness should cover all important aspects of the subject matter. Nothing important should be left out.
- Reliability should be dependable and give consistent results. They should be based on good information and methods.
These criteria should be communicated to intended users for them to understand how
the subject matter has been evaluated or measured
4. SUFFICIENT APPROPRIATE EVIDENCE

Consideration when planning and performing the engagement:
 SUFFICIENCY AND APPROPRIATENESS
SUFFICIENCY (QUANTITY) having the right amount of evidence. (related to what you're looking for)
APPROPRIATENESS (QUALITY) – measure of quality of evidence: RELEVANCE and
RELIABILITY (trustworthy and dependable)
- These are interrelated
- Sufficient and appropriate na ba? Determined by professional judgment and by
exercising professional skepticism
- The HIGHER the QUALITY, the LESS the evidence may be required; Obtaning
more evidence, however, may not compensate for its poor quality
 MATERIALITY
Lower materiality level leads to obtaining more evidence; if nagset ka ng mababang
level of materiality, marami kang need i-audit
 ASSURANCE ENGAGEMENT RISK

Happens when- if mali ang binigay ni Responsible party na subject matter information:
tas tama ang nagging opinion ni Practitioner kase nagbase siya sa presented na mali
palang subject matter information.
Material Misstatement- when there are significant errors or mistakes in financial
information that can impact decisions.
COMPONENTS:
 RISK OF MATERIAL MISSTATEMENT – dependent sa environment ng SMI
o INHERENT RISK risk that errors could naturally occur due to the nature of the business or industry.
o CONTROL RISK risk that errors could happen because the internal controls (like checks and balances) in place may not be
effective in preventing mistakes.
 RISK OF NON-DETECTION – dependent sa effectiveness ng auditing procedures

o DETECTION RISK risk that the audit procedures may not be able to detect errors even if they exist. It depends on how
effective the audit procedures are in uncovering mistakes.
 COST-BENEFIT CONSIDERATION
The benefits that will be derived from obtaining the evidence should exceed the cost of
obtaining it.
If masyadong magastos ang pag-obtain ng evidence:
(1) Check if may alternative procedure to obtain evidence;
(2) If none, obtain evidence regardless of cost
 PROFESSIONAL SKEPTICISM
Practitioner makes a critical assessment, with a questioning mind
GENERALIZATIONS ABOUT RELIABILITY OF EVIDENCE MAY BE USEFUL:

 External evidence > Internal evidence because it is less likely to be biased or manipulated
 Effective Internal Control > Ineffective Internal Control making evidence obtained from well-controlled environments
more trustworthy.
 Directly obtained evidence > Indirectly obtained evidence because it reduces the chances of information being
altered or misinterpreted as it passes through multiple
 Written evidence > Oral evidence making them less prone to errors or
misunderstandings compared to information sources.
because they are the
primary records and are  Original documents > Reproduced conveyed orally.
less likely to have been
altered or tampered with
compared to reproduced
copies. 5. WRITTEN ASSURANCE REPORT
TYPES OF OPINION
Walang UNMODIFIED/ UNQUALIFIED -
“Present fairly, in all material aspect” no significant issues
identified (walang
binago OPINION -
Di mo binabago (no material misstatement) kailangang baguhin)
QUALIFIED OPINION -
“Except for” may naidentify na issue PERO not significant enough para iinvalidate
-
Fairly presented lahat/buo
May mali
tas ayaw ADVERSE OPINION -
“Do not present fairly, in all material aspect”
itama -
Worst type of opinion may material misstatemnt tapos not
-
Not fairly presented (there is material accordance pa sa standards
misstatement)
DISCLAIMER OF OPINION - “We do not express a conclusion”
- “There is multiple uncenrtatinties” unable to obtain sufficient evidence
- “Auditor lacks independence” para makapagbigay ng opinyon or
- Auditor does not know if the FS is fairly
conclusion
presented or not; NO OPINION

PERVASIVE – it will make a significant impact sa FS; may mali or di magather ang
evidence may require adjustments or disclosures to ensure the accuracy and completeness of the information It's a big mistake
that spreads
It's like a big mistake in one part of the financial
statements that can affect decisions but doesn't
MATERIAL BUT NOT MATERIAL AND PERVASIVE across different
parts of the
mess up the whole picture. PERVASIVE financial
Material Misstatements Qualified Adverse statements,
messing up a lot
Scope limitation (inability of things.
to obtain S&A evidence)
*kapag qualified ang
opinion, material but
Client imposed Qualified Resign or Disclaimer not pervasive
*kapag adverse and
disclaimer ang
Other limitation Qualified Disclaimer opinion, material and
pervasive
Kapag ang: M but not P M and P
ay QUALIFIED-ADVERSE – may disagreement with management
QUALIFIED-DISCLAIMER – di alam kung tama o mali ang presentation ni Responsible
party; failed to obtain sufficient and appropriate evidence (Scope limitation)
LEVELS AND FORMS OF ASSURANCE
 AS TO LEVELS OF ASSURANCE PROVIDED

(1) REASONABLE ASSURANCE – Positive form. High but not absolute.
- Reduction in assurance engagement risk to an acceptably low level (or close to
zero)
- Known as audit engagement
Reasoable assurance is less than absolute assurance because of some factors such as
the: (UNPIT)
o Use of judgment (gathering and evaluating evidence; forming conclusion
based on that evidence because of level of subjectivity and the possibility of human error
o Nature and characteristics of the subject matter Certain areas of the financial statements or operations may
be inherently more difficult to audit
o Evidence available to the practitioner is persuasive rather than conclusive indicate a certain
weaknesses in internal controls can impact the conclusion but
o Inherent limitations of Internal control auditor's ability to obtain absolute assurance does not provide
may not be fully representative o Testing sample data rather than entire population absolute certainty.
of the entire population.
(2) LIMITED ASSURANCE – Negative form. Review. Mas mababa ang assurance, mas
mataas ang risk.
- Reduction in assurance engagement risk to a level that is acceptable in the
circumstances of the engagement
 TYPES OF ASSURANCE ENGAGEMENT AS TO STRUCTURE

(1) ATTESTATION ENGAGEMENTS – audit and review of FS
 ASSERTION-BASED ENGAGEMENTS – may written assertion/assurance; made
available to the intended users
(2) DIRECT ENGAGEMENTS kabaliktaran ng assertion-based engagements

 DIRECT REPORTING ENGAGEMENTS – walang written assertion/assurance; not
available to the intended users
STANDARDS GOVERNING PROFESSIONAL SERVICES BY CPAs

STANDARDS RELATED PRACTICE APPLICATION OF
STATEMENTS STANDARDS
Philippine Standards on Philippine Auditing Practice Audit of historical financial
Auditing (PSAs) Statements (PAPSs) information
Philippine Standards on Philippine Review Review of historical
Engagement standards
Assurance
Review Engagements Engagements Practice financial information
(PSREs) Statements (PREPSs)
Philippine Standards on Philippine Assurance Assurance engagements
Assurance Engagements Engagements Practice dealing with subject
(PSAEs) Statements (PAEPs) matter other than historical
financial information
Philippine Standards on Philippine Related Services Agreed-upon procedures Non-Assurance
Related Services (PSRSs) Practice Statements information and other
(PRSPSs) related services
engagements as specified
by AASC
Philippine Standards on All services falling under
Quality Management the AASCs Engagement
(PSQM) Standards
SUMMARY OF COMMON ASSURANCE AND NON-ASSURANCE
ENGAGEMENTS
ASSURANCE ENGAGEMENT NON-ASSURANCE ENGAGEMENT
AUDIT REVIEW AGREED-UPON COMPILATION
PROCEDURES ENGAGEMENT
REFERENCES PSAs and PAPSs PSREs and PREPSs PSRSs and PRSPSs PSRSs and PRSPSs
LEVEL OF High but not Moderate No assurance No assurance
ASSURANCE absolute
FORM OF Positive Negative No conclusion No conclusion
CONCLUSION
REPORT Audit report Audit review Report on Identification
PROVIDED factual findings of Information
compiled
INDEPENDENCE Required Required Not required Not required
but disclosed but disclosed
SKILLS USED BY Audit skills Audit skills Audit skills Accounting
THE skills
PRACTITIONER
INTRODUCTION TO AUDITING
AAA: An audit 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 thereof.
TYPES OF AUDIT
NATURE OF ASSERTION OR DATA TYPES OF AUDITOR
accuracy, completeness,
and validity FS AUDIT
  EXTERNAL AUDIT independent
company
professionals hired from outside the
OPERATIONAL AUDIT
effectiveness and efficiency  INTERNAL AUDIT employees of the company who
evaluate internal operations,
adherence to  COMPLIANCE AUDIT  GOVERNMENT AUDIT financial controls
laws, regulations,
and internal SIMILARITIES: As to nature: FS Audit + Compliance Audit work for government agencies
policies. As to type: External Audit + Government Audit and audit the use of public fund
As to totality: Operational Audit + Internal Audit
COMPARISON OF THE DIFFERENT TYPES OF AUDIT

FS AUDIT OPERATIONAL AUDIT COMPLIANCE AUDIT
ASSERTIONS FS are fairly Operations are Activities complied
presented conducted with applicable laws,
efficiently and rules, regulations,
effectively contracts or
management policy
SUITABLE GAAP or any other Objective set by the Applicable contracts,
CRITERIA identified financial management rules, regulations,
reporting framework laws or management
policy
REPORT An opinion whether Report on efficiency Degree of
the fs are fairly and effectiveness. compliance with
presented in This will also include applicable laws,
conformity with an recommendations rules, regulations, or
identified financial to improve management policy
reporting framework operations
GENERALLY External auditors Internal auditors Government auditors
PERFORMED BY
USERS OF Different groups for Management of the Authoritative bodies
AUDIT REPORT different purposes; entity that set down the
wide variety of users regulations, rules, and
procedures
FINANCIAL STATEMENT AUDIT

OBJECTIVE OF FS AUDIT
To express an opinion, in accordance with GAAP or other identified financial reporting
framework
REVIEW OF ELEMENTS OF FS AUDIT
a) A 3-PARTY RELATIONSHIP
- Auditor (PRACTITIONER)
- Management and those charged with governance (RESPONSIBLE PARTY)
- Users of FS (INTENDED USERS)
b) AN APPROPRIATE SUBJECT MATTER
- Auditability. Adequate supporting records and documents should be available
c) SUITABLE CRITERIA
d) SUFFICIENT APPROPRIATE EVIDENCE

Assurance Engagement Risk = Audit risk
e) A WRITTEN ASSURANCE REPORT OR CONCLUSION

TYPES OF OPINION
Walang UNMODIFIED/ UNQUALIFIED - “Present fairly, in all material aspect”
binago OPINION - Di mo binabago (no material misstatement)
QUALIFIED OPINION - “Except for”
- Fairly presented
May mali
tas ayaw ADVERSE OPINION - “Do not present fairly, in all material aspect”
itama - Worst type of opinion
- Not fairly presented (there is material
misstatement)
DISCLAIMER OF OPINION - “We do not express a conclusion”
- “There is multiple uncenrtatinties”
- “Auditor lacks independence”
- Auditor does not know if the FS is fairly
presented or not; NO OPINION
MATERIAL BUT NOT MATERIAL AND PERVASIVE

PERVASIVE
Material Misstatements Qualified Adverse
Scope limitation (inability
to obtain S&A evidence)
Client imposed Qualified Resign or Disclaimer
Other limitation Qualified Disclaimer
QUALIFIED-ADVERSE – may disagreement with management

QUALIFIED-DISCLAIMER – di alam kung tama o mali ang presentation ni Responsible
party; failed to obtain sufficient and appropriate evidence (Scope limitation)
THE DEMAND FOR FS AUDIT

a) MANAGEMENT OF THE FOLLOWING
a. BUSINESS RISK check for mistakes and problems in the company's
financial records to make sure everything is correct
and there are no errors that could cause financial
trouble.
make sure that the company's financial
information is kept safe and secure from
mistakes or fraud that could harm the
b. INFORMATION RISK company's reputation
FACTORS CONTRIBUTING TO WAYS OF REDUCING INFORMATION RISK

INFORMATION RISK
- Voluminous data - Verify the information
- Complexity of transactions - Have the fs be audited
- Remoteness of information - Share information risk with the
- Conflicts of interest between the management
provider and users of information
b) ADDITIONAL CONDITIONS CREATING THE NEED FOR FS AUDIT (CERF) tempted to make them look better than
a. CONFLICT OF INTEREST (Responsible party vs. Intended users)they actually are, audit have independent
check
b. EXPERTISE having the right skills to understand and check financial information properly
c. REMOTENESS OF USERScompany's providing assurance to stakeholders who may not have direct access to or involvement in the
operations.
d. FINANCIAL CONSEQUENCE how financial information can affect decisions. audit help if correct and trustworthy ang FS
VALUE OF FS AUDIT
- Audit reduces information risk that may lead to lower cost of capital
- Audit may be used to deter inefficiency and fraud
GENERAL PRINCIPLES OF AN FS AUDIT (CPP PJ SAE)

- Code of Ethics auditors follow rules and standards to be fair, honest, and act with integrity during the audit.
follow specific rules and guidelines set by the Philippines for
- In accordance with Philippine Standards on Auditing conducting audits to ensure consistency and quality.
- Professional skepticismfraud.
question and critically assess the information they receive to ensure accuracy and detect any potential errors or
- Professional Judgment expertise and experience to make informed decisions and conclusion
- Sufficient Appropriate audit Evidence enough relevant and reliable evidence to support their findings and conclusions about
the accuracy of FS
THEORETICAL FRAMEWORK (VIC BIG T)

- Verifiable can be supported by facts and data.
- Independence prevent bias and conflicts of interest that could compromise the integrity
- No long term Conflict (Auditor vs. Client management) ensures that auditors can provide unbiased and objective
evaluations of the financial statements.
- Audit Benefits the public provide assurance to the public and stakeholders
- Effective Internal Control system to safeguard assets, prevent fraud, and ensure the accuracy
- Consistent application of GAAP to maintain uniformity and comparability
- True in the past, must be True in the future as well (habang no evidence on the
contrary)
AUDIT PROCESS: A GENERAL APPROACH

1. ENTITY PREPARES AND PRESENTS FINANCIAL STATEMENTS
CATEGORIES
CLASSES OF TRANSACTIONS AND EVENTS ACCOUNT BALANCE AND RELATED
AND RELATED DISCLOSURES (POCCAC) DISCLOSURES (PACER C)
- Presentation in a clear and organized manner - Presentation
- Occurrencetransactions - Accuracy
and events recorded in the financial
statements actually took place
- Completeness verifying that no material transactions or - Completeness
events have been omitted
- Cutoff recorded in the appropriate accounting period - Existence
- Accuracycorrectness and precision of the amounts - Rights and obligation
recorded
organizing into relevant categories
- Classification based on their nature, purpose, and - Classification
financial impact.
2. THE AUDITOR PERFORMS AUDIT PROCEDURES
MAJOR AUDIT PROCEDURES

Para malaman kung(1) RISK ASSESSMENT PROCEDURES – kikilalanin ang entity: Obtain an understanding
gaano karaming
procedures ang of the entity and its environment
need gawin (2) TEST OF CONTROLS – maganda ba o pangit ang controls
(3) SUBSTANTIVE PROCEDURES – tignan ang items sa FS
a. TEST OF DETAILS
b. SUBSTANTIVE ANALYTICAL PROCEDURES
SPECIFIC AUDIT PROCEDURES

(1) INSPECTION OF RECORDS OR DOCUMENTS
(2) INSPECTION OF TANGIBLE ASSETS
(3) OBSERVATION
(4) INQUIRY (from internal sources: whether in writing or orally)
(5) CONFIRMATION (from external sources: in writing only)
(6) RECALCULATION
(7) REPERFORMANCE
(8) ANALYTICAL PROCEDURES
3. THE AUDITOR GATHERS AUDIT EVIDENCE
4. THE AUDITOR EXPRESSES AN AUDIT OPINION
AUDIT PROCESS: A MORE DETAILED APPROACH

PRELIMINARY ENGAGEMENT ACTIVITIES Whether or not to accept a new client or
continue relationship with an existing one
PLANNING AN AUDIT OF FINANCIAL Audit strategy, Audit plan, and Audit
STATEMENTS program {RAP → FAP (TOC + ST)}
STUDY AND EVALUATION OF INTERNAL Ultimate assessment of control risk
CONTROL
EVIDENCE-GATHERING (SUBSTANTIVE Will always be performed by the auditor
TESTING)
COMPLETING THE AUDIT Wrapping-up procedures (Notes to FS,
Events After Reporting Period)
ISSUANCE OF THE AUDIT REPORT Communicate the result
POST-AUDIT RESPONSIBILITIES Areas for improvement: Quality controls,
omitted procedures
Page 1 of 14 | AUD Handouts No. 01
THE ACCOUNTANCY PROFESSION

RAYMUND FRANCIS A. ESCALA, CPA, MBA
PRACTICE AND REGULATION OF THE

ACCOUNTANCY PROFESSION
RAYMUND FRANCIS A. ESCALA, CPA MBA
SCOPE OF PRACTICE
The practice of accountancy shall include, but not limited to, the following:
1. Practice of Public Accountancy provide services to a variety of clients, including individuals, businesses, and government agencies.
Shall constitute in a person, be it his/her individual capacity, or as a partner or as a staff member in an accounting or
auditing firm, holding out himself/herself as one skilled in the knowledge, science and practice of accounting, and as a
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qualified person to render professional services as a certified public accountant; or offering or rendering, or both, to
more than one client on a fee basis or otherwise, services such as
• the audit or verification of financial transaction and accounting records;
• the preparation, signing, or certification for clients of reports of audit, balance sheet, and other financial,
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accounting and related schedules, exhibits, statements or reports which are to be used for publication or for credit
purposes, or to be filed with a court or government agency, or to be used for any other purpose;
• the design, installation, and revision of accounting system;
• the preparation of income tax returns when related to accounting procedures; or
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• when he/she represents clients before government agencies on tax and other matters related to accounting or
renders professional assistance in matters relating to accounting procedures and the recording and presentation
of financial facts or data.
2. Practice in Commerce and Industry work within private companies, corporations, or organizations.
Shall constitute in a person involved in decision making requiring professional knowledge in the science of
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accounting, or when such employment or position requires that the holder thereof must be a certified public
accountant.
3. Practice in Education/Academe involved in teaching accounting and related courses at universities, colleges, or educational institutions.
Shall constitute in a person in an educational institution which involve teaching of accounting, auditing, management
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advisory services, finance, business law, taxation, and other technically related subjects: Provided, That members of
the Integrated Bar of the Philippines may be allowed to teach business law and taxation subjects.
responsible for managing public finances, budgeting, financial reporting, and ensuring transparency and accountability in
4. Practice in the Government government spending
Shall constitute in a person who holds, or is appointed to, a position in an accounting professional group in
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government or in a government–owned and/or controlled corporation, including those performing proprietary

functions, where decision making requires professional knowledge in the science of accounting, or where a civil
service eligibility as a certified public accountant is a prerequisite.
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REGULATION OF THE ACCOUNTANCY PROFESSION

REPUBLIC ACT NO. 9298 (RA 9298) OR THE “PHILIPPINE ACCOUNTANCY ACT OF 2004”
RA 9298 is the regulatory act of the practice of accountancy in the Philippines. It supersedes Presidential Decree no. 692
(PD 692), otherwise known as the revised accountancy law.
Objectives
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RA 9298 shall provide for and govern:

a. The standardization and regulation of accounting education;
b. The examination for registration of certified public accountants; and
c. The supervision, control, and regulation of the practice of accountancy in the Philippines.
PROFESSIONAL REGULATORY BOARD OF ACCOUNTANCY (BOA)

Composition
• A chairman and six (6) members to be appointed by the President of the Philippines
• A vice chairman shall be elected from among its members for a term one (1) year.
REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience

www.reocpareview.ph REAL EXCELLENCE ONLINE CPA REVIEW
(074) 665 6774 0916 840 0661 support@reocpareview.ph MAY 2021 CPA REVIEW SEASON

Qualifications of Members
A member of the Board shall, at the time of his/her appointment, possess the following qualifications:
a. Must be a natural-born citizen and a resident of the Philippines;
b. Must be a duly registered Certified Public Accountant with at least ten (10) years of work experience in any scope
of practice of accountancy.
c. Must be of good moral character and must not have been convicted of crimes involving moral turpitude; and
d. Must not have any pecuniary interest, directly or indirectly, in any school, college, university or institution
conferring an academic degree necessary for admission to the practice of accountancy or where review classes
in preparation for the licensure examination are being offered or conducted, nor shall he/she be a member of the
faculty or administration thereof at the time of his/her appointment to the Board.
e. Must not be a director or officer of the APO at the time of his appointment.
Term of Office
• The Chairman and members of the Board shall hold office for a term of three (3) years.
• No person who has served two (2) successive complete terms shall be eligible for reappointment until the lapse of
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one (1) year.
Powers and Functions of the Board

The Board shall exercise the following specific powers, functions and responsibilities:
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a. To prescribe and adopt the rules and regulations necessary for carrying out the provisions of this Act;
b. To supervise the registration, licensure and practice of accountancy in the Philippines;
c. To administer oaths in connection with the administration of this Act;
d. To issue, suspend, revoke, or reinstate the Certificate of Registration for the practice of the accountancy
profession;
e. To adopt an official seal of the Board; EV
f. To prescribe and/or adopt a Code of Ethics for the practice of accountancy;
g. To monitor the conditions affecting the practice of accountancy and adopt such measures, including promulgation
of accounting and auditing standards, rules and regulations and best practices as may be deemed proper for the
enhancement and maintenance of high professional, ethical, accounting and auditing standards: Provided, That
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domestic accounting and auditing standards, rules and regulations shall include the international accounting and
auditing standards, and generally accepted best practices;
h. To conduct an oversight into the quality of audits of financial statements through a review of the quality control
measures instituted by auditors in order to ensure compliance with the accounting and auditing standards and
practices;
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i. To investigate violations of this act and the rules and regulations promulgated hereunder and for this purpose, to
issue summons, subpoena and subpoena ad testificandum and subpoena duces tecum to violators or witness
thereof and compel their attendance to such investigation or hearings and the production of documents in
connection therewith: Provided, That the Board upon approval of the Commission may, subject to such rules and
regulations that may be promulgated to implement this section, delegate the fact-finding aspect of such
investigations to the accredited national professional organization of certified public accountants: Provided,
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Further, That the Board and/or the Commission may adopt their findings of fact as it may seems fit;
j. The Board may, motu propio in its discretion, make such investigations as it deems necessary to determine
whether any person has violated any provisions of this law, any accounting or auditing standard or rules duly
promulgated by the Board as part of the rules governing the practice of accountancy;
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k. To issue a cease or desist order to any person, association, partnership or corporation engaged in violation of any
provision of this Act, any accounting or auditing standards or rules duly promulgated by the Board as part of the
rules governing the practice of accountancy in the Philippines;
l. To punish for contempt of the Board, both direct and indirect, in accordance with the pertinent provisions of and
penalties prescribed by the Rules of Court;
m. To prepare, adopt, issue or amend the syllabi of the subjects for examinations in consultation with the academe,
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determine and prepare questions for the licensure examination which shall strictly be within the scope of the
syllabi of the subjects for examinations as well as administer, correct and release the results of the licensure
examinations;
n. To ensure, in coordination with the Commission on Higher Education (CHED) or other authorized government
offices that all higher educational instruction and offering of accountancy comply with the policies, standards and
requirements of the course prescribed by CHED or other authorized government offices in the areas of
curriculum, faculty, library and facilities; and
o. To exercise such other powers as may be provided by law as well as those which may be implied from, or which
are necessary or incidental to the carrying out of, the express powers granted to the Board to achieve the
objectives and purposes of this Act.

(074) 665 6774 0916 840 0661 z support@reocpareview.ph MAY 2021 CPA REVIEW SEASON

Administrative Supervisions of the Board, Custodian of its Records, Secretariat and Support Services
The Board shall be under the administrative supervision of the Commission. All records of the Board, including
applications for examination, examination questions, answer sheets, and other records and documents pertaining to the
CPA licensure examination, and administrative and other investigative cases conducted by the Board shall be under the
custody of the Board and shall provide the secretariat other support services to implement the provision of R.A. No. 9298.
Annual Report
The Board shall, at the close of each calendar year, submit an annual report to the President of the Philippines through
the Commission giving a detailed account of its proceedings and accomplishments during the year and making
recommendations for the adoption of measures that will upgrade and improve the conditions affecting the practice of
accountancy in the Philippines.
Grounds for Suspension or Removal of Members of the Board

The President of the Philippines, upon the recommendation of the Commission, after giving the concerned member an
opportunity to defend himself in a proper administrative investigation to be conducted by the Commission, may suspend
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or remove any member on the following grounds:
a. Neglect of duty or incompetence;
b. Violation or tolerance of any violation of this Act and its implementing rules and regulations or the CPA’s Code of
Ethics and the technical and professional standards of practice for certified public accountants;
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c. Final judgment of crimes involving moral turpitude; and
d. Manipulation or rigging of the certified public accountants licensure examination results, disclosure of secret and
confidential information in the examination questions prior to the conduct of the said examination or tampering of
grades.
CERTIFIED PUBLIC ACCOUNTANT EXAMINATIONS

Qualifications of Applicants for Examinations
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Any person applying for examination shall establish the following requisites to the satisfaction of the Board that he/she:
a. is a Filipino citizen;
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b. is of good moral character;
c. is a holder of the degree of Bachelor of Science in Accountancy conferred by a school, college, academy or
institute duly recognized and/or accredited by the CHED or other authorized government offices; and
d. has not been convicted of any criminal offense involving moral turpitude.
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Scope of Examination
The licensure examination for certified public accountants shall cover, but are not limited to, the following subjects:
1. Advanced Financial Accounting and Reporting (AFAR)
2. Auditing (AUD)
3. Financial Accounting and Reporting (FAR)
4. Management Advisory Services (MAS)
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5. Taxation (TAX)
6. Regulatory Framework for Business Transactions (RFBT)
Rating in the Licensure Examination

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PASSED General average of at least seventy-five percent (75%), with no grades lower than sixty-five
percent (65%) in any given subject.
CONDITIONAL General average of less than 75%, has a grade of less than 65%, or both, but has obtained
75% and above in at least majority (4 out of 6) of the subjects covered in the licensure
examination.
REMOVAL A candidate shall take an examination in the remaining subjects within two years from the
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EXAMINATION preceding examination.
Failing Candidates to Take Refresher Course

A candidate who fails in two (2) complete CPA Board Examinations shall be disqualified from taking another set of
examinations unless he/she submits evidence to the satisfaction of the Board that he/she enrolled in and completed at
least twenty-four (24) units of subject given in the board exam.
Report of Ratings
The Board shall submit to the Commission the ratings obtained by each candidate within ten (10) calendar days after the
examination, unless extended for just cause. Upon the release of the results of the examination, the Commission shall
send by mailing the rating received by each examinee at his/her given address using the mailing envelope submitted
during the examination.


Oath
All successful candidates in the examination shall be required to take an oath of profession before any member of the
Board or before any government official authorized by the Commission or any person authorized by law to administer
oaths upon presentation of proof of his/her qualification, prior to entering upon the practice of the profession.
Roster of Certified Public Accountants

A roster showing the names and place of business of all registered certified public accountants shall be prepared and
updated by the Board, and copies thereof shall be made available to any party as may be deemed necessary.
CERTIFICATES OF REGISTRATION, PROFESSIONAL IDENTIFICATION CARD and TEMPORARY/SPECIAL

PERMITS
Issuance
A certificate of registration shall be issued to
a. examinees who pass the licensure examination
b. person admitted under reciprocity or other international agreements
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The Certificate of Registration shall bear the following
a. full name and the assigned registration number of the registrant
b. signature of the chairperson of the Commission and the chairman and members of the Board
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c. official seal of the Commission and of the Board,
A Professional Identification Card bearing the registration number, date of issuance, expiry date, duly signed by the
chairperson of the Commission, shall likewise be issued to every registrant renewable every three (3) years.
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Special/temporary permit may be issued by the Board subject to the approval of the Commission and payment of the
fees the latter has prescribed and charged thereof to the following persons:
a. A foreign CPA called for consultation or for a specific purpose which, in the judgment of the Board, is essential for
the development of the country: (Provided, that his/her practice shall be limited only for the particular work that
he/she is being engaged and that there is no Filipino CPA qualified for such consultation or specific purposes;
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b. A foreign CPA engaged as professor, lecturer or critic in fields essential to accountancy education in the
Philippines and his/her engagement is confined to teaching only; and
c. A foreign CPA who is an internationally recognized expert or with specialization in any branch of accountancy and
his/her service is essential for the advancement of accountancy in the Philippines.
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Indication of Certificate of Registration, Identification Card and Professional Tax Receipt

The certified public accountant shall be required to indicate his/her certificate of registration number, and date of issuance,
the duration of validity, including the Professional Tax Receipt number on the documents he/she signs, uses or issues in
connection with the practice of his/her profession.
Refusal to Issue
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The Board shall not register and issue a certificate of registration and professional identification card to any successful
examinee
a. Convicted by a court of competent jurisdiction of a criminal offense involving moral turpitude
b. Guilty of immoral and dishonorable conduct
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c. Of unsound mind
Suspension and Revocation

The Board shall have the power, upon due notice and hearing, to suspend or revoke the practitioner’s certificate of
registration and professional identification card or suspend him/her from the practice of his/her profession or cancel
his/her special permit for any of the causes or grounds
a. As mentioned in the grounds for refusal to issue; or
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b. Any unprofessional or unethical conduct

c. Malpractice
d. violation of any of the provisions of RA 9298 and its IRR, the CPA‘s Code of Ethics and the technical and
professional standards of practice for certified public accountants.
Reinstatement, Reissuance and Replacement of Revoked or Lost Certificates

The Board may, after the expiration of two (2) years from the date of revocation of a certificate of registration and upon
application and for reasons deemed proper and sufficient, reinstate the validity of a revoked certificate of registration and
in so doing, may, in its discretion, exempt the applicant from taking another examination.


PRACTICE OF ACCOUNTANCY
Prohibition in the Practice of Accountancy
No person shall practice accountancy in this country, or use the title “Certified Public Accountant”, or use the abbreviated
title “CPA” or display or use any title, sign, card, advertisement, or other device to indicate such person practices or offers
to practice accountancy, or is a certified public accountant, unless such person shall have received from the Board a
certificate of registration/ professional license and be issued a professional identification card or a valid temporary/special
permit duly issued to him/her by the Board and the Commission.
Limitation of the Practice of Public Accountancy

Single practitioners and partnerships for the practice of public accountancy shall be registered certified public accountants
in the Philippines.
Accreditation to Practice Public Accountancy

A certificate of accreditation shall be issued to CPA in public practice only upon showing that such registrant has acquired
a minimum of three (3) years meaningful experience in any of the areas of public practice including taxation.
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Individual certified public accountants, firms and partnerships of certified public accountants, engaged in the practice of
public accountancy, including partners and staff members thereof, shall register with the Commission and the Board, such
registration shall be renewed every three (3) years
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Seal and Use of Seal
All licensed certified public accountants shall obtain and use a seal of a design prescribed by the Board bearing the
registrant’s name, registration number and title. The auditor’s reports shall be stamped with said seal, indicating therein
when used professionally.
Ownership of Working Papers

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his/her current Professional Tax Receipt (PTR) number, date/place of payment when filed with government authorities or
As a rule, working papers are confidential, privileged and property of the CPA.
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Foreign Reciprocity
Subjects or citizens of foreign countries may be allowed to practice Accountancy in the Philippines in accordance with the
provisions of existing laws, international treaty obligations including mutual recognition agreements entered into by the
Philippine government with other countries. A person who is not a citizen of the Philippines shall not be allowed to practice
accountancy in the Philippines unless he/she can prove, in the manner provided by the rules of court that, by specific
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provision of law, the country of which he/she is a citizen, subject or national admits citizens of the Philippines to the
practice of the same profession without restriction.
Accredited Professional Organization (Philippine Institute of Certified Public Accountants)

All registered certified public accountants whose names appear in the roster of certified public accountants shall be united
and integrated through their membership in a one and only registered and accredited national professional organization of
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registered and licensed certified public accountants, which shall be registered with the Securities and Exchange
Commission as a nonprofit corporation and recognized by the Board, subject to the approval by the Commission. The
members in the said integrated and accredited national professional organization shall receive benefits and privileges
appurtenant thereto upon payment of required fees and dues. Membership in the integrated organization shall not be a
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bar to membership in any other association of certified public accountants.
PENAL AND FINAL PROVISIONS

Penal Provision
Any person who shall violate any of the provisions of this Act or any of its implementing rules and regulations as
promulgated by the Board subject to the approval of the Commission, shall, upon conviction, be punished by a fine of not
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less than fifty thousand pesos (P 50,000.00) or by imprisonment for a period not exceeding two (2) years or both.
Enforcement of the Act

It shall be the primary duty of the Commission and the Board to effectively enforce the provisions of this Act. All duly
constituted law enforcement agencies and officers of national, provincial, city or municipal government or of any political
subdivision thereof, shall, upon the call or request of the Commission or the Board, render assistance in enforcing the
provisions of this Act and to prosecute any person violating the provisions of the same. The Secretary of Justice or his
duly designated representative shall act as legal adviser to the Commission and the Board and shall render legal
assistance as may be necessary in carrying out the provisions of this Act.
Accreditation of Individual CPAs, Firms and Partnerships of CPAs engaged in the Public Practice of Accountancy
The registration shall be valid for a period of three (3) years and may be renewed every three (3) years on or before
September 30 on the year of expiry upon compliance of the requirements.


CONTINUING PROFESSIONAL DEVELOPMENT

Based on RA 10912 Continuing Professional Development (CPD) Act of 2016
RA 10912 is an act mandating and strengthening the continuing professional development program for all regulated
professions, creating the continuing professional development council, and appropriating funds therefor, and for other
related purposes
Definition and Rationale

CPD refers to the inculcation of advanced knowledge, skills and ethical values in a post-licensure specialization or in an
inter- or multidisciplinary field of study, for assimilation into professional practice, self-directed research or lifelong
learning.
Voluntary compliance with the CPD program is an effective and credible means of ensuring competence, integrity and
global competitiveness of professional in order to allow them to continue the practice of their profession.
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Required CPE Credit units
1. Renewal of PIC – fifteen (15) credit units.
Exemptions:
a. Professional working overseas (OFWs)
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b. Newly licensed professionals for the first renewal cycle after obtaining their license
2. For accreditation (initial and renewal) – one hundred twenty (120) credit units
Minimum units under required competency areas
A. Technical Competence 30 units
B. Professional Skills
C. Professional Values, Ethics, and Attitudes
Flexible CPD units
Required number of CPD units
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5 units
Note: The required minimum units earned from the previous year/s shall be 20 credit units.
40 units
80 units
120 units
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How to earn CPD credit units?
1. Seminars/workshops (training offered by Accredited CPD Providers, Face to Face or Online)
 As participant
 As resource speaker
 As panellist/reactor
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 As facilitator/moderator
 As CPD monitor
 In-service training/On-the-job training
2. Academic Track (must be applied within 5 years after completion)
 Master’s Degree or equivalent
 Doctorate Degree or equivalent
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 Bachelor of Laws
 Professional certifications (examples: CMA, CFA, CFE, CIA, and CISA)
 Foreign language certifications
 Professional chair
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 Internship/Specialty/Sub-specialty program
 Fellowship grant
 Post-graduate diploma/certificate
3. Self-Directed and/or Lifelong Learning (Training offered by Non-Accredited Providers, Face to Face or Online)
Aside from activities similar with seminars/workshops, the following are also included in this category
 Technical paper
 Article published in refereed/peer reviewed professional journal
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 Pamphlet/book or monograph
 Magazine/newspaper articles relevant to the topics in the competence areas
 Study tours/visits
 Active committee membership in FRSC, AASC, PIC, CPD Committee
4. Such Other Activities to be recommended by the CPD Council and Approved by the Board and the Commission.


ORGANIZATIONS DISCUSSED UNDER RA 9298

Financial Reporting Standards Council (FRSC)
The FRSC shall be composed of fifteen (15) members. A chairman, who had been or presently a senior accounting
practitioner in any of the scope of accounting practice and fourteen (14) representatives from the following:
Board of Accountancy 1
Commission on Audit 1
Securities and Exchange Commission 1
Bangko Sentral ng Pilipinas 1
Bureau of Internal Revenue 1
A major organization composed of preparers
and users of financial statements (FINEX)* 1
Accredited National Professional Organization of CPAs:
Public Practice 2
Commerce and Industry 2
Academe/Education 2
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Government 2 8
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*Financial Executives Institute of the Philippines
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Auditing and Assurance Standards Council (AASC)
The AASC shall be composed of fifteen (15) members. A chairman, who had been or presently a senior practitioner in
public accountancy and fourteen (14) representatives from the following:
Commission on Audit
Securities and Exchange Commission
Bangko Sentral ng Pilipinas
An association or organization of CPAs in
active public practice of accountancy
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1
1
1
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Public Practice 6
Academe/Education 1
Government 1 9
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Quality Review Committee (QRC)

The QRC shall be composed of seven (7) members. A chairman, who had been presently a senior accounting
practitioner in the public accountancy and six representatives from the following:
Public Practice 2
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Academe/Education 1
Government 1 5
6
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Functions of QRC:
• Conduct quality review on applicants for registration to practice public accountancy and render a report which
shall be attached to the application for registration.
• Recommend to the Board the revocation of the certificate of registration and the professional identification card of
CPAs in public practice of accountancy.
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Education Technical Council (ETC)

The ETC shall be composed of seven (7) members with a Chairman, who had been presently a senior accounting
practitioner in the academe/education and six representatives from the following:
Public Practice 1
Academe/Education 2*
Government 1 5
6
*shall be equally distributed among the private and public schools


ETC was established to assist the Board in

a. carrying out its powers and functions provided in Rule II, Section 7 (n) of RA 9298
b. in attaining the objective of continuously upgrading the accountancy education in the Philippines to make the
Filipino CPAs globally competitive.
Term of Office
The chairman and members of the FRSC, AASC, QRC and ETC shall have a term of three (3) years renewable for
another term.
Philippine Institute of Certified Public Accountant (PICPA)

• The PICPA was recognized by the Commission as the APO on October 2, 1975 per Accreditation No. 15. It was
established for the benefit and welfare of the CPAs, the advancement of their profession, and the attainment of
other professional ends.
• Membership is open to all registered CPAs from all sectors namely public practice, commerce and industry,
academe/education and government.
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• PICPA shall have adequate chapters/regions in major areas in the Philippines to effectively attend to the needs of
its members
• There shall only be fifteen (15) national directors, unless there is a valid reason to have additional representation.
• Renewal of certificate of accreditation once every three years.
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• Cancellation of accreditation may be caused by any of the following grounds:
a. it has ceased to possess any of the qualifications for accreditation
b. it no longer serves the best interests of CPAs
c. it did not achieve its plan within three years
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d. it has committed acts inimical to its members and to the profession
e. Failure to renew its accreditation after a lapse of unreasonable period.
PRC CPE Council

The Board, upon approval by the PRC, shall create this council which shall assist the Board in implementing its CPE
program.
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Composition
The PRC CPE Council shall be composed of a chairperson and two (2) members.
• The chairperson shall be chosen among the members of the Board
• The first member could either be the president or any officer chosen by the BOD of PICPA
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• The second member could either be the president or any officer of the organizations of deans or department
heads of schools, colleges or universities offering BS Accountancy program.
Term of office
Co-terminus with their respective incumbency in BOA, PICPA and organization
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Powers and Functions

The council shall, upon a majority vote, exercise powers and functions which shall include but shall not be limited to the
following:
• Accept, evaluate and approve applications for accreditation of CPE providers.
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• Accept, evaluate and approve applications for accreditation of CPE programs, activities or sources as to their
relevance to the profession and determine the number of CPE credit units to be earned on the basis of the
contents of the programs, activity or source submitted by the CPE providers.
• Accept, evaluate and approve applications for accreditation for exemptions from CPE requirements.
• Monitor implementation by the CPE providers of their programs, activities or sources.
• Assess periodically and upgrade criteria for accreditation of CPE providers and CPE programs, activities or
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sources.
• Perform such other related functions that may be incidental to implementation of the CPE programs or policies.
PICPA CPE Council

If the need arises, the PRC CPE Council may delegate to the PICPA
• the processing of the application
• keeping of all records for CPE providers and their respective programs and credit units earned by each CPA who
avail of the CPE programs
• any other related functions


ORGANIZATIONS AFFECTING THE ACCOUNTANCY PROFESSION

I. Regulatory Government Agencies
A. Professional Regulation Commission (PRC) - Agency that administers, implements and enforces the
regulatory policies of the government with respect to the regulation and licensing of the various professions under
its jurisdiction.
B. Board of Accountancy – the only body that issues and may revoke CPA certificates and grant license to practice
C. Commission on Audit (COA) - the Philippines’ Supreme Audit Institution. This commission has the power,
authority and the duty to examine, audit, and settle all accounts pertaining to the revenue and receipts of, and
expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the government, or any of
its subdivisions, agencies, or instrumentalities, including government-owned or controlled corporations and
recommend measures to improve the efficiency and effectiveness of government operations. Its primary function
is to keep the general accounts of the government and for such period as may be provided by law, preserve the
vouchers pertaining thereto.
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Reports on the:
1) Accountability of government funds
a. When it examines all accounts pertaining to the revenue and receipts of, and expenditures or uses of
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funds and property owned or held in trust by, or pertaining to, the government.
b. When it sets accounting and auditing rules and regulations including those for the prevention and
disallowance of irregular, unnecessary, excessive, extravagant or unconscionable expenditures, or
uses of government funds and properties.
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2) Financial condition and operation of the government to the President and the Congress.
3) Operational efficiency and effectiveness of the government and its agencies.
4) Accountability of government records.
5) Decisions to any case brought before it within 60 days.
D. Securities and Exchange Commission (SEC) - Agency that regulates the registration and operations of
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corporations, partnerships and other forms of associations, as well as monitoring of compliance with the
Corporation Code, Civil Code provisions on partnerships, Foreign Investment Act, and other related laws. It has
power to established rules for any CPAs associated with audited financial statements submitted to the
Commission and also has considerable influence in setting GAAP and disclosure requirements for financial
statements
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The SEC Powers and functions relevant to the Accountancy Profession

1) Have the jurisdiction and supervision over all corporations, partnerships or associations who are the grantees
of primary franchises and/ or a license or permit issued by the Government;
2) Approve, reject, suspend, revoke or require amendments to registration statements, and registration and
licensing applications;
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3) Issue cease and desist orders to prevent fraud or injury to the investing public;
4) Impose sanctions for the violation of laws and the rules, regulations and orders issued pursuant thereto;
5) Punish for contempt of the Commission, both direct and indirect, in accordance with the pertinent provisions
of and penalties prescribed by the Rules of Court;
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6) Issue subpoena duces tecum and summon witnesses to appear in any proceedings of the Commission and in
appropriate cases, order the examination, search and seizure of all documents, papers, files and records, tax
returns, and books of accounts of any entity or person under investigation as may be necessary for the proper
disposition of the cases before it, subject to the provisions of existing laws.
Objectives:
to assist in providing investors with reliable information upon which to make investment decisions
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E. Bureau of Internal Revenue (BIR) - Agency whose primary objective is to raise revenues for the government. It
also prescribes additional requirements for audited financial statements that accompany tax returns of various
entities.
F. Bangko Sentral ng Pilipinas (BSP) - An agency whose primary objective is to maintain price stability conducive
to a balanced and sustainable economic growth. It also aims to promote and preserve monetary stability and the
convertibility of the peso.
G. Insurance Commissions – prescribes additional requirements regarding audits of insurance companies


II. Professional Organizations

A. Philippine Institute of Certified Public Accountants (PICPA) – the accredited national professional organization
B. Sectoral Organizations
1. Association of CPAs in Public Practice (ACPAPP)
2. Association of CPAs in Education (ACPAE)
3. Association of CPAs in Commerce and Industry (ACPACI)
4. Government Association of CPASs (GACPA)
III. Standard-Setting Bodies

1. Financial Reporting Standards Council
2. Auditing and Assurance Standards Council
ILLUSTRATIVE QUIZZERS
1. Which of the following is not one of the specified objectives of the Accountancy Act of 2004?
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A. The standardization and regulation of accounting education.
B. The examination for registration of certified public accountants.
C. Integration of the practice of accountancy
D. The supervision, control, and regulation of the practice of accountancy in the Philippines.
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2. Which of the following does not constitute a practice of accountancy?
A. A person holding out himself as one skilled in the knowledge, science and practice of accounting and as qualified
person to render professional services as a CPA to more than one client.
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B. A person representing his/her employer before government agencies on tax and other accounting related matters.
C. A person in educational institution teaching accounting, auditing, business law, taxation or other technically
related subjects.
D. A person is appointed as a marketing director of a government-owned and controlled corporation.
3. Any position in any business or company in the private sector which requires supervising the recording of
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financial transactions, preparation of financial statements, coordinating with the external auditors for the audit of
such financial statements and other related functions shall be occupied only by a duly registered CPA. Provided
(choose the incorrect one)
A. That the business or company where the above position exists has a paid-up capital of at least P5,000,000
and/or an annual revenue of at least P10,000,000.
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B. The above provision shall apply only to persons to be employed after the effectivity of the Implementing
Rules and Regulations of RA 9298.
C. The above provision shall not result to deprivation of the employment of incumbents to the position.
D. That the business or company where the above position exists has an annual revenue of at least
P5,000,000 and/or paid-up capital of at least P10,000,000.
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4. The APO shall submit its nominations with complete documentation to the Commission not later than ____ prior to the
expiry of the term of an incumbent chairman or member.
A. 30 days
B. 60 days
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C. 90 days
D. 120 days
5. The Board shall be composed of a chairman and six (6) members to be appointed by the President of the Philippines
from a list of <List A> for each position and ranked by the Commission, from a list of <List B> nominees for each
position submitted by the APO.
<List A> <List B>
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A. Three (3) Five (5)

B. Five (5) Three (3)
C. Six (6) Three (3)
D. Five (5) Six (6)
6. Choose the incorrect statement.

A. Any vacancy occurring within the term of a member shall be filled up for the unexpired portion of the term only.
B. No person who has served two successive complete terms as chairman or member shall be eligible for
reappointment as chairman or member until the lapse of one year.
C. Appointment to fill up an unexpired term is to be considered as a complete term.
D. No person shall serve in the Board for more than twelve (12) years.


7. All of the following are grounds for suspension or removal of members of the board, except
A. Neglect of duty or incompetence
B. Violation or tolerance of any violation of RA 9298 and its implementing rules and regulations or the Certified
Public Accountant’s Code of Ethics and the technical and professional standards of practice for certified public
accountants
C. Final judgment of crimes involving moral turpitude
D. Having a pecuniary interest, directly or indirectly, in any school, college or university
8. The Board shall, at the close of each calendar year, submit annual report that gives a detailed account of its
proceedings and accomplishments during the year to the
A. Secretary of Department of Justice
B. Professional Regulation Commission
C. President of the Philippines
D. Senate President and the Speaker of the House of Representatives
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9. The powers and functions of the Board include the following, except
A. To prescribe and adopt the rules and regulations necessary for carrying out the provisions of this Act
B. To supervise the registration, licensure and practice of accountancy in the Philippines
C. To administer oaths in connection with the administration of this Act
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D. To remove a member of the Board upon due investigation from the Commission
10. The Board, subject to the approval of the Commission, may revise or exclude any of the subjects and their syllabi, and
add new ones as the need arises provided that the change shall not be more often than once every
A. Two years
B. Three years
C. Four years
D. Five years
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11. The following ratings were obtained by an examinee during the October 2019 examination:
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Financial Accounting and Reporting 96 Auditing 92
Advanced Financial Accounting and Reporting 94 Taxation 64
Management Advisory Services 94 RFBT 74
Based on the above information, the examinee is considered

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A. Passed
B. Topnotcher
C. Conditional
D. Failed
12. Any candidate who fails in ________ complete CPA Board Examinations shall be disqualified from taking another set
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of examinations unless he/she submits evidence to the satisfaction of the BOA that he/she enrolled in and completed
at least________ of subjects given in the licensure examination.
A. 3, 15 units per year for a total of 60 units
B. 2, 15 units/year, total of 30 units
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C. 2, 24 units
D. 3, 24 units
13. Which of the following statements is incorrect?

A. Professional identification card is a card with validity of three (3) years, bearing the registration number, date of
issuance with an expiry date, due for periodic renewal, duly signed by the Chairperson of the Commission issued
by the PRC to a registered CPA up on payment of the annual registration fees for three (3) years.
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B. A certificate of registration is a certificate under seal with a validity of three (3) years, bearing a registration
number, issued to an individual, by the Commission, upon recommendation by the Board, signifying that the
individual has complied with all the legal and procedural requirements for such issuance including, in appropriate
cases, having successfully passed the CPA licensure examination.
C. Both certificate of registration and professional identification card shall be issued to a candidate who passes the
CPA Licensure examination.
D. The Board has the power to issue, suspend, revoke and/or reinstate the certificate of registration.
14. The BOA shall not refuse the registration of any person who successfully passed the CPA examinations if
A. Convicted by a court of competent jurisdiction of a criminal offense involving moral turpitude
B. Convicted for a political offense.
C. Guilty of immoral and dishonorable conduct
D. None of the above.


15. A person whose CPA certificate has been revoked

A. Can no longer be reinstated as a CPA
B. Is automatically reinstated as a CPA after two years if the has acted in an exemplary manner
C. May be reinstated as a CPA by the Board of Accountancy after two years if he has acted in an exemplary
manner
D. May be reinstated by the PRC after two years if he has acted in an exemplary manner
16. Which of the following is not included in the seal used by a CPA?
A. Professional tax receipt number
B. Name of the CPA
C. Registration number
D. The title "CPA"
17. If the application for registration to practice public accountancy of Ramos and Co. CPAs, was approved on July 31,
2018, the registration shall expire on
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A. September 30, 2020
B. September 30, 2021
C. December 31,2020
D. December 31, 2021
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18. If the application for registration to practice public accountancy of Chan and Co. CPAs, was approved on July 31,
2018, the registration shall be renewed on or before
A. September 30, 2020
B. September 30, 2021
C. December 31, 2021
D. December 31, 2020
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19. Meaningful experience shall be considered as satisfactory compliance with the requirements of Section 28 of RA No.
9298 if it is earned in
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A. Commerce and industry and shall include significant involvement in general accounting, budgeting, tax
administration, internal auditing, liaison with the Commission on Audit, representing his/her employer before
government agencies on tax and matters related to accounting or any other related functions.
B. Academe/education and shall include teaching for at least three (3) trimesters or two (2) semesters subjects
in either financial accounting, business law and tax, auditing problems, auditing theory, financial
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management and management services and the accumulated teaching experience on these subjects shall
not be less than three (3) school years.
C. Government and shall include significant involvement in general accounting, budgeting, tax administration,
internal auditing, liaison with external auditors or any other related functions
D. Public practice and shall include at least one year as auditor in charge and at least two years as audit
assistant of audit engagement covering full audit functions of significant clients.
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20. As a participant, one credit hour of Continuing Professional Development program, activity or source shall be
equivalent to
A. 5 credit units
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B. 3 credit units
C. 2 credit units
D. 1 credit unit
21. Which statement is correct regarding CPE (Continuing Professional Education) requirements for renewal of
professional license?
A. The total CPE credit units required for CPAs shall be sixty (60) units for three (3) years provided that a minimum
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of fifteen (15) credit units shall be earned in each year.

B. A registered professional shall be permanently exempted from CPE requirements upon reaching the age of 65
years old.
C. A registered professional who is working abroad shall be temporarily exempted from compliance with CPE
requirement during his/her stay abroad, provided that he/she has been out of the country for at least one (2) year
immediately prior to the date of renewal.
D. Senior citizens are not exempted from CPD requirements.


22. Unless otherwise exempted, registered CPAs in the practice of accountancy who have not completed the CPE
requirements shall
A. Be dropped from the roster of CPAs.
B. Not be allowed to renew their professional licenses.
C. Present evidence to the satisfaction of the Board that they have the necessary knowledge, skills and experience
to discharge their professional responsibility.
D. Submit a letter addressed to the Board indicating the reasons for not complying with the CPE requirements.
23. Which of the following statements is/are correct?

Statement 1: It shall be the primary duty of the Commission and the Board to effectively enforce the provisions of RA
9298 and its Implementing Rules and Regulations.
Statement 2: Any person may bring before the Commission, Board, or the aforementioned officers of the law, cases
of illegal practice or violations of RA 9298 and its Implementing Rules and Regulations.
A. Only statement 1 is correct
B. Only statement 2 is correct
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C. Both statements are correct
D. Both statements are incorrect
24. The standard setting body created by the Board of Accountancy to promulgate auditing standards that will be
IE
generally accepted in the Philippines is known as
A. Financial Reporting Standards Council (FRSC)
B. Auditing Standards and Practices Council (ASPC)
C. Accounting Standards Council (ASC)
D. Auditing and Assurance Standards Council (AASC)
25. Which of the following is not represented in the AASC?

A.
B.
Board of Accountancy
Bureau of Internal Revenue
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C. Commission on Audit
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D. Securities and Exchange Commission
26. The Financial Reporting Standards Council shall be composed of

A. 14 members
B. 17 members
PA
C. 8 members
D. 15 members
27. Which of the following does not have representation in the Financial Reporting Standards Council (FRSC)?
A. Philippine Institute of CPAs (PICPA)
B. Bureau of Internal Revenue (BIR)
C
C. Board of Investments (BOI)

D. Board of Accountancy (BOA)
28. Which of the following is not one of the functions of ETC?

EO
a. Determine a minimum standard curriculum for the study of accountancy to be implemented in all schools
offering accountancy as an undergraduate degree.
b. Establish teaching standards, including the qualifications of members of the faculty of schools and colleges
of accountancy.
c. Monitor the progress of the program on the study of accountancy and undertaking measures for the
attainment of a high quality of accountancy education in the country.
d. Recommend to the Board the revocation of the Certificate of Registration and the professional identification
R
card of an individual CPA or firm including any of their staff members who has not observed the quality
control measures and who has not complied with the standards of quality prescribed for the practice of
public accountancy.
29. The PRC CPE Council shall be composed of:

A. A Chairperson and 3 members
B. A chairperson, vice-chairperson and 2 members
C. A chairperson and 2 members
D. A chairperson, vice-chairperson and 3 members


30. Who appoints the members of the COA?

A. The commissioner of the Professional Regulatory Commission
B. The Chairman of the Professional Board of Accountancy
C. The President, with the concurrence of the Commission on Appointments
D. The Chairman of the Auditing and Assurance Standards Council
“We are never given guarantees in life. We are only given the opportunities and it is up to us to make the
BEST out of it.”
--- END OF HANDOUTS ---
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PRELIMINARY ENGAGEMENT ACTIVITIES
In making a decision whether to accept or reject an engagement, the auditor’s firm
should consider the following:
SPECIFIC PROCEDURES
COMPETENCE Obtain a preliminary knowledge of the client’s business
and industry to determine whether the auditor has the
EVALUATION
degree of competence required by engagement
AUDITOR
INDEPENDENCE Consider any threats to the firm’s independence and
SELF
objectivity, and, whether the adequate safeguards can be
established
ABILITY TO SERVE THE Consider whether it has available resources to serve the
CLIENT prospective client properly.
AUDITABILITY(Adequacy Evaluate auditability: Acctg records, documents, and other
of accounting records) info that supports the client’s FS should be made available
to the auditor
INTEGRITY OF Investigate the integrity of the client’s management

CLIENT
MANAGEMENT through:
- Reading published articles
- Inquiry to appropriate parties
- Communication with the previous auditor subject to
client’s permission
Matters to be discussed with predecessor auditor: (RID)

- Reasons for change in auditors
- Integrity of the management
- Disagreements in acctg principles, auditing proc,
etc.
DECIDE WHETHER OR NOT TO ACCEPT THE ENGAGEMENT
ACCEPTANCE OF AN ENGAGEMENT
OBJECTIVE:
A. PRECONDITIONS FOR AN AUDIT
- The use by management of an acceptable financial reporting framework in the
preparation of the financial statements, and
- The agreement of management and, where appropriate, TCWG to the premise on
which an audit is conducted
B. AGREEING THE TERMS OF AUDIT ENGAGEMENTS

- The auditor shall agree on the terms of engagement with the client, represented by
management or TCWG, as appropriate.
- The agreed terms shall be recorded in an audit engagement letter or other suitable
form of written agreement.
- It Is in the interest of both the entity and the auditor that the auditor sends an
engagement letter, preferably before the commencement of the audit to help avoid
misunderstandings with respect to the audit.
FORMS AND CONTENT OF ENGAGEMENT LETTER

Engagement letter would generally include reference to:
 Objective and scope of audit
 Responsibilities of the auditor
 Responsibilities of the management
 Identification of applicable financial reporting framework for the preparation of
the FS
 Reference to the expected form and contents of the reports issued by the
auditor
Auditor may make reference to, for example: (RA FORMS)

 Presence of audit Risk (inherent limitations)
 Unrestricted Access
 Financial reporting framework used
 Objective of the audit
 Forms of any Reports or other communication
 Management’s responsibility
 Elaboration of the Scope of the audit
Auditor may make reference to, for example: (FRAP Reports)

 Basis of Fees and any billing arrangements
 Expectation of receiving Representation letter
 Acknowledgement of management of terms of agreement
 Arrangements regarding Planning of the audit
 Description of any other letters or reports
Audit of Component
Factors that affect the decision whether to send a separate engagement letter to the
subsidiary entity includes:
 Who appoints the Component auditor
 Legal requirements in relation to audit appointments
 Degree of ownership by parent
 Whether a separate auditor’s report is to be issued on the component
 Degree of independence of the component to its parent entity
Recurring Audits
Pwede naming hindi na magsend ng Engagement letter ang auditor every year.
However, the following factors may make it appropriate to revise; remind; and/or send
a new letter:
 Client misunderstand the objective and scope of audit
 Any revised or special terms of the engagement

 Recent change of management
 Significant change in ownership
 Significant change in nature or size of the client’s business
 Change in legal or regulatory requirements
 Change in financial reporting framework
 Change in other reporting requirements
ACCEPTANCE OF A CHANGE IN ENGAGEMENT

MAIN REQUIREMENT:
 LOW TO HIGH LEVEL OF ASSURANCE(Agreed-upon procedures to Audit; Review
to Audit; Compilation to Audit)
o Walang masyadong considerations, basta capable ka to adhere sa
requirements of Code of Ethics, you can accept it
 HIGH TO LOW LEVEL OF ASSURANCE (Audit to Agreed-upon procedures; Audit to

Review; Audit to Compilation)
o Aud shall not agree to a change in the terms of audit engagement if
there is no reasonable justification for doing so:
Circumstances Reasonably
justifiable?
Change in circumstances affecting the need for the service √
A misunderstanding as to the nature of an audit or related services √
originally requested
A restriction on the scope of the engagement, whether imposed by x
management or caused by circumstances
If the change relates to information that is incorrect, incomplete, or x
otherwise unsatisfactory
The auditor is unable to obtain sufficient appropriate audit evidence x
regarding assertions
AUDITOR’S RESPONSE
Agreement: Record the new terms of the engagement in an engagement letter or
other suitable form of written agreement.
Disagreement: Unable to agree; not permitted by management to continue the

original audit engagement, the auditor shall:
(a) Withdraw from the audit engagement
(b) Determine if may obligation, contractual or otherwise, to report the
circumstances to other parties, such as TCWG, owners, or regulators
AUDIT PLANNING
PLANNING AN AUDIT OF FINANCIAL STATEMENTS
1. ROLES OF PLANNING (CAFÉ PA)
- Coordination of work done by auditors of component and experts
- To put Attention to important areas of the audit
- Facilitate in the direction, supervision, and review
- To be Effective and efficient: organize and manage audit engagement
- Identify and resolve potential Problems on a timely basis
- Proper Assignment of work to engagement team members
2. FACTORS AFFECTING THE NATURE AND EXTENT OF PLANNING ACTIVITIES (SECTa)

- Size and complexity of the entity
- Key engagement team member’s previous Experience with the client
- Changes in circumstances during audit engagement
- Timing of the Appointment of the independent auditor
3. PLANNING AS A PHASE OF AUDIT OF FS

- Not a discreet phase of an audit, but rather a continual and iterative process
4. OUTPUTS OF AUDIT PLANNING

- Overall audit strategy
- Overall audit plan
- Audit programs detailing the work to be performed
5. DOCUMENTATION
- Overall audit strategy
- Overall audit plan
- Any significant changes in circumstances during audit engagement to Overall
audit strategy and Overall audit plan
-
MAJOR AUDIT PLANNING ACTIVITIES

1. IDENTIFYING AND ASSESSING RISK OF MATERIAL MISSTATEMENTS THROUGH
UNDERSTANDING THE ENTITY AND ITS ENVIRONMENT
To establish an overall audit strategy, the auditor should perform the Risk Assessment
Procedures to:
(1) Obtain an understanding of the entity and its environment
(2) Identify and assess risk of material misstatements
(3) Design appropriate combination of further audit procedures
AUDIT PROCEDURES:
1.) OBTAIN AN UNDERSTANDING OF THE ENTITY AND ITS ENVIRONMENT
Professional Skepticism
o Questioning contradictory info and the reliability of documents
o Considering responses to inquiries and other info obtained from
management and TCWG
o Being alert to possible misstatement due to fraud or error
o Considering if audit evidence obtained supports the auditor’s
identification and assessment of ROMM in its nature and circumstances
Obtaining Evidence in an Unbiased manner – maging objective ka lang

o SOURCES OF AUDIT EVIDENCE
 Interactions with management, TCWG, and other key employees
 Certain external parties: Regulators
 Publicly available information about the entity
o SCALABILITY
The nature and extent of RAP will vary based on nature and
circumstances of the entity
SPECIFIC PROCEDURES:
o Inquiry
o Observation
o Inspection (during planning stage)
 Inspection of documents
- Review of prior year’s working paper and FS
- Review of reports prepared by management and TCWG
- Review of document, records, and internal controls manual
- Reading literature related to entity’s industry
 Inspection of tangible assets
- Visit entity’s premises and plant facilities
o Analytical procedures (Horizontal analysis)
Use of Analytical procedures:
PHASE OBJECTIVE REQUIRED?
PLANNING  Enhance understanding of the business
√
 Determine the nature, timing, and extent of FAPs
SUBSTANTIVE  Evaluate reasonableness of financial info
TESTS  Obtain corroborative evidence for an assertion x
 Detect material misstatement
OVERALL  Identify unusual account balances that weren’t
REVIEW previously identified in P and ST √
 Assist to determine if auditor can issue the report
2.) CONSIDER MATERIALITY

MATERIAL – significant ba o hindi; depends on the size of the item or error judged in
the particular circumstance of its omission
Uses of materiality:
o Planning phase
 Identify and assess the ROMM
 Determine nature, timing, and extent of FAP
o Completion phase
 Evaluate the effect of uncorrected misstatements
3 different levels of materiality, auditor is required to determine:

o Materiality for the FS as a whole (Overall FS materiality; General
materiality; Tolerable)
o Materiality applied to specific classes of transactions, account balances
or disclosures (Specific assertion level materiality; Individual materiality)
 For particular classes of transactions, account balances, or
disclosures
 Lower than overall maetriality
o Performance materiality (Planning materiality; scoping materiality;
Assertion level materiality)
AUDIT RISK
- Risk that auditor gives an inappropriate audit opinion when the FS are materially
misstated
Components of Audit risk:
 Risk of material misstatement: (Inherent risk + Control risk)
 Risk of Non-detection: (Detection risk)
AUDIT RISK = Inherent risk x Control risk x Detection risk

Audit risk
DETECTION RISK =
Inherent risk x Control risk
3.) IDENTIFY AND ASSESS RISK OF MATERIAL MISSTATEMENTS

Effects of assessment to auditor’s procedures: ↑ RISK = ↑ PROCEDURES
INHERENT RISK ASSESSMENT PROCESS

a) UNDERSTAND THE ENTITY AND ITS ENVIRONMENT AND THE APPLICABLE FINANCIAL
REPORTING FRAMEWORK
b) IDENTIFY SIGNIFICANT CLASSES OF TRANSACTIONS, ACCOUNT BALANCES, AND
DISCLOSURES; RELEVANT ASSERTIONS
o Likelihood and magnitude of misstatement
o Inherent risk factors

 Complexity
 Subjectivity
 Change
 Uncertainty
 Susceptibility to misstatement due to management bias or other
fraud risk factor insofar as they affect inherent risk
CONTROL RISK ASSESSMENT PROCESS

c) SPECTRUM OF INHERENT RISK
4.) DETERMINE THE ACCEPTABLE LEVEL OF AUDIT RISK

PROFESSIONAL JUDGMENT
o ↓ Audit risk = ↑ Assurance level = ↑ Audit procedures
o ↑Audit risk = ↓ Materiality level = ↑ Audit procedures
5.) IDENTIFY DETECTION RISK TO DETERMINE THE NATURE, TIMING, AND EXTENT OF
FURTHER AUDIT PROCEDURES
Determination of Detection risk:
AUDIT RISK = Inherent risk x Control risk x Detection risk
Audit risk
DETECTION RISK =
Inherent risk x Control risk
Use of assessed level of detection risk

LOWER DR HIGHER DR
Nature More effective procedures may be Less effective procedures may be
applied applied
Timing Procedures will be performed closer Procedures will be performed at
or nearer to year-end interim or several dates
Extent Larger sample size will be tested Smaller sample size will be tested
2. ESTABLISHING THE OVERALL AUDIT STRATEGY

CONSIDERATIONS IN ESTABLISHING THE OVERALL AUDIT STRATEGY
- Characteristics of the Engagement
- Reporting Objectives, Timing of the Audit, and Nature of Communications
- Significant factors, Preliminary Engagement Activities, and Knowledge Gained
on Other Engagements
- Nature, Timing, and Extent of Resources
3. DEVELOPING AN AUDIT PLAN

AUDIT PLAN – more detailed than overall audit strategy.
- Nature, timing, and extent of the RAP
- Further audit procedures
- Other planned audit procedures required in accordance with PSAs
AUDIT PROGRAM
- Audit objectives for each area
- Nature, timing, and extent of the audit procedures required to implement the
overall audit plan
- A time budget in which hours are budgeted for the various audit areas or
procedures
4. DIRECTION, SUPERVISION, AND REVIEW
5. OTHER PLANNING CONSIDERATIONS

- Determining the need of an auditor’s expert
- Additional consideration in initial audit engagements
o Preliminary engagement activities
o Establishing overall audit strategy and audit plan
- Considerations specific to smaller entities
o Less complex or time consuming planning activities
o Consultation
STUDY AND EVALUATION OF INTERNAL CONTROL
NATURE OF INTERNAL CONTROL
Prepared by TCWG, management, and other personnel to provide reasonable
assurance about the achievement of an entity’s objectives with regard to:
 FINANCIAL - Reliability of financial reporting
 OPERATIONAL - Effectiveness and efficiency of operations
 COMPLIANCE - Compliance with applicable laws and regulations
CHARACTERISTICS
- IC is a process - IC is effected by entity’s personnel
- IC provides reasonable assurance - OC is geared toward attainment
of achieving its objectives of entity’s objectives
TYPES OF INTERNAL CONTROL

1. MANUAL CONTROLS – performed by individuals outside of a system
2. IT DEPENDENT MANUAL CONTROLS – the control requires some level of system
involvement
3. APPLICATION CONTROLS – Any configuration setting in a system used to prevent
or detect problems
4. IT GENERAL CONTROLS – Policy management, logical access, change
management, and physical security
CATEGORIES OF INTERNAL CONTROL FUNCTIONS

1. PREVENTIVE – Deter problems before they arise:
a. Segregation of duties
b. Control over access to assets, facilities, and information
2. DETECTIVE – To discover problems as they arise which includes preparing bank
reconciliation and monthly trial balance
3. CORRECTIVE – to remedy problems discovered with detective controls which
includes maintaining backup copies of transactions and master files
INHERENT LIMITATIONS (COC CHA)

- Cost-benefit consideration
- Management Overriding the control
- Possibility of circumvention of controls through Collusion with parties outside the
entity
- Procedures may become inadequate due to Changes in condition and
compliance with procedures may deteriorate
- Human error: Carelessness, distraction, mistakes of judgment, or the
misunderstanding of instructions
- Most controls tend to be directed at Anticipated types (routinary) of transactions
and not at unusual (non-routinary) transactions
AREAS OF INTERNAL CONTROL
 ADMINISTRATIVE CONTROL
o Plan of organizations; procedures and records for decision processes
needed in management’s authorization of transactions
o Operational efficiency and adherence to managerial policies
 ACCOUNTING CONTROL
o Plan of organizations; procedures and records for safeguarding of assets
and the reliability of financial records
o Systems of authorization and approval controls over assets, internal audit
and all other financial matters
ACCOUNTING SYSTEM VS. INTERNAL CONTROL SYSTEM
ACCOUNTING SYSTEM INTERNAL CONTROL SYSTEM
- Entity’s tasks and records by which - All the policies and procedures
transactions are processed as a (IC) adopted by the management
means of maintaining financial to assist in achieveing
records management’s objective of
- Such systems identify, assemble, ensuring:
analyze, calculate, classify, record, 1.) Orderly and efficient conduct of its
summarize and report transactions business (+ adherence to management
and other events policies)
2.) Safeguarding of assets
3.) Prevention and detection of fraud
and error
4.) Accuracy and completeness of the
acctg records
5.) Timely preparation of reliable financial
information
IC system is much broader than accounting system, since it extends beyond those
matters which relate directly to the functions of the accounting system.
PARTIES RESPONSIBLE FOR INTERNAL CONTROL

 Management and TCWG (BOD and its Audit Committee)
o Making sure the IC within the organization is adequate
o Primary responsibility for the development and maintenance of IC
 Internal Auditors
o Ensuring the adequacy of the system of IC, the reliability of data, and the
efficient use of the organization’s resources
o Identifies control problems and develop solutions for improving and
strengthening IC
 External auditors
o Assess the effectiveness of IC within an organization
o Focus primarily on controls affecting financial reporting
o Responsible to report IC weaknesses to the Audit Committee of the BOD
CORPORATE GOVERNANCE
ROLES AND RESPONSIBILITIES ELEMENTS OBJECTIVE
TCWG – exercise the corporate powers of a Governance Strategic control
corporation, conduct all its business, and
control its properties
MANAGEMENT – given the authority by the Risk Management
TCWG to implement the policies it has laid management control
down in the conduct of the business
RISK OWNERS – execute daily risk Internal control Operational
management activities to effectively address control
business risks
COMPONENTS OF INTERNAL CONTROL

INDIRECT CONTROLS DIRECT CONTROLS
- These controls are not sufficiently - Controls precise enough to
precise to prevent, detect, or address risks of material
correct misstatement at assertion level
- Controls that support direct
controls
 Control Environment  Information and communication
 Entity’s Risk assessment process systems
 Monitoring of controls  Control activities
1) CONTROL ENVIRONMENT
- Set of standards, processes, and structures that provide the basis for carrying out
IC across the organization
- Foundation on an effective system of IC is built and operated in an org
ELEMENTS OF CONTROL ENVIRONMENT
IM CPA HO (Old) ICE AA (Rev. PSA 315)
- Communication and enforcement of - TCWG’s Independence from
Integrity and ethical values management and exercise oversight of
- Management’s philosophy and the entity’s system of IC
operating style - Attraction and development of
- Commitment to competence Competent and individuals in alignment
- Participation by TCWG with its objectives
- Assignment of authority and - Management’s commitments to
responsibility integrity and Ethical values
- Human resources policies and - Entity’s Assignment of authority and
procedures responsibility in pursuit of its objectives
- Organizational structure - Individuals are held Accountable for
their responsibilities in pursuit of its
objectives
2) ENTITY’S RISK ASSESSMENT PROCESS

- Process for identifying and responding to business risks and the results thereof
The auditor shall obtain an understanding of whether the entity has a process for:
o Identifying business risks relevant to financial reporting objectives
o Assessing the significance of risks and the likelihood of their occurrence
o Deciding how to Manage those risks
3) INFORMATION AND COMMUNICATION SYSTEMS

INFORMATION SYSTEM COMMUNICATION
- Obtained or generated by - Involves providing an understanding of
management from both internal and individual roles and responsibilities of the
external sources in order to support IC entity’s system of IC
components - The auditor gives emphasis on the
- Enables the entity to have the ability to communication of financial reporting
generate timely and meaningful roles and responsibilities and significant
information, consisting of: matters relating to financial reporting:
→ Infrastructure (Physical and hardware → Between people within the entity
components) → Communications between
→ Software (processes and procedures) management and TCWG
→ People → External communications such as
→ Input or data those with regulatory authorities
→ Output or meaningful information
4) CONTROL ACTIVITIES
- Are actions (policies, procedures, and standards) that help management
mitigate risks in order to ensure the achievement of objectives
- May be preventive or detective in nature and may be performed in all levels of
the organization
COMPONENTS:
APIPS PARVS (Rev. PSA 316)
- Authorization - Physical or logical controls
- Performance reviews - Authorization and approvals
- Information processing - Reconciliation
- Physical controls - Verifications
- Segregation of duties - Segragation of duties
5) MONITORING OF CONTROLS
- Process of assessing the quality of internal control performance over time
- Involves assessing the design and operations of controls on a timely basis and
taking necessary corrective actions
- To ensure that controls are present and continue to function effectively
Can be accomplished through:
o Ongoing monitoring activities
o Separate evaluations
o Combination of the two
CONSIDERATION OF INTERNAL CONTROL
1) UNDERSTANDING THE ENTITY’S IC
INVOLVES:
 EVALUATING THE DESIGN OF THE IC
Obtaining an understanding: design and implementation > effectiveness
This can be obtained through:
- Inquiries
- Inspection of documents and records
- Observation of entity’s activities and operations
 DETERMINING WHETHER THE IC HAS BEEN IMPLEMENTED

This is accomplished by: performing walk-through test
o Tracing certain transactions through the entire accounting systems
o Confirms the auditor’s understanding of how acctg systems and control
procedures function
USES:
 Identify types of potential misstatements that can occur
 Consider factors that affect the ROMM
 Design the nature, timing, and extent audit procedures to be performed
2) DOCUMENTING THE AUDITOR’S UNDERSTANDING OF IC

No particular form; the extent may vary depending on the size and complexity of the
entity and nature of the entity’s IC systems.
COMMONLY USED FORMS:
- Narrative description of the entity’s IC
- Flowcharts that diagrams the flow of transactions and documents
- IC questionnaire providing management’s responses to questions about IC
3) ASSESSMENT OF CONTROL RISKS (Preliminary assessment of control risk)

The auditor’s Preliminary assessment of control risk may be:
(a) At a high level : 100%
When the auditor’s knowledge of the entity’s IC indicates that IC related to a particular
assertion are not effective, the auditor may simply assess control risk at a high level
(b) Less than high level : Less than 100%

If IC appears to be reliable; the auditor should determine if it is efficient to obtain
evidence to justify an assessment of control risk at a lower level
If auditor concludes that it is more efficient: Assess control risk at less than high level;
o Identify specific IC policies or procedures that are likely to prevent,
detect, and correct material misstatement to FS Assertion
o Perform tests of controls to determine effectiveness of such policies or
procedures
4) PERFORMING TESTS OF CONTROLS

Irrespective of of effective IC procedures may appear to be in preventing material
misstatements from occurring in the financial statements, before the auditor can rely on
them to reduce substantive tests, the auditor must test these controls to obtain
evidence that they are working effectively as the preliminary assessment suggests.
TOC are performed to obtain evidence about the effectiveness of the:

 Design of the accounting and IC systems
 Operation of the IC throughout the period
The auditor should obtain audit evidence through TOC to support any assessment of
control at less than high level
TOC generally consist one or a combination of the following evidence-gathering

techniques:
 Inquiry
 Inspection
 Observation
 Reperformance
Based on the results of the TOC, the auditor should evaluate whether the IC are
designed and operating as intended
- The conclusion reached is called the assessed level of control risk
- The auditor uses the assessed level of control risk, together with the assessed level
of inherent risk, to determine the acceptable level of detection risk
- There is an inverse relationship between DR and the combined level of IR and CR
5) DOCUMENTING THE ASSESSED LEVEL OF CONTROL RISKS

After evaluating the results of TOC and assessing the CR, the auditor should document
his assessment of CR
CR is assessed at a high level: the auditor simply document his conclusion that CR is at
a high level
CR is assessed at less than high level: the auditor should:

1. Document his conclusion that CR is less than high
2. The basis for that assessment (results of the TOC)
AUDITING IN AN IT ENVIRONMENT
CHARACTERISTICS
1. ORGANIZATIONAL STRUCTURE
 Concentration of functions and knowledge
 Concentration of programs and data
2. NATURE OF PROCESSING
 Absence of input data
 Lack of visible transaction/audit trails
 Lack of visible output
 Ease of Access to Data and Computer Programs
3. DESIGN AND PROCEDURAL ASPECTS

 Consistency of Performance
 Programmed control procedures
 Single transaction update of multiple or data base computer files
 Systems generated transactions
 Vulnerability of data and program storage media
INTERNAL CONTROL IN AN IT ENVIRONMENT

1.) GENERAL CONTROLS
ENTITY-WIDE GENERAL IT CONTROLS
- Embedded in its control environment - Controls over the entity’s IT processes
- Designed to define the strategic that support the continuous operation of
direction and establish an organizational the IT environment: + information
framework for IT activities including: processing controls and the integrity of
(S2PARTA): information; completeness, accuracy,
● Strategies and plans and validity of information.
● Segregation of incompatible duties - These include (COA):
● Policies and procedures ● Controls over IT changes
● Quality Assurance ● IT Operations controls
● Risk assessment activities ● Access controls
● Training
● Internal Audit and Monitoring
A.) ORGANIZATIONAL AND MANAGEMENT CONTROLS

RESPONSIBILITY WITHIN AN INFORMATION SYSTEM DEPARTMENT
- Information system management - Program and file library
- System analysis - Data control
- Application programming - Telecommunications
- Database administration - System programming
- Data entry - Quality assurance
- Computer operation
SEGREGATION OF DUTIES (Incompatible functions)
CHIEF IT OFFICER (CIO)
System Database Information Computer

development administration security operations
AUDIT PROCEDURES – SEGREGATION OF DUTIES

 INSPECTION
o Information security policy and procedure
o IT policies and procedures document
o IT function organizational chart
o Sample of application development documentation and maintenance
records to identify segregation of duties
o Security access to ensure that original application design programmers
do not have access to code for maintenance
 INQUIRY
o An inquiry of key IT personnel for segregation of duties
 OBSERVATION
o Observation of personnel to segregation of duties
B.) SYSTEMATIC DEVELOPMENT, MAINTENANCE, AND DOCUMENTATION CONTROLS

Reasonable assurance that the systems are Authorized and efficient manner. Designed
to establish control over:
- Project initiation, requirements definition, systems design, testing data conversion,
go-live decision, migration to production environment, documentation of new or
revised systems, and user training
- Acquisition and implementation of off-the-shelf packages
- Request for changes to the existing systems
- Acquisition, implementation, and maintenance of system software
C.) ACCESS CONTROLS

ACCESS CONTROLS OTHER ACCESS CONTROLS
- Provide reasonable assurance - Programming the operating system to generate a
that access to equipment, files computer log of failed access attempt and
and programs are limited only generates warnings for repeated access failure
to authorized personnel (EPHD): - Programmers should not have access to input data
● Electronic access control or applications programs
● Physical access control - Computer operators should be restricted only to the
● Hardware control application programs
● Data transmission control - Computer operators should be limited access only
to operations manual and not detailed program
documentation
D.) DATA AND PROCEDURAL CONTROLS

 Written manual of systems and procedures for all computer operation
 Back-up and recovery
- Grandfather-father-son principle on file retention
- Snapshots
 Contingency processing
- Reciprocal agreement or mutual aid pact
- Internal site
- Hot site
- Cold site
 File protection rings
 Internal and external labels
E.) MONITORING CONTROLS

Designed to ensure that CIS controls are working effectively as planned. These include:
 Monitoring of key CIS performance indicators
 Internal external CIS audits
2.) IT APPLICATION CONTROLS

CONTROLS OVER INPUT
- Trsansactions are properly authorized before being processed by the
computer
- Transactions are accurately converted into machine readable form and
recorded in the computer data files
- Transactions are not lost, added, duplicated, or improperly changed
- Incorrect transactions are rejected, corrected, and if necessary, resubmitted
on a timely basis
Examples:
o Limit test o Completeness check
o Validity test o Control total
o Self-checking test o (Item/Record count, Financial
total, Hash total)
CONTROLS OVER PROCESSING AND COMPUTER DATA FILES

- Transactions (+ system generated transaction), are properly processed by the
computer
- Transaction are not lost, added, duplicated, or improperly changed
- Processing errors (rejected data and incorrect transactions) are identified
and corrected on a timely basis
CONTROLS OVER OUTPUT

- Results of processing are accurate
- Access to output is restricted to authorized personnel on a timely basis
- Output is provided to appropriate authorized personnel on a timely basis
AUDITING IN AN IT ENVIRONMENT
- Auditor’s consideration of internal control which will include an assessment of
computerized as well as manual controls
- Auditor’s assessment of control risk
- Procedures to be performed in considering internal control and performing
substantive tests
RISK ASSESSMENT PROCEDURE → TEST OF CONTROL → SUBSTANTIVE TESTING
RISK ASSESSMENT PROCEDURES

1. Obtain an understanding of the IT environment including entity-level IT controls
2. Identify relevant IT applications (E.g. Accounting software) and other aspects of
IT environment
3. Identify Risk Arising from the use of IT (RAIT)
4. Identify general IT controls
5. Evaluate the design and implementation of automated controls
TEST OF CONTROLS
 Effectiveness of general controls → Effectiveness of application controls
o Review the design of general controls before reviewing the design of
application controls
 Application controls to test: Manual controls exercised by the user; Controls
over system; and Programmed control procedures
AUDIT APPROACHES
 External to the computer → directly observable
 Internal to the computer → not directly observable
BLACK-BOX APPROACH WHITE-BOX APPROACH

Consideration The full potential of computers as Computers are considered
of computer an audit tool is not utilized essential tools that aid in the
execution of audit procedures
Focus area Input and output of controls Input and processing of controls
Use of CAATs Not applicable Applicable
IT expertise No specific expertise required Knowledge and skills in the
required software, programs, and
techniques used
COMPUTED-ASSISTED AUDITING TECHNIQUES (CAATs)

The following are the factors considered in using CAATs:
- Degree of technical competence in IT
- Availability of CAATs and appropriate computer facilities
- Impracticability of manual tests
- Effectiveness and efficiency
- Timing of tests
Categories of techniques
A. PROGRAM ANALYSIS
 Code review  Program tracing and mapping
 Comparison programs  Snapshot
 Flowcharting software
B. PROGRAM TESTING
 Test data
TEST DATA
↓
CLIENT’S SYSTEM
↓
OUTPUT VS PREDETERMINED RESULT
 Integrated Test Facility (ITF) or Integrated Test Data or Minicompany Approach

LIVE DATA (Actual data)
TEST DATA ↓
CLIENT’S SYSTEM
↓
OUTPUT VS PREDETERMINED RESULT
 Base Case System Evaluation (BSCE)

CLIENT AUDITOR
TEST DATA TEST DATA
↓ ↓
CLIENT’S SYSTEM CLIENT’S SYSTEM
↓ ↓
OUTPUT VS OUTPUT
VS PREDETERMINED RESULT
 Parallel simulation
CLIENT AUDITOR
LIVE DATA LIVE DATA
↓ ↓
Generalized Audit System
CLIENT’S SYSTEM
(GAS)
↓ ↓
OUTPUT VS OUTPUT
 Controlled reprocessing
CLIENT AUDITOR
LIVE DATA LIVE DATA
↓ ↓
CLIENT’S SYSTEM CLIENT’S SYSTEM
↓ ↓
OUTPUT VS OUTPUT
C. CONTINUOUS/CONCURRENT TESTING
 Embedded audit modules
 System Control Audit Review Files (SCARF)
 Audit hooks
 Transaction tagging
 Extended records
D. REVIEW OF OPERATING SYSTEMS

 Job accounting data/operating system logs
 Library management software
 Access control and security software
SUBSTANTIVE TESTING
TRANSACTION CYCLES (BUSINESS PROCESSES)
Are the means through which an accounting system process transactions of related
activities such as:
 Sale of goods to customers
 Acquisition of merchandise and payment to vendors
 Production of finished products for sale
 Payment to employees for services they had rendered
CATEGORIES OF INTERRELATED MAJOR CYCLES

 REVENUE AND RECEIPT
o Receives order from the customer
o Examines the order for credit worthiness
o Ships goods or provides services to customer
o Issues an invoice
o Collects payment
 EXPENDITURE AND DISBURSEMENT
o Issues a purchase order to a supplier
o Receives goods or services
o Records the related liability
o Pays the supplier
 HUMAN RESOURCES AND PAYROLL
o Acquires services from employees
o Monitors and records the time of its employees
o Verifies hours and overtime worked
o Calculates gross pay, deductions, and net pay
o Pays the employees
 PRODUCTION OR CONVERSION
o Monitors and records the production of entity’s product for sale
 FINANCING AND INVESTING
o Generates capital funds from outside investors
o Invests capital funds to other profitable activities
ENTITY’S RESPONSIBILITY
Design and implement appropriate set of policies, procedures, forms, and integrated
controls for each of these transaction cycles
AUDITOR’S OBJECTIVE
Obtain an understanding of these transaction cycles sufficient to plan the audit and
develop an effective and efficient audit approach
 Determine the reliability of financial reporting
 Determine the fairness of presentation
GENERAL OBJECTIVES OF TRANSACTION CYCLES

 To promote adequate segregation of incompatible duties
 To provide safeguards to entity’s resources
 Departments involved, including its functions, objective, and possible control that
may be implemented
 Forms or documents initiated and processed
o The department that initiated the processing; approves the form
o The department that initiated the processing is accountable for unused
forms. Also, access to those forms shall be limited to the said dept
o The notification of forms does not necessarily mean a hard copy shall be
forwarded. Notification can be done thru electronic mail
o The departments that initiated, received or processed a form shall retain a
copy for filing (not necessarily a hard copy)
MAJOR ASSUMPTIONS
 Entities are operating under normal operating cycle condition; We will only be
accounting for sales and purchases on account
 Entities are using imprest and voucher systems
REVENUE AND RECEIPTS CYCLE (Sale transaction & Collection transaction)
REVENUE DEPARTMENT
ALL SHIPMENTS ARE BILLED
SALES CREDIT WAREHOUSE SHIPPING BILLING
Monitor inventory To manage
↑ Sales ↓ high-risk customers Billings
levels shipments
Customer Approval of S.O.
(CREDIT REQUEST)
S.O. (sales order); S.O.
S.O. (Approved) S.O. (Approved)
Order slip;
Or Or + S.O.
Customer
S.O. + Memo S.O. + Memo
order S.O. (Approved)
- Customer - Warehouse + + +
- Credit
- Shipping GOODS GOODS S.D.
- Billing
- Shipping
S.D. (Shipping S.I. (Sales
documents) invoice)
- - Carrier to
Customer
- Billing
FILING:
1.) Unfilled ALL ISSUANCES ARE ALL ISSUANCES ARE ALL BILLINGS ARE
2.) Filled or AUTHORIZED AUTHORIZED SHIPPED
Denied
ACCOUNTS RECEIVABLE
Daily summary
S.I. (Sales Invoice)
(General)
Posts to subsidiary ledger
GENERAL INVENTORY
S.I. (Sales
DS S.I. (Sales Daily summary
Daily summary Invoice)
(Inventory) Invoice) (General)
(with cost data)
- Records to General Journal Posts to SUBSIDIARY

- Posts to General Ledger LEDGER
RECEIPT DEPARTMENT
RECEPTIONIST OR MAIL ROOM TREASURY DEPARTMENT AR ACCOUNTING DEPARTMENT
MAIL: CHECK REMITTANCE ADVICE

- Check
- Remittance advice LIST OF RECEIPTS LIST OF RECEIPTS
No remittance advice → Fill out Updates the cash record → Daily Posts to SL → Prepare Daily Summary
remittance advice Summary → General Accounting → General Accounting
LIST OF RECEIPTS DEPOSIT SLIP → Bank
EXPENDITURE AND DISBURSEMENT EXPENDITURES DISBURSEMENTS
USER PURCHASING RECEIVING ACCOUNTS PAYABLE TREASURY

 Quality  Existence (QNTY)  Can prepare  Receives the
 Efficiency  Condition (QLTY) the check Voucher Pckg.
R.S. (Requisition R.S. (Requisition  Prepares and
P.O. (Approved) R.S. and/or P.O.
slip) slip) signs checks
S.D. (Shipping R.R. (Receiving  Cancels the
document) report) Voucher Pckg
P.O (Purchase V.I. (Vendor’s  Updates cash
Goods
order) Invoice) records
R.R. (Receiving V.P. (VOUCHER

report) PACKAGE)
- Purchasing - Vendor - Purchasing - Treasury

- Accounts - Receiving - Accounts
payable (blank P.O.) payable
- Accounts
payable
P.O. vs R.R.
If the amount EXPENDITURE DISBURSEMENT
charged is not 1. AP will post to 1. Prepares a voucher
significantly higher subsidiary ledger
than that of the FV 2. Prepare Daily
Summary
HUMAN RESOURCES AND PAYROLL CYCLE TREASURY
HUMAN RESOURCES USER - Reviews the PR
Personal Records Time Records (DTR) - Prepares and signs checks the “ATM”
- Rates → Payroll account
- Deductions - Distributes checks
- Updates cash records
PAYROLL
- Payroll register
- Employee earnings record
GENERAL
1.) Capitalizable
2.) Expense Expense
INVENTORY
1.) Capitalizable
PRODUCTION OR CONVERSION CYCLE
- Inventory cycle
- Objective: Proper valuation of Inventories and COGS
EXPENDITURE AND INPUTS PRODUCTION RESOURCES AND REVENUE AND RECEIPT

DISBURSEMENT CYCLE DEPARTMENT INFORMATION CYCLE
CONTROL RELATED DUTIES AND RESPONSIBILITIES

DUTIES AND
PERSON/S ASSIGNED PROCEDURES PERFORMED BY AUDITORS
RESPONSIBILITIES
CUSTODY - Production department - Observes physical counts and reconcile the result to
entity’s records
- If held by other parties, auditor may send
confirmation requests to custodian
AUTHORIZATION - Production department (Normal - Reviews production orders and related documents
production runs)
- BOD/its representatives (special
runs)
RECORDING - Cost accounting - Reviews:
- Inventory accounting → Competency of the individuals making journal entries
- General accounting → Reconciliation of the general ledger
FINANCE AND INVESTMENT CYCLE (Involves: Investments; Long term debts; Shareholder’s Equity)
FINANCE CYCLE
DUTIES AND
RESPONSIBILITIES
CUSTODY - Internal official: BOD/Corporate Secretary - Inquires directly to assigned custodians
- Independent external custodian - Observes the accounting of unissued
certificates, if held internally
AUTHORIZATION - BOD - Reviews minutes of the BOD meetings
RECORDING - General accounting - Reviews:
→ Competency of the individuals making J.E.
→ Reconciliation of the general ledger
INVESTMENT CYCLE
DUTIES AND
RESPONSIBILITIES
CUSTODY - Treasurer - Inquires directly to assigned custodians thru
- External trustee sending confirmation requests
- Observes the accounting for certificates
NEGOTIABLE CERTIFICATES – Brokerage account held, if held internally
TITLES TO REAL ESTATE – In a safe with the entity
or bank safe deposit box
AUTHORIZATION - BOD/its investment committee - Reviews minutes of the BOD meetings
RECORDING - General accounting - Reviews:
- Treasury department → Competency of the individuals making J.E.
→ Reconciliation of the general ledger
FRAUD, ERROR, AND NONCOMPLIANCE
CONSIDERATION OF FRAUD AND ERROR
OBJECTIVE: Obtain reasonable assurance about whether the FS as a whole are free
from material misstatement, due to fraud or error (primary causes of MM)
FRAUD AND ERROR

 FRAUD (Irregularities; INTENTIONAL; Error of Commission)
o Management, TCWG, employees, third parties
o Use of deception to obtain an unjust or illegal advantage
o Fraudster – person committing fraudulent acts
 ERROR (UNINTENTIONAL; Error of Omission)

o Mistake in gathering or processing data
o Incorrect accounting estimate; oversight or misinterpretation of facts
o Misapplication of accounting principles in measurement, recognition,
classification, presentation, or disclosure
TYPES OF FRAUD
 FRAUDELENT FINANCIAL REPORTING (FFR) – Management fraud
o Window dressing (↑ A & I + ↓ L & E = ↑ Equity); Current ratio
o Secret reserve (↓ A & I + ↑ L & E = ↓ Equity); para makaiwas sa additional
laws and regulations
o Kiting – Use cutoff tests
o Earnings management
 MISAPPROPRIATION OF ASSETS (MOA) – Employee fraud

o Lapping
o Embezzlement of receipts
o Obstruction of funds
CHARACTERISTICS OF FRAUD (Fraud triangle or fraudlent triangular)

 INCENTIVE OR PRESSURE – performance-based ang bonus
 OPPORTUNITY – basta may weakness sa IC, may chance ka mandaya
 RATIONALIZATION – justification; magkakatanggalan na kase
RESPONSIBILITIES
FOR THE PREVENTION AND DETECTIONS OF FRAUD
- Primary responsibility of TCWG and management
AUDITOR’S OBJECTIVES
- Assess the ROMM of fs due to fraud
- Obtain sufficient and appropriate audit evidence
- To respond responsible
In order to attain the said objective. The auditor shall consider and observe the
following:
1.) OVERALL OBJECTIVE OF THE AUDIT
2.) INHERENT LIMITATIONS OF AN AUDIT IN THE CONTEXT OF FRAUD
a. Unavoidable risk
b. Risk not detecting: Fraud is higher than error
c. Risk of the auditor not detecting: Management fraud is greater than for
employee fraud
d. Subsequent discovery
3.) PROFESSIONAL SKEPTICISM
4.) DISCUSSION AMONG THE ENGAGEMENT TEAM
a. Fraud Brainstorming – Overview pano magnakawan
b. Fraud Discussion – Intro palang inform mo na sila sa history ng entity
AUDIT PROCEDURES
RISK ASSESSMENT PROCEDURES AND RELATED ACTIVITIES
1.) OBTAIN AN UNDERSTANDING OF THE ENTITY AND ITS ENVIRONMENT
a. Consider whether one or more fraud risk factors are present
b. Consider any unusual or unexpected relationship that have been
identified in performing analytical procedures
2.) IDENTIFY AND ASSESS THE ROMM DUE TO FRAUD
o Identify risks of fraud by performing Risk assessment procedures and
consider: Classes of transactions; account balances; and disclosures in
the FS
o Relates these risks to what can go wrong at assertion level
o Considers the likely magnitude of the potential misstatement: If it might
give rise to multiple misstatements; likelihood of the risk occuring
FURTHER AUDIT PROCEDURES AND RELATED ACTIVITIES

1.) RESPONSES TO THE ROMM DUE TO FRAUD
2.) EVALUATION OF AUDIT EVIDENCE
3.) OBTAIN MANAGEMENT REPRESENTATIONS
SUSPECTED
1. Effects to the FS
RAP
2. Discuss with appropriate level of
 FRF
management
 Analytical
3. If material, obtain SAE
procedures
IDENTIFIED
 Other info
1. Request for adjustments
2. Modify the auditor’s report as appropriate
AUDITOR UNABLE TO CONTINUE THE ENGAGEMENT

- The entity does not take the appropriate action
- Results of audit tests indicate a significant risk of material and pervasive fraud
 Consider the professional and legal responsibilities
 If auditor withdraws:
o Discuss with the appropriate level of management and TCWG
o Consider whether there is professional and legal requirement to report
COMMUNICATION
1. TO MANAGEMENT – at least one level above the person who appear to be
involved with the suspected fraud
2. TO TCWG – As soon as practicable either in writing or orally
o Auditor has identified fraud
o Material weaknesses in the design or implementation of IC
3. TO REGULATORY AND ENFORCEMENT AUTHORITIES – to maintain the
confidentiality of client information may preclude reporting fraud to a party
outside the client entity
DOCUMENTATION
Fraud items required to be documented
 Auditor’s understanding of the entity and its environment; and he’s assessment of
the ROMM
 Auditor’s responses to the assessed ROMM
 Communications about fraud made to management, TCWG, regulators, and
others
 Reasons for conclusion: When the auditor concluded that there is a ROMM due
to fraud related to revenue recognition is not applicable in the circumstances of
the engagement.
CONSIDERATION OF LAWS AND REGULATIONS

NON COMPLIANCE (Previously, illegal acts)
- Acts of omission or commission by the entity, intentional or unintentional, which
are contrary to the prevailing laws or regulations
- Include: Transactions entered into by, or in the name of the entity
- Exclude: Personal misconduct (unrelated to the business activity of the entity)
RESPONSIBILITY FOR THE COMPLIANCE WITH LAWS AND REGULATIONS

Responsibility of management, with the oversight of TCWG
RESPONSIBILITIES OF THE AUDITOR

The auditor is not, and cannot be held responsible for preventing noncompliance
 CATEGORIES OF LAWS AND REGULATIONS

CATEGORY EXAMPLES AUDITOR’S RESPONSIBILITIES
Laws and regulations with direct - Tax laws To obtain sufficient
effect on the determination of - Pension laws appropriate evidence
material amounts and disclosure in regarding compliance the
the FS. the provisions of those laws
L&R with no direct effect on the - Compliance with Limited to the undertaking
determination of amounts and the terms of an specified audit proc to help
disclosure in the FS, but compliance operating license identify NC with L&R that
may be fundamental to the - Compliance with may have a material effect
operating aspects of the business, regulatory on the FS
ability to continue, or to avoid solvency
penalties. requirements
- Compliance with
Non-compliance: may have a environmental
material effect on the FS regulations
 OBJECTIVES OF THE AUDITOR

o Obtain SAE
o Perform specified audit procedures to help identify noncompliance
o Respond appropriately to noncompliance or suspected noncompliance
In order to attain the said objective. The auditor shall consider and observe the
following:
1.) OVERALL OBJECTIVE OF THE AUDIT
2.) INHERENT LIMITATIONS OF AN AUDIT IN THE CONTEXT OF L&R
3.) PROFESSIONAL SKEPTICISM
GENERAL AUDIT PROCEDURES

RISK ASSESSMENT PROCEDURES AND RELATED ACTIVITIES
 Inquiring of management as to whether the entity is in compliance with such L&R
 Inspecting correspondence with the relevant licensing or regulatory authorities
FURTHER AUDIT PROCEDURES AND RELATED ACTIVITIES

Auditor should be alert that procedures applied in forming an opinion on the FS may
bring instances of possible NC with L&R to the auditor’s attention
MANAGEMENT REPRESENTATION
The auditor shall request the management to provide written representations that al
known actual or possible NC with L&R whose effects should be considered when
preparing FS have been disclosed to the auditor
AUDIT PROCEDURES WHEN NON COMPLIANCE IS IDENTIFIED OR SUSPECTED

1.) AUDITOR SHALL OBTAIN:
2.) IF THERE’S A SUSPICION; THE AUDITOR SHALL DISCUSS THE MATTER WITH
MANAGEMENT AND, TCWG
3.) AUDITOR SHALL EVALUATE THE IMPLICATIONS OF NC: Auditor’s risk assessment
and the reliability of written representations, and take appropriate action
4.) AUDITOR MAY DISCUSS THE FINDINGS WITH TCWG WHERE THEY MAY BE ABLE TO
PROVIDE ADDITIONAL AUDIT EVIDENCE
SUSPECTED
4. Effects to the FS
RAP
5. Discuss with appropriate level of
 FRF
management
 Analytical
6. If material, obtain SAE
procedures
IDENTIFIED
 Other info
3. Request for adjustments
4. Modify the auditor’s report as appropriate
REPORTING OF NON COMPLIANCE
1. TO TCWG
If auditor suspects that management/TCWG are involved in noncompliance,
communicate the matter to:
a) Next higher level of authority at the entity (audit committee or supervisory
board)
b) Auditor shall consider the need to obtain legal advice
2. IN THE AUDITOR’S REPORT ON THE FS
a) Express a QUALIFIED or ADVERSE OPINION on the FS: if he concludes that the
NC has a material effect on the FS, and has not been adequately reflected
in the FS
b) Express a QUALIFIED OPINION or DISCLAIM AN OPINION on the FS: if he is
precluded by management or TCWG from obtaining SAE to evaluate
whether NC that may be material to the FS has, or is likely to have, occurred
The auditor may conclude that withdrawal from the engagement is necessary when the
entity does not take remedial action that auditor considers necessary, even when NC is
not material to the FS
3. TO REGULATORY AND ENFORCEMENT AUTHORITIES
The auditor shall determine whether the auditor has a responsibility to report the
identified or suspected NC to parties outside the entity
To maintain the confidentiality of client information may preclude reporting NC, the
auditor’s legal responsibilities may override the duty of confidentiality in some
circumstances
4. TO OTHER AUDITOR
Auditor shall consider the necessity of communicating identified or suspected NC with
L&R to other auditors
5. TO PROPOSED AUDITOR
The extent depends on the client’s permission to do so has been obtained and/or the
legal or ethical requirements that apply relating to such disclosure
DOCUMENTATION
Shall include the identified or suspected NC with L&R. Such documentation shall
include:
 The auditor’s procedures performed, the significant professional judgments
made and the conclusions reached;
 Discussions of significant matters related to NC, including how management and
TCWG have responded to the matter
EVIDENCE AND SUBSTANTIVE TESTING
AUDIT EVIDENCE
 All information used by the auditor in arriving at the conclusions on which the
auditor’s opinion is based
TWO CLASSIFICATION OF AUDIT EVIDENCE

1. INFORMATION CONTAINED IN THE ACCOUNTING RECORDS UNDERLYING THE
FINANCIAL STATEMENTS
Underlying accounting data; ginamit sa presentation ng FS
 Checks and records of  General and subsidiary ledgers,
electronic fund transfers journal entries and other
 Invoices adjustments
 Contracts  Records
2. OTHER INFORMATION
Corroborating information; prior FS
 Minutes of meetings  Controls manuals
 Confirmation from 3rd parties  Information obtained by
 Analysts’ reports auditor from such audit
 Benchmarking procedures (IIO)
SUFFICIENT APPROPRIATE EVIDENCE

AUDITORS are required to design & perform audit procedures for obtaining SAE; he must
consider RELEVANCE and RELIABILITY of the information to be used as Aud Evidence
SUFFICIENCY (Quantity)
a.) Auditor’s assessment of ROMM
b.) Quality of such evidence
APPROPRIATENESS (Quality)
a.) Relevance of evidence
 Relevant if it relates to the assertion
 Relevance of info may be affected by the direction of testing
b.) Reliability of evidence
 Reliable if it is dependable to signal the true state of an assertion. It is
influenced by:
o Its source
o Its nature
o The individual circumstances under which it is obtained
AUTHENTICATION OF DOCUMENTATION
An audit rarely involves the authentication of documentation, nor is he trained to be an
expert in such authentication
INCONSISTENCY IN, OR DOUBTS OVER RELIABILITY OF AUDIT EVIDENCE
External > Internal
Effective Internal Control > Ineffective Internal Control
Directly obtained > Indirectly obtained
Written Representations > Oral Representations
Original Documents > Reproduced Documents
RELATIONSHIP OF SUFFICIENCY AND APPROPRIATENESS OF AUDIT EVIDENCE

 ↑ Quality = ↓ Audit evidence required
However, obtaining more evidence may not compensate for its poor quality
OBTAINING AUDIT EVIDENCE
HOW DOES THE AUDITOR GATHER EVIDENCE?

→ Recognition
MANAGEMENT MAKES
→ Measurement
ASSERTIONS
→ Presentation and Disclosures
ASSERTIONS → AUDIT OBJECTIVES → Design Specific Audit Procedures
AUDIT PROCEDURES
1. RISK ASSESSMENT PROCEDURE (RAP) – To obtain an understanding
2. TEST OF CONTROLS (TOC) – To evaluate the operating effectiveness of controls
3. SUBSTANTIVE TESTS (ST) – To Detect material misstatements at the assertion level
SPECIFIC AUDIT PROCESS

RAP TOC ST
1. INSPECTION
 Of Records or Documents √ √ √
 Of Tangible Assets
2. OBSERVATION √ √ √
3. INQUIRY √ √ √
4. CONFIRMATION √
5. RECALCULATION √
6. REPERFORMANCE √
7. ANALYTICAL PROCEDURE √ √
OTHER GENERAL CONCEPTS RELATED TO AUDIT EVIDENCE

 PERSUASIVENESS: Persuasive rather than conclusive
 SOURCES: Primarily obtained from Aud Proc performed during the course of
the audit
 COST-BENEFIT CONSIDERATION AND LEVEL OF DIFFICULTY
 MATERIALITY: ↓ Materiality level = ↑ Audit evidence
 AUDIT RISKS: ↓ Acceptable level of Audit Risks = ↑ Audit evidence
 PROFESSIONAL SKEPTICISM
PERFORMANCE OF SUBSTANTIVE TESTING
 Audit procedures designed to detect material misstatements at the assertion
level
TYPES OF SUBSTANTIVE PROCEDURES

1.) TEST OF DETAILS
2.) SUBSTANTIVE ANALYTICAL PROCEDURES
TEST OF DETAILS
A.) TESTS OF TRANSACTIONS AND EVENTS (TOTE)
o For small volume of transactions representing relatively material amounts
B.) TESTS OF BALANCES (TOB)

o For large volume of transactions rep relatively immaterial amounts
NATURE, TIMING, AND EXTENT OF SUBSTANTIVE PROCEDURES

LOWER DETECTION RISK ABOVE MINIMUM DETECTION RISK
↓ effective procedures may be
Nature Apply ↑ effective procedures
applied
May be applied at interim or several
Timing Closer or nearer to year end
dates
↑ extent of substantive proc to gather
Extent May ↓ extent of substantive proc
more evidence
EXTERNAL CONFIRMATION
 Audit evidence as a direct written response to the auditor from a 3rd party, in
paper form, or by electronic or other medium
OBJECTIVE
Design and perform such procedures to obtain relevant and reliable audit evidence
SITUATIONS WHERE EXTERNAL CONFIRMATION IS USED (PIA BALITA)

 Property title deeds held by lawyers or financiers for safe custody or as security
 Investments purchased from stockbrokers but not delivered at the reporting date
 Absence of certain conditions, such as a “side agreement”
 Banks balances and other information from bankers
 Accounts receivable balances
 Loans from lenders
 Inventories held by 3rd parties at bonded warehouses for processing or on
consignment
 Terms of agreements or transactions an entity has with 3rd parties and details of
modifications, if any
 Accounts payable balances
TYPES OF EXTERNAL CONFIRMATION
POSITIVE NEGATIVE
As a responses from Confirming party respond Confirming party respond
confirming party directly to the auditor directly to the auditor only if
indicating whether the the confirming party
confirming party agrees or disagrees with the
disagrees with the information information provided in the
in the request, or providing the request
requested info
The auditor has no reason to
believe that recipients of
negative confirmation
requests will disregard such
confirmation requests
As to related risks of The entity’s information systems The auditor concluded that
material and internal controls are the ROMM is low
misstatements unreliable or ineffective
Specific fraud risk factors
prevent the auditor from
relying on evidence from the
entity
As to availability of The information available to The information available to
sources corroborate management’s corroborate management’s
assertion(s) is only available assertion(s) is available within
outside the entity and outside the entity
As to characteristics The population of items The population of items
of items involved comprises small number of comprises a large number of
large account balances small, homogenous, account
balances
EXTERNAL CONFIRMATION PROCEDURES
AUDITOR MANAGEMENT
Prepares and signs Sent under the CONFIRMING
control of the PARTY
AUDITOR
YES → PERFORM
ANALYTICAL
Qualified
PROCEDURES
NO SCOPE Disclaimer of opinion

LIMITATION
POSITIVE NEGATIVE
1. Discuss with management 1. Conclusion
2. Send 2nd request 2. Perform Aud Proc (less)
3. Perform Aud Proc (more)
EVALUATING THE EVIDENCE OBTAINED

a) Response without exception
b) Response deemed reliable
c) Non-response
d) Response indicating an exception
ANALYTICAL PROCEDURES
 AP at the planning and overall review stages of the audit
AUDITING ACCOUNTING ESTIMATES

Accounting estimate: An appropriation of the amount of an item in the absence of
measurement:
- Fair value where there is estimation uncertainty
- Other amounts that require estimation
MANAGEMENT’S RESPONSIBILITY
All accounting estimates and disclosures in FS: (MAD)
- Methods
- Assumptions
- Data used in making estimates
AUDITOR’S RESPONSIBILITY
Auditor to obtain SAE regarding accounting estimates
The auditor should determine whether accounting estimates included in the FS are:
 Reasonable in the circumstances
Assumptions deviating from at least one of these characteristics will require the
auditor to pay particular attention to such assumptions
o Objective and not susceptible to bias
o Consistent with historical patterns
o Consistency with industry guidelines
 Properly accounted for and appropriately disclosed as required
AUDIT PROCEDURES
Auditor shall adopt one or a combination of the following approaches in audit of an
accounting estimate:
- Review and test the processes used by management to develop estimate
(performed as part of RAPs and TOC)
- Evaluation of data and consideration of assumptions on which the estimates is
based (MAD)
- Testing of the calculations involved in the estimate
ENHANCEMENT TO RAPs
- Introduced concepts of inherent risk factors
- Explicitly recognized the spectrum of inherent risk
- Introduced objective-based work effort requirements
- Emphasized the importance of the auditor’s decisions about controls
Required: To perform separate inherent risk and control risk assessments
Inherent risk factors introduced and formalized:

a.) ESTIMATION UNCERTAINTY
b.) SUBJECTIVITY
c.) COMPLEXITY
ENHANCEMENT ON FAP
Required:
- To design and perform FAP in a manner that is based towards obtaining audit
evidence that may be corroborative or towards excluding audit evidence that
may be contradictory
- “Stand back” and evaluate the audit evidence obtained regarding the
accounting estimates, including both corroborative and contradictory audit
evidence
- Use stronger language in application material to reinforce the importance of
exercising professional skepticism
AUDIT PROCEDURES:
a) Comparison when possible of estimates made for prior periods with actual results
of these periods
b) Consideration of management’s approval procedure
c) Use an independent estimate (auditor’s point estimate or range) for comparison
with that prepared by management performed as part of substantive testing
REASONABLE - √
DIFFERENCE UNREASONABLE – request entity to make amendments,
otherwise auditor will modify the opinion
d) Review subsequent events which confirm the estimate
ADDITIONAL CONSIDERATON: Indicators of Possible Management Bias

MANAGEMENT BIAS – Lack of neutrality by management
- Auditor shall review the judgments and decisions made by management.
However, indicators do not themselves constitute misstatements
WRITTEN REPRESENTATION
- Whether management believes significant MAD used in making accounting
estimates are reasonable
DOCUMENTATION
- Key elements of the auditor’s understanding (RAP)
- Linkage of FAP with assessed ROMM of assertion level
- Response to situations where management has not taken appropriate steps to
understand and address estimation uncertainty
- Indicators of positive management bias and auditor’s evaluation of the
implications for the audit
- Significant judgments made in the determination of whether the accounting
estimates and related disclosures are reasonable or are misstated, in the context
of the application of applicable financial reporting framework
COMMUNICATION TO TCWG
Required:
 Significant qualitative aspects of the entity’s accounting practices
 Signifant deficiencies in internal control

Audit Reviewer

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kunware, kapag sinabe ko kay crezell na nagawa ko na assignment ko, ang assurance nya is kapag

nacheck na ng teacher to make sure na tapos ko na talaga.

FUNDAMENTALS OF ASSURANCE SERVICES

Output: Assurance in the form of an Output: Recommendation on how to use

ELEMENTS OF ASSURANCE ENGAGEMENT 3SECC

CHARACTERISTICS OF A SUBJECT MATTER TO BE CONSIDERED APPROPRIATE:

4. SUFFICIENT APPROPRIATE EVIDENCE

 ASSURANCE ENGAGEMENT RISK

 RISK OF NON-DETECTION – dependent sa effectiveness ng auditing procedures

GENERALIZATIONS ABOUT RELIABILITY OF EVIDENCE MAY BE USEFUL:

presented or not; NO OPINION

LEVELS AND FORMS OF ASSURANCE

 AS TO LEVELS OF ASSURANCE PROVIDED

 TYPES OF ASSURANCE ENGAGEMENT AS TO STRUCTURE

(2) DIRECT ENGAGEMENTS kabaliktaran ng assertion-based engagements

STANDARDS GOVERNING PROFESSIONAL SERVICES BY CPAs

COMPARISON OF THE DIFFERENT TYPES OF AUDIT

FINANCIAL STATEMENT AUDIT

d) SUFFICIENT APPROPRIATE EVIDENCE

e) A WRITTEN ASSURANCE REPORT OR CONCLUSION

MATERIAL BUT NOT MATERIAL AND PERVASIVE

Client imposed Qualified Resign or Disclaimer

Other limitation Qualified Disclaimer

QUALIFIED-ADVERSE – may disagreement with management

THE DEMAND FOR FS AUDIT

FACTORS CONTRIBUTING TO WAYS OF REDUCING INFORMATION RISK

GENERAL PRINCIPLES OF AN FS AUDIT (CPP PJ SAE)

THEORETICAL FRAMEWORK (VIC BIG T)

AUDIT PROCESS: A GENERAL APPROACH

2. THE AUDITOR PERFORMS AUDIT PROCEDURES

MAJOR AUDIT PROCEDURES

SPECIFIC AUDIT PROCEDURES

3. THE AUDITOR GATHERS AUDIT EVIDENCE

4. THE AUDITOR EXPRESSES AN AUDIT OPINION

AUDIT PROCESS: A MORE DETAILED APPROACH

THE ACCOUNTANCY PROFESSION

PRACTICE AND REGULATION OF THE

government or in a government–owned and/or controlled corporation, including those performing proprietary

REGULATION OF THE ACCOUNTANCY PROFESSION

RA 9298 shall provide for and govern:

PROFESSIONAL REGULATORY BOARD OF ACCOUNTANCY (BOA)

REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience

RAYMUND FRANCIS A. ESCALA, CPA MBA

Powers and Functions of the Board

REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience

RAYMUND FRANCIS A. ESCALA, CPA MBA

Grounds for Suspension or Removal of Members of the Board

CERTIFIED PUBLIC ACCOUNTANT EXAMINATIONS

Rating in the Licensure Examination

EXAMINATION preceding examination.

Failing Candidates to Take Refresher Course

REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience

RAYMUND FRANCIS A. ESCALA, CPA MBA

Roster of Certified Public Accountants

CERTIFICATES OF REGISTRATION, PROFESSIONAL IDENTIFICATION CARD and TEMPORARY/SPECIAL

Indication of Certificate of Registration, Identification Card and Professional Tax Receipt

Suspension and Revocation

b. Any unprofessional or unethical conduct

Reinstatement, Reissuance and Replacement of Revoked or Lost Certificates

REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience

RAYMUND FRANCIS A. ESCALA, CPA MBA

Limitation of the Practice of Public Accountancy

Accreditation to Practice Public Accountancy