Auditing Standards and Responsibilities

Questions and Answers

What is one of the responsibilities of management regarding the accounting system?

Conducting all audits personally

Delegating all financial decisions to auditors

Only focusing on external audits

Maintaining adequate accounting system and internal controls (correct)

Under PSA 600, what must the auditor consider about another auditor's work?

The auditor is responsible for adjusting the accounts based on peer reviews

The auditor should disregard the work of other auditors

The auditor must ensure the independence and competence of those auditors (correct)

The auditor should only validate the financial statements

What should the auditor perform to ensure the adequacy of the work done by another auditor?

Perform random checks with no defined plan

Perform procedures to obtain sufficient appropriate audit evidence (correct)

Conduct unquestioned acceptance of their findings

Rely solely on the qualifications of the other auditor

What consideration is necessary regarding related party transactions during an audit?

Remain alert for related party transactions Signup and view all the answers

What does PSA 570 guide the auditor on assessing?

Management's use of the going concern assumption Signup and view all the answers

Which is NOT an objective of internal controls as per PSA 400?

Preventing all financial losses Signup and view all the answers

What is a key factor for the auditor when assessing risks in an audit?

Understanding the accounting and internal control systems Signup and view all the answers

Which scenario would raise significant doubt about a bank's going concern?

Events indicating financial difficulties or defaults Signup and view all the answers

What is the primary objective of the Bangko Sentral ng Pilipinas?

To maintain price stability conducive to economic growth Signup and view all the answers

Which category does a thrift bank belong to according to the classification provided?

Category B Signup and view all the answers

What type of institutions does the BSP exercise regulatory and examination powers over?

Money system businesses and non-banking institutions Signup and view all the answers

Which of the following is NOT one of the responsibilities of the BSP?

Provide loans to businesses Signup and view all the answers

Which law governs the regulatory framework of the BSP's operations?

Republic Act No. 11211 Signup and view all the answers

Under what condition can external auditors become accredited for banks?

Must have BOA accreditation & PIC with at least 5 years of audit experience Signup and view all the answers

What type of banking entity falls into Category C?

Rural banks Signup and view all the answers

Which of the following is classified as a quasi-banking institution?

Savings and loans associations Signup and view all the answers

What is required for an auditor regarding loans from covered institutions at the time of signing the engagement?

The auditor must not have any outstanding loans or credit extensions. Signup and view all the answers

Which position is not allowed to have prior employment with the external auditor within one year before the audit initiation?

Chief Financial Officer Signup and view all the answers

Which category of auditors requires at least five years of experience with corporate clients that have total assets of at least P50M?

Category A auditors Signup and view all the answers

What classification of banks primarily focuses on providing home loans and accepting savings deposits?

Thrift Banks Signup and view all the answers

To be classified as a commercial bank, which service must the bank primarily focus on?

Providing credit and loans Signup and view all the answers

What is the prerequisite experience for an auditor in the context described?

Five years in external audits Signup and view all the answers

Which type of banks can operate both locally and internationally?

Universal Banks Signup and view all the answers

In terms of auditor independence, which of the following is a covered institution?

All licensed banks by the BSP Signup and view all the answers

What is a key objective of auditors when assessing a bank's internal controls?

Ensuring compliance with regulatory and fiduciary duties Signup and view all the answers

Which of the following principles guide auditors when evaluating IT controls?

PSA 401 Signup and view all the answers

What should auditors primarily focus on when assessing reconciliation controls in a bank?

The documentation, testing, and evaluation of reconciliation controls Signup and view all the answers

Regarding EFT systems, what aspect do auditors specifically focus on during their assessment?

Post-transaction reconciliations Signup and view all the answers

In which area is governance primarily responsible within a bank's internal control system?

Transaction approvals and decision-making authority Signup and view all the answers

What type of systems significantly impact how auditors assess a bank's accounting?

IT and EFT systems Signup and view all the answers

When should auditors effectively audit reconciliations at year-end?

If they are prepared timely and deemed effective Signup and view all the answers

How often should recorded assets be compared with existing assets?

At reasonable intervals Signup and view all the answers

What is one procedure used to identify subsequent events during an audit?

Inquiring management about subsequent events Signup and view all the answers

What is included in the wrap-up procedure at the end of an audit?

Final analytical procedures Signup and view all the answers

What must management do regarding litigation and claims for proper financial statement preparation?

Adopt policies to identify and evaluate them Signup and view all the answers

Which of the following is a reason for assessing foreign branch accounts against Philippine GAAP?

To align with local banking regulations Signup and view all the answers

Which step is part of assessing the bank's ability to continue as a going concern?

Evaluating bank's liquidity and forecasts Signup and view all the answers

What type of minutes are read to assist in identifying subsequent events?

Minutes from board of directors and stockholders meetings Signup and view all the answers

What is an auditor's responsibility when expressing an opinion on a bank’s financial statements?

To adhere to legal and regulatory practices Signup and view all the answers

What potential issue can arise when a single set of statements is prepared under two frameworks?

Significant differences in accounting practices Signup and view all the answers

Study Notes

Auditor Responsibilities

Auditors should assess the independence and competence of other auditors.
Clear communication of accounting principles is essential.
Perform procedures to gather sufficient audit evidence regarding the adequacy of work performed by other auditors.
Remain vigilant for related party transactions, particularly in lending and investment activities.

Going Concern Considerations

PSA 570 guides auditors on evaluating the appropriateness of the going concern assumption made by management.
Significant events may indicate doubts about a bank's ability to operate as a going concern.

Bangko Sentral ng Pilipinas (BSP)

BSP is the central bank of the Philippines, established on July 3, 1993, under the 1987 Philippine Constitution.
The bank operates with fiscal and administrative autonomy to fulfill its responsibilities.

BSP Responsibilities

Provides policy direction for money, banking, and credit.
Supervises banks and quasi-banking institutions under Republic Act No. 11211.
Regulates money system businesses, credit granting businesses, and payment system operators.

Classification of Banks

Category A: Universal and Commercial Banks, providing a full range of financial services.
Category B: Includes thrift banks, quasi-banks, and trust departments, focusing on savings and lending.
Category C: Comprises rural banks and pawnshops, catering to local clientele.

Auditor Accreditation for Banks

Auditors must have at least 5 years of audit experience and demonstrate independence from the entity being audited.
Auditors cannot have any outstanding financial interests in the banks they audit.

Internal Control Objectives

Transactions should be executed per management’s authorization.
Access to assets must be controlled and limited.
Recorded assets should be reconciled with existing assets at reasonable intervals.

IT Systems in Auditing

Auditors evaluate IT controls based on PSA 400, PSA 401, and PAPS 1008, focusing on system development, data entry, and security.
Electronic Funds Transfer (EFT) systems necessitate careful pre-transaction controls and post-transaction reconciliations.

Reconciliation Controls

Auditors must focus on documentation, testing, and evaluating reconciliation controls due to multiple accounts.
Effective reconciliation audits are necessary at year-end, ensuring timely preparation and controls are efficient.

Wrap-Up Procedures

Procedures include final analytical reviews, evaluation of going concern status, and approval of adjusting entries.
Review of board minutes and interim financial statements helps in identifying subsequent events.

Litigation and Claims Management

Management is responsible for identifying, evaluating, and accounting for litigation and claims affecting financial statements.
Auditors should inquire about litigation and claims through management and the entity's legal counsel.

Reporting on Financial Statements

Auditors must comply with legal and regulatory standards when issuing opinions on bank financial statements.
Important to assess alignment with Philippine GAAP for consolidated accounts of foreign branches and subsidiaries.

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Description

This quiz focuses on the work of auditors, specifically related to PSA 600, which deals with using the work of another auditor. It emphasizes management's responsibilities in maintaining an adequate accounting system and internal controls. Test your understanding of these essential auditing concepts.