Reviewer in Auditing

8/3/2019 Reviewer in Auditing

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Chapter 1 Fundamentals of Assurance Services

Elements of Assurance Engagements

1.A three party relationship involving a practitioner(CPA),a responsible party, and intended users

2.An appropriate subject matter

3.Suitable criteria

4.Sufficient appropriate evidence

5.A written assurance

Characteristics of Suitable Criteria

1.relevance

2.reliability

3.completeness

4.neutrality

5.understandability

Criteria are made available to intended users in the ff. Ways:

1.Publicly

2.inclusion in a clear manner in the presentation of the subject matter information

3.through inclusion in a clear maner in the assurance report.

4.by general understanding



Generalizations abot the reliability of evidence

1.Evidence is more reliable when it is obtained from independent sources outside the entity

2.evidence that is generalized internally is more reliable when the related controls are effective

3.evidence that is obtained directly by th practitioner is more reliable than evidence obtained indirectly or by inference

4.evidence is more reliable when it exists in documentary form

5.evidence provided by original documents is more reliable than evidence provided by photocopies or facsimiles

Classifications of assurance

According to level of assurance

1.reasonable assurance engagements

2.limited assurance engagements

According to Structure

1.Assertion based engagements(attestation)

2.Direct Reporting engagement

Assertion based engagements

1.there must be a written assertion being made by one party.

2.there must be agreed upon and objective criteria that can be utilized to assess the accuracy of the assertion

3.the assertion must be amenable to verification of an independent party.

4.the accountant should prepare a written conclusion about the reliability of the assertions



Examples of assertion based engagements

1.an independent audit engagement is one that provides a reasonable(but not absolute)level of assurance that th subject matter(such asFinancial statement)is free of material misstatements

2.a review engagement involves a limited investigation of much narrower scope than an audit and undertaken for the purpose of providing

limited assurance that the subject matter is presented in accordance with identified suitable criteria

Limitations of assurance engagements

1.the use of selective testing

2.the inherent limitations of internal control

3.much of the evidence is conclusive rather than persuasive

4.the use of judgement

5.characteristics of the subject matter

Non Assurance Services

1.agreed upon procedures

2.compilation of financial or other information

3.tax services

4.management consulting and other advisory

Chapter 2-Audits of Historical financial Information

Types of Audit

According to subject matter



1.financial statement audit

2.operational audit

3.compliance audit

Types of Auditor performing the engagement

1.external audit

2.internal audit

3.government audit

Division of Government Audit

1.compliance audit

2.Financial audit

3.performance audit

a.economy and efficiency audit

b.Effectiveness audit

Factors contributing to the existence of information risk

1.Remoteness of information users from information provider

2.potential bias and motives of information provider

3.voluminous data

4.complex exchange transactions



Reducing Information Risk

1.Allow users to verify information

2.user shares information risk with management

3.have the financial statements audited

Inherent Limitations of the audit

1.fundamental nature and characteristics of financial reporting and business processes

2.the nature of the audit evidence and procedures

3.the need for the audit to be conducted within a reasonable period of time and at a reasonable cost

Chapter 3:Proffesional Practice of Accounting

What is a profession?

1.mastery of a particular intellectual skill,acquired by training and education

2.Adherence by its members to a common code of values and conduct

3.acceptance of a duty to society as a whole

Sectors of accounting practice



1.practice in public accountancy

2.practice in commerce and Industry

3.Practice in education or academe

4.practice in government

5million/10million rule

1.supervising the recording of financial transactions,preparation of financial statement

2.coordinating with the external auditors for the audit of such financial statements

3.other related functions

Practice in Education

1. BLT may be taught by CPAs and Lawyers

2. The position of either the dean or department chairman BSA-must be CPA

Regulation of the accounting profession

1. RA9298-Philippine Accountancy Act

2. Standard setting bodies

3. Code of ethics for Cpas 4. Self regulation through a system of quality control

5. Sanctions and penalties against violators

Qualifications of members of PRBOA



1.natural born citizen and resident of the philippines

2.registered CPA with (10)yrs experience in any sectors of accountancy

3.must be of GMC

4.no interest in schools

5.not a director or officer of APO(PICPA)

Powers and functions of the BOA

1.prescribe and adopt rules and regulations based on RA9298

2.supervise the registration,licensure and practice of accountancy

3.administer oaths in admistering the provisions of RA9298

4.to adopt an official seal of the board

5.adopt code of ethics

Grounds for removal or suspension of the member of BOA

1.neglect of duty or incompetence

2.violation of RA9298 and code of ethics and IRR

3.final judgement of crimes involving moral turpitude

4.manipulation or rigging of the CpA licensure examination results

Principal duties of COA



1.Examine,audit and settle all accounts pertaining to the revenue or receipts and expenditure or uses of government funds

2.central accounting office

3.define the scope of its audit and examination

4.promulgate accounting and auditing rules and regulations

5.submit to the president an annual financial report of the government and reccoment measures to improve there effectiveness and efficiency

APO(PICPA) is tasked to meet the ff:

1.it is established to the benefit and welfare of the CPAs

2.membership is open to all CPAs

3.plan to enlist majority of the CPAs within 3 years

4.shall have region all over the philippines;directors should be elected based on the Corporation code

5.shall have a full time career director

Education Technical council Powers and duties

1.determine minimum standard curiculum for the study of accountancy

2.establish teaching standards,including the qualifications of the faculty of the school/university

3.monitor the progress of the program;measures attainment of high quality accounting education

4.evaluate periodically the performance of educational institutions

Refusal to issue CPA certificates and PRC ID

1.convicted of crimes involving moral turpitude



2.is guilty of immoral or dishonorable conduct

3.unsound mind

4.misrepresentation in the application for the CPA examinations

Special and temporary permits for foreigners

1.He is asked for consuultation or specific purpose which the BOA believes is essential to the development of accountancy profession provided

that he must only for that purpose only and no other filipino CPA is qualified that purpose.

2.a foreigner engaged to teaching,lecturing which is essential to the development of the accountancy profession provided that he will engage in

teaching only

3.his country dopted the reciprocity rule

Fundamental principles

1.integrity

2.objectivity

3.professional competence and due care

4.confidentiality

5.professional behavior

Professional standards

1.PSA



2.PSRE

3.PSAE

4.PSRS

Powers and functions of the PRC-CPE

1.accept,evaluate and approve applications for accreditation of CPE providers

2.accept,evaluate and approve exemptions for taking CPE reqirements

3.monitor the implementations of the CPE providers by their programs,activities and sources

4.assess periodically and upgrade criteria for accreditation of CPE

Penalties and Sactions

1.suspension of CPA certificate

2.Revocation of CPA certificate

3.cancellation of Special or temporary permit

4.payment of fines and/or imprisonment



Chapter 4:setting up and maintaining an accounting practice

Quality Review committee Powers and functions

1.conduct quality review on applicants for registration to practice public accountancy and render a report which shall be attached to the

application for registration

2.Recommend to the BOA the revocation of the certificate of Registration and the professional identification card of an a)Individual

CPA,including any of his/her staff members

b)firms,including the sole proprietors and any of his/her employees

c)Partnership of CPAs including the partners and staff members thereof

who has not observed the quality control measures and who has not compiled with the standards of quality prescribed for the practice of public

accountancy

Requirements for the practice of public accountancy

1.Registration for accreditation is valid for (3)days and shall be renewed every (3)yrs starting september 30

2.CPAs shall not commence public practice until a valid certificate of registration have been issued for such CPA

3.the applicant for registration shall be accomplished in the form prescribed by the board and duly signed by the applicant CPA.

Limitations for Foreign CPA

1.Foreign Cpas are not allowed to practice public accountancy in the phils.(except as provided for by Sec.34-35)

2.OSP and staff thereof cannot practice public accountancy if not qualified to practice



Authentication and Accreditation

1.the BOA shall duly authenticate all applications for registration received in proper form,and after having passed upon such application,shall

recommend to the PRC the approval or denial thereof not later than (60) days after the receipt of the aforementioned applications in proper

form

2.The PRC upon favorable recommendation of the BOA,issue to the applicant the corresponding Certificate of Registration to practice public

accountancy

3.Unless sooner revoked,cancelled or withdrawn,said certificate of Registration shall be valid for (3)yrs and shall be renewable for (3)yrs upon

payment of the fees

Training methods for professional CPAs

1.In house training

2.On the job training

3.External training program

Hierarchy of personnel in CPA firms

1.Associate-0 to 3yrs

2.Senior Associates-3 to 6yrs

3.Manager-6 to 10yrs



4.Partners-10+

The CPA should not:

1.Make exaggerated claims for services offered,qualifications possessed or experience gained

2.Make disparaging references to usubstantiated comparisons to the work of another

The reasons for not allowing advertisement

1.advertising can lead to undue competition between and among practitioners,and thus may cause a decline in the quality of service

2.advertising would encourage a more commercial approach w/in the profession thus reducing clients trust in CPA and increased the likelihood

of Cpas neglecting their ethical duties

3.the cost of advertising would outweigh any savings which might result competition and ultimately be borne by the clients,small firms cannot

not matched thhe financial capacity of larger firms

Advertising and publicity in any medium are acceptable ,provided:

1.it has as its objective the notification to the public

2.it is in good taste

3.it is professionally dignified



4.it avoids frequent repetition of and undue prominence being given to the name of the firm or professional accountant in public practice

The following are not allowed:

1.self laudatory statement

2.Discreding,disparaging or attacking other firms or Cpa practitioner

3.referring to using or citing actual or purported testimonials by third parties

4.publishing and comparing fees with other Cpas or Cpa firms or comparing those services with those provided by another firm or Cpa

practitioner

5.giving too much emphasis on competitive differences

6.using words or phrases which are hard to define and even more difficult tosubstantiate objectively

7.publishing services in billboard

A professional accountant may issue to clients or in response to an unsolicited request to a non client:

1.a factual and objectively worded of the services provided

2.a directory settings out names of partners,office addresses and names and addresses of associated firms and correspondents



Basis for the Fees

1.the skill and knowledge required for the type of work involved

2.the level of training and experience of the persons necessarily engaged on the work

3.the time necessarily occupied by each person engaged on the work

4.the degree of responsibility and urgency that the work entails

Methods of billing clients

1.Flat or fixed fee basis

2.Actual time charges basis

3.maximum fee basis

4.retainer fee basis

Chapter 5:Quality controls

The firm should establish a system of quality control designed to provide it with reasonable assurance that:

1.the firm and its personnel comply with professional standards and regulatory and legal requirements

2.that reports issued by the firm or engagement partners are appropriate in the circumstances

Elements of a system of Quality Control

1.Leadership responsibilities for quality within the firm



2.Ethical requirements

3.Acceptance and continuance of clients relationship and specific engagements

4.human resources

5.Engagement performance

6.monitoring

Leadership Responsibilities for quality within the firm

1.perform work that complies withh professional standards and regulatory and legal requirements

2.Issue reports that are appropriate in the circumstances

Firms business strategy is subject to overriding requirement

Accordingly,

1.the firm assigns management responsibilities so that commercial considerations do not override the quality of work performed

2.the firms policies and procedures addressing performance evaluation,compensation, and promotion(including incentive systems)with regards

to its personnel,are designed to demonstrate the firms overriding commitment to quality

3.the firm devotes sufficient resources for the development,documentation and support of its quality control policies and procedures

Acceptance and continuance procedures

1.Has considered the integrity of the client and does not have information that would lead it to conclude that the client lacks integrity

2.Is competent to perform the engagement and has thecapabilities,time and resources to do so

3.can comply with ethical requirements



Considerations regarding the integrity of clients

1.identity and business reputation of the clients principal owners,key management,related parties and those charged with its governance

2.The nature of the clients operations,including its business practices

3.Information concerning the attitude of the clients principal owners,key management and those charged with its governance towards such

matters as aggressive interpretation of accounting standards and the internal control environment

4.Whether the client is aggresively concerned with maintaining the firms fees as low as possible

5.Indications of an inappropriate limitation in the scope of work

6.Indications that the client might be involved in money laundering or other criminal activities

7.the reasons for the proposed appointment of the firm and non reappointment of the previous firm

Considerations regarding firm capabiility,competence,time and resources

1.firm personnel have knowledge of relevant industries or subject matters, and experience with relevant regulatory and reporting

requirements;ability to gain the necessary skills and knowledge effectively

2.the firm has sufficient personnel with the necessary capabilities and competence

3.experts are available

4.individuals meeting the criteria and eligibility requirements to perform engagement quality control review are available

5.the firm is able to complete the engagement within the reporting deadline



Policies and procedures on the continuance of the engagement and the client relationship should include consideration of:

1.applicable professional and legal responsibilities,including whether there is a requirement for the firm to report to the person or persons who

made the appointment

2.the possibility of withdrawing

Policies and procedures on auditor withdrawal

1.discussing with the appropriate level of the clients management and those charged with governance regarding the appropriate action that

the firm might take based on the relevant facts and circumstances

2.if its appropriate to withdraw,discuss the witdrawal with the management and those charged with governance and the reason(s) for

withdrawal

3.considering whether there is a professional,regulatory or legal requirement to remainin place or for the firm to report the withdrawal

4.documenting signiificant issues,consultations,conclusions and the basis for the conclusions

Capabilities and Competence are developed through a variety of methods,including the following:

1.professional education

2.continuing professional development,including training

3.workexperience

4.coaching by more experienced staff

Performance evaluation

1.make personnel aware of the firms expectations regarding performance and ethical principles

2.provides personnel with evaluation of,and counseling on,performance,progress and career development



3.helps personnel understand that advancement to positions of greater responsibility depends,among other things, upon performance qualit

and adherence to ethical principles, and that failure to comply with the firms policies and procedures may result in disciplinary action

Assignment of engagement teams

1.the identity and role of the engagement partner should be communicated to key members of client management and those charged with

governance

2.the engagemrent partner should have the appropriate capabilities

3.the responsibilities of the engagement partner should be clearly defined and communicated to that partner

4.the firm should assign appropriate staff with the necessary capabilities,competence and time to perform engagements in accordance with

professional standards annd regulatory and legal requirements, and to enable the firm or engagement partners to issue reports that are

appropriate in the circumstances

5.the capabilities and competence are considered when assigning engagement teams,and in determining the level of supervision required



Consideration regarding assignment of Engagement teams

1.an understanding of,and practical experience with,engagements of a similar nature and complexity through appropriate training and

participation

2.an understanding of professional standards and regulatory and legal requirements

3.appropriate technical knowledge,including knowledge of relevant information technology

4.knowledge of relevant industries in which the client operates

5.ability to apply professional judgement

6.an understanding of the firms quality control policies and procedures

Supervision and Review

1.tracking the progress of the engagement

2.considering the capabilities and competence of individual members of the engagement team

3.addressing significant issues arising during the engagement,considering their significance and modifying the planned approach appropriately

4.identifying matters for consultation or consideration by more experienced engagement team members



Factors Considered by reviewers of engagement work

1.the work has been performed in accordance with professional standard and regulatory and legal requirements

2.significant matters have been raised for further consideration

3.appropriate consultations have taken place and the resulting conclusions have been documented and impemented

4.there is a need to revise the nature,timing and extent of work performed

5.the work performed supports the conclusions reached and appropriately documented

6.the evidence obtained is sufficient and appropriate to support the report

7.the objectives of the engagement procedures have been achieved

Consultation

1.appropriate consultation takes place on difficult or contentious matter

2.sufficient resources are available too enable appropriate consultation to take place

3.the nature and scope of such consultations are documented

4.conclusions resulting from consultations are documented and implemented

When is a non audit engagement subject to quality control review?

1.the nature of the engagement,including the extent to which it invoves a matter of public interest

2.the identification of unusual circumstances or risks in an engagement or class of engagements

3.whether laws or regulations require an engagement quality control review



The firm should establish policies and procedures setting out

1.the nature,timing and extent of an engagement quality control review

2.criteria for eligibility of quality engagement control reviewers

3.documentation requirements for an engagement quality control reviewers

Matters Considered during an engagement quality control review

1.the engagement teams evaluation of the firms independence in relation to the specific engagement

2.significant risks identified during the engagement and the responses to those risks

3.judment made,particularly with respect to materiality and significant risks

4.whether appropriate consultation has taken place on matters involving differences of opinion or other difficult or contentious matters,and the

conclusions arising fromthose consultations

5.the significance and disposition of corrected and uncorected misstatements identified during the engagement

6.the matters to be communicated to management and those charged with governance and where applicable,other parties such as regulatory

parties

7.whether working papers selected for review reflect the work performed in relation to the significant judgements and support the conclusions

reached

8.the appropriateness of the report to be issued

Objectivity of the engagement quality control reviewer

1.does not participate in the engagement during the period of review

2.does not make decisions for the engagement team

3.is not subject to other considerations that would threaten the reviewers objectivity



Documentation of the engagement Quality Control review

1.the procedures required by the firms policies on engagement quality control review have been performed

2.the engagement quality control review has been completed

3.the reviewer is not aware of unresolved matters that would cause the reviewer to believe that the significant judgements the engagement

team made and the conclusions they reached were nnot appropriate

Maintain the confidentiality,safe custody,integrity,accessibility and retrievability of engagement documentation

1.the firm personnel must observed at all times the confidentiality of information

2.specific laws or regulations may impose additional obligations on the firms personnel to maintain client confidentiality,particularly where data

of a personal nature are concerned

3.accessibility or retrievability of the underlying data that may be compromised if the documentation could be altered,added to or deleted

without the firms knowledge,or if it could be permanently lost or damaged

4.appropriate controls must be designed and implemented for engagement documentation to:

a.enable the determination of when and by whom engagement documentation was created,changed or reviewed

b.protect the integrity of the information at all stages of the engagement,especially when the information is shared within the engagement

team or transmitted to other parties via internet

c.prevent unauthorized changes to the engagement documentation

d.allow access to the engagement documentation by the engagement team and other authorized parties as necessary to properly discharge

their responsibilities



Examples of control over engagement documentations

1.the use of password to restrict the access to electronic engagement documentation to authorize users

2.appropriate back up routines

3.proceduress for properly distributing engagement documentation

4.procedures for restricting access to and enabling proper distribution and confidential storage of,hardcopy engagement document

Original documentation

1.generate scanned copies that reflect the entire content of the original paper documentation,including manual signatures,cross references

and annotations

2.integrate the scanned copies into the engagement files

3.enable the scanned copies to be retrieved and printed as necessary

Procedures that the firm adopts for retention of engagement documentation include those that:

1.Enable the retrieval of,and access to, the engagement documentation during the retention period, particularly in the case of electronic

documentation since the underlying technology may be upgraded or changed over time

2.provide,where necessary, a record of changes made to engagement documentation after the engagement files have been completed

3.enable authorized external parties to access and review specific engagement documentation for quality control or other purposes

The purpose of monitoring and compliance with quality control policies and procedures is to provide an evaluation of:

1.adherence to professional standards and regulatory and legal requirements

2.whether the quality control system has been appropriately designed and effectively implemented

3.whether the firms quality control policies and procedures have been engagement partners are appropriate in the circumstance



Consideration and evaluation of the system of quality control includes matters such as the following:

1.analysis of

a.new developments in professionalstandards and regulatory and legal requirements

b.written confirmation of compliance with policies and procedures on independence

c.continuing professional development

d.decisions related to acceptance and continuance of client relationships and specific engagements

2.determination of corrective actions to be taken and improvements to be made in the system

3.communication to appropriate firm personnel of weaknesses identified in the system in the system

4.follow up appropriate firm personnel so that necessary modifications are promptly made to the quality control policies and procedures

Factors to consider in determining the manner an timing of selection of individual engagements for inspection

1.the size of the firm*

2.the number and geographical location of offices

3.the results of previous monitoring procedures

4.the degree of authority both personnel and offices*

5.the nature and complexity of the firms practice and organization* *criterias for documentation

6.the risk associated with the firms clients and specific engagements



Complains and allegations

1.complains and allegations that the work performed by the firm fails to comply withprofessional standards and regulatory and legal

requirements

2.allegations of non compliance with the firms system of quality control

PSA 220-audits of historical financial information

The engagement team should:

1.implement quallity control procedures that are applicable to the audit engagement

2.provide the firm with relevant information to enable the functioning of that part of the firms system of quality control realting to

independence

3.are entitled to rely on the firms system

In complying to independence requirements,the engagement team should:

1.obtain relevant information ffrom the firm and network firms to identify and evaluate circumstances and relationships that create threats to

independence

2.evaluate information on identified breaches of the firms independence policies and procedures to determine whether they create a threat to

independence for the audit engagement

3.take appropriate action to eliminate such threats or reduce to the accpetable low level by applying safeguards

4.document conclusions on independence and any relevant discussions with the firm that support these conclusions



Acceptance and continuance of clients relationship include considering:

1.the integrity of the principal owners,management and those charged with governance

2.whether the engagement tem is competent to perform the audit engagement and has the necessary time and resources

3.whether the firm and the engagement team can comply with ethical requirements

Integrity of the client

1.obtain and review available FS regarding the prospective client,such as annual reports,interim financial statements and income tax returns

2.inquiry of third parties as to any information regarding the prospective clients and its management and principals which may have a bearing on

evaluating the prospective client

3.communicate with the predecessor auditor

4.consider circumstances which would cause the firm to regard the engagement as one requiring special attention or presenting unusual risk

Engagement partner informs the engagement team of:

1.their responsibilities

2.the nature of the entitys business

3.risk related issues

4.problems that may arise

5.the detailed approach to the performance of the engagement



Supervision and Review

1.tracking the progress of the audit engagement

2.cosidering the capabilities and competence of individual members of the engagement team

3.addressing significant issues

4.identifyinf matters for consultation

Reviewer considers whether(when a senior staff member review the work perform by less experienced)

1.the work has been performed in accordance with professional standards and regulatory and legal requirements

2.significant matters hav been raised for further consideration

3.appropriate consultation have taken place and the resulting conclusion have been documented and implmented

4.there is a nee to revise the nature,timing and extent of work performed

5.the work performed supports the conclusion reached and is appropriately documented

6.the evidence obtained is sufficient and appropriate to support the auditors report

7.the objective of the engagement procedures have been achieved



Consultation,the engagement partner should:

1.be responsible for the engagement team undertaking appropriate consultation on difficult and contentious matter

a.the issue on which consltation was sought

b.the results of the consultation

2.be satisfied that members of the engagement team have undertaken appropriate consultation during the course of the engagement

3.be satisfied that the nature and scope such consultations are documented and agreed with the party consulted

4.determine that conclusions resulting from consultations have been implemented

Engagement Quality control review

FS of Listed Entities

The engagement partner should:

1.determine that an engagement quality control reviewer has been appointed

2.discuss significant matter arising during the audit engagement

3.not issue the auditors report until the completion of the engagement quality control review



An engagement qality control review must consider the following:

1.the engagement teams evaluatiom of the firms independence in relation to the specific audit engagement

2.significant risk identified during the engagement and responses to those risk

3.judgement made particularly to materiality and sigificant risk

4.whether consultation has taken place on matters involving differences of opinion

5.significance and disposition of corrected and uncorrected misstatements identified during the audit

6.the matters to be communicated to management and those charged with governance

7.whether audit documentation selected for review reflected work performed in relation to the significant judgements and supports the

conclusion reached

8.the appropriateness of the auditors report to be issued

Monitoring

The engagement partners considers:

1.whether deficiencies noted in that information may affect the audit engagement

2.whether the measures the firm took rectify the situation are sufficient in the context of that audit



Chapter6:code of Ethics for Cpas

Fundamental Principles

1.Integrity

2.Objectivity

3.Professional Competence and due care

4.confidentiality

5.Professional behavior

Safeguards

1.safeguards created by professional,legislation or regulation

2.safeguards in the work environment

Threats to Independence

1.self interest threat

2.self review threat

3.advocacy threat

4.familiarity threat

5.intimidation threat



Safeguards created by profession,legslation or regulators

1.educational,training and experience requirements

2.continuing professional developments

3.corporate governance regulations

4.professional standards

5.professional or regulatory monitoring and disciplinary procedures

6.external review by a legally empowered third party

Safeguards tha t increase the likelihood of identifying or deterring unethical behavior

1.effective,well publicized complaints systems operated by the employing organization,the profession or a regulator, which enable

colleagues,employers and members of the public to draw attention to unprofessional or unethical behavior.

2.an explicitly stated duty to report breaches of ethical requirements

Ethical Conflict resolution

1.relevant facts

2.ethical issues involved

3.fundamental principles related to the matter in question

4.established internal procedures

5.alternative courses of actions

PART B:Professional accountant in public practice

Reviewer in Auditing

Documents

Transcript of Reviewer in Auditing