For Recitation: September 3, 2024

 PAS 210
 PAS 300
 PAS 510
 PAS 315
PSA 210

Agreeing the Terms of Audit Engagements

Introduction
o Philippine Standard on Auditing (PSA) 210 (Redrafted)
 outlines the essential responsibilities of auditors when agreeing on the terms of
audit engagements
 This standard highlighted the need for auditors to establish a clear
understanding with management and those charged with governance regarding
the prerequisites for conducting an audit.
 Effective for audits of financial statements for periods beginning on or after
December 15, 2009, PSA 210 is critical in ensuring transparency and
accountability in the auditing process.
Key Vocabulary
o Audit Engagement
 An agreement between the auditor and the entity regarding the audit's scope
and responsibilities.
o Preconditions for an Audit
 Requirements that must be fulfilled before an audit can commence, including an
acceptable financial reporting framework.
o Management Responsibilities
 Obligations of management to prepare financial statements and maintain
internal controls.
Main Objectives
1. Scope and Objective
a. PSA 210 focuses on the auditor's responsibilities in agreeing to audit engagement terms
with management and governance.
b. The objective is to ensure a mutual understanding of the audit's basis, including:
i. Confirmation of preconditions.
ii. Agreement on the terms of the audit engagement.
2. Preconditions for an Audit
a. Preconditions include:
i. The use of an acceptable financial reporting framework for preparing financial
statements.
ii. Management acknowledging its responsibilities, including:
 Preparing financial statements in accordance with applicable
frameworks.
 Maintaining internal controls to prevent misstatements.
 Providing necessary information and access to the auditor.
3. Agreement on Audit Engagement Terms
a. Terms of the engagement must be recorded in an audit engagement letter detailing:
i. Objectives and scope of the audit.
 ii. Responsibilities of both the auditor and management.
iii. Applicable financial reporting framework.
iv. Expected form and content of any reports to be issued.
4. Recurring Audits
a. For recurring audits, auditors must assess whether existing terms need revision based on
changes in circumstances, management, or the entity's structure.
5. Changes in Audit Engagement Terms
a. Auditors must not agree to changes in engagement terms without reasonable
justification.
b. If requested changes involve lower assurance levels, auditors should evaluate the
justification before proceeding.
6. Additional Considerations
a. The presence of financial reporting standards supplemented by law or regulation may
affect audit engagement acceptance.
b. Auditors must evaluate potential conflicts between prescribed standards and additional
legal requirements.
7. Auditor’s Report and Responsibilities
a. Auditors must ensure their report reflects compliance with PSAs and accurately
represents the audit's scope and findings.
b. The auditor's report must include a description of management's responsibilities,
emphasizing the need for effective internal controls.
Relevant Facts and Context
o PSA 210 is fundamental for maintaining the quality and integrity of audits in the
Philippines.
o It emphasizes the importance of communication and understanding in the auditor-
management relationship, which is critical for effective audits.
Opinions and Arguments
o The PSA argues for a structured approach to audit engagements, advocating for clear
agreements to prevent misunderstandings and ensure compliance with auditing
standards.
o The importance of management's acknowledgment of their responsibilities is
underscored, as it sets the premise for the audit process.
Real-World Examples
o The standard references practical scenarios, such as the implications of limitations on
the auditor’s scope imposed by management, which could lead to disclaiming an opinion
on the financial statements.
Conclusion
o PSA 210 (Redrafted) serves as a vital framework for auditors in the Philippines, guiding
them in agreeing on audit engagement terms with management.
o By ensuring that both parties understand their responsibilities, the standard promotes
accountability and enhances the reliability of financial reporting.
o The emphasis on clear communication, adherence to established frameworks, and
recognition of management's duties is crucial for the successful execution of audits,
 ultimately contributing to the integrity of financial statements in the business
environment.

PAS 300

Summary
o PSA 300 outlines the auditor's responsibilities for planning financial statement audits,
emphasizing the importance of establishing an overall audit strategy, involving key
engagement team members, and conducting preliminary activities.
o Effective planning enhances audit efficiency and effectiveness, ensuring compliance with
ethical standards and addressing potential risks.
Highlights -📋
1. Planning Importance - Effective audit planning enhances focus and efficiency.
2. Engagement Team Involvement - Key members should participate actively in planning.
3. Preliminary Activities - Initial activities are crucial for understanding client relationships.
4. Audit Strategy Development - Establishes scope, timing, and direction for the audit.
5. Documentation Requirement** - Essential to document strategies and plans for review.
6. Adaptability - Plans should be updated based on new findings during audits.
7. Initial Engagement Considerations** - Special planning for first-time audits due to lack of prior
experience.
Key Insights -🔍
1. Enhancing Audit Efficiency
a. Proper planning allows auditors to allocate resources effectively, focusing on high-risk
areas and ensuring thorough examinations.
b. This strategic approach minimizes oversights and strengthens the audit's overall quality.
🔄
2. Collaboration and Communication
a. Involving key engagement team members fosters a collaborative environment where
insights and experiences are shared, enhancing the audit's effectiveness and promoting
a culture of professional skepticism. 🤝
3. Ethical Compliance
a. Preliminary engagement activities ensure that auditors maintain independence and
comply with ethical requirements, safeguarding the integrity of the audit process.
b. This is crucial in preserving public trust. ⚖️
4. Dynamic Planning Process
a. Audit planning is not static; it requires continuous updates based on evolving
circumstances and findings, reflecting a responsive approach to risk management during
the audit lifecycle. 📈
5. Initial Engagement Challenges
a. Initial audits necessitate greater scrutiny and thorough planning due to unfamiliarity
with the entity, highlighting the need for detailed procedures and communication with
predecessor auditors. 🏁
6. Documentation as a Key Element
 a. Comprehensive documentation of the audit strategy and plans serves as a critical
reference point for both current and future audits, ensuring accountability and
transparency. 📚
7. Industry-Specific Considerations
a. Auditors must tailor their strategies to align with industry-specific regulations and
complexities, ensuring that the audit approach is relevant and compliant with the
applicable financial reporting frameworks. 🏢

PAS 510

Summary
o PSA 510 (Redrafted) outlines the auditor’s responsibilities regarding opening balances in
initial audit engagements.
o It emphasizes obtaining sufficient evidence to verify that opening balances are free from
misstatements and that accounting policies have been consistently applied.
o Effective from December 15, 2009, the standard provides guidelines on audit
procedures, conclusions, and reporting, highlighting the importance of predecessor
auditor evaluations and modifications in opinions where necessary.
Highlights -📊
1. Initial Engagements: Focuses on opening balances in audits.
2. Audit Procedures: Requires sufficient evidence to confirm accuracy.
3. Consistency: Ensures consistent accounting policies across periods.
4. Predecessor Reports: Evaluates previous auditors' findings.
5. Qualified Opinions: Outlines conditions for expressing qualified or adverse opinions.
6. Effective Date: Applicable to audits from December 15, 2009, onwards.
7. International Standards: Based on global auditing standards for alignment.
Key Insights -🔍
1. Importance of Opening Balances
a. Opening balances set the foundation for current financial statements; misstatements
here can lead to significant impacts on overall financial reporting. 🔍
2. Role of the Predecessor Auditor
a. The predecessor auditor's reports are crucial for auditors to gather context and
background, influencing the risk assessment of current audits. ‍♂️
3. Audit Evidence Requirements
a. The standard emphasizes a rigorous approach to collecting audit evidence, ensuring that
all financial figures are backed by reliable data. 📈
4. Impact on Auditor Opinions
a. The inability to obtain satisfactory evidence can lead to qualified or adverse opinions,
which can affect stakeholders' trust in financial statements. ⚖️
5. Consistency in Accounting Policies
a. The need for consistency in applying accounting policies across periods is vital for
transparency and comparability in financial reporting. 🔄
6. Regulatory Compliance
a. Adhering to PSA 510 ensures compliance with Philippine auditing standards and
enhances the credibility of audits in the eyes of regulators and stakeholders. 📜
 7. Framework for Future Audits
a. This standard lays a framework for auditors to assess and address opening balances
effectively in future audits, shaping best practices in the profession.

PAS 315

Summary
o PSA 315 (Redrafted) outlines the auditor's responsibilities in identifying and assessing
risks of material misstatement in financial statements through understanding the entity
and its environment, including internal controls.
o It emphasizes the importance of risk assessment procedures, the auditor's objectives,
and the documentation of identified risks and controls.
Highlights -📊
1. Risk Assessment Procedures
a. Auditors must perform specific procedures to identify risks of misstatement.
2. Understanding the Entity
a. A thorough understanding of the entity's environment and internal control is essential. 🏢
3. Significant Risks
a. Risks that require special attention must be identified and understood. ⚠️
4. Material Weaknesses
a. Auditors should evaluate and communicate any material weaknesses in internal
controls. 📉
5. Documentation Requirements
a. Proper documentation of discussions and risk assessments is critical. 📝
6. Control Environment
a. The control environment influences the effectiveness of internal controls. 🌐
7. Continuous Process
a. Understanding the entity is a dynamic, ongoing process throughout the audit. 🔄
Key Insights -🔑
1. Dynamic Risk Assessment
a. The process of assessing risks is not static; it evolves as new information is gathered
during the audit.
b. This highlights the need for auditors to remain vigilant and adaptable to changing
circumstances. 🔄
2. Importance of Internal Controls
a. Auditors must assess the design and implementation of internal controls, as effective
controls reduce the likelihood of material misstatement, emphasizing the need for
robust governance structures.
3. Significant Risks Identification
a. Identifying significant risks, particularly those related to fraud, is crucial for auditors.
b. This requires a nuanced understanding of the entity's operations and potential
vulnerabilities. ⚠️
4. Material Weakness Communication
 a. Timely communication of identified material weaknesses to management and
governance bodies is essential for corrective action and maintaining trust in financial
reporting. 📢
5. Holistic Understanding of Entity
a. A comprehensive understanding of the entity's operations, including accounting policies
and business risks, aids in accurately assessing risks of material misstatement. 🏢
6. Continuous Monitoring
a. The control environment should be actively monitored, as its effectiveness directly
impacts the reliability of financial statements, requiring ongoing evaluation by auditors.
🔍
7. Documentation as Evidence
a. Thorough documentation of risk assessments and internal control evaluations serves as
crucial evidence for the auditor's conclusions and recommendations, reinforcing
accountability and transparency. 📑