Mindanao State University

College of Business Administration and Accountancy

DEPARTMENT OF ACCOUNTANCY
Marawi City

CPA’S PROFESSIONAL AND LEGAL RESPONSIBILITIES: PHILIPPINE STANDARDS AND PRACTICE STATEMENTS
Accounting 151

GENERALLY ACCEPTED AUDITING STANDARDS skepticism. On the other hand, independence in

An auditor’s opinion must be based on an examination appearance means the auditor avoids facts and
conducted in accordance with auditing standards. circumstances or situations that are so significant
Auditing standards, popularly known as the generally that would lead a reasonable and informed third
accepted auditing standards (GAAS), can be described as: party or the public to believe or conclude that the
A. The general guidelines that auditors must follow in auditor is not independent. Independence in
conducting an audit. appearance is just as important so as to maintain
B. The guidance for measuring the quality of an audit public confidence in the profession.
performance. Independence is often called the cornerstone of
C. The minimum standard of auditor’s performance the profession since it is necessary to add credibility
that must be achieved on each audit to the auditor’s work. In addition, independence in
engagement. mental attitude cannot be regulated. The auditor is
GAAP versus GAAS the one who ultimately decides whether he/she is
Generally accepted accounting principles (GAAP) differ not independent.
from GAAS as the former serve as the foundation of C. Professional care.
accounting whereas the latter serve as the foundation of “Due professional care is to be exercised in the
auditing. GAAP are used by the auditor as the criteria in performance of the audit and in the preparation of
determining the overall fairness of the financial statements the report.”
whereas GAAS are used by the auditor as the guideline
when conducting the audit. In fulfilling his duties, the auditor should act
diligently and carefully, exercising reasonable
Auditing Standards versus Audit Procedures prudence and apply judgment in a conscientious
Auditing standards serves as the measure of the quality of manner, carefully weighing the relevant factors
the auditor’s performance whereas the audit procedures before reaching a decision. Due professional care
serve as the means used by the auditor in attaining the is also known as the average auditor concept. The
quality of the audit. Every audit engagement involves both auditor should do what the average auditor would
auditing standards and audit procedures. However, do and never less, including the review of work
auditing standards are applied uniformly from one performed by assistants and maintaining an
engagement to another whereas audit procedures may attitude of professional skepticism.
vary. Due professional care does not imply error free
Generally Accepted Auditing Standards judgments and infallibility. The auditor is not and
The Board of Accountancy promulgated ten generally cannot be held responsible for losses because of
accepted auditing standards (GAAS) that establish the errors of pure judgment. Exercise of due
required level of quality of performing financial statement professional care in the performance of the audit
audits. requires:
 Observance of the standards of fieldwork
 General standards – the criteria which provide guidance
and reporting.
in the personal qualifications an auditor must possess to
 Critical review of the audit work performed
undertake the audit engagement.
at every level of supervision.
A. Technical training and proficiency.  Degree of skill commonly possessed by
“The examination is to be performed by person or others in the profession.
persons having adequate technical training and  Exercise of the same components of
proficiency as an auditor.” professional care as a reasonable auditor
would exercise.
This standard pertains to professional competence
 Exercise of professional skepticism.
or the professional requirement to properly perform
specific tasks. Professional competence is primarily  Standards of fieldwork – criteria for audit planning and
met by having professional education or training supervision and evidence gathering.
and practical experience in auditing. It can also be D. Planning.
acquired by the auditor through other means such
“The work is to be adequately planned and
as continuing professional development, consulting
assistants, if any are to be properly supervised.”
others if technical information is needed, coaching
by experienced staff and research. However, Audit planning generally involves the determination
professional competence is not to be construed as of the expected nature, timing and extent of the
to include warranting the infallibility of work audit. It helps ensure that the audit is properly
performed. organized, managed and performed in an
effective and efficient manner. The auditor should
B. Independence.
also supervise the work of assistants who aren’t as
“In all matters relating to an engagement, an experienced.
independence in mental attitude is to be
E. Internal control consideration.
maintained by the auditor.”
“There is to be a proper study and evaluation of
The auditor must be impartial when dealing with
the existing internal control as a basis for reliance
the client. The auditor must be both independent in
thereon and for the determination of the resultant
fact and in appearance. Independence in fact
extent of the tests to which auditing procedures
means the auditor has the state of mind that
are to be restricted.”
permits the expression of a conclusion without
being affected by influences that compromise A sufficient understanding of internal control is to
professional judgment, allowing him to act with be obtained to plan the audit. Appropriate internal
integrity and exercise objectivity and professional controls provide the auditor with confidence that

Prepared by: Mohammad Muariff S. Balang, CPA, First Semester, AY 2013-2014 Page|1 of 4
material misstatements will be prevented or indicate the character of the engagement and
detected on a timely basis. Strong internal controls the degree of responsibility assumed by the
imply that the auditor will require less evidence. auditor. This would prevent financial statement
Needless to say, weak internal controls imply that users from misinterpreting the degree of
the auditor will require more evidence. responsibility the auditor is taking.
F. Evidential matter. Reference to the expression “taken as a whole” in
the fourth standard of reporting means that the
“Sufficient, competent evidential matter is to be
auditor’s opinion applies equally to a complete set
obtained through inspection, observation, inquiries,
of financial statements and to each individual
and confirmations to afford a reasonable basis for
financial statement.
an opinion regarding the financial statements
under examination.” GAAS being broad statements need to be clarified. For this
purpose, Philippine Standards on Auditing (PSAs) are issued
The auditor should obtain sufficient appropriate
by the Auditing and Assurance Standards Council.
evidence by performing audit procedures to be
able to draw reasonable conclusions on which to AUDITING AND ASSURANCE STANDARDS COUNCIL
base the opinion regarding the financial The Auditing and Assurance Standards Council (AASC) was
statements under audit. The decision as to how created in December 2005 under the Philippine
much evidence is to be accumulated requires Accountancy Act of 2004 by the Professional Regulation
professional judgment. The PSA does not provide a Commission, upon recommendation by the Board of
specific rule except that the evidence must be Accountancy, to promulgate auditing standards, practices
sufficient to afford a reasonable basis for the and procedures which shall become generally accepted
opinion. It is to be noted that most of an auditor’s by the accounting profession in the Philippines. The AASC is
time is spent on evidence gathering. composed of 15 regular members with a term of 3 years,
 Standards of reporting – criteria for the content of the renewable for another term, coming from the following:
auditor’s report on financial statements and related Senior practitioner in an auditing firm (Chairman) 1
footnote disclosures. Association of CPAs in Public Practice (ACPAPP) 1
G. Generally accepted accounting principles. Board of Accountancy 1
Securities and Exchange Commission 1
“The report shall state whether the financial Commission on Audit 1
statements are presented in accordance with Philippine Institute of CPAs (PICPA)
generally accepted principles of accounting.” Academe 1
Conformity with GAAP is explicit in the auditor’s Commerce and Industry 1
report. The auditor should state whether or not the Government 1
financial statements subject to audit are prepared Public Practice 7
in accordance with GAAP. When an overall The AASC replaced the Auditing Standards and Practices
opinion cannot be expressed, as where the auditor Council (ASPC) established by the PICPA and Association of
claims an opinion, the reasons therefore should be CPAs in Public Practice. The ASPC had 17 regular members
stated. coming from the following:
H. Inconsistency. Independent auditing firms including the Chairman 7
“The report shall identify those circumstances in Association of CPAs in Public Practice (ACPAPP) 2
which principles have not been consistently Board of Accountancy 1
observed in the current period in relation to the Securities and Exchange Commission 1
preceding period.” Commission on Audit 1
Philippine Institute of CPAs (PICPA)
Consistent application of GAAP is implicit in the
Academe 1
auditor’s report. If there is no material consistency
Commerce and Industry 1
as to the application of GAAP, no statement as to
Public Practice 3
the consistency is required in the report. However, if
a material inconsistency exists, the auditor shall Adoption of International Standards
identify such material inconsistency in the auditor’s To facilitate preparation by the AASC of its pronouncements
report. and to attain uniformity of those pronouncements with
I. Disclosures. international auditing standards, the AASC has approved
“Informative disclosures are to be regarded as the adoption of the pronouncements issued by the
reasonably adequate unless otherwise stated in the International Auditing and Assurance Board (IAASB)
report.” created by the International Federation of Accountants
(IFAC). These pronouncements are:
Adequacy of disclosure is implicit in the auditor’s A. International Standards on Auditing (ISAs)
report. If informative disclosures are adequate, no B. International Standards on Assurance Engagements
statement as to the adequacy of disclosure is (ISAEs)
required in the auditor’s report. However, if C. International Standards on Review Engagements
informative disclosures are inadequate, the auditor (ISREs)
must state such inadequacy in the auditor’s report. D. International Standards on Related Services (ISRSs)
J. Opinion. E. Practice Statements.
“The report shall either contain an expression of In this connection, to facilitate their implementation in the
opinion regarding the financial statements, taken Philippines, the International Standards and Practice
as a whole, or an assertion to the effect that an Statements are made Philippine-specific. This process
opinion cannot be expressed. When an overall involves:
opinion cannot be expressed, the reasons A. Making Philippine-specific those paragraphs or
therefore should be stated. In all cases where an sections in International Standards and Practice
auditor’s name is associated with financial Statements that are addressed in broad terms to
statements, the report should contain a clear-cut the international community as a whole to make
indication of the character of the auditor’s them clearly applicable in the Philippines.
examination, if any, and the degree of B. Providing additional information in certain
responsibility the auditor is taking.” paragraphs or sections, whenever necessary, to
facilitate and clearly establish the application in
The expression of audit opinion is explicit in the
the Philippines of the International Standards and
auditor’s report. The objective of this standard is to
Practice Statements.

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Working Procedures Assurance
Philippine
The following are the steps undertaken by the AASC in the Philippine engagements
Assurance
adoption, creation and issuance of its pronouncements: Standards on dealing with
Engagement
Assurance subject matters
A. The AASC members are assigned to workgroups Practice
Engagements other than
each with a designated group leader. Each Statements
(PSAEs) historical financial
workgroup are assigned specific ISAs, IAPSs or (PAEPSs)
information
IAASB’s exposure drafts to review and has the initial
responsibility for the preparation and drafting the Compilation
exposure draft on the proposed Philippine engagements,
Standard or Practice Statement for consideration engagements to
apply agreed-
by the AASC en banc. Philippine Philippine Related
upon procedures
Standards on Services Practice
B. After the review of the specific ISAs or IAPSs has to information and
Related Services Statements
been performed, an exposure draft is distributed to other related
(PSRSs) (PRSPSs)
interested organizations and persons for comment. service
The exposure period allowed for each exposure engagements as
specified by the
draft of PSA is generally 90 days or three months.
AASC
Issuance of exposure draft requires the approval of
the majority of the AASC members. Philippine Framework for Assurance Engagements
Interpretations, if issued by the AASC, need not be The Philippine Framework for Assurance Engagements:
exposed for comment, except when it is deemed A. Provides a frame of reference for practitioners and
desirable, in which case the exposure period will others involved with assurance engagements.
normally be the same as that of a proposed B. Describes the objectives and elements of
Philippine Standard or Practice Statement. assurance engagements intended to provide
C. The comments and suggestions received as a result either a high or moderate level of assurance.
of the exposure of proposed auditing standards or The Framework does not itself establish standards or provide
statements are then considered by AASC and the procedural requirements for the performance of assurance
exposure draft is revised as appropriate. If engagements. It rather defines and describes the elements
necessary and under applicable circumstances, and objectives of an assurance engagement and identifies
the comments and suggestions may also be engagements to which PSAs, PSREs and PSAEs apply.
passed on to IAASB for its consideration.
Philippine Standards
D. When the revised draft is approved, it is issued as a
PSAs, PSREs, PSAEs and PSRSs are collectively referred to as
final PSA or PAPS. Issuance of final auditing
the AASC’s Engagement Standards. Philippine Standards on
standards, interpretations and statements requires
Quality Control (PSQCs) are to be applied for all services
approval of at least ten members of the AASC.
falling under the AASC’s Engagement Standards. Philippine
E. The final standard and statement shall be Standards are applicable to engagements in the public
submitted to the Professional Regulation sector.
Commission through the Board of Accountancy for
The AASC’s standards contain basic principles and essential
approval and after which the pronouncements
procedures (identified in bold type lettering) together with
become operative from the effective date stated
related guidance in the form of explanatory and other
therein.
material, including appendices. The basic principles and
The development of additional auditing standards or essential procedures are to be understood and applied in
statements to address the unique requirements of Philippine the context of the explanatory and other materials that
law or practice shall likewise undergo the same process provide guidance for their application.
and procedures described above.
Standards need only be applied to material matters. Any
IAASB Clarity Project limitation of the applicability of a specific Philippine
In March 2009, the IAASB completed its comprehensive Standard is made clear in the standard.
review on all of its pronouncements. The project did not The nature of the Philippine Standards issued by the AASC
only enhance understandability of the ISAs but it also requires professional accountants to exercise professional
contained changes to requirements under certain auditing judgment in applying them. In exceptional circumstances,
standards. The final set of clarified standards comprises: a professional accountant may judge it necessary to
A. 1 new standard. depart from a basic principle or essential procedure of an
B. 16 standards containing new and revised Engagement Standard to achieve more effectively the
requirements referred to as “Revised and objective of the engagement. When such a situation arises,
Redrafted PSAs.” the professional accountant should be prepared to justify
C. 19 standards that have been redrafted to enhance the departure.
their quality referred to as “Redrafted PSAs.”
Philippine Practice Statements
THE AUTHORITY ATTACHING TO AASC PRONOUNCEMENTS Philippine Practice Statements are issued to:
A. Provide interpretative guidance and practical
Related Practice assistance to professional accountants in
Standards Application
Statements implementing Philippine Standards.
B. Promote good practice.
AASC
Philippine
Engagements Professional accountant should be aware of and consider
Standards on
Standards (PSAs, Not applicable Practice Statements applicable to the engagement. A
Quality Control
PSREs, PSAEs, professional accountant who does not consider and apply
(PSQCs)
PSRSs) the guidance included in a relevant Practice Statement
Philippine Audits of historical Philippine Auditing should be prepared to explain how the basic principles and
Standards financial Practice essential procedures in the AASC’s Engagement Standards
on Auditing (PSAs) information Statements (PAPSs) addressed by the Practice Statement have been complied
with.
Philippine Philippine Review
Standards Review of historical Engagement Discussion Papers
on Review financial Practice Other papers such as discussion papers, are also published
Engagements information Statements
by the AASC to promote discussion or debate on auditing,
(PSREs) (PREPSs)
assurance and related services and quality control issues

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affecting the accounting profession, present findings, or
describe matters of interest relating to auditing, assurance,
related services and quality control issues affecting the
accounting profession. They do not establish any basic
principles or essential procedures to be followed in audit,
assurance or related services engagements.
Structure of AASC Pronouncements

Philippine standards and practice statements adopted

from International pronouncements will use the same
numbers as their counterpart International pronouncements.
Those that are Philippine specific and are not adopted from
International pronouncements will be numbered
consecutively with suffix “Ph”.

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