Appendices 1

Appendix A
Elements of Quality Control
Leadership Responsibilities for Quality on Audits
The engagement partner shall take responsibility for the overall quality on each audit engagement
to which that partner is assigned. (PSA 220, Par. 8)
The actions of the engagement partner and appropriate messages to the other members of the
engagement team, in taking responsibility for the overall quality on each audit engagement,
emphasize:
(a) The importance to audit quality of:
(i) Performing work that complies with professional standards and regulatory and legal
requirements;
(ii) Complying with the firms quality control policies and procedures as applicable;
(iii) Issuing auditors reports that are appropriate in the circumstances; and
(iv) The engagement teams ability to raise concerns without fear of reprisals; and
(b) The fact that quality is essential in performing audit engagements. (PSA 220, A3)
Relevant Ethical Requirements
Throughout the audit engagement, the engagement partner shall remain alert, through
observation and making inquiries as necessary, for evidence of noncompliance with relevant
ethical requirements by members of the engagement team.
If matters come to the engagement partners attention through the firms system of quality control
or otherwise that indicate that members of the engagement team have not complied with relevant
ethical requirements, the engagement partner, in consultation with others in the firm, shall
determine the appropriate action. (PSA 220, Par. 9&10)
The Philippine Ethics Code establishes the fundamental principles of professional ethics, which
include:
(a) Integrity;
(b) Objectivity;
(c) Professional competence and due care;
(d) Confidentiality; and
(e) Professional behavior. (PSA 220, A4)
Independence
The engagement partner shall form a conclusion on compliance with independence requirements
that apply to the audit engagement. In doing so, the engagement partner shall:
(a) Obtain relevant information from the firm and, where applicable, network firms, to identify and
evaluate circumstances and relationships that create threats to independence;
(b) Evaluate information on identified breaches, if any, of the firms independence policies and
procedures to determine whether they create a threat to independence for the audit engagement;
and
(c) Take appropriate action to eliminate such threats or reduce them to an acceptable level by
applying safeguards, or, if considered appropriate, to withdraw from the audit engagement, where
withdrawal is permitted by law or regulation. The engagement partner shall promptly report to the
firm any inability to resolve the matter for appropriate action. (PSA 220, Par. 11)
The engagement partner may identify a threat to independence regarding the audit engagement
that safeguards may not be able to eliminate or reduce to an acceptable level. The engagement
partner reports to the relevant person(s) within the firm to determine appropriate action, which
may include eliminating the activity or interest that creates the threat, or withdrawing from the
audit engagement, where withdrawal is legally permitted. (PSA 220, A6)
The firm shall establish policies and procedures designed to provide it with reasonable assurance
that the firm, its personnel and, where applicable, others subject to independence requirements
(including network firm personnel) maintain independence where required by relevant ethical
requirements. Such policies and procedures shall enable the firm to:
(a) Communicate its independence requirements to its personnel and, where applicable, others
subject to them; and
(b) Identify and evaluate circumstances and relationships that create threats to independence,
and to take appropriate action to eliminate those threats or reduce them to an acceptable level by
applying safeguards, or, if considered appropriate, to withdraw from the engagement, where
withdrawal is possible under applicable law or regulation.
Such policies and procedures shall require:
(a) Engagement partners to provide the firm with relevant information about client engagements,
including the scope of services, to enable the firm to evaluate the overall impact, if any, on
independence requirements;
(b) Personnel to promptly notify the firm of circumstances and relationships that create a threat to
independence so that appropriate action can be taken; and
(c) The accumulation and communication of relevant information to appropriate personnel so that:
(i) The firm and its personnel can readily determine whether they satisfy independence
requirements;
(ii) The firm can maintain and update its records relating to independence; and
(iii) The firm can take appropriate action regarding identified threats to independence that
are not at an acceptable level.
that it is notified of breaches of independence requirements, and to enable it to take appropriate
actions to resolve such situations. The policies and procedures shall include requirements for:
(a) Personnel to promptly notify the firm of independence breaches of which they become aware;
(b) The firm to promptly communicate identified breaches of these policies and procedures to:
(i) The engagement partner who, with the firm, needs to address the breach; and
(ii) Other relevant personnel in the firm and, where appropriate, the network, and those
subject to the independence requirements who need to take appropriate action; and
(c) Prompt communication to the firm, if necessary, by the engagement partner and the other
individuals referred to in subparagraph 23(b)(ii) (Other relevant personnel in the firm and, where
appropriate, the network, and those subject to the independence requirements who need to take
appropriate action) of the actions taken to resolve the matter, so that the firm can determine
whether it should take further action.
At least annually, the firm shall obtain written confirmation of compliance with its policies and
procedures on independence from all firm personnel required to be independent by relevant
ethical requirements.
The firm shall establish policies and procedures:
(a) Setting out criteria for determining the need for safeguards to reduce the familiarity threat to
an acceptable level when using the same senior personnel on an assurance engagement over a
long period of time; and
(b) Requiring, for audits of financial statements of listed entities, the rotation of the engagement
partner and the individuals responsible for engagement quality control review, and, where
applicable, others subject to rotation requirements, after a specified period in compliance with
relevant ethical requirements. (ISQC 1, Par. 21-25)
Acceptance and Continuance of Client Relationships and Audit Engagements
The engagement partner shall be satisfied that appropriate procedures regarding the acceptance
and continuance of client relationships and audit engagements have been followed, and shall
determine that conclusions reached in this regard are appropriate.
If the engagement partner obtains information that would have caused the firm to decline the audit
engagement had that information been available earlier, the engagement partner shall
communicate that information promptly to the firm, so that the firm and the engagement partner
can take the necessary action. (PSA 220, Par. 12&13)
The firm shall establish policies and procedures for the acceptance and continuance of client
relationships and specific engagements, designed to provide the firm with reasonable assurance
that it will only undertake or continue relationships and engagements where the firm:
(a) Is competent to perform the engagement and has the capabilities, including time and
resources, to do so;
Consideration of whether the firm has the competence, capabilities, and resources:
Firm personnel have knowledge of relevant industries or subject matters;
Firm personnel have experience with relevant regulatory or reporting requirements, or the
ability to gain the necessary skills and knowledge effectively;
The firm has sufficient personnel with the necessary competence and capabilities;
Experts are available, if needed;
Individuals meeting the criteria and eligibility requirements to perform engagement quality
control review are available, where applicable; and
The firm is able to complete the engagement within the reporting deadline.
(b) Can comply with relevant ethical requirements; and
(c) Has considered the integrity of the client, and does not have information that would lead it to
conclude that the client lacks integrity
Matters to consider with regards to integrity
The identity and business reputation of the clients principal owners, key management,
and those charged with its governance.
The nature of the clients operations, including its business practices.
Information concerning the attitude of the clients principal owners, key management and
those charged with its governance towards such matters as aggressive interpretation of
accounting standards and the internal control environment.
Whether the client is aggressively concerned with maintaining the firms fees as low as
possible.
Indications of an inappropriate limitation in the scope of work.
Indications that the client might be involved in money laundering or other criminal
activities.
The reasons for the proposed appointment of the firm and non-reappointment of the
previous firm.
The identity and business reputation of related parties.
Sources of these information
Communications with existing or previous providers of professional accountancy services
to the client in accordance with relevant ethical requirements, and discussions with other
third parties.
Inquiry of other firm personnel or third parties such as bankers, legal counsel and industry
peers.
Background searches of relevant databases.
Such policies and procedures shall require:

(a) The firm to obtain such information as it considers necessary in the circumstances before
accepting an engagement
(b) If a potential conflict of interest is identified in accepting an engagement from a new or an
existing client, the firm to determine whether it is appropriate to accept the engagement.
(c) If issues have been identified, and the firm decides to accept or continue the client relationship
or a specific engagement, the firm to document how the issues were resolved.
The firm shall establish policies and procedures on continuing an engagement and the client
relationship, addressing the circumstances where the firm obtains information that would have
caused it to decline the engagement had that information been available earlier. Such policies
and procedures shall include consideration of:
(a) The professional and legal responsibilities that apply to the circumstances, including whether
there is a requirement for the firm to report to the person or persons who made the appointment
or, in some cases, to regulatory authorities; and
(b) The possibility of withdrawing from the engagement or from both the engagement and the
client relationship. (ISQC 26-28, A18-A23)
Human Resource
that it has sufficient personnel with the competence, capabilities, and commitment to ethical
principles necessary to:
(a) Perform engagements in accordance with professional standards and applicable legal and
regulatory requirements; and
(b) Enable the firm or engagement partners to issue reports that are appropriate in the
circumstances. (ISQC 1, Par. 29)
Personnel issues relevant to the firms policies and procedures related to human resources
include, for example:
Recruitment.
Performance evaluation.
Capabilities, including time to perform assignments.
Competence.
Career development.
Promotion.
Compensation.
The estimation of personnel needs.
Effective recruitment processes and procedures help the firm select individuals of integrity who
have the capacity to develop the competence and capabilities necessary to perform the firms
work and possess the appropriate characteristics to enable them to perform competently.
Competence can be developed through a variety of methods, including the following:
Professional education.
Continuing professional development, including training.
Work experience.
Coaching by more experienced staff, for example, other members of the engagement team.
Independence education for personnel who are required to be independent. (ISQC 1, A24&A25)
Assigning personnel to engagement
The engagement partner shall be satisfied that the engagement team, and any auditors experts
who are not part of the engagement team, collectively have the appropriate competence and
capabilities to:
(a) Perform the audit engagement in accordance with professional standards and regulatory and
legal requirements; and
(b) Enable an auditors report that is appropriate in the circumstances to be issued. (PSA 220,
Par. 14)
An engagement team also includes a member using expertise in a specialized area of accounting
or auditing, whether engaged or employed by the firm, if any, who performs audit procedures on
the engagement.
When considering the appropriate competence and capabilities expected of the engagement
team as a whole, the engagement partner may take into consideration such matters as the teams:
Understanding of, and practical experience with, audit engagements of a similar nature and
complexity through appropriate training and participation.
Understanding of professional standards and regulatory and legal requirements.
Technical expertise, including expertise with relevant information technology and specialized
areas of accounting or auditing.
Knowledge of relevant industries in which the client operates.
Ability to apply professional judgment.
Understanding of the firms quality control policies and procedures. (PSA 220, A10&A11)
The firm shall assign responsibility for each engagement to an engagement partner and shall
establish policies and procedures requiring that:
(a) The identity and role of the engagement partner are communicated to key members of client
management and those charged with governance;
(b) The engagement partner has the appropriate competence, capabilities, and authority to
perform the role; and
(c) The responsibilities of the engagement partner are clearly defined and communicated to that
partner.
The firm shall also establish policies and procedures to assign appropriate personnel with the
necessary competence, and capabilities to:
(a) Perform engagements in accordance with professional standards and applicable legal and
regulatory requirements; and
(b) Enable the firm or engagement partners to issue reports that are appropriate in the
circumstances. (ISQC 1, Par. 30-31)
Hiring
The most important element of the control environment is personnel, which is why human
resource policies and practices are essential. With trustworthy and competent employees,
weaknesses in other controls can be compensated and reliable financial statements might still
result. Honest, efficient people are able to perform at a high level even when there are few other
controls to support them. A company should take care in hiring, orientation, training, evaluation,
counseling, promoting, compensating, and remedial actions. Recruiting practices that include
formal, in-depth employment interviews and evidence of integrity and ethical behavior result in
hiring high-quality employees. Training improves employee technical skills and communicates
their prospective roles in the enterprise. Rotation of personnel and promotions driven by periodic
performance appraisals demonstrate the entitys commitment to its people. Competitive
compensation programs that include bonus incentives serve to motivate and reinforce outstanding
performance. Disciplinary actions send a message that violations of expected behavior will not be
tolerated.
Quality Control Policies
The Sarbanes-Oxley Act (SOX) requires that every registered public accounting firm auditing
publicly traded companies include in their quality control policies standards relating to:
monitoring of professional ethics and independence from issuers on behalf of which the
firm issues audit reports;
consultation within such firm on accounting and auditing questions;
supervision of audit work;
hiring, professional development, and advancement of personnel;
the acceptance and continuation of audit engagements;
internal inspection;
such other requirements as the Public Company Accounting Oversight Board
(PCAOB) may prescribe.
PCAOB Inspections
In order to insure quality control, the PCAOB conducts a continuing program of inspections to
assess the degree of compliance of the audit firms performance of audits and issuance of audit
reports with the rules of the PCAOB and professional standards. The PCAOB evaluates the
sufficiency of the quality control system of the firm, and the manner of the documentation and
communication of that system by the firm; and performs such testing as appropriate of the audit,
supervisory, and quality control procedures of the firm.
Ex-Employee Conflicts of Interest

In determining the acceptance and continuation of audit engagements the audit firm must
consider ex-employee conflicts of interest and audit partner rotation. An accounting firm cannot
perform any audit service for a firm if a chief executive officer, controller, chief financial officer,
chief accounting officer, or equivalent position, was employed by that accounting firm and
participated in any capacity in the audit of that issuer during the one-year period preceding the
date of the initiation of the audit. The audit partner must be rotated away from that client every
five years.
Partnership Review and Rotation

Audits should be reviewed by partners in the accounting firm not connected with the audit and
should rotate their audit partners every five years. Under SOX, section 103, auditors should
provide a concurring or second partner review by a qualified person associated with the public
accounting firm, other than the person in charge of the audit, or by an independent reviewer.
The Sarbanes-Oxley Act requires that every registered public accounting firm auditing publicly
traded companies include in their quality control policies standards relating to all of the following
except:
(A) Consultation within such firm on accounting and auditing questions.
(B) Hiring, professional development, and advancement of personnel.
(C) Internal control policies.
(D) Internal inspection.
SOX, section 303 makes it unlawful for a registered public accounting firm to provide audit
services to an issuer if the lead audit partner having primary responsibility for the audit, or the
audit partner responsible for reviewing the audit, has performed audit services for that issuer in
each of the five previous fiscal years of that issuer. Section 103 also states the quality control
standards that were discussed in 11.3 Quality Control, above.
Audit Committee Review of Auditors

Under SOX, section 301, public company audit committees are directly responsible for the
appointment, compensation, and oversight of the work of any registered public accounting firm
employed by their company (including resolution of disagreements between management and the
auditor regarding financial reporting). Each such registered public accounting firm reports directly
to the audit committee. Auditors may also have to discuss accounting complaints with the audit
committee. Each audit committee must have established procedures for the receipt, retention,
and treatment of complaints regarding accounting, internal accounting controls, or auditing
matters.
KPMG Hiring Policies

Nelnet Audit Committee Policy The Hiring of Former Employees of KPMG (last approved by the
Board of Directors on 3/22/07)
Objective
To comply with the Act and related SEC rules and otherwise to avoid actual or perceived conflicts
of interest that might arise from the hiring of an individual who as an employee of KPMG
participated, beyond a certain minimum level, in the audit of Nelnet.
Application
Since KPMG is the outside accounting firm that audits Nelnets consolidated financial statements,
this section applies only to the hiring of current and former professional employees of that firm. It
does not apply to hiring administrative staff of KPMG or to hiring professional or administrative
employees of any other outside accounting firm. Should Nelnet replace KPMG as its primary
external auditor, this policy will apply to the new auditing firm and continue to apply to KPMG for
the time periods described below.
Policy
Unless the exception described below applies and until the specified time period passes, neither
Nelnet nor any consolidated subsidiary whose assets or revenues constitute more than 20 percent
of Nelnet consolidated assets or revenues, may hire or appoint in a financial reporting oversight
role the following current or former employees of KPMG: the lead partner, the concurring partner
or any other member of the audit engagement team with more than minimal involvement in a
Nelnet audit as described below. None of these persons may be hired or appointed in such a role
until the passage of a full engagement period from their last involvement or more than 10 hours
providing audit, review or attest services in any Nelnet audit which is listed in the annual KPMG
Client Service Plan. An engagement period begins on the day following the filing of the annual
Form 10-K and ends on the day the next Form 10-K is filed.
In addition, a current or former employee of KPMG cannot be hired if that individual serves in an
accounting role (which includes a financial reporting oversight role) and that person
(i) influences the accounting firms operations or financial policies;
(ii) has a capital balance in the accounting firm; or
(iii) has a financial arrangement with the accounting form other than one providing for regular
payment of a fixed dollar amount:
(A) pursuant to a fully funded retirement plan, rabbi trust, or in jurisdictions in which a rabbi trust
does not exist, a similar vehicle, or
(B) in the case of a former professional employee who was not a partner, principal or shareholder
of the accounting firm and who has not been disassociated from the accounting firm for more than
three years, that is immaterial to the former professional employee.
Definitions
Financial reporting oversight role means a role in which a person is in a position to or does
exercise influence over the contents of the financial statements of Nelnet or anyone who prepares
or approves them, such as a member of the board of directors, the co-chief executive officers, the
chief financial officer, the audit committee executive, the director of internal audit, the director of
financial reporting or any equivalent position. Questions about the scope of this definition should
be referred to the audit committee executive.
Audit engagement team means all partners, principals, shareholders and professional
employees participating in an audit, review, or attestation engagement of an audit client,
including those conducting concurring or second partner reviews and all persons who consult
with others on the audit engagement team during the audit, review or attestation engagement
regarding technical or industry-specific issues, transactions or events.
Accounting role refers to a role where a person can or does exercise more than minimal
influence over the contents of the accounting records or over any person who prepares the
accounting records. All persons in a financial reporting oversight role also are in an accounting
role. Persons in an accounting role include individuals in clerical positions responsible for
accounting records (e.g., payroll, accounts payable, accounts receivable, purchasing, sales) as
well as those who report to individuals in financial reporting oversight roles.
Exceptions
This policy does not apply to persons employed by Nelnet as a result of a business combination
so long as the person was not hired by the other party in contemplation of the business
combination and the Audit Committee is informed in writing within 30-days of completion of the
business combination of the prior employment relationship.
Procedures Notification Before Job Offers to KPMG Personnel

While this policy prohibits the employment of certain current or professional employees of KPMG,
the audit committee executive should be notified of an offer of employment to any current or
former professional employee of KPMG prior to the extension of the offer.
Professional Development
Republic Act No. 9298

Philippine Accountancy Act of 2004
Rule I. Title, Declaration of Policy, Objective and Scope of Practice

SEC. 2. Declaration of Policy. The State recognizes the importance of accountants in nation
building and development. Hence, it shall develop and nurture competent, virtuous, productive
and well-rounded professional accountants whose standards of practice and service shall be
excellent, qualitative, world class and globally competitive through inviolable, honest, effective,
and credible licensure examinations and through regulatory measures, programs and activities
that foster their professional growth and development.
Rule IV. Practice of Accountancy

SEC. 32. Continuing Professional Education (CPE) Program All certified public accountants
shall abide by the requirements, rules and regulations on continuing professional education to be
promulgated by the Board, subject to the approval of the Commission, in coordination with the
accredited national professional organization of certified public accountants or any duly accredited
educational institutions For this purpose, a CPE Council is hereby created to implement the CPE
program.
1. CPE OBJECTIVES, DEFINITION, NATURE, AND RATIONALE

(a) Objectives The CPE program shall have these objectives:
i. To provide and ensure the continuous education of a registered
professional with the latest trends in the profession brought about by
modernization and scientific and technological advancements;
ii. To raise and maintain the professionals capability for delivering professional
services;
iii. To attain and maintain the highest standards and quality in the practice of
his profession;
iv. To make the professional globally competitive; and
v. To promote the general welfare of the public.
(b) Rationale Voluntary compliance with the CPE program is an effective and credible
means of ensuring competence, integrity and global competitiveness of professionals
in order to allow them to continue the practice of their profession.
For CPE programs, activities or sources

i. The scope shall be beyond the basic preparation for admission to the
practice of the profession. The contents shall be relevant/related, but not
limited, to the practice of the profession.
ii. The programs, activities or sources shall enhance the competence of the
professional by upgrading and updating knowledge and skills for the
practice of the profession as brought about by modernization and scientific
and technical advancements in the profession.
(b) Programs, Activities and Sources for Accreditation and Equivalent Credit Units - Any
provider may submit to the PRC CPE Council programs, activities or sources to be
approved and accredited for CPE units. The provider shall be notified of the
disapproval of his CPE programs, activities or sources without prior approval and
accreditation from the Council.
2. CPE Credit Units

The total CPE credit units for registered accounting professionals shall be sixty (60)
credit units for three (3) years, provided that a minimum of fifteen (15) credit units shall
be earned in each year. Any excess credit units in one year may be carried over to the
succeeding years within the three- year period. Excess credit units earned shall not
be carried over to the next three-year period except credit units earned for doctoral
and masters degrees.
One credit hour of CPE program, activity or source shall be equivalent to one
(1) credit unit.
3. Sanctions
(a) Registered CPAs
Unless otherwise exempted, registered CPAs in the practice of accountancy who
have not completed the CPE requirements provided herein shall not be allowed to
renew their professional licenses. Those who failed to renew their professional
licenses for a period of five (5) continuous years from initial registration, or from
last renewal date shall be declared delinquent and shall, after due notice, through
the website and publication in the newsletters of PICPA or any newspaper of
general circulation, be dropped from the roster of CPAs.
ADDENDUM:
4. THE P R C C P E C O U N C I L : CREATION, C O M P O S I T I O N , T E R M S O F OFFICE,
FUNCTIONS, MEETINGS
(a) Creation The Board, upon approval by the PRC, shall create a Council within thirty
(30) days from the effectivity of this resolution. This shall be known as the PRC
CPE Council which shall assist the Board in implementing its CPE program.
(b) Exercise of Powers and Functions The PRC CPE Council shall, upon a majority
vote, exercise powers and functions which shall include but shall not be limited to
the following.
i. Accept, evaluate and approve applications for accreditation of CPE providers.
ii. 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
program, activity or source submitted by the CPE providers.
iii. Accept, evaluate and approve applications for exemptions from CPE
requirements.
iv. Monitor the implementation by the CPE providers of their programs, activities or
sources.
v. Assess periodically and upgrade criteria for accreditation of CPE providers and
CPE programs, activities or sources.
vi. Perform such other related functions that may be incidental to implementation
of the CPE programs or policies.
5. CRITERIA FOR ACCREDITATION OF PROVIDERS, PROGRAMS, ACTIVITIES OR

SOURCES; EQUIVALENT CREDIT UNITS; CREDIT REQUIREMENTS; EXEMPTIONS
AND OTHER MATTERS
(a) Criteria for Accreditation In order to merit accreditation, the following criteria shall
be complied with:
For CPE Provider
i. Must be a duly registered organization, firm, institution or agency, or a
professional of good standing and has never been convicted of a crime;
ii. Shall have an established mechanism and updated instructional materials
to carry out the CPE programs and activities;
iii. Must have adequate, modern and updated instructional materials to carry
out the CPE programs and activities;
iv. Shall have instructors, lecturers, trainors and resource speakers with good
moral character, technical competence, facilitation skills and are holders of
current CPA licenses.
ADDENDUM:
6. Exemption from CPE Requirements; Procedures
(a) Permanent Exemption
A registered professional shall be permanently exempted from CPE requirements
upon reaching the age of 65 years old. To avail of this exemption, the professional
must
i. Submit an application for exemption which should include the following data:
- Full name, residence address and phone number of applicant
- PRC License Number
- Employment history
Position
Name of employer
Address of employer
ii. Submit an authentic or authenticated copy of birth certificate. If birth

certificates is not available, submit any of the following: Voters ID or Drivers
License.
(b) Temporary Exemption
A registered professional who is working or practicing his/her profession or
furthering his/her studies abroad shall be temporarily exempted from
compliance with CPE requirement during the period of his/her stay abroad,
provided that he/she has been out of the country for at least two years
immediately prior to the date of renewal.
Any professional availing of this temporary exemption must:
i. Submit an application for temporary exemption, to include the following data:

- Full name, residence, address and phone number of applicant;
- PRC License number;
- Degree obtained; college or university attended, year graduated;
- Principal area of professional work;
- If employed:
Position
Name of employer
Address of employer,
Certificate of employment
- If furthering studies abroad, certificate of enrollment from college or
university where presently enrolled.
ii. Submit original, or authenticated copy of passport, photocopy of inside front
cover, page 2, and the page/s containing visa of country, indicating date of
arrival/departure.
A permanent exempt registered professional shall be allowed to renew his/her
License without complying with the CPE requirements upon his/her
accomplishment and submission of the necessary papers as previously
mentioned and upon payment of the annual registration fee for three (3) years
for as long as he/she continues to be out of the country.
Engagement Performance
that engagements are performed in accordance with professional standards and applicable legal
and regulatory requirements, and that the firm or the engagement partner issue reports that are
appropriate in the circumstances. Such policies and procedures shall include:
(a) Matters relevant to promoting consistency in the quality of engagement performance;
(b) Supervision responsibilities; and
(c) Review responsibilities.
The firms review responsibility policies and procedures shall be determined on the basis that
work of less experienced team members is reviewed by more experienced engagement team
members. (ISQC 1. Par. 32&33)
The firm promotes consistency in the quality of engagement performance through its policies and
procedures. This is often accomplished through written or electronic manuals, software tools or
other forms of standardized documentation, and industry or subject matter-specific guidance
materials. Matters addressed may include:
How engagement teams are briefed on the engagement to obtain an understanding of the
objectives of their work.
Processes for complying with applicable engagement standards.
Processes of engagement supervision, staff training and coaching.
Methods of reviewing the work performed, the significant judgments made and the form of report
being issued.
Appropriate documentation of the work performed and of the timing and extent of the review.
Processes to keep all policies and procedures current.
Appropriate teamwork and training assist less experienced members of the engagement team to
clearly understand the objectives of the assigned work. (ISQC 1, A32&A33)
Consultation
The engagement partner shall:

(a) Take responsibility for the engagement team undertaking appropriate consultation on difficult
or contentious matters;
(b) Be satisfied that members of the engagement team have undertaken appropriate consultation
during the course of the engagement, both within the engagement team and between the
engagement team and others at the appropriate level within or outside the firm;
(c) Be satisfied that the nature and scope of, and conclusions resulting from, such consultations
are agreed with the party consulted; and
(d) Determine that conclusions resulting from such consultations have been implemented. (PSA
220, Par. 18)
Effective consultation on significant technical, ethical, and other matters within the firm or, where
applicable, outside the firm can be achieved when those consulted:
Are given all the relevant facts that will enable them to provide informed advice; and
Have appropriate knowledge, seniority and experience.
It may be appropriate for the engagement team to consult outside the firm, for example, where
the firm lacks appropriate internal resources. They may take advantage of advisory services
provided by other firms, professional and regulatory bodies, or commercial organizations that
provide relevant quality control services. (PSA 220, A21&A22)
that:
(a) Appropriate consultation takes place on difficult or contentious matters;
(b) Sufficient resources are available to enable appropriate consultation to take place;
(c) The nature and scope of, and conclusions resulting from, such consultations are documented
and are agreed by both the individual seeking consultation and the individual consulted; and
(d) Conclusions resulting from consultations are implemented. (ISQC 1, Par. 34)
Consultation includes discussion at the appropriate professional level, with individuals within or
outside the firm who have specialized expertise.
Consultation uses appropriate research resources as well as the collective experience and
technical expertise of the firm. Consultation helps to promote quality and improves the application
of professional judgment. Appropriate recognition of consultation in the firms policies and
procedures helps to promote a culture in which consultation is recognized as a strength and
encourages personnel to consult on difficult or contentious matters.
Effective consultation on significant technical, ethical and other matters within the firm or, where
applicable, outside the firm can be achieved when those consulted:
Are given all the relevant facts that will enable them to provide informed advice; and
Have appropriate knowledge, seniority and experience, and when conclusions resulting from
consultations are appropriately documented and implemented.
Documentation of consultations with other professionals that involve difficult or contentious
matters that is sufficiently complete and detailed contributes to an understanding of:
The issue on which consultation was sought; and
The results of the consultation, including any decisions taken, the basis for those decisions and
how they were implemented. (ISQC 1, A36-39)
Supervision
Supervision includes matters such as:

Tracking the progress of the audit engagement.
Considering the competence and capabilities of individual members of the engagement team,
including whether they have sufficient time to carry out their work, whether they understand their
instructions, and whether the work is being carried out in accordance with the planned approach
to the audit engagement.
Addressing significant matters arising during the audit engagement, considering their
significance and modifying the planned approach appropriately.
Identifying matters for consultation or consideration by more experienced engagement team
members during the audit engagement. (PSA 220, Par. 15)
Monitoring
The firm shall establish a monitoring process designed to provide it with reasonable assurance
that the policies and procedures relating to the system of quality control are relevant, adequate,
and operating effectively. This process shall:
(a) Include an ongoing consideration and evaluation of the firms system of quality control
including, on a cyclical basis, inspection of at least one completed engagement for each
engagement partner;
(b) Require responsibility for the monitoring process to be assigned to a partner or partners or
other persons with sufficient and appropriate experience and authority in the firm to assume that
responsibility; and
(c) Require that those performing the engagement or the engagement quality control review are
not involved in inspecting the engagements. (ISQC 1, Par. 48)
The purpose of monitoring compliance with quality control policies and procedures is to provide
an evaluation of:
Adherence to professional standards and applicable legal and regulatory requirements;
Whether the system of quality control has been appropriately designed and effectively
implemented; and
Whether the firms quality control policies and procedures have been appropriately applied, so
that reports that are issued by the firm or engagement partners are appropriate in the
circumstances.
Ongoing consideration and evaluation of the system of quality control include matters such as the
following:
Analysis of:
New developments in professional standards and applicable legal and regulatory
requirements, and how they are reflected in the firms policies and procedures where
appropriate;
Written confirmation of compliance with policies and procedures on independence;
Continuing professional development, including training; and
Decisions related to acceptance and continuance of client relationships and specific
engagements.
Determination of corrective actions to be taken and improvements to be made in the system,
including the provision of feedback into the firms policies and procedures relating to education
and training.
Communication to appropriate firm personnel of weaknesses identified in the system, in the level
of understanding of the system, or compliance with it.
Follow-up by appropriate firm personnel so that necessary modifications are promptly made to
the quality control policies and procedures. (ISQC 1, Par. A64&A65)
Inspection
Inspection cycle policies and procedures may, for example, specify a cycle that spans three years.
The manner in which the inspection cycle is organized, including the timing of selection of
individual engagements, depends on many factors, such as the following:
The size of the firm.
The number and geographic location of offices.
The results of previous monitoring procedures.
The degree of authority both personnel and offices have (for example, whether individual offices
are authorized to conduct their own inspections or whether only the head office may conduct
them).
The nature and complexity of the firms practice and organization.
The risks associated with the firms clients and specific engagements.
The inspection process includes the selection of individual engagements, some of which may be
selected without prior notification to the engagement team. In determining the scope of the
inspections, the firm may take into account the scope or conclusions of an independent external
inspection program. However, an independent external inspection program does not act as a
substitute for the firms own internal monitoring program. (ISQC 1, A66&A77)
Appendix B
Code of Ethics
Sec. 110 Integrity
(1.1) Integrity implies not merely honesty but fair dealing and truthfulness. The principle of
objectivity imposes the obligation on all professional accountants to be fair, intellectually
honest and free of conflicts of interest.
(1.2) Professional accountants serve in many different capacities and should demonstrate
their objectivity in varying circumstances. Regardless of service or capacity, professional
accountants should protect the integrity of their professional services, and maintain objectivity
in their judgment
(1.3) In selecting the situations and practices to be specifically dealt within ethics requirements
relating to objectivity, adequate consideration should be given to the following factors:
o Professional accountants are exposed to situations which involve the possibility of
pressures being exerted on them. These pressures may impair their objectivity.
o It is impracticable to define and prescribe all such situations where these possible
pressures exist. Reasonableness should prevail in establishing standards for
identifying relationships that are likely to, or appear to, impair a professional
accountant's objectivity.
o Relationships should be avoided which allow prejudice, bias or influences of others to
override objectivity.
o Professional accountants have an obligation to ensure that personnel engaged on
Professional services adhere to the principle of objectivity.
o Professional accountants should neither accept nor offer gifts or entertainment which
might reasonably be believed to have a significant and improper influence on their
professional judgment or those with whom they deal. Professional accountants should
avoid circumstances which would bring their professional standing into disrepute.
International Ethics Standards Board for Accountants - Code of Ethics for Professional
Accountants
(110.1) The principle of integrity imposes an obligation on all professional accountants to be
straightforward and honest in all professional and business relationships. Integrity also implies
fair dealing and truthfulness
(110.2) A professional accountant shall not knowingly be associated with reports, returns,
communications or other information where the professional accountant believes that the
information:
o (a) Contains a materially false or misleading statement
o (b) Contains statements or information furnished recklessly
(c) Omits or obscures information required to be included where such omission or obscurity would
be misleading. When a professional accountant becomes aware that the accountant has been
associated with such information, the accountant shall take steps to be disassociated from that
information.
Sec. 120 Objectivity
- imposes an obligation on all professional accountants not to compromise their

professional or business judgment because of bias, conflict of interest or the undue
influence of others.
Objectivity is an unbiased mental attitude that allows internal auditors to perform engagements in
such a manner that they believe in their work product and that no quality compromises are made.
Objectivity requires that internal auditors do not subordinate their judgment on audit matters to
others. Threats to objectivity must be managed at the individual auditor, engagement, functional,
and organizational levels. Institute of Internal Auditors (IIA 1100)
Sec. 140 Confidentiality
140.1 The principle of confidentiality imposes an obligation on professional accountants to refrain

from:
(a) Disclosing outside the firm or employing organization confidential information acquired
as a result of professional and business relationships without proper and specific authority
or unless there is a legal or professional right or duty to disclose; and
(b) Using confidential information acquired as a result of professional and business
relationships to their personal advantage or the advantage of third parties.
*A professional accountant should maintain confidentiality:
140.2 -in a social environment. The professional accountant should be alert to the
possibility of inadvertent disclosure, particularly in circumstances involving long
association with a business associate or a close or immediate family member.
140.3 -of information disclosed by a prospective client or employer.
140.4- of information within the firm or employing organization.
140.5 A professional accountant should take all reasonable steps to ensure that staff under the
professional accountants control and persons from whom advice and assistance is obtained
respect the professional accountants duty of confidentiality.
140.6 The need to comply with the principle of confidentiality continues even after the end of
relationships between a professional accountant and a client or employer. When a professional
accountant changes employment or acquires a new client, the professional accountant is entitled
to use prior experience. The professional accountant should not, however, use or disclose any
confidential information either acquired or received as a result of a professional or business
relationship.
140.7 The following are circumstances where professional accountants are or may be required to
disclose confidential information or when such disclosure may be appropriate:
(a) Disclosure is permitted by law and is authorized by the client or the employer;
(b) Disclosure is required by law, for example:
(i) Production of documents or other provision of evidence in the course of legal
proceedings; or
(ii) Disclosure to the appropriate public authorities of infringements of the law that
come to light;
(c) There is a professional duty or right to disclose, when not prohibited by law:
(i) To comply with the quality review of a member body or professional body;
(ii) To respond to an inquiry or investigation by a member body or regulatory body;
(iii) To protect the professional interests of a professional accountant in legal
proceedings; or
(iv) To comply with technical standards and ethics requirements.
140.8 In deciding whether to disclose confidential information, professional accountants should
consider the following points:
(a) Whether the interests of all parties, including third parties whose interests may be
affected, could be harmed if the client or employer consents to the disclosure of
information by the professional accountant;
(b) Whether all the relevant information is known and substantiated, to the extent it is
practicable; when the situation involves unsubstantiated facts, incomplete information or
unsubstantiated conclusions, professional judgment should be used in determining the
type of disclosure to be made, if any; and
(c) The type of communication that is expected and to whom it is addressed; in particular,
professional accountants should be satisfied that the parties to whom the communication
is addressed are appropriate recipients.
Sec. 130 Professional Competence and Due Care
The principle of professional competence and due care imposes the following obligations on
professional accountants:
1.) To maintain professional knowledge and skill at the level required to ensure that clients
or employers receive competent professional service
2.) To act diligently in accordance with applicable technical and professional standards
when providing professional services.
Competent professional service requires the exercise of sound judgment in applying
professional knowledge and skill in the performance of such service.
Phases of Professional Competence:
(a) Attainment of professional competence-(Certified Public Accountant)
(b) Maintenance of professional competence-(Continuing Professional Education) -
requires a continuing awareness and an understanding of relevant technical professional and
business developments.
Diligence encompasses the responsibility to act in accordance with the requirements of
an assignment, carefully, thoroughly and on a timely basis.
A professional accountant should ensure that those working under his authority in a
professional capacity have appropriate training and supervision.
Where appropriate, a professional accountant should make clients, employers or other users
of the professional services aware of limitations inherent in the services to avoid the
misinterpretation of an expression of opinion as an assertion of fact.
Sec. 150 Professional Behavior
150.1 The principle of professional behavior imposes an obligation on all professional accountants
to comply with relevant laws and regulations and avoid any action that the professional accountant
knows or should know may discredit the profession. This includes actions that a reasonable and
informed third party, weighing all the specific facts and circumstances available to the professional
accountant at that time, would be likely to conclude adversely affects the good reputation of the
profession.
150.2 In marketing and promoting themselves and their work, professional accountants shall not
bring the profession into shame. Professional accountants shall be honest and truthful and not:
(a) Make exaggerated claims for the services they are able to offer, the qualifications they
possess, or experience they have gained; or
(b) Make disparaging references or unsubstantiated comparisons to the work of others.
Appendix C
Confirmation of SEC Registration
Appendix D
Independence Questionnaire
Dear Assurance Team Members:
The new Form 990 requires organizations to disclose certain relationships, arrangements, and
transactions involving conflicts of interest and independent decision making by their governing
bodies. By completing this questionnaire, you assist us in accurately completing the Form 990.
The new disclosure requirements focus on three categories:
1. interested persons (i.e., those possessing conflicts of interest);
2. independent directors or trustees (i.e., those who are independent of the organization);
and
3. relationships among directors, trustees, officers and key employees (i.e., those
between the two parties, and not between a party and the organization).
On the following pages are four questions for you to answer. To assist you in answering, we have
added a shaded box below each question containing an excerpt from the Form 990 instructions
(in italics), along with pertinent definitions.
Once you have completed and signed the questionnaire, please fax or mail it to the address
above. We will review your answers and determine whether any relationships, arrangements, or
transactions meet the criteria for the acceptance and continuance of the engagement. We will
retain your completed questionnaire as part of our Form 990 documentation to substantiate our
efforts to accurately make all required disclosures.
Thank you for your assistance!
Mr. Bonito F. Fatallo Jr., CPA

Administrative Partner
Print Name MARC JUL F. ARELLANO, CPA

( ) officer ( ) director
I hereby confirm that I accept the organization's Conflict of Interest Policy and [check one]
[ ] have checked NO to all questions on the following four pages, or
[ ] have checked YES to one or more questions and provided the required information.
Signature
Date December 3, 2016
Grants or Assistance Benefitting Interested Persons
Did you (or a person related to you) receive any grants or other assistance from
Lone Star Western Apparel Co. during the past calendar year?
( ) yes ( ) no
If yes, please describe:

(a) Name of interested person
(b) Relationship between interested person and the organization
(c) Amount of grant or type of assistance
Have you accepted payments, or are you a party to any existing or proposed written
or oral contract or other arrangement that provides for payments, directly or
indirectly, to you from the Lone Star Western Apparel Co. or any of its subsidiaries
of any accounting, consulting, advisory, legal, investment banking or financial
advisory or any other compensatory fee (excluding fixed payments under
retirement plans and deferred compensation for prior service to the Company,
provided that such compensation is not contingent in any way on continued
service), other than compensation for service rendered?
( ) yes ( ) no
Business Transactions Involving Interested Persons

Were you (or an interested person) involved in a business transaction with Lone
Star Western Apparel Co. for which payments were made during the past calendar
year?
( ) yes ( ) no

(c) Amount of transaction $
(d) Description of transaction
(e) Did you share the organizations revenues? ( ) yes ( ) no
Independent Directors or Trustees
Are you independent from Lone Star Western Apparel Co.?

( ) yes ( ) no
Relationships Among Directors, Trustees, Officers and Key Employees

Are you free from any other interest or business or other relationship which could,
or could reasonably be perceived to, materially interfere with your ability as member
of the assurance team to act in the best interests of the Company?
( ) yes ( ) no
Did you have a family relationship with another of Lone Star Western Apparel Co.s
officers, directors, trustees, or key employees at any time during the past calendar
year?
( ) yes ( ) no
Did you have a business relationship with another of Lone Star Western Apparel
Co.s officers, directors, trustees, or key employees at any time during the past
calendar year?
( ) yes ( ) no

and

Print Name RYAN C. ALAMAG, CPA

Signature

( ) yes ( ) no

( ) yes ( ) no

year?
( ) yes ( ) no


( ) yes ( ) no

or could reasonably be perceived to, materially interfere with your ability as
member of the assurance team to act in the best interests of the Company?
( ) yes ( ) no
Did you have a family relationship with another of Lone Star Western Apparel
calendar year?
( ) yes ( ) no
calendar year?
( ) yes ( ) no

2. independent directors or trustees (i.e., those who are independent of the
organization);and

Print Name KATE ISABELL C. BALTAZAR, CPA

Signature

( ) yes ( ) no

( ) yes ( ) no

year?
( ) yes ( ) no


( ) yes ( ) no

( ) yes ( ) no
year?
( ) yes ( ) no
calendar year?
( ) yes ( ) no

2. independent directors or trustees (i.e., those who are independent of the
organization); and

Print Name NOREEN B. CANATOY, CPA

Signature

( ) yes ( ) no

( ) yes ( ) no

year?
( ) yes ( ) no


( ) yes ( ) no

( ) yes ( ) no
year?
( ) yes ( ) no
calendar year?
( ) yes ( ) no

and

Print Name RENALYN A. DARIO, CPA

Signature

( ) yes ( ) no

( ) yes ( ) no

year?
( ) yes ( ) no


( ) yes ( ) no

( ) yes ( ) no
year?
( ) yes ( ) no
calendar year?
( ) yes ( ) no

and

Print Name LOUISE M. WILES, CPA

Signature

( ) yes ( ) no

( ) yes ( ) no

year?
( ) yes ( ) no


( ) yes ( ) no

or could reasonably be perceived to, materially interfere with your ability as
member of the assurance team to act in the best interests of the Company?
( ) yes ( ) no
Did you have a family relationship with another of Lone Star Western Apparel
calendar year?
( ) yes ( ) no
calendar year?
( ) yes ( ) no

Appendix E
Sec. 290
Independence - Assurance Engagements
290.1 In the case of an assurance engagement it is in the public interest and, therefore, required
by this Code of Ethics, that members of assurance teams,* firms and, when applicable, network
firms be independent of assurance clients.
290.8 Independence requires:

Independence of Mind
The state of mind that permits the expression of a conclusion without being affected by influences
that compromise professional judgment, allowing an individual to act with integrity, and exercise
objectivity and professional skepticism.
Independence in Appearance
The avoidance of facts and circumstances that are so significant that a reasonable and informed
third party, having knowledge of all relevant information, including safeguards applied, would
reasonably conclude a firms, or a member of the assurance teams, integrity, objectivity or
professional skepticism had been compromised.
290.9 The use of the word independence on its own may create misunderstandings. Standing
alone, the word may lead observers to suppose that a person exercising professional judgment
ought to be free from all economic, financial and other relationships. This is impossible, as every
member of society has relationships with others. Therefore, the significance of economic, financial
and other relationships should also be evaluated in the light of what a reasonable and informed
third party having knowledge of all relevant information would reasonably conclude to be
unacceptable.
290.10 Many different circumstances, or combination of circumstances, may be relevant and

accordingly it is impossible to define every situation that creates threats to independence and
specify the appropriate mitigating action that should be taken. In addition, the nature of assurance
engagements may differ and consequently different threats may exist, requiring the application of
different safeguards. A conceptual framework that requires firms and members of assurance
teams to identify, evaluate and address threats to independence, rather than merely complies
with a set of specific rules which may be arbitrary, is, therefore, in the public interest.
A Conceptual Approach to Independence
290.11 Members of assurance teams, firms and network firms are required to apply the
conceptual framework contained in Section 100 to the particular circumstances under
consideration. In addition to identifying relationships between the firm, network firms, members of
the assurance team and the assurance client, consideration should be given to whether
relationships between individuals outside of the assurance team and the assurance client create
threats to independence.
290.12 The examples presented in this section are intended to illustrate the application of the
conceptual framework and are not intended to be, nor should they be interpreted as, an
exhaustive list of all circumstances that may create threats to independence. Consequently, it is
not sufficient for a member of an assurance team, a firm or a network firm merely to comply with
the examples presented, rather they should apply the framework to the particular circumstances
they face.
290.13 The nature of the threats to independence and the applicable safeguards necessary to
eliminate the threats or reduce them to an acceptable level differ depending on the characteristics
of the individual assurance engagement: whether it is a financial statement audit engagement or
another type of assurance engagement; and in the latter case, the purpose, subject matter
information and intended users of the report. A firm should, therefore, evaluate the relevant
circumstances, the nature of the assurance engagement and the threats to independence in
deciding whether it is appropriate to accept or continue an engagement, as well as the nature of
the safeguards required and whether a particular individual should be a member of the assurance
team.
Networks and Network Firms
290.14 An entity that belongs to a network might be a firm, which is defined in this Code as a sole
practitioner, partnership or corporation of professional accountants and an entity that controls or
is controlled by such parties, or the entity might be another type of entity, such as a consulting
practice or a professional law practice. The independence requirements in this section that apply
to a network firm apply to any entity that meets the definition of a network firm irrespective of
whether the entity itself meets the definition of a firm.
290.15 If a firm is considered to be a network firm, the firm is required to be independent of the
financial statement audit clients of the other firms within the network. In addition, for assurance
clients that are not financial statement audit clients, consideration should be given to any threats
the firm has reason to believe may be created by financial interests in the client held by other
entities in the network or by relationships between the client and other entities in the network.
290.23 Even though a firm does not belong to a network and does not use a common brand name
as part of its firm name, it may give the appearance that it belongs to a network if it makes
reference in its stationery or promotional materials to being a member of an association of firms.
Accordingly, a firm should carefully consider how it describes any such memberships in order to
avoid the perception that it belongs to a network.
290.24 If a firm sells a component of its practice, the sales agreement sometimes provides that,
for a limited period of time, the component may continue to use the name of the firm, or an element
of the name, even though it is no longer connected to the firm. In such circumstances, while the
two entities may be practicing under a common name, the facts are such that they do not belong
to a larger structure aimed at co-operation and are, therefore, not network firms. Those entities
should carefully consider how to disclose that they are not network firms when presenting
themselves to outside parties.
290.25 Where the larger structure is aimed at co-operation and the entities within the structure
share a significant part of professional resources, it is considered to be a network. Professional
resources include:
Common systems that enable firms to exchange information such as client data, billing, and
time records;
Partners and staff;
Technical departments to consult on technical or industry specific issues, transactions or events
for assurance engagements;
Audit methodology or audit manuals; and
Training courses and facilities.
290.26 The determination of whether the professional resources shared are significant, and
therefore the firms are network firms, should be made based on the relevant facts and
circumstances. Where the shared resources are limited to common audit methodology or audit
manuals, with no exchange of personnel or client or market information, it is unlikely that the
shared resources would be considered to be significant. The same applies to a common training
endeavor. Where, however, the shared resources involve the exchange of people or information,
such as where staff are drawn from a shared pool, or a common technical department is created
within the larger structure to provide participating firms with technical advice that the firms are
required to follow, a reasonable and informed third party is more likely to conclude that the shared
resources are significant.
Assertion-Based Assurance Engagements
Financial Statement Audit Engagements
290.27 Financial statement audit engagements are relevant to a wide range of potential users;
consequently, in addition to independence of mind, independence in appearance is of particular
significance. Accordingly, for financial statement audit clients, the members of the assurance
team, the firm and network firms are required to be independent of the financial statement audit
client. Such independence requirements include prohibitions regarding certain relationships
between members of the assurance team and directors, officers and employees of the client in a
position to exert direct and significant influence over the subject matter information (the financial
statements). Also, consideration should be given to whether threats to independence are created
by relationships with employees of the client in a position to exert direct and significant influence
over the subject matter (the financial position, financial performance and cash flows).
Other Assertion-Based Assurance Engagements
290.28 In an assertion-based assurance engagement where the client is not a financial statement
audit client, the members of the assurance team and the firm are required to be independent of
the assurance client (the responsible party, which is responsible for the subject matter information
and may be responsible for the subject matter). Such independence requirements include
prohibitions regarding certain relationships between members of the assurance team and
directors, officers and employees of the client in a position to exert direct and significant influence
over the subject matter information. Also, consideration should be given to whether threats to
independence are created by relationships with employees of the client in a position to exert direct
and significant should also be given to any threats that the firm has reason to believe may be
created by network firm interests and relationships.
290.29 In the majority of assertion-based assurance engagements, that are not financial
statement audit engagements, the responsible party is responsible for the subject matter
information and the subject matter. However, in some engagements the responsible party may
not be responsible for the subject matter. For example, when a professional accountant in public
practice is engaged to perform an assurance engagement regarding a report that an
environmental consultant has prepared about a companys sustainability practices, for distribution
to intended users, the environmental consultant is the responsible party for the subject matter
information but the company is responsible for the subject matter (the sustainability practices).
290.30 In those assertion-based assurance engagements that are not financial statement audit
engagements, where the responsible party is responsible for the subject matter information but
not the subject matter the members of the assurance team and the firm are required to be
independent of the party responsible for the subject matter information (the assurance client). In
addition, consideration should be given to any threats the firm has reason to believe may be
created by interests and relationships between a member of the assurance team, the firm, a
network firm and the party responsible for the subject matter.
Direct Reporting Assurance Engagements
290.31 In a direct reporting assurance engagement the members of the assurance team and the
firm are required to be independent of the assurance client (the party responsible for the subject
matter).
Restricted Use Reports
290.32 In the case of an assurance report in respect of a non-financial statement audit client
expressly restricted for use by identified users, the users of the report are considered to be
knowledgeable as to the purpose, subject matter information and limitations of the report through
their participation in establishing the nature and scope of the firms instructions to deliver the
services, including the criteria against which the subject matter are to be evaluated or measured.
This knowledge and the enhanced ability of the firm to communicate about safeguards with all
users of the report increase the effectiveness of safeguards to independence in appearance.
These circumstances may be taken into account by the firm in evaluating the threats to
independence and considering the applicable safeguards necessary to eliminate the threats or
reduce them to an acceptable level. At a minimum, it will be necessary to apply the provisions of
this section in evaluating the independence of members of the assurance team and their
immediate and close family. Further, if the firm had a material financial interest, whether direct or
indirect, in the assurance client, the self-interest threat created would be so significant no
safeguard could reduce the threat to an acceptable level. Limited consideration of any threats
created by network firm interests and relationships may be sufficient.
Multiple Responsible Parties
290.33 In some assurance engagements, whether assertion-based or direct reporting, that are
not financial statement audit engagements, there might be several responsible parties. In such
engagements, in determining whether it is necessary to apply the provisions in this section to
each responsible party, the firm may take into account whether an interest or relationship between
the firm, or a member of the assurance team, and a particular responsible party would create a
threat to independence that is other than clearly insignificant in the context of the subject matter
information. This will take into account factors such as:
The materiality of the subject matter information (or the subject matter) for which the
particular responsible party is responsible; and
The degree of public interest associated with the engagement. If the firm determines that
the threat to independence created by any such interest or relationship with a particular
responsible party would be clearly insignificant it may not be necessary to apply all of the
provisions of this section to that responsible party.
Threats to Independence
48. Independence is potentially affected by self-interest, self-review, advocacy, familiarity and

intimidation threats.
49. Self-interest Threat occurs when a firm, network firm, or a member of the assurance team
could benefit from a financial interest in, or other self-interest conflict with, an assurance client.
Examples of circumstances that may create this threat include, but are not limited to:
(a) a direct financial interest or material indirect financial interest in an assurance client;
(b) a loan or guarantee to or from an assurance client or any of its directors or officers;
(c) undue dependence on total fees from an assurance client;
(d) concern about the possibility of losing the engagement;
(e) having a close business relationship with an assurance client;
(f) potential employment with an assurance client; and
(g) contingent fees relating to assurance engagements.
50. Self-review Threat occurs when:

(a) any product or judgement of a previous assurance engagement or non-assurance
engagement needs to be re-evaluated in reaching conclusions on the assurance engagement; or
(b) when a member of the assurance team was previously a director or officer of the assurance
client, or was an employee in a position to exert direct and significant influence over the subject
matter of the assurance engagement.
(a) a member of the assurance team being, or having recently been, a director or officer of the
assurance client;
(b) a member of the assurance team being, or having recently been, an employee of the
assurance client in a position to exert direct and significant influence over the subject matter of
the assurance engagement;
(c) performing services for an assurance client that directly affect the subject matter of the
assurance engagement; and
(d) preparation of original data used to generate financial statements or preparation of other
records that are the subject matter of the assurance engagement.
51. Advocacy Threat occurs when a firm, a member of the assurance team, or a member of the
network firm, as applicable, promotes, or may be perceived to promote, an assurance clients
position or opinion to the point that objectivity may, or may be perceived to be, compromised.
Such may be the case if a firm or a member of the assurance team were to subordinate their
judgement to that of the client.
(a) dealing in, or being a promoter of, shares or other securities of an assurance client; and
(b) acting as an advocate on behalf of an assurance client in litigation or in resolving disputes with
third parties.
52. Familiarity Threat occurs when, by virtue of a close relationship with an assurance client, its
directors, officers or employees, a firm, or a member of the assurance team or network firm, as
applicable, becomes too sympathetic to the clients interests.
(a) a member of the assurance team having an immediate family member or close family member
who is a director or officer of the assurance client;
(b) a member of the assurance team having an immediate family member or close family member
who, as an employee of the assurance client, is in a position to exert direct and significant
influence over the subject matter of the assurance engagement;
(c) a former partner of the firm being a director, officer of the assurance client or an employee in
a position to exert direct and significant influence over the subject matter of the assurance
engagement;
(d) long association of a senior member of the assurance team with the assurance client; and
(e) acceptance of gifts or hospitality, unless the value is clearly insignificant, from the assurance
client, its directors, officers or employees.
53. Intimidation Threat occurs when a member of the assurance team may be deterred from
acting objectively and exercising professional scepticism by threats, whether actual or perceived,
from the directors, officers or employees of an assurance client.
(a) threat of replacement over a disagreement with the application of an accounting principle; and
(b) pressure to reduce inappropriately the extent of work performed in order to reduce fees.
Safeguards
54. The firm and members of the assurance team must remain independent by taking into account
the context in which they practise, the threats to independence and the safeguards available to
eliminate the threats or reduce them to an acceptable level.
55. When the safeguards available, such as those described below, are insufficient to eliminate
the threats to independence or to reduce them to an acceptable level, or when a firm chooses not
to eliminate the activities or interests creating the threat, the only course of action available must
be refusal to perform, or withdrawal from, the assurance engagement. It is important to note that
while certain safeguards may address independence in mind they may not satisfy the
independence in appearance test. Independence in appearance is equally as important as
independence in mind because, unless an auditor is considered by users of the information as
independent, the auditors independence in mind is largely irrelevant.
In deciding whether to accept an assignment, the firm must ensure that they areindependent in
mind and in appearance.
56. When threats are identified, other than those that are clearly insignificant, appropriate
safeguards must be identified and applied to eliminate the threats or reduce them to an acceptable
level. This decision must be documented.
57. The nature of the safeguards to be applied will vary depending upon the circumstances.
Consideration must always be given to what a reasonable and informed third party, having
knowledge of all relevant information, including safeguards applied, would reasonably conclude
to be unacceptable. The consideration will be affected by matters such as the significance of the
threat, the nature of the assurance engagement, the intended users of the assurance report and
the structure of the firm.
58. Safeguards fall into three broad categories:

(a) safeguards created by the profession, legislation or regulation;
(b) safeguards within the assurance client; and
(c) safeguards within the firms own systems and procedures.
The firm and the members of the assurance team must select appropriate safeguards to eliminate
or reduce threats to independence, other than those that are clearly insignificant, to an acceptable
level. It is the responsibility of Institute members conducting assurance engagements to ensure
that they are independent and to carefully consider and respond appropriately to circumstances
that threaten independence. In general, safeguards adopted by an Institute member will be those
within the firms own systems and procedures as these will be within the control of the member.
59. Safeguards created by the profession, legislation or regulation include the following:
(a) educational, training and experience requirements for entry into the profession;
(b) continuing education requirements;
(c) professional standards, monitoring and disciplinary processes;
(d) external review of a firms quality control system; and
(e) legislation governing the independence requirements of the firm.
60. Safeguards within the assurance client include the following:

(a) when management appoints the firm, persons other than management mustratify or approve
the appointment;
(b) that competent employees are able to make managerial decisions;
(c) policies and procedures that emphasise the assurance clients commitment to fair financial
reporting;
(d) internal procedures that ensure objective choices in commissioning non-assurance
engagements; and
(e) a corporate governance structure, such as an audit committee, that provides appropriate
oversight and communications regarding a firms services.
61. Audit committees can have an important corporate governance role when they are
independent of client management, and can assist the Board of Directors in satisfying themselves
that a firm is independent in carrying out its audit role. There must be regular communication
between the firm and the audit committee (or other governance body if there is no audit
committee) regarding relationships and other matters that might, in the firms opinion, reasonably
be thought to bear on independence.
62. Firms must establish policies and procedures relating to communications on the matter of
independence with audit committees or others charged with governance. In the case of audit
clients, the firm must communicate orally and in writing at least annually, all relationships and
other matters between the firm, network firms and the audit client that, in the firms professional
judgement, may reasonably be thought to bear on independence.
63. Matters to be communicated will vary in each circumstance and should be decided by the
firm, but should generally address the relevant matters set out in Code of Ethics: Independence.
64. Safeguards within the firms own systems and procedures may include firm-wide safeguards
such as:
(a) leadership that stresses the importance of independence and the expectation that members
of assurance teams will act in the public interest;
(b) policies and procedures to implement and monitor quality control of assurance engagements;
(c) documented independence policies regarding the identification of threats to independence,
the evaluation of the significance of these threats and the identification and application of
safeguards to eliminate or reduce the threats, other than those that are clearly insignificant, to an
acceptable level;
(d) internal policies and procedures to monitor compliance with firm policies and procedures as
they relate to independence;
(e) policies and procedures that will enable the identification of interests or relationships between
the firm or members of the assurance team and assurance clients;
(f) policies and procedures to monitor and, if necessary, manage the reliance on revenue received
from a single assurance client;
(g) using different partners and teams with separate reporting lines for the provision of non-
assurance services to an assurance client;
(h) policies and procedures to prohibit individuals who are not members of the assurance team
from influencing the outcome of the assurance engagement;
(i) timely communication of a firms policies and procedures, and any changes thereto, to all
partners and professional staff, including appropriate training and education thereon;
(j) designating a member of senior management as responsible for overseeing the adequate
functioning of the safeguarding system;
(k) a means of advising partners and professional staff of those assurance clients and related
entities from which they must be independent;
(l) a disciplinary mechanism to promote compliance with policies and procedures;and
(m) policies and procedures to empower staff to communicate to senior levels within the firm any
issue of independence and objectivity that concerns them, including informing staff of the
procedures open to them.
65. Safeguards within the firms own systems and procedures may include engagement specific
safeguards such as the following:
(a) involving an additional Institute member to review the work done or otherwise advise as
necessary. This individual could be someone from outside the firm or network firm, or someone
within the firm or network firm who was not otherwise associated with the assurance team;
(b) consulting a third party, such as a committee of independent directors, a professional
regulatory body or another Institute member;
(c) rotation of senior personnel;
(d) discussing independence issues with the audit committee or others charged with governance;
(e) disclosing to the audit committee, or others charged with governance, the nature of services
provided and extent of fees charged;
(f) policies and procedures to ensure that members of the assurance team do not make, or
assume responsibility for, management decisions for the assurance client;
(g) involving another firm to perform or re-perform part of the assurance engagement;
(h) involving another firm to re-perform the non-assurance service to the extent necessary to
enable it to take responsibility for that service; and
(i) removing an individual from the assurance team, when that individuals financial interests or
relationships create a threat to independence.
Engagement Period
66. The members of the assurance team, the firm, and, where applicable, the network firm, must
be independent of the assurance client during the period of the assurance engagement.
67. The period of the engagement starts when the assurance team begins to perform assurance
services and ends when the assurance report is issued, except when the assurance engagement
is of a recurring nature. If the assurance engagement is expected to recur, the period of the
assurance engagement ends with the notification by either party that the professional relationship
has terminated or the issuance of the final assurance report, whichever is later.
68. In the case of an audit engagement, the engagement period includes the period covered by
the financial statements reported on by the firm.
69. When an entity becomes an audit client during or after the period covered by the financial
statements that the firm will report on, the firm must consider whether any threats to independence
may be created by:
(a) financial or business relationships with the audit client during or after the period covered by
the financial statements, but prior to the acceptance of the audit engagement; or
(b) previous services provided to the audit client.
Similarly, in the case of an assurance engagement that is not an audit engagement, the firm must
consider whether any financial or business relationships or previous services may create threats
to independence.
70. If non-assurance services were provided to the audit client during or after the period covered
by the financial statements, but before the commencement of professional services in connection
with the audit and those services would be prohibited during the period of the audit engagement,
consideration must be given to the threats to independence, if any, arising from those services. If
the threat is other than clearly insignificant, the firm should decline the audit engagement.
71. Non-assurance services provided to a non-issuer audit client will not impair the firms
independence when the client becomes an issuer, provided that:
(a) the previous non-assurance services were permissible under this document for non-issuer
audit clients;
(b) the services will be terminated within a reasonable period of time of the client becoming an
issuer, if they are not permitted under Code of Ethics:
Independence for issuer audit clients; and
(c) the firm has implemented appropriate safeguards to eliminate any threats to
independence arising from the previous services or to reduce them to an acceptable level.
Appendix F
PSA 210
Agreeing the Terms of Audit Engagements
The agreed terms of the audit engagement shall be recorded in an audit engagement letter or
other suitable form of written agreement and shall include:
(a) The objective and scope of the audit of the financial statements;
(b) The responsibilities of the auditor;
(c) The responsibilities of management;
(d) Identification of the applicable financial reporting framework for the preparation of the financial
statements; and
(e) Reference to the expected form and content of any reports to be issued by the auditor and a
statement that there may be circumstances in which a report may differ from its expected form
and content. (Par. 10)
The form and content of the audit engagement letter may vary for each entity. Information included
in the audit engagement letter on the auditors responsibilities may be based on PSA 200 (Revised
and Redrafted). Paragraphs 6(b) and 12 of this PSA deal with the description of the
responsibilities of management. In addition to including the matters required by paragraph 10, an
audit engagement letter may make reference to, for example:
Elaboration of the scope of the audit, including reference to applicable legislation, regulations,
PSAs, and ethical and other pronouncements of professional bodies to which the auditor adheres.
The form of any other communication of results of the audit engagement.
The fact that because of the inherent limitations of an audit, together with the inherent limitations
of internal control, there is an unavoidable risk that some material misstatements may not be
detected, even though the audit is properly planned and performed in accordance with PSAs.
Arrangements regarding the planning and performance of the audit, including the composition
of the audit team.
The expectation that management will provide written representations (see also paragraph A13).
The agreement of management to make available to the auditor draft financial statements and
any accompanying other information in time to allow the auditor to complete the audit in
accordance with the proposed timetable.
The agreement of management to inform the auditor of facts that may affect the financial
statements, of which management may become aware during the period from the date of the
auditors report to the date the financial statements are issued.
The basis on which fees are computed and any billing arrangements.
A request for management to acknowledge receipt of the audit engagement letter and to agree
to the terms of the engagement outlined therein. (A23)
When relevant, the following points could also be made in the audit engagement letter:
Arrangements concerning the involvement of other auditors and experts in some aspects of the
audit.
Arrangements concerning the involvement of internal auditors and other staff of the entity.
Arrangements to be made with the predecessor auditor, if any, in the case of an initial audit.
Any restriction of the auditors liability when such possibility exists.
A reference to any further agreements between the auditor and the entity.
Any obligations to provide audit working papers to other parties. (A24)
Appendix G
I. Computation of Professional Fee
CLIENT NAME: LONE STAR WESTERN APPAREL CO.

FINANCIAL YEAR END: December 31, 19X2
SUBJECT: COMPUTATION OF BUDGETED TIME COSTS
Audit Areas Estimated Hours Charge Out Rate Amount ($)
Audit plan 20 30.00 600

Reporting and audit completion 100 35.00 3,500
Review of audit work papers 100 35.00 3,500
Other administrative matters 100 32.00 3,200
Internal control system 80 35.00 2,800
Compliance test 80 30.00 2,400
Proposed Audit Fee 480 16,000
II. Computation of Audit Fee
CLIENT NAME: LONE STAR WESTERN APPAREL CO.

FINANCIAL YEAR END: December 31, 19X2
SUBJECT: COMPUTATION OF BUDGETED TIME COSTS
Charge Out
Personnel Estimated Hours Rate Amount ($)
Managing Partner 3,000

Contact Partner 2,700
Audit Senior 480 3.50 1,680
Audit Staff (1) 480 2.25 1,080
Audit Staff (2) 480 2.25 1,080
Audit Staff (3) 480 2.25 1,080
Estimated Professional Fees 1,920 10,620
III. Code of Ethics
Section 10
Fees and Commissions
10.1 Professional accountants in public practice who undertake professional services for a client,
assume the responsibility to perform such services with integrity and objectivity and in accordance
with the appropriate technical standards. That responsibility is discharged by applying the
professional skill and knowledge which professional accountants in public practice have acquired
through training and experience. For the services rendered, the professional accountant in public
practice is entitled to remuneration.
Professional Fees
10.2 Professional fees should be a fair reflection of the value of the professional services
performed for the client, taking into account:
(a) The skill and knowledge required for the type of professional services involved;
(b) The level of training and experience of the persons necessarily engaged in performing the
professional services;
(c) The time necessarily occupied by each person engaged in performing the professional
services; and
(d) The degree of responsibility that performing those services entails.
10.3 Professional fees should normally be computed on the basis of appropriate rates per hour
or per day for the time of each person engaged in performing professional services. These rates
should be based on the fundamental premise that the organization and conduct of the
professional accountant in public practice and the services provided to clients are well planned,
controlled and managed. They should take into account the factors set out in paragraph 10.2 and
are influenced by the legal, social and economic conditions in the Philippines. It is for each
professional accountant in public practice to determine the appropriate rates.
10.4 A professional accountant in public practice should not make a representation that specific
professional services in current or future periods will be performed for either a stated fee,
estimated fee, or fee range if it is likely at the time of the representation that such fees will be
substantially increased and the prospective client is not advised of that likelihood.
10.5 When performing professional services for a client, it may be necessary or expedient to
charge a pre-arranged fee, in which event the professional accountant in public practice should
estimate a fee taking into account the matters referred to in paragraphs 10.2 through 10.4.
10.6 It is not improper for a professional accountant in public practice to charge a client a lower
fee than has previously been charged for similar services, provided the fee has been calculated
in accordance with the factors referred to in paragraphs 10.2 through 10.4.
Appendix H
PSA 505
Communication with those Charged with Governance
PSA 505 (Revised and Redrafted): Communication with those Charged with Governance,
paragraph 1 deals with the auditors use of external confirmation procedures to obtain audit
evidence.
[2] PSA 500 (Redrafted) indicates that the reliability of audit evidence is influenced by its
source and by its nature, and is dependent on the individual circumstances under which it is
obtained. That PSA also includes the following generalizations applicable to audit evidence:
Audit evidence is more reliable when it is obtained from independent sources outside the
entity.
Audit evidence is obtained directly by the auditor is more reliable than audit evidence
obtained indirectly or by inference.
Audit evidence is more reliable when it exists in documentary form, whether paper,
electronic form or other medium.
Accordingly, depending on the circumstances of the audit, audit evidence in the form of external
confirmations received directly by the auditor from confirming parties may be more reliable than
evidence generated internally by the entity. This PSA is intended to assist the auditor in designing
and performing external confirmation procedures to obtain relevant and reliable audit evidence.
[6] For purposes of the PSAs, the following terms have the meanings attributed below:
(a) External confirmation Audit evidence obtained as a direct written response to the auditor
from a third party (the confirming party), in paper form, or by electronic or other medium.
(b) Positive confirmation request A request that the confirming party respond directly to the
auditor indicating whether the confirming party agrees or disagrees with the information in the
request, or providing the requested information.
(c) Negative confirmation request A request that the confirming party respond directly to the
auditor only if the confirming party disagrees with the information provided in the request.
(d) Non-response A failure of the confirming party to respond, or fully respond, to a positive
confirmation request, or a confirmation request returned undelivered.
(e) Exception A response that indicates a difference between information requested to be
confirmed, or contained in the entitys records, and information provided by the confirming party.
External Confirmation Procedures

[7] When using external confirmation procedures, the auditor shall maintain control over
external confirmation requests, including:
(a) Determining the information to be confirmed or requested; (Ref: Para. A1)
(b) Selecting the appropriate confirming party; (Ref: Para. A2)
(c) Designing the confirmation requests, including determining that requests are properly
addressed and contain return information for responses to be sent directly to the auditor; and
(Ref: Para. A3-A6)
(d) Sending the requests, including follow-up requests when applicable, to the confirming
party.
Determining the Information to Be Confirmed or Requested

[A1] External confirmation procedures frequently are performed to confirm or request
information regarding account balances and their elements. They may also be used to confirm
terms of agreements, contracts, or transactions between an entity and other parties, or to confirm
the absence of certain conditions, such as a side agreement.
Selecting the Appropriate Confirming Party

[A2] Responses to confirmation requests provide more relevant and reliable audit evidence
when confirmation requests are sent to a confirming party the auditor believes is knowledgeable
about the information to be confirmed. For example, a financial institution official who is
knowledgeable about the transactions or arrangements for which confirmation is requested may
be the most appropriate person at the financial institution from whom to request confirmation.
Results of the External Confirmation Procedures
Reliability of Responses to Confirmation Requests

[10] If the auditor identifies factors that give rise to doubts about the reliability of the response
to a confirmation request, the auditor shall obtain further audit evidence to resolve those doubts.
[11] If the auditor determines that a response to a confirmation request is not reliable, the
auditor shall evaluate the implications on the assessment of the relevant risks of material
misstatement, including the risk of fraud, and on the related nature, timing and extent of other
audit procedures.
Non-Responses
[12] In the case of each non-response, the auditor shall perform alternative audit procedures
to obtain relevant and reliable audit evidence.
Evaluating the Evidence Obtained

[16] The auditor shall evaluate whether the results of the external confirmation procedures
provide relevant and reliable audit evidence, or whether performing further audit procedures is
necessary.
According to the American Institute of CPAs Statement on Auditing Standards No. 84:
Communications between Predecessor and Successor Auditors, supersedes SAS No. 7, and
among other things:
a) revises the definitions of predecessor and successor auditors,
b) adds additional inquiries that the successor must make of the predecessor before an
engagement can be accepted,
c) clarifies the successor auditors responsibility with respect to obtaining evidence,
d) expands the predecessors working papers normally made available to the successor, and
e) provides an example client consent and acknowledgment letter and an example successor
auditor acknowledgment letter.
SAS No. 84 is effective with respect to acceptance of an engagement.

Appendix I
I. PSA 260
According to PSA 260 (Revised and Redrafted): Communication with those Charged with
Governance, paragraph 1 states that the auditors responsibility to communicate with those
charged with governance in relation to an audit of financial statements.
[5] The objectives of the auditor are to:

a) Communicate clearly with those charged with governance the responsibilities of the
auditor in relation to the financial statement audit, and an overview of the planned scope and
timing of the audit;
b) Obtain from those charged with governance information relevant to the audit;
c) Provide those charged with governance with timely observations arising from the audit
that are significant and relevant to their responsibility to oversee the financial reporting process;
and,
d) Promote effective two-way communication between the auditor and those charged with
governance.
[7] The auditor shall determine the appropriate person(s) within the entitys governance
structure with whom to communicate.
[8] When the auditor communicates with a subgroup of those charged with governance, for
example, an audit committee, or an individual, the auditor shall determine whether the auditor
also needs to communicate with the governing body.
Matters to be Communicated
The Auditors Responsibilities in Relation to the Financial Statement Audit
[10] The auditor shall communicate with those charged with governance the responsibilities of
the auditor in relation to the financial statement audit, including that:
a) The auditor is responsible for forming and expressing an opinion on the financial
statements that have been prepared by management with the oversight of those charged with
governance; and
b) The audit of the financial statements does not relieve management or those charged with
governance of their responsibilities.
The Communication Process
Establishing the Communication Process

[14] The auditor shall communicate with those charged with governance the form, timing and
expected general content of communications.
Forms of Communication
[15] The auditor shall communicate in writing with those charged with governance regarding
significant findings from the audit when, in the auditors professional judgment, oral
communication would not be adequate. Written communications need not include all matters that
arose during the course of the audit.
[16] The auditor shall communicate in writing with those charged with governance regarding
auditor independence.
Timing of Communications
[17] The auditor shall communicate with those charged with governance on a timely basis.
Adequacy of the Communication Process

[18] The auditor shall evaluate whether the two-way communication between the auditor and
those charged with governance has been adequate for the purpose of the audit. If it has not, the
auditor shall evaluate the effect, if any, on the auditors assessment of the risks of material
misstatement and ability to obtain sufficient appropriate audit evidence, and shall take appropriate
action.
II. PSA 580
According to PSA 580 (Revised and Redrafted): Written Representations, paragraph 1 states that
one of the auditor's responsibility is to obtain written representations from management and,
where appropriate, those charged with governance.
With the following objectives of the auditor such as
a) To obtain written representations from management that management believes that it has
fulfilled the fundamental responsibilities that constitute the premise on which an audit is
conducted;
b) To support other audit evidence relevant to the financial statements or specific assertions
in the financial statements by means of written representations if determined necessary by the
auditor or required by other PSAs; and
c) To respond appropriately to written representations provided by management or if
management does not provide the written representations requested by the auditor.
Definitions
[7] For purposes of the PSAs, the following term has the meaning attributed below:
Written representation A written statement by management provided to the auditor to confirm

certain matters or to support other audit evidence. Written representations in this context do not
include financial statements, the assertions therein, or supporting books and records.
[8] For purposes of this PSA, references to management should be read as management
and, where appropriate, those charged with governance. Furthermore, in the case of a fair
presentation framework, management is responsible for the preparation and fair presentation of
the financial statements in accordance with the financial reporting framework.
[9] The auditor shall request written representations from management with appropriate
responsibilities for the financial statements and knowledge of the matters concerned.
[10] The auditor shall request written representations from management with appropriate
responsibilities for the financial statements and knowledge of the matters concerned.
[11] The auditor shall request management to provide a written representation that it has
provided the auditor with all relevant information agreed in the terms of the audit engagement,
and that all transactions have been recorded and are reflected in the financial statements.
[19] If management does not provide one or more of the requested written representations, the
auditor shall:
a) Discuss the matter with management;
b) Re-evaluate the integrity of management and evaluate the effect that this may have on
the reliability of representations (oral or written) and audit evidence in general; and
c) Take appropriate actions, including determining the possible effect on the opinion in the
auditors report in accordance with [proposed] PSA 705 (Revised and Redrafted), having regard
to the requirement in paragraph 20 of this PSA.

Appendices 1

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Appendix A

Elements of Quality Control

Leadership Responsibilities for Quality on Audits

Relevant Ethical Requirements

Acceptance and Continuance of Client Relationships and Audit Engagements

Such policies and procedures shall require:

Assigning personnel to engagement

Quality Control Policies

Ex-Employee Conflicts of Interest

Partnership Review and Rotation

Audit Committee Review of Auditors

KPMG Hiring Policies

Procedures Notification Before Job Offers to KPMG Personnel

Republic Act No. 9298

Rule I. Title, Declaration of Policy, Objective and Scope of Practice

Rule IV. Practice of Accountancy

1. CPE OBJECTIVES, DEFINITION, NATURE, AND RATIONALE

For CPE programs, activities or sources

2. CPE Credit Units

5. CRITERIA FOR ACCREDITATION OF PROVIDERS, PROGRAMS, ACTIVITIES OR

ii. Submit an authentic or authenticated copy of birth certificate. If birth

i. Submit an application for temporary exemption, to include the following data:

The engagement partner shall:

Supervision includes matters such as:

Sec. 110 Integrity

Sec. 120 Objectivity

- imposes an obligation on all professional accountants not to compromise their

Sec. 140 Confidentiality

140.1 The principle of confidentiality imposes an obligation on professional accountants to refrain

Sec. 130 Professional Competence and Due Care

Dear Assurance Team Members:

Mr. Bonito F. Fatallo Jr., CPA

Print Name MARC JUL F. ARELLANO, CPA

If yes, please describe:

Business Transactions Involving Interested Persons

If yes, please describe:

Are you independent from Lone Star Western Apparel Co.?

If yes, please describe:

Relationships Among Directors, Trustees, Officers and Key Employees

If yes, please describe:

If yes, please describe:

If yes, please describe:

Mr. Bonito F. Fatallo Jr., CPA

Print Name RYAN C. ALAMAG, CPA

Date December 3, 2016

If yes, please describe:

Business Transactions Involving Interested Persons

If yes, please describe:

Are you independent from Lone Star Western Apparel Co.?

If yes, please describe:

Relationships Among Directors, Trustees, Officers and Key Employees

If yes, please describe:

If yes, please describe:

If yes, please describe:

Mr. Bonito F. Fatallo Jr., CPA

Print Name KATE ISABELL C. BALTAZAR, CPA

Date December 3, 2016

If yes, please describe:

Business Transactions Involving Interested Persons

If yes, please describe:

Are you independent from Lone Star Western Apparel Co.?

If yes, please describe:

Relationships Among Directors, Trustees, Officers and Key Employees