Chapter II: Audits of Financial Reporting

Statements -involved communicating an

evaluation or opinion in an audit
Economic Decisions and the Need report to interested users.
for Reliable Information
Key Phrases in the Definition of AUDIT
Reliable information is essential to
the very existence and survival of  A systematic process
society. Each person, in one way or - an audit follows a logical
another and on a daily basis, makes sequence of procedures
economic decisions. The decision
maker relies on information provided  Objectively obtaining and
by others. Clearly, Wrong information evaluating evidence
or input will result in less effective -objecitivity means a
decisions. It is implied in these combination of impartiality,
situations that independent audits of intellectual honesty and a freedom
these information is required. from conflict of interest. An audit
Through the audit report, CPAs can requires the gathering and
tell decision-makers that the evaluation of evidence, w/c may
information they are relying on come in the form of oral
constitutes a fair picture of what is representations, written docu,
really happening. electronic media, etc. A CPA
cannot express an opinion w/o
supporting evidence to back up the
Auditing Defined opinion.

Auditing is a systematic process of  Assertions about economic

objectively obtaining and actions and events
evaluating evidence regarding -assertions are representation
assertions about economic actions of management, explicit or
and events to ascertain the degree otherwise, that are embodied in
of correspondence between these financial statement components,
assertions and established criteria records, or systems. The CPA’s job is
and communicating the results to to obtain and evaluate evidence,
interested users. w/c may support, or contradict, the
assertions of management.
Auditing encompasses two
processes: an investigative process  Degree of correspondence
and a reporting process. between these assertions and
established criteria
Investigation involves the systematic -auditors use standards or
gathering and evaluation of benchmarks (criteria) for purposes of
evidence as a basis for determining expressing an opinion on the
whether assertions or representations assertions of management. In the
made by a responsible team or case of audits of FS, the established
person in a companys financial criteria are generally accepted
statements, correspond with the acctg principles (GAAP)
established financial reporting
criteria, such as generally accepted  Communicating the results to
accounting principles. interested users
 -after the audit has been assurance about that particular
completed, a CPA prepares a report subject matter.
which contains in writing, the opinion In other words, it is an engagement
of the CPA. In financial statement to express others. Both assurance
audits, the opinion on the fairness of and assertion-based engagements
the presentation of FS for the period encompass audits.
of audit.

The Relationship Between Assurance

Engagements, Assertion-based
Auditing and Accounting Engagements and Audit
Distinguised Engagements

Auditing is not a branch of

accounting.

Accounting is the process of

recording, classifying and
summarizing economic events in
logical manner for the purpose of
providing financial information for
decision making. It is a service
activity, the purpose for which is to
provide fincial information which is
quantitative in nature to help
management in decision making.
Auditing is concerned with the
determination of whether the
recorded accounting information for All three services follow the same
the entity properly reflects the process: the evaluation of evidence
economic events that occurred to determine the correspondence of
during the accounting period. An some information to a set of criteria,
auditor must posses, not only an and the issuance of a report to
understanding of accounting rules, indicate the degree of
but also an expertise in the correspondence.
accumulation and interpretation of
audit evidence. The difference between these three
engagements lies in the scope of
Assurance Services and Audit services. Assurance service is the
Services Distinguised broadest concept, while audit is the
narrowest. Historically, audits have
Assurance services encompasses arisen first, followed by assertion-
assertion-based engagements. based engagements, and finally by
Assurance services is one where a assurance engagements.
professional accountant will
evaluate a subject matter that is the
responsibility of another party Types of Audits
against suitable criteria, and
expresses an opinion w/c provides Audits may be classified acc to subj
the intended users with a level of matter or the nature of data or
assertion being audited (ie., fs audits,
operational audits, compliance Examples: audits conducted to
audits) or the type of auditor determine whether violations of
performing the audit (external audit, labor laws have occured and audits
internal audit, gov’t audit) performed by gov’t auditors to
determine ahderence to rules and
Financial Statement Audits regulations currently in force.

This refers to the gathering of

evidence on the assertions
embodied in the financial
statements of an entity and using
the evidence to determine whether External Audits
the assertions adhere to GAAP or
another comprehensive and These are audits performed by CPAS
authoritative financial reporting who are independent of the
framework. This type of audit organization whose assertions are
requires a CPA. FS audits are the being audited. These CPAS re also
focus of this book. known as independent auditors or
external auditors.
Example: audit condicted on the
historical FS of ABC Company as of Internal Audits
and for the year ended Dec 31, 2016.
Independent appraisal function
Operational Audits established w/in an organization to
examine and evaluate its activities
Involve a systematic review of an as a service to the org. The internal
organization’s activities in relation to auditing staff often reports to the
specified objectives for the purposes audit committee of the BODs and
of assessing performance (the also to the president or another high
efficiency, effectiveness, and executive. They are not independent
economy operations), identifying because they are employees of the
opportunites for improvement, an organization.
developing recommendations for
improvement or further action. Government Audits

Example: evaluation of a Involves determination of whether

computerized acctg system for gov’t funds are being handled
efficiency and effectiveness and properly and in compliance with
identifying areas for consideration existing laws and whether the gov’t
and providing recommendations for programs of a particular agency are
improvement being conducted efficiently and
economically. The COA is
Compliance Audits recognized as the Supreme Audit
Institution in the Republic of PH.
Used to determine whether a person
or entity has adhered to laws and 3 divisions of gov’t audits:
regulations. Results of compliance
audits are generally reported to a Compliance audit
specific user w/in the org. -the examination, audit and
settlement in accordance with laws
and regulations.
Financial audit FS AUDIT
-audit og the acctg and financial
system and controls to enure Assertions: FS are fairly presented
reliability of recorded financial data Criteria: Identified financial reporting
framework
Performance audit Report: audit report on the fairness of
-an objective examination of the FS. Interested users include investors,
financial and operational creditors, etc.
performance of an org, program,
activity or function and is oriented OPERATIONAL AUDIT
towards opportunities for greater
economy, efficiency and Assertions: operational or
effectiveness. perfomance data
A. Economy and efficiency Criteria: management objectives
audit- also known as Report: report on efficiency and
management audit. This is the effectiveness, including constructive
appraisal of management suggestions. Interested users include
performance from a least management and the BODs.
cost point of view and the
analysis of the cost-benefit COMPLIANCE AUDIT
relationship.
B. Effectiveness audit- also Assertions: compliance with
known as program results applicable laws and regs or
audit. This is the evaluation of management policy
programs, projects, and Criteria: laws, rules and regs or
activities to determine the management policy
extent of achievement of Report: degree of compliance
previously set goals and report. Interested users include
objectives. management and the BODs

Objective and Scope of a Financial

Statement Audit

Objective

The objective of an audit of financial

statements is the expression of an
Types of Audit According to Nature opinion on the
of Data or Assertion Being Audited
fairness of such financial statements. 1. Remoteness of information users
The auditor's report is the medium from information provider. Decision
through which he makers in most cases, do not get first
expresses his opinion or, if hand knowledge about the business
circumstances require, disclaims an enterprise with which they do
opinion. In either case, he states business because in many cases
whether his examination has been owners are different from
made in accordance with Philippine management, and they are not
Standards on Auditing or PSAS (this is involved in day to day operations or
discussed in succeeding chapters). decisions.

PSAS require the auditor to state 2. Potential bias and motives of

whether in his/her opinion, the information provider. A confilict of
financial statements are interest may be assumed to exist
presented in conformity with between management (the
generally accepted accounting information provider) and
principles (GAAP). information users (decision-makers)
regarding the financial statements.
Scope Information may possibly be biased
in favor of the provider when his
The auditor normally determines the goals are consistent with the
scope of an audit in accordance decision maker.
with the requirements of legislation,
regulations or relevant professional 3. Voluminous data. As business
bodies. grow, a large number of exchange
transactions are processed daily. This
In the observance of PSAS, the increases the likelihood that errors
auditor must exercise his judgment in may occur in recording and
determining which auditing reporting these transactions.
procedures are necessary in the
circumstances to afford a 4. Complex exchange transactions.
reasonable basis for his New and complicated business
opinion. His judgment is required to relationships and transactions may
be the informed judgment of a lead to innovative acctg anf
qualified professional person. reporting problems. Certain
The audit should be organized to transactions are so complex and
cover adequately all aspects of the therefore more difficult to record
entity as far as they properly.
are relevant to the financial
statements being audited.

INFORMATION RISK

The risk that information is misstated

or misleading is known as
information risk. Several factors
contribute to the excitense of
information risk, including the ff:
 that unreliable financial statements
may result in less effective decisions,
with negative or adverse economic
consequences (such as bankruptcy)
to the decision-maker.

Reducing Information Risk

To reduce information risk,

management of businesses and the
users of their financial
statements may adopt any or all of
the following approaches:

1. Allow users to verify information.

The user may go to the business
establishment to examine records
and obtain information about the
reliability of the statement. A major
problem with this option is that not
all users of financial statements are
professionally competent to verify
the information presented in the
financial statements. In addition,
most financial statement users
cannot directly assess the quality of
Illustration of the Concept of information due to time and
Information Risk distance constraints.

ABC Corporation is negotiating a 2. User shares information risk with

badly needed loan with the DEF management. Management has the
Bank. Jim, DEF's loan officer, primary responsibility of providing
required ABC to furnish the bank reliable information to users. If users
with its most recent financial rely on inaccurate financial
statements. Jim is particularly statements and as a consequence
interested in the credit-worthiness of incurs a financial loss, a lawsuit may
ABC Corporation. He wishes to be brought against management to
check ABC's current ratio and other recover part of such loss.
measures of liquidity and solvency.
ABC Corporation's management 3. Have the financial statements
understands that favorable ratios audited. To obtain reliable
(such as a high current ratio) are information, the user can have
required in order to obtain loan an independent audit performed.
approval. ABC's management might The audited information is then used
resort to misstating the financial in the decision-making
statements in order to convince DEF process. An independent auditor's
Bank to grant the loan. opinion provides both internal and
external users with input to making
Information risk and its reduction is a reasoned, logical, and informed
serious matter for decision-makers decisions about a variety of financial
because they know matters, including a company's
earnings performance, financial An audit is undertaken to enhance
position, liquidity position, the degree of confidence of
managerial performance, intended users in the financial
and economic vulnerability. Without statements. Based on the
auditors, decisions such as these are conclusions drawn from the audit
more likely to be made from biased evidence obtained, the
financial information. Auditing helps auditor expresses an opinion on the
to minimize biases by acting as a financial statements. However, an
monitor of financial information audit is not intended to, and cannot,
reported by management. provide a guarantee or absolute
assurance (i.e., certainty) that the
The most common option selected is financial
to have the financial statements statements are free from material
audited. misstatement due to fraud or error.
This is because there are
Aside from reducing information risk, inherent limitations of an audit
financial statement audits also act arising from:
as a deterrent to
inefficiency and fraud. In the The nature of financial reporting. The
absence of scrutiny provided by an preparation of financial statements
audit, management may get involves judgment by management
sloppy or behave in inappropriate in applying the applicable financial
ways. Thus, an audit is a preventive reporting framework; and subjective
measure that aids in keeping decisions or assessments (such as
management honest and motivated. estimates) by management
involving a range of acceptable
interpretations or judgments.
The Audit Report
The nature of audit procedures.
The audit report is the means Audit procedures, however well
through which the auditor provides designed, will not detect every
reasonable assurance that the misstatement. Any sample of less
financial statements are fairly stated. than 100% of a population
This report is uniform in format and introduces some risk that a
suitably titled to misstatement will not be detected;
avoid confusion regarding the level
of assurance being provided and to
differentiate it from other reports .
which client management might Nature of Audit Evidence Available.
include with the financial statements. Most of the auditor's work in forming
the auditor's opinion consists of
obtaining and evaluating audit
evidence. This evidence tends to be
persuasive in character rather than
conclusive.

Limitations of an audit Timeliness of Financial Reporting.

Users of nancial statements expect
An audit is not a guarantee of the that the
exactness of accuracy of assertions
in the financial statements.
auditor will form his or her opinion responsibilities under those standards
within a reasonable period of time are further described in the Auditor's
and at a Responsibilities for
reasonable cost. Consequently, it is the Audit of the Financial Statements
impracticable to address all section of our report. We are
information that may exist, or to independent of the Company in
pursue every matter exhaustively on accordance with the International
the assumption that information is in Ethics Standards Board for
error or fraudulent until proved Accountants' Code of Ethics for
otherwise. Professional Accountants (IESBA
Code) together with the ethical
INDEPENDENT AUDITOR'S REPORT requirements that are relevant to
our audit of the financial statements
To the Shareholders of ABC in the Philippines, the Code of Ethics
Company [or Other Appropriate for Professional
Addressee] Accountants in the Philippines
(Philippine Code of Ethics), and we
Report on the Audit of the Financial have fulfilled our other ethical
Statements responsibilities in accordance with
these requirements and the IESBA
Opinion Code. We believe that the audit
evidence we have obtained is
We have audited the financial sufficient and appropriate to
statements of ABC Company (the provide a basis for our opinion.
Company), which comprise the
statement of financial position as at
December 31, 20X1, and the
statement of comprehensive
income, statement of changes in Key Audit Matters
equity and statement of cash flows
for the year then ended, and notes Key audit matters are those matters
to the financial statements, including that, in our professional judgment,
a summary of significant accounting were of most significance in our
policies. audit of the financial statements of
the current period. These matters
In our opinion, the accompanying were addressed in the context of our
financial statements present fairly, in audit of the financial statements as
all material respects, the financial a whole, and in forming our opinion
position of the Company as at thereon, and
December 31, 20X1, and its financial we do not provide a separate
performance and its cash flows for opinion on these matters.
the year then ended in accordance
with Philippine Financial Reporting [Description of each key audit
Standards (PFRSs). matter in accordance with PSA 701.]

Basis for Opinion Responsibilities of Management and

Those Charged with Governance for
We conducted our audit in the Financial
accordance with Philippine Statements
Standards on Auditing (PSAs). Our
Management is responsible for the users taken on the basis of these
preparation and fair presentation of financial statements.
the financial statements in
accordance with PFRSs, and for As part of an audit in accordance
such internal control as with PSAs, we exercise professional
management determines is judgment and maintain professional
necessary to enable the preparation skepticism throughout the audit. We
of financial statements that are free also:
from material misstatement, whether
due to fraud or error.  Identify and assess the risks of
material misstatement of the
In preparing the financial statements, financial statements, whether
management is responsible for due to fraud or error, design and
assessing the Company's ability to perform audit procedures responsive
continue as a going concern, to those risks, and
disclosing, as applicable, matters obtain audit evidence that is
related to going concern and using sufficient and appropriate to
the going concern basis of provide a basis for our opinion.
accounting unless management The risk of not detecting a material
either intends to liquidate misstatement resulting from fraud is
the Company or to cease higher than for
operations, or has no realistic one resulting from error, as fraud
alternative but to do so. may involve collusion, forgery,
intentional omissions.
Those charged with governance are misrepresentations, or the override of
responsible for overseeing the internal control.
Company's financial reporting
process.  Obtain an understanding of
internal control relevant to the
Auditor's Responsibilities for the Audit audit in order to design audit
of the Financial Statements procedures that are appropriate
in the circumstances, but not for
Our objectives are to obtain the purpose of expressing an
reasonable assurance about opinion on the effectiveness of
whether the financial statements as the Company's internal control.
a whole are free from material
misstatement, whether due to fraud  Evaluate the appropriateness of
or error, and to issue an auditor's accounting policies used and
report that includes our opinion. the reasonableness of
Reasonable assurance is a high level accounting estimates and related
of assurance, but is not a guarantee disclosures made by management.
that an audit conducted in
accordance with PSAs will always  Conclude on the
detect a material misstatement appropriateness of
when it exists. Misstatements can management's use of the going
arise from fraud or error and are concern basis of
considered material if, individually or accounting and, based on the audit
in the aggregate, they could evidence obtained, whether a
reasonably be expected to material uncertainty exists related to
influence the economic decisions of events or conditions that may cast
significant doubt on the Company's
ability to continue as a going key or that matters. We describe
concern. If we conclude that a these matters in or audit's report
material uncertainty exists, we are unless law or regulation precludes
required to draw attention in our public disclosure about the matter or
auditor's report to the related when an extremely rare
disclosures in the financial circumstances, we determine that a
statements or, if such disclosures are matter should not be
inadequate, to modify our opinion. communicated in our report
Our conclusions because the adverse consequences
are based on the audit evidence of doing so with reasonably
obtained up to the date of our expected to it outweigh the public
auditor's report. However, interest benefits of such
future events or conditions may communication.
cause the Company to cease to
continue as a going concern. Report on other legal and regulatory
requirements
 Evaluate the overall presentation,
structure and content of the The form and content of this section
financial statements, including of the Auditor's report would very
the disclosures, and whether the depending on the nature of the
financial statements represent Auditor's other reporting
the underlying responsibilities prescribed by local
transactions and events in a manner law, regulation or national auditing
that achieves fair presentation. standards. The matters addressed by
other law, regulation or national
auditing standards (referred to as
other reportong responsibilities) shall
We communicate with those be addressed within the section
charged with governance regarding, unless the other reporting
among other matters, the planned responsibilities address the same
scope timing of the audit and topics as those presented under
significant audit findings, including their reporting responsibilities
any significant deficiencies in required by the PSAs as part of the
internal control we identify during Report on the Audit of the Financial
our audit. Statement section The reporting of
We also provide those charged with other reporting responsibilities that
governance with a statement that address the same topic as those
we have complied with relevant regard with the PSA may be
ethical requirements regarding combined (included in the Report
independence and to on the Audit of the Financial
communicate with them all our Statement section under the
relationships and other matters that appropriate subheadings) provided
may reasonably be thought to bear that the wording in the auditor's
on or independence, and where report clearly differentiates the other
applicable related safeguards. From reporting responsibilities from the
other matters communicated with reporting that is required by the PSAs
those charged with governance, we where such a difference exists.
determine those matters that were The engagement partner on the
of most significance in the audit of audit resulting in this independent
the financial statements of the auditor's report is (name).
current period and are therefore the
( signature in the name of the audit
firm, the personal name of the
auditor, or both, as a appropriate for
the particular jurisdiction)

(auditor's address)

(Date)
 CHAPTER 4: SETTING UP AND
MAINTAINING AN ACCOUNTING PRACTICE Some of the well-known CPA firms
currently in the Philippines are shown in
Introduction Table 4-1:

Republic Act No. 9298 or The Philippines Table 4-1

Accountancy Act of 2004 provides that the Well-known CPA Firms in the Philippines
following forms of organization are allowed Network Firm Correspondent
for the practice of public accountancy: Firm in the
1. Single proprietorships Philippines
2.General partnerships and limited liability Ernst and Young, LLP Sycip Gorres
partnerships Velayo & Co.
PricewaterhouseCoopers, Isla Lipana &
The SEC shall not register any corporation LLP Co.
organized for the practice of public Klynveld, Peat, Marwick, R.G. Manabat
accountancy¹. A sole proprietor or Goerdeler (KPMG), LLP & Co.
partnership of CPAS is known as a firm (CPA Grant Thornton LLP Punongbayan &
firm or audit firm). Araullo
CPA firms vary in size, from individual CPAS Deloitte (Deloitte Touche Navarro Amper
(sole proprietorships with few or no Tohmatsu) & Co.
employees) to large multi-national auditing
firms (with branches in many parts of the
world). The limited liability partnership (LLP) Accreditation to Practice Public
form of organization has been adopted by Accountancy
most of the large audit firms in the world. Proprietorships and partnerships must first
Limited liability partnerships afford some obtain a Certificate of Accreditation from
protection for the personal assets of the the PRBOA before it can be allowed to
individual partners. practice public accountancy.
A minimum of "three (3) years of
The largest CPA firms, in terms of number meaningful experience in any of the areas
of personnel and in terms of revenues, of public practice including taxation" is
have operations in various parts of the required before such certificate of
world (known as territories). These firms accreditation can be obtained². The IRR has
usually have affiliations or correspondent clarified what constitutes "meaningful
firms in each country. experience", as reproduced in Table 4-2.

A certificate of accreditation is a certificate

under seal, issued by the PRC upon the
recommendation by the Professional
Regulatory Board of Accountancy (PRBOA)
pursuant to the IRR, attesting that
individual CPAS, firms, including the sole
proprietors and the staff members thereof
and partnerships of CPAS including the
partners and the staff members thereof,
are duly accredited to practice public
accountancy in the Philippines. The PRBOA
shall promulgate rules and regulations for
the implementation of the registration
requirements including the fees and
penalties for violations thereof.
 Professional skills refer to the various types
Mandatory Continuing Professional of abilities required to apply professional
Development Requirement knowledge, and professional values, ethics,
The Professional Regulation Commission and attitudes appropriately and effectively
through the PRBOA Resolution No. 59 in a professional context.
Series of 2012 (i.e., signed April 16, 2012) Professional values, ethics, and attitudes -
clarified the rules and regulations on refer to the professional behavior and
continuing professional education and characteristics that identify professional
accreditation of CPAS in public accountancy accountants as members of a profession.
and accounting education, The Resolution They include the principles of conduct (ie.,
states that the term Continuing ethical principles) generally associated with
Professional Development will be used in and considered essential in defining the
lieu of Continuing Professional Education to distinctive characteristics of professional
conform to the provisions of the behavior.
International Education Standard No. 7 and The application of individual professionals
the corresponding Framework for firms and partnerships for the accreditation
International Education. of practice in public accountancy and
accounting education, and the application
Standards for Professional Accountants; the for accreditation of providers and programs
Continuing Professional Education Council related to Continuing Professional
for Accountancy shall now be called Development shall be submitted by the
Continuing Professional Development applicants directly to the appropriate office
Council for Accountancy. or division in the PRC for endorsement to
The PRBOA after series of consultative the PRBOA and to the PRC CPD Council for
meetings with CPD Committees of PICPA Accountancy respectively.
and the four professional sectoral In addition to PRBOA accreditation, CPAS in
organizations (ie., ACPAPP, ACPACI, public practice are also required to obtain
NACPAE and GACPA); and after due accreditation with the Bureau of Internal
consideration to the provisions of Revenue submitting at least 18 CPD units
International Education Standards No. 7, on taxation obtained not more than one
which states that IFAC member bodies year prior to the application for
implementing an input based approach accreditation.
shall require each professional accountant CPAS in public practice who have publicly
to complete at least one hundred twenty listed clients and public interest entity
(120) hours (or equivalent learning units) clients are required to obtain accreditation
of relevant professional development with the Securities and Exchange
activity in each rolling three-year period, Commission.
resolved to increase the required CPD
credit units from sixty to one hundred Renewal of Accreditation
twenty units within a compliance period of
three years for all CPAS in public practice, The accreditation for public accountancy
academe, commerce and industry and and accounting education shall be for a
government, and to change the Thematic period of three years and in case of failure
Areas to Competence Areas which shall be to renew the same on the expiration date
categorized into Technical Competence, will entail the payment of surcharges at an
Professional Skills and Professional Values, amount prescribed by the Board. The CPA's
Ethics and Attitudes². PRC Professional Identification Card (or PIC)
and accreditation with the PRBOA shall be
Technical competence refers to the ability reconciled and aligned so that CPAS
to apply professional knowledge to perform applying for both credentials shall present
a role to a defined standards.
the same CPD requirements for both administration
applications. 2 internal auditing
and liaison with
For individual professionals, the reckoning external auditors
date of the validity of the PRC Professional 3. representing
Identification Card and accreditation with his/her employer
the PRBOA shall be the date of birth of the before government
individual. agencies on tax and
matters related to
For accounting firms and partnerships, the accounting or any
reckoning date of validity of accreditation other related
with the PRBOA shall be the month of their functions
SEC registration date. All CPAS partners, Education or the Teaching for at least
members and staff of the firm/partnership Academe three (3) trimesters
should have valid PIC at the time of or two (2) semesters
application and renewal of accreditation. subjects in either
financial accounting,
The PRBOA shall require as a condition to business law and
registration or any renewal thereof for the tax, auditing
Individual CPAS, Firms or Partnerships of problems, auditing
CPAS to undergo quality review in such theory, financial
manner as the Board may specify. management and
For this purpose, a Quality Review management
Committee (QRC) is created to conduct an services, provided,
oversight into the quality of audits of that the
financial statements through a review of accumulated
the quality control measures instituted by teaching experience
individual CPAS, firms or partnerships. on these subjects
shall not be less than
three (3) school
years.
Table 4-2 Meaningful Experience
Government Significant
Sector Meaningful involvement in:
experience shall 1. general
include: accounting,
Public Practice 1. at least one year budgeting and tax
as audit assistant administration
and 2. internal auditing
2. at least two years and liaison with the
as auditor-in-charge COA
of audit 3. any other related
engagements functions
covering full audit
functions of
significant clients.
Commerce and Significant
Industry involvement in:
1. general
accounting,
budgeting and tax
 Rules on Names
Quality Review Committee (QRC) 1. In the case of an individual CPA, he/she
shall do business under his/her registered
The QRC shall assist the BOA in performing name with the BOA and the PRC and as
a quality review on applicants for printed on his/her CPA certificate.
registration to practice public accountancy.
The QRC is composed of seven (7) Example: Juan de la Cruz, CPA
members: a chairman and six (6)
representatives, the breakdown of which is 2. In the case of firms, they shall do
shown below: business under their respective duly
Board of Accountancy 1 registered and authorized firm name
APO (PICPA) appearing in the registration documents
Public Practice 2 issued by the Department of Trade and
Academe/Education 1 Industry or any other proper government
Commerce and Industry 1 office(s) and such firm name shall include
Government 1 5 the real name of the sole proprietor as
Total 6 printed in his/her CPA certificate or other
similar firm names.
All are appointed by the PRC and will serve
three year terms, renewable for another Example: Juan de la Cruz and Associates
term. The chairman should have been (or
must be presently) a senior practitioner in 3. In the case of registered partnerships,
public accountancy. they shall do business under their
respective partnership names as indicated
Powers and Functions of the QRC in their current Articles of Partnership and
certificates of registration issued by the SEC.
1. Conduct quality review on applicants for In the case of unregistered partnerships,
registration to practice public accountancy they shall do business under the
and render a report which shall be attached partnership names as indicated in their
to the application for registration. current articles of partnership.

2. Recommend to the Board the revocation Examples: Cruz, Isidro, Martin, and
of the Certificate of Registration and the Company
professional identification card of an
Individual CPA, including any of his/her staff 4. CPAS shall practice only under a name
members, firms, including the sole allowed by law and shall not include any
proprietors and any of his/her staff fictitious name, indicates specialization or is
members, and Partnerships of CPAS misleading as to the type of organization
including the partners and staff members (proprietorship or partnership).
thereof who has not observed the quality
control measures and who has not 5. A partner surviving the death or
complied with the standards of quality withdrawal of all the other partners in a
prescribed for the practice of public partnership may continue to practice under
accountancy. the partnership name for a period of not
more than two (2) years after becoming a
In the event that the QRC cannot sole proprietor.
accomplish the aforesaid functions for any
reason whatsoever= the PRBOA or its duly
authorized representatives may conduct
the required quality review.
Limitations for Foreign CPAS of Accreditation to practice public
1. Under no circumstances shall the accountancy.
correspondent relationship, membership, 3. Unless sooner revoked, canceled or
or business dealings with foreign CPAs be a withdrawn, said Certificate of Accreditation
scheme for the foreign CPAs to engage in shall be valid for three (3) years and shall be
the practice of public accountancy in the renewable every three (3) years upon
Philippines who/which under the present payment of the appropriate fees.
laws are limited to Filipino CPAS (except as
provided for in Sections 34 and 35 of Other Considerations
RA9298).
Location and Work Environment
2. The Individual CPA, Firm or Partnership Most of the large CPA firms are centered in
of CPAS duly registered under the IRR shall the Makati business district. The CPA will
not have as its owner, sole proprietor, have a business advantage in maintaining
partner, or any staff thereof, any foreign an office in centers of Philippine business. A
CPA, unless he/she qualifies to practice in major factor in deciding on the location is
the Philippines under Sections 34 and 35 of convenience in terms of accessibility to the
RA No. 9298 and/or other relevant laws and CPA, the staff, and the clients of the CPA.
bilateral and/or multilateral agreement or
treaties. Technology
While the CPA firm would need relatively
simple office equipment (with emphasis on
First-Time Registrants word processing and printing equipment
1. In the case of first-time registrants, the and photocopy machines), investing on
application of registration shall be information technology will help the CPA
accompanied with a sworn statement by gain an advantage over its competitors,
the Individual CPA, sole proprietor of the particularly in the areas of efficiency,
Firm and managing partner of the effectiveness and risk management.
Partnership, stating that the individual CPA, Equipment should be periodically inspected
sole proprietor of the Firm, and all the and repaired or replaced as necessary.
partners of the Partnership has (have) at Disaster recovery plans and backup
least three (3) years of meaningful facilities would reduce concerns about
experience in any of the areas of public possible data loss.
practice, including taxation, including an
attachment containing the details of such Hierarchy of Personnel
work experience. The hierarchy of personnel in CPA firms has
evolved through the years, but generally,
each firm has four major positions, as
Authentication and Accreditation follows: Associate (or Junior Associate),
Senior Associate, Manager and Sole
1. The PRBOA shall duly authenticate all Proprietor or Partner. Table 4-3 shows a
applications for registration received in description of the work performed at each
proper form, and after having passed upon level of a CPA firm.
such application, shall recommend to the
PRC the approval or denial thereof not later Human Resources
than sixty (60) days after the receipt of the The firm has to have a good policy on hiring,
aforementioned applications in proper professional development, and
form. advancement of its employees. The success
2. The PRC shall, upon favorable of a CPA firm depends largely on the
recommendation of the PRBOA, issue to competence and performance of its
the applicant the corresponding Certificate employees.
CPA firm personnel should be trained with requests and
a combination of education and work summarizing the
experience (learning on the job). The results of
following are training methods for confirmation
personnel in CPA firms: procedures.
1. In-house training - This includes 8. Quality control on
workshops on topics such as: audit audit deliverables,
procedures, audit report writing, and such as proof reading
responsibilities for fraud and error. and effecting
3. External training programs - This includes corrections made by
attendance at training programs and more senior
modules sponsored by PICPA and other personnel.
professional organizations of CPAS, such as
the ACPAPP.
2. On the job training - Under the guidance Senior associates (2 Perform more
of a more experienced auditor (such as a to 5 years) complex audit
senior associate), newer audit staff are procedures, and
given chances to apply audit concepts, 1. Usually draft and
perform increasingly complex audit finalize the audit
procedures, and develop skills in program
communication and critical thinking. 2. Supervise
associates and
performs review
procedures on work
Table 4-3 performed by
Hierarchy of Professional Staff in CPA associates.
Firms
Position (Years of Nature of Work 3. Address minor
Experience) accounting and
Junior Associate (0 Perform detailed auditing issues with
to 2 years) audit work, such as: clients and audit
1. Checking footings associates.
and computations.
2. Checking short Managers (5 to 10 Performs audit
and long extensions years) procedures and
3. Tracing postings to engagement
the ledger.. management.
4. Performing tracing including:
and vouching 1. Prepare the
procedures. overall audit plan
5. Preparing analyses 2. Perform
and schedules of administrative work
accounts (schedule for several
preparation may be concurrent
delegated to the engagements
client) 3. Settle major
6. Observing the accounting or
physical count of auditing issues
inventories. 4. act as liaison
7. Mailing of between partners
confirmation and other team
 members (partners, Advertising and Promotion
seniors and
associates) A CPA in public practice should not bring
5.Usually draft the the profession into disrepute when
report for review by marketing professional services. The
the partner professional accountant in public practice
should be honest and truthful and should
not:
Partners (10+ Owners of the audit  Make exaggerated claims for services
years) firm. They determine offered, qualifications possessed or
the operating experience gained; or
policies of the firm.  Make disparaging references to
In addition, partners: unsubstantiated comparisons to the
1. Obtain and work of another.
maintain relationship If the CPA in public practice is in doubt
with clients whether a proposed marketing is
2. Discuss with appropriate, the CPA in public practice
clients the objective should consult with the relevant
and scope of the professional body.
audit.
3. Assume overall Sources of Clients
responsibility for
each engagement The CPA's usual source of clients are
4. Attend client's referrals from various parties, such as
meetings to answer members of civic and community
questions that may associations where the CPA actively
arise in connection participates; existing clients who received
with the audit satisfactory service; other CPAS by active
engagement or the involvement in professional organizations,
audit report. such as the PICPA and sectoral
5. Have the final say organizations; and other sources, such as
on accounting or law firms.
auditing issues
encountered in an Advertising
engagement
6. Sign the reports Any advertising by professional
and firm accountants beyond their name, address,
correspondence telephone number and membership in
(audit report, tax professional organizations has been
report, other traditionally considered unethical in the
documents) Accountancy Profession.
7. Approve the
billings for fees to be The reasons for not allowing advertisement
given to clients include:
 advertising can lead to undue
competition between and among
practitioners, and thus may cause a
decline in the quality of service;
 advertising would encourage a
more commercial approach within
the profession thus reducing
 clients' trust in CPAS and also offered) in a manner that is not false,
increasing the likelihood of CPAS misleading or deceptive;
neglecting their ethical duties; b. It is in good taste;
 the cost of advertising would C. It is professionally dignified; and
outweigh any savings which might d. It avoids frequent repetition of, and any
result from competition, and it undue prominence being given to the name
would be borne ultimately by of the firm or professional accountant in
clients; and small or new public practice.
practitioners would be unlikely to
have the financial resources to
match the advertising of larger or The following however shall not be allowed:
more established practices. a. Self-laudatory statements
b. Discrediting, disparaging, practitioners or
The rationale behind the prohibition of attacking other firms or CPA
certain kinds of advertising or C. Referring to, using or citing actual or
advertisements is to lend dignity to the purported testimonials by third parties
profession which, unlike ordinary services d. Publishing and comparing fees with other
and merchandise, should not be peddled in CPAS or CPA firms or comparing those
the market place through touting and self- services with those provided by another
laudatory means. firm or CPA practitioner.
e. Giving too much emphasis on
Developments on Advertising competitive differences
f. Using words or phrases which are hard to
Due to the expansion of the services define and even more difficult to
provided by the professional accountants substantiate objectively
and the inclusion of a provision in the g. Publishing services in billboard (e.g.,
Revised Code of Ethics for Professional tarpaulin, streamers, etc.) advertisements
Accountants of the International Federation
of Accountants (IFAC) which the Board of The use of the name of an international
Accountancy and the Professional accounting firm affiliation/correspondence
Regulation Commission have adopted, other than a notation that it is a
allowing advertising to the extent that this "member/correspondent firm of that
provides the public with necessary foreign firm" shall not be allowed so as to
information about the sole practitioners or imply that the foreign firm is practicing in
professional partnerships and the services the Philippines.
they offer to their clients, the BOA deemed
it necessary to adopt rules and regulations No firm or CPA practitioner shall identify
covering advertising so as to protect the the name of a client or items of a client's
public interest. Such rules shall define the business in advertising, public relations or
parameters within which advertising and marketing material produced to promote
promotion may be considered ethical and his practice provided that the client gives its
hence, permissible. written consent.

BOA Resolution No. 126, Series of 2008 No firm or CPA practitioner shall use the
term "Accredited" or any similar words or
Generally, advertising and publicity in any phrases calculated to convey the same
medium are acceptable, provided: meaning if the claimed accreditation (BOA,
a. It has as its objective the notification to SEC, BSP or IC) has expired.
the public or such sectors of the public as
are concerned, of matters of fact (e.g.,
name, address, contact numbers, services
All advertisements must have prior review professional accountant when seeking
and approval in writing by the Risk employment or professional business.
Management Partner and Managing
Partner or their equivalents. Directories

Examples of Acceptable Publicity: A professional accountant may be listed in

a directory. Entries may include name,
The examples in the the pages that follow address, telephone number, professional
are illustrative of circumstances in which description, services offered and any other
publicity is acceptable and the matters to information necessary to enable the user of
be considered in connection therewith the directory to make contact with the
subject always to the overriding person or organization to which the entry
requirements mentioned in the preceding relates.
rules.

Awards Books, Articles, Interviews, Lectures, Radio

and Television Appearances
It is in the interests of the public and the
accountancy profession that any Professional accountants who author books
appointment or other activity of a or articles on professional subjects, may
professional accountant in a matter of state their name and professional
national or local importance, or the award qualifications and give the name of their
of any distinction to a professional organization but shall not give any
accountant, should receive publicity and information as to the services that firm
that membership of the professional body provides. Similar provisions are applicable
should be mentioned. However, the to participation by a professional
professional accountant should not make accountant in a lecture, interview or a radio
use of any of the aforementioned or television program on a professional
appointments or activities for personal subject. What professional accountants
professional advantage. write or say, however, should not be
promotional of themselves or their firm but
should be an objective professional view of
Professional Accountants Seeking the topic under consideration. Professional
Employment or Professional Business accountants are responsible for using their
best endeavors to ensure that what
A professional accountant may inform ultimately goes before the public complies
interested parties through any medium that with these requirements.
a partnership or salaried employment of an
accountancy nature is being sought. The Training Courses, Seminars, etc.
professional accountant should not,
however, publicize for subcontract work in A professional accountant may invite clients,
a manner which could be interpreted as staff or other professional accountants to
seeking to procure professional business. attend training courses or seminars
Publicity seeking subcontract work may be accountants to attend conducted for the
acceptable if placed only in the professional assistance of staff. Other persons should
press and provided that neither the not be invited to attend such training
accountant's name, address or telephone courses or seminars except in response to
number appears in the publicity. A an unsolicited request. The requirement
professional accountant may write a letter should in no way prevent professional
or make a direct approach to another accountants from providing training
services to other professional bodies,
associations or educational institutions Publicity on Behalf of Clients
which run courses for their members or the
public. However, undue prominence should A professional accountant in public practice
not be given to the name of a professional may publicize on behalf of clients, primarily
accountant in any booklets or documents for staff. However, the professional
issued in connection therewith. accountant in public practice should ensure
that the emphasis in the publicity is
Booklets and Documents Containing directed towards the objectives to be
Technical Information achieved for the client.

Booklets and other documents bearing the

name of a professional accountant and Brochures and Firm Directories
giving technical information for the
assistance of staff or clients may be issued A professional accountant in public practice
to such persons, other professional may issue to clients or, in response to an
accountants or other interested parties. unsolicited request, to a non-client:
a. A factual and objectively worded of the
Staff Recruitment services provided; and
b. A directory setting out names of partners,
Genuine vacancies for staff may be office addresses and names and address of
communicated to the public through any associated firms and correspondents.
medium in which comparable staff
vacancies normally appear. The fact that a
job specification necessarily gives some Stationery and Nameplates
detail as to one or more of the services
provided to clients by the professional Stationery of professional accountants in
accountant in public practice is acceptable public practice should be of an acceptable
but it should not contain any promotional professional standard and comply with the
element. There should not be any requirements of the law and of the member
suggestion that the services offered are body concerned as to names of partners,
superior to those offered by other principals and others who participate in the
professional accountants in public practice practice, use of professional descriptions
as a consequence of size, associations, or and designator letters, cities. or countries
for any other reason. where the practice is represented,
logotypes, etc. The designation of any
In publications such as those specifically services provided by the practice as being
directed to schools and other places of specialist nature should not be permitted.
education to inform students and graduates Similar provisions, where applicable, should
of career opportunities in the profession, apply to nameplates.
services offered to the public may be
described in a business-like way. More Announcements
latitude may also be permissible in a Appropriate newspapers or magazines may
section of a newspaper devoted to staff be used to inform the public of the
vacancies than would be allowed if the establishment of a new practice, of changes
vacancy appeared in a prominent position in the composition of a partnership of
elsewhere in a newspaper on the grounds professional accountants in public practice,
that it would be most unlikely that a or of any alteration in the address of a
potential client would use such media to practice. Such announcements should be
select a professional adviser. limited to a bare statement of facts and
consideration given to the appropriateness
of the area of distribution of the newspaper Anniversaries
or magazine and number of insertions. A professional accountant's press and other
media releases or announcements or
Inclusion of the Name of the CPA in Public newspaper supplements, or other similar
Practice in a Document Issued by a Client publications, or other commemorative
media, or the holding of media covered
When a client proposes to publish a report events undertaken only to commemorate
by a professional accountant in public their anniversaries in public practice by
practice dealing with the client's existing informing the public of their achievements
business affairs or in connection with the or accomplishments in contributing
establishment of a new business venture, towards nation building and in international
the professional accountant in public understanding, goodwill, or relationship or
practice should take steps to ensure that enhancing the image or standards of the
the context in which the report is published accounting profession do not violate the
is not such as might result in the public rules on advertising and solicitation
being misled as to the nature and meaning provided that such announcements or
of the report. In these circumstances, the undertakings contains only factual matters
professional accountant in public practice without detailed listing of services. Such
should advise the client that permission undertaking should be done only every five
should first be obtained before publication years of celebration.
of the document.

Similar consideration should be given to Websites

other documents proposed to be issued by A professional accountant may develop and
a client containing the name of a maintain a website in the Internet in such
professional accountant in public practice suitable length and style which may also
acting in an independent professional include announcements, press releases,
capacity. This does not preclude the publications and such other necessary and
inclusion of the name of a professional factual information like firm's name,
accountant in public practice in the annual partners/principals' name and abrief
report of a client. description of their educational attainment,
brief listing of services, postal address,
When professional accountants in their telephone, fax and e-mail addresses. Such
private capacity are associated with, or website should adhere to the rules
hold in, an organization, the organization previously mentioned.
may use their name and professional status
on stationery and other documents. The
professional accountant in public practice Fees and Billing
should ensure that this information is not When entering into negotiations regarding
used in such a way as might lead the public professional services, a CPA may quote
to believe that there is a connection with whatever fee deemed to be appropriate.
organization in an independent The fact that a CPA may quote a fee lower
professional capacity. than another is not in itself unethical. Fees
charged for assurance engagements should
be a fair reflection of the value of the work
involved and should take into account,
among others:
 the skill and knowledge required for
the type of work involved;
 the level of training and experience of Death, Disability, Dissolution and
the persons necessarily engaged on Liquidation
the work;
 the time necessarily occupied by each The death or disability of an Individual CPA
person engaged on the work; and and/or the dissolution and liquidation of a
 the degree of responsibility and Firm or Partnership of CPAS shall be
urgency that the work entails. reported to the BOA by any designated
staff member of the Individual CPA, the
Table 4-4 sole practitioner (or any designated staff
Methods of Billing Clients member of the Firm in case of the
Flat or fixed fee The client is billed a unavailability of the sole practitioner) or
basis flat but all-inclusive managing partner of the Partnership (or
pre-arranged any designated partner in case of the
amount for the unavailability of the managing partner) not
entire engagement. later than thirty (30) days from the date of
Actual time charges Also known as the such death, dissolution or liquidation.
basis per diem basis.
Billing is done on the
basis of actual time
spent by the staff
multiplied by the
hourly rates agreed
upon.
Maximum fee basis The client is
charged on a per
diem basis, with the
agreement that the
total charges will not
exceed a certain
agreed maximum
amount.

Retainer fee basis The auditor is paid a

fixed pre-
determined fee for
all services rendered
during a designated
period of time either
on a monthly, semi-
annual or annual
basis.