CHAPTER 10  Reviewing procedures management has

established to identify subsequent events.

Series of procedures are generally carried out to
 Reviewing the minutes of board of
complete the audit (IIOP)
directors and stockholders’ meetings.
1. Identifying subsequent events that may  Reading the latest available interim
affect the financial statements under audit financial statement as well as management
2. Identifying contingencies such as reports such as budgets and forecasts.
litigation, claims and assessment.  Inquiring of the entity’s lawyers
3. Obtaining written management concerning litigation claims, and forecasts.
representation.
THE AUDITOR SHOULD CONSIDER THE
4. Performing wrap-up procedures.
ADEQUACY OF DISCLOSURE AND SHOULD
SUBSEQUENT EVENTS MAY BE DATE THRE REPORT EITHER;
CLASSIFIED AS: (RRPSE)
1. As of the date of the subsequent event
 Requiring Adjustment 2. Dual date the report
 Requiring Disclosure
PSA 580, REQUIRES AN AUDITOR TO
 Procedures to Identify subsequent event
OBTAIN SAE THAT THE ENTITY’S
 Subsequent events occurring after the
MANAGEMENT
report date but before the financial
statement are issued.  Has acknowledged that it has fulfilled its
 Effect of subsequent events on the date of responsibility for the preparation and
the report representation of fair financial statements;
and
REQUIRING ADJUSTMENT
 Has approved the financial statement
 Settlement of litigation in excess of the
REPRESENTATION LETTER FROM
recorded liability.
MANAGEMENT. THIS LETTER INCLUDES
 Loss on uncollectible receivables as a
result of customer’s deteriorating financial  A representation that management has
condition. fulfilled its responsibility for the
preparation and presentation of the
REQUIRING DISCLOSURE: EXAMPLE
financial statement as set out in the terms
 Issuance of stocks of bonds after the of the engagement;
balance sheet date.  A representation that the financial
 Loss on inventory due to fire that occurred statements are prepared and presented in
in the subsequent period accordance with the applicable financial
 Loss on uncollectible receivable because reporting framework;
of a major casualty suffered by that  A representation that management has
customer after the balance sheet date. provided the auditor with all relevant
information agreed in the terms of the
PROCEDURES TO IDENTIFY SUBSEQUENT engagement, and the all transactions have
EVENTS; THESE ORDINARILY INCLUDES: been recorded and reflected in the financial
(IRRRI) statement;
 Inquiring of management about any
subsequent events.
  A representation that describes  In addition, the auditor should evaluate
management’s responsibilities as described management’s assessment of the entity’s
in the terms of the engagement; ability to continue as a going concern.
 Other representation required by other
EXAMPLES OF CONDITIONS OR EVENTS
PSAs
THAT MAY CAST SIGNIFICANT DOUBT
BASIC ELEMTS OF A WRITTEN ABOUT THE GOING CONCERN
MANAGEMENT REPRESENTATION ASSUMPTION INCLUDE: (NPC NSIL)
 The written representation should be  Non-compliance with the terms of loan
addressed to the auditor. agreements of other statutory
 The date of the written representations requirements.
shall be as near as practicable to, but not  Pending major legal or regulatory
after, the date of the auditor’s report. proceedings.
 The written representation should be  Changes in legislation or government
signed by the appropriate level of policy expected to adversely affect the
management who has the primary entity.
responsibility for the financial statement.  Net liability or net current liability
 Substantial operating losses
WRAP-UP PROCEDURES, THESE ICLUDES
 Inability to pay creditors on due dates
 Final analytical procedures  Loss of major market, franchise, license or
 Evaluation of the entity’s ability to principal supplier.
continue as a going concern
MITIGATED BY MANAGEMENT’S PLANS
 Evaluating audit findings and obtaining
TO MAINTAIN ADEQUATE CASH FLOWS
client’s approval for the proposed
BY
adjusting entries.
 Disposal of assets
ANALYTICAL PROCEDURES APPLIED IN
 Rescheduling of loan repayments; or
THE COMPLETION PHASE OF THE AUDIT
 Obtaining additional capital
SHOULD FOCUS ON
EVENTS AFTER THE FINANCIAL
 Identifying unusual fluctuations that were
STATEMENTS HAVE BEEN ISSUED
not previously identified.
 Assessing the validity of the conclusions  Subsequent discovery of facts
reached and evaluating the overall  Subsequent discovery of omitted
financial statement presentation. procedures
AUDITOR’S RESPONSIBILITY, CONSIDER SUBSEQUENT DISCOVERY OF FACTS
THE APPROPRIATENESS OF MANAGEMENT
 Which existed at the date of the auditor’s
GOING CONCERN ASSUMPTION
report; and
 The auditor should consider whether there  Which, if known at that date, may have
are events or conditions which may cast caused the auditor to modify the report.
significant doubt on the entity’s ability to
A MATERIAL FACT, WHEN AUDITOR
continue as a going concern.
BECOMES AWARE OF THIS TYPE OF
INFORMATION HE SHOULD;
  Discuss the matter with the appropriate  Provide disclosure beyond those
level of management and consider whether specifically required
the financial statements need revision.  Depart from a requirement of the
 Advise management to take the necessary framework to achieve fair presentation
steps to ensure that the users of the
IN FORMING OPINION, THE AUDITOR
previously issued financial statements are
MUST FORM JUDGMETN AS TO WHETHER:
informed of the situation.
1. The accounting policies selected and
SUBSEQUENT DISCOVERY OF OMITTED
applied are consistent with the financial
PROCEDURES
reporting framework and are appropriate in
AUDITOR SHOULD FOLLOW THESE the circumstances
QUIDELINES; 2. The accounting estimates made by
management are reasonable in the
1. Asses the importance of the omitted
circumstances
procedures to the auditor’s ability to
3. The information presented in the financial
support his opinion.
statements; including accounting policies,
2. Undertake to apply the omitted procedures
is relevant, reliable, comparable and
or the corresponding alternative
understandable; and
procedures.
4. The financial statements provide sufficient
ASSESS THE IMPORTANCE OF THE disclosures to enable users to understand
OMITTED PROCEDURES TO THE the effects of material transactions and
AUDITOR’S ABILITY TO SUPPORT HIS events conveyed in the financial
OPINION. statements.

EVALUATING SUCH RESULTS INVOLVES: BASIC ELEMENTS OF UNMODIFIED

REPORT
 Reviewing the working papers
 Discussing the circumstances with the (TAABRAOAAD)
engagement personnel
 Reevaluating the scope of the audit. 1. Title
2. Addressee
CHAPTER 11 3. Auditor’s Opinion
AUDITOR’S REPORT on FINANCIAL 4. Basis for Opinion
STATEMENT 5. Responsibilities for the Financial
Statements
 Unmodified Report 6. Auditor’s Responsibilities for the Audit of
 Modification to the Opinion the Financial Statements
 Emphasis of Matters and Other Matter 7. Other Reporting Responsibilities
Paragraph 8. Auditor’s signature
 Key Audit Matters and Other Information 9. Auditor’s address
 Report on Group FS 10. Date of the report
 Special Purpose FS
TITLE; THIS IS DONE IN ORDER TO:
FAIR PRESENTATION FRAMWORK…
REQUIRES COMPLIANCE WITH THE
REQUIREMENTS OF THE FRAMWORK AND:
  To distinguish the auditor’s report from a) Management’s responsibility for the
the reports that might be issued by other; preparation and fair presentation of the
and financial statements.
 To emphasize the independence of the b) Responsibility of the management in
auditor with respect to the client being assessing the entity’s ability to continue
audited. as a going concern
c) The responsibility of those charge with
AUDITOR’S OPINION; THIS SECTION
governance for overseeing the financial
SHALL HAVE THE HEADING “OPINION”
reporting process.
AND SHALL; (ISIR)
“AUDITORS RESPONSIBILITIES FOR THE
a) Identify the name of the entity whose
AUDIT OF THE FINANCIAL STATEMENT
financial statement have been audited;
“AND THIS SHALL;
b) State that the financial statements have
been audited; a) State that the objectives of the auditor are
c) Identify the title of each of the financial to:
statements audited including the date and b) State that reasonable assurance is a high
period covered by the financial statements; level of assurance but is not a guarantee
and that an audit conducted in accordance with
d) Refer to the summary of significant PSAs will always detect a material
accounting policies and explanatory misstatement when it exists
notes c) State that misstatement can arise from
fraud and error
BASIS FOR OPINION; THIS SHALL BE
d) State that, as part of the audit is accordance
PRESENTED IMMEDIATELY AFTER THE
with PSAs, the auditor exercises
OPINION SECTION AND SHALL;
professional judgement and maintains
a) State that the audit was conducted in professional skepticism throughout the
accordance with the Philippine Standards audit
on Auditing; e) Describe an audit by stating that the
b) Refer to the section od the auditor’s report auditor’s responsibilities
that describes the auditor’s responsibilities f) State that the auditor communicates with
under the PSAs those charge with governance the planned
c) Includes a statement that the auditor is scope and timing of the audit and
independent of the entity and has significant audit findings including any
fulfilled the auditor’s ethical significant deficiencies in internal control
responsibilities; and identified during the audit.
d) State whether the auditor believes that the
DESCRIBE AN AUDIT BY STATING THAT
audit evidence the auditor has obtained is
THE AUDITOR’S RESPONSIBILITIES
sufficient and appropriate to provide a
basis for the auditor’s opinion.  To identify and assess the risk of material
misstatement of the financial statement
RESPONSIBILITIES OF MANAGEMENT AND
 To obtain an understanding of internal
THOSE CHARGE WITH GOVERNANCE FOR
control relevant to the audit in order to
THE FINANCIAL STATEMENT; THIS
design appropriate audit procedure.
SECTION SHALL DESCRIBE
  To evaluate the appropriateness of the 2. Determine which of these matters re
accounting policies used and the quired significant auditor’s attention
reasonableness of the accounting estimate 3. Which of these matters that required
and related disclosure significant attention are the most
 To conclude on the appropriateness of significance to the audit of the current
management’s use of the going concern period
basis of accounting
KEY AUDIT MATTERS
 To evaluate the fair presentation of the
financial statements.  Matters that were communicated with
those charged with governance
MATERIAL MISSTATEMENT OF THE
 Matters that required significant auditor
FINANCIAL STATEMENTS MAY ARISE
attention
FROM
 Matters of most significance
1. Inappropriate accounting policy selected;
EXAMPLE OF CIRCUMSTANCES WHERE
2. Misapplication of selected accounting
THE AUDITORS MAY CONSIDER IT
policy; or
NECESSARY TO INCLUDE AN EMPHASIS
3. Inappropriate or inadequate disclosure.
OF MATTER PARAGRAPH:
THE FOLLOWING SUMMARIZED THE
1. Significant uncertainty
MODIFICATIONS THAT SHOULD BE MADE
2. Early application of new accounting
TO THE OPINION SECTION OF THE
standard in advance of its effective date.
AUDITOR’S REPORT;
3. A major catastrophe that has a significant
 Qualified Opinion Due To Material effect on the entity’s financial position.
Misstatement 4. A subsequent discovery of facts affecting
 Qualified Opinion Due To Scope the previously issued opinion.
Limitation 5. Financial statements prepared using a
 Adverse Opinion special purpose framework.
 Disclaimer Of Opinion
CIRCUMSTANCES WHICH REQUIRE
BASIS FOR OPINION, DESCRIPTION OF THE OTHER MATTER PARAGRAPH INCLUDES;
MATTER GIVING ARISE TO THE
 Reporting on comparative information
MODIFICATION
 Financial statements prepared using more
 Material misstatement (qualified or than one financial frameworks.
adverse opinion  Limiting the use of the auditor’s report.
 Omission of narrative disclosure (qualified  Subsequent discovery of facts.
or adverse opinion
Two financial reporting frameworks for
 Scope limitation (qualified or disclaimer of
comparatives
opinion)
 Comparative financial statements
THE AUDITOR’S DETERMINATION OF KEY
 Corresponding figures
AUDIT MATTERS INVOLVES THREE STEPS
REPORTS ON COMPARATIVE FINANCIAL
1. Categorized the matters that were
STATEMENT CAN BE ILLUSTRATED
communicated with those charged with
UNDER THE FOLLOWING SCENARIOS.
governance
  Prior period Financial Statements were WHETER A PARTICULAR ENGAGEMENT IS
audited by a continuing auditor AN ASSURANCE ENGAGEMENT WILL
 Prior period Financial Statements were DEPEND UPON WHETHER IT EXHIBITS ALL
audited by another auditor THE FOLLOWING ELEMENTS
 Prior Period Financial Statement were not
 A three party relationship
audited
 An appropriate subject matter;
EXAMPLES OF SPECIAL PURPOSE  Suitable criteria;
FRAMEWORK INCLUDE  Sufficient appropriate evidence; and
 A written assurance report.
 other comprehensive basis of accounting
such as cash basis, modified cash basis, or ASSURANCE ENGAGEMENT INVOLVES
other basis of accounting that has THREE SEPARATE PARTIES;
authoritative support.
 An independent and competent
 Financial reporting provisions established
professional accountant who adheres to the
by government regulators such as SEC, IC
fundamental principles required by the
or BSP.
code of Ethics.
 Financial reporting provision of a contract,
 The party responsible for the subject
such as bond indenture, a loan agreement
matter of the assurance engagement.
or a project grant.
 The intended user to whom the
CHAPTER 12 professional accountant usually addresses
the report
FOUR TYPES OFSERVISE THAT ARE
NORMALLY PERFORMED IN CONNECTION SUBJECT MATTER OF AN ASSURANCE
WITH THE ENTITY’S FINANCIAL ENGAGEMENT MAY TAKE MANY FORM
STATEMENTS.
 Data
 Audit  System and processes
 Review  Behavior
 Compilation  Physical characteristics
 Agreed-upon Procedures
OTHER ENGAGEMENT FREQUENTLY
THESE ARE ALSO AUDIT PROCEDURE BUT PERFORMED BY PROFESSIONAL
USUALLY APPLIED ONLY TO SPECIFIC ACCOUNTANTS THAT ARE NOT
ACCOUNTS OR ELEMENTS OF A ASSURANCE ENGAGEMENTS INCLUDE
FINANCIAL STATEMENT.
 Agreed-upon procedures
 Inquiry and analysis  Compilation of financial or other
 Recomputation, comparison and other information;
clerical accuracy checks  Preparation of tax returns when no
 Observation conclusion is expressed and tax consulting;
 Inspection  Management consulting; and
 Obtaining confirmations.  Other advisory services
TYPES OF ASSURANCE ENGAGEMENTS TWO GEERAL TYPES OF PROSPECTIVE
FINANCIAL INFORMATION
 Reasonable assurance engagement
 Limited assurance engagement  Forecast
  Projection  A member of the engagement team being,
or having recently been, a director or
CHAPTER 13
officer of the client.
CODE OF ETHICS; IS DIVIDED IN THREE  A member of the engagement team being,
PARTS; or having recently been, an employee of
the client in a position to exert direct and
 Part A- General Application significant influence over the subject
 Part B- Professional Accountants in Public matter of the engagement.
Practice  Performing service for a client that directly
PROFESSIONAL ACCOUNTANTS HAVE TO affect the subject matter of the engagement
OBSERVE A NUMBER OF PREREQUISITES  Preparation of original data used to
OR FUNDAMENTAL PRINCIPLES. generate financial statements or
preparation of other records that are the
 Integrity subject matter of another engagement.
 Objectivity  Reporting on the operation of financial
 Professional Competence and due Care systems after being involved in their
 Confidentiality design or implementation.
 Professional Behavior  The discovery of a significant error during
THREATS TO COMPLIANCE WITH THE revaluation of the work of the professional
FUNDAMENTAL PRINCIPLES (SSAFI) accountant in public practice.

 Self-Interest ADVOCACY THREAT

 Self-review  Dealing in, or being a promoter of, share or
 Advocacy other securities in a client; and
 Familiarity; and  Acting as an advocate on behalf of client in
 Intimidation litigation or in resolving dispute with third
EXAMPLE OF CIRCUMSTANCE THAT MAY parties.
CREATE SELF-INTEREST THEAT FAMILIARITY THREAT
 A direct financial interest or material  A member of the engagement team having
indirect financial interest in a client. an immediate family member or close
 A loan or guarantee to or from a client or family member who is a director or officer
any of its directors or officers of the client.
 Undue dependence on total fees from a  A member of the engagement team having
particular client an immediate family member or close
 Concern about the possibility of losing the family member who, as an employee of the
engagement assurance client, is in a position to exert
 Having a close business relationship with a direct and significant influence over the
client subject matter of the engagement
 Potential employment with a client  A former partner of the firm being a
 Contingent fees relating to an engagement director, officer of the client or an
EXAMPLE OF CIRCUMSTANCE THAT MAY employee in a position to exert direct and
CREATE SELF-REVIEW THREAT INCLUDE significant influence over the subject
matter of the engagement
  Long association of a senior member of the  The nature of the engagement
engagement team with the client  The range of possible fee amounts
 Acceptance of gifts or preferential  The basis for determining the fee
treatment, unless the value is clearly  Whether the outcome or result of the
insignificant, from a client, its directors, transaction is to be reviewed by an
officers or employees. independent third party

INTIMIDATION THRERAT THE INDEPENDENCE INTERPRETATIONS

AND RULING, MAY SERVE AS GUIDELINES
 Being threatened with litigation
TO PROFESSIONAL ACCOUNTANTS;
 Being threatened with dismissal or
replacement over a disagreement with the  Financial interest
application of an accounting principle.  Loans and guarantees
 Being pressured to reduce inappropriately  Close business relationship
the extent of work performed in order to  Family and personal relationship
reduce fees.  Past employment with an assurance client
 Serving as an officer or director on the
SAGEQUARDS FALL INTO TWO
board of assurance clients
CATEGORIES
 Long association with assurance clients
 Safeguards created by the profession,  Fees-overdue
legislation or regulation  Contingent fee
 safeguards in the work environment  Gifts and hospitality
 Actual or threatened litigation
SAFEGUARDS CREATED BY THE
PROFESSION, LITIGATION OR
REGULATION
DHUAWDOUDIYADIAW
 Educational, training and experience
requirements for entry into the profession
 Continuing education requirements
 Corporate governance regulations
 Professional standards and monitoring and
disciplinary processes
 External review of a firm's quality control
system
SAFEGUARDS IN THE WORK
ENVIRONMENT CONSIST OF;
 Firm-wide safeguards
 Engagement specific safeguards
CONTINGENT FEES GIVE RISE TO SELF-
INTEREST THREAT TO OBJECTIVITY. THE
SIGNIFICANCE OF SUCH THREATS WILL
DEPEND ON FACTORS