Auditing and Assurance - Concepts and Application - Week 1 Module 2

 

 

COR JESU COLLEGE, INC. COLLEGE OF ACCOUNTANCY, BUSINESS AND ENTREPRENEURSHIP Sared Heart Avenue, Digos City, Philippines Tel. No. (082) 553-2433 local 169-170 * Fax No.: (082) 553-2333 Website: www.cjc.edu.ph www.cjc.edu.ph  

Name:

Luisito A.Public Tinagsa, Jr. Certified Accountant

Contact Details

Phone: 0995-971-9860 Email:  [email protected] Email: [email protected]  

Consultation Schedule

MWF 9:00am to 10:00am

Course Overview

Student Workload Workl oad

No. of Lecture Hours:

3 hours

No. of Tutorial Hours:

0 hours

No. of Independent Project Hours:

0 hours

No. of Expected Personal Study Hours:

0 hours

Total No. of Workload Hours:

3 hours

Mode of Delivery

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Pre-requisites

Governance, Business Ethics, Risk Management, and Internal Control 

 Attendance  Attendance Requirements

On Campus: Campus: Face to Face   Off Campus: Campus: Online Video Conferencing/Modular

  Regular attendance and punctuality in every class enrolled are required of each student.   A student is held responsible for the lesson assignment and requirement for the entire content of the course; no matter how long or for what reason his/her absence is made.   As provided for in Article XIV, Section 73 of of the Revised Manual of Regulations for Private Schools, a student who has incurred absences for more than 20% of the total class hours in a given time should not be given credit for the

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program or subject.

 

 

Curriculum Information

 Aim/Rationale/Purp  Aim/Ra tionale/Purpose ose of Course:

Upon completion of the course, the students will be able to: Cognitive: 1.  Explain the theory and philosophy of external audit by an

independent Certified Public Accountant. 2.  Explain the theory and philosophy of external audit by an

independent Certified Public Accountant. 3.  Differentiate Differenti ate the services offered and reports prepared by the

independent CPAs.

Psychomotor 4.  Prepare audit program program for an effective effective and efficient efficient auditing auditing

process.

5.  Prepare audit report and qualify its importance and implications to the practitioner and the public.  

Affective 6.   Appreciat  Appreciate e the Code Code of Professional Professional Ethics Ethics with the the aim of of putting them into practice as future CPAs in order to maintain the integrity of the practitioner.  7.  Instill values and inculcate the ethical requirements of the

profession despite many challenges of ethical conflicts and issues in the present situation. Course Description:

This course is designed to expose students both to the demand for and the supply of the profession’s flagship service - financial statement audits - and to the nature of the value-added assurance services which decision makers demand in the information age. Topics include: nature of the accounting profession, auditing and assurance fundamentals: relationship among assurance, attestation, and audit services; consulting vs. assurance services; types of attestation services (agreed-upon procedures engagement and review engagement); types of audits (internal, external or financial statement audits, government audit, and special purpose audits); relationship of accounting and auditing;

 

other services (operational audits, compliance audits, and nonattest services); professional standards: assurance standards and attestation and auditing standards; public sector regulation of accounting practice and legal liability; the framework of financial statements auditing; reports on assurance services, attestation services, and financial statement audits; and completing the audit. 

References or Learning Materials:

Salosagcol, Jekell; Tiu, Michael; Hermosilla, Roel (20162018 edition), Auditing Theory – A Guide in Understanding the Philippine Standards on Auditing;

 

  Type of Activity: Concept Notes Exercise/Drill

Laboratory Art/Drawing

Individual Pair/Group

Quiz Formative Summative Others, specify___________________ specify_____________________________ __________

Quarter 1  – Week 1 Topic: Learning

LESSON 1- The Professional Standards 1. Identify the Professional Standards in performing the audit; 2. Know the Structure of the the Standard setting body of Assurance engagements 3. Describe the elements of System of Quality Control 4. Know the ethical requirements in performing the audit and the quality control

Targets: References:

Salosagcol, Jekell; Tiu, Michael; Hermosilla, Roel (2016-2018 edition),  Auditing Theory – A Guide in Understanding the Philippine Standards on Auditing

 

Auditing and Assurance: Concepts and Applications The Professional Standards

1. TO ENGAGE The Professional Standards When auditing financial statements, an auditor assumes certain Professional responsibilities. Auditor’s opinion must be based on an examination conducted in accordance with professional standards.Standards are established to measure the quality of performance of individuals and organizations. Standards relating to the accounting profession concern themselves with CPA’s professional qualities, the  judgment exercised by the CPA’s in the performance performance of their professional professional engagement, engagement, and the CPA firm’s quality control policies and procedures. The Board of Accountancy promulgated ten generally accepted auditing standards (GAAS) that establish required level of quality for performing financial statement audits. Philippines Standards on Auditing (PSAs) are issued to clarify the meaning of these ten GAAS. 2. TO EXPLORE/EXPLAIN/ELABORATE EXPLORE/EXPLAIN/ ELABORATE

Generally Accepted Audit Standards GAAS represent measures of the quality of the auditor’s performance. These standards  should be looked at as a minimum standard of performance that auditors should follow. These Ten GAAS are grouped into general, fieldwork and reporting standards.

 

General Standards 1. The examination is to be performed by person or persons having adequate technical training and proficiency as an auditor. 2. In all matters relating to an engagement, an independence in mental attitude is to be maintained by the auditor. 3. Due professional care is to be exercised in the performance of the audit and in the preparation of the report.

Standards of Fieldwork 1. The work is to be adequately planned and assistants, if any, are to be properly supervised.  supervised.   2. There is to be proper study and evaluation of existing internal control as a basis for reliance thereon and for the determination of the resultant extent of the tests to which auditing procedures are to be restricted.  restricted.  3. Sufficient competent evidential matter is to be obtained through inspection, observation, inquiries and confirmations to afford a reasonable basis for an opinion regarding the financial statements under examination.   examination.

Standards of Reporting 1. The report shall state whether the financial statements are presented in accordance with generally principles. 2. accepted The reportaccounting shall identify those circumstances circumst ances in which principles have not been consistently consistentl y observed in the current period in relation to the preceding period. 3. Informative disclosures disclosur es are to be regarded as reasonably adequate unless otherwise stated in the report. 4. The report shall either contain an expression of opinion regarding the financial statements, taken as a whole, or an assertion to the effect that an opinion can not be expressed. When an overall opinion can not be expressed, the reasons therefore should be stated.

System of Quality of Control Engagement teams:  

Implement quality control procedures that are applicable to audit engagement;

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Provide the firm with relevant information to enabling the functioning of that part of the firm’s system of quality control relating to independence; and

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 Are entitled to rely on the firm’s system unless information provided by the firm of other parties suggest otherwise.

Philippine Standards on Auditing The  Auditing and Assurance Assurance Standards Standards Council (AASC)  (AASC)  has been given the task to promulgate auditing standards, practices and procedures which shall be generally accepted by the accounting profession in the Philippines.

 

Adoption of International Standards

To facilitate the preparation by the AASC of its pronouncements and to attain uniformity of those pronouncements with international auditing standards, the AASC has approved the adoption of the International Standards on Auditing (ISA’s),International Standards on Assurance Engagement (ISAEs), International Standards on Review Engagement (ISREs), and International Standards on Related Services (ISRSs) issued by the International Auditing and Assurance Board (IAASB) created by the International Federation o  Accountants  Accounta nts (IFAC).

Elements of a System of Quality Control PSA 220 states that audit firm should implement policies and procedures designed to ensure that all audits are conducted accordance with PSAs. The quality control policies and procedures adopted by audit firms vary depending on the firm’s size and nature of its practice, cost benefit considerations and other factors. factors . PSA 220 has identified the following quality control policies that may serve as a guide to audit firms in establishing their own quality control system.  A) Leadership Leadership responsibilities responsibilities for quality within within the firm. B) Relevant ethical requirements. C) Acceptance and continuance of client relationships and specific engagements. D) Human resources. E) Engagement performance. F) Monitoring.

 

Leadership Responsibilities for Quality on Audits The engagement partner should take responsibility for the overall quality on each audit engagement to which the partner is assigned. The engagement partner should set example regarding the quality of audit by emphasizing through actions and messages the importance of performing work that complies with professional standards, complying with the firm’s quality control policies and procedures, and issuing appropriate audit reports.

Ethical Requirements a. b. c. d. e.

Integrity   Integrity Objectivity  Objectivity  Professional competence competence and due care;  care;  Confidentiality; Confidentiali ty; and and   Professional behavior  

Independence The engagement partner should form a conclusion on compliance with independence requirements that apply to the audit engagement. The engagement partner should: a. Obtain relevant information to identify circumstances and relationships that create threats to independence. b. Evaluate information on identified breaches of the firm’s independence policies and procedures to determine whether they create a threat to independence. c. Take appropriate safeguards to eliminate such threat or reduce them to an acceptable level; and d. Document conclusions on independence and the basis for such conclusion.

Acceptable and Continuance of Client Relationship a. Has considered the integrity of the client;  client;   b. Is competent to perform the engagement and has the capabilities time and resources to do so; and and   c. Can comply with ethical requirements.  requirements.   Human Resources and Assignment The firm should establish policies and procedures designed to provide it with reasonable assurance that it has sufficient personnel with capabilities, competence and commitment to ethical principles necessary to perform the engagement. Such policies and procedures should address issues concerning personnel  

Recruitment

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Performance evaluation, compensation and promotion;

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Capabilities and competence;

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Career development; and

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Assignment of engagement teams

 

  Engagement Performance The firm should establish policies and procedures designed to provide it with reasonable assurance that engagements are performed in accordance with professional standards and regulatory and legal requirements, and for the auditor’s report that is issued to be appropriate in the circumstances.  circumstances.   The engagement partner should take responsibility for the:  

Direction

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Supervision

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Review

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Consultation

C ons ult ulta ation

The engagement partner should: a. Be responsible for the engagement team undertaking appropriate consultati consultation on on difficult and contentious matters; b. Be satisfied that members of the engagement team have undertaken appropriate consultation during the course of the engagement, both within the engagement team and others at the appropriate level within or outside the firm; c. Be satisfied that the nature nature and scope of, of, and conclusions resulting from such consultations are documented and agreed with the party consulted; d. Determine the conclusions resulting from consultations have been implemented.

Engagement Quality Control Review This requires the engagement partner: a. To determine that an engagement quality control reviewer has been appointed; b. To discuss significant matters arising during the audit engagement, including those identified during the quality control review, with the engagement quality control reviewer; and c. Not to issue the auditor’s report until the completion of the engagement engagem ent quality control review.

Differences of Opinion The engagement partner should inform the members of the engagement team to bring matters involving differences of opinion to the attention of the engagement partner other within the firm as appropriate without fear of reprisals. The audit report should not be issued until matter involving differences of opinion is resolved.

Monitoring   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.

 

Quality Control Review Recognizing the importance of professional accountant’s services to the society, societ y, the government has also taken steps to ensure that CPAs work to the highest standards which can reasonably be expected from them. The government thru the Professional Regulatory Board of Accountancy (BOA) has required all CPA firms and individual CPAs in public practice to obtain a certificate of accreditation to practice public accountancy.  As a condition to the renewal of the certificate of accreditation to practice public accountancy, the Board requires individual CPAs and CPA firms to undergo a quality control review to ensure that these CPAs comply with accounting and auditing standards and practices of public accountancy.