Introduction  An audit is conducted objectively

 Dependable financial information is The auditor should conduct the audit

essential to our society without bias.
 We often rely upon information provided by Impartial attitude must be maintained by
others in making economic decisions the auditor when evaluating evidence and
 The need of various users for more reliable formulating his conclusion.
financial information has created a demand
for an independent audit of financial  Auditors ascertain the degree of
statements. correspondence between assertions and
 The primary function of the independent established criteria
audit is to lend credibility to the financial Established criteria are needed to judge
statement prepared by an entity the validity of the assertions.
 The auditor’s opinion enhances the value Established and inform the users of the
and usefulness of the financial statements basis against which the assertions have been
 By attaching a report to the financial evaluated or measured.
statements, the auditor provides increased The auditor determines the degree by
assurance to users that the financial which the assertions conform to the established
statements are reliable. criteria that is fair presentation of financial
statements (Assertions) by comparing the
 The Philippine Standards on Auditing (PSA) statements with an identified financial
defines auditing by stating the objective of reporting framework (Criteria).
financial statement audit, express an
opinion whether the financial statements  Auditors communicate the audit results
are prepared, in all material respects, in to various interested users
accordance with the identified financial The communication of the audit findings
reporting framework. is the ultimate objective of any audit.
For the audit to be useful, the results
 The American Accounting Association must be communicated to interested users on a
defines auditing by “An Audit is a timely basis.
systematic process of objectively obtaining
and evaluating evidence regarding
assertions about economic actions and Types of Audits
events to ascertain the degree of  Financial Statement Audit
correspondence between these assertions Conducted to determine whether the
and established criteria and communicating financial statements of an entity are fairly
the results to interested users” presented in accordance with an identified
financial reporting framework.
 Auditing is a systematic process
Auditing proceeds by means of an  Compliance Audit
ordered and structured series of steps Involves the review of an organization’s
procedures to determine whether the
 An audit involves obtaining and organization has adhered to specific procedures,
evaluating evidence about assertions rules and regulations.
regarding economic actions and events Dependent upon the existence of
Assertions are representation made by verifiable data and recognized criteria
an auditee about economic actions and events established by an authoritative body.
The auditor’s objective is to determine
whether these assertions are valid  Operational Audit
To satisfy this objective, the auditor Study of a specific unit of an
performs audit procedures and gathers organization for the purpose of measuring its
evidence that corroborates or refutes the performance.
assertions. The main objective is to assess the
entity’s performance, identify areas for
improvements and make recommendations to
improve performance.
Types of Auditors Responsibility for the Financial Statements
 External Auditor  The management is responsible for
Independent CPAs who offer their preparing and presenting the financial
professional services to different clients on a statements in accordance with the financial
contractual basis. reporting framework.
External auditors are the ones who  The auditor’s responsibility is to form and
generally perform financial statement audits. express an opinion on these financial
statements based on his audit.
 Internal Auditors  An audit of the financial statement does not
Are entity’s own employees who relieve management of its responsibilities.
investigate and appraise the effectiveness and  Hence, it is management’s responsibility to
efficiency of operations and internal controls. adopt and implement adequate accounting
The main function of internal auditors is and internal control systems that will help
to assist the members of the organization in the ensure, among others, the preparation of
effective discharge of the responsibilities. reliable financial statements.
Internal auditors usually perform
operational audits. Assurance provided by the Auditor
 The auditor’s opinion on the financial
 Government Auditors statements is not a guarantee that the
Government employees whose main financial statements are dependable.
concern is to determine whether persons or  An audit conducted in accordance with
entities comply with the government laws and Philippine Standards on Auditing (PSAs) is
regulations. designed to provide only reasonable
Government auditors usually conduct assurance and not absolute assurance that
compliance audits. the financial statement taken as a whole
are free from material misstatements.
 In every audit, there are always inherent
Objective and Scope of Financial Audit limitations that effect the auditor’s ability to
Objective: detect material misstatements.
 The objective of an audit of financial
statement is the expression of an opinion Inherent limitations that affect the auditor’s
on the fairness of such statements. ability to detect material misstatements
 The auditor’s report is the medium through  The use of testing/Sampling Risk
which he expresses his opinion or if For practical reasons, auditors do not
circumstances require, disclaims an examine all evidence available. Many audit
opinion. conclusions are made by examining only
 In either case, he states whether his sample of evidence.
examination has been made in accordance
with PAS and whether the financial  Error in application of judgment/Non-
statements are presented in conformity with sampling risk
generally accepted accounting principles. The work undertaken by the auditor to
 The auditor normally determines the scope form an opinion is permeated by judgment.
of the audit in accordance with the Human weakness can cause auditors to commit
requirement of legislation, regulations or mistakes in the application of audit procedures
relevant professional bodies. and evaluation of evidence.
 In the observance of the PAS, the auditor
must exercise his judgement in determining  Reliance on management’s
which audit procedures are necessary in representation
the circumstances to afford a reasonable Some evidence supporting the financial
basis for his opinion. statements must be obtained by obtaining oral
 The audit should be organized to cover or written representation from management
adequately all aspects of the entity as far as which may lacks integrity.
they are relevant to the financial statement
being audited.
 Inherent limitations of the client’s  Since most of the users of financial
accounting and internal control systems information are not equipped with the
Although the auditors performs necessary skills and competence to
procedures to detect material misstatements determine whether the financial statements
when auditing, such procedures may not be are reliable, a qualified person is hired by
effective detecting misstatement resulting from users to verify the reliability of the financial
collusion among employees and management. statements on their behalf.

 Nature of evidence  Financial Consequences

Evidence obtained by the auditor does  Misleading financial information could have
not consist of “hard facts” which prove or substantial economic consequences for
disprove the accuracy of the financial decision maker.
statements.  It is therefore important that financial
statement be audited first before they are
used for making important decisions.
General principles governing the audit of
financial statements
 The auditor should comply with the “Code Theoretical framework of Auditing
of Professional Ethics for CPA promulgated (Postulates, Assumptions or Ideas)
by the Board of Accountancy.  Audit function operates on the
 The auditor should conduct an audit in assumption that all financial data are
accordance with Philippine Standards on verifiable
Auditing. All balances reported in the financial
 The auditor should plan and perform the statements must have supporting documents or
audit with an attitude of professional evidence to prove their validity.
skepticism recognizing that circumstances
may exist which may cause the financial  The auditor should always maintain
statements to be materially misstated. independence with respect to the
financial statement under audit
Independence is essential for ensuring
Need for an independent financial statement the credibility of the auditor’s report.
audit
 Conflict of interest between management  There should be no long-term conflict
and users of financial statement between the auditor and the client
 Financial statements may be viewed as the management
report of management as to how the entity Short-term conflicts may exist regarding
performed under their direction. the application of auditing procedures and
 Outside parties, however, want unbiased accounting principles, but in the end, both the
and realistic financial statements. auditor and the management must be
 Recognizing this inherent conflict of interest, interested in the fair presentation of the
users of financial statements have become financial statements.
skeptical of unaudited financial statements.
 Effective internal control system reduces
 Remoteness the possibility of errors and fraud
 Users of financial information are usually affecting the financial statements
prevented from directly assessing the The condition of the entity’s internal
reliability of the information. control system directly affect the reliability of
 An independent auditor is needed to assist the financial statements. The stronger the
them in verifying the reliability of financial internal control is, the more assurance it
information. provides about the reliability of accounting data
and financial statements.
 Expertise
 The complexity of accounting and auditing
requires expertise in verifying the quality of
the financial information.
 Consistent application Philippine  Management Services
Financial Reporting Standards (PFRS) Services which are designed primarily to
results in fair presentation of financial facilitate management decisions. It includes
statements among others, helping organizations improve
There are different criteria to verify the their performance through analysis of existing
validity of assertion. However, in case of an business problems and development of plans
independent audit of financial statements, the for improvement.
criteria are usually the PFRS
 Practice in the Government
 What was held true in the past will Person who holds or appointed to a
continue to hold true in the future in the position in an accounting professional group in
absence of known conditions to the government or in GOCC, including those
contrary performing proprietary functions where
Experience and knowledge accumulated decision making requires professional
from auditing a client in prior years can be knowledge in accounting and as CPA is a
used to determine the appropriate audit perquisite.
procedures that need to be performed.
 Other Services
 An audit benefits the public Rendering expert testimony in court,
Financial statements are ordinarily participation in estate planning, serving as
prepared and presented in order to meet the stock and transfer agent for corporation,
common information needs of a wide range of member of academe, acting as umpire in
users. These users who rely on the financial accounting controversies, etc.
statements as their major source of information
are the primary beneficiary of the financial Characteristics of the Profession
statement audit.  Profession Defined
An occupation based upon specialized
Practice of Accountancy shall include but intellectual study and training, the purpose of
not limited to the following: which is to supply skilled services or advice to
 Practice of Public Accountancy others for a definite fee or salary.
 Practice of Commerce and Industry
 Practice in Education/Academe  A body of specialized knowledge
 Practice in the Government  A recognized formal educational process for
acquiring the requisite specialized
Services Offered knowledge
 Accounting  A standard of professional qualifications
Render bookkeeping and accounting governing admission to the profession
work for the client that involve the preparation  A standard of conduct governing the
and recording of routine bookkeeping entries, relationship of the practitioner with client,
preparation of financial statements without colleagues and the public
audit.  Recognition of status
 An acceptance of social responsibility
 Auditing inherent in an occupation endowed with
The principal function of public public interest
accountant is to audit. Independent audit is  An organization devoted to the
generally regarded as the highest type of advancement of the social obligations of the
professional service offered by public group.
accountants.
A) Body of Specialized Knowledge
 Taxation  The basic function of any profession is to
Tax practice has become an important render specialized services which are
part of accounting practice. Tax services needed by society.
rendered by accountants include preparation of  It requires intellectual operations rather
tax returns, rendering advice on how the than manual skills.
company may legitimately save or reduce taxes.
 Organized in the form of principles and role of information accounting, finance and
techniques. economics in management consultancy and in
 Applied for the solution of professional management processes of planning, controlling
problems. and decision-making.

Knowledge Needed by Public Accountants 4) Auditing

The core knowledge should not only Auditing Theory –
include technical knowledge in accounting and Conceptual knowledge and
auditing but also understanding of other understanding of assurance and related
related disciplines and of the environment in services particularly independent audits of
which accounting operates such as, economics, financial statements, responsibilities of
finance, marketing, management, business professional accountants, the audit process,
policy, conversant in mathematics, statistics, audit objectives, evidence, procedures, auditing
logic, ethics and behavioral sciences. standards and the elements of the independent
auditor’s report.
Qualifications of Applicants for Examination
 Filipino citizen Auditing Problem –
 Of good moral character Proficiency in applying audit standards,
 Holder of the degree of Bachelor of Science techniques and procedures to typical
in Accountancy conferred by a school duly independent audit of a medium-sized service,
recognized and/or accredited by the CHED trading of manufacturing concern. Able to plan
or other authorized government offices and perform audit, analyze data for possible
 Has not been convicted of any criminal errors and irregularities, formulates adjusting
offense involving moral turpitude. entries, resolve audit issues, prepare audit
working papers and complete the audit
Knowledge Needed by Public Accountants including preparation of audit report.
A person who wishes to practice public
accounting in the Philippines must pass an 5) Taxation
examination designed to test his competence as Knowledge of the principles and concepts
an accountant. of taxation and the practical application of
The subjects in this examination are as these principles and concepts. Candidates are
follows: expected to know the National Internal Revenue
Subjects in CPA Licensure Examination Code, Tariff and Custom Code, Local
1) Financial Accounting and Reporting Government Code on local taxes, preferential
Understanding and applying accounting tax and tax exemption, Board of Investments,
principles and standards relating to the nature PEZA, BMBE, various tax treaties and other
and composition of accounts; initial recognition, special laws and issuances that may be
measurements and valuation; subsequent legislated in the future.
events and transactions; related party
transactions; financial statement presentation 6) Regulatory Framework for Business
and disclosures. transaction
Knowledge of the regulatory framework
2) Advanced Financial Accounting and governing business transactions and business
Reporting organizations, associations and business laws,
Knowledge of the concepts and principles including their legal implications. Know and
in advanced financial accounting and reporting understand the pertinent legal provisions,
and the application of these accounting general principles, concepts and underlying
concepts including techniques and methodology philosophy of the laws applicable to commerce
to problems likely to be encountered in practice. and business.

3) Management Advisory Services Rating in the CPA Licensure Examination

Knowledge of the concepts, techniques  To pass the exams, a candidate must obtain
and methodology applicable to management a general average of 75%, with no grades
accounting, financial management and lower than 65% in any given subject.
management consultancy. Understanding the
 In the event a candidate obtain a rating of C) Standard of Professional Qualification
75% and above in at least a majority of the Governing Admission to the Profession
subjects tested, he/she shall receive a To protect the public who rely so much
conditional credit for the subjects passed; on the integrity, judgement and skill of the
provided, that such candidate shall take an professional, admission to the profession is
examination in the remaining subjects limited to those who possess the necessary
within 2 years from the preceding competence and integrity needed for
examination. professional practice.
 If the candidate fails to obtain at least a
general average of 75% and a rating of at Ethical Fundamental Principles:
least 65% in each of the subjects re-  Integrity
examined, he/she shall be considered as  Objectivity
failed in the entire examination.  Professional Competence & Due Care
 The original exam and the removal exam  Confidentiality
are counted as one exam only.  Professional Behavior
 Any candidate who fails in two (2) complete
CPA Board examination shall be D) Standard of Conduct governing the
disqualified from taking another exam relationship of practitioner with client,
unless he/she completed a refresher course colleagues and the public
composed of 24 units of subjects given in A code of professional conduct has
the exam. become one of the most important
distinguishing characteristics of a profession.
Personal Attributes Such code helps to orient the new practitioner
 Good moral character and absolute into his professional obligations, rights and
integrity privileges. It serves the highly practical purpose
 Analytical mind of notifying the public that the profession will
 Aptitude for figures protect the public interest.
 Ability to work and get along with people
 Capacity for work and diligent study E) Recognition of Status
 Initiative and resourcefulness Professional stature is not achieved
 Proficiency in oral and written English through self-recognition. There must be respect
accorded by others. Members of the profession
Refusal to Issue CPA Certificate and PRC ID must be accepted as the only ones fully
 Was convicted by a court of competent competent to practice its particular skill, their
jurisdiction of a criminal offense involving native abilities, their qualities and the
moral turpitude. professional must command the respect of
 Guilty of immoral and dishonorable those he served.
conduct A certificate of registration shall be
 Has an unsound mind. issued by the Professional Regulation
 Misrepresentation in the application for Commission and by the Board of Accountancy,
CPA Examination. indicating that the person named therein is
 Excluding conviction for a political offense. entitled to the practice of the profession with all
the privileges appurtenant thereto. The said
B) Recognized Formal Educational Process certificate shall remain in full force until
for Acquiring the Requisite Specialized withdrawn, suspended or revoked.
Knowledge
Must first acquire intellectual F) Acceptance of Social Responsibility
competence in his field of specialization which Public confidence perhaps, is more
requires a long period of professional important to a CPA than to other professionals.
preparation and training. Training is acquired The CPA’s work affects not only his client, but
through an apprenticeship system. third parties as well. The value of the public
accountant’s opinion depends to a very
significant degree of public trust and confidence
in his independence and integrity and the CPA
assumes important responsibilities to make his The Philippine Standards on Auditing
reports truthful, honest and unbiased. (PSAs) are issued to clarify the meaning of these
The rules of ethics by the Board of ten (10) GAAS.
Accountancy that the CPA shall be guided by
the ideals of personal honor in all his Auditing procedures are the means used
professional work, practicing in the spirit of by the auditors in attaining the quality required
fidelity to his clients and loyalty to the public. by the standards.

G) Professional Organization Devoted to the GAAS represent measures of the quality

Advancement of the Social Obligations of of the auditor’s performance.
the Group
A professional organization enables These standards should be looked at as a
members of the profession to achieve minimum standard of performance that
collectively what they cannot do individually. Its auditors should follow.
primary function is to elevate the status of the
profession through organized group action and These (10) GAAS are grouped into:
collective effort.
The professional society provides 1. General Standards (TIP)
medium whereby the objectives, standards and 2. Standards of Fieldwork (PIE)
activities of the profession may be effectively 3. Standards of Reporting (GIDO)
communicated and interpreted to the various
publics whose recognition and support are
needed by members of the profession. General Standards (TIP)
 Technical Training and Proficiency
Introduction The examination is to be performed by
 When auditing financial statements, an person or persons having adequate technical
auditor assumes certain professional training and proficiency as an auditor
responsibilities.
 Auditor’s opinion must be based on an
examination conducted in accordance with  Independence
professional standards. In all matters relating to an engagement,
 Failure to comply with these standards an independence in mental attitude is to be
expose the auditor to risk such as loss of maintained by the auditor.
public respect or even assessment of legal
damages.  Professional Care
 Standards are established to measure the Due professional care is to be exercised
quality of performance of individuals and in the performance of the audit and in the
organizations. preparation of report.
 Standards relating to the accounting
profession concern themselves with CPA’s
professional qualities, the judgment Standards of Fieldwork (PIE)
exercised by the CPAs in the performance of  Planning
their professional engagement. The work is to be adequately planned
and assistants if any, are to be properly
supervised.
Generally Accepted Auditing Standards
The Board of accountancy promulgated  Internal Control Consideration
ten (10) generally accepted auditing standards There is to be a proper study and
(GAAS) that establish required level of quality evaluation of existing internal control as a basis
for performing financial statement audits. for reliance thereon and for the determination
of the resultant extent of the test to which
These standards must be followed by the auditing procedures are to be restricted.
CPAs when auditing financial statements.
 Evidential Matter
Sufficient competent evidential matter is Auditing procedures are the means used
to be obtained through inspection, observation, by the auditors in attaining the quality required
inquiries and confirmations to afford a by the standards.
reasonable basis for an opinion regarding the
financial statements under examination.
Ethical Fundamental Principles
Whenever the scope of practice, the
Standards of Reporting (GIDO) following ethical fundamental principles must
 Generally Accepted Accounting be observed by a professional accountant in the
Principles performance of professional responsibilities.
The report shall state whether the
financial statement are presented in accordance  Integrity
with generally accepted accounting principles To be straight forward and honest in all
(PFRS). professional and business relationship.

 Inconsistency  Objectivity
The report shall identify those To not allow bias, conflict of interest or
circumstances in which the principles have not undue influence of others to override
been consistently observed in the current professional or business judgement.
period in relation to the preceding period.
 Competence and Due Care
 Disclosure To maintain professional knowledge and
Informative disclosure are to be regarded skill at the level required to ensure that a client
as reasonably adequate unless otherwise stated or an employer receives competent professional
in the report. service based on current developments in
practice, legislation and techniques. The CPA
 Opinion should act diligently and in accordance with
The report shall either contain an applicable technical and professional standards.
expression of opinion regarding the financial
statement, taken as a whole, or an assertion to  Confidentiality
the effect that an opinion cannot be express. To respect the confidentiality of the
information acquired as a result of professional
and business relationship and should not be
Philippine Standards on Auditing (PSAs) disclose any such information to third parties
The Auditing and Assurance without proper and specific authority unless
Standards Council (AASC) has been given the there is a legal or professional right or duty to
task to promulgate auditing standards disclose. Confidential information acquired as a
practices and procedures which shall be result of professional and business relationship
generally accepted by the accounting profession should not be used for the personal advantage
in the Philippines. of the CPA or third parties.
Adoption of International
Standards  Professional Behavior
To facilitate the preparation To comply with relevant laws and
The Board of accountancy promulgated ten (10) regulations and avoid any actions that
generally accepted auditing standards (GAAS) discredits the profession.
that establish required level of quality for
performing financial statement audits. Professional Standards
 Just as products or services are being
These standards must be followed by the subjected against standards which define
CPAs when auditing financial statements. high quality, CPA services are also reviewed
against standards which measures the
The Philippine Standards on Auditing quality of service.
(PSAs) are issued to clarify the meaning of these
ten (10) GAAS.
 The standards are required, so that
professional accountants would have a
clear idea on what a minimum standard or
level of performance is required of them.
 Standards also allow for a clear definition of
the responsibilities of a professional
accountant with respect to a particular
engagement.
 It is a cornerstone of successful defense
against allegations of negligence in the
performance of engagement.

Professional Standards
 Philippine Standards on Auditing (PSAs)
For audits of historical financial
information

 Philippine Standards on Review

Engagements (PSREs)
For review of historical financial
information

 Philippine Standards on Assurance

Engagement (PSAEs) Continuing Professional Development
For assurance engagements that deal CPD programs refers to a set of learning
with subject matters other than historical activities accredited by the CPD Council such
financial information as seminars, workshops, technical lectures or
subject matter meeting, nongraded training
 Philippine Standards on Related Services lectures and scientific meeting, among others.
(PSRSs) The major classification of CPD programs
For compilation engagements, and activities provided in PRC-BOA Resolution
engagements to apply agreed upon 254, Series of 2017 are as follows:
procedures to information and other related 1. Seminars and Workshops
services engagements as specified by the AASC. 2. Academic Track
3. Self-directed and/or Lifelong Training
Professional Standards 4. Such other activities to be recommended
Summary of the AASC-issued 5. CPD Council.
professional standards and their corresponding
practice statements. Major Competency Areas of CPD Programs
and Activities
Penalties and Sanctions
Penalties and sanctions are
warranted in cases where the CPA has violated
the rules prescribed by law, regulation, or the
Code of Ethics.
 Suspension of CPA Certificate
The BOA shall have the power, upon
notice of due hearing, suspend the CPA’s
certificate of registration and professional
identification card or suspend him from
practice for any unprofessional or unethical
conduct, malpractice, and violation of
any of the provision of RA 9298.
 Revocation of CPA Certificate
The BOA has the power to revoke a CPA’s
Certificate of Registration and Professional
Identification Card for the same grounds as
mentioned above.
 Cancellation of Temporary or Special
Permit
This applies to foreign CPAs. Cancellation of the
temporary or special permit.
 Payment of Fines and/or Imprisonment
Upon conviction, be punished by a fine of not
less than P 50,000 or by imprisonment for a
period not exceeding 2 years or both.

Examples of Violations of the IRR to RA

9298
 Engaging in public accounting without first
registering with PRBOA and the PRC.
 Continuing to engage in the practice of
public accounting after the expiration of the
registration
 Continuing to engage in the practice of
public accounting after suspension,
revocation, or withdrawal of the registration.