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WHAT:
Para. 26 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;
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.
SECTION 100: Introduction and Fundamental Principles
Para. 1 A distinguishing mark of the accountancy profession is its acceptance of the responsibility
to act in the public interest. Therefore, a professional accountant’s responsibility is not exclusively to
satisfy the needs of an individual client or employer. In acting in the public interest, a professional
accountant shall observe and comply with this Code. If a professional accountant is prohibited from
complying with certain parts of this Code by law or regulation, the professional accountant shall
comply with all other parts of this Code.
When:
Client Acceptance
Engagement Acceptance
Para.6 The fundamental principle of professional competence and due care imposes an obligation on a
professional accountant in public practice to provide only those services that the professional accountant in
public practice is competent to perform. Before accepting a specific client engagement, a professional
accountant in public practice shall determine whether acceptance would create any threats to compliance with
the fundamental principles. For example, a self interest threat to professional competence and due care is
created if the engagement team does not possess, or cannot acquire, the competencies necessary to properly
carry out the engagement.
PSA 210: Agreeing The Terms Of Audit Engagements
Tax services
Advisory services
Audit Engagements
Unaudited Engagements
Write- up works
In Richmond office in particular , experienced considerable growth over the past five years
which its partners
3 local banks
Para.2 A professional accountant in public practice shall not bring the profession into disrepute
when marketing professional services. The professional accountant in public practice shall be
honest and truthful, and not:
March of 1991: contracted his banker who was also audited by Abernethy and Chapman, to
arrange for the businessman to have both lunch with one of the CPA firm’s partners
June 1: A meeting was held at the accounting firm’s Richmond office and was attended by :
Richard Abernethy (Managing Partner)
Wallace Andrew ( Audit partner)
Benjamin Rogers (President of Lakeside)
Wallace Andrews- assisting in the investigation of this perspective
client.
Par 3 The objective of the auditor is to accept or continue an audit engagement only
when the basis upon which it is to be performed has been agreed, through:
Rogers - 30%
Board of Directors
Benjamin Rogers
Local lawyers
All investors live in Richmond area but only Rogers is involved in day –to-day
operations
Information obtained
It is agreed that an audit by an independent CPA firm would be held
annually which was also the same requirement of the bank participating
lakeside’s financing.
The first 5 stores of Lakeside Company were set up In rented spaces within
small shopping centers.
Lakeside owns warehouse which also provides office space for the
company’s administrative staff.
manager
assistant manager
States of Virginia
North Carolina
Revenue began to decline because the Cypress product was not well known in
Richmond.
Lakeside hired a staff of six sales representatives who visit audio, electronics, and appliance
stores to market Cypress brand.
Retailers can order merchandise by telephoning Richmond warehouse, and after a credit check,
requested inventory is shipped to this customers, wherein up to 20% of merchandise can be
returned to Lakeside within four months as long as the goods have not been damaged.
Information obtained
Lakeside holds bank credit lines with two Richmond banks totaling $750,000 to meet the
payment terms.
Interest on this debt has averaged to just over 10% during recent years and
both banks require that cash in an amount equal to 5% of the outstanding
credit line remain on deposit.
Information obtained
Rogers stated that he was unhappy with the services of his present CPA firm, King and
Company
Three Grievance
1. He felt that the firm had provided little assistance in updating Lakeside’s
accounting systems.
2. Charging an excessive fee for its annual audit
3. The audit opinion rendered on Lakeside’s financial statements for the year
ending December 31, 1990 where an additional paragraph was added by
auditors to draw attention to an uncertainty.
SECTION 240 :Fees and Other Types of Remuneration
Para.1 When entering into negotiations regarding professional services, a professional accountant
in public practice may quote whatever fee is deemed appropriate. The fact that one professional
accountant in public practice may quote a fee lower than another is not in itself unethical.
Nevertheless, there may be threats to compliance with the fundamental principles arising from the
level of fees quoted. For example, a self-interest threat to professional competence and due care is
created if the fee quoted is so low that it may be difficult to perform the engagement in accordance
with applicable technical and professional standards for that price.
SECTION 240 :Fees and Other Types of Remuneration
Para.2 The existence and significance of any threats created will depend on factors such as the
level of fee quoted and the services to which it applies. The significance of any threat shall be
evaluated and safeguards applied when necessary to eliminate the threat or reduce it to an
acceptable level. Examples of such safeguards include:
Making the client aware of the terms of the engagement and, in particular, the basis on
which fees are charged and which services are covered by the quoted fee;
Assigning appropriate time and qualified staff to the task
Information obtained
1990- Rogers initiated a bonus system wherein every manager and assistant
manager will receive a cash bonus each January based on the income earned
by the store during the previous year.
December of 1991- Lakeside is in the process of opening a new store which will
begin operations
Rogers formed his own separate corporation to construct this latest facility,
earlier this year.
Information obtained
The building that Rogers construct will be leased for its entire life to
Lakeside.
Performing procedures required by PSA 220, “Quality Control for Audits of Historical Financial
Information” regarding the continuance of the client relationship and the specific audit engagement;
Evaluating compliance with ethical requirements, including independence, as required by PSA 220;
and
Establishing an understanding of the terms of the engagement, as required by PSA 210, “Terms of
Audit Engagements.” (Ref: Para. A6-A8)
*PSA 220 Objective of the auditor is to implement quality control procedures at the engagement level that provide the
auditor with reasonable assurance that:
The audit complies with professional standards and regulatory and legal requirements;
There are no issues with management integrity that may affect the
auditor’s willingness to continue the engagement.
Par. 4 The financial statements subject to audit are those of the entity, prepared and presented by management
of the entity with oversight from those charged with governance. PSAs do not impose responsibilities on
management or those charged with governance and do not override laws and regulations that govern their
responsibilities. However, an audit in accordance with PSAs is conducted on the premise that management and,
where appropriate, those charged with governance have responsibilities that are fundamental to the conduct of the
audit. The audit of the financial statements does not relieve management or those charged with governance of
those responsibilities.
PSA 200 Overall Objectives Of The Independent Auditor
And The Conduct Of An Audit In Accordance With
Philippine Standards On Auditing
Par. 7 The PSAs contain objectives, requirements and application and other explanatory material that are
designed to support the auditor in obtaining reasonable assurance. The PSAs require that the auditor exercise
professional judgment and maintain professional scepticism throughout the planning and performance of the audit
and, among other things:
Identify and assess risks of material misstatement, whether due to fraud or error, based on an
understanding of the entity and its environment, including the entity’s internal control.
Obtain sufficient appropriate audit evidence about whether material misstatements exist, through
designing and implementing appropriate responses to the assessed risks.
Form an opinion on the financial statements based on conclusions drawn from the audit evidence
obtained.
PSA 200 Overall Objectives Of The Independent Auditor
And The Conduct Of An Audit In Accordance With
Philippine Standards On Auditing
Par 8 The form of opinion expressed by the auditor will depend upon the
applicable financial reporting framework and any applicable laws or
regulations
PSA 200 Overall Objectives Of The Independent Auditor
And The Conduct Of An Audit In Accordance With
Philippine Standards On Auditing
Par 9 The auditor may also have certain other communication and reporting
responsibilities to users, management, those charged with governance, or parties outside
the entity, in relation to matters arising from the audit. These may be established by the
PSAs or by applicable laws or regulations
PSA 200 Overall Objectives Of The Independent Auditor
And The Conduct Of An Audit In Accordance With
Philippine Standards On Auditing
A1. The auditor’s opinion on the financial statements deals with whether the financial
statements are prepared, in all material respects, in accordance with the applicable financial
reporting framework. Such an opinion is common to all audits of financial statements. The auditor’s
opinion therefore does not assure, for example, the future viability of the entity nor the efficiency or
effectiveness with which management has conducted the affairs of the entity. In some jurisdictions,
however, applicable laws and regulations may require auditors to provide opinions on other specific
matters, such as the effectiveness of internal control, or the consistency of a separate management
report with the financial statements. While the PSAs include requirements and guidance in relation
to such matters to the extent that they are relevant to forming an opinion on the financial
statements, the auditor would be required to undertake further work if the auditor had additional
responsibilities to provide such opinions.
PSA 210: Agreeing The Terms Of Audit Engagements
Par. 10 Subject to paragraph 11, 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:
Identification of the applicable financial reporting framework for the preparation of the
financial statements; and
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
PSA 210: Agreeing The Terms Of Audit Engagements
Para 17 Auditor Independence
In the case of listed entities, the auditor shall communicate with those charged with governance:
a. A statement that the engagement team and others in the firm as appropriate, the firm and, when
applicable, network firms have complied with relevant ethical requirements regarding independence;
and
I. All relationships and other matters between the firm, network firms, and the entity that, in the
auditor’s professional judgment, may reasonably be thought to bear on independence. This
shall include total fees charged during the period covered by the financial statements for audit
and non-audit services provided by the firm and network firms to the entity and components
controlled by the entity. These fees shall be allocated to categories that are appropriate to
assist those charged with governance in assessing the effect of services on the independence
of the auditor; and
II. The related safeguards that have been applied to eliminate identified threats to independence
or reduce them to an acceptable level.
PSA 210: Agreeing The Terms Of Audit Engagements
A12. The opinion expressed by the auditor is on whether the financial statements are prepared, in
all material respects, in accordance with the applicable financial reporting framework. The form of
the auditor’s opinion, however, will depend upon the applicable financial reporting framework and
any applicable laws or regulations. Most financial reporting frameworks include requirements
relating to the presentation of the financial statements; for such frameworks, preparation of the
financial statements in accordance with the applicable financial reporting framework includes
presentation
PSA 210: Agreeing The Terms Of Audit Engagements
A13. Where the financial reporting framework is a fair presentation framework, as is generally the
case for general purpose financial statements, the opinion required by the PSAs is on whether the
financial statements are presented fairly, in all material respects. Where the financial reporting
framework is a compliance framework, the opinion required is on whether the financial statements
are prepared, in all material respects, in accordance with the framework. Unless specifically stated
otherwise, references in the PSAs to the auditor’s opinion cover both forms of opinion.
Section 290: Independence – other assurance engagement
Para. 191 The provision of services in connection with the assessment, design
and implementation of internal accounting controls and risk management
controls are not considered threat to independence provided that the firm or
network firms do not perform management functions. Instead, they face Self-
Review threat.
Section 290: Independence – other assurance engagement