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1. Relevance
- Relevance criteria contribute to conclusions that assist decisionmaking by the intended users.
2. Completeness
- Criteria are sufficiently complete when relevant factors that could
affect the conclusion in the context of the engagement are not omitted.
- Complete criteria include, where relevant, bench-marks for
presentation and disclosure.
3. Reliability
- Reliability criteria allow reasonably consistent evaluation or
measurement of the subject matter including, where relevant, presentation
and disclosure, when in similar circumstances by similarly qualified
practitioners.
4. Neutrality
- Neutral criteria contribute to conclusions that are free from bias.
5. Understandability
- Understandability criteria contribute to conclusions that are clear,
comprehensive, and not subject to significantly different interpretations.
The responsible party is the one responsible for the subject matter
of an assurance engagement. For example, an e titys management
is responsible for the preparation and presentation of financial
statements or the establishment and implementation of internal
control.
The term su je t matter i for atio is used in the Framework for
Assurance Engagements to mean the outcome of the evaluation of
the subject matter.
In assertion-based assurance engagements, the evaluation or
measurement of the subject matter against criteria is perfoemed by
the responsible party and the subject matter information ( outcome)
is in the form of an assertion by the responsible party that is made
available to the intended users.
The term assura e means the pra titio ers satisfaction as to the
reliability of an assertion being made by one party for use by another party.
The level of assurance that may be provided depends on the procedures
performed and the evidence collected by the practitioner.
According to PSRS 4410 (Engagements to Compile Financial Information),
the accountant should obtain a general knowledge of the business and
operations of the entity and should be familiar with the accounting
principle practices of the industry in which in which the entity operates
and with the form and content of the financial information that is
appropriate in the ir u sta es .
The standard further provides that, the accountant ordinarily obtains
knowledge of these matters through experience with the entity or inquiry
of the e titys perso el .
Consulting Services:
While maintaining objectivity and integrity,
the CPA in a consulting services engagement
serves the lie ts interest by pursuing the
objectives established by the understanding with
the client.
Assurance services are
i depe de t
professional services that are intended to
enhance the credibility of information to meet
the needs of an intended user. assurance
services do not encompass consulting services.
Advisory services and transaction services are
both consulting services.
AUDITING
A RISK-BASED APPROACH TO
CONDUCTING A QUALITY AUDIT
9th Edition
Karla M. Johnstone | Audrey A. Gramling | Larry E. Rittenberg
LEARNING OBJECTIVES
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LEARNING OBJECTIVES
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LEARNING OBJECTIVE 1
DEFINE THE OBJECTIVE OF EXTERNAL AUDITING AND DESCRIBE
ITS ROLE IN MEETING SOCIETYS DEMANDS FOR RELIABLE
FINANCIAL AND INTERNAL CONTROL INFORMATION
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Remoteness
Organization and users of its financial information are
distant from each other in terms of either geographic
distance or the extent of information available to the
both parties
Copyright 2014 South-Western/Cengage Learning
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Consequences
With unreliable information, investors lose a significant
source of information needed to make important
decisions
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LEARNING OBJECTIVE 2
LEARNING OBJECTIVE 3
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LEARNING OBJECTIVE 4
CONGRESS
Due to various failures in auditing profession during
early 2000s Congress passed the Sarbanes-Oxley Act
of 2002
This legislation had an impact on audit firms through:
Increasing auditor independence
Enhancing the role and importance of audit committee
Requiring reporting on internal control over financial
reporting
Providing new oversight of external auditing profession
by Public Company Accounting Oversight Board
Copyright 2014 South-Western/Cengage Learning
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LEARNING OBJECTIVE 5
DEFINE AUDIT QUALITY AND IDENTIFY DRIVERS OF AUDIT
QUALITY AS SPECIFIED BY THE FINANCIAL REPORTING
COUNCILS AUDIT QUALITY FRAMEWORK
AUDIT QUALITY
Performing an audit in accordance with accepted
auditing standards (GAAS)
Providing assurance that audited financial statements
and disclosures are presented in accordance with
GAAP
Providing assurance that those financial statements are
not materially misstated whether due to errors or
fraud
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LEARNING OBJECTIVE 6
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PCAOB INDEPENDENCE
REQUIREMENTS
Applicable to auditors of public companies
Designed to address requirements in Sarbanes-Oxley
Act of 2002
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Self-review threat
Advocacy threat
Adverse interest threat
Familiarity threat
Undue influence threat
Financial self-interest threat
Management participation threat
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REVIEW PROGRAMS
External inspections/peer reviews
Interoffice reviews
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ENGAGEMENT LETTER
States scope of work to be done on audit
There should be no doubt in the mind of client,
external auditor, or court system - regarding
expectations agreed to by external auditor and client
Includes:
Audit fee
Timing description of external auditors work
Documentation that client is expected to provide to
external auditor
Copyright 2014 South-Western/Cengage Learning
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CLIENT ACCEPTANCE/CONTINUANCE
DECISIONS
Guidelines established to screen out:
Clients in financial and/or organizational difficulty
Clients constituting a disproportionate percentage of
firms total practice
Disreputable clients
Clients offering an unreasonably low fee for auditors
services
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AUDIT DOCUMENTATION
Document everything done on audit
Documentation should clearly show evidence of
supervisory review
Documentation should indicate:
What tests were performed
Who performed them
Any significant judgments made
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640 - 630 BC The earliest coins made in Lydia, Asia Minor, consisted of
electrum, a naturally occurring amalgam of gold and silver.
According to Demosthenes 10% is the normal rate of interest for run-ofthe-mill business. For risky business such as lending for shipping rates
of between 20% and 30% are normal.
The cackling of geese in the capitol, where the city's reserves of money
are kept, alerts the defenders. The grateful Romans build a shrine to
Moneta, the goddess of warning, and from Moneta the words money
and mint are derived.
measure of value
medium of exchange
store of value
Gold !
Gold as money
widely accepted
divisible
easy to measure
easy to carry
non-perishable (although it wears out)
impossible to forge
Macro-economic equilibrium
Supply of gold
250 AD: Nero debases the gold and silver coinages.Twenty years
later, the silver content of Roman coins has fallen to only 4%
revenue.
Thomas Gresham, after whom Gresham's law ("bad money drives out
good") is named, is an influential adviser.
The debased coins are recalled and melted down and the base and
precious metals separated.
Paper money
Paper money
1659 The earliest British cheque is issued This is an order to the
London goldsmiths Morris and Clayton to pay a Mr Delboe 400.
Paper money
1698 Coins form less than half the English money supply
Davenant, a contemporary writer, estimates that the total value of coins
in circulation is less than that of tallies, bills, banknotes etc. Increasingly
the power of money creation is passing from the King, in charge of the
mint, to the London money market and provincial banks. Political and
constitutional power is also affected by this transfer of financial power.
1704 Promissory Notes Act
This confirms the legality in England of goldsmith's notes as negotiable,
i.e. payable to the bearer rather than to a named person.
Paper money
1832 Capital punishment for forging banknotes abolished in Britain
The maximum penalty for forgery is reduced from death to
transportation for life (e.g. exile to Australia).
Paper money
Key Terms
Monetary Policy measures or actions taken
by the Central Bank to regulate the supply of
money in the economy.
Inflation Targeting focuses mainly on
achieving price stability as the ultimate
objective of monetary policy.
Rural Banks specialize in the extension of
INTRODUCTION
The evolution of the Philippine Financial
System in the Philippines can be viewed
from the major political milestone of the
country namely: 1) the Spanish period; 2)
the American period; 3) the Japanese
occupation; 4) the Post-War and
Independence period; 5) the New society
period; 6) the Post-Marcos era; and 7) The
Ramos, Estrada, and Macapagal- Arroyo
adminisrations.
PNB.
1900 the first Philippine Commission pass
Act No. 52 providing for the regular
examination and inspection of banks of the
Bureau of Treasury.
1929 the Bureau of banking was created
assuming the power of supervision over this
institutions from the Bureau of Treasury.
Post-Marcos Era
1986 Mrs. Corazon C. Aquino assumed
presidency after a successful People Power
that ended 2 decades of the Marcos rule.
1991-the asset sold resulted to proceeds of
P14.3 billion, and another P16 billion worth of
assets were added to the net total.
rediscounting facility.
Supervision and Examination Sector enforces
and monitors compliance to banking laws to
promote a sound and healthy banking system.
Resource Management Sector serves the
human, financial, and physical resource needs of
the BSP.
Monetary Policy
Measures or actions taken by the Central
Inflation Targeting
The BSP formally adopted inflation
targetting as the framework for monetary
policy at the beginning of 2002.
January 24, 2000 - BSPs policy-making
Classification of Financial
System
The Banking Sector
For purposes of uniformity, and simplicity,
and equality of treatment, R.A. 7653 entitled
the New Central Bank Act, classified bank
institution into the following categories
a. An expanded commercial bank or a
universal bank and commercial bank;
b. Thrift banks, composed of savings and loan
associations;
Trading Mechanism
MakTrade system- is composed of
Investment house
investment Companies
Finance Companies
Securities Dealers
Securities Brokers
Private insurance companies
Pawnshops or Pawnbrokers
Nonstock saving and loan associations
Mutual and Building loan associations
Credit unions
Trust and pension fund managers
Tenure
1949-1960
1961-1967
1968-1970
1970-1981
1981-1984
1984-1990
1993-1999
1999-2005
2005-Present