30 Questions
What is the primary characteristic of a specialized industry according to the text?
Distinct accounting practices
Which of the following is NOT mentioned as a characteristic of a specialized industry in the text?
Diverse product offerings
Which of the following is a key difference between specialized industries and other industries?
Specialized industries use different accounting practices tailored to their unique requirements
The text mentions that specialized industries operate with unique characteristics in terms of $what$?
Both accounting for transactions and reporting financial results
Which of the following is NOT a characteristic of a specialized industry?
Diverse customer base
What is the primary purpose of the Philippine Auditing Practice Statements (PAPS) mentioned in the text?
To outline the audit considerations when performing audits of specialized industries
What is the main purpose of regulatory oversight by specialized regulatory bodies in industries?
To provide guidance and oversight for compliance with accounting standards
Which regulatory body regulates the banking industry in the Philippines?
BSP (Bangko Sentral ng Pilipinas)
Which accounting standard is commonly applicable to the banking industry?
PFRS 7 – Financial Instruments: Disclosure
What type of activities are primarily engaged in by financial institutions in the banking industry?
Accepting deposits and lending activities
In which industry would you expect to find activities related to the extraction of minerals and geological materials?
Construction & Real Estate industry
Which organization is an example of a banking institution in the Philippines?
Bank of the Philippine Islands (BPI)
What is the primary reason specialized industries may adopt distinct accounting policies?
To accurately reflect their unique transactions and balances
Which of the following is a key impact of the existence of specialized industries on financial reporting?
Variations in financial reporting practices across different sectors
What is the primary purpose of specialized industries adhering to relevant financial reporting standards?
To ensure their financial statements accurately represent their economic activities and financial condition
Which of the following is a key characteristic of specialized industries' unique transactions and balances?
They may necessitate specialized accounting treatments to accurately reflect financial position and performance
How do specialized accounting policies for unique transactions and balances relate to generally accepted financial reporting standards?
They are developed within the framework of generally accepted standards
Which of the following is a key reason why stakeholders, such as investors and analysts, need to understand the nuances of financial reporting within specialized industries?
To properly evaluate the performance and prospects of entities operating within specialized industries
What is one potential challenge for smaller audit firms when auditing specialized industries?
Lack of previous experience with clients in the same industry
How can larger audit firms typically meet the competence requirements for auditing various industries?
They have the resources to provide staff training or bring in experts
When identifying risks in a specialized industry audit, what should be considered in addition to the industry-specific balances and transactions?
Risks associated with 'normal' balances and transactions
When might an auditor plan to use an auditor's expert during a specialized industry audit?
To obtain audit evidence in areas where the audit firm lacks specific expertise
What is an example of when an auditor might use an expert during a banking audit?
To value complex financial instruments
What is one potential action a smaller audit firm might take to meet the requirements of a specialized industry audit?
Seek external expertise through consultants or experts
What is the primary responsibility of the auditor when using the work of an auditor's expert?
To evaluate the relevance and adequacy of the expert's work
Which of the following statements is true regarding the use of an auditor's expert?
The auditor should adhere to the requirements and principles of PSA 620
What is the purpose of the Philippine Auditing Practice Statements (PAPSs) issued by the AASC?
To provide interpretative guidance and practical assistance for implementing auditing standards
Which of the following statements accurately describes the auditor's responsibility when using an auditor's expert?
The auditor must determine and communicate the scope and objectives of the expert's work
What types of practice statements are issued by the AASC in addition to the Philippine Auditing Practice Statements (PAPSs)?
Philippine Review Engagement Practice Statements (PREPSs), Philippine Assurance Engagement Practice Statements (PAEPSs), and Philippine Related Services Practice Statements (PRSPSs)
Which statement best describes the auditor's responsibility when using the work of an auditor's expert?
The auditor must avoid over-reliance on the expert's work and investigate any inconsistencies
Study Notes
Specialized Industries
- A distinct market segment with unique characteristics in accounting for transactions and reporting financial results.
Characteristics of a Specialized Industry
- Distinct accounting practices
- Unique transactions and balances
- Compliance with applicable standards
- Impact on financial reporting
- Regulatory oversight
Focus of Specialized Industries
- Banking
- Construction and Real Estate
- Mining
- Utilities and Power
- Telecoms
- Not for Profit Entities
Banking Industry
- Regulated by the Bangko Sentral ng Pilipinas (BSP)
- Relevant standards include PFRS 7, PFRS 9, and PAPS 1006
- Examples of banking industries include BPI, BDO Unibank, PNB, and ADB
Construction and Real Estate Industry
- Relevant standards include PAS 16, PFRS 15, and PAS 11
- Engaged in the extraction of precious minerals and geological materials
Unique Transactions and Balances
- Specialized industries engage in unique transactions and maintain balances that differ from those in general industries
- May necessitate specialized accounting treatments to accurately reflect financial position and performance
Compliance with Applicable Standards
- Entities must adhere to relevant financial reporting standards applicable to their sector
- Ensures financial statements accurately represent economic activities and financial condition
Impact on Financial Reporting
- Specialized industries can lead to variations in financial reporting practices across different sectors
- Stakeholders must understand nuances of financial reporting within specialized industries
Competence in Larger Audit Firms
- Larger firms likely to meet competence requirements for various industries
- Possess necessary skills and competence through existing clients or resources to bring in experts or provide staff training
Considerations for Smaller Firms
- Must carefully evaluate their competence to take on audits in specialized industries
- May need to invest in training or seek external expertise to meet requirements of specialized audits
Audit Planning in Specialized Industries
- Risk identification must be similar to any other audit
- Consider specific risks related to industry-specific balances and transactions
Reliance on Experts in Specialized Industries
- Auditors may plan to use auditor’s experts to obtain audit evidence
- Examples include valuing complex financial instruments in banking audits or reviewing defined benefit pension schemes with actuaries
The Philippine Auditing Practice Statements (PAPS)
- Provide interpretative guidance and practical assistance to professional accountants in implementing PSAs
- Promote good practice in auditing
Learn about the basic concepts and characteristics of Specialized Industries in the field of Audit and Assurance. This chapter covers definitions, standards, and key differences in the specialized industry.
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