QUEZON CITY

UNIVERSITY
Accountancy Department

AUDITING AND ASSURANCE

PRINCIPLES
ACPAUD1

5:00 PM – 8:00 PM
Session 2
 Last Week’s Topic
• Coverage of Auditing Exams
• Course Description and Learning Outcomes
• Framework for Auditing Standards (PSA 120)
– Definition of Auditing
– Definition of Assurance
– Levels of Assurance
– Audit and Related Activities
QUIZ
• According to PSA 120, what is the difference
between audit and the related services?
Explain the differences of audit and the
related services in terms of:
 the level of assurance provided,
 the reports provided
 MULTIPLE CHOICE.
Choose the letter of the Correct Answer
1. The auditor communicates the results of his
or her work through the medium of the
a) Engagement letter
b) Management letter.
c) Audit report
d) Financial statements.
2. It refers to the level of auditor’s satisfaction as
to the reliability of an assertion being made by
one party for use by another party.
a) Confidence level
b) Assurance level
c) Reasonableness level
d) Tolerable level
3. Which of the following is true of the report based on
agreed-upon-procedures?
a) The report is restricted to those parties who have agreed
to the procedures to be performed.
b) The CPA provides the recipients of the report limited
assurance as to reasonableness of the assertion(s)
presented in the financial information.
c) The report states that the auditor has not recognized any
basis that requires revision of financial statements.
d) The report should state that the procedures performed
are limited to analytical procedures and inquiry.
ANSWERS
1. In an audit engagement, the auditor provides
a high, but not absolute, level of assurance
that the information subject to audit is free of
material misstatement. This is expressed
positively in the audit report as reasonable
assurance.
2. In a review engagement, the auditor provides
a moderate level of assurance that the
information subject to review is free of
material misstatement. This is expressed in
the form of negative assurance.
3. For agreed-upon procedures, as the auditor
simply provides a report of the factual findings,
no assurance is expressed. Instead, users of the
report assess for themselves the procedures
and findings reported by the auditor and draw
their own conclusions from the auditor's work.

4. In a compilation engagement, although the

users of the compiled information derive some
benefit from the accountant's involvement, no
assurance is expressed in the report.
 Multiple Choice
1. The auditor communicates the results of his
or her work through the medium of the
a) Engagement letter
b) Management letter.
c) Audit report
d) Financial statements.
2. It refers to the level of auditor’s satisfaction as
to the reliability of an assertion being made by
one party for use by another party.
a) Confidence level
b) Assurance level
c) Reasonableness level
d) Tolerable level
3. Which of the following is true of the report based on
agreed-upon-procedures?
a) The report is restricted to those parties who have agreed
to the procedures to be performed.
b) The CPA provides the recipients of the report limited
assurance as to reasonableness of the assertion(s)
presented in the financial information.
c) The report states that the auditor has not recognized any
basis that requires revision of financial statements.
d) The report should state that the procedures performed
are limited to analytical procedures and inquiry.
 This Topic
1. Different Types of Audit
2. Different Types of Auditors
3. Theoretical Framework of Auditing
4. Generally Accepted Auditing Standards
5. Accountancy Act
6. Code of Ethics of Professional Accountants
 Types of Audit

1. Financial Audit – conducted to determine

whether the FS are fairly presented in
accordance with Financial Reporting Framework
2. Compliance Audit – review of the organization’s
procedures to determine adherence to specific
procedures, rules or regulations
3. Operational Audit – study of specific unit of an
organization for the purpose of measuring its
performance
 Types of Auditors
1. External Auditors – independent CPAs who offer
professional services to clients on contractual
basis
2. Internal Auditors – entity’s own employees who
appraise the effectiveness and efficiency of
operations and internal controls
3. Government Auditors – government employees
whose main concern is to determine compliance
of entities to government laws and regulations
 Financial Audit Compliance Audit Operational Audit

That the That the

Assertions organization’s
That the FS are fairly organization has activities are
made by the complied with the
Auditor presented laws, regulations conducted
and contracts effectively and
efficiently
Financial Reporting
Established Standards or other Laws, regulations, Objectives set by the
Criteria financial reporting and contracts Board of Directors
framework

An opinion whether Reports on the

Content of the FS are fairly degree of Recommendations
reported in compliance with or suggestions on
the Auditor’s accordance with applicable laws, how to improve
Report Financial Reporting regulations, and operations
Framework contracts
Auditors who Government
generally External Auditors Internal Auditors
perform Auditors
 Financial Audit Compliance Operational
Audit Audit
That the That the
Assertions That the FS are organization organization’s
made by fairly has complied activities are
the presented with the laws, conducted
Auditor regulations effectively and
and contracts efficiently
Financial
Reporting Laws, Objectives set
Established Standards or regulations, by the Board
Criteria other financial and contracts of Directors
reporting
framework
 Financial Audit Compliance Operational
Audit Audit
An opinion Reports on the
whether the FS Recommendati
Content of are fairly degree of ons or
the reported in compliance suggestions on
Auditor’s accordance with applicable how to
Report with Financial laws, improve
Reporting regulations, operations
and contracts
Framework
Auditors
who External Government Internal
generally Auditors Auditors Auditors
perform
Theoretical Framework of Auditing

1. Audit function operates on the assumption

that all financial data are verifiable
2. The auditor should always maintain
independence with respect to the financial
statements under audit
3. There should be no long-term conflict
between the auditor and the client
management
4. Effective internal control system reduces the
possibility of errors and frauds affecting the
financial statements
5. Consistent application of GAAP or PFRS
results in fair presentation of financial
statements
6. What was held true in the past will continue
to hold true in the future in the absence of
known conditions to the contrary
7. An audit benefits the public.
 Generally Accepted Auditing Standards
(GAAS)

Generally Accepted Auditing Standards, or GAAS, are

ten auditing standards, developed by the AICPA,
consisting of general standards, standards of field
work, and standards of reporting, along with
interpretations. They were developed by the AICPA in
1947 and have undergone minor changes since then.

A. General Standards
B. Fieldwork Standards
C. Reporting Standards
 A. General Standards

1. The auditor must have adequate technical

training and proficiency to perform the audit
2. The auditor must maintain independence in
mental attitude in all matters related to the
audit.
3. The auditor must use due professional care
during the performance of the audit and the
preparation of the report.
 B. Standards of Field Work
1. The auditor must adequately plan the work and must
properly supervise any assistants.
2. The auditor must obtain a sufficient understanding of the
entity and its environment, including its internal control,
to assess the risk of material misstatement of the
financial statements whether due to error or fraud, and
to design the nature, timing, and extent of further audit
procedures.
3. The auditor must obtain sufficient appropriate audit
evidence by performing audit procedures to afford a
reasonable basis for an opinion regarding the financial
statements under audit.
 C. Standards of Reporting
1. The auditor must state in the auditor's report whether
the financial statements are in accordance with
generally accepted accounting principles (GAAP).
2. The auditor must identify in the auditor's report those
circumstances in which such principles have not been
consistently observed in the current period in relation
to the preceding period.
3. When the auditor determines that informative
disclosures are not reasonably adequate, the auditor
must so state in the auditor's report.
 C. Standards of Reporting
4. The auditor must either express an opinion
regarding the financial statements, taken as a
whole, or state that such an opinion cannot be
expressed in the auditors report.
– When the auditor cannot express an overall opinion,
the auditor should state the reasons therefore in the
auditor's report.
– In all cases where the auditor's name is associated
with the financial statements, the auditor should
clearly indicate the character of the auditor's work, if
any, and the degree of responsibility the auditor is
taking, in the auditor's report.
 Generally Accepted Auditing Standards (GAAS)

General Standards Standards of Fieldwork Standards of Reporti

 Read and Study
• Republic Act No. 9298 -
..\Auditing Theory\Accountancy Act.pdf

• Code of Ethics -
..\Auditing Theory\Code of Ethics.pdf
 Philippine Accountancy
Act of 2004

• RA No. 9298

– An Act Regulating the Practice of

Accountancy in the Philippines, Repealing
for the Purpose Presidential Decree no. 692,
otherwise known as the Revised
Accountancy Law, Appropriating Funds
therefor and for other purposes
 Answer the following:
1. What are the Objectives of RA 9298?
2. What is the scope of practice of Accountancy?
3. What are the Qualifications of applicants for CPA
licensure examinations?
4. What is the scope of CPA licensure examination?
5. What is the required rating to pass the CPA
licensure examination
6. Can a CPA Candidate retake the examination?
 Objectives of RA No. 9298
The Act shall provide for and govern:
1) The standardization and regulation of
accounting education;
2) The examination for registration of certified
public accountants; and
3) The supervision, control, and regulation of
the practice of accountancy in the
Philippines.
 Scope of Practice
The practice of accountancy shall include, but
not limited to the following:

1. Practice of Public Accountancy

2. Practice in Commerce and Industry
3. Practice in Education/Academe
4. Practice in the Government
 Qualifications of applicants for CPA
Examinations
1. He/she is a Filipino citizen;
2. He/she is of good moral character;
3. He/she is a holder of the degree of Bachelor of
Science in Accountancy conferred by a school,
college, academy or institute duly recognized
and/or accredited by the CHED or other
authorized government offices; and
4. He/she has not been convicted of any criminal
offense involving moral turpitude.
 Scope of Examination – Per RA 9298

1. Theory of Accounts
2. Business Law and Taxation
3. Management Services
4. Auditing Theory
5. Auditing Problems
6. Practical Accounting Problems I
7. Practical Accounting Problems II

Updated per PRC – BOA Resolution No. 262, Series of 2015

 Scope of Examination
Per PRC – BOA Resolution No. 262, Series of 2015

1. Financial Accounting and Reporting

2. Advanced Financial Accounting and Reporting
3. Management Advisory Services
4. Auditing
5. Taxation
6. Regulatory Framework for Business
Transactions
Rating in the Licensure Examination

To be qualified as having passed the licensure

examination for accountants, a candidate
must obtain a general average of seventy five
percent (75%), with no grades lower than
sixty-five percent (65%) in any given subject.
Rating in the Licensure Examination
In the event a candidate obtains the rating of seventy-five
percent (75%) and above in at least a majority of subjects
as provided for in this Act, he/she shall receive a
conditional credit for the subjects passed:
Provided, That a candidate shall take an examination in
the remaining subjects within two years from the
preceding examination:
Provided, further, That if the candidate fails to obtain at
least a general average of seventy-five percent (75%) and a
rating of at least sixty five percent (65%) in each of the
subjects re-examined, he/she shall be considered as failed
in the entire examination.
Failing Candidates to Take Refresher Course

• Any candidate who fails in two (2) complete

Certified Public Accountant Board
Examinations shall be disqualified from taking
another set of examinations unless he/she
submits evidence to the satisfaction of the
Board that he/she enrolled in and completed
at least twenty-four (24) units of subject given
in the licensure examination.
 Study further
• Qualifications of Members of the Professional
Regulatory Board
• Powers and functions of the Board
• Term of Office
• Practice of Accountancy
– Prohibitions
– Rights
– Continuing education, etc.
CODE OF ETHICS
SEE YOU NEXT WEEK !