New Era University

No. 9 Central Ave, New Era, Quezon City

College of Accountancy

ENHANCING PUBLIC CONFIDENCE IN THE FINANCIAL STATEMENTS OF THE

GOVERNMENT AGENCIES: THE ROLES OF COMMISSION ON AUDIT

A Thesis Presented to the Faculty of the College of Accountancy

New Era University

In Partial Fulfillment of the Requirement for the Degree of Bachelor of Science in Accountancy

By:

ALDRIN G. ESCALANTE

IVAN KING V. BACHO

ZANE AZRIEL G. NATIVIDAD

DAPHNE MERYLL M. PANES

BYRON B. PAULITE

OCTOBER 2018

1
 APPROVAL SHEET

This is entitled to “Enhancing Public Confidence in the Financial Statements of the

Government Agencies: The Roles of Commission On Audit” prepared and submitted by
ALDRIN G. ESCALANTE, ZANE AZRIEL G. NATIVIDAD, IVAN KING V. BACHO,
DAPHNE MERYLL M. PANES and BYRON B. PAULITE in partial fulfillment of the
requirements for the degree of Bachelor of Science in Accountancy, has been examined and is
hereby recommended for the corresponding Oral Examination.

MELVIN T. FABILLAN
Adviser, Research 2

______________________________________________________________________________
Passed by the Panel of Examiners in Oral Examination on October 1, 2018.

DR. IRENE P. SOLANO DEAN ISAGANI T. SABADO

Professor, Research 2 Dean of College of Accountancy
Accountancy

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 ACKNOWLEDGMENT

Immeasurable appreciation and deepest gratitude for the help and support are extended to

the following persons who in one way or another have contributed in making this study possible.

First and foremost, to God Almighty for giving the researchers strength, ability and

blessings throughout completing this study. To God be all the glory!

The researchers would like to express their thanks to their family and friends, for the

untiring support, love and endless understanding they gave throughout this entire endeavor.

They would also like to acknowledge Dr. Irene P. Solano, their research adviser, for her

guidance, valuable comments, and provisions that benefited them much in the completion and

success of this study.

Isagani T. Sabado, Dean of College of Accountancy, for his support and words of

encouragement, and for giving them enough time to make this manuscript.

Melvin T. Fabillan, the researcher’s adviser, for his time and effort in checking this

manuscript, and for additional input in the content of this study.

To the panelists, for the constructive criticisms, recommendations and advises for the

enhancement of the study.

And lastly, to all Commission on Audit (COA)’s auditors, for cooperation and for giving

time and effort in terms of providing the researchers all the needed information.

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 DEDICATION

This study is wholeheartedly dedicated to their beloved parents, who have been their source

of inspiration and gave them strength when they thought of giving up, who continually provide

their moral, spiritual, emotional, and financial support.

To their relatives, mentors, friends and classmates who shared their words of advice and

encouragement to finish this study.

And lastly, the researchers dedicated this book to the God Almighty for the guidance, strength,

power of mind and skills, and for giving them a healthy lives. All of these, they offer to You.

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 THESIS ABSTRACT
ENHANCING PUBLIC CONFIDENCE IN THE FINANCIAL
STATEMENTS OF THE GOVERNMENT AGENCIES:
THE ROLES OF COMMISSION ON AUDIT

Authors: ALDRIN G. ESCALANTE

IVAN KING V. BACHO
ZANE AZRIEL G. NATIVIDAD
DAPHNE MERYLL M. PANES
BYRON B. PAULITE

Course: Bachelor of Science in Accountancy

Due to elusive corruption in our government, most of individuals nowadays are not trusting our

government agencies anymore. Commission on Audit (COA) has a big role in getting back the

hearts of the individuals since they are the one which is conducting the overall audit in the

Philippines. Auditors need to have independence both in mind and of appearance in conducting

the audit in order to make the financial statements of government agencies credible and reliable.

In order to maintain public confidence in the profession of the COA, it is necessary that the

practice of the profession shall be regulated and must be performed with utmost care and

professionalism. One of the means for regulating the profession is the adaption and enforcement

of code of ethics which is based on the International Code Of Ethics for Professional Accountants

by IESBA. According to Presidential Decree No. 1445, Section 26, “The authority and powers of

the Commission shall extend to and comprehend all matters relating to auditing procedures,

systems and controls, the keeping of the general accounts of the Government, the preservation of

vouchers pertaining thereto for a period of ten years, the examination and inspection of the books,

records, and papers relating to those accounts; and the audit and settlement of the accounts of all

persons respecting funds or property received or held by them in an accountable capacity, as well

as the examination, audit, and settlement of all debts and claims of any sort due from or owing to

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the Government or any of its subdivisions, agencies and instrumentalities. The said jurisdiction

extends to all government-owned or controlled corporations, including their subsidiaries, and other

self-governing boards, commissions, or agencies of the Government, and as herein prescribed,

including non-governmental entities subsidized by the government, those funded by donation

through the government, those required to pay levies or government share, and those for which the

government has put up a counterpart fund or those partly funded by the government.” Meanwhile,

according to 1987 Philippine Constitution, Article IX-D The Commission on Audit, Section 2 (1),

“The Commission on Audit shall have the power, authority, and duty to examine, audit, and settle

all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and

property, owned or held in trust by, or pertaining to, the Government, or any of its subdivisions,

agencies, or instrumentalities, including government-owned or controlled corporations with

original charters, and on a post-audit basis: (a) constitutional bodies, commissions and offices that

have been granted fiscal autonomy under this Constitution; (b) autonomous state colleges and

universities; (c) other government-owned or controlled corporations and their subsidiaries; and (d)

such non-governmental entities receiving subsidy or equity, directly or indirectly, from or through

the Government, which are required by law or the granting institution to submit to such audit as a

condition of subsidy or equity. However, where the internal control system of the audited agencies

is inadequate, the Commission may adopt such measures, including temporary or special pre-audit,

as are necessary and appropriate to correct the deficiencies. It shall keep the general accounts of

the Government and, for such period as may be provided by law, preserve the vouchers and other

supporting papers pertaining thereto.”

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 TABLE OF CONTENTS

TITLE PAGE
TITLE PAGE ………………………………………………………………………………….1
APPROVAL SHEET…………………………………………………………………………..2
ACKNOWLEDGEMENT……………………………………………………………………..3
DEDICATION…………………………………………………………………………………4
ABSTRACT……………………………………………………………………………………5
TABLE OF CONTENTS……..………………………………………………………………..6

CHAPTER
1 INTRODUCTION

The Problem and Its Background……..……………………………………………8

Review of Related Literature and Studies……..…………………………………..10
Theoretical Framework……..……………………………………………………..31
Conceptual Framework……..……………………………………………………..33
Statement of the Problem……..…………………………………………………...34
Scope and Limitations……..………………………………………………………35
Significance of the Study……..……………………………………………………35
Definition of Terms……..………………………………………………………….36

CHAPTER
2 METHODOLOGY
Research Design……..…………………………………………………………….38
Sources of Data……..………………………………………………………….….39
Population and Sampling……..……………………………………………………40
Data Gathering Procedure……..……………………………………………………40
Data Analysis……..………………………………………………………………...41

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CHAPTER
3 RESULTS
Introduction……..…………………………………………………………………42
Text……..………………………………………………………………………….42

CHAPTER

4 DISCUSSION

Conclusion……..……………………………………………………………………51
Recommendation……..……………………………………………………………..52

References……..………………………………………………………………………………..53
Appendix A – Letter

Appendix B – Interview guide

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 CHAPTER I

INTRODUCTION

BACKGROUND OF THE STUDY

An audit is undertaken to enhance the credibility and public confidence in financial

reporting (Olagunju, 2011). According to the law which shall be known and cited as the

"Government Auditing Code of the Philippines”, the Commission on Audit (COA), the highest and

final authority in state auditing involves in determining whether government funds are handled

properly in accordance with the existing laws.

By providing unbiased, objective assessments of whether public resources are managed

responsibly and effectively to achieve intended results, auditors help public sector organizations

achieve accountability and integrity, improve operations, and instill confidence among citizens

and stakeholders. The public sector auditor’s role supports the governance responsibilities of

oversight, insight, and foresight (Pelletier, 2016). According to the book entitled, “Supplemental

Guidance: The Role of Auditing in Public Sector Governance” 2nd Edition, oversight addresses

whether public sector entities are doing what they are supposed to do and serves to detect and deter

public corruption. Insight assists decision-makers by providing an independent assessment of

public sector programs, policies, operations, and results. Foresight identifies trends and emerging

challenges. Auditors use tools such as financial audits, performance audits, investigations, and

advisory services to fulfill each of these roles.

As an essential element of a strong public sector governance structure, auditing supports

the governance roles of oversight, insight, and foresight (Swarbrick, 2011). Because the public

sector’s success is measured primarily by its ability to deliver services successfully and carry out

programs in an equitable and appropriate manner, public sector audit activities should have the

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authority and the competency to evaluate financial and program compliance, effectiveness,

economy, and efficiency. Moreover, auditors also must protect the core values of the public sector,

as it serves all citizens.

This study will present the importance of the public sector audit activity to effective

governance and defines the key elements needed to maximize the value the public sector auditing

provides to all level of public sector it will also give the initial expression to the public in

maintaining or enhancing their confidence in the government agencies from the outcomes and

services provided by governmental audit lead by COA. The researchers conduct this study because

they believe that this study has not been done before. They want to convey how COA’s auditors

lend credibility to the financial statements prepared by the government agencies. They want to

gather enough information on how these auditors act as guardians of public interest considering

the Code of Ethics given by the standards. The CPA’s paramount concern is the public as they are

viewed as guardians of the public interest. By providing assurance to financial statements and other

subject matter, they serve as the connecting arm between the financial statements prepared by the

management, and the public (Ireneo, 2018).

Auditing is one of the realistic business courses of the researchers that is why they have

decided to conduct a study relating to it for them to have a better understanding about it.

Conducting this study also enables the researchers to interact well with the people in the field of

auditing.

The overall objective of this study is to assess the responsibilities of COA’s auditors in

enhancing public confidence in financial report. The auditors shall maintain complete

independence and exercise professional care and be guided by applicable laws, regulations and the

generally accepted principles of auditing and accounting in the performance of the audit work as

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well as in the preparation of audit and financial reports (Rule IV of Sec. 6 of Article IX-A of the

1987 Constitution). The research study also wants to find out how auditors provide public

confidence in financial reporting of the government agencies. Moreover, they want to determine

the safeguards they are applying in order to eliminate the threats they are facing. They want to

convey how COA implements their strategic plan. Also, the researchers want to know how

transparent COA is and at the same time, how media exposes it in the public.

Review of Related Literature and Studies

Related Literature (Foreign)

An article “The Issue of Accounting Entity Definition in Regards to Noms in the Area of a

Public Company in the UK” written by Bartleby (2016), discusses about how public sectors’ job

is very essential for the success of a country. Since UK has been transformed over the past few

decades, they shared that their strategy for an increasingly global economy is ensuring its public

sector operates efficiently. So for a better country that we’re all wishing for, we must take good

care of each public sectors because the success of a country is partly dependent to them.

According to an article, “Enhancing Management Integrity Through Auditability

Concept: A Literature Review” written by Johari (2016), talks about the importance of

auditability concept as one of the corporate governance indicators that could increase the

management integrity practices and public confidence toward the organizations. Also, it says

that nowadays, most business organizations having issues related to the complexity of the

transactions, which make it difficult to collect audit evidence and eventually may affect the

company’s good governance. It highlights the importance of management integrity practices

through auditability concept that needs to be emphasized in today’s business environment.

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 An article, “The corporate governance effects of audit committees” written by Stuart

Turley and Mahbub Zaman (2014), It is clear that there is no automatic relationship between the

adoption of audit committee structures or characteristics and the achievement of particular

governance effects, and caution may be needed over expectations that greater codification

around factors such as audit committee members’ independence and expertise as the means of

‘‘correcting’’ past weaknesses in the arrangements for audit committees.

In an article entitled, “A Theoretical Examination of the Role of Auditing and the Relevance

of Audit Reports” written by Vaasan Yliopiston Julkaisuja et al. (2013), the objective of this book

is to present and discuss the frameworks that affect the demand for audit services. Knowledge of

the theories discussed in this book is fundamental to everyone studying auditing and accounting.

While most of the “normal” auditing text books focus on what the auditors does and how they do

it, this book goes one step back and examines why auditors exist in the first place. The author

believes that by knowing the theories and factors affecting existence and the demand for audit

services, the understanding of what and why certain things are done by auditors is deepened.

According to an article, “Improving Corporate Governance: The Role of Audit

Committee” written by Zabihollah Rezaee (2012), An increasing number of earnings

restatements along with many allegations of financial statement fraud committed by high

profile companies (e.g. Enron, WorldCom, Global Crossing, Adelphia) has eroded the

public confidence in corporate governance, the financial reporting process, and audit

functions. The Sarbanes‐Oxley Act of 2002 was an attempt to regain confidence and trust in

corporate America and the accounting profession. The Act addresses corporate scandals and

the perceived crisis in the auditing profession. Some of its provisions relate to the audit

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committee oversight function over corporate governance, financial reporting, internal

control structure, internal audit functions, and external audit services. This study examines

three types of audit committee disclosures: the annual report of the audit committee;

reporting of the audit committee charter in the proxy statement at least once every three

years; and disclosure in the proxy statement of whether the audit committee had fulfilled its

responsibilities as specified in the charter. This study conducts a content analysis on audit

committee disclosures of Fortune 100 companies.

In an article, “Corporate Governance: Role of Auditor and Auditing Committee” written

by Milton Friedman (2012), suggested that corporate governance is to carry out the business in

accordance with owners (promoters) and shareholder’s aspiration, which generally will be to

make as such money as possible, while in compliance to the fundamental rules of the society

embodied in law and local customs. He talked about shareholders capitalism. Corporate

governance means doing the whole thing superior, to get better relation between companies and

their shareholders, full disclosure of information to all stakeholders and to monitor executive

management properly in the interest of shareholders.

An article, “Why Corporate Governance?” which was written by Aravanan (2013),

suggested that CG is basically system of making directors accountable to the stakeholders for

effective management of the companies, with concerns of ethics and value. This is related to

Board of directors who are members of auditing committee too, whose role is to check

transparency, integrity and accountability of the management toward shareholders and investing

community.

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 In an article, “Governmental Audit and Administrative Evaluation: From Auditing

Perspective” which was written by Hiroshi Yoshimi (2012), will provide the answer to the

question “what governmental audit is?”. We the researchers are familiar of what governmental

audit is but extra knowledge about something won’t harm anyone and this literature substantially

discuss all information about Governmental Audit.

An article, “Local Government audit- an international survey” from University of Notre

Dame (2015), has the ambition to provide an overview of the ways in which auditing at the local

level in other countries compares to that in Sweden. The publication is directed towards those

who are interested in different audit models and ways of organizing the audit. Since we aim to

suggest effective ways in performing an audit, this document can be the researcher’s basis for

coming up with an effective audit.

According to an article, "Restoring public trust in the accounting profession by developing

anti‐fraud education, programs, and auditing" written by Zabihollah Rezaee (2014), the public

trust in auditors’ judgments and reputation plays an important role in substantiating audit functions

as value‐added services, which lend credibility to published financial reports. Recent numerous

financial restatements by high profile companies coupled with bankruptcies of major companies

caused by reported financial statement fraud have eroded public confidence in financial reports

and related audit functions. Restoring the public confidence requires considerable efforts by

legislators, regulators, standard‐setting bodies, the business community, and the accounting

profession.

In the journal, “Ensuring Confidence in Audit” which was written by Nagoya, et. Al

(2015), with regards to the recent cases of accounting fraud, it has been pointed out that the ability

to detect corporate fraud had been insufficient at the individual accountant level as well as on an
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organizational level. It is a major issue how CPAs with the ability to detect corporate fraud and

high spirits for squarely facing management and expressing opinions without flinching when

finding the indication of fraud should be cultivated and secured in order to prevent a recurrence of

this sort of circumstance. In addition, it is necessary to improve robust audit systems under the

effective governance and management that functions effectively as well as enhance the ability of

the individual CPAs so that audit firms can appropriately respond to corporate fraud as an

organization.

Related Literature (Local)

According to an article, “Chosen Land (Commission on Audit)” which was written by the

International Journal of Government Auditing (2014), Article IX of the 1987 Philippine

Constitution created the Commission on Audit that is one of the three constitutional commissions

that prevents the irregular use of government funds and properties. This article also said that the

Commission on Audit according to report released of PCTC, serves as a watchdog of the financial

operations of the government. COA is empowered to examine, audit, and settle all accounts

pertaining to the revenue and receipts of, and expenditure or uses of funds and property under the

custody of government agencies and instrumentalities. It also promulgates accounting and auditing

rules and regulations for the prevention and disallowance of irregular. Unnecessary, excessive,

extravagant, or unconscionable expenditures, or use of government funds and properties.

An article, “COA pushes for a more effective use of Disaster Funds” which was written by

the Commission On Audit Philippines (2014), which stated that Commission on Audit improves

transparency and accountability on the use of disaster funds by launching the Disaster Risk

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Reduction and Management (DRRM) Accounting and Reporting Guidelines to all government

agencies in line with its constitutionally mandated duty of promulgating accounting and auditing

rules and regulations. It also expressed that the set of guidelines formulated by COA, in partnership

with the Australian Embassy, establishes the proper decorum on the receipt and utilization of

DRRM funds. The guidelines, benchmarked against international standards on accounting and

audit, will ensure that all disaster related funds and donations are properly accounted for and that

DRRM funds are properly utilized for the purpose.

In an article, “Strengthening Oversight: Improving the Quality of Statutory Audits in the

Philippines” which was written by World Bank Group (2013), the Philippines have been striving

to implement reforms aimed at improving audit quality. Oversight of the audit profession is a key

control over the financial reporting architecture of a country’s private sector. A Quality Assurance

Review system over audit practitioners is a subset of oversight which serves as a key monitoring

control over the integrity of financial reporting. In keeping with the country’s strategic priority of

boosting private sector development by improving the investment climate for firms of all sizes,

including greater access to finance, legislation was enacted to support the objective of increasing

the integrity of private sector financial reporting through improved audit quality. Accordingly, the

Board of Accountancy was mandated with the power to conduct oversight into the quality of audits

of financial statements through a review of the quality control measures instituted by auditors in

order to ensure compliance with the accounting and auditing standards and practices. . However,

the injunction remains in place and, accordingly, implementation of the mandated Quality

Assurance Review Program may not move forward. Several concrete steps should be taken in

order to effectively move forward with the rollout of a comprehensive system of public oversight

including audit quality assurance in the Philippines. These include (1) reforming the legal

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framework to establish an effective audit oversight system with sufficient legal power and

authority (2) rationalizing the statutory audit threshold to minimize the conditions contributing to

low quality audits, (3) building support among key stakeholder groups by properly addressing their

concerns to the extent possible, (4) ensuring coordination of efforts among regulators to eliminate

gaps and overlaps and foster collaboration among the group, and (5) establishing a dedicated

Project Management Office to oversee the rollout of a Quality Assurance Review Program over

audit practitioners.\

AGUSTIN, EMELITA, P. (2012) Financial institutions are required to adhere to extensive

disclosure requirements as prescribed by BSP. BSP contends that it closely monitors compliance

with these requirements. However, accounting disclosures for other sectors do not necessarily

conform to stipulated regulations and standards. Auditing requirements and practices differ from

international and regional standards and norms in four areas: (i) auditor appointment and dismissal;

(ii) auditor independence; (iii) audit reporting procedures; and (iv) exposures of auditors to liability

Campo (2011) indicated in his article in manilastandard.net, that Senator Antonio F.

Trillanes IV wants an overhaul of the audit rules and regulations to improve the practices and

procedures at the Commission on Audit (COA).

According to an article, “Restoring Trust and Building Integrity in Government: Issues

and Concerns in the Philippines and Areas for Reform” which was written by Alex B. Brillantes,

Jr. and Maricel T. Fernandez (2013), this article talks about what is the state of trust of the public

to the Government and tackles about how we can restore this trust and build integrity in

Government. This literature provides the researchers additional ideas of how to accomplish the

objective of enhancing public confidence.

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 An article, “Internal Auditing in Philippine Government: Initiatives, Issues, and

Prospects” written by Mendoza, Rufo (2015), internal auditing is gaining recognition as an

important tool to improve organizational performance. In many countries, both public and private

sectors advance internal audit as a profession, process, and body of knowledge. The Philippines is

one country that put in place the policy framework mainstreaming internal audit in government

operations. However, after more than four decades since the first law on internal auditing was

enacted, a significant number of government agencies are unable to officially establish an internal

audit unit (IAU).

In an article, “COA hits Insurance Commission for irregular procurement of private health

insurance” which was written by KBK GMA News (2013), it says there that the COA questioned

the Insurance Commission’s availment of private health insurance coverage for its employees as

well as business class travels for two of its high-ranking officials even without the mandatory

approval from the Malacañang. In an audit report for 2014, COA said the commission violated a

COA resolution as well as an administrative order which both prohibit procurement of private

health insurance by a government agency, unless there is an approval from the Office of the

President (OP).

In an article, “Overview of the concept of credibility and public confidence in Audit

Reports” written by Soriano (2012), Credibility in this usage means that the financial statements

can be believed, that is they can be relied upon by outsiders, such as trade creditors bankers,

stockholders, government and other interested third parties. Again, the public related to the

stockholders of the professional accountant who have varying interest uses and expectations form

the financial statement prepared by directors of the company. The stakeholders of the professional

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accountant includes and is not limited to the general public, shareholders-potential and existing,

government at various level, creditors, debtors, employees, management, etc.

Related Studies (Foreign)

In a study entitled, “Enhancement of the Accountability, Integrity System, Internal Control

System of the Auditing Companies” written by Mohamad Azizal Abd Aziz (2015). Based on this

study, governance in public administration has become a global issue as a result of continuous

stream of governance failures, fraud, inefficiency, corruption, and poor internal control and

financial management. Public sectors worldwide are now under pressure to justify the sources and

utilizations of public resources as well as improving the performance in their services delivery.

Now it is considered as public rights to monitor the transparency and efficiency of public

administration. In the review of related literature of the study, it emphasized about the internal

factors that affect the accountability of the organization and some of these are: integrity system,

internal control system and leadership qualities. An organization should focus on these areas to

have a progress and maintain the success they have.

According to a study entitled, “Impact of Public Sector Auditing in Promoting

Accountability and Transparency in Nigeria” written by Ogundana Oyebisi (2017),

Accountability and Transparency has over the years recognized as instruments of reduction of

corruption at all levels of public sector. A lack of transparency and accountability in the public

sector presents a major risk to the efficiency of the capital markets, financial stability, long term

economic sustainability, economic growth and development. This study seeks to have reduction

in corruption and be an eye-opener to everybody that in order to succeed honesty, accountability,

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and transparency should be acquired and be used all the time by the people who are involved in

those jobs.

In the study “Auditors ’Ethics and their Impact on Public Trust” written by Alexandra

Ardelean (2012), the well-known and widely publicized series of financial scandals have revealed

that public trust was deeply eroded with regards to the public’s perception of the audit process.

The growing mistrust led to questioning the auditor’s role as well as his contribution to the social

warfare, since the auditor is perceived as an agent acting in the public interest. This raising concern

prompted us to investigate within this study if and how the perceived ethics of auditors influence

the trust bestowed on the profession by the wide public. The methodology we employed in our

demarche consisted in a constructivist analysis and thus, this paper investigates if auditors’ ethics

were compromised by conflicts of interest, which could have prevented them from acting as agents

of trust. Results show that growing efforts the auditors display cast a positive gleam on public

trust. Also, increased regulation, as well as communication between auditors and regulatory bodies

is likely to have a positive effect on public trust. In conclusion, growing attention to ethics derives

from higher attention to quality.

According to the study entitled “Ensuring Confidence in Audit” which was written by

Yoshikazu Wakita et al (2016), stressed that it is expected that the relevant parties involved with

audit will work toward the realization of these recommendations, leading to a virtuous cycle as

follows: ・ Audit firms make management work effectively under the effective governance and

implement high-quality and transparent audit along with companies; ・ Companies and their

shareholders appropriately evaluate audit quality and begin to request to audit firms for audits

based on such evaluation; and ・ This trend leads to the increase of incentives to provide audits

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with higher quality and the improvement of audit fee of audit firms resulting from finding value

in high quality audit by shareholders and companies. It is desired that the development of this

virtuous cycle will lead to the continuous improvement of audit quality in the market as a whole.

Furthermore, it is also expected that as audit firms conducting audits of large listed companies,

etc., increase, with this improvement of the quality and transparency of audits, large listed

companies, etc., and their shareholders will be able to select audit firms among a wider range of

options based on the appropriate evaluation. We expect that the relevant parties will promptly carry

forward work for the implementation for recommendations that are able to be conducted

immediately, and we will follow the progress. In addition, we request that the relevant parties will

promptly carry out survey on recommendations that require further research and analysis. We will

conduct further study as necessary considering the results of research and analysis. Various

discussions over the systems of audit are now being held. We expect that the relevant parties will

continuously make positive discussions, and we will keep a close watch on these discussions and

add further consideration on the systems of audit as necessary, from the viewpoint that audit will

appropriately play a role as essential infrastructure for the capital market.

In the study, “Solved: Ethics and Corporate Social Responsibility” which was written by

Philip (2012), much more stress is placed on auditors in the perspective of corporate governance

because in most of cases, auditors will be the first person to spot corporate abuse. This is due to

the nature of auditing function and the purpose of auditing company accounts. It can also be a case

of the only person who is aware of the misuse besides the wrongdoers. Thus, in many cases the

auditors prefer to fall short to discover the wrongdoing at the expense of their duties and

obligations. Auditor has to be bold enough to bring forth all the facts in his report and there should

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be no hesitation on his part in disclosing the defects, defaults, irregularities, discrepancies etc.,

even if the management of the company is involved in the same. He must perform his duties in

right earnest and honestly. For the same, audit committee should monitor auditor’s performance.

The audit committee should discuss various matters with the auditor related to their independence

and what audit committee expects from auditor in interest of shareholders and other stakeholders

except management. But it is not only expected from auditor to do his duties diligently but also

audit committee should have guts to ask questions to management regarding any matter which is

related to shareholders and investing community.

According to the study entitled, “Corporate Governance and Its Impact on Audit Practice”

which was written by Ruja (2013), corporate governance means acceptance of management as

trustees on behalf of the shareholders and to secure their rights as the true owners of corporation.

It is about maintaining commitments to code and conduct, ethics and values in organization, as

corporate governance is nothing but ethics and moral duties. Code of corporate governance

enhances the effectiveness of audit in the interests of stockholders and stakeholders and that is why

they are relying on auditor heavily. Auditor has power to detect wrongdoer in management and

report on the company objectively. An independent auditor can play his role effectively and

maintain good governance. They can also remove bias from company’s financial reports. But on

the availability and effectiveness of quality auditors, some argue that East Asian auditors lack

expertise or willingness to supply quality audits. There is also some concern that auditors’

monitoring role may be in conflict with their consulting activities with client firms, an issue not

unique to Asia. Also, the disciplinary mechanisms for auditors may be poor, which may have

diluted the independence of auditors in Asia. Furthermore, initiatives have been taken by drawing

up the Code in ensuring that the Board of Directors is responsible and accountable. So the

22
independent directors in auditing committee can encourage auditor to perform his role diligently

and honestly.

In the study, “Diagnostic study of accounting and auditing practices in the Philippines”

which was written by Asian Development Bank (2012), this report describes Philippine accounting

and auditing arrangements, identifies deficiencies in those arrangements, and presents

recommendations to address the deficiencies. It is part of the Asian Development Bank (ADB)

series of country Diagnostic Studies of Accounting and Auditing (DSAAs).

According to the study, “Does good auditing generate good quality of government?”

written by Maria Gustavson (2012), we have little knowledge of whether auditing lead to positive,

negative or no effects at all on the public sector. This paper argues that there is a need to connect

empirical studies of auditing to an overall theoretical framework, defining what “good government

auditing” consists of, in order to study if such auditing has positive effects on public sector

performance. The paper presents a definition of good government auditing which builds on three

core principles: independence, professionalism and recognizing the people as the principal, which

is operationalized and tested empirically in the paper. Using data from a unique worldwide expert

survey, covering 122 countries, the results clearly demonstrate that good government auditing has

a distinct positive and statistically significant effect of the performance of the public sector. These

findings indicate that merely conducting audits of the public sector is not sufficient, auditing also

needs to be organized according to certain principles, in order to contribute to well-functioning

public administrations.

23
 In the study, “Balancing the Public and the Private Interest – A Dilemma of Accounting

Profession” which was written by Adriana Tiron Tudor (2013), aims to discuss about public

interest. It says that public interest is highly important to the accounting profession. It is because,

according to the professions code of ethics, “a label of the accountancy profession is its acceptance

of the responsibility to act in the public interest"(IFAC, 2013), but there is not a common consensus

on what exactly is in the public interest. In the same time, the accountancy profession includes

individuals and private companies profit oriented. In this circumstance, the objective of the study

is to explain the concept of public interest from both sides: the accounting profession, and

expectations of the interested parties.

A study, “Auditors’ Ethics and their Impact on Public Trust” written by Alexandra

Ardelean (2014), talks about the growing importance of ethics within the audit profession is due

to the highly resonating financial scandals which had a negative impact on the auditors. The

consequence was that the auditors’ integrity and morality were questioned by users of audit

services. Moreover, reserves were expressed with regards to auditors’ legitimacy on the market,

as their ethics appeared as having been compromised.

Related Studies (Local)

In the study, “The Commission on Auditors’ Responsibilities” by Alan Certain (2016), he

emphasized that his goal is to develop conclusion and recommendations regarding the appropriate

responsibilities of independent auditors. It must consider the gap exist between what the public

expects or needs and what auditors can and should reasonably expect to accomplish. The result

24
he got from the survey he conducted is that users of financial statements expect auditors to

penetrate into company affairs, to exert surveillance over management, and to take an active part

in improving the quality and extent of financial disclosure. The users expect the auditor to be

concerned with the possibilities of both fraud and illegal behavior by management, in all of these

areas, users expect more than they believe to be receiving. With that result, Auditors and other

sectors, could be able to come up with a solution to improve the areas they’ve problem with.

In the study written by Maria Fe Villamejor (2015) which entitled “Policy Reforms to

Improve the Quality of Public Sectors in the Philippines”, studied about the changes or reforms

that could be applied in this country to be able to compete, reach its goal and to have success. This

study stated solutions that could be made in order to remove or just even lessen the problems that

this country is facing. The study aspire to improve the quality of public services that includes

governance that aims to curb corruption , improve the delivery of public services especially to the

poor, enhance the business and economic environment of the country as a whole.

Rufo Mendoza, PHD, CPA (2012) on his study “ Research Competencies and Interests of

Accounting Educators in the Philippines” A national survey to determine the level of research

competency of accounting teachers was conducted from July to September 2007 through the

assistance of the Association of CPAs in Education (ACPAE) and the Philippine Institute of

Certified Public Accountants (PICPA). A total of 132 accounting teachers responded. Overall

findings showed that the similarity of fundamental accounting processes with certain research

processes enhances the competency of accounting teachers in business research. Accounting

teachers have a “practitioner” level of competency in the five research processes:

conceptualization, operationalization, data collection, data processing and analysis, and research

25
application. This indicates that accounting educators in general have an ‘average’ knowledge and

are capable and ready to use their competency but lack the speed and flexibility of the proficient

researcher. Thus, their skills must be enhanced to transform them into ‘experts’. There are different

ways of learning research and all of these are regarded as very important by the respondents. Actual

research experience is the predominant source of knowledge and skills. This indicates the need for

educational institutions to provide avenues for its faculty to conduct research. Unless a teacher

engages himself or herself in the actual nitty-gritty of scientific research, he remains an amateur.

Actual research should be supplemented by trainings and seminars sponsored by the school.

Moreover, Masteral courses are important in preparing the faculty extensively for research. This

can be supplemented by the self-study or reading of reference materials on research. Schools have

two-fold expectations from accounting educators: to come up with research outputs and to teach

students how to conduct research. These expectations can be met only if the research competency

of accounting educators is at a level that can enable production of research outputs. At the same

time, it is important that a research agenda be crafted by both the school administrators and

teachers to balance the thrusts of the former and the interests of the latter. Such a research agenda

would provide the concrete framework that will guide both the educational institutions and

individual researchers. Needless to say, professional organizations involved in accounting

education should unify their efforts to pursue the common goal of enhancing research in

accounting education.

In the study, “Perceived Gains and Pains of Accreditation in Philippine Public

Accountants” written by Rufo Mendoza, PHD, CPA (2014), Internal auditing is gaining

recognition as an important tool to improve organizational performance. In many countries, both

public and private sectors advance internal audit as a profession, process, and body of knowledge.

26
The Philippines is one country that put in place the policy framework mainstreaming internal audit

in government operations. However, after more than four decades since the first law on internal

auditing was enacted, a significant number of government agencies are unable to officially

establish an internal audit unit (IAU). This paper answers the following questions: (1) What

initiatives have been undertaken by the Philippine government to institutionalize internal audit

services (IAS)? (2) What are the issues that continue to confront government agencies in

establishing and enhancing IAUs? (3) What prospects remain in store for internal auditing in the

Philippine government?

Mendoza (2015) studied recent (2010-present) policy reforms in the public sector in the

Philippines, which aspire to improve the quality of public services. These include governance

reforms that aim to curb corruption, improve the delivery of public services especially to the poor,

and enhance the business and economic environment of the country as a whole.

The Aquino III administration took office at the time when corruption was perceived to

have undermined the economy and the credibility of the country .The President believed that the

nation needed transformational change and a vision of governance beyond political survival and

self-enrichment Turning these challenges as opportunities to change mindsets and systems, the

administration instituted a comprehensive set of policy reforms and good governance initiatives

that aspires to engender a culture of integrity, accountability and transparency in the country. This

was anchored on Aquino III’s campaign slogan of “tuwid na daan” (literally translated as “the

straight path”) arguing that “kung walang corrupt, walang mahirap” (, i.e., “if there is no

corruption, there are no poor”). Recently, such strategy seems to have borne fruits. The Philippines

has been among the dynamically emerging markets in the region with its sound economic

27
fundamentals and highly skilled workforce. Growth in the Philippines is on average about 5%

since 2002, significantly higher than the rate achieved in the previous two decades

(http://www.worldbank.org/en/country/philippines/overview). Amid global uncertainties and a

string of calamities that hit the country that included typhoon Haiyan (Yolanda), the economy

posted 7.2% GDP growth in 2013, driven by the robust services and industry sector, and boosted

by strong household consumption and government spending. Growth momentum was maintained

at 6% in the first half of 2014, and remained one of the fastest in East Asia region, surpassed only

by China (7.4%) and Malaysia (6.3%) (Ibid) While the country is making headway in the economic

front, inclusive growth is not yet felt by many of the Filipinos in the bottom of the pyramid. Also,

some 25% of our population is still poor (Philippine Statistical Authority 2014). Thus the

Philippine government needs to intensify efforts in reducing poverty, achieving universal primary

education and in improving child and maternal health. It also needs to address the lack of good

jobs among low- income earners, especially those from rural area where many poor people reside

(http//www.worldbank.org/en/country/philippines/overview). It has also to deliver public services

to its growing population not only efficiently and effectively, but also satisfactorily better in the

new norms of good public administration and governance. These challenges have been approached

based on the Aquino III’s philosophy of “good governance is good economics”, which as earlier

mentioned, is anchored on his campaign slogan of “kung walang corrupt…walang mahirap.” (Fig.

1). Literally, this means, “if there is no corruption, there are no poor.” This basically summarizes

his Social Contract with the Filipino people, which subscribe to good governance and anti-

corruption as prerequisites to inclusive growth and poverty alleviation and all the progressive

collaterals of development, e.g., lasting peace and the rule of law, integrity of the environment. A

Governance Cluster within the Cabinet was also formed in 2011 under E.O. 43, which was tasked

28
to pursue the following: 3 1. Upholding transparency in government transactions and commitment

to combating graft and corruption 2. Strengthening of the capacity of government institutions to

link their respective budgets with performance outcomes and enabling citizens and civil society to

monitor and evaluate these 3. A professional, motivated, and energized bureaucracy with adequate

means to perform their public service missions 4. Improvement of public sector asset and resource

management and revenue performance 5. Establishing an improved policy and regulatory

environment that will reduce the cost of doing business in the country and improve competition

(E.O. 43 s 2011).

M. Zubaidur Rahman (2014), “Accounting and Auditing”. This study is an assessment of

the Accounting and Auditing practices in the Philippines that takes part in the World Bank-IMF

joint initiative on Reports on the Observance of Standards and Codes (ROSC). The assessment

focused on the institutional arrangements that underpin the quality of accounting and auditing

practices. In addition, a cross section of country stakeholders, under the leadership of the Board of

Accountancy (BOA), took part in a self-assessment exercise in May and June 2001 to review local

accounting and auditing standards against the benchmarks of the International Accounting

Standards (IASs) and the International Standards on Auditing (ISAs).

In the study “The State of Internal Audit Practice in Selected Philippine Government

Agencies: Basis for Policy Advocacy” written by Cecilia Junio-Sabio (2013), the Philippine

government is directed to maintain honesty and integrity in the public service, and to take action

against graft and corruption (Section 27, Art. II). It is also directed to give full public disclosure

of all transactions involving the public interest (Section 28, Art II). This provision is

complemented by the Bill of Rights within the Constitution, which gives people the right to

29
information on matters of public concern, including official records, documents and papers

pertaining to official acts, transactions or decisions, and to government research data used as the

basis for policy development (Section, 7 Art. III). Over the years, the performance of the

government in fighting graft and corruption was evaluated more poorly. It indicated that the

government performance in fighting corruption has indeed been dismal. On the whole, the results

of national and international surveys consistently depict the Philippines as riddled with corruption

and unable to effectively fight corruption

According to the study, “Internal Auditing in Philippine Government: Initiatives, Issues

and Prospects” which was written by Rufo R. Mendoza (2012), this case study presents the

initiatives undertaken by the Department of Health in preparation for the full implementation of

the risk-based approach to internal auditing. It highlights the adoption of a risk management

program (RMP) as a means to achieve the agency’s goals and objectives. The simultaneous

adoption of a risk-based internal audit and the RMP is a best practice that can be replicated in other

government agencies.

In the study, “The State of Internal Audit Practice in Selected Philippine Government”

written by Cecilia Junio-Sabio, DPA (2013), it is the researcher’s belief that there is a need to

intensify and accelerate the current state of internal audit practice in the government especially if

the goal is to achieve an efficient and economical public service and minimizing, if not eliminating

graft and corruption in the government.

30
Synthesis of the Review of Related Literature and Studies

The review of related literature and studies give the researchers a detailed background and

ideas related to the present study to be conducted. The gathered related literature that were

provided by online articles which discussed information and data relating to the practice of

accounting and auditing, and the enhancement of the public confidence in the works of accountants

and auditors.

To add, the related studies gathered by the researchers that were from other researches,

case studies and dissertations which are directly related in the present study, worked as the

complement of related literature to provide a solid foundation on the supporting ideas for them.

31
THEORETICAL FRAMEWORK

COA’s Independence

Legitimacy Theory

Theory of Agency
rational Theory
expectations

Auditor’s Experiences

ENHANCING PUBLIC CONFIDENCE IN

THE FINANCIAL STATEMENTS OF THE
GOVERNMENT AGENCIES
Figure 1

SECTOR AUDITING: THE ROLES OF

The figure shows how theories connect to each other on relation to the main focus of the study.
COMMISSION ON AUDIT
32
 The researchers gather information on how COA sustains its independence of appearance

although it is a government agency doing audit of other government agencies.

The Legitimacy theory will be used as their macro-level theory which posits that

organizations continually seek to ensure that they operate within the bounds and norms of their

respective societies. In adopting a legitimacy theory perspective, a company would voluntarily

report on activities if management perceived that those activities were expected by the communities

in which it operates (Deegan 2002; Deegan, Rankin and Voght 2000; Cormier and Gordon 2001).

Under this, the researchers will use the rational expectations theory and agency theory as

their micro-level theory.

The rational expectations theory is an economic concept whereby people make choices

based on their rational outlook, available information and past experiences. The theory suggests

that the current expectations in an economy are equivalent to what people think the future state of

the economy will become (2018, Investopedia).

The agency theory is a supposition that explains the relationship between principals and

agents in business. Agency theory is concerned with resolving problems that can exist in agency

relationships due to unaligned goals or different aversion levels to risk. The most common agency

relationship in finance occurs between shareholders (principal) and company executives (agents).

(2018,Investopedia).

After adapting these theories, the researchers will gather information based primarily with

the auditor’s experiences in order to disclose the effectiveness of COA in enhancing the public

confidence of the financial statements of the government agencies.

33
CONCEPTUAL FRAMEWORK

The concept of this study is to know the role of Commission on Audit in maintaining or

enhancing public confidence/trust and also governance through governmental audit.

INPUT PROCESS OUTPUT

Legitimacy Theory Identify the roles of

Conducting interview Commission on Audit
Theory of Rational
Gathering and in enhancing public
Expectations
interpreting data confidence in the
Agency Theory taken from the financial statements
answers of the of the government
Preparing interview agencies.
respondents.
questionnaires
Auditor’s
experiences

STATEMENT OF THE PROBLEM

Over the years, issues concerning corruption and misuse of government funds constantly

arise. This means an ethical line has been crossed. Governments cannot act freely and democracy

cannot function. Our trust in the government is damaged and questioned. Even when such illegal

activities continually emerge and all of them who do this end up in the same spot, they are still

persistent in doing this kind of activity.

34
 Government agencies need to disclose financial information appropriately in order to

ensure the confidence of the public. That is why they designed a tool for effective reporting, to

hold management to strict accountability for all acts during their preparation of financial

statements which is the Commission on Audit. They apply “a systematic process of objectively

obtaining and evaluating evidence regarding assertions about economic actions and events to

ascertain the degree of correspondence between assertions and established criteria” called Auditing

(American Accounting Associations).

The main objective of this study is to assess the procedures of COA’s effectiveness in

examining the financial statements of the government agencies that will help enhance the public

confidence. This study seeks to answer also the following questions:

1. What are the principal duties of the Commission on Audit

2. What are the core values of COA

3. What are the responsibilities of COA in enhancing public confidence in financial report?

4. What is the strategic plan COA is implementing?

5. How COA maintains transparency during the audit?

SCOPE AND LIMITATIONS

Scope of the study

The study is restricted only to the procedures, strategic plan and programs being

implemented by the COA that helps in enhancing the public confidence in the financial statements.

This study talks about financial statements audit only.

35
Limitations of the study

This study will not cover auditors other than COA’s auditors since the researchers are

gathering information about the strategic plan of COA. Also, the researchers will not going to talk

about operational and compliance audit.

SIGNIFICANCE OF THE STUDY

Auditing was driven by the demand of the external users. The researchers want to help

individuals be enlightened and be free from ignorance. This study helps the professors to be

competent enough in every lesson they will impart to their students. Also, for the accounting

students as well as the researchers to have a deeper understanding about audit which will help them

visualize and be ready for their future careers. Furthermore, the researchers want to recommend

this study to the future researchers who will conduct study related to it.

DEFINITION OF TERMS

The researchers define the following words and phrases in accordance to how they will be

used in this research study.

Audit is a process carried out by qualified persons called auditor on the account prepared

by management organizations to ensure adherence to laid down rules or policy.

Auditor is a professional appointed and authorized by COA to examine accounts and

accounting records of government agencies

Commission on Audit is an independent constitutional commission established by the

constitution of the Philippines to examine, audit and settle all accounts pertaining to the

revenues and receipts of, and expenditures or uses of funds and property, owned or held

36
in trust by, or pertaining to the Government, or any of its subdivisions, agencies, or

instrumentalities, including government-owned and controlled corporations with original

charters, and on a post-audit basis

External users are users outside the COA

Financial report is consist of balance sheet, profit and loss account, sources and

application of fund. It is the statement which communicates information about the

company to those who have a right to receive it, e.g. the shareholders, loan creditors,

investors.

Government agency is an administrative unit of government. Each unit is to exercise

some regulatory or sovereign power or duty as distinguished from purely advisory power

or duties.

Public confidence is the degree to which the public has confidence in the services

provided by the accounting profession (Sullivan, 2004).

Strategic planning is an iterative and never-ending process. It is used by COA in setting

their goals and objectives.

Threats are the activity that impair or might impair integrity, objectivity or the good

reputation of the profession.

Integrity is a professional accountant should be straightforward and honest in

performing professional services.

Objectivity is a professional accountant should be fair and should not allow prejudice or

bias, conflict of interest or influence of others to override objectivity.

Professional Competence and due Care is a professional accountant should perform

professional services with due care, competence and diligence and has a continuing duty

37
 to maintain professional knowledge and skill at a level required to ensure that a client or

employer receives the advantage of competent professional service based on up-to-date

developments in practice, legislation and techniques.

Confidentiality states that professional accountant should respect the confidentiality of

information acquired during the course of performing professional services and should

not use or disclose any such information without proper and specific authority or unless

there is a legal or professional right or duty to disclose.

Professional Behavior states that a professional accountant should act in a manner

consistent with the good reputation of the profession and refrain from any conduct which

might bring discredit to the profession. The obligation to refrain from any conduct which

might bring discredit to the profession requires IFAC member bodies to consider, when

developing ethical requirements, the responsibilities of a professional accountant to

clients, third parties, other members of the accountancy profession, staff, employers, and

the general public.

38
 CHAPTER II

METHODS

This chapter details out the research methodology used by the researcher in completing the

present study. This includes research design, source of data, population and sampling technique,

data gathering procedure, data analysis, administration and retrieval of the instrument and

statistical treatment of the study. The research methodology has to be robust in order to minimize

errors in data collection and analysis.

RESEARCH DESIGN

Aigbokhaevbolo and Ofanson (2006) defined research design as “the plan or strategy,

which indicates how data relating to the research should be collected and analyzed.”

Similarly, the present study opines that research design is a scheme that is used by the

researcher for specific structure and strategy in investigating and evaluating the relationships

existing among variables of the study so as to enable the researchers collect the data, to be used

for the study. It must, however, be borne in mind the fact that the design chosen must measure

appropriately the phenomena that is of interest and obtain data that will lead to a useful conclusion.

The exploratory and descriptive research design was adopted due to the nature of the study.

Exploratory research provides insights into and comprehension of an issue or situation.

Exploratory research is a type of research conducted because a problem has not been clearly

defined. Exploratory research helps to determine the best research design, data collection method

and selection of subjects. While descriptive research, also known as statistical research, describes

39
data and characteristics about the population or phenomenon being studied. Descriptive research

answers the questions who, what, where, when and how. The researchers used the Descriptive

Research Method wherein the study dealt primarily in knowing the roles of Commission on Audit

in auditing government agencies. This involves descriptive data gathering which is a vital method

because of the fact that this type of research method’s main purpose is to get appropriate data

derived from the respondents. In order to satisfy the objectives of the study, a qualitative research

was held. The main characteristic of qualitative research is that it is mostly appropriate for small

samples, while its outcomes are not measurable and quantifiable. Its basic advantage, which also

constitutes its basic difference with quantitative research, is that it offers a complete description

and analysis of a research subject, without limiting the scope of the research and the nature of

participant’s responses (Collis & Hussey, 2003).

Thus, on the basis of the above, the two research designs were appropriate for the present

study as it was important to measure the development in enhancing confidence and credibility of

governmental audit.

SOURCE OF DATA

The researchers will gather the data from the auditors of Commission on Audit through

distribution of interview questionnaires via e-mail to each of the respondents.

POPULATION AND SAMPLING

The method of purposive sampling was used to develop the sample of the research

under discussion. Since the researchers are bounded by time and money, and because of these

40
limitations, and to randomly sample the entire population is not possible. According to this

method, which belongs to the category of non-probability sampling techniques, sample

members are selected on the basis of their knowledge, relationships and expertise regarding a

research subject (Freedman et al., 2007).

The study aims at auditors in the Commission on Audit main office who have experienced

work in the field of auditing. Ten (10) to twenty (20) auditors will be asked to answer questions

relevant to the present study. The sample members are selected by the researchers with the help of

their co-author. They are selected on the basis of their accessibility or by the purposive personal

judgment of the researchers.

DATA GATHERING PROCEDURE

The researchers are to collect data from the information obtained through the

distribution of the interview questions through emails. Conducting this research study involved

the use of interview questions. The questions were analyzed and prepared by the researchers

with the approval of their co-author.

The researchers are to send an e-mail to the available auditors to formally ask them to

answer the distributed questionnaires. They are to collect data from the questionnaires distributed

to auditors. Rules and procedures, manuals, and strategic plan which serve as means of generating

secondary data. The researchers will also use email and mobile phones in order to reach out the

respondents in case of any additional information are needed.

41
 DATA ANALYSIS

The method to be used in analyzing and interpreting the data gathered is the qualitative

data analysis. It is simply the process of examining qualitative data to derive an explanation

for a specific phenomenon. The researchers also used deductive approach to qualitative

analysis. Research questions serve as a guide in grouping and analyzing the data.

42
 CHAPTER III

RESULTS

Based on the data we gathered, quality control is an integral factor on achieving an effective

audit of financial statements. A system of quality control consists policies designed to achieve the

objectives of compliance with professional standards and issuance of appropriate report and

procedures necessary to implement and monitor compliance with those policies.

The commission should promote and internal culture based on recognition the “quality is

essential in performing engagements.” The chairperson assumes ultimate responsibility for the

commission’s system of quality control.

43
 The leadership of the chairpersons and the commissioners and the examples it sets

significantly influence the internal culture of the commission. The promotion of quality-oriented

internal culture depends on clear, consistent and frequent actions messages from all levels of the

management emphasizing the quality control policies and procedure. Here is the organizational

chart of Commission on Audit

Chairperson and the commissioners deliver messages that encourage a culture that

recognizes and rewards high quality work. They may be communicated by training, seminars,

meetings, mission statements and memoranda. They are incorporated in the COA’s internal

documentation and training materials, and in partner and staff appraisal procedures such that

they will support and reinforce the COA’s view on the importance of quality and how,

practically, it is to be achieved.

Here are the qualifications and responsibilities of Chairpersons and Commissioners stated on

the section 1 of the constitutional mandate.

SECTION 1 (1). There shall be a Commission on Audit composed of a Chairman and two

Commissioners, who shall be natural-born citizens of the Philippines and, at the time of their

appointment, at least thirty-five years of age, certified public accountants with not less than ten

years of auditing experience, or members of the Philippine Bar who have been engaged in the

practice of law for at least ten years, and must not have been candidates for any elective position

in the elections immediately preceding their appointment. At no time shall all Members of the

Commission belong to the same profession.

SECTION 1 (2). The Chairman and the Commissioners shall be appointed by the President

with the consent of the Commission on Appointments for a term of seven years without

44
reappointment. Of those first appointed, the Chairman shall hold office for seven years, one

Commissioner for five years, and the other Commissioner for three years, without

reappointment. Appointment to any vacancy shall be only for the unexpired portion of the term

of the predecessor. In no case shall any Member be appointed or designated in a temporary or

acting capacity.

The results also state the principal duties of the commission.

The Principal duties of the Commission are: Examine, audit and settle all accounts

pertaining to the revenue and receipts of, and expenditures or uses of funds and property owned

or held in trust by, or pertaining to, the government; Promulgate accounting and auditing rules

and regulations including those for the prevention and disallowance of irregular, unnecessary,

excessive, extravagant or unconscionable expenditures, or uses of government funds and

properties; Submit annual reports to the President and the Congress on the financial condition

and operation of the government; Recommend measures to improve the efficiency and

effectiveness of government operations; Keep the general accounts of government and preserve

the vouchers and supporting papers pertaining thereto; Decide any case brought before it within

60 days and; Performs such other duties and functions as may be provided by law.

CODE OF ETHICS

In order to maintain public confidence in the profession and to gain respect of the users

of reports of the professional accountants, it is necessary that the practice of the profession

shall be regulated and must be performed with utmost care and professionalism. One of the

means for regulating the profession is the adoption and enforcement of the code of ethics.

45
 The fundamental principles of Code of Ethics for Accountancy which are followed by the

COA according to the gathered information conducted by the researchers are: Integrity,

Objectivity, Professional Competence and due Care, Confidentiality and Professional Behavior.

STRATEGIC PLAN

In every organizations, it is necessary to plan the courses of action before these actions

are taken. The objective of establishing a strategic plan is to make every work of the auditors

an effective one. Establishing a strategic plan is also one way of every organization in achieving

its goals and objectives. And just like any other organization, Commission on Audit also has

its own strategic plan in order to achieve its goals and objectives.

The services provided by the Commission on Audit, as a Constitutional Body and as

the country’s Supreme Audit Institution are critical to meet the uttermost expectation of the

public. The evolution of audit approaches, revision and emergence of old and new laws, rules

and regulations necessitates a more integrated and holistic approach in the conduct of COA’s

audit services. With this regard, the Philippine Government entered into a contractual

agreement with the International Bank for Reconstruction and Development (World Bank) for

a grant (IDF Grant TF092158) to improve the effectiveness and efficiency of the COA in its

audit of government revenues and expenditures through the development and adoption of a

results-based integrated audit methodology that will focus on the outputs and outcomes of

public expenditures, using a risk-based approach.

As early as 2003, COA has already introduced the risk-based approach in the conduct

of its audit services. Various risk-based manuals have been developed such as the Government-

wide and Sectoral Performance Audit (GWSPA) Manual, Risk-based Audit Approach (RBAA)

46
Manual and the Risk-based Financial Audit Manual (RBFAM). A significant addition in this

manual is the inclusion of the Organizational Performance Indicators Framework of the

Department of Budget and Management to support the Government’s Public Finance

Management (PFM) reform agenda. This will be introduced in this manual to complement the

results-based evaluation of the projected and actual outputs and outcomes of programs,

activities and projects of government agencies that will focus on the role of public audit in

promoting increased accountability and transparency to improve capacity in the overall

governance framework of the Philippines. This Integrated Results and Risk-based Audit

Manual aims to integrate the different COA audit services such as: Financial and Compliance

Audit; Agency-based Performance Audit; Government-wide and Sectoral Performance Audit;

and Fraud Audit into a common audit approach. The IRRBA approach will provide for a

consistent set of processes that will guide the COA auditors in performing COA’s audit

services. The silo approach in the conduct of the audit will be addressed by introducing linkages

of each type of audit and its results for a more effective service delivery.

Government auditing plays a vital role in the public sector governance through its

oversight, insight and foresight responsibilities. Government auditors help the government

achieve accountability and integrity, improve operations, and instill confidence among citizens

and stakeholders. The Commission on Audit, as mandated to be the country’s Supreme Audit

Institution by Article IX-D of the 1987 Philippine Constitution, plays a significant role in the

Public Sector Governance. This mandate gives the COA the responsibility to serve as the check

and balance in the use of public funds; to become part of the development of a sound financial

management; to examine proper execution of administrative activities; and to provide

47
information to public authorities and the general public through the publication of objective

reports.

The Commission has long been implementing risk-based audit in the conduct of its

audit services. However, to meet the evolving developments in the public governance’s

expenditure management, the COA shall incorporate the results-based approach in its audit.

The Organizational Performance Indicator Framework (OPIF) is one of the two reform

components of the Public Expenditure Management (PEM) being implemented by the

government. The reform is being headed by the Department of Budget and Management

(DBM) in coordination with other oversight agencies such as the COA and the National

Economic and Development Authority (NEDA). OPIF is an expenditure management

approach that links public resources towards results and accounts for performance. This

approach guides agencies to focus their efforts and public resources on core functions and on

delivering high impact activities at reasonable costs and qualities. The role of the COA comes

in to assess the agency’s performance through indicators that are initially set to account for

accomplishments based on pre-determined targets and measures.

The diagram below shows how COA’s audit services are linked to different audit

services, as well as to the country’s Public Expenditure Management reform, the OPIF.

48
 AGENCY INTER-AGENCY
Regularity (Financial and Compliance Audit) Government-
wide and
Sectional
Agency-based value for money audit Performance
Economy Efficiency Effectiveness Audit
(GWPSA)
Resource Inputs Processes Outputs Outcome Impact

Budget Sector
Budget Programs Major Organiza-
Enacted Activities
Goals
Final tional
Legislation Other Projects Societal
Outputs Output
Input Goals

The diagram depicts the different audit services provided by the Commission:

Comprehensive Audit

Financial Audit – This type of audit seeks to determine the accuracy of the data contained in

the financial statements and reports of the agency including the reliable recording and reporting

of historical financial information.

Compliance Audit – Compliance audit seeks to ensure that public funds are obtained and used

in accordance with law and propriety, as well as to determine whether the accountable agency

has properly discharged its responsibilities in a legal and ethical manner.

Agency-based Performance Audit – This audit examines the economy, efficiency and

effectiveness of an agency in using its public resources.

Government-wide and Sectoral Performance Audit (GWSPA)

This type of audit deals with determining the economy, efficiency and effectiveness of publicly

funded projects, activities and programs among different agencies.

49
The diagram shows the focus of the different audit services provided by the COA by

differentiating the elements of an agency’s process. Each element (resource, input, process,

output, outcome and impact) is interrelated and plays a significant role in an agency and the

government as a whole.

The COA’s results-based approach will be used in assessing an agency’s performance

indicators indicated in its OPIF. The OPIF element in an agency’s log frame can be traced into

its processes which will be taken into account during the conduct of the audit.

Although not mentioned in the diagram, auditors shall be aware of any possible fraud

indications which may arise during the course of the audits conducted. Fraud audit shall always

be embedded in the delivery of the COA’s audit services.

THE CITIZEN PARTICIPATORY AUDIT

One way of gaining the trust of every Filipino citizen is having them involved in every

project being implemented by the government. One of the project of the Commission on Audit

that involved the citizens.

The Citizen Participatory Audit (CPA) is a priority program of the Commission on

Audit founded on the premise that public accountability can prosper only with a vigilant and

involved citizenry. The project recognizes the people’s primordial right to a clean government

and the prudent utilization of government funds. It aims to provide a mechanism for

collectively answering questions regarding government’s efficient and effective use of public

funds for projects and operational activities. In COA Memorandum dated November 16, 2012,

the Commission prescribed the Operational Guidelines for the CPA Project. The memorandum

50
included, among others, the selection criteria on choosing the project to be the subject of CPA,

the processes to be undertaken and the participation of Civil Society Organizations (CSOs).

The implementation of the Government Accounting Model (GAM) for National

Government Agencies is another milestone in the Philippine Government insofar as public

sector accounting is concerned. The GAM will supersede the New Government Accounting

System (NGAS) Manual that national government agencies have been using since 2002 when

the Commission On Audit, based on the authority granted under Sec. 2 (2), Art. IX-D of the

1987 Constitution, prescribed the use of the NGAS effective January 1, 2002.

51
 CHAPTER IV

DISCUSSIONS

CONCLUSIONS

Based on our results, the researchers therefore conclude that COA as the Constitutional

Body and as the country’s Supreme Audit Institution, acts effectively. With proper governance

of the Chairman and the Commissioners who were appointed by the President with the consent

of the Commission on Appointments for a term of seven years without reappointment, the COA

as a whole functions well and productively. In order for COA to perform effectively, the

Commission shall have exclusive authority to promulgate accounting and auditing rules and

regulations for the prevention of unnecessary use of government funds and properties.

With direct appointment by the President, the researchers conclude that COA acts

independently with other government agencies. COA performs as an employee objectively and

with utmost integrity. For the Congress and as well as the President assure that COA is

functioning well and doing its job to the way it should be served to the public, the COA should

submit audit reports covering the financial condition and operation of the government, its

subdivisions, agencies and other instrumentalities.

The researchers also concluded that COA will not function effectively without the help

of its employees especially the auditors. In order for the auditors to perform efficiently and

effectively, they should follow the strategic plan which was implemented by COA itself and

the Code of Ethics given by the standards.

52
 To sum it up, Commission On Audit (COA) is an effective auditing agency of the

Philippines in enhancing the public confidence of the financial statements of the government

agencies.

RECOMMENDATIONS

Commission On Audit is functioning well as the auditing agency of the Philippines. COA

should maintain its effectiveness as to enhancing the financial statements of our government

agencies. COA should follow the prescribed code of ethics consistently. They should also maintain

the proper governance because it reflects the outcome of their work as an overall audit of

government agencies.

The researchers would also like to recommend to COA to have more programs like Citizen

Participatory Audit in order to stay connected to the public. Another thing is, COA should update

their manual as possible and produce other manuals which their auditors should follow.

Also, the researchers would like to recommend this research study to the other researchers

who will conduct research which is relevant to their research topic.

53
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 New Era University
No. 9 Central Ave, New Era, Quezon City
College of Accountancy
September 24, 2018
MR. RJ MENDOZA

Audit Manager

Commission on Audit Central Office

Dear Mr. Mendoza:

Greetings!
In partial fulfilment of our requirements in Research 2 Thesis Writing, we, fourth year accountancy
students of New Era University are conducting a research entitled, “Enhancing Public Confidence in the
Financial Statements of the Government Agencies”. This research study aims to assess the responsibility
of Commission on Audit (COA)’s auditors in enhancing public confidence in financial reports.

In connection with this, we would like to ask your good office to allow us to conduct interview and gather
data through survey questionnaires to some of your auditors. Rest assured that the data we will gather will
remain absolutely confidential and to be used for academic purposes only.
We believe that you are with us in our enthusiasm to finish this requirement and to develop our well-being.
We hope for your positive response on this humble matter.
Your approval to conduct this study will be greatly appreciated. For further questions please contact us at
09351542513/09950221392.
Thank you very much!
Respectfully,

ALDRIN G. ESCALANTE DAPHNE MERYLL M. PANES BYRON B. PAULITE

IVAN KING V. BACHO ZANE AZRIEL G. NATIVIDAD

MELVIN T. FABILLAN
Adviser, Research 2
Noted by:

DR.IRENE P. SOLANO ISAGANI T. SABADO

Professor, Research 2 Dean, College of Accountancy

58
 New Era University
No. 9 Central Ave, New Era, Quezon City
College of Accountancy

INTERVIEW GUIDE
1. What are the responsibilities of the Commission on Audit for its system of quality control for

audits of historical financial information?

2. How do you promote quality-oriented internal culture?

3. How can you make sure that Commission on Audit is complying with the quality control

policies and procedures addressing the following:

 Leadership responsibilities for quality within the firm

 Relevant ethical requirements

 Acceptance and continuance of client

 Human resources

 Engagement Performance

 Monitoring

4. How can you maintain your independence (both of mind and in appearance) from other

government agencies to enhance the public confidence?

5. What is the strategy of the Commission on Audit in achieving its goals and objectives?

6. Is there any program COA is implementing in order to maintain the public confidence?

59