Philippine Auditing Standards Overview

Questions and Answers

What action should a professional accountant take if they depart from regulations?

They should consult with other accountants.

They should notify the client only.

They should justify the departure. (correct)

They should ignore the situation.

Which documents provide guidance for implementing PSAs and promote good practice?

Philippine Standards of Audit

International Standard Auditing Manuals

Practice Statements issued by the AASC (correct)

Client engagement letters

What is the minimum exposure period for a proposed Philippine Standard or Practice Statement?

30 days

120 days

90 days (correct)

60 days

What is required for the issuance of exposure drafts?

Majority approval from the Council members Signup and view all the answers

What condition applies to the publication of AASC pronouncements?

They become operative after publication in the Official Gazette. Signup and view all the answers

How are Philippine Standards that are specific to the Philippines numbered?

Starting from 100Ph Signup and view all the answers

Which of the following requires at least ten members’ approval?

Issuance of Philippine Standards and Practice Statements Signup and view all the answers

How are Philippine Standards and Practice Statements aligned with International standards?

They use the same numbers as international counterparts. Signup and view all the answers

What does assurance engagement risk primarily involve?

The risk that the practitioner expresses an inappropriate conclusion. Signup and view all the answers

How is assurance engagement risk affected in a limited assurance engagement compared to a reasonable assurance engagement?

It is higher due to different evidence-gathering procedures. Signup and view all the answers

What is meant by inherent risk in the context of assurance engagement risk?

The susceptibility of subject matter to a material misstatement assuming no controls. Signup and view all the answers

What is a primary responsibility of the audit partner?

Signing the audit report and maintaining client relationships Signup and view all the answers

What does control risk signify in assurance engagement risk?

The risk that a material misstatement will not be prevented or detected by internal controls. Signup and view all the answers

Which position is responsible for assigning work to audit staff?

Audit manager Signup and view all the answers

What is detection risk in the context of assurance engagement risk?

The risk that the practitioner will not detect an existing material misstatement. Signup and view all the answers

What type of fee structure involves billing based on actual time spent multiplied by hourly rates?

Per diem or hourly rate basis Signup and view all the answers

Why is it essential to reduce assurance engagement risk to an acceptably low level?

To obtain reasonable assurance as the basis for a positive conclusion. Signup and view all the answers

What is a notable characteristic of a limited assurance engagement?

It does not provide a positive form of expression. Signup and view all the answers

Which of these factors does NOT influence the setting of audit fees?

Level of staff training Signup and view all the answers

What is a core value that emphasizes the importance of unbiased judgment in CPA professionals?

Objectivity Signup and view all the answers

The likely outcome of obtaining a meaningful level of assurance is to enhance users' confidence about what?

The reliability of the subject matter information. Signup and view all the answers

Which method of setting up an audit fee provides a fixed amount for the entire engagement?

Flat fee basis Signup and view all the answers

Which of the following is NOT a responsibility of the Senior Auditor?

Assigning work to audit staff Signup and view all the answers

Which of the following organizations is a partnership CPA firm?

Ernst & Young Signup and view all the answers

What is essential for auditors to ensure their work is credible?

Independence from managerial constraints Signup and view all the answers

Which theory emphasizes the conflict of interest between managers and investors?

Stewardship or Agency Theory Signup and view all the answers

How does an effective internal control system impact financial statements?

It reduces the risk of errors and fraud affecting these statements. Signup and view all the answers

What is the consequence of consistently applying generally accepted accounting principles (GAAP)?

Fair presentation of financial statements Signup and view all the answers

In the context of auditing, what does the term 'insurance theory' imply?

Assurance services address potential losses for the stakeholders. Signup and view all the answers

Which characteristic is not typically associated with a professional accounting or auditing body?

Informal structures Signup and view all the answers

What primary responsibility does a partner in an accounting firm hold?

To oversee the quality of audits and resolve technical matters Signup and view all the answers

What role does motivational theory play in the preparation of financial statements?

It encourages alignment of financial statements with accounting standards. Signup and view all the answers

What replaced the Auditing Standards and Practices Council (ASPC) in the Philippines?

The AASC Signup and view all the answers

Which of the following is applied specifically to the review of historical financial information?

PSREs Signup and view all the answers

What do PSAs, PSREs, PSAEs, and PSRSs collectively represent?

AASC’s Engagement Standards Signup and view all the answers

In which engagement is the professional accountant expected to exercise professional judgment due to the nature of the Philippine Standards?

Independent examination of financial statements Signup and view all the answers

What should be considered to understand and apply the basic principles and essential procedures of a Standard?

The entire text of the Standard Signup and view all the answers

When may a professional accountant depart from a basic principle or essential procedure of an Engagement Standard?

To achieve more effective engagement objectives Signup and view all the answers

Which standard is specifically applied to compilation engagements?

PSRSs Signup and view all the answers

What kind of engagements do PSQM standards apply to?

All services under AASC’s Engagement Standards Signup and view all the answers

Study Notes

Auditing Standards and Frameworks in the Philippines

AASC (Auditing and Assurance Standards Council) replaced ASPC (Auditing Standards and Practices Council) to set auditing standards in the Philippines.
PSAs (Philippine Standards on Auditing) are mandatory for auditing historical financial statements, while PSREs (Philippine Standards on Review Engagements) apply to reviewing historical financial information.
PSAEs (Philippine Standards on Assurance Engagements) cover subject matters beyond historical data, and PSRSs (Philippine Standards on Related Services) are for compilation engagements and agreed-upon procedures.
PSQMs (Philippine Standards on Quality Management) apply to all services under AASC’s Engagement Standards.

Principles and Procedures

AASC’s standards include essential principles and procedures, with guidance provided through explanatory materials and appendices.
Understanding and applying standards require consideration of the entire text, not just isolated sections.
Professional accountants must exercise judgment and may deviate from standards if justified in exceptional circumstances.

Practice Statements

PAPS (Philippine Accounting Practice Statements) guide the implementation of PSAs, while PREPSs (Philippine Review Engagement Practice Statements) serve similar purposes for PSREs.
Ignoring applicable Practice Statements necessitates justifying compliance with Engagement Standards.

Standard Issuance Process

Proposed standards or practice statements undergo an exposure period of at least 90 days for comments from stakeholders.
Issuance approval requires a majority of AASC members, while standards require at least ten approvals before submission to the PRC (Professional Regulation Commission) for official publication.

Assurance Engagement Risk

Assurance engagement risk refers to the likelihood of incorrect conclusions due to materially misstated subject matter information.
Assurance risk is lower in reasonable assurance engagements compared to limited assurance engagements due to differing evidence-gathering procedures.

Components of Assurance Risk

Inherent risk: Susceptibility of the subject matter to misstatement.
Control risk: Potential failure of internal controls to detect misstatements.
Detection risk: Chance that the practitioner does not detect an existing material misstatement.

Theoretical Framework of Auditing

Data used in audits must be verifiable.
Conflicts can arise between data preparers and auditors.
Independence of auditors is essential to the audit process.
A strong internal control system minimizes errors and fraud.
Consistent application of GAAP results in fair financial statements.
Auditing serves public interest.

Audit Philosophies and Theories

Agency theory involves the relationship between managers and investors, highlighting self-interest conflicts.
Motivational theory encourages accurate financial reporting due to audit scrutiny.
Information theory aims to enhance information quality through assurance services.
Insurance theory addresses loss prevention through assurance.

Professional Attributes of Accounting and Auditing

Characteristics include a systematic theory, authority, community approval, regulatory codes, and cultural significance.

Roles Within Accounting Firms

Partners oversee audit quality and client relations.
Managers/supervisors handle scheduling and staff oversight.
Senior auditors assist in administration and planning of audits.
Junior staff performs audit procedures and evidence collection.

Factors Influencing Audit Fees

Influencing factors include risk, complexity, time, responsibility, record conditions, and client cooperation.

Methods for Setting Audit Fees

Per diem or hourly rates charge based on time spent.
Flat fee arrangements require all-inclusive pricing.
Maximum fee limits cap charges for hourly-based arrangements.
Retainer fees consist of monthly charges and additional fees upon report delivery.

Types of CPA Firms

Structure includes sole proprietorships and partnerships, with examples like Sycip, Gorres, Velayo & Co., Ernst & Young, and KPMG.

Core Values for CPA Professionals

Integrity, competence, lifelong learning, objectivity, commitment to excellence, and relevance in a global economy dominate the CPA profession.

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Description

This quiz focuses on the transition from ASPC to AASC in setting auditing standards in the Philippines. It highlights the relevance and application of Philippine Standards on Auditing (PSAs) in historical financial audits. Test your knowledge on these crucial aspects of Philippine auditing practice.