Professional Standards

When auditing financial statements, an auditor assumes certain

professional responsibilities. Auditor’s opinion must be based
on procedures conducted in accordance with professional
standards. Failure to comply with these standards exposes the
auditor to risks such as loss of public respect or even
assessment of legal damages.

Standards: measures the Quality of Performance of

individuals and organization.
GENERALLY ACCEPTED AUDITING
STANDARDS (GAAS)
measures the quality of the auditor’s
performance.
The 10 GAAS
General Standards
Standards of Fieldwork
Reporting Standards
 General
Standards
1. Adequate Technical training and
proficiency
2. Independence in mental attitude
3. Due to Professional care
01 Adequate technical training and
proficiency
• Formal university education for entry into the
profession;
• Practical training and experience in auditing;
• Continuous professional education during the auditor’s
professional career
02 Independence in mental attitude
The auditor must be free of client influence in performing
the audit and reporting the findings. They must maintain
independence in all matters relating the audit.
03 Due to professional care
The auditor must be diligent and careful in performing the
audit and issuing a report on the findings. The standard of
due care requires the auditor to act in good faith and not to
be negligent in an audit.
 Standards of
Fieldwork
4. Adequate Planning and proper supervision
5. Understanding the Internal control structure
6. Obtaining sufficient competent Evidential
matter
04 Adequate planning and proper
supervision
The work is to be adequately planned, and assistants, if
any, are to be properly supervised.
05 Understanding the internal control
structure
A sufficient understanding of internal control is to be
obtained to plan an effective and efficient audit.
 Obtaining sufficient competent evidential
06 matter
The sufficient competent evidential matter is to be obtained
through inspection, observation, inquiries, and
confirmations to afford a reasonable basis for an opinion
regarding the financial statements under audit.
 Standards of
Reporting
7. Financial statements presented in
accordance with GAAP
8. Inconsistency in the application of
GAAP
9. Adequacy of informative Disclosure
10. Expression of Opinion
 Financial statements presented in
07 accordance with the GAAP
The first reporting standard requires the auditor to identify
GAAP as established criteria for evaluating management’s
financial statement assertions.
08 Inconsistency in the application of GAAP
The report shall identify those circumstances in which
such principles have not been consistently observed in the
current period in relation to the preceding period.
09 Adequacy of informative disclosure
Informative disclosures in the financial statements are
regarded as reasonably adequate unless otherwise stated
in the report.
10 Expression of opinion
The final reporting standard requires the auditor to either
express an opinion on the financial statements taken as a
whole or state that an opinion cannot be expressed.
 System of Quality Control
Quality Control are policies and procedures
adopted by CPAs to provide reasonable
assurance of conforming with professional
standards in performing audits and related
services.
 Under the Philippine standards on Quality Control
(PSQC) 1, a firm has an obligation to establish a system
of quality control to provide reasonable assurance that
the firm and its personnel

• Comply with professional standards and regulatory

and legal requirements, and
• That the report issued by the firm is appropriate in
the circumstances
 Elements of Quality Control policies and
procedures.
Audit Firms are required to implement quality control policies
and procedures in accordance with the Philippine Standards
on Auditing (PSA).

PSA 220 (Quality Control for an Audit of Financial

Statements) has identified the following quality control
policies that may serve as a guide to audit firms in establishing
their own system of quality control.
 Elements of Quality Control policies and
procedures.
 Leadership responsibilities for quality within the firm
 Relevant ethical requirements
 Acceptance and continuance of client relationships and
specific engagements
 Human resources
 Engagement performance
 Monitoring
HAR-LEM
1. Leadership Responsibilities for Quality on
Audits
The firm should establish policies and procedures designed to promote an
internal culture based on the recognition that quality is essential in the
performance of the engagements.

The engagement partner should set an example regarding the quality of the
audit by emphasizing through actions and messages
• the importance of performing work that complies with professional
standards,
• complying with the firm’s quality control policies and procedures
• issuing appropriate audit reports, and;
• the engagement team’s ability to raise concerns without fear of retaliations
Ethical Requirements
The firm should establish policies and procedures designed to promote
reasonable assurance that the firm and its personnel comply with
relevant ethical requirements which include:
• Integrity,
• Objectivity,
• Professional competence and due care,
• Confidentiality; and
• Professional behavior

The engagement partner should consider whether members of the

engagement team have complied with these ethical principles.
 Independence as an Ethical Requirement
The firm should establish policies and procedures designed to provide
reasonable assurance that the firm and its personnel maintains
independence when providing audit services.
 Acceptance and Continuance of Client
Relationships and Audit Engagements
The firm should establish policies and procedures for the acceptance and
continuance of client relationships and specific engagements, designed
to provide reasonable that it will only undertake or continue relationships
and engagement where it ;
 has considered the integrity of the client
 Is competent to perform the engagement and has the capabilities,
time, and resources to do so; and
 can comply with ethical requirements
 Human Resources

The firm should establish policies and procedures designed to provide

reasonable assurance that it has sufficient personnel with the capabilities,
competence and commitment to ethical principles necessary to perform
the engagement. Such policies and procedures should address issues
concerning personnel
• Recruitment
• Performance evaluation, compensation and promotion
• Capabilities and competence
• Career development
• Assignment of engagement teams
 Engagement performance
The firm should establish policies and procedures designed to provide
reasonable assurance that engagements are performed in accordance with
professional standards and that the audit reports issued is appropriate in
the circumstances

The direction, supervision, review, and performance of the overall audit

engagement in compliance with professional standards and regulatory
and legal requirements.
 Monitoring
The continued adequacy and operational effectiveness of quality control
policies and procedures are to be monitored.

The firm’s policies and procedures should be communicated to its

personnel in a manner that provides reasonable assurance that the
policies and procedures are understood and implemented.
 Documentation
The quality and control procedures should be documented and
communicated to the firm’s personnel.
• it should describe the quality Control Procedures and the objectives
they are assigned to achieve.
• It should include the message that each individual has a personal
responsibility for quality and is expected to comply with these
policies and procedures.
• It should recognize the importance of obtaining feedback on its
quality control system from its personnel.
 Elements of Quality Control policies and
procedures.
 Leadership responsibilities for quality within the firm
 Relevant ethical requirements
 Acceptance and continuance of client relationships and
specific engagements
 Human resources
 Engagement performance
 Monitoring
HAR-LEM
 Quality Assurance Review
Quality Review Committee; to conduct
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
accounting and auditing standards and
practices.
Yun Lang, Tapos na…
Which of the following best describes what is meant by generally
accepted auditing standards?

A. Audit objectives are generally determined on audit

engagements.
B. Acts to be performed by the auditor.
C. Measures of the quality of the auditor’s performance.
D. Procedures to be used to gather evidence to support
financial statements
Requirements for training, independence, and due professional care are
included in which group of the generally accepted auditing standards?

A. Fieldwork.
B. General.
C. Reporting.
D. Quality control
The general standards of the generally accepted auditing standards
include a requirement that

A. The fieldwork to be adequately planned

B. The auditor’s report to state whether the financial
statements are presented in conformity with PFRS
C. Due professional care be exercised by the auditor
D. The auditor to obtain sufficient, competent evidential
matter.
The third standard of fieldwork states that sufficient competent
evidential matter may in part be obtained through the following
methods except

A. Inspection
B. Observation
C. Confirmation
D. Reconciliation
A firm of independent auditors must establish and follow quality
control policies and procedures because these standards

A. Are necessary to meet increasing requirements of

auditors’ liability as insurers.
B. Are required by the SEC for auditors of all firms
C. Include formal filing of records of such policies and
procedures to a regulatory agency.
D. Give reasonable assurance that the firm as a whole will
comply with professional standards.
Which of the following quality control objectives would be least
important to the auditor?

A. Engagement performance
B. Human resources
C. Determination of audit fee.
D. Independence.
A quality control policy that requires personnel in the firm to adhere to
independence, integrity,objectivity, confidentiality and professional
behavior, relates to

A. Ethical Requirements
B. Human resources
C. Assignment
D. Consultation
In making a decision to accept or retain a client, the firm should
consider

A. Its competence
B. Its ability to comply with ethical requirements
C. The integrity of the client’s management
D. All three should be considered
_______ __________ are policies and procedures adopted by CPAs to
provide reasonable assurance of conforming with professional
standards in performing audits and related services.

Answer: Quality Control

TRUE or
FALSE

Audit Firms are not required to implement quality control policies

and procedures in accordance with the Philippine Standards on
Auditing (PSA).