REPUBLIC ACT NO.

9298
The Philippine Accountancy Act of 200
!EC. " T#E P#ILIPPINE ACCOUNTANC$ ACT O% 200
!EC. 2 &ECLARATION O% POLIC$'
The State recognizes the IMPORTANCE OF ACCOUNTANTS in NATION BUILDING and
DEELOPMENT! "ence# it sha$$ de%e$o& and n'rt're co(&etent# %irt'o's# &rod'cti%e
and )e$$*ro'nded &ro+essiona$ acco'ntants )hose standards o+ &ractice and ser%ice
sha$$ ,e e-ce$$ent# .'a$itati%e# )or$d c$ass and g$o,a$$/ co(&etiti%e thro'gh
in%io$a,$e# honest# e0ecti%e# and credi,$e $icens're e-a(inations and thro'gh
reg'$ator/ (eas'res# &rogra(s and acti%ities that +oster their &ro+essiona$ gro)th
and de%e$o&(ent!
!EC. ( OB)ECTI*E!' This Act sha$$ &ro%ide +or and go%ern1
a! The STANDARDI2ATION and REGULATION o+ acco'nting ed'cation3
,! The E4AMINATION +or REGISTRATION o+ CPAs3 and
c! The SUPERISION# CONTROL and REGULATION o+ the PRACTICE OF
ACCOUNTANC5 in the Phi$i&&ines!
!EC. !COPE O% PRACTICE' sha$$ inc$'de ,'t not $i(ited to &ractice o+6in1
a! PUBLIC ACCOUNTANC5
,! COMMERCE and INDUSTR5
c! EDUCATION and ACADEME
d! GOERNMENT
!EC. + BOAR& O% ACCOUNTANC$' is the &ro+essiona$ reg'$ator/ ,oard +or the
&ractice o+ acco'ntanc/ 'nder the s'&er%ision and ad(inistrati%e contro$ o+ the
PRC# )hich is co(&osed o+1
Fro( 7 no(inees 8 reco((endees 9 Chair(an :President;
+or each &osition :PICPA; +or each &osition :PRC; < (e(,ers = 9 %ice*
chair(an
!EC. , -UALI%ICATION! of .e./e01 of the BOA' .u1t /e
* Nat'ra$ ,orn citizen and resident o+ the Phi$i&&ines
* CPA )ith at $east ten :9>; /ears o+ e-&erience
* O+ good (ora$ character and not ha%e ,een con%icted o+ cri(es in%o$%ing (ora$
t'r&it'de
* Not ha%e an/ &ec'niar/ interest in an/ entit/ con+erring acade(ic degree
necessar/ +or ad(ission to &ractice o+ acco'ntanc/
!EC. 2 TER3 O% O%%ICE of .e./e01 of BOA'
Chair(an and (e(,ers * no &erson sha$$ ser%e (ore than t)o :?; s'ccessi%e
ter(s ,'t is e$igi,$e +or re*a&&oint(ent a+ter $a&se o+ one :9; /ear3 Ter( is e.'a$ to
three :8; /ears!
* acanc/ sha$$ ,e @$$ed +or re(aining ter( on$/
ice*chair(an * ter( o+ one :9; /ear
!EC. 8 CO3PEN!ATION AN& ALLO4ANCE of the Boa05' &ro%ided +or in
Genera$ A&&ro&riations Act :GPA;
!EC. 9 PO4ER! AN& %UNCTION! of the Boa05'
* To PRESCRIBE and ado&t RULES AND REGULATIONS necessar/ to carr/ o't this
Act!
* To SUPERISE the registration# $icens're and PRACTICE OF ACCOUNTANC5 in the
Phi$i&&ines
* To ADMINISTER OAT"
* To ISSUE# SUSPEND# REOAE OR REINSTATE the CERTIFICATE OF REGISTRATION
+or the &ractice o+ the &ro+ession
* To ADOPT OFFICIAL SEAL o+ the BOA
* To &rescri,e and ADOPT CODE OF ET"ICS
* To MONITOR CONDITIONS AFFECTING T"E PRACTICE o+ acco'ntanc/
* To cond'ct or OERSIG"T )ith the BUALIT5 OF AUDITS o+ FS
* To INESTIGATE IOLATIONS o+ this Act
* To (aCe s'ch INESTIGATIONS as it dee(s necessar/
* To ISSUE a CEASE AND DESIST ORDER to an/ &erson# association or &artnershi&
engaged in %io$ation o+ this Act
* To PUNIS" FOR CONTEMPT o+ the Board# in accordance )ith the R'$es o+ Co'rt
* To PREPARE# ADOPT# ISSUE OR AMEND the S5LLABI o+ the s',Dects +or
e-a(ination in cons'$tation )ith the acade(e
* To ENSURE# in coordination )ith C"ED
* To E4ERCISE s'ch OT"ER POEERS &ro%ided ,/ $a)
The &o$icies# reso$'tions# r'$es and reg'$ations iss'ed ,/ the Board sho'$d ,e
s',Dect +or re%ie) and a&&ro%a$ o+ the Co((ission! "o)e%er# the BoardFs decision#
reso$'tions or orders rendered in ad(inistrati%e cases sha$$ ,e s',Dect +or re%ie)
on$/ i+ on a&&ea$!

!EC. "0 A&3INI!TRATI*E !UPER*I!ION O% T#E BOAR&6 CU!TO&IAN of it1
RECOR&!6 !ECRETARIAT an5 !UPPORT !ER*ICE!' PRC
!EC. "" 7ROUN&! %OR !U!PEN!ION OR RE3O*AL O% 3E3BER! O% T#E
BOAR&'
* NEGLECT OF DUT56INCOMPETENCE
* IOLATION6TOLERANCE o+ IOLATIONS OF T"IS ACT6CPAFs CODE OF ET"ICS
and technica$ and &ro+essiona$ standards!
* FINAL GUDGEMENT o+ cri(es in%o$%ing MORAL TURPITUDE
* MANIPULATION or rigging o+ the CPA LICENSURE E4AMINATIONS
On$/ the President can re(o%e an/ (e(,er o+ the Board# &er
reco((endation o+ the Co((ission!
!EC. "2 ANNUAL REPORT sha$$ ,e s',(itted to the President at c$ose o+ each
ca$endar /ear!
!EC. "( T#E CPA LICEN!URE E8A3INATION!
!EC. " -UALI%ICATION! O% APPLICANT! %OR E8A3INATION!'
* Fi$i&ino Citizen
* O+ good (ora$ character
* "o$der o+ a degree in BS*Acco'ntanc/
* Not ,een con%icted o+ an/ cri(ina$ o0ense in%o$%ing (ora$ t'r&it'de
!EC. "+ !COPE O% E8A3INATION!'
Theor/ o+ Acco'nts
Practica$ Acco'nting I
Practica$ Acco'nting II
A'diting Theor/
A'diting Pro,$e(s
B'siness La) and Ta-ation
Manage(ent Ad%isor/ Ser%ices
The Board s',Dect to the a&&ro%a$ o+ the Co((ission# (a/ re%ise or
e-c$'de an/ s',Dect and their s/$$a,i# and add ne) ones as the need arises!
!EC. ", RATIN7 IN T#E LICEN!URE E8A3INATION!'
GEA o+ H7I EIT" NO GRADE BELOE <7I * Passing
GEA o+ H7I )ith a grade ,e$o) <7I * Conditiona$ and to taCe the
re(aining s',Dect )ithin t)o :?; /ears +ro( the &receding e-a(ination!
!EC. "2 REPORT O% RATIN7! sha$$ ,e s',(itted ,/ the Board )ithin ten :9>;
ca$endar da/s a+ter e-a(ination# 'n$ess e-tended +or a D'st ca'se!
!EC. "8 %AILIN7 CAN&I&ATE! TO TA9E RE%RE!#ER COUR!E' A+ter +ai$ing t)o
:?; CPA Licens're E-a(inations# a candidate ('st co(&$ete at $east t)ent/ +o'r
:?J; 'nits o+ the s',Dect gi%en in CPA Licens're E-a(inations!
Conditiona$ Passers* co'nted as one :9; e-a(ination taCen!
!EC. "9 OAT# sha$$ ,e taCen ,e+ore an/ (e(,er o+ the BOA# go%ern(ent oKcia$
a'thorized ,/ the Co((ission or an/ other &erson a'thorized ,/ $a)# &rior to
entering the &ractice o+ the &ro+ession!
!EC. 20 I!!UANCE O% T#E CERTI%ICATE! O% RE7I!TRATION an5
PRO%E!!IONAL I&ENTI%ICATION CAR&!' s',Dect to &a/(ent o+ +ees &rescri,ed
,/ the Co((ission!
CERTI%ICATE O% RE7I!TRATION sha$$ ,ear the signat're o+ Chair&erson o+ the
Co((ission and the Chair(an and (e(,ers o+ the Board# indicating the &erson
entit$es to &ractice )ith a$$ &ri%i$eges a&&'rtenant thereto! It sha$$ re(ain in +'$$
+orce and e0ect 'nti$ )ithdra)n# s's&ended or re%oCed!
PRO%E!!IONAL I&ENTI%ICATION CAR& ,earing the Registration N'(,er# Date o+
Iss'ance# E-&ir/ Date# signed ,/ the Chair&erson o+ the Co((ission rene)a,$e
e%er/ three :8; /ears!
!EC. 2" RO!TER O% CPA1' sha$$ ,e &re&ared and '&dated ,/ the Board# and
(ade a%ai$a,$e to an/ &art/ dee(ed necessar/!
!EC. 22 IN&ICATION O% CERTI%ICATE O% RE7I!TRATION6 I&ENTI%ICATION
CAR& an5 PRO%E!!IONAL TA8 RECEIPT )hen a CPA signs a doc'(ent!
!EC. 2( RE%U!AL TO I!!UE CERTI%CATE O% RE7I!TRATION an5
PRO%E!!IONAL I&ENTI%ICATION CAR&'
Ehen the e-a(inee has ,een1 * Con%icted o+ cri(es in%o$%ing (ora$
t'r&it'de3
* G'i$t/ o+ i((ora$ and dishonora,$e cond'ct3 or
* O+ 'nso'nd (ind
!EC. 2 !U!PEN!ION AN& RE*OCATION O% CERTI%CATE O% RE7I!TRATION
an5 PRO%E!!IONAL I&ENTI%ICATION CAR& an5 CANCELLATION O% !PECIAL
PER3IT'
Gro'nds +or the sa(e sha$$ ,e1
* Un&ro+essiona$6Unethica$ cond'ct
* Ma$&ractice
* io$ation o+ an/ o+ the &ro%isions o+ this Act# its I(&$e(enting R'$es and
Reg'$ations# the CPA Code o+ Ethics3 and the Technica$ and Pro+essiona$
Standards!
!EC. 2+ RE:IN!TATE3ENT6 RE:I!!UANCE an5 REPLACE3ENT of RE*O9E& o0
LO!T CERTI%ICATE!'
Re;o<e5 Licen1e * U&on a&&$ication +or reasons dee(ed &ro&er# the
Board a+ter t)o :?; /ears (a/ reinstate the %a$idit/ o+ a re%oCed certi@cate!
Lo1t=&e1t0oye5=3utilate5 Ce0ti>cate o0 Licen1e = ne) Certi@cate (a/ ,e
iss'ed '&on &a/(ent o+ +ees!
!EC. 2, PRO#IBITON IN T#E PRACTICE O% ACCOUNTANC$'
No &erson sha$$ &ractice acco'ntanc/ in this co'ntr/# or 'se the tit$e CPA#
'n$ess the &erson sha$$ recei%e +ro( the Board and Co((ission a CERTIFICATE OF
REGISTRATION6LICENSE and ,e iss'ed a &ro+essiona$ ID or a %a$id te(&orar/
&er(it6s&ecia$ &er(it!
!EC. 22 *E!TE& RI7#T!' CPAs registered )hen this La) is &assed sha$$ ha%e the
sa(e +orce and e0ect# i+ s'ch &ersons# are in good standing!
!EC. 28 LI3ITATION O% T#E PRACTICE O% PUBLIC ACCOUNTANC$'
CERTI%ICATE O% ACCRE&ITATION * sha$$ on$/ ,e gi%en to CPAs ac.'iring
three :8; /ears o+ (eaning+'$ e-&erience in an/ areas o+ the &ro+ession#
inc$'ding ta-ation!
NO CORPORATION +or organized &ractice o+ &',$ic acco'ntanc/!
!EC. 29 O4NER!#IP O% 4OR9IN7 PAPER! sha$$ ,e treated con@dentia$ and
&ri%i$eged and re(ain the &ro&ert/ o+ the CPA# 'n$ess there is1
* A )ritten agree(ent to the contrar/3 or
* Re.'ired ,/ an/ co'rt# tri,'na$# go%ern(ent reg'$ator/ or ad(inistrati%e
,od/!
!EC. (0 ACCRE&ITE& PRO%E!!IONAL OR7ANI?ATION sha$$ ,e registered )ith
the SEC as Non&ro@t Organization! Me(,ershi& is not a ,ar +or (e(,ershi& in other
organizations!
!EC. (" ACCRE&ITATION TO PRACTICE PUBLIC ACCOUNTANC$ sha$$ ,e
rene)ed e%er/ three :8; /ears!
-UALIT$ RE*IE4 CO33ITTEE cond'cts o%ersight into the .'a$it/ o+ a'dit o+ FS
thr' re%ie) o+ B'a$it/ Contro$ (eas'res o+ CPAs!
A$$ senior &ractitioners o+ P',$ic Acco'ntanc/ APO Co((ission BOA
9
APO1 P',$ic
Practice ?
Acade(e
9
Co((erce
9
Go%ern(ent
9
%UNCTION!'
* Cond'ct B'a$it/ Re%ie) on a&&$icants +or registration to &ractice &',$ic
acco'ntanc/ and render a re&ort )hich sha$$ ,e attached to the a&&$ication
+or registration!
* Reco((end to the Board re%ocation o+ Certi@cates o+ Registration and
Pro+essiona$ Identi@cation Card!
!EC. (2 CONTINUIN7 PRO%E!!IONAL E&UCATION @CPEA
CPE Credit Units sho'$d ha%e a1
* Mini('( o+ si-t/ :<>; 'nits e%er/ three :8; /ears!
* Mini('( o+ @+teen :97; 'nits &er /ear!
E-e(&tion1
* Per(anent = CPA is si-t/ @%e :<7; /ears o$d and a,o%e
* Te(&orar/ * at $east t)o :?; /ears a,road &rior to date o+ rene)a$
OB)ECTI*E'
* To &ro%ide and ens're contin'o's ad%ance(ent
* Too raise and (aintain &ro+essiona$Fs ca&a,i$it/ +or de$i%ering &ro+essiona$
ser%ices
* To attain and (aintain the highest standards and .'a$it/ in the &ractice o+ the
&ro+ession
* To (aCe the &ro+ession g$o,a$$/ co(&etiti%e
* To &ro(ote the genera$ )e$+are o+ the &',$ic
CPE Council
Fro( (e(,ers o+ the Board and a&&ointed ,/ the Co((ission *
Chair&erson ter(s are
*? (e(,ers co*
ter(in's
Ma/ not %ote and &osition ('st not ,e $o)er than Di%ision Chie+ * Secretar/
!EC. (( !EAL AN& U!E O% !EAL' A$$ $icensed CPAs sha$$ o,tain and 'se a sea$ o+
design &rescri,ed ,/ the BOA ,earing the1 RegistrantFs Na(e# Registration N'(,er#
and Tit$e
A'ditorFs Re&ort sha$$ ,e sta(&ed )ith said sea$ indicating1
a! Pro+essiona$ Ta- Recei&t N'(,er
,! Date and P$ace o+ &a/(ent
!EC. ( %OREI7N RECIPROCIT$
!EC. (+ CO*ERA7E O% TE3PORAR$=!PECIAL PER3IT!'
Te(&orar/6S&ecia$ Per(its (a/ ,e iss'ed ,/ the Board s',Dect to the
a&&ro%a$ o+ the Co((ission and &a/(ent o+ re.'ired +ees1
a! Foreign CPA ca$$ed +or CONSULTATION6SPECIFIC PURPOSE )hich in D'dg(ent o+
the Board# essentia$ +or the de%e$o&(ent o+ the co'ntr/! Pro%ided# there is no
Fi$i&ino CPA .'a$i@ed +or s'ch cons'$tation or s&eci@c &'r&ose!
,! Foreign CPA engaged as PROFESSOR# LECTURER# CRITIC in @e$ds essentia$ to
acco'ntanc/ ed'cation and engage(ent is con@ned to teaching on$/!
c! Foreign CPA )ho is internationa$$/ recognized E4PERT or )ith s&ecia$ization in
an/ ,ranch o+ acco'ntanc/ essentia$ +or ad%ance(ent o+ acco'ntanc/!
!EC. (, PENAL PRO*I!ION' Fine o+ not $ess than P7># >>>!>> or ,/ i(&rison(ent
+or a &eriod not e-ceeding t)o /ears# or ,oth!
!EC. (2 I3PLE3ENTIN7 RULE! AN& RE7ULATION!
!EC. (9 EN%ORCE3ENT O% T#E ACT'
Board and Co((ission * has &ri(ar/ d't/
La) En+orce(ent Agencies# LGUs# other &o$itica$ s',di%isions * '&on
ca$$6re.'est o+ the Board or Co((ission
Secretar/ o+ G'stice or an/ d'$/ designated re&resentati%e * render $ega$
assistance
An/ &erson (a/ ,ring ,e+ore the Co((ission6Board or a+ore(entioned
oKcers# cases or i$$ega$ &ractice or %io$ation o+ this Act!
!EC. 0 %UN&IN7 PRO*I!ION' Genera$ A&&ro&riations Act :GPA;
!EC. " TRAN!ITOR$ PRO*I!ION
* Inc'(,ent chair(an and (e(,ers o+ the Board sha$$ contin'e to ser%e 'nder
the ter(s +or )hich the/ ha%e ,een a&&ointed 'nder Presidentia$ Decree No! <L?
* A$$ grad'ates o+ Bache$orFs degree*(aDor in Acco'nting sha$$ ,e a$$o)ed to taCe
the CPA Licens're E-a(ination )ithin t)o :?; /ears '&on e0ecti%it/ o+ this Act!
P#ILIPPINE !TAN&AR&! !ETTIN7 COUNCIL
ACCOUNTIN7 an5 AU&ITIN7 !TAN&AR&! !ETTIN7 COUNCIL'
FINANCIAL REPORTING STANDARDS COUNCIL6FRSC * acco'nting
standards setting co'nci$
AUDITING and ASSURANCE STANDARDS COUNCIL6AASC * a'diting
standards setting co'nci$
Chai0.an
BOA
!EC
B!P
BIR
%R!C COA
AA!C
@"+A APOB1' 2 Pu/lic P0actice ,
@"+A
2 Co..e0ce an5 In5u1t0y "
2 Aca5e.e=E5ucation "
2 7o;e0n.ent "
%INE8=Othe0 O0C. of 3aDo0 U1e01 of %!
Othe0 O0C. of CPA1 in Pu/lic P0actice
APOB1 BOA PRC
E&UCATION TEC#NICAL COUNCIL'
%unction1'
a! Deter(ine (ini('( standard c'rric'$'(
,! Esta,$ish teaching standards
c! Monitor the &rogress o+ the &rogra( in the st'd/ o+ acco'ntanc/
d! E%a$'ate &eriodica$$/ the &er+or(ance o+ ed'cationa$ instit'tions
Chai0.an
APOB1' O0CaniEation of CPA1 "
Pu/lic P0actice "
Co..e0ce an5 In5u1t0y "
7o;e0n.ent "
Aca5e.e an5 E5ucation @Pu/lic=P0i;ateA 2
AU&ITIN7
AN O*ER*IE4
PAS ?>> de@nes A'diting ,/ stating the o,Decti%e o+ a @nancia$ state(ent a'dit# that
is# to ena,$e the a'ditor to e-&ress an o&inion )hether the @nancia$ state(ents are
&re&ared# in a$$ (ateria$ res&ects# in accordance )ith an identi@ed @nancia$
re&orting +ra(e)orC!
PRI3AR$ %UNCTION is to $end credi,i$it/ to the FS &re&ared ,/ the C$ient
(anage(ent!
FAn au5it i1 a 1y1te.atic p0oce11 of o/Decti;ely o/taininC an5 e;aluatinC
e;i5ence 0eCa05inC a11e0tion1 a/out econo.ic action1 an5 e;ent1 to
a1ce0tain the 5eC0ee of co00e1pon5ence /etGeen tho1e a11e0tion1 an5
e1ta/li1he5 c0ite0ia an5 co..unicatinC the 0e1ult1 to inte0e1te5 u1e01.H
AAA
The de@nition con%e/s that1
a! A'diting is S5STEMATIC PROCESS!
,! A'dit in%o$%es o,taining and e%a$'ating e%idence a,o't ASSERTIONS regarding
econo(ic actions and e%ents!
ASSERTIONS are re&resentations (ade ,/ an a'ditee!
c! A'dit is CONDUCTED OBGECTIEL5! :)itho't ,ias3 i(&artia$ attit'de;
d! A'ditors ascertain the degree o+ corres&ondence ,et)een ASSERTIONS and
ESTABLIS"ED CRITERIA! :con+or(it/;
ESTABLIS"ED CRITERIA is needed to D'dge the %a$idit/ o+ the assertions1
Assertion is the +airness o+ the FS
Criteria is the Financia$ Re&orting Fra(e)orC6GAAP
e! A'ditors co(('nicate the res'$ts to %ario's interested 'sers!
Co(('nication o+ AUDIT FINDINGS ON A TIMEL5 BASIS is the '$ti(ate o,Decti%e
o+ an A'dit!
A$tho'gh great (aDorit/ o+ a'dit )orC toda/ dea$s )ith a'dit o+ @nancia$
state(ents# O&erationa$ and Co(&$iance A'diting are ,eco(ing (ore and (ore
i(&ortant! A$$ a'dits &ossess the sa(e genera$ characteristics that the/ are1
a! S/ste(atic e-a(ination and e%a$'ation o+ e%idence to ascertain )hether
assertions co(&$/ )ith the esta,$ished criteria3 and
,! Co(('nication o+ res'$ts o+ e-a(ination!
T$PE! O% AU&IT'
%INANCIAL
AU&IT
CO3PLIANCE
AU&IT
OPERATIONAL
AU&IT
ASSERTIONS FS are +air$/
&resented
Organization
co(&$ied )ith
La)s# Reg'$ations
or Contracts
OrganizationFs
acti%ities are
cond'cted
eKcient$/ and
e0ecti%e$/
ESTABLIS"ED
CRITERIA
Financia$ Re&orting
Fra(e)orC3 GAAP
La)s# Reg'$ations
or Contracts
O,Decti%es set ,/
the BOD
AUDITORFS
REPORT
O&inion Degree o+
Co(&$iance
Reco((endations
and S'ggestions
AUDITOR E-terna$ A'ditor Go%ern(ent
A'ditor3 BIR
E-a(iners3 COA
Interna$ A'ditor
Ele.ent1 of T#EORETICAL %RA3E4OR9' @PO!TULATE!A
a! A'dit +'nction o&erates on the ass'(&tion that ALL FINANCIAL DATA ARE
ERIFIABLE
* A$$ ,a$ances ('st ha%e s'&&orting doc'(ents or e%idence to &ro%e their
%a$idit/!
,! A'ditor sho'$d a$)a/s (aintain INDEPENDENCE )ith res&ect to Financia$
State(ents 'nder A'dit
* essentia$ in ens'ring credi,i$it/
c! There sho'$d ,e NO LONG*TERM CONFLICT ,et)een the a'ditor and the c$ient
(anage(ent!
d! EFFECTIE ACCOUNTING and INTERNAL CONTROL S5STEMS red'ces &ossi,i$it/
o+ errors and +ra'd a0ecting the FS
* The condition o+ acco'nting and interna$ contro$ s/ste( direct$/ a0ects the
re$ia,i$it/ o+ the FS!
e! CONSISTENT APPLICATION o+ Genera$$/ Acce&ted Acco'nting Princi&$es :GAAP; or
Financia$ Re&orting Standards res'$ts in +air &resentation o+ the FS
+! Ehat )as he$d tr'e in the &ast )i$$ contin'e to ho$d tr'e in the +'t're in the
a,sence o+ Cno)n conditions to the contrar/ * E-&erience and Cno)$edge
g! A'dit BENEFITS T"E PUBLIC = (eet the co((on needs o+ a )ide range o+ 'sers!
PRO%E!!IONAL !TAN&AR&!
A'ditors o&inion ('st ,e ,ased on an e-a(ination cond'cted in accordance
)ith the Pro+essiona$ Standards :GAAS;!
7ENERALL$ ACCEPTE& AU&ITIN7 !TAN&AR&!
A. 7ene0al !tan5a051
9! The e-a(ination is to ,e &er+or(ed ,/ a &erson or &ersons ha%ing ADEBUATE
TEC"NICAL TRAINING and PROFICIENC5 as an A'ditor!
?! In a$$ (atters re$ating to an engage(ent# an INDEPENDENCE IN MENTAL
ATTITUDE is to ,e (aintained ,/ the A'ditor!
8! DUE PROFESSIONAL CARE is to ,e e-ercised in the &er+or(ance o+ the a'dit
and in the &re&aration o+ the re&ort!
B. !tan5a051 of %iel5Go0<
J! The )orC is to ,e ADEBUATEL5 PLANNED and assistants# i+ an/# are to ,e
&ro&er$/ s'&er%ised!
7! There is to ,e a PROPER STUD5 and EALUATION o+ the E4ISTING INTERNAL
CONTROL as a ,asis +or re$iance thereon and +or the deter(ination o+ the
res'$tant e-tent o+ the tests to )hich a'diting &roced'res are to ,e restricted!
<! SUFFICIENT COMPETENT EIDENTIAL MATTER is to ,e o,tained thro'gh
ins&ection# o,ser%ation# in.'iries and con+or(ations to a0ord a reasona,$e
,asis +or an o&inion regarding the @nancia$ state(ents 'nder e-a(ination!
C. !tan5a051 of Repo0tinC
H! The re&ort sha$$ state )hether the @nancia$ state(ents are &resented in
ACCORDANCE )ith GENERALL5 ACCEPTED ACCOUNTING PRINCIPLES :GAAP;!
M! The re&ort sha$$ IDENTIF5 those CIRCUMSTANCES in )hich the PRINCIPLES
ha%e NOT BEEN CONSISTENTL5 OBSERED in the c'rrent &eriod in re$ation to
the &receding &eriod!
L! INFORMATIE DISCLOSURES are to ,e regarded as reasona,$/ ade.'ate
'n$ess other)ise stated in the re&ort!
9>!The re&ort sha$$ contain an E4PRESSION OF OPINION regarding the @nancia$
state(ents# taCen as a )ho$e# or an assertion to the e0ect that an o&inion
cannot ,e e-&resses there+ore sho'$d ,e stated! In a$$ cases# )here an
a'ditorFs na(e is associated )ith the @nancia$ state(ents# the re&ort sho'$d
contain a c$ear*c't indication o+ the character o+ the a'ditorFs e-a(ination i+
an/ and the degree o+ res&onsi,i$it/ he is taCing!
GAAP = Financia$ Re&orting Fra(e)orC3 iss'ances ,/ the IFRSC6FRSC6IASC!
GAAS * (ini('( standard the a'ditor ('st +o$$o)
PSA * Phi$i&&ine Standards on A'diting are a'diting standards# &ractices and
&roced'res iss'ed ,/ the then A'diting Standards and Practices Co'nci$
:ASPC;# and no) the A'diting and Ass'rance Standards Co'nci$!
PAPS * Phi$i&&ine A'diting Practices State(ents &ro%ide &ractica$ assistance to
a'ditor in i(&$e(enting PSAFs to &ro(ote good &ractice in the @e$d o+
a'diting!
T#E AU&IT PROCE!!
* is the se.'ence o+ di0erent acti%ities in%o$%ed in an a'dit3 (a/ %ar/ de&ending
'&on a &artic'$ar a'dit!
9! AcceptinC an EnCaCe.ent * re.'ire e%a$'ation o+ a'ditorFs .'a$i@cation#
as )e$$ as# a'dita,i$it/ o+ &ros&ecti%e c$ientFs FS!
* Pre$i(inar/ 'nderstanding o+ c$ientFs ,'siness and ,acCgro'nd in%estigation
o+ &ros&ecti%e c$ient!
?! Au5it PlanninC * a'ditor o,tains (ore detai$ed Cno)$edge a,o't
the c$ientFs ,'siness and ind'str/ in order to 'nderstand the transactions and
e%ents a0ecting the FS# and to identi+/ &otentia$ &ro,$e(s!
8! Con1i5e0inC the Inte0nal Cont0ol = the stronger the Interna$ Contro$# the
(ore ass'rance it &ro%ides a,o't the re$ia,i$it/ o+ acco'nting data and @nancia$
state(ents!
* O,taining 'nderstanding o+ entit/Fs interna$ contro$ s/ste(s and assessing
the $e%e$ o+ contro$ risC!
J! Pe0fo0.inC !u/1tanti;e Te1t1 * e-tent o+ S',stanti%e Test is high$/
de&endent on the res'$ts o+ a'ditorFs consideration on interna$ contro$s!
7! Co.pletinC the Au5it * a'ditor ('st ha%e s'Kcient a&&ro&riate e%idence
in order to reach a conc$'sion on the +airness o+ the FS!
* Per+or(s additiona$ a'dit &roced'res# s'ch as1
a. Re%ie) o+ s',se.'ent e%ents and contingencies
/. Assessing the going concern ass'(&tion
c. Per+or(ing o%era$$ ana$/tica$ re%ie) &roced're
5. O,taining )ritten re&resentations
<! I11uinC a Repo0t * a'ditor +or(s a conc$'sion
T$PE! O% OPINION'
UN-UALI%IE& * iss'ed )hen FS are +air$/ stated!
-UALI%IE& * e0ects o+ an/ disagree(ent )ith the (anage(ent# or $i(itation on
sco&e is not so (ateria$!
&I!CLAI3ER * iss'ed )hen the &ossi,$e e0ect o+ a $i(itation on sco&e is so
(ateria$ and &er%asi%e that a'ditor has not ,een a,$e to contain s'Kcient
a&&ro&riate e%idence and cannot e-&ress an o&inion!
A&*ER!E * states that FS are not +air$/ &resented in accordance )ith the @nancia$
re&orting +ra(e)orC6GAAP!
AU&IT O% %INANCIAL !TATE3ENT!
OB)ECTI*E' To ena,$e the a'ditor to E4PRESS AN OPINION )hether the Financia$
State(ents are &re&ared in a$$ (ateria$ res&ects# in accordance )ith a&&$ica,$e
@nancia$ re&orting +ra(e)orC!
SCOPE OF T"E AUDIT re+ers to the a'dit &roced'res dee(ed necessar/ in the
circ'(stances to achie%e the o,Decti%e o+ the a'dit!
The &roced'res re.'ired to cond'ct an a'dit in accordance )ith the PSAs sho'$d ,e
deter(ined ,/ the AUDITOR ha%ing regard to the re.'ire(ents o+ PSAs# re$e%ant
&ro+essiona$ ,odies# $egis$ation# reg'$ations and# )here a&&ro&riate# the ter(s o+ the
a'dit engage(ent and re&orting re.'ire(ents!
Con5ition1 that C0eate a &e.an5 fo0 Au5itinC'
9! ConNict o+ Interest
?! E-&ertise
8! Re(oteness o+ In+or(ation
J! Financia$ Conse.'ences
7ene0al P0inciple1 7o;e0ninC an Au5it of %inancial !tate.ent1' @P!A 200A
9! Code o+ Pro+essiona$ Ethics
?! PSA Co(&$iance
8! Pro+essiona$ SCe&ticis(
A11u0ance P0o;i5e5 /y the Au5ito0'
An a'dit in accordance )ith PSAs is designed to &ro%ide REASONABLE
ASSURANCE that the @nancia$ state(ents taCen as a )ho$e are +ree +ro(
(ateria$ (isstate(ent!
The OPINION IS NOT AN ASSURANCE as to the +'t're %ia,i$it/ o+ the entit/ nor
the eKcienc/ or e0ecti%eness )ith )hich (anage(ent has cond'cted the a0airs
o+ the entit/!
Inhe0ent Li.itation1 of the Au5it that aIect1 the Au5ito0B1 a/ility to
5etect .i11tate.ent1'
9! Use o+ Testing
?! "'(an Error
8! Nat're o+ E%idence = OPers'asi%e not Conc$'si%e!P
J! Re$iance on Manage(ent Re&resentation
7! Interna$ Contro$ Li(itation
PRE:PLANNIN7 P#A!E
INTRO&UCTION' An e%a$'ation o+ &ros&ecti%e c$ients and a re%ie)# on an ongoing
,asis# o+ e-isting c$ients is to ,e cond'cted in order to (ini(ize the $iCe$ihood o+
association )ith a c$ient )hose (anage(ent $acCs integrit/!
P0eli.ina0y PlanninC Acti;itie1 inclu5e'
9! BacCgro'nd in%estigation o+ &ros&ecti%e c$ient or e%a$'ate contin'ance o+
re$ationshi& )ith an e-isting c$ient!
?! E%a$'ate A'ditorFs a,i$it/ to (eet ethica$ re.'ire(ents!
8! Esta,$ish ter(s o+ engage(ent!
NeG Client In;e1tiCation P0oce5u0e1'
9! Financia$ In+or(ation = o,tain and re%ie) a%ai$a,$e @nancia$ in+or(ation!
?! Third &arties = in.'ire a,o't the re&'tation o+ the &ros&ecti%e c$ient +ro( third
&arties!
8! Predecessor a'ditor = o,tain c$ient &er(ission to co(('nicate )ith the
&redecessor a'ditor and in.'ire a,o't1
a! Reason +or change o+ a'ditors!
,! An/ disagree(ent ,et)een &redecessor a'ditor and &ros&ecti%e c$ient!
c! In+or(ation a,o't the integrit/ o+ &ros&ecti%e c$ient!
The a'ditor and the c$ient sho'$d agree on the ter(s o+ the engage(ent! The
agreed ter(s )o'$d need to ,e recorded in an ENGAGEMENT LETTER or other
s'ita,$e +or( o+ contract!
I.po0tance of the EnCaCe.ent Lette0'
To he$& in a%oiding MISUNDERSTANDING )ith res&ect to the engage(ent!
To CONFIRM and DOCUMENT the a'ditorFs acce&tance o+ the a&&oint(ent# the
o,Decti%e and sco&e o+ the a'dit# the e-tent o+ the a'ditorFs res&onsi,i$ities to
the c$ient and the +or( o+ an/ re&orts!
P0incipal Content1 of the EnCaCe.ent Lette0'
9! O,Decti%e
?! Manage(ent res&onsi,i$it/
8! Sco&e o+ the A'dit
J! Li(itations o+ the A'dit
7! For(s o+ Re&ort
<! Un$i(ited access to records
RECURRIN7 AU&IT!' The a'ditor does not nor(a$$/ send ne) engage(ent $etter
e%er/ /ear! "o)e%er# the +o$$o)ing conditions (a/ ca'se the a'ditor to send a ne)
engage(ent $etter1
9! Indication that the Manage(ent (is'nderstands the o,Decti%e and sco&e o+ the
a'dit!
?! Change in origina$ arrange(ents!
8! Change in (anage(ent# BOD# or o)nershi&!
J! Signi@cant change in the nat're and size o+ the ,'siness!
7! Lega$ re.'ire(ents!
AU&IT O% CO3PONENT!' The &rinci&a$ a'ditor (a/ or (a/ not send a se&arate
engage(ent $etter to the co(&onent! Factors that inN'ence the decision )hether to
send se&arate engage(ent $etter to the co(&onent inc$'de1
9! Eho a&&oints the a'ditor o+ the co(&onent!
?! The e-tent o+ )orC o+ the other a'ditor!
8! Ehether a se&arate a'dit re&ort )i$$ ,e iss'ed!
J! Degree o+ o)nershi&!
7! Lega$ re.'ire(ents!
C#AN7E IN EN7A7E3ENT' An a'ditor )ho is engaged to &er+or( an a'dit o+
@nancia$ state(ents (a/ so(eti(es ,e re.'ested ,/ the c$ient to change the
nat're o+ engage(ent to one )hich &ro%ides a $o)er $e%e$ o+ ass'rance! Be+ore the
a'ditor honorFs the c$ientFs re.'est# the a'ditor sho'$d consider the a&&ro&riateness
o+ doing so! Factors to ,e considered ,e+ore acce&ting a change in engage(ent
inc$'de1
9! Reason ,/ the c$ient
?! Lega$ and contract'a$ i(&$ications
Rea1ona/le Du1ti>cation1 +or a change in engage(ent1
Change in circ'(stances a0ecting the need +or the ser%ice
Mis'nderstanding as to the nat're o+ an a'dit or re$ated ser%ice origina$$/
re.'ested
Unaccepta/le 0ea1on +or changing the nat're o+ the engage(ent1
Restriction on the sco&e o+ the a'ditorFs e-a(ination
Change that re$ated to in+or(ation that is incorrect# inco(&$ete or other)ise
'nsatis+actor/
PLANNIN7 T#E AU&IT
AU&IT PLANNIN7 in%o$%es de%e$o&ing a genera$ strateg/ and a detai$ed a&&roach
+or the e-&ected sco&e o+ the a'dit!
I3PORTANCE O% PLANNIN7 T#E AU&IT'
"e$&s ens're that a&&ro&riate attention is de%oted to i(&ortant areas o+ the
a'dit
"e$&s identi+/ &otentia$ &ro,$e(s
A$$o)s the )orC to ,e co(&$eted e-&editio's$/
Assists in &ro&er assign(ent and coordination o+ )orC
"e$&s ens're that the a'dit is cond'cted e0ecti%e$/ and eKcient$/
!COPE' The e-tent o+ &$anning )i$$ %ar/ according to the size o+ the entit/# the
co(&$e-it/ o+ the a'dit and the a'ditorFs e-&erience )ith the entit/ and Cno)$edge
o+ the ,'siness!
AU&IT PLANNIN7 !TEP!'
". O/taininC un5e01tan5inC of the entity an5 it1 en;i0on.ent con1i1t1 of
un5e01tan5inC the folloGinC a1pect'
a! Entit/Fs Ind'str/
,! O&erations
c! O,Decti%es6Strateg/6B'siness RisCs
d! Meas're(ent o+ Per+or(ance
e! Interna$ Contro$ S/ste(
CONTINUIN7 NATURE'
O,taining the re.'ired Cno)$edge o+ the ,'siness is a contin'o's and c'('$ati%e
&rocess o+ gathering and assessing the in+or(ation and re$ating the res'$ting
Cno)$edge to a'dit e%idence and in+or(ation at a$$ stages o+ the a'dit!
CONTINUIN7 EN7A7E3ENT'
For contin'ing engage(ents# the a'ditor )o'$d '&date and ree%a$'ate in+or(ation
gathered &re%io's$/# inc$'ding in+or(ation in the &rior /earFs )orCing &a&ers! The
a'ditor )o'$d a$so &er+or( &roced'res designed to identi+/ signi@cant changes that
ha%e taCen &$ace since the $ast a'dit!
2. 3a<e a p0eli.ina0y Du5C.ent a/out .ate0iality le;el1 @>nancial
1tate.ent an5 account /alance le;elA
I3PORTANCE' The a'ditor sho'$d (aCe a &re$i(inar/ esti(ate o+ (ateria$it/
,eca'se there is an INERSE re$ationshi& ,et)een the a(o'nt the a'ditor considers
to ,e (ateria$ and the a'dit )orC necessar/ to attest to the +airness o+ the @nancia$
state(ents!
!TEP! IN APPL$IN7 3ATERIALIT$
a! Set (ateria$it/ at the FS $e%e$!
,! A$$ocate (ateria$it/ to the acco'nt ,a$ances! The a$$ocated (ateria$it/ to an/
gi%en acco'nt is ca$$ed the TOLERABLE ERROR +or the acco'nt!
c! Co(&are the 'ncorrected $iCe$/ (isstate(ents )ith the o%era$$ (ateria$it/! This
is done in the COMPLETION P"ASE o+ the a'dit!
Since &$anning is 's'a$$/ done ,e+ore /ear*end# ann'a$ @nancia$ state(ents
are not /et read/! In this case# the a'ditor (a/ 'se the +o$$o)ing @nancia$
state(ents as a ,asis +or co(&'ting (ateria$it/ $e%e$s1 Prior 5earFs FS3 B'dgeted FS3
Ann'a$ized Interi( Inco(e State(ent
(. E1ta/li1h o;e0all au5it 0i1<6 an5 a11e11 inhe0ent 0i1<
I3PORTANCE' The a'ditor sho'$d esta,$ish a'dit risC and assess its co(&onents to
deter(ine the nat're# ti(ing and e-tent o+ s',stanti%e tests!
AU&IT Ri1< * the risC that the a'ditor (a/ 'nCno)ing$/ +ai$ to a&&ro&riate$/ (odi+/
the o&inion on (ateria$$/ (is$eading @nancia$ state(ents!
AU&IT Ri1< 3o5el' A'dit RisC and its co(&onents (a/ ,e e-&ressed in an
e.'ation1
AR Q IRRCRRDR or DR Q AR
IRRCR
Fro( the a,o%e e.'ation# it is sa+e to conc$'de that DR is direct$/ re$ated to
AR and in%erse$/ re$ated to CR and IR!
Th0ee Co.ponent1 of AU&IT Ri1<'
IN"ERENT RisC * Uncontro$$a,$e3 the s'sce&ti,i$it/ o+ an assertion to (ateria$
(isstate(ents# ass'(ing no re$ated interna$ contro$s!
CONTROL RisC * Uncontro$$a,$e3 the risC that co'$d occ'r )i$$ not ,e &re%ented
or detected ,/ the entit/Fs interna$ contro$s!
DETECTION RisC* Contro$$a,$e3 the risC that the a'ditor )i$$ not detect
(isstate(ents in the @nancia$ state(ents!
!TEP! IN U!IN7 T#E AU&IT RI!9 3O&EL'
a! Set the &$anned $e%e$ o+ A'dit RisC!
,! Assess the $e%e$ o+ Inherent and Contro$ RisC!
c! Deter(ine the acce&ta,$e $e%e$ o+ Detection RisC!
d! Design the nat're# ti(ing and e-tent o+ the s',stanti%e test!
O+ the three co(&onents o+ a'dit risCs# on$/ DETECTION RISA can ,e
contro$$ed ,/ the a'ditor ,/ (odi+/ing the nat're# ti(ing and e-tent o+
SUBSTANTIE TEST! Since IN"ERENT RISA and CONTROL RISA are +'nctions o+
(anage(ent and its en%iron(ent# a'ditor can on$/ assess their $e%e$s!
RISA ASSESSMENT PROCEDURES inc$'de1
9! In.'ir/
?! O,ser%ation
8! Ins&ection
J! Ana$/tica$ Proced'res
. Con5uct p0eli.ina0y analytical p0oce5u0e1
I3PORTANCE' Ana$/tica$ Proced'res in the &$anning stage o+ the a'dit assist the
a'ditor in1
a! Identi+/ areas re&resenting s&eci@c risCs!
,! Enhance 'nderstanding o+ c$ientFs ,'siness
+. I5entify 0elate5 pa0tie1 an5 5ete0.ine the nee5 to 0ely on the Go0< of
othe01 @eJpe0t6 inte0nal au5ito01 an5 othe0 au5ito01A
,. &ocu.ent the planninC p0oce11
a! OERALL AUDIT PLAN is an o%er%ie) o+ the engage(ent# o't$ining the nat're
and characteristics o+ the c$ientFs ,'siness o&erations and o%era$$ strateg/!
,! AUDIT PROGRAM is a detai$ed $ist o+ the &roced'res to ,e &er+or(ed in the
co'rse o+ the a'dit!
A&&ITIONAL CON!I&ERATION ON INITIAL EN7A7E3ENT' On initia$
engage(ents# additiona$ e%idence a,o't the o&ening ,a$ances ('st ,e o,tained!
According$/ PSA 79> re.'ires the a'ditor to o,tain s'Kcient a&&ro&riate e%idence
that1
a! Prior /ears c$osing ,a$ance ha%e ,een correct$/ ,ro'ght +or)ard
,! O&ening ,a$ances do not contain (ateria$ (isstate(ents
c! Acco'nting Princi&$es 'sed is consistent )ith the &receding /ear!
INTERNAL CONTROL
NATURE OF INTERNAL CONTROL
&E%INITION O% INTERNAL CONTROL !TRUCTURE'
Po$icies and &roced'res esta,$ished to &ro%ide reasona,$e ass'rance o+ achie%ing
the +o$$o)ing o,Decti%es1 O&erationa$3 Co(&$iance3 and Financia$ Re&orting
3ANA7E3ENT RE!PON!IBILIT$'
The (anage(ent is res&onsi,$e +or insta$$ing and (aintaining ade.'ate interna$
contro$ str'ct're!
REA!ONABLE A!!URANCE CONCEPT'
This conce&t recognizes that the cost o+ interna$ contro$ sho'$d not e-ceed the
,ene@t e-&ected to ,e deri%ed!
IN#ERENT LI3ITATION! of Inte0nal Cont0ol'
9! Manage(ent O%erride
?! Co$$'sion a(ong E(&$o/ees
8! Un's'a$ Transactions
J! Changing Conditions
7! "'(an Error
<! Cost*Bene@t Consideration
CO3PONENT! of EntityB1 Inte0nal Cont0ol !t0uctu0e'
9! Contro$ Acti%ities
?! RisC Assess(ent Proced'res
8! In+or(ation and Co(('nication
S/ste(s
J! Monitoring
7! Contro$ En%iron(ent
CONTROL EN*IRON3ENT * sets the tone o+ an organization!
* +o'ndation +or other e$e(ents o+ interna$ contro$
* reNects the o%era$$ attit'de# a)areness and actions o+
directors and (anage(ent regarding the i(&ortance o+
interna$ contro$!
FACTORS INFLUENCING this inc$'de1
a! Co((it(ent to co(&etence
,! "'(an reso'rces &o$icies6&roced'res
c! Assign(ent o+ res&onsi,i$it/
d! Manage(ent &hi$oso&h/ and o&erating st/$e
e! Partici&ation o+ the BOD6A'dit Co((ittee
+! Integrit/6Ethica$ a$'es
g! Organizationa$ str'ct're
CONTROL ACTI*ITIE! * &o$icies and &roced'res that he$& ens're that
(anage(ent directi%es are carried o't! Po$icies and &roced'res that (a/,e
re$e%ant to the a'dit inc$'de1
a! Per+or(ance re%ie)
,! In+or(ation &rocessing
c! Ph/sica$ contro$
d! Segregation o+ d'ties
ACCOUNTIN7 !$!TE3 * in+or(ation s/ste( re$e%ant to @nancia$ re&orting
o,Decti%es!
* It consists o+ the (ethods and records esta,$ished to
identi+/# asse(,$e# ana$/ze# c$assi+/# record# and re&ort
an entit/Fs transactions and to (aintain acco'nta,i$it/
+or the re$ated assets and $ia,i$ities!
CLA!!I%ICATION O%CONTROL PROCE&URE! IN AN E&P EN*IRON3ENT'
A! GENERAL CONTROLS are contro$s that a&&$/ to o%era$$ EDP o&erations!
a! Organizationa$
,! S/ste(s De%e$o&(ent
c! Access Contro$s
d! "ard)are
e! Data and other &roced'ra$
B! APPLICATION CONTROLS are contro$s that re$ate to s&eci@c 'se o+ the s/ste(!
a! In&'t
,! Processing Contro$s
c! O't&'t
CON!I&ERATION O% INTERNAL CONTROL
PRI3AR$ OB)ECTI*E!'
9! To &$an the a'dit
?! To deter(ine the nat're# ti(ing# and e-tent o+ &roced'res to ,e &er+or(ed
!ECON&AR$ OB)ECTI*E'
9! To &ro%ide 'se +or constr'cti%e s'ggestions
!TEP! 4#EN CON!I&ERIN7 INTERNAL CONTROL'
9! O/tain an5 5ocu.ent the un5e01tan5inC of the Inte0nal Cont0ol.
Understanding the interna$ contro$ in%o$%es o,taining Cno)$edge a,o't the
s/ste(Fs DESIGN and IMPLEMENTATION ,'t not on its OPERATING
EFFECTIENESS!
a! Reading &roced'res (an'a$ and (aCing in.'iries o+ e(&$o/ees he$& the
a'ditor to o,tain Cno)$edge a,o't the DESIGN o+ the s/ste( )hi$e
EALAT"ROUG" TEST are &er+or(ed to o,tain Cno)$edge a,o't the
i(&$e(entation o+ the contro$!
,! A+ter o,taining s'Kcient 'nderstanding o+ the contro$# the a'ditor sho'$d
doc'(ent s'ch 'nderstanding! Co((on$/ 'sed +or(s o+ doc'(entation
inc$'de1
* I!C! B'estionnaire
* Narrati%e
* F$o)chart
2. 3a<e a p0eli.ina0y a11e11.ent of cont0ol 0i1<
3A8I3U3 LE*EL K NO RELIANCE on Inte0nal Cont0ol
No tests o+ contro$s )i$$ ,e &er+or(ed ,'t e-tensi%e s',stanti%e tests!
REA!ON!' * Contro$s a&&ear inade.'ate!
* Contro$s do not &ertain to assertions!
* Ins'Kcient to &er+or( test o+ contro$s!
RE-UIRE& &OCU3ENTATION'
* Understanding o+ Interna$ Contro$!
* Conc$'sion that Contro$ RisC is at a (a-i('( $e%e$!
BELO4 T#E 3A8I3U3 LE*EL K RELIANCE on Inte0nal Cont0ol3 A'ditor
)ants to re$/ on the Interna$ Contro$
Identi+/ s&eci@c interna$ contro$ &o$icies or &roced'res that are $iCe$/ to detect or
&re%ent (ateria$ (isstate(ents!
Per+or( test o+ contro$s to deter(ine the e0ecti%eness o+ the design and
o&eration o+ the interna$ contro$ &o$icies and &roced'res
REA!ON!' : EKcient to &er+or( test o+ contro$s
RE-UIRE& &OCU3ENTATION'
* Understanding
* Conc$'sion
* Basis +or the conc$'sion
APPROAC#E! IN CO3PUTER AU&IT
A. BLAC9BO8 App0oach is a ter( 'sed to descri,e the a&&roach o+ (an'a$$/
testing transaction data ,/ +oc'sing on the in&'t doc'(ents and detai$ed
o't&'t3 A'diting AROUND the Co(&'ter!
B. CO3PUTER A!!I!TE& AU&ITIN7 TEC#NI-UE1 @CAAT1A is a ter( 'sed to
descri,e the a&&roach o+ testing the c$ientFs a&&$ication &rogra(3 A'diting T"RU
the Co(&'ter!
a. TE!T &ATA in%o$%es entering @ctitio's data thro'gh the c$ientFs co(&'ter
s/ste( and co(&aring res'$ts o,tained )ith &redeter(ined res'$ts!
/. INTE7RATE& TE!T %ACILIT$ in%o$%es &rocessing test transactions
si('$taneo's$/ )ith act'a$ transactions!
c. PARALLEL !I3ULATION in%o$%es creating a &rogra( to &rocess or access
c$ientFs data recorded in a (achine $ang'age!
5. !NAP!#OT! in%o$%e taCing a &ict're o+ a transaction as it No)s thro'gh the
co(&'ter s/ste(!
e. !$!TE3! CONTROL AU&IT RE*IE4 %ILE! @!CAR%A in%o$%es e(,edding
a'dit so+t)are (od'$es )ithin an a&&$ication s/ste( to &ro%ide contin'o's
(onitoring o+ the s/ste(Fs transactions!
8! &e1iCn !u/1tanti;e Te1t1 L Based on the assessed $e%e$ o+ contro$ risC
:co(,ines )ith the assessed $e%e$ o+ inherent risC;3 the a'ditor )i$$ deter(ine
the acce&ta,$e $e%e$ o+ detection risC! According$/# the a'ditor )i$$ deter(ine the
nat're# ti(ing# and e-tent o+ his s',stanti%e tests in order to address the
acce&ta,$e $e%e$ o+ detection risC!
CONTROL !TRUCTURE CO33UNICATION!
REPORTABLE CON&ITION! are signi@cant de@ciencies in the design or
o&eration o+ ICS noted ,/ the a'ditor in the co'rse o+ a'diting the @nancia$
state(ents!
3ATERIAL 4EA9NE!!E! are )eaCnesses in the interna$ contro$ that
signi@cant$/ a0ects the entit/Fs a,i$it/ to &re&are re$ia,$e @nancia$ state(ents!
CO3UNICATION RE-UIRE3ENT!'
9! A$tho'gh the a'ditor is not res&onsi,$e +or identi+/ing signi@cant de@ciencies in
the ICS# the a'ditor is re.'ired to co(('nicate to the a'dit co((ittee
re&orta,$e conditions that co(e to his attention d'ring the a'dit o+ @nancia$
state(ents!
?! Co(('nication (a/ ,e )ritten or ora$# ,'t it sho'$d a$)a/s ,e doc'(ented in
the )orCing &a&ers!
8! Since it is on$/ incidenta$ to the a'dit# co(('nication (a/ ,e (ade either
d'ring the co'rse o+ the a'dit or a+ter the a'dit re&ort is iss'ed!
PER%OR3IN7 !UB!TANTI*E TE!T!
A!!ERTION! are re&resentations ,/ the (anage(ent# e-&$icit or other)ise# that
are e(,odied in the @nancia$ state(ents!
Assertions 'sed ,/ the a'ditor +a$$ into the +o$$o)ing categories1
9! Transactions6E%ents :IS; a! co(&$eteness ,! occ'rrence c! c$assi@cation d!
acc'rac/ e! c't*o0
?! Ba$ances :BS; a! co(&$eteness ,! e-istence c! rights d!
%a$'ation
8! Re&resentation and a! co(&$eteness ,! occ'rrence and rights S
o,$igations
Disc$os're :Notes; c! c$assi@cation and 'nderstanda,i$it/ d! %a$'ation
and acc'rac/
CLA!!I%ICATION O% PROCE&URE!'
9! RISA ASSESSMENT PROCEDURES are designed to o,tain 'nderstanding o+ the
entit/ and its en%iron(ent inc$'ding its interna$ contro$! :Re.'ired;
?! TEST OF CONTROLS are designed to test the o&erating
e0ecti%eness o+ contro$s! :Not re.'ired;
8! SUBSTANTIE TESTS are designed to detect (isstate(ents in the
@nancia$ state(ents )hich inc$'de1 :Re.'ired;
TEST OF DETAILS in%o$%es e-a(ination o+ the detai$s or ite(s that co(&rise the
acco'nt ,a$ance or transaction c$ass!
ANAL5TICAL REIEE PROCEDURES consist o+ e%a$'ations o+ @nancia$ in+or(ation
(ade ,/ a st'd/ o+ &$a'si,$e re$ationshi&s a(ong ,oth @nancia$ and non*
@nancia$ data!
TE!T O% CONTROL! ARE REBUIRED TO BE PERFORMED )hen1
9! Re$iance
?! E%idence o+ S',stanti%e Test is not s'Kcient
ANAL$TICAL PROCE&URE!'
Basic Pre(ise1 A ,asic &re(ise 'nder$/ing the 'se o+ ana$/tica$ &roced'res is that
&$a'si,$e re$ationshi& a(ong data (a/ ,e reasona,$/ ,e e-&ected to e-ist and
contin'e in the a,sence o+ Cno)n conditions to the contrar/!
I3PORTANCE' "e$&s identi+/ 'n's'a$ transactions!
U!E!'
A! To assist the a'ditor in PLANNING the nat're# ti(ing and e-tent o+ other
a'diting &roced'res! Ana$/tica$ &roced'res a&&$ied at this stage sho'$d ,e
+oc'sed on1
a! Identi+/ areas re&resent s&eci@c risC
,! Enhance 'nderstanding o+ c$ientFs ,'siness
B! As a SUBSTANTIE TEST in the TESTING P"ASE o+ the a'dit! Ana$/tica$
&roced'res a&&$ied as s',stanti%e tests are designed to o,tain corro,orati%e
e%idence a,o't &artic'$ar assertions re$ated to the acco'nt ,a$ance or
transaction c$ass!
C. As an OERALL REIEE o+ the @nancia$ state(ents in the COMPLETION stage
o+ the a'dit! Ana$/tica$ &roced'res in the co(&$etion &hase o+ the a'dit )o'$d
inc$'de1
a! Identi+/ing 'n's'a$ transactions
,! Deter(ining %a$idit/ o+ conc$'sions
PSA REBUIREMENT1 PSA re.'ires that ana$/tica$ &roced'res ,e a&&$ied in the
PLANNING and COMPETION &hases o+ the a'dit!
STEPS IN APPL5ING ANAL5TICAL PROCEDURES1
1. Develop expectations
2. Compare these expectations with the fnancial statements
8! Investigate signifcant unexpected diferences (unusual fuctuations)
INFORMATION USED TO DEELOP E4PECTATIONS1
9! Prior /ears FS
?! Antici&ated res'$ts
8! Ind'str/ a%erages
J! Non*@nancia$ in+or(ation
7! T/&ica$ re$ationshi& a(ong FS
e$e(ents
The e0ecti%eness o+ ana$/tica$ &roced'res is a0ected ,/ the PREDICTABILIT5
OF ACCOUNT BALANCES! Pres'(&tions a,o't &redicta,i$it/ o+ the acco'nts inc$'de1
Inco(e state(ent acco'nts are (ore &redicta,$e co(&ared to Ba$ance Sheet
acco'nts!
Acco'nts that are not s',Dect to (anage(ent discretion are &redicta,$e!
Re$ationshi&s in sta,$e en%iron(ent are (ore &redicta,$e than those in a
d/na(ic or 'nsta,$e en%iron(ent!
RELATION!#IP BET4EEN !UB!TANTI*E TE!T! AN& TE!T! O% CONTROL!'
Tests of Controls &ro%ide the a'ditors )ith e%idence as to )hether &rescri,ed
contro$s are in 'se and o&erating e0ecti%e$/! The res'$ts o+ the1e te1t1 a11i1t
the au5ito0 in e;aluatinC the li<elihoo5 of .ate0ial .i11tate.ent1
ha%ing occ'rred! Substantive tests are designed to 5etect .ate0ial
.i11tate.ent1!
Tests o+ contro$s are &er+or(ed to restrict s',stanti%e tests and there+ore# the
.o0e te1t1 of cont0ol1 the a'ditor &er+or(s# the greater )i$$ ,e the 0e5uction
in 1u/1tanti;e te1t1!
DIFFERENT MEANS OF TESTING that can ,e 'sed ,/ the a'ditor inc$'de1
9! AUDIT SAMPLING
?! SELECTIE TESTING
8! 9>>I E4AMINATION
AU&IT !A3PLIN7 in%o$%es an a&&$ication o+ an a'dit &roced're to $ess than 9>>I
o+ the ite(s in the acco'nt ,a$ance or transaction c$ass s'ch that a$$ 'nits ha%e a
chance o+ se$ection!
I3PORTANCE' A'dit sa(&$ing a$$o)s the a'ditor to dra) conc$'sion a,o't the
characteristics o+ the &o&'$ation D'st ,/ e-a(ining sa(&$e o+ e%idence!
A!!U3PTION' A'dit sa(&$ing is &er+or(ed on the ass'(&tion that the SAMPLE IS
REPRESENTATIE OF T"E POPULATION# (eaning that the sa(&$e )i$$ &ossess
essentia$$/ the sa(e characteristics as the &o&'$ation!
AU&IT !A3PLIN7 CAN BE U!E& 4#EN T#ERE I! AN AU&IT TRAIL'
9! TEST OF CONTROLS
?! SUBSTANTIE TESTS = Test o+ Detai$s
RI!9! IN*OL*E&'
SAMPLING RISA is the risC that the a'ditor (a/ dra) erroneo's conc$'sions ,eca'se
the sa(&$e is not tr'$/ re&resentati%e o+ the &o&'$ation!
SAMPLING RISAS IN SUBSTANTIE TESTS1
INCORRECT ACCEPTANCE = the risC that the sa(&$e s'&&orts the conc$'sion
that the recorded acco'nt ,a$ance is not (ateria$$/ (isstated )hen it is# in +act#
(ateria$$/ (isstated!
INCORRECT REGECTION * the risC that the sa(&$e s'&&orts the
conc$'sion that the recorded acco'nt ,a$ance is (ateria$$/ (isstated )hen# in
+act# it is not (ateria$$/ (isstated!
SAMPLING RISAS IN TEST OF CONTROLS1
OERRELIANCE * the risC that the sa(&$e s'&&orts the a'ditorFs
&$anned degree o+ re$iance on interna$ contro$ )hen the tr'e o&erating
e0ecti%eness o+ the contro$ does not D'sti+/ s'ch re$iance3 Assessing contro$ risC
too $o)!
UNDERRELIANCE * the risC that the sa(&$e )i$$ not s'&&ort the
a'ditorFs &$anned degree o+ re$iance on interna$ contro$ )hen the tr'e o&erating
e0ecti%eness o+ the contro$ D'sti@es s'ch re$iance3 Assessing contro$ risC too high
T5PE 96 ALP"A RISA * the risC o+ incorrect reDection and the risC o+
assessing contro$ risC too high re$ate to the EFFICIENC5 o+ the a'dit! This co'$d
res'$t to (ore &roced'res to ,e &er+or(ed than necessar/!
T5PE ?6 BETA RISA * the risC o+ incorrect acce&tance and the risC o+
assessing contro$ risC too $o) re$ate to the EFFECTIENESS o+ the a'dit! This co'$d
&otentia$$/ res'$t in (ateria$$/ (isstated @nancia$ state(ents +ro( not e-&anding
a'dit tests to a necessar/ $e%e$! This t/&e o+ risC is o+ greater concern to the a'ditor!
NON*SAMPLING RISA is the risC that the a'ditor (a/ dra) incorrect conc$'sions
e%en i+ he )i$$ e-a(ine the entire &o&'$ation! It inc$'des a$$ as&ects o+ a'dit risC that
are not d'e to sa(&$ing!
4A$! TO 3INI3I?E T#E RI!9!'
!A3PLIN7 RI!9! NON:!A3PLIN7 RI!9!
Increase sa(&$e size Ade.'ate &$anning
Use a&&ro&riate (ethod o+ se$ecting
sa(&$e
Re%ie) and s'&er%ision
SAMPLING IN PERFORMING AUDIT TESTS1
ATTRIBUTE !A3PLIN7 is a sa(&$ing &$an 'sed to e1ti.ate the occu00ence
0ate! This is Cene0ally u1e5 Ghen pe0fo0.inC te1t1 of cont0ol1 to esti(ate
the rate o+ de%iations +ro( &rescri,ed interna$ contro$ &o$icies and &roced'res!
*ARIABLE !A3PLIN7 is a sa(&$ing &$an 'sed to e1ti.ate a nu.e0ical
.ea1u0e.ent of a population s'ch as &eso %a$'e! This is u1eful Ghen
pe0fo0.inC 1u/1tanti;e te1t1 to esti(ate the a(o'nt o+ (isstate(ents in the
@nancia$ state(ents!
7ENERAL APPROAC#E! TO AU&IT !A3PLIN7'
!TATI!TICAL !A3PLIN7 is a sa(&$ing a&&roach that u1e1 0an5o. /a1e5
1election of 1a.ple3 'ses the laG of p0o/a/ility to (eas're sa(&$ing risC
and e%a$'ate sa(&$e res'$ts!
NON:!TATI!TICAL !A3PLIN7 is a sa(&$ing a&&roach that pu0ely u1e1
au5ito0B1 Du5C.ent in esti(ating the risC# deter(ining the sa(&$e size and
e%a$'ating sa(&$e res'$ts3 )U&73ENTAL !A3PLIN7!
!TATI!TICAL !A3PLIN7 NON:!TATI!TICAL !A3PLIN7
!i.ila0itie
1'
* Both (ethods are acce&ta,$e!
* Both (ethods )i$$ re.'ire a'ditorFs D'dg(ent!
* Both (ethods co'$d &ro%ide s'Kcient# co(&etent e%idence!
* Both (ethods cannot ass're that the sa(&$e )i$$ ,e re&resentati%e
o+ the &o&'$ation!
&iIe0ence
1'
* Uses $a) o+ &ro,a,i$it/ in
esti(ating sa(&$ing risC
* Based on a'ditorFs D'dg(ent!
A5;antaC
e1'
* A$$o)s (eas're(ent o+
sa(&$ing risC
* Less cost$/
* More eKcient sa(&$e * easier to a&&$/
* O,Decti%e e%a$'ation o+ sa(&$e
res'$ts
* O,Decti%e (eas're(ent o+
s'Kcienc/ o+ e%idence
%ACTOR! A%%ECTIN7 T#E &ETER3INATION O% !A3PLE !I?E'
TE!T! O% CONTROL! !UB!TANTI*E TE!T! RELATION!#IP TO
!A3PLE !I?E
Acce&ta,$e risC o+
assessing contro$ risC too
$o)
Acce&ta,$e risC o+
incorrect acce&tance
In%erse
To$era,$e de%iation rate To$era,$e
error6(isstate(ent
In%erse
E-&ected de%iation rate E-&ected error Direct
ariance in the &o&'$ation Direct
Con@dence $e%e$ Direct
!A3PLE !ELECTION 3etho51'
RAN&O3 NU3BER !ELECTION is a (ethod o+ sa(&$e se$ection that se$ects
sa(&$e ,/ (atching rando( n'(,ers :generated ,/ co(&'ter or ,ased on
rando( n'(,er ta,$e; )ith &o&'$ation n'(,ering s/ste( $iCe doc'(ent
n'(,er!
!$!TE3ATIC !ELECTION is a (ethod o+ sa(&$e se$ection that 'ses a @-ed
inter%a$ :co(&'ted ,/ di%iding the n'(,er o+ &h/sica$ 'nits in the &o&'$ation ,/
the sa(&$e size;!
#AP#A?AR& !ELECTION is a (ethod o+ sa(&$e se$ection that a&&$ies the
a'ditorFs &ro+essiona$ D'dg(ent in deciding )hich ite(s sho'$d ,e inc$'ded in
the sa(&$e )itho't an/ conscio's ,ias or s&ecia$ reason +or inc$'ding or o(itting
ite(s +ro( the sa(&$e!
BLOC9 !ELECTION se$ects a gro'& o+ ite(s as sa(&$ing 'nits rather than
indi%id'a$ ite(s!
PROBABILIT$ PROPORTIONAL TO !I?E is a (ethod o+ sa(&$e se$ection that
treats each &eso as one sa(&$ing 'nit! In this t/&e o+ sa(&$ing# the &ro,a,i$it/ o+
the ite( to ,e se$ected is direct$/ &ro&ortiona$ to its size!
!TRATI%ICATION=!TRATI%IE& !A3PLIN7 is the p0oce11 of 5i;i5inC the
population into 1u/:population in order to a; decrease the e0ect o+ the %ariance
in the &o&'$ation and ,; to gi%e e(&hasis to (ateria$ ite(s!
!A3PLIN7 APPLICATION!'
TE!T! O% CONTROL! !UB!TANTI*E TE!T!
Attri,'te Esti(ation C$assica$ aria,$e Sa(&$ing
Se.'entia$ Sa(&$ing a! Ratio Esti(ation
Disco%er/ Sa(&$ing ,! Di0erence Esti(ation
c! Mean &er Unit Esti(ation
a$'e )eighted Sa(&$ing
E*I&ENCE
O S'Kcient# a&&ro&riate e%idence is to ,e o,tained thro'gh ins&ection# o,ser%ation#
in.'iries and con@r(ations to a0ord a reasona,$e ,asis +or an o&inion regarding the
@nancia$ state(ents 'nder e-a(ination!P
AU&IT E*I&ENCE * a$$ in+or(ation 'sed ,/ the a'ditor in arri%ing at the
conc$'sions on )hich the a'dit o&inion is ,ased! This (a/ consist o+1
ACCOUNTING RECORDS :e-! BooCs o+ Acco'nts# Acco'nting Man'a$s# in+or(a$
records;
OT"ER CORROBORATING INFORMATION :e-! Con@r(ation re&$ies# (in'tes o+
(eetings and co(&ara,$e data +ro( co(&etitors;
-UALITIE! O% E*I&ENCE
A! SUFFICIENC5 * (eas're o+ the .'antit/6a(o'nt o+ e%idence the a'ditor sho'$d
o,tain
a! The (ore co(&etent e%idence is# the $ess a(o'nt o+ e%idence needed!
,! The (ore (ateria$ the acco'nt ,a$ance is# the greater a(o'nt o+ e%idence is
needed!
c! The higher risC is in%o$%ed# the greater a(o'nt o+ e%idence is re.'ired!
B! APPROPRIATENESS * (eas're o+ the .'a$it/ o+ e%idence needed to s'&&ort
the a'ditorFs o&inion! It has the +o$$o)ing ingredients1
a! RELIABILIT5 * this is inN'enced ,/ the nat're o+ e%idence# its so'rce# and the
circ'(stances 'nder )hich it is o,tained!
Pres'(&tions1
E%idence o,tained +ro( inde&endent so'rces o'tside an entit/ is (ore
re$ia,$e than e%idence sec'red so$e$/ )ithin the entit/!
The (ore e0ecti%e the interna$ contro$ str'ct're# the (ore ass'rance it
&ro%ides a,o't the re$ia,i$it/ o+ the acco'nting data and @nancia$ state(ents!
The inde&endent a'ditorFs direct &ersona$ Cno)$edge# o,tained thro'gh
&h/sica$ e-a(ination# o,ser%ation# co(&'tation and ins&ection# is (ore
re$ia,$e than in+or(ation o,tained indirect$/!
,! RELEANCE * re+ers to the ti(e$iness o+ e%idence and its re$ationshi& to the
a'ditorFs o,Decti%e!
U$ti(ate$/# the decision as to the s'Kcienc/ and co(&etence o+ e%idence )i$$
de&end '&on the a'ditorFs D'dg(ent!
AU&IT &OCU3ENTATION
4OR9IN7 PAPER! are doc'(entation o+ the a'dit &roced'res a&&$ied#
in+or(ation o,tained and conc$'sions reached! It (a/ ,e in the +or( o+ data stored
on &a&er# @$( or other (edia!
PRIMAR5 PURPOSES1
9! Aid in cond'ct and s'&er%ision o+ engage(ent
?! Pro%ide &rinci&a$ s'&&ort +or a'ditorFs re&ort
8! S'&&ort a'ditorFs re&resentation o+ co(&$iance )ith PSA
CLA!!I%ICATION!' EorCing &a&ers are t/&ica$$/ c$assi@ed into1
CONTINUING6PERMANENT EORAING PAPER FILE contains in+or(ation o+ contin'ing
signi@cance to the a'ditor in &er+or(ing rec'rring a'dit! :E-a(&$e1 Artic$es o+
Incor&oration and ,/*$a)s# co&ies o+ (aDor contracts# engage(ent $etter#
organizationa$ chart# ana$/ses o+ $ong*ter( acco'nts and interna$ contro$ ana$/ses;
CURRENT6TEMPORAR5 EORAING PAPER FILE contains e%idence gathered and
conc$'sions reached re$e%ant to the a'dit o+ a &artic'$ar /ear! :E-a(&$e1 co&/ o+
@nancia$ state(ents# a'dit &rogra(# corres&ondence )ith $a)/ers# c'sto(ers# ,anC
and (anage(ent# )orCing tria$ ,a$ance# $ead sched'$es# detai$ed sched'$es;
O4NER!#IP' EorCing &a&ers are &ro&ert/ o+ the a'ditor and the c$ient has no
rights to the )orCing &a&ers &re&ared ,/ the a'ditor! EorCing &a&ers (a/
so(eti(es ser%e as a re+erence so'rce +or the c$ient :at the discretion o+ the
a'ditor; ,'t the/ sho'$d not ,e considered &art or s',stit'te +or the c$ientFs records!
CON%I&ENTIALIT$' EorCing &a&ers cannot ,e sho)n to third &arties )itho't the
c$ientFs consent e-ce&t1
a! Sec'rit/ o+ the State 3 or
,! Lega$6Pro+essiona$ Res&onsi,i$it/ re.'ires!
CU!TO&$' EorCing &a&ers sho'$d ,e retained ,/ the a'ditor +or a &eriod o+ ti(e
s'Kcient to (eet the needs o+ his &ractice and to satis+/ an/ &ertinent $ega$
re.'ire(ents o+ record retention!
%OR3 AN& CONTENT O% 4OR9IN7 PAPER!' The e-tent o+ a'ditorFs
doc'(entation sho'$d ena,$e an e-&erienced a'ditor# ha%ing no &re%io's
connection )ith the a'dit to 'nderstand1
a! Nat're# ti(ing and e-tent o+ &roced'res &er+or(ed
,! A'dit e%idence o,tained
c! Signi@cant (atters identi@ed d'ring the a'dit and conc$'sions reached
7UI&ELINE! %OR T#E PREPARATION O% 4OR9IN7 PAPER!' The +o$$o)ing
techni.'es (a/
9! "EADING indicates the na(e o+ the c$ient# t/&e o+ )orCing &a&er# date or &eriod
co%ered ,/ the e-a(ination!
?! INDE4ING is the 'se o+ $ettering or n'(,ering s/ste(
8! CROSS REFERENCING is &ro%iding a trai$ to +aci$itate the re%ie) o+ the )orCing
&a&ers!
J! TICAMARAS are s/(,o$s 'sed ,/ the a'ditor to descri,e the &roced'res
&er+or(ed!
CO3PLETIN7 T#E AU&IT
!UB!E-UENT E*ENT! are (ateria$ transactions or e%ents that occ'r a+ter the
,a$ance sheet date &rior to the iss'ance o+ the @nancia$ state(ents and the
a'ditorFs re&ort# that re.'ire adD'st(ent o+ or disc$os're in the state(ents!
T$PE! O% !UB!E-UENT E*ENT!'
T5PE 9 * E%ents that &ro%ide e%idence a,o't conditions that e-isted as o+ the
,a$ance sheet date! This t/&e o+ e%ent )i$$ re.'ire AdD'st(ent!
T5PE ? * E%ents that &ro%ide e%idence a,o't conditions that arose a+ter the
,a$ance sheet date! This t/&e o+ e%ent )i$$ re.'ire Disc$os're!
Inte0i. Pe0io5 !u/1eMuent
Pe0io5
!UB!E-UENT E*ENT!
T5PE 9 T5PE ?
Con5ition1 EJi1tinC Con5ition1
A0i1inC
ON o0 BE%ORE A%TER
Balance !heet &ate Balance !heet
&ate
A&)U!T %! a.ount1 Con1i5e0 fo0 NOTE
&I!CLO!URE
PROCE&URE! U!E& TO I&ENTI%$ !UB!E-UENT E*ENT!'
9! In.'ir/
?! E%a$'ating c$ientFs &roced'res
8! Reading the (in'tes o+ the BOD6stocCho$derFs (eetings
J! A'dit in.'ir/ to c$ientFs $a)/er
7! Co(&are $atest a%ai$a,$e interi( FS
Beginning o+ Ba$ance Sheet Last Da/ o+
Iss'ance o+
C'rrent 5ear Date Fie$d)orC A'dit
Re&ort
Pe0fo0. Au5it P0oce5u0e1
Re1pon1i/le Only fo0 Info0.ation
To search +or s',se.'ent e%ents! OCo(ing to
A'ditorFs AttentionP
REPORT! ON %INANCIAL !TATE3ENT!
A. !TAN&AR& UN-UALI%IE& REPORT
B. 3O&I%ICATION O% REPORT * a0ecting the a'ditorFs o&inion
!ituation I33ATERIAL 3ATERIAL PER*A!I*E
GAAP De&art're Un.'a$i@ed B'a$i@ed Ad%erse
Sco&e Li(itation Un.'a$i@ed B'a$i@ed Disc$ai(er
3O&I%ICATION O% REPORT : not a0ecting the a'ditorFs re&ort3
Un.'a$i@ed Re&ort )ith an e(&hasis o+ a (atter &aragra&h
Con5ition1'
a! Uncertaint/
,! Going concern 'ncertaint/
c! G'sti@a,$e de&art're +ro( PFRS6PAS
d! Inconsistenc/1 )o'$d nor(a$$/ re.'ire consistenc/ &aragra&h
e! Changes a0ecting acco'nting &rinci&$es
+! Changes in Re&orting Entit/
C. REPORT! ON CON!OLI&ATE& %INANCIAL !TATE3ENT!
a! Factors to ,e considered in deciding )hether to act as the Princi&a$ A'ditor1
9! Materia$it/ o+ the &ortion o+ the FS a'dited
?! RisC o+ (ateria$ (isstate(ent o+ co(&onents FS
8! Degree o+ Cno)$edge o+ o%era$$ o&inion
,! Proced'res to ,e &er+or(ed )hen &$anning to 'se the )orC o+ other A'ditor1
9! Co(&etence
?! Inde&endence
8! Ade.'ac/ o+ )orC &er+or(ed
c! Additiona$ &roced'res to ,e &er+or(ed )hen &$anning to ass'(e
res&onsi,i$it/ +or the )orC o+ other a'ditors1
9! Re%ie) o+ )orCing &a&ers
?! Disc'ss &roced'res a&&$ied ,/ other a'ditor
8! Consider signi@cant @ndings and disc'ss )ith co(&onentFs (anage(ent
&. REPORT! ON CO3PARATI*E %INANCIAL !TATE3ENT!
PSA H9> has identi@ed t)o (ethods and &resentations o+ co(&arati%es! These
are1
a! CORRESPONDING FIGURES )here a(o'nts and other disc$os'res +or the
&receding &eriod are1
Not &resented as co(&$ete @nancia$ state(ents ca&a,$e o+ standing a$one# ,'t
Are not an integra$ &art o+ the c'rrent &eriod @nancia$ state(ents
,! COMPARATIE FS )here the a(o'nts and other disc$os'res +or the &receding
&eriod are1
Inc$'ded +or co(&arison )ith the @nancia$ state(ents o+ the c'rrent &eriod
Do not +or( &art o+ the c'rrent &eriod @nancia$ state(ents
E. OT#ER IN%OR3ATION
3ATERIAL INCON!I!TENC$ e-ists )hen other in+or(ation contradicts
in+or(ation contained in the a'dited @nancia$ state(ents!
3ATERIAL 3I!!TATE3ENT e-ists )hen in+or(ation# not re$ated to (atters
a&&earing in the a'dited @nancia$ state(ents# is incorrect$/ stated or &resented!
%. !PECIAL PURPO!E AU&IT EN7A7E3ENT INCLU&E'
a! FS Re&orts 'sing other co(&rehensi%e ,asis o+ acco'nting
,! Re&orts on s&eci@c e$e(ent6acco'nt o+ FS
c! Re&orts on co(&$iance )ith contract'a$ agree(ent
d! Re&ort on s'((arized @nancia$ in+or(ation
7. REPORT! ON PRO!PECTI*E %INANCIAL !TATE3ENT! * +'t're oriented
a! FORECASTS are &ros&ecti%e @nancia$ state(ents that &resent an entit/Fs
e-&ected @nancia$ &osition# res'$ts o+ o&erations and cash No)s!
,! PROGECTION are &ros&ecti%e @nancia$ state(ents that &resent an entit/Fs
esti(ate o+ its @nancia$ &osition# res'$ts o+ o&erations and cash No)s gi%en
one or (ore h/&othetica$ ass'(&tions!
PRO%E!!IONAL RE!PON!IBILITIE!
Res&onsi,i$it/ +or the Financia$ State(ents1
3ANA7E3ENT is res&onsi,$e +or &re&aring and &resenting the @nancia$
state(ents in accordance )ith the @nancia$ re&orting +ra(e)orC!
AU&ITOR is res&onsi,$e +or +or(ing and e-&ressing an o&inion on the @nancia$
state(ents!
AU&ITORB! RE!PON!IBILIT$ %OR
%RAU&6 ERROR AN& NON:CO3PIANCE 4IT# LA4! AN&
RE7ULATION!
%RAU&=IRRE7ULA
RIT$
ERROR NON:
CO3PLIANCE
De@nition Intentiona$
(isstate(ents in
the @nancia$
state(ents!
Unintentiona$ Co((ission6O(issi
on contrar/ to
$a)6reg'$ations
E-a(&$es Manage(ent Fra'd3
Co$$'sion
O%ersight6(isinter&ret
ation o+ +acts3
(istaCes in &rocessing
o+ data
Ta- e%asion3
%io$ation o+
occ'&ationa$ sa+et/
and hea$th $a)
Detection
Res&onsi,i$it
/
a! Assess the
risC o+
(isstate(ent
,! Design the
a'dit to &ro%ide
reasona,$e
ass'rance o+
detecting (ateria$
+ra'd
a! Assess the risC
o+ (isstate(ent
,! Design the
a'dit to &ro%ide
reasona,$e
ass'rance o+
detecting (ateria$
+ra'd
a! Understandin
g the $ega$
+ra(e)orC
,! Per+or(
&roced'res
c! O,tain
e%idence o+
co(&$iance
Re&orting
Res&onsi,i$it
/
a! To the
a&&ro&riate $e%e$
o+ (anage(ent
,! To the 'sers
o+ the @nancia$
state(ents
c! To s'ccessor
a'ditor
a! To the
a&&ro&riate $e%e$ o+
(anage(ent
,! To the 'sers o+
the @nancia$
state(ents
c! To s'ccessor
a'ditor
a! To the
a&&ro&riate $e%e$
o+ (anage(ent
d! To the 'sers
o+ the @nancia$
state(ents
e! To s'ccessor
a'ditor
Eithdra)a$
+ro( the
Engage(ent
The a'ditor (a/
)ithdra) +ro( the
engage(ent i+ the
(anage(ent does
not taCe re(edia$
action the a'ditor
considers necessar/
The a'ditor (a/
)ithdra) +ro( the
engage(ent i+ the
(anage(ent does not
taCe re(edia$ action
the a'ditor considers
necessar/
The a'ditor (a/
)ithdra) +ro( the
engage(ent i+ the
(anage(ent does
not taCe re(edia$
action the a'ditor
considers necessar/
OT#ER T$PE! O% !ER*ICE!
Natu0e of
!e0;ice
AU&IT RE*IE4
A7REE&:
UPON
PROCE&URE
CO3PILATION
Le;el of
A11u0ance
"igh6Reasona,
$e
Moderate6Li(it
ed
None None
Type of
Repo0t
Positi%e
Ass'rance
Negati%e
Ass'rance
Descri&tion
and Re&ort
Identi@cation
o+ FS co(&i$ed
Ba1ic
9noGle5Ce
S'Kcient 'nderstanding o+ entit/Fs FS
Ba1ic
P0oce5u0e1
A'dit
&roced'res
dee(ed
necessar/
In.'ir/6
Ana$/tica$
Proced'res
Agreed U&on
Proced're
None
In5epen5enc
e
ReMui0e.ent
Re.'ired Not re.'ired