, resolved to adopt as part of its rules the following Philippine Standards on These are adopted from the International Standards on Auditing issued by the . January 15, - Philippines Auditing and Assurance Standards Council. New and redrafted list of Philippines Standards on Auditing. Auditing and Assurance Standards Council Philippine Standard on Auditing (Revised and Redrafted) COMMUNICATION WITH THOSE CHARGED WITH.
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Philippine Standards on Auditing (PSAs) PSA (Revised and Redrafted) - Overall Objectives of the Independent Auditor and the Conduct of an Audit in. Philippine Standard on Auditing (PSA) (Revised), Forming an Opinion and the Conduct of an Audit in Accordance with Philippine Standards on Auditing. This Philippine Standard on Auditing (PSA) deals with the independent auditor's audit designed to enable the independent auditor to meet those objectives. It.
It establishes the basic principles and essential procedures for professional accountants in public practice for the performance of engagements intended to provide a high level of assurance. This PSAE does not, however, provide basic principles and essential procedures for engagements intended to provide a moderate level of assurance. ASPC is developing further guidance on such engagements. This document is being released with an accompanying report see Appendix 2. The report describes and explains the changes made by the International Auditing Practices Committee IAPC from the exposure drafts of the International Standard on Assurance Engagements, on which this PASE is based, and contains a discussion of the comments received, a description of the issues raised and how the IAPC responded to them, including the research planned to resolve the outstanding issue related to the moderate level of assurance. PSA Introduction 1. This Philippine Standard on Assurance Engagements has three purposes: a to describe the objectives and elements of assurance engagements intended to provide either a high or moderate level of assurance paragraphs ; b to establish standards for and provide guidance to professional accountants in public practice for the performance of engagements intended to provide a high level of assurance paragraphs ; and c to act as a framework for the development by the ASPC of specific standards for particular types of assurance engagements.
Where, in the judgment of the professional accountant, the procedures agreed to be performed are appropriate to support the expression of a conclusion that provides a level of assurance on the subject matter, and the professional accountant intends to do so, then such an engagement becomes an assurance engagement governed by this Standard.
Elements of an Assurance Engagement 8. Whether a particular engagement is an assurance engagement will depend upon whether it exhibits all the following elements.
Three Party Relationship 9. Assurance engagements involve three separate parties: The professional accountant provides assurance to the intended user about a subject matter that is the responsibility of another party. PSA The responsible party and the intended user will often, but need not, be from separate organizations.
A responsible party and an intended user may both be within the same organization, for example, a governing body may seek assurance about information provided by a component of that organization. The relationship between the responsible party and the intended user needs to be viewed within the context of a specific engagement and may supersede more traditionally defined responsibility lines.
Professional Accountant The fundamental principles that the professional accountant has to observe are: The intended user needs to have confidence that the professional accountant has no interest that creates an unacceptable risk of bias with respect to the subject matter.
Professional accountants in public practice also have to observe the requirements of Part B of the Code , which includes a requirement to be independent when 2 conducting an assurance engagement. Professional accountants may be requested to perform an assurance engagement on a wide range of subject matters. However, professional accountants will not agree to perform an assurance engagement which they are not competent to carry out, unless competent advice and assistance is obtained so as to enable them to satisfactorily perform such services.
If a professional accountant does not have the competence to perform a specific part of the assurance engagement, technical advice will be sought from experts. Responsible Party The responsible party is the person or persons, either as individuals or representatives of an entity, responsible for the subject matter. For example, management is responsible for the preparation of financial statements or the implementation and operation of internal control.
The responsible party may or may not be the party who engages the professional accountant. The professional accountant may be engaged by management or by other parties. Intended User The intended user is the person or class of persons for whom the professional accountant prepares the report for a specific use or purpose.
The intended user may be established by agreement between the professional accountant and the responsible party or those engaging or employing the professional accountant. In some circumstances the intended user may be established by law. The responsible party may also be one of the intended users. There may also be situations where the responsible party will be the addressee, but will make the report available to the intended users.
Some intended users for example, bankers and regulators may impose a requirement on, or may request the responsible party to arrange for, an assurance engagement to be carried out on a particular subject matter.
However, other intended users may have no direct involvement in defining the arrangements for an assurance engagement.
In circumstances where the engagement is for a special purpose, the professional accountant may consider restricting the report to specific intended users, and indicating in a restriction in the report that others not identified as users may not rely on it. Subject Matter The subject matter of an assurance engagement may take many forms, such as the following: The subject matter of an assurance engagement is, to be identifiable, capable of consistent evaluation or measurement against suitable criteria and in a form that can be subjected to procedures for gathering evidence to support that evaluation or measurement.
Criteria Criteria are the standards or benchmarks used to evaluate or measure the subject matter of an assurance engagement. Criteria are important in the reporting of a conclusion by a professional accountant as they establish and inform the intended user of the basis against which the subject matter has been evaluated or measured in forming the conclusion.
Without this frame of reference, any conclusion is open to individual interpretation and misunderstanding. Criteria in an assurance engagement need to be suitable to enable reasonably consistent evaluation or measurement of the subject matter within the context of professional judgment. Suitable criteria are context-sensitive, that is, relevant to the engagement circumstances. When reporting on the way in which an entity is organized or managed, or the extent to which its objectives have been achieved, generally accepted criteria for a particular industry may be used.
When reporting on internal control, the criteria may be an established internal control framework or stated internal control criteria.
When reporting on compliance, the criteria may be the applicable law, regulation or contract. Criteria may also be developed for specific users, for example, a party to a contract who wants assurance that other parties to the same contract are complying with the contract terms. Engagement Process The engagement process for an assurance engagement is a systematic methodology requiring a specialized knowledge and skill base, and techniques for evidence gathering and evaluation and measurement to support a conclusion, irrespective of the nature of the engagement subject matter.
The process involves the professional accountant and those who engage the professional accountant agreeing to the terms of the engagement.
Within that context, the professional accountant considers materiality and the relevant components of engagement risk when planning and conducting the engagement. An assurance engagement involves the professional accountant planning and conducting the engagement to obtain sufficient appropriate evidence and applying professional judgment in order to express a conclusion.
Conclusion The professional accountant expresses a conclusion that provides a level of assurance as to whether the subject matter conforms in all material respects with the identified suitable criteria. The professional accountant can either express a conclusion about the assertion by the responsible party, or provide a conclusion about the subject matter in a form similar to the assertion made by the responsible party.
In a direct reporting engagement, the professional accountant expresses a conclusion on the subject matter based on suitable criteria, regardless of whether the responsible party has made a written assertion on the subject matter. In theory, it is possible to provide an infinite range of assurance from a very low level of assurance to an absolute level of assurance.
In practice, it is not ordinarily practicable to design an engagement to provide such fine graduations of assurance or to communicate the level of assurance in a clear and unambiguous manner. In addition, absolute assurance is generally not attainable as a result of such factors as the use of selective testing, the inherent limitations of control systems, the fact that much of the evidence available to the professional accountant is persuasive rather than conclusive, and the use of judgment in gathering evidence and drawing conclusions based on that evidence.
Therefore, professional accountants ordinarily undertake engagements to provide one of only two distinct levels: These engagements are affected by various elements, for example, the degree of precision associated with the subject matter, the nature timing and extent of procedures, and the sufficiency and appropriateness of the evidence available to support a conclusion.
In rare circumstances, the professional accountant may be able to provide absolute assurance, for example, where the evidence available is conclusive and reliable because the subject matter is determinate, the criteria definitive and the process applied comprehensive.
However, because of the limitations of the engagement process, a high level of assurance is ordinarily less than absolute. The professional accountant designs the engagement to reduce to a low level the risk of an inappropriate conclusion that the subject matter conforms in all material respects with identified suitable criteria.
The professional accountant designs the engagement to reduce to a moderate level the risk of an inappropriate conclusion. The professional accountant designs the report to convey a moderate level of assurance regarding the conformity of the subject matter with identified suitable criteria.
The following section contains the basic principles and essential procedures identified in bold type black lettering together with related guidance in the form of explanatory and other material for high level assurance engagements performed by professional accountants in public practice where no specific standards exist. The basic principles and essential procedures are to be interpreted in the context of the explanatory and other material that provide guidance for their application.
To understand and apply the basic principles and essential procedures together with the related guidance, it is necessary to consider the whole text of the Standard, including explanatory and other material contained therein, not just that text which is black lettered. In exceptional circumstances, a professional accountant may judge it necessary to depart from this Standard in order to more effectively achieve the objective of the engagement.
When such a situation arises, the professional accountant should be prepared to justify the departure. This Standard need only be applied to material aspects of the subject matter.
The ISAs on which the PSAs are based are generally applicable to the public sector, including government business enterprises. However, the applicability of the equivalent PSAs on Philippine public sector entities has not been addressed by the Council.
It is the understanding of the Council that this matter will be addressed by the Commission on Audit itself in due course. The objective of a high level assurance engagement is for a professional accountant in public practice to evaluate or measure a subject matter that is the responsibility of another party against identified suitable criteria, and to express a conclusion that provides the intended user with a high level of assurance about that subject matter.
The practitioner designs the engagement process so that the risk of expressing an inappropriate conclusion that the subject matter conforms in all material respects with suitable criteria, is reduced to a low level. The practitioner obtains sufficient appropriate evidence through procedures such as inspection, observation, inquiry, confirmation, computation and analysis. Ethical Requirements 3 A practitioner who performs an assurance engagement should be independent.
Section 8 of The Code indicates some of the situations which, because of the actual or apparent lack of independence, would give a reasonable observer grounds for doubting the independence of a practitioner. Accepting the Engagement The practitioner should accept an engagement only if the subject matter is the responsibility of another party.
Acknowledgement by the responsible party provides evidence that the appropriate relationship exists and also establishes a basis for a common understanding of the responsibility of each party. There may be 3 See footnote 1. PSA other sources of evidence that indicate responsibility for the subject matter; for example, it may be clearly established in legislation, or contract.
When the practitioner has other evidence that the responsibility exists, acknowledgement of responsibility for the subject matter may be obtained at other points in the engagement such as through discussions on the criteria or the level of assurance. The practitioner should accept the engagement only if the subject matter is identifiable and in a form that can be subjected to evidence gathering procedures, and the practitioner is not aware of any reason for believing that a conclusion expressing a high level of assurance about the subject matter based on suitable criteria cannot be expressed.
The practitioner may accept the engagement only if, as a result of initial discussions with one or more of the parties associated with the engagement, and on the basis of a preliminary knowledge of the engagement circumstances, nothing comes to the attention of the practitioner to indicate that the requirements of this Standard will not be satisfied.
The practitioner also needs to have a reasonable basis for believing that a conclusion with a high level of assurance concerning the subject matter can be provided and that the conclusion can be meaningful to the intended user of the report of the practitioner.
The practitioner should be satisfied that those performing the engagement possess collectively the necessary professional expertise to perform the engagement.
Some subject matters may require specialist skills and knowledge beyond those practitioners ordinarily possess. In such cases the practitioner ensures that those persons carrying out the engagement as a team possess the requisite skills and knowledge. Agreeing the Terms of the Engagement The practitioner should agree on the terms of the assurance engagement with the party who engages the practitioner. As a means of reducing uncertainty, it is recommended that the agreed terms be recorded in an engagement letter or other suitable form of contract.
In some cases the engagement objective, subject matter and time period are prescribed by a party or parties other than the one that appoints the practitioner, for example, by legislation.
Where the assurance engagement mandate is legislated, acknowledgement of the legislative mandate meets this requirement. A practitioner who, before the completion of the engagement, is requested to change the engagement from one that provides a high level of assurance to a different engagement, considers the appropriateness of doing so, and cannot agree to a change where there is no reasonable justification for the change. PSA Quality Control The practitioner should implement quality control policies and procedures designed to ensure that all assurance engagements are conducted in accordance with applicable standards issued by the Auditing Standards and Practices Council.
Quality control policies and procedures apply at two levels, and relate to the overall policies and procedures for all assurance engagements and also to the direction, supervision and review of work delegated to personnel involved in a specific assurance engagement. Planning and Conduct The practitioner should plan and conduct the assurance engagement in an effective manner to meet the objective of the engagement.
Planning consists of developing a general strategy and a detailed approach to the assurance engagement, and assists the proper assignment and supervision of work.
The following are examples of the main matters that need to be considered. The practitioner should plan and conduct an assurance service engagement with an attitude of professional skepticism. The practitioner neither assumes that the responsible party is dishonest nor assumes unquestioned honesty.
Professional skepticism is an attitude that includes a questioning mind and a critical assessment of evidence. Without an attitude of professional skepticism, the practitioner may not be alert to circumstances that lead to a suspicion, and may draw inappropriate conclusions from the evidence obtained.
The practitioner should have or obtain knowledge of the engagement circumstances sufficient to identify and understand the events, transactions and practices that may have a significant effect on the subject matter and engagement.
Such knowledge is used by the practitioner in assessing the suitability of the criteria, engagement risk and in determining the nature, timing and extent of engagement procedures. The Framework does not apply to other services provided by auditors such as taxation, consultancy, and financial and accounting advice. Levels of Assurance Assurance in the context of this Framework refers to the auditor's satisfaction as to the reliability of an assertion being made by one party for use by another party.
To provide such assurance, the auditor assesses the evidence collected as a result of procedures conducted and expresses a conclusion. The degree of satisfaction achieved and, therefore, the level of assurance which may be provided is determined by the procedures performed and their results. In an audit engagement, the auditor provides a high, but not absolute, level of assurance that the information subject to audit is free of material misstatement.
This is expressed positively in the audit report as reasonable assurance. In a review engagement, the auditor provides a moderate level of assurance that the information subject to review is free of material misstatement. This is expressed in the form of negative assurance.
PSA For agreed-upon procedures, as the auditor simply provides a report of the factual findings, no assurance is expressed.
Instead, users of the report assess for themselves the procedures and findings reported by the auditor and draw their own conclusions from the auditor's work. In a compilation engagement, although the users of the compiled information derive some benefit from the accountant's1 involvement, no assurance is expressed in the report.
Audit The objective of an audit of financial statements is to enable the auditor to express an opinion whether the financial statements are prepared, in all material respects, in accordance with an identified financial reporting framework. In forming the audit opinion, the auditor obtains sufficient appropriate audit evidence to be able to draw conclusions on which to base that opinion. The auditor's opinion enhances the credibility of financial statements by providing a high, but not absolute, level of assurance.
Absolute assurance in auditing is not attainable as a result of such factors as the need for judgment, the use of testing, the inherent limitations of any accounting and internal control systems and the fact that most of the evidence available to the auditor is persuasive, rather than conclusive, in nature.
The objective of a review of financial statements is to enable an auditor2 to state whether, on the basis of procedures which do not provide all the evidence that would be required in an audit, anything has come to the auditor's attention that causes the auditor to believe that the financial statements are not prepared, in all material respects, in accordance with an identified financial reporting framework.
A similar objective applies to the review of financial or other information prepared in accordance with appropriate criteria. A review comprises inquiry and analytical procedures which are designed to review the reliability of an assertion that is the responsibility of one party for use by another party.
While a review involves the application of audit skills and techniques and the gathering of evidence, it does not ordinarily involve an assessment of accounting and internal control systems, tests of records and of responses to inquiries by obtaining corroborating evidence through inspection, observation, confirmation and computation, which are procedures ordinarily performed during an audit.
Although the auditor attempts to become aware of all significant matters, the procedures of a review make the achievement of this objective less likely than in an audit engagement, thus the level of assurance provided in a review report is correspondingly less than that given in an audit report.
Agreed-upon Procedures In an engagement to perform agreed-upon procedures, an auditor3 is engaged to carry out those procedures of an audit nature to which the auditor and the entity and any appropriate third parties have agreed and to report on factual findings. Lt Gabriel. Shyam Sunder. Spin Watch. Prasetya Utama. Sandra Sarmiento Espartero. Kristine Apale. Red Christian Palustre. Dea Lingao. Shakhawat Hossain. Arif Budiman. Nashad Najimudeen.