PSAs

TABLE OF CONTENTS
TOPICS
PAGE NUMBER
1. THE COUNCIL
& ITS PRONOUNCEMENTS
2. PSA UPDATES/HIGHLIGHTS
2 - 17
2.1
2.2
LIST OF PSAs
PSA HIGHLIGHTS
3. FRAMEWORK OF AUDITING
& OTHER SERVICES
18
4. OBJECTIVE & GENERAL PRINCIPLES

GOVERNING AN AUDIT OF FS
19
5. OVERALL AUDIT PROCESS
20
6. PLANNING PROCESS
21 - 22
7. AUDIT ENGAGEMENT LETTER
22 - 24
8. UNDERSTANDING THE ENTITY

& ITS ENVIRONMENT
24 - 29
9. RESPONSE TO ASSESSED RISKS
30 - 31
10. AUDIT EVIDENCE
32 - 34
11.SUBSTANTIVE AUDIT PROCEDURES
35 - 51
a. CONSIDERATIONS ON SPECIFIC ITEMS

b. EXTERNAL CONFIRMATIONS
c. INITIAL ENGAGEMENTSOPENING BALANCES
d. AUDIT OF ACCOUNTING ESTIMATES
e. AUDITING FMV MEASUREMENTS
f. RELATED PARTIES
12. COMPLETING THE AUDIT AND
AND POST-AUDIT RESPONSIBILITIES
4.1
4.2
4.3
52 61
SUBSEQUENT EVENTS
GOING CONCERN
MANAGEMENT REPRESENTATIONS
13. THE INDEPENDENT AUDITORS REPORT
62 71
14. MODIFICATIONS TO THE INDEPENDENT

AUDITORS REPORT
72 79
15. AUDIT DOCUMENTATION
80 83
The Council and Its

Pronouncements
Auditing and Assurance Standards Council
The AASC was established by RA 9298 (Philippine

Accountancy Act of 2004)
The Council has 15 members coming from the following:
The Council members from PICPA represent the following
sectors
The Authority Attaching to Philippine Standards

Standards contain basic principles and essential procedures
together with related guidance in the form of explanatory and
other material.
In exceptional circumstances, and auditor may judge it
necessary to depart from a Standard in order to more
effectively achieve the objective of an audit, but the auditor
should be prepared to justify the departure.
Standards need only be applied to material matters.
Any limitation of the applicability of a specific standard is
made clear in the Standard.
The Authority Attaching to Practice Statements

Practice Statements are issued to provide practical
assistance to auditors in implementing the Standards or
to promote good practice. These Statements are not
intended to have the authority of the Standards
1
PSQCs, Framework, PSAs, PAPSs, PSREs, PSAEs,

PSRSs
in effect as of December 31, 2006
No.
Title
Preface to the International Standards on Quality

Control, Auditing, Review, Other Assurance and
Related Services and Preface to the Philippine
Standards on Quality Control, Auditing, Review,
Other Assurance and Related Services
Philippine Framework for Assurance Engagements
Glossary of Terms (December 2002) [amended by

PSA 220 (Revised)]
Philippine Standard on Quality Control (PSQC)

1
Quality Control for Firms That Perform Audits and

Reviews of Historical Financial Information, and
Other Assurance and Related Services
Engagements
Philippine Standards on Auditing (PSAs)

120
Framework of Philippine Standards on Auditing
200
Objective and General Principles Governing an Audit

of Financial Statements [amended by PSA 700
(Revised)]
210
Terms of Audit Engagements [amended by PSA 700

(Revised)]
220 Quality Control for Audits of Historical Financial

(Revise Information
d)
230 Audit Documentation
(Revise
d)
240
The Auditors Responsibility to Consider Fraud in an

2
No.
(Revise
d
2005)
Title
Audit of Financial Statements
250
Consideration of Laws and Regulations in an Audit of

Financial Statements
260
Communications of Audit Matters with Those Charged

with Governance
300 Planning an Audit of Financial Statements

(Revise
d)
315
Understanding the Entity and Its Environment and

Assessing the Risks of Material Misstatement
320
Audit Materiality [amended by PSA 240 (Revised

2005)]
330
The Auditors Procedures in Response to Assessed

Risks
402
Audit Considerations Relating to Entities Using

Service Organizations
500 Audit Evidence

(Revise
d)
501
Audit Evidence - Additional Considerations on Specific

Items
505
External Confirmations
510
Initial Engagements--Opening Balances
520
Analytical Procedures
530
Audit Sampling and Other Selective Testing

Procedures
540
Audit of Accounting Estimates
545
Auditing Fair Value Measurements and Disclosures
No.
550
Title
Related Parties
560
Subsequent Events [amended by PSA 700 (Revised)]
570
Going Concern
580
Management Representations [amended by PSA 240

(Revised 2005)]
600
Using the Work of Another Auditor
610
Considering the Work of Internal Auditing
620
Using the Work of an Expert
700 The Independent Auditors Report on a Complete Set

(Revise of General Purpose Financial Statements
d)
701
Modifications to the Independent Auditors Report
710
Comparatives
720
Other Information in Documents Containing Audited

800
The Independent Auditors Report on Special Purpose

Audit Engagements [amended by PSA 700
(Revised)]
Philippine Auditing Practice Statements (PAPSs)

1000 Inter-Bank Confirmation Procedures
1000P Audit Evidence Practical Problems in an Audit of
h
1004 The Relationship Between Bangko Sentral ng Pilipinas
(BSP) and Banks External Auditors
1005 The Special Consideration in the Audit of Small
(Revise Entities
d)
1006 Audits of the Financial Statements of Banks
No.
Title
1010 The Consideration of Environmental Matters in the
1012 Auditing Derivative Financial Instruments [amended
by PSA 220 (Revised)]
1013 Electronic Commerce Effect on the Audit of
1014 Reporting by Auditors on Compliance with
International Financial Reporting Standards
Philippine Standards on Review Engagements
(PSREs)
2400 Engagements to Review Financial Statements
(previously PSA 910)
2410 Review of Interim Financial Information Performed by
the Independent Auditor of the Entity
Philippine Standards on Assurance Engagements
(PSAEs)
3000 Assurance Engagements Other Than Audits or
(Revise Reviews of Historical Financial Information
d)
3400 The Examination of Prospective Financial Information
Philippine Standards on Related Services (PSRSs)
4400 Engagements to Perform Agreed-Upon Procedures
Regarding Financial Information (previously PSA
920)
4410 Engagements to Compile Financial Information
Standards that have been REPLACED:

Old Standard
Preface to Philippine
Standards on
Auditing and
Related Services
PSA
220
PSA
230
PSA
240
(Revis
ed)
PSA
300
PSA
New Standard
Preface to the
International
Standards on
Quality Control,
Auditing, Review,
Other Assurance
and Related
Services and
Preface to the
Philippine
Standards on
Quality Control,
Auditing, Review,
Other Assurance
and Related
Services
Quality Control for
PSA
Quality Control for
Audit Work
220
Audits of Historical
(Revis
Financial
ed)
Information
Documentation
PSA
Audit
230
Documentation
(Revis
ed)
The Auditors
PSA
The Auditors
Responsibility to
240
Responsibility to
Consider Fraud and (Revise
Consider Fraud in
Error in an Audit of d
an Audit of
Financial
Financial
2005)
Statements
Statements
Planning
PSA
Planning an Audit of
300
Financial
(Revis
Statements
ed)
The Auditors Reports PSA
The Independent
6
700
PAPS
1005
PSA
100 /
PSAE
3000
on Financial
Statements
700
(Revis
ed)
The Special
Consideration in
the Audit of Small
Business
Assurance
Engagements
PAPS
1005
(Revis
ed)
PSAE
3000
(Revis
ed)
Auditors Report
on a Complete Set
of General
Purpose Financial
Statements
The Special
Consideration in
the Audit of Small
Entities
Assurance
Engagements
Other Than Audits
or Reviews of
Historical
Financial
Information
Standards that have been WITHDRAWN:

PSA 310, Knowledge of Business
PSA 400, Risk Assessments and Internal Control
PSA 401, Auditing in a Computer Information System
Environment
PAPS 1001, CIS Environment Stand-Alone Personal
Computers
PAPS 1002, CIS Environment On-line Computer Systems
PAPS 1003, CIS Environment Database Systems
PAPS 1008, Risk Assessments and Internal Control CIS
Characteristics and Considerations
PAPS 1009, Computer-Assisted Audit Techniques
PSA Highlights
PSA 220 Quality Control

7
A more comprehensive quality control requirements
PSA 240 (revised)
Requires assessment of risk of significant

misstatement
Requires communication with those charged with
governance
Requires to obtain a written management
representation
PSA 250 Laws and Regulation (new)

Requires the auditor to recognize that noncompliance by the
entity with laws and regulations may materially affect
the financial statements.
PSA Highlights
Provides that auditor may conclude that withdrawal from
the engagement is necessary when the entity does not
take the remedial action that the auditor considers
necessary in the circumstances, even when the
noncompliance is not material to the financial statements.
PSA 260 Communication with Those

Charged with Governance (amended by
PSA 240 revised)
Requires the auditor to communicate audit
matters of governance interest arising
from the audit of financial statements
with those charged with governance of an
8
entity.
PSA 310 Understanding the Entity In performing an
audit of financial statements, the auditor is

required to have or obtain a knowledge of the
business sufficient to enable the him to identify
and understand the events, transactions and
practices that, in the auditor's judgment, may
have a significant effect on the financial
statements or on the examination or audit report.
PSA Highlights
PSA 320 Materiality (amended by PSA

240)
Requires the auditor to consider materiality
and its relationship with audit risk when
conducting an audit.
PSA 400 Risk Assessment and Internal Control
(withdrawn)
Requires the auditor to obtain an understanding of

the accounting and internal control systems
sufficient to plan the audit and develop an
effective audit approach.
The auditor is
required also to use professional judgment to
assess audit risk and to design audit procedures
9
to ensure it is reduced to an acceptably low

level.
PSA 401 CIS Environment (withdrawn)

When the CIS are significant, the auditor
is required to obtain an understanding of
the CIS environment and whether it may
influence the assessment risks.
PSA Highlights
PSA
402
Organizations
Entities
Using
Service
Requires the auditor to consider how a

service organization affects the client's
accounting and internal control systems so
as to plan the audit and develop an
PSA 500/501 Audit Evidence (revised)

When obtaining audit evidence from tests
of control, the auditor is required to
consider
the
sufficiency
and
appropriateness of the audit evidence to
10
support the assessed level of control risk.

PSA 505 External Confirmations
Requires the auditor to determine whether the use of
external confirmations is necessary to obtain
sufficient appropriate audit evidence to support
certain financial statement assertions. In making
this determination, the auditor should consider
materiality, the assessed level of risk, and how the
evidence from other planned audit procedures will
reduce audit risk to an acceptably low level for the
applicable financial statement assertions.
PSA Highlights
PSA 510 Initial Engagements Opening Balances
For initial audit engagements, the auditor is
required to obtain sufficient appropriate audit
evidence that:
(a) The opening balances do not contain
misstatements that materially affect the
current period's financial statements;
PSA 510 Initial Engagements Opening
Balances
(b) The prior period's closing balances have been
correctly brought forward to the current period
or, when appropriate, have been restated; and
(c)
Appropriate
accounting
policies
are
11
consistently applied or changes in accounting

policies have been properly accounted for and
adequately disclosed.
PSA 520 Analytical Procedures
Requires the auditor to apply analytical procedures

at the planning stage to assist in understanding
the business and in identifying areas of potential
risk.
PSA Highlights
The auditor is also required to apply analytical
procedures at or near the end of the audit when
forming an overall conclusion as to whether the
financial statements as a whole are consistent
with the auditor's knowledge of the business.
PSA 540 Accounting Estimates

Requires the auditor to obtain sufficient
appropriate audit evidence as to whether
an accounting estimate is reasonable in the
circumstances and, when required, is
appropriately disclosed.
PSA 545 Fair Value Measurements and

Disclosure
12
Requires
the
auditor
to
obtain
an
understanding of the entity's process for
determining fair value measurements and
disclosures and of the relevant control
procedures sufficient to develop an
PSA Highlights
PSA 550 Related Parties
Requires the auditor to perform audit
procedures designed to obtain sufficient
appropriate audit evidence regarding the
identification and disclosure by management of
related parties and the effect of related
party transactions that are material to the
financial statements.
PSA 550 Related Parties
Requires the auditor to obtain a written

representation from management concerning:
(a) The completeness of information provided
regarding the identification of related parties;
and
13
(b) The adequacy of related party disclosures in

PSA 560 Subsequent Events

Requires the auditor to perform procedures
designed to obtain sufficient appropriate
audit evidence that all events up to the
date of the auditor's report that may
require adjustment of, or disclosure in,
the financial statements have been
identified.
PSA Highlights

When, after the date of the auditor's report but
before the financial statements are issued, the
auditor becomes aware of a fact which may
materially affect the financial statements, the
auditor should consider whether the financial
statements need amendment, should discuss the
matter with management, and should take the
action appropriate in the circumstances.

When management does not amend the
financial statements in circumstances
where the auditor believes they need to
be amended and the auditor's report has
not been released to the entity, the
14
auditor should express a qualified opinion

or an adverse opinion.

When the auditor's report has been
released to the entity, the auditor would
notify those persons ultimately responsible
for the overall direction of the entity not
to issue financial statements and the
auditor's report thereon to third parties.
PSA Highlights

When, after the financial statements have been
issued, the auditor becomes aware of a fact which
existed at the date of the auditor's report and
which, if known at that date, may have caused the
auditor to modify the auditor's report, the auditor
should consider whether the financial statements
need revision, should discuss the matter with
management,
and
should
take
the
action
appropriate in the circumstances.
PSA 580 Management Representations (amended

by PSA 240 revised)
Requires the auditor to obtain evidence that
management acknowledges its responsibility
for the fair presentation of the financial
statements in accordance with the relevant
15
financial reporting framework, and

approved the financial statements.
has
PSA 580 Management Representations

If management refuses to provide a
representation that the auditor considers
necessary, this constitutes a scope
limitation and the auditor should express a
qualified opinion or a disclaimer of opinion.
PSA Highlights
PSA 600 Using Work of Another Auditor
(revised)
Requires the principal auditor to perform
procedures to obtain sufficient appropriate
audit evidence, that the work of the other
auditor is adequate for the principal
auditor's purposes, in the context of the
specific assignment.
\
PSA 610 Considering the Work of Internal Audit

The external auditor should obtain a sufficient
understanding of internal audit activities to assist in
planning the audit and developing an effective audit
approach.
When the external auditor intends to use specific
16
work of internal auditing, the external auditor

should evaluate and test that work to confirm its
adequacy for the external auditor's purposes.
PSA 700 The Auditors Report (revised)

Since the auditor's responsibility is to report on the
financial statements as prepared and presented by
management, the auditor should not date the
report earlier than the date on which the financial
statements
are
signed
or
approved
by
management.
PSA Highlights
PSA 710 Comparatives

(a) Corresponding figures where amounts
and other disclosures for the preceding
period are included as part of the current
period financial statements, and are
intended to be read in relation to the
amounts and other disclosures relating to
the current period.
PSA 710 Comparatives

(b) Comparative financial statements where
amounts and other disclosures for the
preceding
period
are
included
for
comparison with the financial statements
17
of the current period, but do not form

part of the current period financial
statements.
PSA 720 Information in Documents Containing Audited
Financial Statements (new)
Requires the auditor to read the other information to
identify material inconsistencies with the audited
PSA Highlights
If, on reading the other information, the auditor
identifies a material inconsistency, the auditor
should determine whether the audited financial
statements or the other information needs to be
amended.
PSA 800 Special Purpose Audit Engagements

(amended by PSA 700)
Provides guidance in connection with special

purpose audit engagements including:
Financial statements prepared in accordance with
a comprehensive basis of accounting other than
International Accounting Standards or national
standards;
PSA 800 Special Purpose Audit Engagements

18
Specified accounts, elements of accounts, or items

in a financial statement (hereafter referred to
as reports on a component of financial
statements);
Compliance with contractual agreements; and
Summarized financial statements.
FRAMEWORK OF AUDITING AND OTHER

SERVICES
Nature of
service
Auditing
Review
Audit
Review
Related Services
Agreedupon
Procedures
Compilation
Comparative
level of
assurance
provided by
the auditor
High, but not

absolute,
assurance
(Reasonable
assurance)
Moderate
assurance
(Limited
assurance)
No
assurance
No assurance
Report
provided
Positive
assurance on
assertion(s)
Negative
assurance on
assertion(s)
Factual
findings of
procedures
Identification
of
information
compiled
Levels of Assurance
19
Refers to the auditors satisfaction as to the reliability of an

assertion being made by one party for use by another
party

Objective of an Audit
The objective of an audit of financial statements is to enable the

auditor to express an opinion whether the financial statements
are prepared, in all material respects, in accordance with an
identified financial reporting framework. The phrase used to
express the auditors opinion is present fairly, in all material
respects.
Reasonable Assurance
An audit in accordance with PSAs is designed to provide reasonable
assurance that the financial statements taken as a whole are free from
material misstatement.
Is a concept relating to the accumulation of the audit evidence necessary for
the auditor to conclude that there are no material misstaments in the
financial statements taken as a whole
Relates to the whole audit process
Inherent Limitations in an Audit:
The use of testing
Inherent limitations of any accounting and internal control system
That most audit evidence is persuasive rather than conclusive
20
Use of judgment
Characteristic(s) of subject matter
Responsibility for the Financial Statements
While the auditor is responsible for forming and expressing an

opinion on the financial statements, the responsibility for preparing
and presenting the financial statements is that of the management
of the entity. The audit of the financial statements does not
relieve management of its responsibilities.
The Overall Audit Process:

CLIENT
AUDITOR
Transactions
And Other
Economic Events
Audit Planning (PSA 300)
Control
Structure
Assessing (PSA 400)

Control Risk
(Tests of Controls
Over Transactions)
Recorded
Transactions
Substantive Tests (PSA 500/600)

Of Transactions
General &
`Subsidiary
Account Balances
Ledger
Direct Tests of
Account Balances
And Analytical
Procedures
Final Assessment
Of Audit Approach &
21
Dual-Purpose
Tests
Financial Statement
Presentation
Opinion (PSA 700)
Audit
Financial
Statements
THE PLANNING PROCESS

Process
A. Accepting the
Engagement
B. Establishing
Terms of
Engagement
C. General
Planning (PSA
300)
Planning Considerations/Relevant PSA and Auditing

Pronouncements
1. Evaluate the integrity of the management
2. Assess ability to meet generally accepted auditing
standards
1. Prepare engagement letter
1. Understanding the Entity and its Environment
(PSA 315)
2. Conduct preliminary analytical procedures (PSA
520)
3. Establish materiality & audit risk (PSA 320/
amended by PSA 240)
Planning Considerations/Relevant PSA and

Auditing Pronouncements
22
4. Assessing the possibility for material

errors, fraud, and certain types of illegal
acts
(PSA 240/250)
5. Identify related parties & related party
transactions (PSA 550)
6. Consider other planning issues such as
work of others (PSAs 600/610/620)
7. Consider other critical matters such as
assessment of going-concern assumption
(PSA 570)
Planning Considerations/Relevant PSA and

Auditing Pronouncements
D. Develop
Overall Audit
Strategy
1. Identify audit objectives/audit programs or

procedures (PSA 300)
2. Quality control for audit work (PSA 220)
3. Schedule the audit work (timing
considerations).
4. Assign professional staff to the engagement
E. Prepare
Engagement
Planning
Memorandum
Audit Engagement Letter

To the Board of Directors or the appropriate representative of
senior management
23
You have requested that we audit the financial statements

of ....................., which comprise the balance sheet as at
.., and the income statement, statement of changes in
equity and cash flow statement for the year then ended, and a
summary of significant accounting policies and other
explanatory notes. We are pleased to confirm our acceptance
and our understanding of this engagement by means of this
letter. Our audit will be made with the objective of our
expressing an opinion on the financial statements.
We will conduct our audit in accordance with Philippine
Standards on Auditing. Those standards require that we
comply with ethical requirements and plan and perform the
audit to obtain reasonable assurance whether the financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit
evidence about the amounts and disclosures in the financial
statements. The procedures selected depend on the auditors
judgment, including the assessment of the risks of material
misstatement of the financial statements, whether due to
fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entitys preparation
and fair presentation of the financial statements in order to
design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the entitys internal control.
An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of
accounting estimates made by management, as well as
evaluating the overall presentation of the financial
statements.
Because of the test nature and other inherent limitations of an
audit, together with the inherent limitations of any accounting
and internal control system, there is an unavoidable risk that
even some material misstatements may remain undiscovered.
24
We remind you that management is responsible for the

preparation and fair presentation of these financial
statements in accordance with Philippine Financial Reporting
Standards.
This
responsibility
includes:
designing,
implementing and maintaining internal control relevant to the
preparation and fair presentation of financial statements that
are free from material misstatement, whether due to fraud or
error; selecting and applying appropriate accounting policies;
and making accounting estimates that are reasonable in the
circumstances.
As part of our audit process, we will request from
management written confirmation concerning representations
made to us in connection with the audit. We look forward to
full cooperation with your staff and we trust that they will
make available to us whatever records, documentation and
other information are requested in connection with our audit.
(Insert additional paragraph here regarding fee arrangements
and billings, as appropriate.)
Please sign and return the attached copy of this letter to
indicate that it is in accordance with your understanding of
the arrangements for our audit of the financial statements.
XYZ & Co.
Acknowledged on behalf of
ABC Company by
(signed)
......................
Name and Title
Date
PSA 315 - Understanding The Entity And Its Environment And Assessing
The Risks Of Material Misstatement
1. (Purpose): To establish standards and to provide guidance on
obtaining an understanding of the entity and its environment,

25
including its internal control, an on assessing the risks of material

misstatement in a financial statement.
2. The auditor should obtain an understanding of the entity and its
environment, including its internal control, sufficient to identify and

assess the risks of material misstatement of the financial statements
whether due to fraud and error, sufficient to design and perform
further audit procedures. (PSA 240 & 500)
3. Requirements of the standard:
a) Risk assessment procedures and sources of information about the
entity and its environment, including its internal control (to
discuss susceptibility among the engagement team).
b) Understanding the entity and its environment, including its
internal
control (understand to identify & assess).
c) Assessing the risk of material misstatement (to identify and
assess
risk of
material misstatements).
d) Communicating with those charged with governance and management
(matters relating to internal control).
e) Documentations (establish)
Risk assessment procedures:
1. The auditor should perform the following risk assessment procedures
to obtain an understanding of the entity and its environment, including
its internal control:
a) Inquiries of management and others within the entity;
Inquiries towards those with governance
Inquiries directed toward internal audit personnel
Inquiries of employees
Inquiries directed toward in-house legal counsel
Inquiries directed towards marketing or sales personnel
b) Analytical procedures;
Develop expectation about the plausible relationship that

are reasonably expected to exist. PSA 520
a) Observation and inspection
26
Observation of entity activities and operations

Inspection of documents, records and internal controls
manuals.
Reading report prepared by management and those
charges with governance.
Visits to the entitys premises and plant facilities.
Tracing transactions through the information system
relevant to financial reporting (walkthroughs)
NOTE:
When auditor intends to use information about the entity and its
environment obtained in prior periods, the auditor should determine
whether changes have occurred that may affect the relevance of such
information in the current audit.
Understanding the Entity and Its Environment, Including Its Internal

Control
The auditors understanding of the entity and its environment consists of an
understanding of the following aspects:
Industry, regulatory, and other external factors, including the
applicable financial reporting framework.

Nature of the entity, including the entitys selection and application of
accounting policies.
Objectives and strategies and the related business risks that may
result in a material misstatement of the financial performance

Measurement and review of the entitys financial performance
Internal control
Assessing the Risks of Material Misstatement
27
1. The auditor should identify and assess the risks of material
misstatement at the financial statement level, and the assertions level

for classes of transaction, account balances, and disclosures.
2. For this purpose, the auditor:
Identifies risks throughout the process of obtaining an understanding
of the entity and its environment, including relevant controls that

relate to the risks, and by considering the classes of transactions,
account balances, and disclosure in the FS;
Relates the identified risks to what can go wrong at the assertion
level;
Considers whether the risks are of a magnitude that could result in a
material misstatement of the FS; and

Considers the likelihood that the risks could result in a material
misstatement of the FS.
Communicating With Those Charged With Governance and Management
The auditor should make those charged with governance or management
aware, as soon as practicable, and at an appropriate level of responsibility,
of material weakness in the design or implementation of internal control
which have come to the auditors attention.
Documentation
The auditor should document:
The discussion among the engagement team regarding the
susceptibility of the entitys FS to material misstatements due
to error or fraud, and the significant decision reached;
Key elements of the understanding obtained regarding each of
the aspect of the entity and its environment identified in ,
including each of the internal control components identified in
the , to assess the risks of material misstatements of the FS;
the sources of information from which the understanding was
obtained; and the risk assessment procedures;
The identified and assessed risk of material misstatements at
the FS level and at the assertion level as required; and
28
The risks identified and related controls evaluated as a results

of the requirements .
"Analytical procedures" means the analysis of significant ratios and
trends including the resulting investigation of fluctuations and
relationships that are inconsistent with other relevant information or
which deviate from predicted amounts.
Analytical procedures include the consideration of comparisons of the
entity's financial information with
Comparable information for prior periods.
Anticipated results of the entity, such as budgets or
forecasts, or expectations of the auditor, such as an
estimation of depreciation.
Similar industry information, such as a comparison

of the entity's ratio of sales to accounts receivable
with industry averages or with other entities of
comparable size in the same industry.
Analytical procedures also include consideration of relationships:
Among elements of financial information that would
be expected to conform to a predictable pattern
based on the entity's experience, such as gross
margin percentages.
Between financial information and relevant nonfinancial information, such as payroll costs to
number of employees.
When analytical procedures identify significant fluctuations or
relationships that are inconsistent with other relevant
information or that deviate from predicted amounts, the auditor
should investigate and obtain adequate explanations and
appropriate corroborative evidence.
29
The investigation of unusual fluctuations and relationships

ordinarily begins with inquiries of management, followed by:
(a)corroboration of management's responses;
(b)consideration of the need to apply other audit
procedures based on the results of such inquiries
Examples of matters an auditor may consider related to
business risk include the following:
Industry developments
New products and services
Expansion of the business
New accounting requirements
Regulatory requirements
Current and prospective financing requirements
Use of IT
Conditions and Events That May Indicate Risks of Material

Misstatement
Operations in regions that are economically unstable, for
example, countries with significant currency devaluation or
highly inflationary economies.
Operations exposed to volatile markets, for example, futures
trading.
High degree of complex regulation.
Going concern and liquidity issues including loss of significant
customers.
Constraints on the availability of capital and credit.
Changes in the industry in which the entity operates.
Changes in the supply chain.
Developing or offering new products or services, or moving into
new lines of business.
Expanding into new locations.
Changes in the entity such as large acquisitions or
reorganizations or other unusual events.
Significant transactions with related parties.
30
Lack of personnel with appropriate accounting and financial

reporting skills.
Changes in key personnel including departure of key
executives.
Weaknesses in internal control, especially those not addressed
by management.
Inconsistencies between the entitys IT strategy and its
business strategies.
Application of new accounting pronouncements.
Accounting measurements that involve complex processes.
Events or transactions that involve significant measurement
uncertainty, including accounting estimates.
Pending litigation and contingent liabilities, for example, sales
warranties, financial guarantees
PSA 330 The Auditors Procedures In Response To Assessed

Risks
(Purpose) To establish standards and provide guidance
determining overall responses and designing and performing further
audit procedures to respond to the assessed risks of MM at the FS
and assertion levels in a financial statement audit. The auditors
understanding of the entity and its environment, including its internal
control, and assessment of the risks of MM are described in PSA
315.
The following is an overview of the requirements of this standard:
In order to reduce audit risk to an acceptably low level, the auditor
should determine overall responses to assessed risks at the financial
statement level, and should design and perform further audit
procedures to respond to assessed risks at the assertion risks at the
assertion level.
(1)Overall responses
31
The auditor should determine overall responses to

address the risks of material misstatement at the financial
statement level.
o Such responses may include:
Emphasizing to the audit team the need to
maintain professional skepticism in gathering
and evaluating audit evidence;
Assigning more experienced staff or those
with special skills or using experts (the
assignment of engagement personnel to the
particular engagement reflects the auditors
risk assessment, which is based on the
auditors understanding of the entity)
Incorporating
additional
elements
of
unpredictability in the selection of further audit
procedures to be performed
Additionally, the auditor may make general
changes to the nature, timing, or extent of
audit procedures as an overall response
(example, performing substantive procedures
at period end instead of at an interim date)
Audit Procedures Responsive to risks of Material Misstatement at the
Assertion Level
The auditor should design and perform further audit
procedures whose nature, timing, and extent are
responsive to the assessed risks of MM at the assertion
level.
o The auditor considers such matters as the following:
The significance of the risk
The likelihood that MM will occur
The characteristics of the class of transaction,
account balance or disclosure involved
The nature of the specific control used by the
entity and in particular whether they manual or
automated
Whether the auditor expects to obtain audit
evidence to determine if the entitys control
32
are effective in preventing, or detecting and

correcting, material misstatements.
The nature of the audit procedures is of most importance in
responding to the assessed risks.
Documentation
The auditor should document the overall responses to address
the assessed risk of MM at the FS level an the nature, timing and
extent of the further audit procedures, the linkage of those
procedures with the assessed risks at the assertion level, and the
results of the audit procedures. In addition, if the auditor plans to use
audit evidence about the operating effectiveness of controls obtained
in prior audits, the auditor should document the conclusions reached
with regard to relying on such controls that were tested in a prior
audit. The manner in which these matters are documented is based
on the auditors professional judgment (PSA 230)
AUDIT EVIDENCE
PSA 500 Audit Evidence (Revised)
The auditor should obtain sufficient appropriate audit
evidence to be able to draw reasonable conclusion on which
to base the audit opinion
Audit evidence is all the information used by the
auditor in arriving at the conclusion on which the audit
opinion is based, and includes the information contained in
the accounting records underlying the financial statements
and other information.
Accounting Records
33
Records of Initial entries

Checks
Invoices
Contracts
Electronic Fund Transfers
Ledgers
Journal entries and other adjustments
Worksheets supporting cost allocations and
computations
Other information
Minutes of meetings
Confirmation from third parties
Analysts reports
Comparable data about competitors (benchmarking)
Control manuals
Info obtained from inquiry, inspection and observation
Sufficient Appropriate Audit Evidence
Sufficiency is the measure of the quantity of the audit

evidence (the greater the risk, the more audit evidence is
likely to be required).
Appropriateness is the measure of the quality of the
audit evidence (the higher the quality, the less may be
required).
Sufficiency and Appropriateness of audit evidence are
interrelated.
The Use of Assertions in Obtaining Audit Evidence
34
Management is responsible for the fair presentation of

financial statements the reflect the nature and
operations of the entity, management implicitly or
explicitly makes assertions regarding the recognition,
measurement, presentation and disclosure of the
various elements of financial statements and related
disclosures.
The auditor should use assertions for classes of
transactions, account balances, and presentation and
disclosures in sufficient detail to form a basis for the
assessment of risk of material misstatement and the
design and performance of further audit procedures.
Assertions used by the auditor fall into following

categories:
Assertions about classes of transactions and events for
the period under audit:
o
Occurrence
o
Completeness
o
Accuracy
o
Cutoff
o
Classification
Assertions about account balances at the period end:
o
Existence
35
o
Rights and obligations
o
Completeness
o
Valuations and allocation
Assertions about presentation and disclosure:
o
Occurrence and rights and obligations
o
Completeness
o
Classification and understandability
o
Accuracy and valuation
AUDIT PROCEDURES FOR OBTAINING AUDIT
EVIDENCE
Inspection
Observation
Inquiry
Confirmation
Recalculation
Reperformance
Analytical procedures
PSA 501
AUDIT EVIDENCE ADDITIONAL CONSIDERATION ON
SPECIFIC ITEMS
This PSA comprises the following parts:
Part A:
Part B:
Attendance at Physical Inventory Counting

Confirmation of Accounts Receivable
(Superseded by PSA 505 Part B has been
deleted)
Part C: Inquiry Regarding Litigation and Claims
Part D: Valuation and Disclosure of Long-term
Investments
36
Part E:
Segment Information
PART A: Attendance at Physical Inventory Counting

Management ordinarily establishes procedures under
which inventory is physically counted at least once a
year to serve as a basis for the preparation of the
financial statements or to ascertain the reliability of the
perpetual inventory system.
When inventory is material to the financial
statements, the auditor should obtain sufficient
appropriate audit evidence regarding its existence
and condition by attendance at physical inventory
counting unless impracticable. Such attendance will
enable the auditor to inspect the inventory, to observe
compliance with the operation of managements
procedures for recording and controlling the results of
the count and to provide evidence as to the reliability of
managements procedures.
If unable to attend the physical inventory count on

the date planned due to unforeseen circumstances,
the auditor should take or observe some physical
counts on an alternative date and, when necessary,
perform tests of intervening transactions.
Where attendance is impracticable, due to factors
such as the nature and location of the inventory,
the auditor should consider whether alternative
procedures provide sufficient appropriate audit
evidence of existence and condition to conclude
37
that the auditor need not make reference to a scope

limitation. For example, documentation of the
subsequent sale of specific inventory items acquired or
purchased prior to the physical inventory count may
provide sufficient appropriate audit evidence.
PART C: Inquiry Regarding Litigation and Claims
Litigation and claims involving an entity may have a
material effect on the financial statements and thus may
be required to be disclosed and/or provided for in the
The auditor should carry out procedures in order to
become aware of any litigation and claims involving
the entity which may have a material effect on the
financial statements. Such procedures would include:
Make appropriate inquiries of management
including obtaining representations.
Review board minutes and correspondence with
the entitys lawyers.
Examine legal expense accounts.
Use any information obtained regarding the
entitys business including information obtained
from discussions with any in-house legal
department.
When litigation or claims have been identified or
when the auditor believes they may exist, the
auditor should seek direct communication with the
38
entitys lawyers. Such communication will assist in

obtaining sufficient appropriate audit evidence as to
whether potentially material litigation and claims are
known and managements estimates of the financial
implications, including costs, are reliable.
The letter, which should be prepared by
management and sent by the auditor, should
request the lawyer to communicate directly with the
auditor. When it is considered unlikely that the lawyer
will respond to a general inquiry, the letter would
ordinarily specify:
A list of litigation and claims.
Managements assessment of the outcome of the
litigation or claim and its estimate of the financial
implications, including costs involved.
A request that the lawyer confirm the
reasonableness of managements assessments
and provide the auditor with further information if
the list is considered by the lawyer to be
incomplete or incorrect.
If management refuses to give the auditor
permission to communicate with the entitys
lawyers, this would be a scope limitation and
should ordinarily lead to a qualified opinion or a
disclaimer of opinion. Where a lawyer refuses to
respond in an appropriate manner and the auditor is
unable to obtain sufficient appropriate audit evidence by
applying alternative procedures, the auditor would
39
consider whether there is a scope limitation which may

lead to a qualified opinion or a disclaimer of opinion.
PART D: Valuation and Disclosure of Long-term
Investments
When long-term investments are material to the
financial statements, the auditor should obtain
sufficient appropriate audit evidence regarding
their valuation and disclosure.
Audit procedures regarding long-term investments
ordinarily include considering evidence as to whether
the entity has the ability to continue to hold the
investments on a long term basis and discussing with
management whether the entity will continue to hold the
investments as long-term investments and obtaining
written representations to that effect.
Other procedures would ordinarily include considering
related financial statements and other information, such
as market quotations, which provide an indication of
value and comparing such values to the carrying
amount of the investments up to the date of the
auditors report.
PART E: Segment Information
When segment information is material to the financial
statements, the auditor should obtain sufficient
appropriate audit evidence regarding its disclosure in
accordance with generally accepted accounting
principles in the Philippines.
40
Audit procedures regarding segment information

ordinarily consist of analytical procedures and other
audit tests appropriate in the circumstances.
PSA 505
EXTERNAL CONFIRMATIONS
The auditor should determine whether the use of
external confirmations is necessary to obtain
sufficient appropriate audit evidence to support
certain financial statement assertions. In making
this determination, the auditor should consider
materiality, the assessed level of inherent and
control risk, and how the evidence from other
planned audit procedures will reduce audit risk to
an acceptably low level for the applicable financial
statement assertions.
External Confirmations are frequently used in relation to

account balances and their components, but need not
be restricted to these items. For example, the auditor
may request external confirmation of the terms of
agreements or transactions an entity has with third
parties. Other examples of situations where external
confirmations may be used include the following.
Bank balances and other information from
bankers.
Accounts receivable balances.
41
Inventories held by third parties at bonded

warehouses for processing or on consignment.
Property title deeds held by lawyers or financiers
for safe custody or as security.
Investments purchased from stockbrokers but not
delivered at the balance sheet date.
Loans from lenders.
Accounts payable balances.
Use of Positive and Negative Confirmations
The auditor may use positive or negative external
confirmation requests or a combination of both.
A positive external confirmation request asks the

respondent to reply to the auditor in all cases either by
indicating the respondent's agreement with the given
information, or by asking the respondent to fill in
information. A response to a positive confirmation
request is ordinarily expected to provide reliable audit
evidence. There is a risk, however, that a respondent
may reply to the confirmation request without verifying
that the information is correct. The auditor is not
ordinarily able to detect whether this has occurred.
42
The auditor may reduce this risk, however, by using

positive confirmation requests that do not state the
amount (or other information) on the confirmation
request, but ask the respondent to fill in the amount or
furnish other information. On the other hand, use of
this type of "blank" confirmation request may result in
lower response rates because additional effort is
required of the respondents.
A negative external confirmation request asks the
respondent to reply only in the event of disagreement
with the information provided in the request. However,
when no response has been received to a negative
confirmation request, the auditor remains aware that
there will be no explicit evidence that intended third
parties have received the confirmation requests and
verified that the information contained therein is correct.
Accordingly, the use of negative confirmation requests
ordinarily provides less reliable evidence than the use
of positive confirmation requests, and the auditor
considers performing other substantive procedures to
supplement the use of negative confirmations.
Negative confirmation requests may be used to reduce
audit risk to an acceptable level when:
(a) the assessed level of inherent and control risk is
low;
(b)
a large number of small balances is involved;
(c)
a substantial number of errors is not expected;

and
(d)
the auditor has no reason to believe that

respondents will disregard these requests.
43
A combination of positive and negative external

confirmations may be used. For example, where the
total accounts receivable balance comprises a small
number of large balances and a large number of small
balances, the auditor may decide that it is appropriate
to confirm all or a sample of the large balances with
positive confirmation requests and a sample of the
small balances using negative confirmation requests.
Where no response is received, the auditor ordinarily
contacts the recipient of the request to elicit a response.
Where the auditor is unable to obtain a response, the
auditor uses alternative audit procedures. The nature
of alternative procedures varies according to the
account and assertion in question. In the examination
of accounts receivable, alternative procedures may
include examination of subsequent cash receipts,
examination of shipping documentation or other client
documentation to provide evidence for the existence
assertion, and sales cut off tests to provide evidence for
the completeness assertion.
In the examination of accounts payable, alternative
procedures may include examination of subsequent
cash disbursements or correspondence from third
parties to provide evidence of the existence assertion,
and examination of other records, such as goods
received notes, to provide evidence of the
completeness assertion.
PSA 505
INITIAL ENGAGEMENTS OPENING BALANCES
For initial audit engagements, the auditor should
obtain sufficient appropriate audit evidence that:
44
(a)
the opening balances do not contain

misstatements that materially affect the
current period's financial statements;
(b) the prior period's closing balances have been

correctly brought forward to the current period or, when
appropriate, have been restated; and
(c)
appropriate accounting policies are

consistently applied or changes in accounting
policies have been properly accounted for and
adequately disclosed.
"Opening balances" means those account balances

which exist at the beginning of the period. Opening
balances are based upon the closing balances of the
prior period and reflect the effects of:
a. transactions of prior periods; and
b. accounting policies applied in the prior period.
When the prior period's financial statements were
audited by another auditor, the current auditor may be
able to obtain sufficient appropriate audit evidence
regarding opening balances by reviewing the
predecessor auditor's working papers. In these
circumstances, the current auditor would also consider
the professional competence and independence of the
predecessor auditor. If the prior period's auditor's
report was modified, the auditor would pay particular
attention in the current period to the matter which
resulted in the modification.
45
Audit Conclusions and Reporting

If, after performing procedures including those set
out above, the auditor is unable to obtain sufficient
appropriate audit evidence concerning opening
balances, the auditor's report should include:
a. a qualified opinion, for example (where the
qualification covers the balance sheet, income
statement and statement of cash flows):
"We did not observe the counting of the physical
inventory stated at XXX as at December 31,
20X1, since that date was prior to our
appointment as auditors. We were unable to
satisfy ourselves as to the inventory quantities
at that date by other audit procedures.
In our opinion, except for the effects of such
adjustments, if any, as might have been
determined to be necessary had we been able
to observe the counting of physical inventory
and satisfy ourselves as to the opening balance
of inventory, the financial statements present
fairly, in all material respects, the financial
position of .. as at December 31, 20X2, and
the results of its operations and its cash flows
for the year then ended in accordance with ...";
(b)
(c)
a disclaimer of opinion; or
in those jurisdiction where it is permitted, an
opinion which is qualified or disclaimed
regarding the results of operations and cash
46
flows and unqualified regarding financial

position, for example:
"We did not observe the counting of the physical
inventory stated at XXX as at December 31,
20X1, since that date was prior to our
appointment as auditors. We were unable to
satisfy ourselves as to the inventory quantities
at that date by other audit procedures.
Because of the significance of the above matter
in relation to the results of the Company's
operations for the year to December 31, 20X2,
we are not in a position to, and do not, express
an opinion on the results of its operations and
its cash flows for the year then ended.
In our opinion, the balance sheet presents fairly
in all material respects, the financial position of
the Company as at December 31, 20X2, in
accordance with ..."
If the opening balances contain misstatements which
could materially affect the current period's financial
statements, the auditor would inform management and,
after having obtained management's authorization, the
predecessor auditor, if any. If the effect of the
misstatement is not properly accounted for and
adequately disclosed, the auditor should express a
qualified opinion or an adverse opinion, as
appropriate.
If the current period's accounting policies have not
been consistently applied in relation to opening
balances and if the change has not been properly
47
accounted for and adequately disclosed, the

auditor should express a qualified opinion or an
adverse opinion as appropriate.
PSA 540
AUDIT OF ACCOUNTING ESTIMATES
Accounting estimate means an approximation of
the amount of an item in the absence of a precise
means of measurement. Examples are:
Allowances to reduce inventory and
accounts receivable to their estimated
realizable value.
Provisions to allocate the cost of fixed
assets over their estimated useful lives.
Accrued revenue.
Deferred tax.
Provision for a loss from a lawsuit.
Losses on construction contracts in
progress.
Provision to meet warranty claims.
The auditor should obtain sufficient appropriate
audit evidence as to whether an accounting
estimate is reasonable in the circumstances and,
when required, is appropriately disclosed. The
48
evidence available to support an accounting estimate

will often be more difficult to obtain and less conclusive
than evidence available to support other items in the
The auditor should adopt one or a combination of
the following approaches in the audit of an
accounting estimate:
(a)
review and test the process used by

management to develop the estimate;
(b) use an independent estimate for comparison

with that prepared by management; or
(c)
review subsequent events which confirm the

estimate made.
PSA 545
AUDITING FAIR MARKET VALUE MEASUREMENTS AND
DISCLOSURES
The auditor should obtain sufficient appropriate
audit evidence that fair value measurements and
disclosures are in accordance with GAAP in the
Philippines.
49
The auditor should evaluate whether the fair value

measurements and disclosures in the financial
statements are in accordance with GAAP in the
Philippines.
The auditor's understanding of the requirements of
GAAP in the Philippines and knowledge of the business
and industry, together with the results of other audit
procedures, are used to assess whether the accounting
for assets or liabilities requiring fair value
measurements is appropriate, and whether the
disclosures about the fair value measurements and
significant uncertainties related thereto are appropriate
under GAAP in the Philippines.
Where the method for measuring fair value is specified
by GAAP in the Philippines, for example, the
requirement that the fair value of a marketable security
be measured using quoted market prices as opposed to
using a valuation model, the auditor considers whether
the measurement of fair value is consistent with that
method.
PSA 550
RELATED PARTIES
The auditor should perform audit procedures
designed to obtain sufficient appropriate audit
evidence regarding the identification and
disclosure by management of related parties and
the effect of related party transactions that are
50
material to the financial statements. However, an

audit cannot be expected to detect all related party
transactions.
The auditor should review information provided by
the directors and management identifying the
names of all known related parties and should
perform the following procedures in respect of the
completeness of this information:
a.
review prior year working papers for names of

known related parties;
b.
review the entity's procedures for identification

of related parties;
c.
inquire as to the affiliation of directors and

officers with other entities;
d.
review shareholder records to determine the

names of principal shareholders or, if
appropriate, obtain a listing of principal
shareholders from the share register;
e.
review minutes of the meetings of

shareholders and the board of directors and
other relevant statutory records such as the
register of directors' interests;
f.
inquire of other auditors currently involved in

the audit, or predecessor auditors, as to their
knowledge of additional related parties; and
51
g.
review the entity's income tax returns and

other information supplied to regulatory
agencies.
During the course of the audit, the auditor needs to be

alert for transactions which appear unusual in the
circumstances and may indicate the existence of
previously unidentified related parties. Examples
include:
Transactions which have abnormal terms of

trade, such as unusual prices, interest rates,
guarantees, and repayment terms.
Transactions which lack an apparent logical

business reason for their occurrence.
Transactions in which substance differs from

form.
Transactions processed in an unusual

manner.
High volume or significant transactions with

certain customers or suppliers as compared with
others.
Unrecorded transactions such as the receipt

or provision of management services at no charge.
During the course of the audit, the auditor carries
out procedures which may identify the existence of
transactions with related parties. Examples
include:
52

Performing detailed tests of transactions and
balances.
Reviewing minutes of meetings of

shareholders and directors.
Reviewing accounting records for large or

unusual transactions or balances, paying
particular attention to transactions recognized at or
near the end of the reporting period.
Reviewing confirmations of loans receivable

and payable and confirmations from banks. Such
a review may indicate guarantor relationship and
other related party transactions.
Reviewing investment transactions, for

example, purchase or sale of an equity interest in
a joint venture or other entity.

If the auditor is unable to obtain sufficient
appropriate audit evidence concerning related
parties and transactions with such parties or
concludes that their disclosure in the financial
statements is not adequate, the auditor should
modify the audit report appropriately.
COMPLETING THE AUDIT AND POST-AUDIT
RESPONSIBILITIES
53
PSA 560
SUBSEQUENT EVENTS
The auditor should consider the effect of
subsequent events on the financial statements and
on the auditors report.
The procedures to identify events that may require
adjustment of, or disclosure in, the financial statements
would be performed as near as practicable to the date
of the auditors report and ordinarily include the
following:
Reviewing procedures management has established
to ensure that subsequent events are identified.
Reading minutes of the meetings of shareholders,
the board of directors and audit and executive
committees held after period end and inquiring
about matters discussed at meetings for which
minutes are not yet available.
Reading the entitys latest available interim financial
statements and, as considered necessary and
appropriate, budgets, cash flow forecasts and other
related management reports.
Inquiring, or extending previous oral or written
inquiries, of the entitys lawyers concerning
litigation and claims.
Inquiring of management as to whether any
subsequent events have occurred which might
54
affect the financial statements. Examples of

inquiries of management on specific matters are:
The current status of items that were accounted for

on the basis of preliminary or inconclusive data.
Whether new commitments, borrowings or
guarantees have been entered into.
Wh
ether sales of assets have occurred or are planned.
Whether the issue of new shares or debentures or

an agreement to merge or liquidate has been made
or is planned.
Whether any assets have been appropriated by
government or destroyed, for example, by fire or
flood.
Whether there have been any developments
regarding risk areas and contingencies.
Whether any unusual accounting adjustments have
been made or are contemplated.
Whether any events have occurred or are likely to
occur which will bring into question the
appropriateness of accounting policies used in the
financial statements as would be the case, for
example, if such events call into question the
validity of the going concern assumption.
PSA 570
GOING CONCERN
55
When planning and performing audit procedures

and in evaluating the results thereof, the auditor
should consider the appropriateness of
managements use of the going concern
assumption in the preparation of the financial
statements.
Examples of events or conditions, which individually or
collectively, may cast significant doubt about the going
concern assumption are set out below. This listing is
not all-inclusive nor does the existence of one or more
of the items always signify that a material uncertainty
exists.
Financial
Net liability or net current liability position.
Fixed-term borrowings approaching maturity
without realistic prospects of renewal or
repayment; or excessive reliance on short-term
borrowings to finance long-term assets.
Indications of withdrawal of financial support by
debtors and other creditors.
Negative operating cash flows indicated by
historical or prospective financial statements.
Adverse key financial ratios.
Substantial operating losses or significant
deterioration in the value of assets used to
generate cash flows.
Arrears or discontinuance of dividends.
Inability to pay creditors on due dates.
Inability to comply with the terms of loan
agreements.
Change from credit to cash-on-delivery
transactions with suppliers.
56
Inability to obtain financing for essential new

product development or other essential
investments.
Operating
Loss of key management without replacement.

Loss of a major market, franchise, license, or
principal supplier.
Labor difficulties or shortages of important
supplies.
Other
Non-compliance with capital or other statutory

requirements.
Pending legal or regulatory proceedings against
the entity that may, if successful, result in claims
that are unlikely to be satisfied.
Changes in legislation or government policy
expected to adversely affect the entity.
Additional Audit Procedures When Events or Conditions

are Identified
When events or conditions have been identified
which may cast significant doubt on the entitys
57
ability to continue as a going concern, the auditor

should:
(a) review managements plans for future
actions based on its going
concern
assessment;
(b) gather sufficient appropriate audit evidence to
confirm or dispel whether or not a material
uncertainty exists through carrying out procedures
considered necessary, including considering the
effect of any plans of management and other
mitigating factors; and
(c) seek written representations from
management regarding its plans for future action.
Based on the audit evidence obtained, the auditor
should determine if, in the auditors judgment, a
material uncertainty exists related to events or
conditions that alone or in aggregate, may cast
significant doubt on the entitys ability to continue
as a going concern.
A material uncertainty exists when the magnitude of its

potential impact is such that, in the auditors judgment,
clear disclosure of the nature and implications of the
uncertainty is necessary for the presentation of the
financial statements not to be misleading.
58
PSA 580
MANAGEMENT REPRESENTATIONS
The auditor should obtain evidence that
management acknowledges its responsibility for
the fair presentation of the financial statements in
accordance with generally accepted accounting
principles in the Philippines, and has approved the
financial statements. The auditor can obtain evidence
of management's acknowledgment of such
responsibility and approval from relevant minutes of
meetings of the board of directors or similar body or by
obtaining a written representation from management or
a signed copy of the financial statements.
Representations by Management as Audit Evidence
The auditor should obtain written representations
from management on matters material to the
financial statements when other sufficient
appropriate audit evidence cannot reasonably be
expected to exist. The possibility of
misunderstandings between the auditor and
management is reduced when oral representations are
confirmed by management in writing.
During the course of an audit, management makes

many representations to the auditor, either unsolicited
or in response to specific inquiries. When such
representations relate to matters which are material to
the financial statements, the auditor will need to:
59
(a)
seek corroborative audit evidence from sources

inside or outside the entity;
(b) evaluate whether the representations made by

management appear reasonable and consistent with
other audit evidence obtained, including other
representations; and
(c)
consider whether the individuals making the

representations can be expected to be well
informed on the particular matters.
Example of a Management Representation Letter

The following letter is not intended to be a standard letter.
Representations by management will vary from one entity to
another and from one period to the next.
(Entity Letterhead)
(Date)
(To Auditor)
This representation letter is provided in connection with your
audit of the financial statements of ABC Company for the
year ended December 31, 20X1 for the purpose of
expressing an opinion as to whether the financial statements
present fairly, in all material respects, the financial position of
ABC Company as of December 31, 20X1 and of the results
of its operations and its cash flows for the year then ended in
accordance with generally accepted accounting principles in
the Philippines.
60
We acknowledge our responsibility for the fair presentation

of the financial statements in accordance with generally
accepted accounting principles in the Philippines.
We confirm, to the best of our knowledge and belief, the
following representations:
Include here representations relevant to the entity. Such
representations may include:
There have been no irregularities involving
management or employees who have a significant role
in the accounting and internal control systems or that
could have a material effect on the financial
statements.
We have made available to you all books of accounts
and supporting documentation and all minutes of
meetings of shareholders and the board of directors
(namely those held on March 15, 20X1 and September
30, 20X1, respectively).
We confirm the completeness of the information
provided regarding the identification of related parties.
The financial statements are free of material
misstatements, including omissions.
The Company has complied with all aspects of
contractual agreements that could have a material
effect on the financial statements in the event of
noncompliance. There has been no noncompliance
with requirements of regulatory authorities that could
61
have a material effect on the financial statements in the

event of noncompliance.
The following have been properly recorded and when
appropriate, adequately disclosed in the financial
statements:
a) The identity of, and balances and transactions with,
related parties.
b) Losses arising from sale and purchase
commitments.
c) Agreements and options to buy back assets
previously sold.
d) Assets pledged as collateral.
We have no plans or intentions that may materially alter
the carrying value or classification of assets and
liabilities reflected in the financial statements.
We have no plans to abandon lines of product or other
plans or intentions that will result in any excess or
obsolete inventory, and no inventory is stated at an
amount in excess of net realizable value.
The Company has satisfactory title to all assets and

there are no liens or encumbrances on the company's
assets, except for those that are disclosed in Note X to
62
We have recorded or disclosed, as appropriate, all

liabilities, both actual and contingent, and have
disclosed in Note X to the financial statements all
guarantees that we have given to third parties.
Other than .. described in Note X to the financial
statements, there have been no events subsequent to
period end which require adjustment of or disclosure in
the financial statements or Notes thereto.
The claim by XYZ Company has been settled for
the total sum of XXX which has been properly accrued
in the financial statements. No other claims in
connection with litigation have been or are expected to
be received.
There are no formal or informal compensating balance
arrangements with any of our cash and investment
accounts. Except as disclosed in Note X to the financial
statements, we have no other line of credit
arrangements.
We have properly recorded or disclosed in the financial
statements the capital stock repurchase options and
agreements, and capital stock reserved for options,
warrants, conversions and other requirements.
____________________
Senior Executive Officer
____________________
Senior Financial Officer
63
THE INDEPENDENT AUDITORS REPORT ON A

COMPLETE SET OF GENERAL PURPOSE FINANCIAL
STATEMENTS
(PSA 700 Revised)
The following are the elements of the auditors report when
the audit has been conducted in accordance with the PSAs:
(a) Title;
(b) Addressee;
(c) Introductory paragraph;
(d) Managements
statements;
responsibility
for
the
financial
(e) Auditors responsibility;

(f) Auditors opinion;
(g) Other reporting responsibilities;
(h) Auditors signature;
(i) Date of the auditors report; and
(j) Auditors address.
Title
The auditors report should have a title that clearly
indicates that it is the report of an independent auditor.
64
A title indicating the report is the report of an independent

auditor, for example, Independent Auditors Report,
affirms that the auditor has met all of the relevant ethical
requirements regarding independence and, therefore,
distinguishes the independent auditors report from reports
issued by others.
Addressee
The auditors report should be addressed as required
by the circumstances of the engagement.
Introductory Paragraph
The introductory paragraph in the auditors report
should identify the entity whose financial statements
have been audited and should state that the financial
statements have been audited. The introductory
paragraph should also:
(a) Identify the title of each of the financial statements
that comprise the complete set of financial
statements;
(b) Refer to the summary of significant accounting
policies and other explanatory notes; and
(c) Specify the date and period covered by the financial
statements.
Managements
Statements
Responsibility
65
for
the
Financial
The auditors report should state that management is

responsible for the preparation and the fair
presentation of the financial statements in accordance
with the applicable financial reporting framework and
that this responsibility includes:
(a) Designing, implementing and maintaining internal
control relevant to the preparation and fair
presentation of financial statements that are free from
material misstatement, whether due to fraud or error;
(b) Selecting and applying appropriate accounting
policies; and
(c) Making accounting estimates that are reasonable in
the circumstances.
Auditors Responsibility
The auditors report should state that the responsibility
of the auditor is to express an opinion on the financial
statements based on the audit.
The auditors report states that the auditors responsibility is

to express an opinion on the financial statements based on
the audit in order to contrast it to managements
responsibility for the preparation and fair presentation of the
The auditors report should state that the audit was
conducted in accordance with Philippine Standards on
Auditing. The auditors report should also explain that
66
those standards require that the auditor comply with

ethical requirements and that the auditor plan and
perform the audit to obtain reasonable assurance
whether the financial statements are free from material
misstatement.
The auditors report should describe an audit by
stating that:
(a) An audit involves performing procedures to obtain
audit evidence about the amounts and disclosures in
the financial statements;
(b) The procedures selected depend on the auditors
judgment, including the assessment of the risks of
material misstatement of the financial statements,
whether due to fraud or error. In making those risk
assessments, the auditor considers internal control
relevant to the entitys preparation and fair
presentation of the financial statements in order to
design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the entitys internal
control. In circumstances when the auditor also has a
responsibility to express an opinion on the
effectiveness of internal control in conjunction with
the audit of the financial statements, the auditor
should omit the phrase that the auditors
consideration of internal control is not for the purpose
of expressing an opinion on the effectiveness of
internal control; and
(c) An
audit
also
includes
evaluating
the
appropriateness of the accounting policies used, the
reasonableness of accounting estimates made by
67
management, as well as the overall presentation of the

The auditors report should state that the auditor
believes that the audit evidence the auditor has
obtained is sufficient and appropriate to provide a
basis for the auditors opinion.
Auditors Opinion
An unqualified opinion should be expressed when the
auditor concludes that the financial statements give a
true and fair view or are presented fairly, in all material
respects, in accordance with the applicable financial
reporting framework.
When expressing an unqualified opinion, the opinion
paragraph of the auditors report should state the
auditors opinion that the financial statements give a
true and fair view or present fairly, in all material
respects, in accordance with the applicable financial
reporting framework (unless the auditor is required by
law or regulation to use different wording for the
opinion, in which case the prescribed wording should
be used).
When Philippine Financial Reporting Standards or
Philippine Public Sector Accounting Standards are not
used as the financial reporting framework, the
reference to the financial reporting framework in the
wording of the opinion should identify the jurisdiction
or country of origin of the financial reporting
framework.
Other Reporting Responsibilities
68
In some jurisdictions, the auditor may have additional

responsibilities to report on other matters that are
supplementary to the auditors responsibility to express an
opinion on the financial statements. For example, the
auditor may be asked to report certain matters if they come
to the auditors attention during the course of the audit of
the financial statements. Alternatively, the auditor may be
asked to perform and report on additional specified
procedures, or to express an opinion on specific matters,
such as the adequacy of accounting books and records.
Auditing standards in the specific jurisdiction or country
often provide guidance on the auditors responsibilities with
respect to specific additional reporting responsibilities in
that jurisdiction or country.
When the auditor addresses other reporting
responsibilities within the auditors report on the
financial
statements,
these
other
reporting
responsibilities should be addressed in a separate
section in the auditors report that follows the opinion
paragraph.
The auditor addresses these other reporting responsibilities
in a separate section of the report in order to clearly
distinguish them from the auditors responsibilities for, and
opinion on, the financial statements.
Auditors Signature
The auditors report should be signed.
The auditors signature is either in the name of the audit
firm, the personal name of the auditor or both, as
appropriate for the particular jurisdiction. In addition to the
69
auditors signature, in certain jurisdictions, the auditor may

be required to declare the auditors professional
accountancy designation or the fact that the auditor or firm,
as appropriate, has been recognized by the appropriate
licensing authority in that jurisdiction.
Date of the Auditors Report
The auditor should date the report on the financial
statements no earlier than the date on which the
auditor has obtained sufficient appropriate audit
evidence on which to base the opinion on the financial
statements. Sufficient appropriate audit evidence
should include evidence that the entitys complete set
of financial statements has been prepared and that
those with the recognized authority have asserted that
they have taken responsibility for them.
The date of the auditors report informs the reader that the
auditor has considered the effect of events and
transactions of which the auditor became aware and that
occurred up to that date. The auditors responsibility for
events and transactions after the date of the auditors
report is addressed in PSA 560, Subsequent Events.
Since the auditors opinion is provided on the financial
statements and the financial statements are the
responsibility of management, the auditor is not in a
position to conclude that sufficient appropriate audit
evidence has been obtained until the auditor obtains
evidence that a complete set of financial statements has
been prepared and management has accepted
responsibility for them.
Auditors Address
70
The report should name the location in the country or

jurisdiction where the auditor practices.
Auditors Report
The auditors report should be in writing.
INDEPENDENT AUDITORS REPORT

[Appropriate Addressee]
Report on the Financial Statements
We have audited the accompanying financial statements of
ABC Company, which comprise the balance sheet as at
December 31, 20X1, and the income statement, statement
of changes in equity and cash flow statement for the year
then ended, and a summary of significant accounting
policies and other explanatory notes.
Managements Responsibility for the Financial Statements
Management is responsible for the preparation and fair
presentation of these financial statements in accordance
with Philippine Financial Reporting Standards. This
71
responsibility includes: designing, implementing and

maintaining internal control relevant to the preparation and
fair presentation of financial statements that are free from
material misstatement, whether due to fraud or error;
selecting and applying appropriate accounting policies; and
making accounting estimates that are reasonable in the
circumstances.
Auditors Responsibility
Our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit in
accordance with Philippine Standards on Auditing. Those
standards require that we comply with ethical requirements
and plan and perform the audit to obtain reasonable
assurance whether the financial statements are free from
material misstatement.
An audit involves performing procedures to obtain audit
evidence about the amounts and disclosures in the financial
statements. The procedures selected depend on the
auditors judgment, including the assessment of the risks of
material misstatement of the financial statements, whether
due to fraud or error. In making those risk assessments, the
auditor considers internal control relevant to the entitys
preparation and fair presentation of the financial statements
in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the entitys internal control.
An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of
accounting estimates made by management, as well as
evaluating the overall presentation of the financial
statements.
72
We believe that the audit evidence we have obtained is

sufficient and appropriate to provide a basis for our audit
opinion.
Opinion
In our opinion, the financial statements present fairly, in all
material respects, the financial position of ABC Company as
of December 31, 20X1, and of its financial performance and
its cash flows for the year then ended in accordance with
Philippine Financial Reporting Standards.
Report on Other Legal and Regulatory Requirements
[Form and content of this section of the auditors report will
vary depending on the nature of the auditors other reporting
responsibilities.]
[Auditors signature]
[Date of the auditors report]
[Auditors address]
Modifications to the Independent Auditor's Report
PSA 701
Matters that Do Not Affect the Auditor's Opinion
(a) Emphasis of matter
Matters that Do Affect the Auditor's Opinion
(a) Qualified opinion,
(b) Disclaimer of opinion, or
(c) Adverse opinion.
73
Matters that Do Not Affect the Auditor's Opinion

In certain circumstances, an auditor's report may be
modified by adding an emphasis of matter paragraph to
highlight a matter affecting the financial statements which
is included in a note to the financial statements that more
extensively discusses the matter. The addition of such an
emphasis of matter paragraph does not affect the auditor's
opinion. The paragraph would preferably be included after
the paragraph containing the auditor's opinion but before
the section on any other reporting responsibilities, if any.
The emphasis of matter paragraph would ordinarily refer
to the fact that the auditor's opinion is not qualified in this
respect.
The auditor should consider modifying the auditor's

report by adding a paragraph if there is a significant
uncertainty (other than a going concern problem), the
resolution of which is dependent upon future events
and which may affect the financial statements. An
uncertainty is a matter whose outcome depends on future
actions or events not under the direct control of the entity
but that may affect the financial statements.
An illustration of an emphasis of matter paragraph for a
significant uncertainty in an auditor's report follows:
"Without qualifying our opinion we draw attention to Note
X to the financial statements. The Company is the
defendant in a lawsuit alleging infringement of certain
patent rights and claiming royalties and punitive damages.
The Company has filed a counter action, and preliminary'
74
hearings and discovery proceedings on both actions are

in progress. The ultimate outcome of the matter cannot
presently be determined, and no provision for any liability
that may result has been made in the financial
statements. "
Matters that Do Affect the Auditor's Opinion
An auditor may not be able to express an unqualified
opinion when either of the following circumstances exists
and, in the auditor's judgment, the effect of the matter is or
may be material to the financial statements:
(a) There is a limitation on the scope of the auditor's work;
or
(b) There is a disagreement with management regarding
the acceptability of the accounting policies selected, the
method of their application or the adequacy of financial
statement disclosures
A qualified opinion should be expressed when the
auditor concludes that an unqualified opinion cannot
be expressed but the effect of any disagreement with
management, or limitation on scope is not so material
and pervasive as to require an adverse opinion or a
disclaimer of opinion. A qualified opinion should be
expressed as being 'except for' the effects of the
matter to which the qualification relates.
A disclaimer of opinion should be expressed when
the possible effect of a limitation on scope is so
material and pervasive that the auditor has not been
able to obtain sufficient appropriate audit evidence
and accordingly is unable to express an opinion on
75
An adverse opinion should be expressed when the

effect of a disagreement is so material and pervasive
to the financial statements that the auditor concludes
that a qualification of the report is not adequate to
disclose the misleading or incomplete nature of the
Circumstances that may Result in Other than an
Unqualified Opinion Limitation on Scope
A limitation on the scope of me auditor's work may
sometimes be imposed by the entity (for example, when
the terms of the engagement specify that the auditor will
not carry out an audit procedure that the auditor believes
is necessary). However, when the limitation in the terms of
a proposed engagement is such that the auditor believes
the need to express a disclaimer of opinion exists, the
auditor would ordinarily not accept such a limited
engagement as an audit engagement, unless required by
statute. Also, a statutory auditor would not accept such an
audit engagement when the limitation infringes on the
auditor's statutory duties.
A scope limitation may be imposed by circumstances (for
example, when the timing of the auditor's appointment is
such that the auditor is unable to observe the counting of
physical inventories). It may also arise when, in the
opinion of the auditor, the entity's accounting records are
inadequate or when the auditor is unable to carry out an
audit procedure believed to be desirable. In these
circumstances, auditor would attempt to carry out
reasonable alternative procedures to obtain sufficient
appropriate audit evidence to support an unqualified
opinion.
76
When there is a limitation on the scope of the auditor's

work that requires expression of a qualified opinion or
a disclaimer of opinion, the auditor's report should
describe the limitation and indicate the possible
adjustments the financial statements that might have
been determined to be necessary h; the limitation not
existed.
Illustrations of these matters are set out below.
Limitation on ScopeQualified Opinion
"We haye audited... (remaining words are the same as
illustrated in the introductory paragraph - see paragraph
60 of PSA 700).
Management is responsible for ... (remaining words are
the same as illustrate in the management's
responsibility paragraph - see paragraph 60 of PSA
70C
Our responsibility is to express an opinion on these
financial statements base-on our audit. Except as
discussed in the following paragraph, we conducted c
audit in accordance with ...(remaining words are the
same as illustrated in the auditor's responsibility
paragraphs - see paragraph 60 of PSA 700).
We did not observe the counting of the physical
inventories as of December 3 20X1, since that date
-was prior to the time we were initially engaged as
auditors for the Company. Owing to the nature of the
Company's records, we were unable to satisfy
ourselves as to inventory quantities by other audit
procedures.
77
In our opinion, except for the effects of such

adjustments, if any, as might have been determined to
be necessary had we been able to satisfy ourselves as
to physical inventory quantities, the financial statements
present fairly, in all material respects,... (remaining
words are the same as illustrated in the opinion
paragraph - paragraph 60 of PSA 700)."
Limitation on ScopeDisclaimer of Opinion
"We were engaged to audit the accompanying financial
statements of ABC Company, which comprise the
balance sheet as of December 31, 20X1, and the
income statement, statement of changes in equity and
cash flow statement for the year then ended, and a
summary of significant accounting policies and other
explanatory notes.
Management is responsible for... (remaining words are
the same as illustrated in the management's
700)
(Omit the sentence stating the responsibility of the
auditor.)
(The paragraph discussing the scope of the audit would
either be omitted or amended according to the
circumstances.)
(Add a paragraph discussing the scope limitation as
follows:
We were not able to observe all physical inventories
and confirm accounts receivable due to limitations
placed on the scope of our work by the Company.)
78
Because of the significance of the matters discussed in

the preceding paragraph, we do not express an opinion
on the financial statements. "
Disagreement with Management
The auditor may disagree with management about matters
such as the acceptability of accounting policies selected, the
method of their application, or the adequacy of disclosures in
the financial statements. If such disagreements are material
to the financial statements, the auditor should express a
qualified or an adverse opinion.
Illustrations of these matters are set out below.
Disagreement on Accounting PoliciesInappropriate
Accounting Method Qualified Opinion
"We have audited... (remaining words are the same as
60 of PSA 700).
700)
Our responsibility is to ... (remaining words are the
As discussed in Note X to the financial statements, no
depreciation has been provided in the financial
statements which practice, in our opinion, is not in
accordance with Philippine Financial Reporting
Standards. The provision for the year ended December
79
31, 20X1, should be xxx based on the straight-line

method of depreciation using annual rates of 5% for the
building and 20% for the equipment. Accordingly, the
fixed assets should be reduced by accumulated
depreciation of xxx and the loss for the year and
accumulated deficit should be increased by xxx and
xxx, respectively.
In our opinion, except for the effect on the financial
statements of the matter referred to in the preceding
paragraph, the financial statements present fairly, in all
material respects,... (remaining words are the same as
illustrated in the opinion paragraph - see paragraph 60
of PSA 700)."
Disagreement on Accounting PoliciesInadequate

DisclosureAdverse Opinion
"We have audited ... (remaining words are the same as
60 of PSA 700).
700)
Our responsibility is to ... (remaining words are the
80
(Paragraph(s) discussing the disagreement.)

In_ our opinion, because of the effects of the matters
discussed in the preceding paragraph(s), the financial
statements do not present fairly, in all material
respects, the financial position of ABC Company as of
December 20,19X1, and of its financial performance
and its cash flows for the year then ended in
accordance with Philippine Financial Reporting
Standards."
AUDIT DOCUMENTATION
81
Audit documentation means the record of audit procedures

performed, relevant audit evidence obtained, and
conclusions the auditor reached (terms such as working
papers or workpapers are also sometimes used); and
The auditor should prepare, on a timely basis, audit
documentation that provides:
(a) A sufficient and appropriate record of the
basis for auditors report; and
(b) Evidence that the audit was performed in
accordance with PSAs and applicable legal and
regulatory requirements.
Preparing sufficient and appropriate audit documentation
on a timely basis helps to enhance the quality of the audit
and facilities the effective review an evaluation of the audit
evidence obtained and conclusions reached before the
auditors report is finalized. Documentation prepared at
the time the work is performed is likely to be more
accurate than documentation prepared subsequently.
Compliance with the requirements of this PSA together
with the specific documentation requirements of other
relevant PSAs is ordinarily sufficient to achieve the
objectives in paragraph 2.
In additional to these objectives, audit documentation

serves a number of purposes, including:
82
a. Assisting the audit team to plan and perform the

audit
b. Assisting members of the audit team responsible
for supervision to direct and supervise the audit work,
and to discharge their review responsibilities in
accordance with
c.
PSA 220 (Revised), Quality Control for Audits of
Historical Financial Information;
d. Enabling the audit team to be accountable for its
work;
e. Retaining a record of matters of continuing
significance to future audits;
f.
Enabling an experienced auditor to conduct quality
control reviews and inspections in accordance with
PSQC 1, Quality Control for Firms that Perform Audits
and Reviews of Historical Financial Information, and
Other Assurance and related Services Engagements;
and
g. Enabling an experience auditor to conduct
external inspections in accordance with applicable
legal, regulatory or other requirements.
Nature of Audit Documentation
Audit documentation may be recorded on paper or on
electronic or other media. It includes, for example, audit
programs, analyses, issues memoranda, summaries of
significant matters, letters of confirmation and
representation, checklist, and correspondence (including
e-mail) concerning significant matters. Abstracts or copies
of the entitys records, for example, significant and specific
contracts and agreements, may be included as part of
audit documentation if considered appropriate. Audit
documentation, however, is not a substitute for the entitys
accounting records.
83
The auditor ordinarily excludes from audit documentation

superseded drafts of working papers and financial
statements, notes that reflect incomplete or preliminary
thinking, previous copies of documents corrected for
typographical or other errors, and duplicates of documents
Documentation of the Identifying Characteristics of
Specific Items or Matters Being Tested
In documenting the nature, timing and extent of audit
procedures performed, the auditor should record he
identifying characteristics of the specific items or matters
being tested.
Significant Matters
Judging the significance of a matter requires an objective
analysis of the facts and circumstances. Significant
matters include, amount others:
Matters that give rise to significant risks (as defined in
PSA 315, Understanding the Entity and Its
Environment and Assessing the Risk of Material
Misstatement).
Results of audit procedures indicating (a) that the
financial information could be materially misstated, or
(b) a need to revise the auditors previous assessment
of the risk of material misstatement and the auditors
responses to those risks.
Circumstances that cause the auditor significant difficult
in applying necessary audit procedures.
Findings that could result in a modification to the
auditors report.
84
Identification of Preparer and Reviewer

In documenting the nature, timing and extent of audit
procedures performed, the auditor should record:
(a)
Who performed the audit work and the date
work was completed; and
(b)
Who reviewed the audit work performed and the
date extent of such review .
Assembly of the Final Audit File
The auditor should complete the assembly of the final
audit file on a timely basis after the date of the
auditors report.
PSQC 1 requires firms to establish policies and procedures
for the timely completion of the assembly of audit files. As
PSQC 1 indicates, 60 days after the date of the auditors
report is ordinarily an appropriate time limit within which to
complete the assembly of the final audit file.
After the assembly of the final audit file has been completed,
the auditor should not delete or discard audit documentation
before the end of its retention period.
PSQC 1 requires firms to establish policies and procedures
for the retention of engagement documentation. As PSQC 1
indicates, the retention period for audit engagements
ordinarily is no shorter than five years from the date of the
auditors report, or, if later, the date of the group auditors
report.
85

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TABLE OF CONTENTS

4. OBJECTIVE & GENERAL PRINCIPLES

5. OVERALL AUDIT PROCESS

7. AUDIT ENGAGEMENT LETTER

8. UNDERSTANDING THE ENTITY

9. RESPONSE TO ASSESSED RISKS

10. AUDIT EVIDENCE

11.SUBSTANTIVE AUDIT PROCEDURES

a. CONSIDERATIONS ON SPECIFIC ITEMS

13. THE INDEPENDENT AUDITORS REPORT

14. MODIFICATIONS TO THE INDEPENDENT

15. AUDIT DOCUMENTATION

The Council and Its

The AASC was established by RA 9298 (Philippine

The Authority Attaching to Philippine Standards

The Authority Attaching to Practice Statements

PSQCs, Framework, PSAs, PAPSs, PSREs, PSAEs,

Preface to the International Standards on Quality

Philippine Framework for Assurance Engagements

Glossary of Terms (December 2002) [amended by

Philippine Standard on Quality Control (PSQC)

Quality Control for Firms That Perform Audits and

Philippine Standards on Auditing (PSAs)

Framework of Philippine Standards on Auditing

Objective and General Principles Governing an Audit

Terms of Audit Engagements [amended by PSA 700

220 Quality Control for Audits of Historical Financial

The Auditors Responsibility to Consider Fraud in an

Consideration of Laws and Regulations in an Audit of

Communications of Audit Matters with Those Charged

300 Planning an Audit of Financial Statements

Understanding the Entity and Its Environment and

Audit Materiality [amended by PSA 240 (Revised

The Auditors Procedures in Response to Assessed

Audit Considerations Relating to Entities Using

500 Audit Evidence

Audit Evidence - Additional Considerations on Specific

Initial Engagements--Opening Balances

Audit Sampling and Other Selective Testing

Audit of Accounting Estimates

Auditing Fair Value Measurements and Disclosures

Subsequent Events [amended by PSA 700 (Revised)]

Management Representations [amended by PSA 240

Using the Work of Another Auditor

Considering the Work of Internal Auditing

Using the Work of an Expert

700 The Independent Auditors Report on a Complete Set

Modifications to the Independent Auditors Report

Other Information in Documents Containing Audited

The Independent Auditors Report on Special Purpose

Philippine Auditing Practice Statements (PAPSs)

Standards that have been REPLACED:

Standards that have been WITHDRAWN:

PSA 220 Quality Control

A more comprehensive quality control requirements

PSA 240 (revised)

Requires assessment of risk of significant

PSA 250 Laws and Regulation (new)

PSA 260 Communication with Those

audit of financial statements, the auditor is

PSA 320 Materiality (amended by PSA

Requires the auditor to obtain an understanding of

to ensure it is reduced to an acceptably low

PSA 401 CIS Environment (withdrawn)