The Professional Practice of Accounting

A. Public Accounting Profession

1. Characteristics of the profession

In our society, professions are generally recognized as elite occupational

classifications. Ernest Greenwood in his article Attributes of a Profession (1957)
sets forth five major characteristics of an ideal profession. These are:

Systematic Body of Theory the underlying theory of the public accounting

profession consists of accounting theory (generally accepted accounting principles
and practices) and auditing theory (a science of validation). Knowledge in
systematic theory can be achieved best through formal college-level education in an
academic environment.

Professional Authority clients who use the service of a professional often do not
really understand their own needs. Thus, the professional determines what is good
or bad for the client and the client accedes to this professional judgment. The basis
for the CPAs authority is his expertise in the systematic theory of accounting and
auditing.

Community Sanction admission to the public accounting profession is controlled.

To become a CPA, a candidate must satisfy government educational and
experience requirements and pass the CPA Licensure Board Examinations. This
licensing system is controlled by the Professional Regulation Commission through
the Board of Accountancy. Also, although CPAs are responsible to the community
for their actions, it is generally accepted that a professionals performance should
be judged based on standards established by the profession itself.

Regulations Code the powers and privileges granted to the public accounting
profession by the community effectively constitute a monopoly. To prevent abuse of
this monopoly and to discipline its members, the Rules of Professional Conduct or
Code of Ethics have been promulgated and made legally binding through the
Accountancy Law.

A Culture the CPA is member of a time-honored profession and the status of the
profession and the responsibilities that accompany this status affect his behavior in
the society. Accounting has developed a professional culture as evidenced by such
factors as the formal norms of the Code of Ethics, the informal rules that guide
relationships among practitioners and the traditions and myths that have arisen
concerning the CPA examination.
The Revised Code of Ethics for Certified Public Accountants in the Philippines made
effective on June 30, 2008 states:

A profession is distinguished by certain characteristics including:

Mastery of a particular intellectual skill, acquired by training and education;

Adherence by its members to a common code of values and conduct
established by its administering body, including maintaining an outlook
which is essentially objective; and
Acceptance of a duty of society as a whole (usually in return for restrictions
in use of a title or in the granting of a qualification).

Certified Public Accountant

A certified public accountant (CPA) is a person who, after obtaining the required
education passes an extensive examination and is licensed by the country to practice as
a professional accountant.

No person shall practice accountancy in the Philippines, or use the title Certified
Public Accountant or the abbreviated title CPA, or display or use any title, sign, card,
advertisement or other device to indicate such person practices or offers to practice
accountancy, or is a certified public accountant, unless such person shall have received
from the Board a Certificate of Registration and be issued a professional identification
card or a valid temporary or special permit duly issued to him by the Board and the
Commission.

2. Organizations that affect public accounting

a. Professional organizations

Philippine Institute of Certified Public Accountants (PICPA)

The Philippine Institute of Certified Public Accountants (PICPA) is the
Accredited Professional Organization (APO) of the PRC.
PICPA is the accredited national professional organizations of CPAs. It
is a globally recognized and integrated national organization of Filipino
CPAs in all sectors. Its mission is to enhance the integrity of the
accountancy profession, serve the best interest of its members and other
stakeholders and contribute to the attainment of the countrys objectives.
PICPA publishes the Accountants Journal that contains technical and
formal papers, bulletins and pronouncements released by the Financial
Reporting Standards Council (FRSC) and the Auditing and Assurance
Standards Council (AASC).
The PICPA must renew its Certificate of Accreditation once every 3
years.
 Sectoral Organizations
The other professional organizations that complement PICPAs
objectives and provide the specific professional development and other
requirements of CPAs in the different sectors are:
1. Association of CPAs in Public Practice (ACPAPP)
2. Association of CPAs in Education (ACPAE)
3. Association of CPAs in Commerce and Industry (ACPACI)
4. Government Association of CPAs (GACPA)

b. Regulatory government agencies

Professional Regulation Commission (PRC)

The PRC administers, implements, and enforces the regulatory
policies of the National Government with respect to the regulation and
licensing of the various professions under its jurisdiction including the
maintenance of professional standards and ethics and the enforcement of
the rules and regulations relative thereto.

This Commission has the overall jurisdiction over the regulatory boards
in the Philippines among which is the Board of Accountancy. It derives its
authority from the PRC Modernization Act of 2000.

Board of Accountancy (BOA)

The BOA is the official government agency empowered to enforce or
administer the R.A. 9298 or the Philippine Accountancy Act of 2004. The
body is under the administrative supervision of the Professional Regulation
Commission. This Board shall be composed of a Chairman and 6 members
to be appointed by the President of the Philippines. As a licensing agency
of the government, the board is the only body that may issue and revoke
CPA certificates and grant licenses to practice. Its functions are provided
for in the Philippine Accountancy Act of 2004.

Securities and Exchange Commission (SEC)

The SEC is the government agency that regulates the registration and
operations of corporations, partnership and other forms of associations in
the Philippines. Its overall objective is to assist in providing investors with
reliable information upon which to make investment decisions.
It has considerable influence in setting generally accepted accounting
principles and disclosure requirements for financial statements as a result
of its authority for specifying reporting requirements considered necessary
for fair disclosure to investors. It is represented in standard-setting bodies
such as the Accounting Standards Council (ASC), Auditing Standards and
Practices Council (ASPC) and in the Quality Review Committee created by
the PRC-BOA. The SEC has power to establish rules for any CPA
associated with audited financial statements submitted to the Commission.
 Commission on Audit (COA)
The COA is the supreme audit institution in the Philippines. It is the
highest and final authority in state auditing.This is the agency that audits or
determines whether government units handle their funds according to
existing laws and whether their programs are being conducted efficiently
and economically.

c. Standard setting bodies

Financial Reporting Standards Council (FRSC)

The FRSC is the accounting standard setting body created by the
PRC, upon the recommendation of the BOA, in 2006 to assist the Board in
carrying out its powers and functions.
The Councils main role is to establish and improve accounting
standards that will be generally accepted in the Philippines. It has full
discretion in developing and pursuing the technical agenda for setting
accounting standards in the Philippines. The FRSC is the successor of the
Accounting Standards Council (ASC) which was created by the PICPA to
establish GAAP in the Philippines.
The FRSC shall be composed of fifteen (15) members with a
Chairman, who had been or presently a senior accounting practitioner in
any of the scope of accounting practice and fourteen (14) representatives
from the following:

Chairman 1
Board of Accountancy 1
Securities and Exchange Commission 1
Bangko Sentral ng Pilipinas 1
Bureau of Internal Revenue 1
A major organization of preparers and users of
financial statements (currently the Financial
Executives Institute of the Philippines) 1
Commission on Audit 1
Philippine Institute of CPAs:
Public Practice 2
Commerce and Industry 2
Academe/Education 2
Government 2 8
15

The Chairman and members of the FRSC shall have a term of 3 years
renewable for another term.
 Auditing and Assurance Standards Council (AASC)
The AASC is the auditing standard setting body created by the PRC,
upon the recommendation of the BOA, in December 2005 to assist the
Board in the establishments and promulgation of auditing standards in the
Philippines. The Councils main objective is to promulgate auditing
standards, practices and procedures which shall become generally
accepted by the accounting profession in the Philippines.
The AASC shall be composed of eighteen (18) members with a
Chairman, who had been or presently a senior practitioner in public
accountancy and fourteen (14) representatives from the following:

Chaiman 1
Board of Accountancy 1
Securities and Exchange Commission 1
Bangko Sentral ng Pilipinas 1
Commission on Audit 1
Association of CPAs in public practice 1
Philippine Institue of CPAs:
Public Practice 9
Commerce and Industry 1
Academe/Education 1
Government 1
Total 18

The Chairman and members of the AASC shall have a term of 3 years
renewable for another term.

International Federation of Accountants (IFAC)

The IFAC is the global organization for the accountancy profession. Its
mission is the development and enhancement of the profession to enable it
to provide services of consistently high quality in the public interest.
Membership in IFAC automatically includes membership in the
International Accounting Standards Committee (IASC).

It was established to strengthen the worldwide accountancy profession

in the public interest by:
Developing high quality international standards in auditing and
assurance, public sector accounting, ethics and education for
professional accountants and supporting their adoption and use.
Facilitating collaboration and cooperation among its member
bodies.
Collaborating and cooperating with other international
organizations.
Serving as the international spokesperson for the accountancy
profession.
 International Accounting Standards Board (IASB)
The IASB is the foreign counterpart of the FRSC. The IASB is the
independent accounting standard-setting body of the IFRS Foundation
based in London, UK. The Boards main objective is to raise the quality and
consistency of financial reporting standards and to have a platform of high
quality and improved standards.
The 15 members of the Board are responsible for developing and
publishing International Financial Reporting Standards (IFRSs) and
promoting the use and application of these standards
The Board is committed to developing, in the public interest, a single
set of high quality, global accounting standards that require transparent and
comparable information in general purpose financial statements.
In April of 2001, the IASB assumed from the IASC the responsibility for
setting international accounting standards. IASB adopted the IASs issued
by the IASC and retained the designation and format of the Standards.
New standards issued by the IASB were designated as International
Financial Reporting Standards (IFRS). in December 2003, the IASB issued
15 revised IASs, withdrew IAS 15, Information Relecting Effects of
Changing Prices, and approved and issued IFRS 1 to 5.
PICPA, being a member body of the International Federation of
Accountants had initiated through the ASC the gradual adoption (from 2001
to 2005) of IASs in the Philippines.
On December 26, 2004, the Board of Accountancy upon the
recommendation of the ASC, approved the adoptionin the Philippines of all
the new, revised and improved IASs and IFRSs effective January 1, 2005
and designated them as Philippine Financial Reporting Standards
(PFRSs).

International Auditing and Assurance Standards Board (IAASB)

The International Auditing and Assurance Standards Board (IAASB)

functions as an independent standard setting body under the auspices of
the IFAC. The Board works to establish high quality auditing, assurance,
quality control and related services and to improve the uniformity of
practice by professional accountants throughout the world, thereby
strengthening public confidence in the global auditing profession and
serving the public interest.

The IAASB was founded in March 1978 and was known until 2002 as
the International Auditing Practices Committee (IAPC).
B. The Revised Accountancy Law of 2004

Republic of the Philippines

Congress of the Philippines
Metro Manila

Twelfth Congress
Third Regular Session

Begun and held in Metro Manila, on Monday, the twenty-eight day of

July, two thousand three.

Republic Act No. 9298

AN ACT REGULATING THE PRACTICE OF ACCOUNTANCY IN THE

PHILIPPINES, REPEALING FOR THE PURPOSE PRESIDENTIAL
DECREE NO. 692, OTHERWISE KNOWN AS THE REVISED
ACCOUNTANCY LAW, APPROPRIATING FUNDS THEREFOR AND
FOR OTHER PURPOSES

Be it enacted by the Senate and House of Representatives of the

Philippines in Congress assembled:

ARTICLE I

TITLE, DECLARATION OF POLICY, OBJECTIVE AND SCOPE OF

PRACTICE

Section 1. Shorts Title. - This act shall be known as the "Philippine

Accountancy Act of 2004"

Section 2. Declaration of Policy. - The State recognizes the

importance of accountants in nation building and development. Hence,
it shall develop and nurture competent, virtuous, productive and well
rounded professional accountants whose standard of practice and
service shall be excellent, qualitative, world class and globally
competitive though inviolable, honest, effective, and credible licensure
examinations and though regulatory measures, programs and
activities that foster their professional growth and development.

Section 3. Objectives. - This Act shall provide and govern:

The standardization and regulation of accounting education;

The examination of registration of certified public accountants; and

The supervision, control, and regulation of the practice of accountancy
in the Philippines.

Section 4. Scope of Practice. - The practice of accountancy shall

include, but not limited to, the following:

(a) Practice of Public Accountancy - shall constitute a person, be it

his/her individual capacity, or as a staff member in an accounting or
auditing firm, holding out himself/herself as one skilled in the
knowledge, science and practice of accounting, and as a qualified
person to render professional services as a certified public accountant;
or offering or rendering, or both or more than one client on a fee basis
or otherwise, services as such as the audit or verification of financial
transaction and accounting records; or the preparation, signing, or
certification for clients of reports of audit, balance sheet, and other
financial, accounting and related schedules, exhibits, statement of
reports which are to be used for publication or for credit purposes, or
to be filed with a court or government agency, or to be used for any
other purposes; or to design, installation, and revision of accounting
system; or the preparation of income tax returns when related to
accounting procedures; or when he/she represent clients before
government agencies on tax and other matters relating to accounting
or render professional assistance in matters relating to accounting
procedures and the recording and presentation of financial facts or
data.

(b) Practice in Commerce and Industry - shall constitute in a person

involved in decision making requiring professional knowledge in the
science of accounting, or when such employment or position requires
that the holder thereof must be a certified public accountant.

(c) Practice in Education/Academe - shall constitute in a person in an

educational institution which involve teaching of accounting, auditing,
management advisory services, fianc, business law, taxation and
other technically related subject: Provided, That members of the
Integrated Bar of the Philippines may be allowed to teach business law
and taxation subjects.

(d) Practice in Government - shall constitute in a person who holds, or

is appointed to, a position in an accounting professional group in
government or in an government-owned and/or controlled corporation,
including those performing proprietary functions, where decision
making requires professional knowledge in the science of accounting,
or where a civil service eligibility as a certified public accountant is a
prerequisite.
 ARTICLE II

PROFESSIONAL REGULATORY BOARD OF ACCOUNTANCY

Section 5. The Professional Regulatory Board of Accountancy

and its Composition. - The Professional Regulatory Board of
Accountancy, hereinafter referred to as Board, under the supervision
and administrative control of the Professional Regulation Commission,
hereinafter referred to as the Commission, shall be composed of a
Chairman and six (6) members to be appointed by the President of the
Philippines from a list of three (3) recommendees for each position and
ranked by the Commission from a list of five (5) nominees for each
position submitted by the accredited national professional organization
of certified public accountant. The Board shall elect a vice-chairman
from among each members for a term of one (1) year. The chairman
shall preside in all meetings of the Boards and in the event of a
vacancy in the office of the chairman, the vice-chairman shall assume
such duties and responsibilities until such time as a chairman is
appointed.

Section 6. Qualifications of a members of the Professional

Regulatory Board. - A member of the Board shall, at the time of
his/her appointment, posses the following qualifications:

Must be a natural-born citizen and a resident of the Philippines;

Must be a duly registered Certified Public Accountant with at least ten

(10) years of work experience in any scope of practice of accountancy;

Must be a good moral character and must not have been convicted of
crimes involving moral turpitude; and

Must not have any pecuniary interest, directly or indirectly, in any

school, college, university or institution conferring an academic degree
necessary for admission to the practice of accountancy or where
review classes in preparation for the licensure examination are being
offered or conducted, nor shall he/she be a member of the faculty or
administration thereof at a time of his/her appointment to the Board.

Section 7. Term of Office. - The Chairman and Members of the Board

shall hold office for a term of three (3) years. Any vacancy occurring
within the term of a member shall be filled up for the unexpired
portion of the term only. No person who has served two (2) successive
complete terms shall be eligible for reappointment until the lapse of
one (1) year. Appointment to fill up an expired term is not to be
considered as a complete term.
Section 8. Compensation and Allowances of the Board. - The
chairman and the members of the Board shall receive compensation
and allowances comparable to that being received by the chairman
and members of existing regulatory boards under the Commission as
provided for in the General Appropriate Act.

Section 9. Powers and Functions of the Board. - The Board shall

exercise the following specific powers, functions and responsibilities:

To prescribed and adopt the rules and regulations necessary for

carrying out the provisions of this Act;

To supervise the registration, licensure and practice of accountancy in

the Philippines;

To administer oaths in connection with the administration of this Act;

To issue, suspend, revoke, reinstate the Certificate of Registration for

the practice of the accountancy profession;

To adopt an official seal of the Board;

To prescribe and/or adopt a Code of Ethics for the practice of

accountancy;

To monitor the conditions affecting the practice of accountancy and

adopt such measures, including promulgation of accounting and
auditing standards, rules and regulations and best practices as may be
deemed proper for the enhancement and maintenance of high
professional, ethical, accounting and auditing standards: That
domestic accounting and auditing standards rules and regulations
shall include the international accounting and auditing standards, and
generally accepted best practices;

To conduct an oversight into the quality of audits of financial

statements though a review of the quality control measures instituted
by auditors in order to ensure compliance with the accounting and
auditing standards and practices,

To investigate violations of this act and the rules and regulations

promulgated hereunder and for the purpose, to issue summons,
subpoena and subpoena ad testificandum and subpoena duces tecum
to violator or witness thereof and compel their documents in
connection therewith: Provided, That the Board upon approval of the
Commission may, subject to such rules and regulations that may be
promulgated to implement this section, delegate the fact-finding
aspect of such investigations to the accredited national professional
organization of certified public accountant: Provided, further, That the
Board and/or the Commission may adopt their findings of fact as may
be seems fit;\

The Board may, muto propio in its discretion, may such investigations
as it deem necessary to determine whether any person has violated
any provisions of this law, any accounting or auditing standard or rules
duly promulgated by the Board as part of the rules governing the
practice of accountancy;

To issue a cease or desist order to any person, associations,

partnership or corporation engaged in violation of any provision of this
Act, any accounting or auditing standards or rules of duly promulgated
by the Board as part of the rules governing the practice of
accountancy in the Philippines;

To punish for contempt of the Board, both direct and indirect, in

accordance with the pertinent provision of and penalties prescribed by
the Rules of Court;

To prepare, adopt, issue or amend the syllabi of the subjects for

examinations in consultation with the academe, determine and
prepare questions for the licensure examination which shall strictly be
within the scope of the syllabi of the subjects for examinations as well
as administer, correct and release the result of the licensure
examinations;

To ensure the coordination with the Commission of the Higher

Education (CHED) or other authorized government offices that all
higher educational instruction and offering of accountancy comply with
the policies, standards and requirements of the course prescribed by
the CHED or other authorized government offices in the areas of
curriculum, faculty, library and facilities; and

To exercise such other powers as may be provided by law as well as

those which may be implied from, or which are necessary or incidental
to the carrying out of, the express powers granted to the Board to
achieve the objectives and purposes of this Act.

The policies resolution, rules and regulations issued or promulgated by

the Board shall be subject to review and approval of the Commission.
However, the Board's decisions, resolutions or orders rendered in the
administrative cases shall be subject to review only if on appeal.
Section 10. Administrative Supervisions of the Board,
Custodian of its Records, Secretariat and Support Services. -
The Board shall be under the administrative supervision of the
Commission. All records of the Board, including applications for
examination and administrative and other investigative cases
conduced by the Board shall be under the custody of the Commission.
The Commission shall designate the secretary of the Board and shall
provide the secretariat and other support services to implement the
provisions of this Act.

Section 11. Grounds for Supervision or Removal of Members of

the Board. - The President of the Philippines, upon the
recommendation of the Commission, after the giving the concerned
member an opportunity to defend himself in proper administrative
investigation to be conducted by he Commission, may suspend or
remove any member of the following grounds:

Neglect of Duty or incompetence;

Violation or tolerance of any violation of this Act and it's

implementation rules and regulations or the Certified Public
Accountant's Code of Ethics and the technical and professional
standards of practice for certified public accountant;

Final judgment of crimes involving moral turpitude; and

Manipulation or rigging of the certified public accountant's licensure

examination results, disclosure of secret and confidential information
in the examination questions prior to the conduct of the said
examination or tampering of grades.

Section 12. Annual Report. - The Board shall, at the close of each
calendar year, submit an annual report to the President of the
Philippines though the Commission giving the detailed account of its
proceedings and accomplishment during the year and making
recommendations for the adoption of measures that will upgrade and
improve the conditions affecting the practice of accountancy in the
Philippines.

ARTICLE III

EXAMINATION, REGISTRATION AND LICENSURE

Section 13. The Certified Public Accountant Examinations. - All

applicants for registration for the practice of accountancy shall be
required to undergo a licensure examination to be given by the Board
in such places and dates as the Commission may be designate subject
to compliance with the requirements prescribed by the Commission in
accordance with Republic Act No. 8981.

Section 14. Qualifications of Applicant for Examinations. - Any

person applying for examination shall establish the following requisites
to the satisfaction of the Board that he/she:

is a Filipino citizen;

is of good moral character;

is a holder of the degree of Bachelor of Science in Accountancy

conferred by the school, college, academy or institute duly recognized
and/or accredited by the CHED or other authorized government offices;
and

has not been convicted of any criminal offence involving moral

turpitude.

Section 15. Scope of Examination. - The licensure examination for

certified public accountants shall cover, but are not limited to, the
following subjects:

Theory of Accounts

Business Law and Taxation

Management Services

Auditing Theory

Auditing Problems

Practical Accounting Problem I

Practical Accounting Problem II

The Board, subject to the approval of the Commission, may revise or

exclude any of the subjects and their syllabi, and add new ones as the
need arises.

Section 16. Rating in the Licensure Examination. - To be qualified

as having passed the licensure examination for accountants, a
candidate must obtain a general average of seventy five percent
(75%), with no grade lower than sixty-five percent (65%) in any given
subject. In the event a candidate obtains the rating of seventy-five
percent (75%) and above in at least a majority of subjects as provided
for in this Act, he/she shall receive a conditional credit for the subjects
passed: Provided, That a candidate shall take an examination in the
remaining subjects within two (2) years from preceding examination:
Provided, further, That if the candidate fails to obtain at least a general
average of seventy-five percent (75%) and a rating of at least sixty-
five percent (65%) in each of the subjects reexamined, he/she shall be
considered as failed in the entire examination.

Section 17. Report of Rating. - The Board shall submit to the

Commission the rating obtained by each candidate within ten (10)
calendar days after the examination, unless extended for just cause.
Upon the release of the results of the examination, the Commission
shall send by mailing the rating received by each examinee at his/her
given address using the mailing envelop submitted during the
examination.

Section 18. Failing Candidates to Take Refresher Course. - Any

candidate who fails in two (2) complete Certified Public Accountant
Board Examinations shall be disqualified from taking another set of
examinations unless he/she submit evidence to the satisfaction of the
Board that he/she enrolled in and completed at least twenty-four (24)
units of subject given in the licensure examination.

For purposes of this Act, the examination in which the candidate was
conditioned together with the removal examination on the subject in
which he/she failed shall be counted as one compete examination.

Section 19. Oath. - All successful candidates in the examination shall

required to take an oath of professional before any member of the
Board or before any government official authorized of the Commission
or any person authorized by law to administer oaths upon presentation
of proof of his/her qualification, prior to entering upon the practice of
the profession.

Section 20. Issuance of Certificate of Registration and

Professional Identification Card. - A certificate of registration shall
be issued to examinees who pass the licensure examination subject to
payment of fees prescribed by the Commission. The Certificate of
Registration shall bear the signature of the chairperson of the
Commission and the chairman and members of the Board, stamped
with the official seal of the Commission and of the Board, indicating
that the person named therein is entitled to the practice of the
profession with all the privileges appurtenant thereto. The said
certificate shall remain in full force and effect until withdrawn,
suspended or revoked in accordance with this Act.

A Professional Identification Card bearing the registration number date

of issuance, expiry date, duly signed by the chairperson of the
Commission, shall likewise be issued to every registrant renewable
every three (3) years.

Section 21. Roster of Certified Public Accountant. - A roster

showing the names and place of business of all registered certified
public accountants shall be prepared and updated by the Board, and
copies thereof shall be made available to any party as may deemed
necessary.

Section 22. Indication of Certificate of Registration,

Identification Card and Professional Tax Receipt. - The certified
public Accountant shall be required to indicate his/her certificate of
registration number and date of issuance, the duration of validity,
including the Professional Tax Receipt number on the documents
he/she signs, uses or issues in connection with the practice of his/her
profession.

Section 23. Refusal to Issue Certificate of Registration and

Professional Identification Card. - The Board shall not register and
issue a certificate of registration and professional identification Card to
any successful examinee convicted by the court of competent
jurisdiction of a criminal offence involving moral turpitude or guilty of
immoral and dishonorable conduct to any person or unsound mind. In
the event of refusal to issue certificate for any reason, the Board shall
give the applicant a written statement setting forth the reasons for
such action, which statement shall be incorporated in the record of the
Board.

Section 24. Suspension and Revocation of Certificate of

Registration and Professional Identification Card and
Cancellation of Special Permit. - The Board shall have the power,
upon the notice and hearing, to suspend or revoke the practitioner's
certificate of registration and professional identification card or
suspend his/her from the practice of his/her profession or cancel
his/her special permit for any of the causes or ground mentioned
under Section 23 of this Act or any of the provisions of this Act, and its
implementing rules and regulations, the certified Public Accountant's
Code of Ethics and the technical and professional standards of practice
for certified public accountants.
Section 25. Reinstatement, Reissuance and Replacement of
Revoked or Lost Certificates. - The Board may, after the expiration
of two (2) years from the date of revocation of a certificate of
registration and upon application and for reasons deemed proper and
sufficient, reinstate the validity of a revoked certificate of registration
and in so doing, may, in its discretion, exempt the applicant from
taking another examination.

A new certificate of registration to replace lost, destroyed, or mutilated

certificate/license may be issued, subject to the rules and promulgated
by the Board and the Commission, upon the payment of the required
fees.

ARTICLE IV

PRACTICE OF ACCOUTANCY

Section 26. Prohibition in the Practice of Accountancy. - No

person shall practice accountancy in this country, or use the title
"Certified Public Accountant", or use the abbreviated title "CPA" or
display or use any title, sign, card, advertisement or other device to
indicate such person practices or offers to practice accountancy, or is
a certified public accountant, unless such person shall have received
from the Board a certificate of registration/Professional license and be
issued a professional identification card or a valid temporary/special
permit duly issued to him/her by the Board and the Commission.

Section 27. Vested Rights. - Certified Public Accountants Registered

When This Law is Passed. - All certified public accountants registered
at the time this law takes effect shall automatically be registered
under the provisions hereof, subject, however, to the provisions herein
set forth as to future requirements. Certificate of
Registration/Professional license held by such persons in good standing
shall have the same license force and effect as though issued after the
passage of this Act.

Section 28. Limitation of the Practice of Public Accountancy. -

Single practitioners and partnerships for the practice of public
accountancy shall be registered certified public accountants in the
Philippines: Provided, That from the effectivity of this Act, a certificate
of accreditation shall be issued to certified public accountant in public
practice only upon showing, in accordance with rules and regulations
promulgated by the Board and approved by the Commission, that such
registrant has acquired a minimum of three (3) years meaningful
experience in any of the areas of public practice including taxation:
Provide, further, that this requirement shall not apply to those already
granted a certificate of accreditation prior to the effectivity of this Act.
The Security and Exchange Commission shall not register any
corporation organized for the practice of public accountancy.

Section 29. Ownership of Working Papers. - All working papers,

schedules and memoranda made by a certified public accountant and
his staff in the course of an examination, including those prepared and
submitted by the client, incident to or in the course of an examination,
by such certified public accountant, except reports submitted by a
certified public accountant to a client shall be treated confidential and
privileged and remain the property of such certified public accountant
in the absence of a written agreement between the certified public
accountant and the client, to the contrary, unless such documents are
required to be produced though subpoena issued by any court,
tribunal, or government regulatory or administrative body.

Section 30. Accredited Professional Organization. - All registered

certified public accountants whose appear in the roster of certified
public accountants shall be united and integrated though their
membership in a one and only registered and accredited national
professional organization of registered and licensed certified public
accountants, which shall be registered with the Securities and
Exchange Commission as a nonprofit corporation and recognized by
the Board subject to the approval by the Commission. The members of
the said integrated and accredited national professional organization
shall receives benefits and privileges appurtenant thereto upon
payment of required fees and dues. Membership in the integrated
organization shall not be a bar to membership in any other association
of certified public accountants.

Section 31. Accreditation to Practice Public Accountancy. -

Certified public accountants, firms and partnerships of certified public
accountants, engaged in the practice of public accountancy, including
partners and staff members thereof, shall registered with the
Commission and the Board, such registration to be renewed every
three (3) years: Provided, That subject to the approval of the
Commission, the Board shall promulgate rules and regulations for the
implementation of registration requirements including the fees and
penalties for violation thereof.

Section 32. Continuing Professional Education (CPE) Program. -

All certified public accountants shall abide by the requirements, rules
and regulations on continuing professional education to be
promulgated by the Board, subject to the approval of the Commission,
in coordination with the accredited national professional organization
of certified public accountants or any duly accredited educational
institutional. For this purpose, a CPE Council is hereby created to
implement the CPE program.

Section 33. Seal and Use of Seal. - All license certified public
accountants shall obtain and use a seal of a design prescribed by the
Board bearing the registrant's name, registration number and title. The
auditors reports shall be stamped with the said seal, indicating therein
his/her current Professional Tax Receipt (PTR) number, date/place of
payment when filed with government authorities or when used
professionally.

Section 34. Foreign Reciprocity. - Subject or citizen of foreign

countries may be allowed to practice accountancy in the Philippines in
accordance with the provisions of existing laws, international treaty
obligations including mutual recognition agreement entered into by
the Philippines government with other countries. A person who is not a
citizen of the Philippines shall not be allowed to practice accountancy
in the Philippines unless he/she can prove, in the manner provided by
the Rules of Court that, specific provision of law country of which
he/she is a citizen, subject or national admits citizens of the Philippines
to the practice of the same profession without restriction.

Section 35. Coverage of Temporary/Special Permits. -

Special/temporary permit may be issued by the Board subject to the
approval of the Commission and payment of the fees the latter has
prescribed and charged thereof to the following persons:

A foreign certified public accountant called for consultation or for

specific purpose which, in the judgment of the Board, is essential for
the development of the country: Provided, That his/her practice shall
be limited only for the particular work that he/she is being engaged:
Provided, further, That there is no Filipino certified public accountant
qualified for such consultation or specific purposes;

A foreign certified public accountant engaged as professor, lecturer or

critic in fields essential to accountancy education in the Philippines
and his/her engagement is confined to teaching only; and

A foreign certified public accountant who is an internationally

recognized expect or with specialization in any branch of accountancy
and his/her service is essential for the advancement of accountancy in
the Philippines.

ARTICLE V
 PENAL AND FIINAL PROVISIONS

Section 36. Penal Provision. - Any person who shall violate any of
the provisions of this Act or any of its implementing rules and
regulations as promulgated by the Board subject to the approval of the
Commission, shall upon conviction, be punished by a fine of not less
than Fifty Thousand Pesos (50,000.00) or by imprisonment for a period
not exceeding two (2) years or both.

Section 37. Implementing Rules and Regulations. - Within Ninety

(90) days after the effectivity of this Act, the Board, subject to the
approval of the Commission and in coordination with the accredited
national professional organization of certified public accountants, shall
adopt and promulgate such rules and regulations to carry out the
provisions of this Act and which shall be effective Fifteen (15) days
following their publication in the Official Gazette or in any of the major
daily newspaper of general circulation.

Section 38. Interpretation of this Act. - Nothing in this Act shall be

construed to effect or prevent the practice or any other legally
recognized profession.

Section 39. Enforcement of this Act. - It shall be primary duty of

the Commission and the Board to effectivity enforce the provisions of
this Act. All duly constituted law enforcement agencies and officers of
national, provincial, city or municipal government or of any political
subdivision thereof, shall upon the call or request of the Commission or
the Board, render assistance in enforcing the provisions of this Act and
to prosecute any person violating the provisions of the same. The
Secretary of Justice or his duly designated representative shall act as
legal adviser to the Commission and the Board and shall render legal
assistance as may be necessary in carrying out the provisions of this
Act.

Any person may bring before the Commission, Board of the

aforementioned officers of the law, cases of illegal practice or
violations of this Act committed by any person or party.

The Board shall assist the Commission in filing the appropriate charges
though the concerned prosecution office in accordance with law and
Rules of Court.

Section 40. Funding Provision. - The chairperson of the Professional

Regulation Commission shall immediately include the Commission's
programs the implementation of this Act, the funding of which shall be
included in the annual General Appropriations Act.

Section 41. Transitory Provision. - The incumbent chairman and

members of the Board shall continue to serve in their respective
positions under the terms for they have been appointed under
Presidential Decree No. 692, without the need of new appointments.

All graduates with Bachelors Degree, Major in Accounting shall be

allowed to take the CPA Licensure Examination within two (2) years
from the effectivity of this Act under the rules and regulations to be
promulgated by the Board subject to the approval by the Commission.

Section 42. Separability Clause. - If any clause, provisions,

paragraph or parts thereof shall be declared unconstitutional or
invalid, such judgment shall not affect, invalidate or impair any other
part hereof, but shall be merely confined to the clause, provisions,
paragraph or part directly involved in the controversy in which such
judgment has been rendered.

Section 43. Repealing Clause. - Presidential Decree No. 692 is

hereby repealed and all other laws, orders, rules and regulations or
resolutions or part/s thereof inconsistent with the provisions of this Act
are hereby repealed or modified accordingly.

Section 44. Effectivity. - This Act shall take effect after Fifteen (15)
days following its publication in the Official Gazette or in any major
daily newspaper of general circulation.

C. Regulation within the Firm

To ensure that a public accounting firm adheres to the standards of accounting

profession, it should establish and implement a system of quality control.

D. Quality Control

Philippine Standard on Quality Control 1

CONTENTS Paragraphs

Introduction 1-5
Definitions 6
Elements of a System of Quality Control 7-8
Leadership Responsibilities for Quality Within the Firm 9-13
Ethical Requirements 14-27
Acceptance and Continuance of Client Relationships and
Specific Engagements 28-35
Human Resources 36-45
Engagement Performance 46-73
Monitoring 74-93
Documentation 94-97
Effective Date 98
Acknowledgment 100

This PSQC and PSA 220 (Revised), Quality Control for Audits of Historical Financial
Information, gave rise to amendments to the Glossary of Terms, PSA 620, Using the
Work of an Expert, and PAPS 1012, Auditing Derivative Financial Information. These
amendments are attached to this PSQC.

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 should be read in the context of the Preface to the
Philippine Standards on Quality Control, Auditing, Other Assurance and Related
Services, which sets out the application and authority of PSQCs.

Quality Control for Firms that Perform Audits and Reviews of Historical Financial
Information, and Other Assurance and Related Services Engagements

Introduction

1. The purpose of this Philippine Standard on Quality Control (PSQC) is to establish

basic principles and essential procedures and to provide guidance regarding a firms
responsibilities for its system of quality control for audits and reviews of historical
financial information, and for other assurance and related services engagements. This
PSQC is to be read in conjunction with Parts A and B of the Code of Ethics for
Professional Accountants in the Philippines (the Philippine Code).
2. Additional standards and guidance on the responsibilities of firm personnel
regarding quality control procedures for specific types of engagements are set out in
other pronouncements of the Auditing Standards and Practices Council (ASPC). PSA
220 (Revised), Quality Control for Audits of Historical Financial Information, for
example, establishes standards and provides guidance on quality control procedures for
audits of historical financial information.

3. The firm should establish a system of quality control designed to provide it with
reasonable assurance that the firm and its personnel comply with professional
standards and regulatory and legal requirements, and that reports issued by the firm or
engagement partners are appropriate in the circumstances.

4. A system of quality control consists of policies designed to achieve the objectives

set out in paragraph 3 and the procedures necessary to implement and monitor
compliance with those policies.
5. This PSQC applies to all firms. The nature of the policies and procedures
developed by individual firms to comply with this PSQC will depend on various factors
such as the size and operating characteristics of the firm, and whether it is part of a
network.

Definitions

6. In this PSQC, the following terms have the meanings attributed below:

(a) Engagement partner the partner or other person in the firm who is responsible
for the engagement and its performance, and for the report that is issued on behalf of
the firm, and who, where required, has the appropriate authority from a professional,
legal or regulatory body;
(b) Engagement quality control review a process designed to provide an objective
evaluation, before the report is issued, of the significant judgments the engagement
team made and the conclusions they reached in formulating the report;
(c) Engagement quality control reviewer a partner, other person in the firm, suitably
qualified external person, or a team made up of such individuals, with sufficient and
appropriate experience and authority to objectively evaluate, before the report is issued,
the significant judgments the engagement team made and the conclusions they
reached in formulating the report;
(d) Engagement team all personnel performing an engagement, including any
experts contracted by the firm in connection with that engagement;
(e) Firm a sole practitioner or partnership or other entity of professional
accountants;
(f) Inspection in relation to completed engagements, procedures designed to
provide evidence of compliance by engagement teams with the firms quality control
policies and procedures;
(g) Listed entity an entity whose shares, stock or debt are quoted or listed on a
recognized stock exchange, or are marketed under the regulations of a recognized
stock exchange or other equivalent body;
(h) Monitoring a process comprising an ongoing consideration and evaluation of the
firms system of quality control, including a periodic inspection of a selection of
completed engagements, designed to enable the firm to obtain reasonable assurance
that its system of quality control is operating effectively;
(i) Network firm *. an entity under common control, ownership or management with
the firm or any entity that a reasonable and informed third party having knowledge of all
relevant information would reasonably conclude as being part of the firm nationally or
internationally;
(j) Partner any individual with authority to bind the firm with respect to the
performance of a professional services engagement;
(k) Personnel partners and staff;
(l) Professional standards ASPC Engagement Standards, as defined in the
ASPCs Preface to the Philippine Standards on Quality Control, Auditing, Assurance
and Related Services, and relevant ethical requirements, which ordinarily comprise
Parts A and B of the Philippine Code;
(m) Reasonable assurance in the context of this PSQC, a high, but not absolute,
level of assurance;
(n) Staff professionals, other than partners, including any experts the firm employs;
and
(o) Suitably qualified external person an individual outside the firm with the
capabilities and competence to act as an engagement partner, for example a partner of
another firm, or an employee (with appropriate experience) of either a professional
accountancy body whose members may perform audits and reviews of historical
financial information, or other assurance or related services engagements, or of an
organization that provides relevant quality control services.

Elements of a System of Quality Control

7. The firms system of quality control should include policies and procedures
addressing each of the following elements:

(a) Leadership responsibilities for quality within the firm.

(b) Ethical requirements.
(c) Acceptance and continuance of client relationships and specific engagements.
(d) Human resources.
(e) Engagement performance.
(f) Monitoring.

8. The quality control policies and procedures should be documented and

communicated to the firms personnel. Such communication describes the quality
control policies and procedures and the objectives they are designed to achieve, and
includes the message that each individual has a personal responsibility for quality and is
expected to comply with these policies and procedures. In addition, the firm recognizes
the importance of obtaining feedback on its quality control system from its personnel.
Therefore, the firm encourages its personnel to communicate their views or concerns on
quality control matters.

Leadership Responsibilities for Quality Within the Firm

9. The firm should establish policies and procedures designed to promote an internal
culture based on the recognition that quality is essential in performing engagements.
Such policies and procedures should require the firms chief executive officer (or
equivalent) or, if appropriate, the firms managing board of partners (or equivalent), to
assume ultimate responsibility for the firms system of quality control.

10. The firms leadership and the examples it sets significantly influence the internal
culture of the firm. The promotion of a quality-oriented internal culture depends on clear,
consistent and frequent actions and messages from all levels of the firms management
emphasizing the firms quality control policies and procedures, and the requirement to:

(a) Perform work that complies with professional standards and regulatory and legal
requirements; and
(b) Issue reports that are appropriate in the circumstances.
Such actions and messages encourage a culture that recognizes and rewards high
quality work. They may be communicated by training seminars, meetings, formal or
informal dialogue, mission statements, newsletters, or briefing memoranda. They are
incorporated in the firms internal documentation and training materials, and in partner
and staff appraisal procedures such that they will support and reinforce the firms view
on the importance of quality and how, practically, it is to be achieved.

11. Of particular importance is the need for the firms leadership to recognize that the
firms business strategy is subject to the overriding requirement for the firm to achieve
quality in all the engagements that the firm performs. Accordingly:

(a) The firm assigns its management responsibilities so that commercial considerations
do not override the quality of work performed;
(b) The firms policies and procedures addressing performance evaluation,
compensation, and promotion (including incentive systems) with regard to its personnel,
are designed to demonstrate the firms overriding commitment to quality; and
(c) The firm devotes sufficient resources for the development, documentation and
support of its quality control policies and procedures.

12. Any person or persons assigned operational responsibility for the firms quality
control system by the firms chief executive officer or managing board of partners should
have sufficient and appropriate experience and ability, and the necessary authority, to
assume that responsibility.

13. Sufficient and appropriate experience and ability enables the responsible person or
persons to identify and understand quality control issues and to develop appropriate
policies and procedures. Necessary authority enables the person or persons to
implement those policies and procedures.

Ethical Requirements

14. The firm should establish policies and procedures designed to provide it with
reasonable assurance that the firm and its personnel comply with relevant ethical
requirements.

15. Ethical requirements relating to audits and reviews of historical financial information,
and other assurance and related services engagements ordinarily comprise Parts A and
B of the Philippine Code. The Philippine Code establishes the fundamental principles of
professional ethics, which include:

(a) Integrity;
(b) Objectivity;
(c) Professional competence and due care;
(d) Confidentiality; and
(e) Professional behavior.
16. Part B of the Philippine Code includes a conceptual approach to independence for
assurance engagements that takes into account threats to independence, accepted
safeguards and the public interest.

17. The firms policies and procedures emphasize the fundamental principles, which are
reinforced in particular by (a) the leadership of the firm, (b) education and training, (c)
monitoring and (d) a process for dealing with non-compliance. Independence for
assurance engagements is so significant that it is addressed separately in paragraphs
18-27 below. These paragraphs need to be read in conjunction with the Philippine
Code.

Independence

18. The firm should establish policies and procedures designed to provide it with
reasonable assurance that the firm, its personnel and, where applicable, others subject
to independence requirements (including experts contracted by the firm and network
firm personnel), maintain independence where required by the Philippine Code. Such
policies and procedures should enable the firm to:

(a) Communicate its independence requirements to its personnel and, where

applicable, others subject to them; and

(b) Identify and evaluate circumstances and relationships that create threats to
independence, and to take appropriate action to eliminate those threats or reduce them
to an acceptable level by applying safeguards, or, if considered appropriate, to withdraw
from the engagement.

19. Such policies and procedures should require:

(a) Engagement partners to provide the firm with relevant information about client
engagements, including the scope of services, to enable the firm to evaluate the overall
impact, if any, on independence requirements;
(b) Personnel to promptly notify the firm of circumstances and relationships that create
a threat to independence so that appropriate action can be taken; and
(c) The accumulation and communication of relevant information to appropriate
personnel so that:
(i) The firm and its personnel can readily determine whether they satisfy
independence requirements;
(ii) The firm can maintain and update its records relating to independence; and
(iii) The firm can take appropriate action regarding identified threats to
independence.

20. The firm should establish policies and procedures designed to provide it with
reasonable assurance that it is notified of breaches of independence requirements, and
to enable it to take appropriate actions to resolve such situations. The policies and
procedures should include requirements for:
(a) All who are subject to independence requirements to promptly notify the firm of
independence breaches of which they become aware;
(b) The firm to promptly communicate identified breaches of these policies and
procedures to:
(i) The engagement partner who, with the firm, needs to address the breach; and
(ii) Other relevant personnel in the firm and those subject to the independence
requirements who need to take appropriate action; and
(c) Prompt communication to the firm, if necessary, by the engagement partner and the
other individuals referred to in subparagraph (b)(ii) of the actions taken to resolve the
matter, so that the firm can determine whether it should take further action.

21. Comprehensive guidance on threats to independence and safeguards, including

application to specific situations, is set out in Section 8 of the Philippine Code.

22. A firm receiving notice of a breach of independence policies and procedures

promptly communicates relevant information to engagement partners, others in the firm
as appropriate and, where applicable, experts contracted by the firm and network firm
personnel, for appropriate action. Appropriate action by the firm and the relevant
engagement partner includes applying appropriate safeguards to eliminate the threats to
independence or to reduce them to an acceptable level, or withdrawing from the
engagement. In addition, the firm provides independence education to personnel who
are required to be independent.

23. At least annually, the firm should obtain written confirmation of compliance with its
policies and procedures on independence from all firm personnel required to be
independent by the Philippine Code.

24. Written confirmation may be in paper or electronic form. By obtaining confirmation

and taking appropriate action on information indicating noncompliance, the firm
demonstrates the importance that it attaches to independence and makes the issue
current for, and visible to, its personnel.

25. The Philippine Code discusses the familiarity threat that may be created by using
the same senior personnel on an assurance engagement over a long period of time and
the safeguards that might be appropriate to address such a threat. Accordingly, the firm
should establish policies and procedures:

(a) Setting out criteria for determining the need for safeguards to reduce the familiarity
threat to an acceptable level when using the same senior personnel on an assurance
engagement over a long period of time; and
(b) For all audits of financial statements of listed entities, requiring the rotation of the
engagement partner after a specified period in compliance with the Philippine Code.

26. Using the same senior personnel on assurance engagements over a prolonged
period may create a familiarity threat or otherwise impair the quality of performance of
the engagement. Therefore, the firm establishes criteria for determining the need for
safeguards to address this threat. In determining appropriate criteria, the firm considers
such matters as (a) the nature of the engagement, including the extent to which it
involves a matter of public interest, and (b) the length of service of the senior personnel
on the engagement. Examples of safeguards include rotating the senior personnel or
requiring an engagement quality control review.

27. The Philippine Code recognizes that the familiarity threat is particularly relevant in
the context of financial statement audits of listed entities. For these audits, the
Philippine Code requires the rotation of the engagement partner after a predefined
period, normally no more than five years, and provides related standards and guidance.

Acceptance and Continuance of Client Relationships and Specific Engagements

28. The firm should establish policies and procedures for the acceptance and
continuance of client relationships and specific engagements, designed to provide it with
reasonable assurance that it will only undertake or continue relationships and
engagements where it:

(a) Has considered the integrity of the client and does not have information that would
lead it to conclude that the client lacks integrity;
(b) Is competent to perform the engagement and has the capabilities, time and
resources to do so; and
(c) Can comply with ethical requirements.

The firm should obtain such information as it considers necessary in the circumstances
before accepting an engagement with a new client, when deciding whether to continue
an existing engagement, and when considering acceptance of a new engagement with
an existing client. Where issues have been identified, and the firm decides to accept or
continue the client relationship or a specific engagement, it should document how the
issues were resolved.

29. With regard to the integrity of a client, matters that the firm considers include, for
example:

The identity and business reputation of the clients principal owners, key
management, related parties and those charged with its governance.
The nature of the clients operations, including its business practices.
Information concerning the attitude of the clients principal owners, key
management and those charged with its governance towards such matters as
aggressive interpretation of accounting standards and the internal control environment.
Whether the client is aggressively concerned with maintaining the firms fees as low
as possible.
Indications of an inappropriate limitation in the scope of work.
Indications that the client might be involved in money laundering or other criminal
activities.
The reasons for the proposed appointment of the firm and non-reappointment of the
previous firm.

The extent of knowledge a firm will have regarding the integrity of a client will generally
grow within the context of an ongoing relationship with that client.
30. Information on such matters that the firm obtains may come from, for example:

Communications with existing or previous providers of professional accountancy

services to the client in accordance with the Philippine Code, and discussions with
other third parties.
Inquiry of other firm personnel or third parties such as bankers, legal counsel and
industry peers.
Background searches of relevant databases.

31. In considering whether the firm has the capabilities, competence, time and
resources to undertake a new engagement from a new or an existing client, the firm
reviews the specific requirements of the engagement and existing partner and staff
profiles at all relevant levels. Matters the firm considers include whether:
Firm personnel have knowledge of relevant industries or subject matters;
Firm personnel have experience with relevant regulatory or reporting requirements,
or the ability to gain the necessary skills and knowledge effectively;
The firm has sufficient personnel with the necessary capabilities and competence;
Experts are available, if needed;
Individuals meeting the criteria and eligibility requirements to perform engagement
quality control review are available, where applicable; and
The firm is able to complete the engagement within the reporting deadline.

32. The firm also considers whether accepting an engagement from a new or an
existing client may give rise to an actual or perceived conflict of interest. Where a
potential conflict is identified, the firm considers whether it is appropriate to accept the
engagement.
33. Deciding whether to continue a client relationship includes consideration of
significant matters that have arisen during the current or previous engagements, and
their implications for continuing the relationship. For example, a client may have started
to expand its business operations into an area where the firm does not possess the
necessary knowledge or expertise.
34. Where the firm obtains information that would have caused it to decline an
engagement if that information had been available earlier, policies and procedures on
the continuance of the engagement and the client relationship should include
consideration of:

(a) The professional and legal responsibilities that apply to the circumstances, including
whether there is a requirement for the firm to report to the person or persons who made
the appointment or, in some cases, to regulatory authorities; and
(b) The possibility of withdrawing from the engagement or from both the engagement
and the client relationship.

35. Policies and procedures on withdrawal from an engagement or from both the
engagement and the client relationship address issues that include the following:
 Discussing with the appropriate level of the clients management and those charged
with its governance regarding the appropriate action that the firm might take based
on the relevant facts and circumstances.
If the firm determines that it is appropriate to withdraw, discussing with the
appropriate level of the clients management and those charged with its governance
withdrawal from the engagement or from both the engagement and the client
relationship, and the reasons for the withdrawal.
Considering whether there is a professional, regulatory or legal requirement for the
firm to remain in place, or for the firm to report the withdrawal from the engagement,
or from both the engagement and the client relationship, together with the reasons
for the withdrawal, to regulatory authorities.
Documenting significant issues, consultations, conclusions and the basis for the
conclusions.

Human Resources

36. The firm should establish policies and procedures designed to provide it with
reasonable assurance that it has sufficient personnel with the capabilities, competence,
and commitment to ethical principles necessary to perform its engagements in
accordance with professional standards and regulatory and legal requirements, and to
enable the firm or engagement partners to issue reports that are appropriate in the
circumstances.

37. Such policies and procedures address the following personnel issues:

Recruitment;
Performance evaluation;
Capabilities;
Competence;
Career development;
Promotion;
Compensation; and
The estimation of personnel needs.

Addressing these issues enables the firm to ascertain the number and characteristics of
the individuals required for the firms engagements. The firms recruitment processes
include procedures that help the firm select individuals of integrity with the capacity to
develop the capabilities and competence necessary to perform the firms work.
38. Capabilities and competence are developed through a variety of methods, including
the following:

Professional education.
Continuing professional development, including training.
Work experience.
Coaching by more experienced staff, for example, other members of the
engagement team.

39. The continuing competence of the firms personnel depends to a significant extent
on an appropriate level of continuing professional development so that personnel
maintain their knowledge and capabilities. The firm therefore emphasizes in its policies
and procedures the need for continuing training for all levels of firm personnel, and
provides the necessary training resources and assistance to enable personnel to
develop and maintain the required capabilities and competence. Where internal
technical and training resources are unavailable, or for any other reason, the firm may
use a suitably qualified external person for that purpose.

40. The firms performance evaluation, compensation and promotion procedures give
due recognition and reward to the development and maintenance of competence and
commitment to ethical principles. In particular, the firm:

(a) Makes personnel aware of the firms expectations regarding performance and
ethical principles;
(b) Provides personnel with evaluation of, and counseling on, performance, progress
and career development; and
(c) Helps personnel understand that advancement to positions of greater responsibility
depends, among other things, upon performance quality and adherence to ethical
principles, and that failure to comply with the firms policies and procedures may result
in disciplinary action.

41. The size and circumstances of the firm will influence the structure of the firms
performance evaluation process. Smaller firms, in particular, may employ less formal
methods of evaluating the performance of their personnel.
Assignment of Engagement Teams

42. The firm should assign responsibility for each engagement to an engagement
partner. The firm should establish policies and procedures requiring that:

(a) The identity and role of the engagement partner are communicated to key members
of client management and those charged with governance;
(b) The engagement partner has the appropriate capabilities, competence, authority
and time to perform the role; and
(c) The responsibilities of the engagement partner are clearly defined and
communicated to that partner.

43. Policies and procedures include systems to monitor the workload and availability of
engagement partners so as to enable these individuals to have sufficient time to
adequately discharge their responsibilities.
44. The firm should also assign appropriate staff with the necessary capabilities,
competence and time to perform engagements in accordance with professional
standards and regulatory and legal requirements, and to enable the firm or engagement
partners to issue reports that are appropriate in the circumstances.

45. The firm establishes procedures to assess its staffs capabilities and competence.
The capabilities and competence considered when assigning engagement teams, and in
determining the level of supervision required, include the following:

An understanding of, and practical experience with, engagements of a similar

nature and complexity through appropriate training and participation.
An understanding of professional standards and regulatory and legal requirements.
 Appropriate technical knowledge, including knowledge of relevant information
technology.
Knowledge of relevant industries in which the clients operate.
Ability to apply professional judgment.
An understanding of the firms quality control policies and procedures.

Engagement Performance

46. The firm should establish policies and procedures designed to provide it with
reasonable assurance that engagements are performed in accordance with professional
standards and regulatory and legal requirements, and that the firm or the engagement
partner issue reports that are appropriate in the circumstances.

47. Through its policies and procedures, the firm seeks to establish consistency in the
quality of engagement performance. This is often accomplished through written or
electronic manuals, software tools or other forms of standardized documentation, and
industry or subject matter-specific guidance materials. Matters addressed include the
following:

How engagement teams are briefed on the engagement to obtain an understanding

of the objectives of their work.
Processes for complying with applicable engagement standards.
Processes of engagement supervision, staff training and coaching.
Methods of reviewing the work performed, the significant judgments made and the
form of report being issued.
Appropriate documentation of the work performed and of the timing and extent of
the review.
Processes to keep all policies and procedures current.

48. It is important that all members of the engagement team understand the objectives
of the work they are to perform. Appropriate team-working and training are necessary to
assist less experienced members of the engagement team to clearly understand the
objectives of the assigned work.

49. Supervision includes the following:

Tracking the progress of the engagement.

Considering the capabilities and competence of individual members of the
engagement team, whether they have sufficient time to carry out their work, whether
they understand their instructions and whether the work is being carried out in
accordance with the planned approach to the engagement.
Addressing significant issues arising during the engagement, considering their
significance and modifying the planned approach appropriately.
Identifying matters for consultation or consideration by more experienced
engagement team members during the engagement.

50. Review responsibilities are determined on the basis that more experienced
engagement team members, including the engagement partner, review work performed
by less experienced team members. Reviewers consider whether:
(a) The work has been performed in accordance with professional standards and
regulatory and legal requirements;
(b) Significant matters have been raised for further consideration;
(c) Appropriate consultations have taken place and the resulting conclusions have
been documented and implemented;
(d) There is a need to revise the nature, timing and extent of work performed;
(e) The work performed supports the conclusions reached and is appropriately
documented;
(f) The evidence obtained is sufficient and appropriate to support the report; and
(g) The objectives of the engagement procedures have been achieved.

Consultation

51. The firm should establish policies and procedures designed to provide it with
reasonable assurance that:

(a) Appropriate consultation takes place on difficult or contentious matters;

(b) Sufficient resources are available to enable appropriate consultation to take place;
(c) The nature and scope of such consultations are documented; and
(d) Conclusions resulting from consultations are documented and implemented.

52. Consultation includes discussion, at the appropriate professional level, with

individuals within or outside the firm who have specialized expertise, to resolve a difficult
or contentious matter.

53. Consultation uses appropriate research resources as well as the collective

experience and technical expertise of the firm. Consultation helps to promote quality and
improves the application of professional judgment. The firm seeks to establish a culture
in which consultation is recognized as a strength and encourages personnel to consult
on difficult or contentious matters.

54. Effective consultation with other professionals requires that those consulted be
given all the relevant facts that will enable them to provide informed advice on technical,
ethical or other matters. Consultation procedures require consultation with those having
appropriate knowledge, seniority and experience within the firm (or, where applicable,
outside the firm) on significant technical, ethical and other matters, and appropriate
documentation and implementation of conclusions resulting from consultations.

55. A firm needing to consult externally, for example, a firm without appropriate internal
resources, may take advantage of advisory services provided by (a) other firms, (b)
professional and regulatory bodies, or (c) commercial organizations that provide
relevant quality control services. Before contracting for such services, the firm
considers whether the external provider is suitably qualified for that purpose.

56. The documentation of consultations with other professionals that involve difficult or
contentious matters is agreed by both the individual seeking consultation and the
individual consulted. The documentation is sufficiently complete and detailed to enable
an understanding of:

(a) The issue on which consultation was sought; and

(b) The results of the consultation, including any decisions taken, the basis for those
decisions and how they were implemented.

Differences of Opinion

57. The firm should establish policies and procedures for dealing with and resolving
differences of opinion within the engagement team, with those consulted and, where
applicable, between the engagement partner and the engagement quality control
reviewer. Conclusions reached should be documented and implemented.

58. Such procedures encourage identification of differences of opinion at an early

stage, provide clear guidelines as to the successive steps to be taken thereafter, and
require documentation regarding the resolution of the differences and the
implementation of the conclusions reached. The report should not be issued until the
matter is resolved.

59. A firm using a suitably qualified external person to conduct an engagement quality
control review recognizes that differences of opinion can occur and establishes
procedures to resolve such differences, for example, by consulting with another
practitioner or firm, or a professional or regulatory body.

Engagement Quality Control Review

60. The firm should establish policies and procedures requiring, for appropriate
engagements, an engagement quality control review that provides an objective
evaluation of the significant judgments made by the engagement team and the
conclusions reached in formulating the report. Such policies and procedures should:

(a) Require an engagement quality control review for all audits of financial statements
of listed entities;
(b) Set out criteria against which all other audits and reviews of historical financial
information, and other assurance and related services engagements should be
evaluated to determine whether an engagement quality control review should be
performed; and
(c) Require an engagement quality control review for all engagements meeting the
criteria established in compliance with sub-paragraph (b).

61. The firms policies and procedures should require the completion of the
engagement quality control review before the report is issued.

62. Criteria that a firm considers when determining which engagements other than
audits of financial statements of listed entities are to be subject to an engagement
quality control review include the following:
 The nature of the engagement, including the extent to which it involves a matter of
public interest.
The identification of unusual circumstances or risks in an engagement or class of
engagements.
Whether laws or regulations require an engagement quality control review.

63. The firm should establish policies and procedures setting out:

(a) The nature, timing and extent of an engagement quality control review;
(b) Criteria for the eligibility of engagement quality control reviewers; and
(c) Documentation requirements for an engagement quality control review.

Nature, Timing and Extent of the Engagement Quality Control Review

64. An engagement quality control review ordinarily involves discussion with the
engagement partner, a review of the financial statements or other subject matter
information and the report, and, in particular, consideration of whether the report is
appropriate. It also involves a review of selected working papers relating to the
significant judgments the engagement team made and the conclusions they reached.
The extent of the review depends on the complexity of the engagement and the risk that
the report might not be appropriate in the circumstances. The review does not reduce
the responsibilities of the engagement partner.

65. An engagement quality control review for audits of financial statements of listed
entities includes considering the following:

The engagement teams evaluation of the firms independence in relation to the

specific engagement.
Significant risks identified during the engagement and the responses to those risks.
Judgments made, particularly with respect to materiality and significant risks.
Whether appropriate consultation has taken place on matters involving differences
of opinion or other difficult or contentious matters, and the conclusions arising from
those consultations.
The significance and disposition of corrected and uncorrected misstatements
identified during the engagement.
The matters to be communicated to management and those charged with
governance and, where applicable, other parties such as regulatory bodies.
Whether working papers selected for review reflect the work performed in relation to
the significant judgments and support the conclusions reached.
The appropriateness of the report to be issued.

Engagement quality control reviews for engagements other than audits of financial
statements of listed entities may, depending on the circumstances, include some or all
of these considerations.

66. The engagement quality control reviewer conducts the review in a timely manner at
appropriate stages during the engagement so that significant matters may be promptly
resolved to the reviewers satisfaction before the report is issued.
67. Where the engagement quality control reviewer makes recommendations that the
engagement partner does not accept and the matter is not resolved to the reviewers
satisfaction, the report is not issued until the matter is resolved by following the firms
procedures for dealing with differences of opinion.

Criteria for the Eligibility of Engagement Quality Control Reviewers

68. The firms policies and procedures should address the appointment of engagement
quality control reviewers and establish their eligibility through:

(a) The technical qualifications required to perform the role, including the necessary
experience and authority; and
(b) The degree to which an engagement quality control reviewer can be consulted on
the engagement without compromising the reviewers objectivity.

69. The firms policies and procedures on the technical qualifications of engagement
quality control reviewers address the technical expertise, experience and authority
necessary to perform the role. What constitutes sufficient and appropriate technical
expertise, experience and authority depends on the circumstances of the engagement.
In addition, the engagement quality control reviewer for an audit of the financial
statements of a listed entity is an individual with sufficient and appropriate experience
and authority to act as an audit engagement partner on audits of financial statements of
listed entities.

70. The firms policies and procedures are designed to maintain the objectivity of the
engagement quality control reviewer. For example, the engagement quality control
reviewer:

(a) Is not selected by the engagement partner;

(b) Does not otherwise participate in the engagement during the period of review;
(c) Does not make decisions for the engagement team; and
(d) Is not subject to other considerations that would threaten the reviewers objectivity.

71. The engagement partner may consult the engagement quality control reviewer
during the engagement. Such consultation need not compromise the engagement
quality control reviewers eligibility to perform the role. Where the nature and extent of
the consultations become significant, however, care is taken by both the engagement
team and the reviewer to maintain the reviewers objectivity. Where this is not possible,
another individual within the firm or a suitably qualified external person is appointed to
take on the role of either the engagement quality control reviewer or the person to be
consulted on the engagement. The firms policies provide for the replacement of the
engagement quality control reviewer where the ability to perform an objective review
may be impaired.

72. Suitably qualified external persons may be contracted where sole practitioners or
small firms identify engagements requiring engagement quality control reviews.
Alternatively, some sole practitioners or small firms may wish to use other firms to
facilitate engagement quality control reviews. Where the firm contracts suitably qualified
external persons, the firm follows the requirements and guidance in paragraphs 68-71.
Documentation of the Engagement Quality Control Review

73. Policies and procedures on documentation of the engagement quality control review
should require documentation that:

(a) The procedures required by the firms policies on engagement quality control review
have been performed;
(b) The engagement quality control review has been completed before the report is
issued; and
(c) The reviewer is not aware of any unresolved matters that would cause the reviewer
to believe that the significant judgments the engagement team made and the
conclusions they reached were not appropriate.

Monitoring

74. The firm should establish policies and procedures designed to provide it with
reasonable assurance that the policies and procedures relating to the system of quality
control are relevant, adequate, operating effectively and complied with in practice. Such
policies and procedures should include an ongoing consideration and evaluation of the
firms system of quality control, including a periodic inspection of a selection of
completed engagements.

75. The purpose of monitoring compliance with quality control policies and procedures
is to provide an evaluation of:

(a) Adherence to professional standards and regulatory and legal requirements;

(b) Whether the quality control system has been appropriately designed and effectively
implemented; and
(c) Whether the firms quality control policies and procedures have been appropriately
applied, so that reports that are issued by the firm or engagement partners are
appropriate in the circumstances.

76. The firm entrusts responsibility for the monitoring process to a partner or partners or
other persons with sufficient and appropriate experience and authority in the firm to
assume that responsibility. Monitoring of the firms system of quality control is
performed by competent individuals and covers both the appropriateness of the design
and the effectiveness of the operation of the system of quality control.

77. Ongoing consideration and evaluation of the system of quality control includes
matters such as the following:

Analysis of:
- New developments in professional standards and regulatory and legal
requirements, and how they are reflected in the firms policies and procedures where
appropriate;
- Written confirmation of compliance with policies and procedures on independence;
- Continuing professional development, including training; and
- Decisions related to acceptance and continuance of client relationships and specific
engagements.
Determination of corrective actions to be taken and improvements to be made in the
system, including the provision of feedback into the firms policies and procedures
relating to education and training.
Communication to appropriate firm personnel of weaknesses identified in the
system, in the level of understanding of the system, or compliance with it.
Follow-up by appropriate firm personnel so that necessary modifications are
promptly made to the quality control policies and procedures.

78. The inspection of a selection of completed engagements is ordinarily performed on

a cyclical basis. Engagements selected for inspection include at least one engagement
for each engagement partner over an inspection cycle, which ordinarily spans no more
than three years. The manner in which the inspection cycle is organized, including the
timing of selection of individual engagements, depends on many factors, including the
following:

The size of the firm.

The number and geographical location of offices.
The results of previous monitoring procedures.
The degree of authority both personnel and offices have (for example, whether
individual offices are authorized to conduct their own inspections or whether only
the head office may conduct them).
The nature and complexity of the firms practice and organization.
The risks associated with the firms clients and specific engagements.

79. The inspection process includes the selection of individual engagements, some of
which may be selected without prior notification to the engagement team. Those
inspecting the engagements are not involved in performing the engagement or the
engagement quality control review. In determining the scope of the inspections, the firm
may take into account the scope or conclusions of an independent external inspection
program. However, an independent external inspection program does not act as a
substitute for the firms own internal monitoring program.

80. Small firms and sole practitioners may wish to use a suitably qualified external
person or another firm to carry out engagement inspections and other monitoring
procedures. Alternatively, they may wish to establish arrangements to share resources
with other appropriate organizations to facilitate monitoring activities.

81. The firm should evaluate the effect of deficiencies noted as a result of the
monitoring process and should determine whether they are either:

(a) Instances that do not necessarily indicate that the firms system of quality control is
insufficient to provide it with reasonable assurance that it complies with professional
standards and regulatory and legal requirements, and that the reports issued by the firm
or engagement partners are appropriate in the circumstances; or
(b) Systemic, repetitive or other significant deficiencies that require prompt corrective
action.
82. The firm should communicate to relevant engagement partners and other
appropriate personnel deficiencies noted as a result of the monitoring process and
recommendations for appropriate remedial action.
83. The firms evaluation of each type of deficiency should result in recommendations
for one or more of the following:

(a) Taking appropriate remedial action in relation to an individual engagement or

member of personnel;
(b) The communication of the findings to those responsible for training and professional
development;
(c) Changes to the quality control policies and procedures; and
(d) Disciplinary action against those who fail to comply with the policies and procedures
of the firm, especially those who do so repeatedly.

84. Where the results of the monitoring procedures indicate that a report may be
inappropriate or that procedures were omitted during the performance of the
engagement, the firm should determine what further action is appropriate to comply with
relevant professional standards and regulatory and legal requirements. It should also
consider obtaining legal advice.

85. At least annually, the firm should communicate the results of the monitoring of its
quality control system to engagement partners and other appropriate individuals within
the firm, including the firms chief executive officer or, if appropriate, its managing board
of partners. Such communication should enable the firm and these individuals to take
prompt and appropriate action where necessary in accordance with their defined roles
and responsibilities. Information communicated should include the following:

(a) A description of the monitoring procedures performed.

(b) The conclusions drawn from the monitoring procedures.
(c) Where relevant, a description of systemic, repetitive or other significant deficiencies
and of the actions taken to resolve or amend those deficiencies.

86. The reporting of identified deficiencies to individuals other than the relevant
engagement partners ordinarily does not include an identification of the specific
engagements concerned, unless such identification is necessary for the proper
discharge of the responsibilities of the individuals other than the engagement partners.

87. Some firms operate as part of a network and, for consistency, may implement some
or all of their monitoring procedures on a network basis. Where firms within a network
operate under common monitoring policies and procedures designed to comply with this
PSQC, and these firms place reliance on such a monitoring system:

(a) At least annually, the network communicates the overall scope, extent and results of
the monitoring process to appropriate individuals within the network firms;
(b) The network communicates promptly any identified deficiencies in the quality
control system to appropriate individuals within the relevant network firm or firms so that
the necessary action can be taken; and
(c) Engagement partners in the network firms are entitled to rely on the results of the
monitoring process implemented within the network, unless the firms or the network
advises otherwise.

88. Appropriate documentation relating to monitoring:

(a) Sets out monitoring procedures, including the procedure for selecting completed
engagements to be inspected;
(b) Records the evaluation of:
(i) Adherence to professional standards and regulatory and legal requirements;
(ii) Whether the quality control system has been appropriately designed and
effectively implemented; and
(iii) Whether the firms quality control policies and procedures have been
appropriately applied, so that reports that are issued by the firm or engagement
partners are appropriate in the circumstances; and
(c) Identifies the deficiencies noted, evaluates their effect, and sets out the basis for
determining whether and what further action is necessary.

Complaints and Allegations

89. The firm should establish policies and procedures designed to provide it with
reasonable assurance that it deals appropriately with:

(a) Complaints and allegations that the work performed by the firm fails to comply with
professional standards and regulatory and legal requirements; and
(b) Allegations of non-compliance with the firms system of quality control.

90. Complaints and allegations (which do not include those that are clearly frivolous)
may originate from within or outside the firm. They may be made by firm personnel,
clients or other third parties. They may be received by engagement team members or
other firm personnel.

91. As part of this process, the firm establishes clearly defined channels for firm
personnel to raise any concerns in a manner that enables them to come forward without
fear of reprisals.

92. The firm investigates such complaints and allegations in accordance with
established policies and procedures. The investigation is supervised by a partner with
sufficient and appropriate experience and authority within the firm but who is not
otherwise involved in the engagement, and includes involving legal counsel as
necessary. Small firms and sole practitioners may use the services of a suitably
qualified external person or another firm to carry out the investigation. Complaints,
allegations and the responses to them are documented.

93. Where the results of the investigations indicate deficiencies in the design or
operation of the firms quality control policies and procedures, or noncompliance with the
firms system of quality control by an individual or individuals, the firm takes appropriate
action as discussed in paragraph 83.
Documentation

94. The firm should establish policies and procedures requiring appropriate
documentation to provide evidence of the operation of each element of its system of
quality control.

95. How such matters are documented is the firms decision. For example, large firms
may use electronic databases to document matters such as independence
confirmations, performance evaluations and the results of monitoring inspections.
Smaller firms may use more informal methods such as manual notes, checklists and
forms.

96. Factors to consider when determining the form and content of documentation
evidencing the operation of each of the elements of the system of quality control include
the following:
The size of the firm and the number of offices.
The degree of authority both personnel and offices have.
The nature and complexity of the firms practice and organization.

97. The firm retains this documentation for a period of time sufficient to permit those
performing monitoring procedures to evaluate the firms compliance with its system of
quality control, or for a longer period if required by law or regulation.

Effective Date

98. Systems of quality control in compliance with this PSQC are required to be
established by June 15, 2006. Firms consider the appropriate transitional arrangements
for engagements in process at that date.

Acknowledgment

99. This PSQC is based on International Standard on Quality Control (ISQC) 1,

Quality Control for Firms that Performs Audits and Reviews of Historical Financial
Information, and Other Assurance and Related Services Engagements, issued by the
International Auditing and Assurance Standards Board.

100. There are no significant differences between this PSA and ISQC 1 except for
the deletion of paragraphs 2 and 4 under Public Sector Perspective.
E. Peer Regulation

Members of the public accounting profession often describe regulation of the

public accounting profession as self-regulation.

Self-regulation implies that CPAs regulate themselves rather than relying on

outside bodies to regulate the profession. CPAs prefer self-regulation over some
other form of regulation because CPAs believe that outsiders so not fully
understand the profession and the appropriate standards that should be applied.

Services of a CPA in Public Practice

I. Assurance Engagements
A. Audits
1. Independent Financial Statements Audit
2. Other Audit Engagement (e.g., internal audit, special audit)
B. Reviews
1. Review of Financial Statements
2. Other Review Engagements (e.g., debtor's compliance with loan
covenants, review of internal control)
C. Other Assurance Engagements
(e.g.-commerce assurance services, business performance
measurement)
II. Non-Assurance Engagements
A. Agreed- upon Procedures
B. Compilation of Financial and Other Information
C. Preparation of Tax Return
D. Management Consulting
E. Other Advisory Services

F. Core Competencies Required in the Public Accounting Profession

Competencies include both what individual auditors know and what individual
and audit teams do. Competencies are evidenced by auditors applying their skills in
the delivery of services to clients or supporting the delivery of those services.

High Opportunity - competencies have a high likelihood of being building blocks for
selling or delivering new assurance services.

Low Opportunity - competencies, while important to the delivery of current

assurance services, are less likely to be exploited in the development of future
services.

Description of Individual Competencies

1. Analytical skills: includes the following tasks and component skills:
Research skills
Analysing commercial and financial data
Systems analysis and review
Using sophisticated analytic models in support of audit judgment
Using industry specific data bases in the audit
Using extra- organizational information in the audit
Organizational analysis of functions and of structures
Seeing anomalies and recognizing their implications
Knowing what should be there and sensing what is not there.

2. Business Advisory Skills: Helping clients think through the implications of critical
business issues, create innovative ideas, decide the action steps, and implement
those steps.

3. Business Knowledge: Broad base of knowledge concerning macro environmental,

economic, and industry issues business-process structures, functions, and
practices; the implications of these matters - including the inherent opportunities
and risks into client's businesses. Includes understanding how organizational
design and incentive systems affect organizational performance and attainment
of goals. Includes knowledge of best practices, business analysis, and control
practices.

4. Capacity for Work: Demonstrates a strong work ethic; responds well to pressure.

5. Comprehension of Client's Business Processes: Understanding how business

processes affect clients' business throughout the value creating chain of their
industries; how processes link clients' people, critical business activities and
goals; and how they can be continuously improved. Includes understanding of how
clients run their businesses and create value, who their customers are and what
they want, who their competitors are and the key competitive risks they present,
what the client's business strategy is, and the information needed to implement
that strategy.

6. Communication skills: Expresses thoughts clearly and succinctly, both orally and in
writing; skilfully tailors communications for different audiences; listens well and
effectively; contributes to discussions; makes technical points understandable;
demonstrates ability to negotiate effectively; displays ability to think on his/her
feet.

7. Efficiency: Demonstrates strong organizational skills; manages time well;

leverages staff well; uses technology to improve efficiency.

8. Intellectual Capability:
Challenges conventional thinking
Conceptual thinking
Diagnostic thinking
Evaluative thinking
 Forward thinking
Imagination
Information seeking
Systematic thinking

9. Learning and Rejuvenation: Creating mechanisms to learn from the environment,

clients, competitors, and worked performed; and through this learning,
continuously improve services, client relationships, and internal processes;
includes self-awareness and development, accurately assessing ones
capabilities and limitations in order to improve effectiveness, and then taking
proactive steps to develop.

10. Marketing and Selling: Includes the following components skills:

Having credentials as an expert resource in a relevant industry/
marketplace.
Developing proposals
Expanding value-added services to existing clients
Asking open-minded questions (issues and needs)
Developing a network of contacts and relationships
Making initial contact and qualifying client interest.
Closing sales.

11. Model Building: The ability to identify and implement methods for qualifying
enterprise activities

12. People Development: Attracting, developing, motivating, and retaining high

quality human resources

13. Relationship management: The ability to create and maintain objective

relationships founded on trust; includes the following:
Understanding clients' needs, goals, and strategies
Measure performance for clients
Leveraging sting relationships through coordination and frequent contacts
with decision makers (financial and non-financial)
Establishing and maintaining credibility
Thoroughly understanding issues and considering alternatives, weighing
options, and assessing risks.

14. Responsiveness and Timeliness: Available when needed; willing to give clients
first priority; meets deadline

15. Technology: Technology competencies employed in current assurance services

include the following:
Using information technology: audit software, database systems,
spreadsheets
Applying auditing technologies and procedures
Mastering new information technology
Developing audit technologies for reducing audit risk and assessing
business risk.
 Adapting audit methodologies
Designing new audit technologies for systems analysis and evaluation
16. Verification: The ability to identify and implement methods to attest to
compliance with specified standards or criteria.

17. Accounting and Auditing Standards: Understanding of accounting and auditing

literature; familiarity with current technical developments; performing thorough
and accurate technical research.

18. Administrative Capability: Performing administrative responsibilities based on an

understanding of practice economics, financial management, staffing and
development, and other administrative matters; managing the elements of cost,
revenue, and profit to maximize the financial return on the engagement.

19. Managing Audit Risk: Understanding and applying risk management knowledge
and techniques in accepting and performing assurance engagements; differs
from understanding client business risks, which is encompassed in business
knowledge.

G. Management of Public Accounting Practice

Practice of Public Accountancy Defined

The Section 4 of the Philippine Accountancy Act of 2004 describes the

scope of the practice of public accountancy as follows:

Practice of Public Accountancy shall constitute in a person or as a partner

or as a staff member in an accounting or auditing firm, holding out
himself/herself as one skilled in the knowledge, science and practice of
accounting and as a qualified person to render professional services as a
certified public accountant; or offering or rendering, or both, to more than one
client on a fee basis or otherwise, services; or the preparation, signing, or
certification for clients of reports of audit, balance sheet and other financial,
accounting and related schedules, exhibits, statements or reports which are to
be used for different purposes; or the design, installation, and revision of the
accounting system; or the preparation of income tax returns when related to
accounting procedures; or when he/she represents clients before government
agencies on tax and other matters related to accounting or renders professional
assistance in other matters related to accounting procedures and the recording
and presentation of financial facts or data.

Article IV, Section 26 of the same law states that:

No person shall practice accountancy in this country, or use the title

Certified Public Accountant, or use the abbreviated CPA or display or use
any title, sign, card, advertisement, or other device to indicate that such person
practices or offers to practice accountancy, or is a certified public accountants,
unless such person shall have received from the Board a certificate of
registration/ professional license and be issued a professional identification
 card or a valid temporary/special permit duly issued to him or her by the Board
and the Commission.

1. Establishment and Operations of a Public Accounting Firm

Section 28 of the Philippine Accountancy Act of 2004 requires that single
practitioners and partnership for the practice of public accountancy shall be
registered certified public accountants in the Philippines: Provided, that from
the affectivity of this Act, a certificate of accreditation shall be issued to certified
public accountants in public practice only upon showing that such registrant
has acquired minimum of three (3) years meaningful experience in any of the
areas of public practice including taxation. Provide, further, that this
requirement shall not only apply to those already granted a certificate f
accreditation prior to the affectivity of this Act. The Securities and Exchange
Commission shall not register any corporation for the practice of public
accountancy.
A corporation is not allowed to engage in the practice of public accounting
in the Philippines and therefore the Securities and Exchange Commission shall
not register any corporation organized for the practice of public accountancy.

a. Registrations
Individual CPAs including the sole proprietors and the staff members thereof
and partnerships of CPAs including the partners and staff members re required to
register with the Board of Accountancy and the Professional Regulation
Commission and shall not commence the practice of public accountancy until a
valid Certificate of Registration has been issued to them in accordance with PRC
BOA Resolution No. 69, Series of 2002. The registration shall be valid for a period of
three (3) years and may be renewed every there (3) years on or before September on
the year of expiry upon compliance of the requirements provided in the revised rules
and regulations. The registration of applicants approved during any month of the year
shall expire on December 31 on the third year following its approval.
The application of registration shall contain such information as may be required
by the Board including, but not limited to the following matters:

(a.) Name of the Individual CPA Firm or Partnership. For individual CPA, he/she
shall do business under this registered name with the Board and the Commission
and as printed in his/her CPA certificate. For firms, they shall do business under
this respective duly registered and authorized Firm name appearing in the
registration documents issued by the Department of Trade and Industry (DTI) or any
other proper government office(s) and such firm name shall include the real name of
the sole proprietor as printed in his/her CPA certificate or other similar Firm names.
For the registered Partnership they shall do business under their respective
Partnership names as indicated in their current Articles of Partnership and
certificates of registration issued by the Securities and Exchange Commission
(SEC) or under the Partnership names as indicated in their current Articles of
Partnership in case of unregistered partnership. Or other similar Partnership names.
A CPA shall not practice under an individual, firm or partnership name which includes
any fictitious name, indicates specialization or is misleading as to type of organization
(proprietorship or partnership). The name of the successor partnership shall include
 the name(s) of one or more partners and one more current partner(s). A partner
surviving from death or withdrawal of all the other partners in a partnership may
continue to practice under the Partnership from not more than two (2) years after
becoming a sole proprietor.
(b.) Full Name of the Individual CPA, Sole Proprietor or Partners together with
the copy of his/her/their CPA Certificates and current professional identification card(s)
issued by the BOA and PRC.
(c.) Certified Copy of the Certificate of Registration issued by the SEC together
with the certified copy of the current Articles of Partnership for registered
partnership, or the certified copy of the Articles of Partnership for unregistered
partnership or certified copy of the certificate of registration of Firm name with the DTI
or other proper government agencies.
(d.) Complete Business and Postal Address, Telephone and/or facsimile
numbers, main address, website of principal office including branch(es), sub-
offices, if any.
(e.) Certified copies of all business permits issued by the local and/or national
government.
(f.) Certified copy of the document showing the correspondent relationship,
membership, or business dealings with foreign CPA firm(s).
(g.) Name(s) of staff member(s) who are CPAs together with a copy of
his/her/their CPA Certificate(s) and professional identification card(s) issued by the
Board and the Commission.
(h.) Change(s) if any, in the organization, structure and/or management of the
Individual CPA, Firm or Partnership from the last registration.
(i.) Certified copy of the Code of Good Governance of the individual CPAs, Firms
or Partnership.
(j.) Copy of the internal quality review procedures being implemented to ensure
compliance with the professional, ethical and technical standards required of the
practice of public accountancy.
(k.) Sworn statement by the individual CPA, sole proprietor of the firm and the
managing partner of the Partnership stating that the Individual CPA, the sole
proprietor, all the partners and the staff had a meaningful participation in their
respective internal quality review process and had undergone adequate and
effective training to ensure professional, ethical and technical standards practice of
a public accountancy.
(l.) Sworn statement by the individual CPA, sole proprietor of the firm and the
managing partner of the Partnership stating that the Individual CPA, the sole
proprietor, all the partners and the staff has (have) at least three (3) years of
meaningful experience in the scope of work covered in the practice of public
accountancy.
(m.) Sworn statement by the individual CPA, sole proprietor of the firm and the
managing partner of the Partnership stating that the Individual CPA, the sole
proprietor, all the partners and the staff are all of good moral character and he/she
or they had not been found guilty by a competent court and/or administrative body of
any case involving moral turpitude and/or unethical practices. However, if any case
of such nature, the applicant Individual CPA, firm or partnership shall attach to the
 application for a registration an sworn statement stating that the aforesaid
defendant(s) has a valid and material defence and specify them so accordingly in
the sworn statement for the information and consideration by the Board and the
Commission.
Representation Letter to SEC
A CPA in public accounting practice should file with the Securities and
Exchange Commission a representation letter for audit clients he has which are
required to file with the said government agency their financial statements.

b. Sources of Cients

The Code of Ethics prohibits solicitation by CPAs. The CPA however may
count on the following as his possible sources clients:
1.) Referrals from businessmen through active participation in civic and
community affairs.
2.) Referrals from clients by maintaining his integrity and rendering prompt
and effort services to them.
3.) Referrals from financial and government institutions by keeping his
standards high.
4.) Referrals from other CPAs by active involvement in professional
organizations of CPAs.
5.) Referrals from legal and professional firms.

c. Professional fees and Methods of billing

The CPA in public practice shall comply with the provision of Section
10 of the Code of Ethics. Wherein public accountants in public practice who
undertake professional services for a client, assume the responsibility to
perform such services with integrity and objectivity and in accordance with the
appropriate technical standards. For the services rendered, the professional
accountant in public practice is entitled to remuneration.

Professional Fees
Professional fees should be a fair of the value of the professional
services performed for the client, taking into account:
(a.) The skill and knowledge required for the type of professional services
involve.
(b.) The level of training and experience of the persons necessarily
engaged in performing the professional services.
(c.) The time necessarily occupied by each person engaged in performing
the professional services.
(d.) The degree of responsibility that performing those services entails.
Professional fees should normally be computed on the basis of
appropriate rates per hour or per day for the time of each person engaged in
performing professional services. These rate should be based on the
fundamental premise that the organization and conduct of the professional
accountant in public practice and the services provided to clients are well
planned, controlled and managed.
 A professional accountant in public practice should not make a
representation that specific professional services in current or future periods will
be performed for either a stated fees, estimated fees, or fee range if its likely at
the time of the representation that such fees will be substantially increased and
the prospective client is not advised of that likelihood.
It is not improper for a professional accountant in public practice to
charge a client a lower fee than the previously been charged for similar
services, provided the fee has been calculated in accordance with the factors to
compute the fee.

Contingent Fee
The provisions of the Code of Ethics on Fees and Pricing, Section 8,
paragraph 203 to 209 discuss the ethical implications of the size of fees,
overdue fees, significantly lower fees than the normal levels and contingent
fees.
An assurance engagement should not be performed for a fee that is
contingent on the result of the assurance work o on items that are the subject
matter of the assurance engagement.
Fees should not be regarded as being contingent if fixed by a court or other
public authority. Fees charged on a percentage or similar basis, except when
authorized by statute or approved by a member body as generally accepted
practice for certain professional services, should be regarded as contingent
fee.

Methods of Billing Clients

The CPA can collect the professional fees using any of the following basis:
1. Actual time charges basis or Per Diem Basis
2. Flat or Fixed Fee Basis
3. Maximum Fee Basis
4. Retainer Basis

Organization of CPA Firms

Public accounting firms are usually organized as sole proprietorship or partnership.
Whatever the legal form of organization, the hierarchy in the public accounting firm
usually includes partners, managers, or supervisors, in-charge auditors (sometimes
called senior and staff auditors). Although the titles of these positions vary from firm to
firm, the structures is substantially present in all firms.
Usually in a CPA firm, there are fewer partners than managers and senior
accountants and fewer senior accountants than staff. Assistants or staffs spend two or
three years in each classification before achieving partner status. Promotions are made
from within and direct entry into a firm at a rank above staff rarely occurs.
The following describes the auditing positions and tasks in a public accounting firm:
Audit Partner
Audit partner are concerned about the overall quality of each audit. An audit
partner signs the audit report, accepting ultimate responsibility for each audit, and is
generally involved in maintaining client relationship, planning audits, and evaluating the
audit findings. Audit partners have ultimate responsibility for resolving technical matters,
such as application of accounting principles or which auditing procedures are to be
performed.
Among the specific duties of a partner are:

1. To plan and review all phases of an audit engagement.

2. To sign the audit report.
3. To approve the firms billing to the client.
4. To obtain/establish contracts with clients.
5. To determine office operating policies.

Audit Manager/ Supervisor

An audit manager administers important aspects of audit engagements, scheduling
the audit work to be done with client personnel assigning work to audit staff, supervising
staff, and reviewing staff work. Audit managers are often responsible for controlling staff
time and overseeing billing and collections. They must keep the audit partner apprised
of significant developments during the audit.

Among the specific tasks of a manager or supervisor are:

1. To act as liaison officer between partners and other members of the staff.
2. To discuss with the client problems that may arise in the course of the audit.
3. To exercise direct supervision on seniors in charge of specific audit
engagements.
4. To review working papers and drafts of audit report.
5. To discuss reports and results of audit with clients.
6. To take direct charge of training programs.

In-Charge (Senior) Auditor

In-charge auditors work under the direction of audit managers and assist them in
administering the audit. They generally participate in audit planning and provide direct
supervision to staff auditors. They also review work performed by staff auditors and
summarize audit findings for the audit partner to review.

Among the specific duties of an in-charge (senior) auditors are:

1. To prepare the audit program for an engagement subject to review by the

partner, principal or supervisor.
2. To assign particular phases of the audit work to staff and to exercise direct
supervision over them.
3. To perform certain audit procedures requiring skill and experience such as:
a) Hgbof incorporation, by-laws, and other nonfinancial records.
b) Verification of assets and liabilities and the basis of valuation.
c) Comparison of the current periods operating results with that of the
preceding year or years for the purpose of noting and investigating any
unusual variations.
d) Examination of adequacy of allowances for depreciation, bad debts,
provision for income taxes, etc.
 4. To take up with the client or with the partner or principal, problems or questions
that arise in the course of the audit.
5. To assemble the working papers in an audit, and prepare a draft of the report
and financial statements for review and approval by the partner or supervisor.

Staff Auditor
Staff auditors perform various audit procedures and gather audit evidence to use
as a basis for the audit reports. They may perform procedures that relate to a variety of
aspects of a clients activities. For example, one staff auditor might test payroll, the
value of inventory, or whether all accounts payable are recorded. Another staff auditor
might test internal control procedures over cash payments and test cash balances.

Among the specific tasks of staff auditors are:

1. To prepare schedules and reports of findings.

2. To work on tax returns.
3. To check the accuracy of footings and extensions on books of accounts and
other records.
4. To check the postings of entries from the journals to the ledger.
5. To examine vouchers supporting minor disbursements.
6. Generally, to serve as an assistant.

Figure 1.1 Chart of the Organization of CPA

 d. Terms of Audit Engagement

The auditor shall agree the terms of the audit engagement with
management or those charged with governance, as appropriate. (Ref: Para.
A21)
Subject to paragraph 11, the agreed terms of the audit engagement shall
be recorded in an audit engagement letter or other suitable form of written
agreement and shall include:
(Ref: Para. A22-A25)

(a) The objective and scope of the audit of the financial statements;
(b) The responsibilities of the auditor;
(c) The responsibilities of management;
(d) Identification of the applicable financial reporting framework for the
preparation of the financial statements; and
(e) Reference to the expected form and content of any reports to be issued
by the auditor and a statement that there may be circumstances in
which a report may differ from its expected form and content.

If law or regulation prescribes in sufficient detail the terms of the audit

engagement referred to in paragraph 10, the auditor need not record them in a
written agreement, except for the fact that such law or regulation applies and
that management acknowledges and understands its responsibilities as set out
in paragraph 6(b). (Ref: Para. A22, A26-A27)
If law or regulation prescribes responsibilities of management similar to
those described in paragraph 6(b), the auditor may determine that the law or
regulation includes responsibilities that, in the auditors judgment, are
equivalent in effect to those set out in that paragraph. For such responsibilities
that are equivalent, the auditor may use the wording of the law or regulation to
describe them in the written agreement. For those responsibilities that are not
prescribed by law or regulation such that their effect is equivalent, the written
agreement shall use the description in paragraph 6(b). (Ref: Para. A26)

2. Acceptance and Retention of Audit Clients

Preliminary Considerations
Pre-engagement planning includes procedures that are employed before the
auditor begins to plan for the collection of evidential matter. It begins with evaluation
of the prospective client.
An auditors first consideration should be whether to accept the client. In
considering a new client, most firms follow these steps:
 I. Identify Potential Client
Many entities use the same auditor over an extended period of time and some
changes its auditors for some reasons such as the (a) to obtain a lower audit fee, (b) to
obtain new or additional services, (c) to avoid disagreements with the auditor, and (d) to
meet contractual obligations.
A potential client approached a CPA for a number of reasons: (a) recommendations
from others, (b) first-hand knowledge from other business, civic or professional contacts,
and (c) a firm literature sent to it.
Before finally accepting a potential client, an auditor should evaluate the
relationship between the auditor and the client, the audibility of the potential client and
the managements integrity.

II.Evaluate the Relationship Between Auditor and Potential Client

The auditor must determine whether any relationship the auditor and the auditors
firm have with the potential audit client violates the Code of Ethics for Professional
Accountants. The auditor also consider the (1) circumstances that might increase audit
risk or business risk and (2) the expertise and availability of the personnel to do the
audit.

III.Evaluate Auditability
The auditor must determine whether a potential client is auditable; that is, will the
auditor be able to accumulate sufficient, competent evidence to render an opinion on the
financial statements. The auditor should consider the (1) adequacy of accounting
records and (2) the quality of internal control.

IV.Evaluate Managements Integrity

A lack of management integrity may make audit risk so great that a cost-effective
audit cannot performed. The procedures that may be adopted are the following:
1) Review the companys financial statement.
2) Discuss the companys management with the predecessor auditor.
3) Discuss the companys management with the members of the financial community.
4) Consider engaging professionals/ investigators to evaluate the principals associated
with the prospective client.
5) Obtain credit reports when deemed necessary.

Communicating with the predecessor auditor is required because it is a critical

source of information about managements integrity. The potential successor auditor
should obtain permission from the client to authorize the predecessor auditor to respond
fully to the successors inquiries. If the client refuses or limits the responses, the
successor auditor should ask the client to explain.
The successor auditor is expected to make specific and reasonable inquiries
concerning to (1) the information that might bear on the integrity of management, (2)
disagreement with management as to accounting principles, auditing procedures, etc.
and (3) the predecessors understanding as to the reasons for the change in auditor.
Normally, the predecessor auditor should respond promptly and fully. However, unusual
circumstances such a pending litigations may result in limited reply.
 Once that the CPA determine (1) that its firm is independent and competent to do
the audit, (2) that the clients reputation is one of integrity, and (3) the appropriate
responses have been received, the auditor should request a preliminary conferences
with the client. At this conference the auditor and the client must agree on the following:
1. The specific services to be rendered.
2. The cooperation and work expected to be performed by the clients personnel.
3. Expected starting and completion dates of the engagement.
4. The possibility that the completion dates may be changed if unforeseen audit
problems arise if adequate cooperation from the clients personnel is not received.
5. The nature and limitation of the audit engagement.
6. The estimate of the fee to be charged for the engagement.

V.Prepare Engagement Letter

PSA 210, terms of Audit Engagement establishes standards and provides guidance on
agreeing the terms of the engagement with the client. Once the aforementioned issues
have been discussed to the satisfaction of both parties, the CPA then prepares an
engagement letter.

a. Engagement Letter
Engagement Letter is formal written agreement between the CPA firm and the client
for the conduct of the audit and related services.
An engagement letter is a written contract between an auditor and a client which
generally used (1) to minimize misunderstanding, (2) to alert the client as to the purpose
of the engagement and the role of the external auditor, and (3) to help minimize legal
liability for services neither contracted for nor performed.
The engagement letter documents and confirms the auditors acceptance of the
appointment, the objective and the scope of the audit, the extent of the auditors
responsibilities to the client, and the form of any reports.
It also states any restrictions to be imposed on the auditors work, deadlines for
completing the audit, assistance to be provided by the clients personnel in obtaining
records and documents and schedules to be prepared for the auditor. The engagement
letter is also means of informing the client that the auditor is not responsible for the
discovery of all acts of fraud.
The engagement letter should generally contain statements regarding:
1.The objective of the audit of financial statements.
2.Managements responsibility for the financial statements.
3.The scope of the audit, including reference to applicable legislation, regulations, or
pronouncements of professional bodies to which the auditor adheres.
4.The form of any reports or other communication of result of the engagement.
5.The fact that 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 misstatement may remain
undiscovered.
6.Unrestricted access to whatever records, documentation and other information
requested in connection with the audit.
7.Arrangements regarding the planning of the audit.
8.Expectation of receiving from management written confirmation concerning
representations made in connection with the audit.
9.Request from the client to confirm the terms of the engagement by acknowledging
receipt of the engagement letter.
10.Description of any other letters or reports the auditor expects to issue to the client.
11.Basis on which fees are computed and any billings arrangements.
12.Arrangements concerning the involvement of other auditors and experts in some
aspects of the audit.
13.Arrangements concerning the involvement of internal auditors and other client staff.
14.Arrangements to be made with the predecessor auditor, if any, in the case of an initial
audit.
15.Any restriction of the auditors liability when such possibility exists.
16.A reference to any further agreements between the auditor and the client.

b. Client Continuance
Auditors must not only decide whether to accept new clients; they also
should periodically review their list of current clients and remove those clients
the frim no longer wants to be associated with.
Reasons for discontinuing clients might include:
1. Evidence indicating a clients management may lack integrity;
2. Difficulty in working with client personnel;
3. Inability to negotiate an acceptable increase in the audit fee;
4. Client need for specialized services the current audit firm is unable or
unwilling to provide.

c. Recurring Audits
On recurring audits, the auditor shall assess whether circumstances
require the terms of the audit engagement to be revised and whether there is a
need to remind the entity of the existing terms of the audit engagement. (Ref:
Para. A28)
The auditor may decide not to send a new engagement letter each period.
However, the following factors may make it appropriate to send a new letter:
1. Any indication that the client misunderstands the objective and the scope of
the audit.
2. Any revised or special terms of the engagement.
3. A recent change in senior management, board of directors or ownership.
4. A significant change in nature or size of the clients business.
5. Legal requirements.

d. Acceptance of a Change in Engagement

 A request from the entity for the auditor to change the terms of the audit
engagement may result from a change in circumstances affecting the need for
the service, a misunderstanding as to the nature of an audit as originally
requested or a restriction on the scope of the audit engagement, whether
imposed by management or caused by other circumstances. The auditor
considers the justification given for the request, particularly the implications of a
restriction on the scope of the audit engagement.
A change in circumstances that affects the entitys requirements or a
misunderstanding concerning the nature of the service originally requested may
be considered a reasonable basis for requesting a change in the audit
engagement.
In contrast, a change may not be considered reasonable if it appears that
the change relates to information that is incorrect, incomplete or otherwise
unsatisfactory. An example might be where the auditor is unable to obtain
sufficient appropriate audit evidence regarding receivables and the entity asks
for the audit engagement to be changed to a review engagement to avoid a
qualified opinion or a disclaimer of opinion.

H. Managements Responsibility for Financial Reporting and the Role of the

Audit Committee

Recognizing managements responsibility for financial reporting and understanding

the role of audit that oversee financial reporting are critical to understand audit by
accounting practitioners.
The responsibility for adopting policies, maintaining adequate internal control and
making fair representation in the financial statements rest in the hands of management
rather than that of auditors.
The responsibility of management for the fairness for the representations in the
financial statement carries the privilege of determining with disclosures it considers
necessary. Although it is the managements responsibility to prepare the financial
statement, it is acceptable for the auditor to prepare a draft for the client. Should
management insist on financial statement disclosure that the auditor finds unacceptable,
the auditor can issue a qualified opinions or withdraw from engagement.

Auditors Responsibility
Audit standards require that an audit be designed to provide reasonable assurance
of detecting misstatements in financial statements. The audit must be planned and
performed with an attitude of professional skepticism.
The concept of reasonable assurance indicates that the auditor is neither an insurer
nor guarantor of the correctness of the financial statements. If the auditor is made
responsible for making the certain that all assertion in the statement were correct to the
centavo, evidence required and the cost of auditing would increase to such extent that
the audits will not be economically unacceptable.
Role of the Audit Committee
An audit committee is a selected number of members of a companys board of directors
whose responsibilities include helping auditors remain independent of management. It
usually of three to five members.
Audit committees generally strengthen the financial reporting process by performing
some or all of the following:
1. Nominate the public accounting firm to perform audit
2. Review the plans for the audit with the auditor
3. Oversee internal audit activities
4. Discuss disagreements between management and he auditor
5. Discuss major problems the auditor encounters in doing audit
6. Review financial statements and the auditors report upon completion of the
engagement
SEC endorses the use of audit committee but it does not require all public companies to
have one. Audit committees for larger companies are looked upon with favor by most
auditors, users and management.
Auditing standards require auditors to communicate certain matters related to the
conduct of the audit to those responsible for the oversight of the financial reporting
process. The communication may occur during the or shortly after the issuance of audit
report.
Matters to be communicated:
1. Auditors responsibility under generally accepted auditing standards
2. Selection of and changes in significant accounting policies and their application,
the method used to account for the significant unusual transactions and the
effect of significant accounting policies
3. Management judgments and accounting estimates,
4. Significant adjustments and proposed audit adjustments
5. Auditors responsibility for other info in the documents containing audited
statements
6. Disagreements with management about the application of accounting principles
to the entitys specific transactions, scope of the audit, disclosures in the financial
statements or the wording of the auditors report and whether the matter is
satisfactorily resolved
7. Consulting other accountants about accounting or auditing matters that
management has had
8. Major issues discussed with management prior to retention of the auditor
9. Difficulties encountered in performance
I. Auditing in a Globalized Environment
Companies engaged in foreign business requiring funds in foreign market seek the
services of auditors in foreign country to audit their financial statements and report to
them. In the USA and many European countries, a big number of businesses have
foreign business activities and auditors should therefore be familiar with accounting and
auditing practices throughout the world.
While differing traditions and experiences led to the development of alternative
financial reporting models, the pressure for intensified development in the global
environment have been evident as the needs for the ever-changing economy demand
international harmonization.
The complexity of conducting international business operations across national
borders, each with a different set of business regulations, tax rules and often different
accounting methods presents a daunting challenge for accountants and professional
bodies that establish accounting and auditing rules. The globalization of capital markets
has also contributed to the need to address harmonization of financial reporting
requirement. The International Accounting Standards Committee (IASC) is tasked to
accomplish the harmony.
Public accounting firms have found that to retain their multinational clients they
have to develop the capacity to provide services worldwide. The largest firms have
organized worldwide partnership to achieve greater uniformity of quality, to facilitate
management of personnel and to coordinate research and professional development of
personnel.