Module 3: The Professional Standard The report shall state whether the financial
statements are presented in accordance with
Generally Accepted Auditing Standards (GAAS) generally accepted accounting principles.
GAAS represent the measures of the quality of 8. Inconsistency
the auditor’s performance. These standards
should be looked at as a minimum standard of The report shall identify those circumstances
performance that auditors should follow. in which principles have not been consistently
observed in the current period in relation to
A. General Standards the preceding period.
1. Technical Training and Proficiency 9. Disclosure
The examination is to be performed by person Informative disclosures are to be regarded as
or persons having adequate technical training reasonably adequate unless otherwise stated
and proficiency as an auditor. in the report.
2. Independence 10. Opinion
In all matters relating to an engagement, an The report shall either contain an expression
independence in mental attitude is to be of opinion regarding the financial statements,
maintained by the auditor. taken as a whole, or an assertion to the effect
3. Professional Care that an opinion cannot be expressed. When
an overall opinion cannot be expressed, the
Due professional care is to be exercised in the reasons therefore should be stated. In all
performance of the audit and in the cases where an auditor’s name is associated
preparation of the report. with the financial statements, the report
should contain a clear-cut indication of the
B. Standards of Fieldwork
character of the auditor's examination if any
4. Planning and the degree of responsibility they are
taking.
The work is to be adequately planned and
assistants, if any, are to be properly Philippine Standards on Auditing (PSAs)
supervised.
The Auditing and Assurance Standards Council
5. Internal Control Consideration (AASC) has been given the task to promulgate
auditing standards, practices and procedures
There is to be a properly study and evaluation which shall be generally accepted by the
of existing internal control as a basis for accounting profession in the Philippines.
reliance thereon and for the determination of
the resultant extent of the tests to which To facilitate the preparation by the AASC of its
auditing procedures are to be restricted. pronouncements and to attain uniformity of
those announcements with international auditing
6. Evidential Matter standards, the AASC has approved the adoption of the
following:
Sufficient competent evidential matter is to be
obtained through inspection, observation, · International Standards on Auditing (ISAs)
inquiries and confirmations to afford a
reasonable basis for an opinion regarding the · International Standards on Assurance
financial statements under examination. Engagements (ISAEs)
C. Standards of Reporting · International Standards on Review Engagements
(ISREs)
7. Generally Accepted Accounting Principles
· International Standards on Related Services
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These standards were issued by the International standards, complying with the firm's quality
Auditing and Assurance Board (IAASB) created by the control policies, and procedures and issuing
International Federation of Accountants (IFAC). In appropriate audit reports.
addition to these standards, Practice Statements are
also issued to provide practical assistance to auditors in B. Ethical Requirements
implementing the standards and to promote good The firm should establish policies and
practices in the accountancy profession. procedures designed to provide it with
System of Quality Control reasonable assurance that the form and its
personnel comply with ethical requirements,
Under Philippine Standards on Quality Control which include:
(PSQC), a firm has an obligation to establish a
system of quality control designed to provide · Integrity
it with reasonable assurance that the firm and · Objectivity
its personnel comply with professional
standards and regulatory and legal · Professional competence and due care
requirements, and that the reports issued by
· Confidentiality
the firm are appropriate in the circumstances.
In this regard, engagement teams: · Professional behavior
o Implement quality control
procedures that are applicable to the The engagement partner should consider
audit engagement whether members of the engagement team
o Provide the firm will relevant have complied with these ethical principles.
information to enable the Any issues involving engagement team
functioning of that part of the firm's member’s non-compliance must be properly
system of quality control relating to resolved and documented.
independence
C. Independence
o Are entitled to rely on the firm's
systems unless information provided The firm should establish policies and procedures
by the firm other parties suggest designed to provide it with reasonable assurance that
otherwise the members of the engagement team, the form and,
PSA 220 states that audit firms should where applicable, the network firms maintain
implement policies and procedures designed independence when providing assurance services.
to ensure that all audits are conducted in
accordance with PSAs. PSA 220 has identified The engagement partner should form a conclusion on
the following quality control policies that may compliance with independence requirements that
serve as a guide in establishing systems of apply to the audit engagement. The engagement
internal control. partner should:
A. Leadership Responsibilities for Quality on Audits · Obtain relevant information to identify
circumstances and relationships that create threats to
The firm should establish policies and independence.
procedures designed to promote an internal
culture based on recognition that quality is · Evaluate information on identified breaches of the
essential in the performance of the firm’s independence policies and procedures to
engagements. determine whether they create a threat to
The engagement partner should take independence.
responsibility for the overall quality of audit · Take appropriate safeguards to eliminate such
engagement to which the partner is assigned. threats or reduce them to an acceptable level.
The engagement partner should set an
example regarding the quality of audit by · Document conclusions on independence and the
emphasizing the importance of performing basis for such conclusion.
work that complies with professional
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D. Acceptance and Continuance of Client · That engagements are performed in accordance
Relationships with professional standards and other regulatory and
legal requirements
The firm should establish policies and procedures for
the acceptance and continuance of client relationships · That the audit report issued is appropriate in the
and specific engagements, designed to provide it with circumstances
reasonable assurance that it will only undertake or
continue relationships and engagement where it: The engagement partner should take responsibility for
the direction, supervision, review, and overall
· Has considered the integrity of the client performance of the audit engagement.
· Is competent to perform the engagement and has 1. Direction
the capabilities, time and resources to do so
Assistants should be informed of their responsibilities,
· Can comply with ethical requirements the nature of the entity's business, potential problems
that may arise and the detailed approach to the
The engagement partner should be satisfied that performance of the engagement.
appropriate procedures regarding the acceptance and
continuance of client relationships and specific audit 2. Supervision
engagement have been followed, and that the
conclusions reached in this regard are appropriate and This involves monitoring the progress of the audit,
have been documented. resolving accounting and audit issues, and considering
the level of consultation appropriate for the
E. Human Resources and Assignment engagement.
The firm should establish policies and procedures 3. Review
designed to provide it with the reasonable assurance
that it has sufficient personnel with the capabilities, Work performed by assistants should be reviewed to
competence, and commitment to ethical principles consider whether the audit procedures, evidence and
necessary to perform the engagement. Such policies documentation are appropriate to support the
and procedures should address issues concerning conclusion reached.
personnel 4. Consultation
· Recruitment The firm should establish policies and procedures that
· Performance evaluation, compensation and encourage firm personnel to seek assistance from
promotion authoritative sources either within or outside the firm.
· Capabilities and competence The engagement partner should
· Career development · Be responsible for the engagement team
undertaking appropriate consultation on difficult and
· Assignment of engagement teams contentious matters.
The engagement partner should be satisfied that the · Be satisfied that members of the engagement
engagement team collectively has appropriate team have undertaken appropriate consultation during
capabilities, competence and time to perform the audit the course of the engagement, both within the
engagement in accordance with professional standards, engagement team and others at the appropriate level
and regulatory and legal requirements, and to enable within or outside the firm.
an auditor's report that is appropriate in the
circumstances to be issued. · Be satisfied that the nature and scope of, and
conclusions resulting from such consultations are
F. Engagement Performance documented and agreed with the party consulted.
The firm should establish policies and procedures · Determine that conclusions resulting from
designed to provide it with reasonable assurance consultations have been implemented.
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5. Engagement Quality Control Review
The firm should establish policies and procedures
requiring an engagement quality control review that
provides an objective evaluation of the significant
judgments made and conclusions reached and
formulating the auditor's report.
This requires the engagement partner
· To determine that an engagement quality control
reviewer has been appointed.
· To discuss significant matters arising during the
audit engagement, including those identified during the
quality control review, with the engagement quality
control reviewer.
· Not to issue the auditor's report until the
completion of the engagement quality control review.
The firm should establish policies and procedures
setting out the scope of quality control review, criteria
for eligibility of the reviewer, and documentation of the
quality control review.
6. Differences of Opinion
The engagement team should follow the firm's policies
and procedures for dealing with and resolving
differences of opinion that arise within the engagement
team, with those consulted and, where applicable,
between the engagement partner and the engagement
quality control reviewer.
The engagement partner should inform the members of
the engagement team to bring to bring matters
involving differences of opinion to the attention of the
engagement partner or others within the firm as
appropriate without fear of reprisals. The audit report
should not be issued until the matter involving
differences of opinion is resolved.
G. Monitoring
The continued adequacy and operational effectiveness
of quality control policies and procedures is to be
monitored. Policies and procedures must be adopted to
provide reasonable assurance that the systems of
quality control are relevant, adequate and operating
effectively.
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