Philippine Framework for Assurance Engagements

Introduction:

Objective: defines and describes the elements and objectives of an assurance engagement, and
identifies engagements to which Philippine Standards on Review Engagements and Philippine Standards
on Assurance Engagements apply.

*The framework does not itself establish procedural requirements for the performance of assurance
engagements.

Practitioners are governed by:

1. PSA
2. PSRE
3. PSAE
4. Code of Ethics for Professional Accountants In the Philippines
5. Philippine Standards on Quality Control

Ethical Principles: (IPPOC)

1. Integrity
2. Objectivity
3. Professional Competence and Due Care
4. Confidentiality
5. Professional Behavior

Assurance Engagement- engagement in which a practitioner expresses a conclusion designed to

enhance the degree of confidence of the intended users other than the responsible party about the
outcome of the evaluation or measurement of a subject matter against a criteria.

Assertion based engagements- evaluation or measurement of the subject matter is performed by the
responsible party.
Direct reporting engagements- evaluation or measurement of the subject matter is directly performed
by the practitioner.

Reasonable assurance engagement- to reduce assurance engagement risk to a reasonably low level.
Limited assurance engagement- reduces assurance engagement risk to a reasonably low level, but
greater than reasonable assurance engagement.

Engagements that are not assurance engagements:

1. Compilation
2. Preparation of income tax returns
3. Consulting

Acceptance of an Assurance Engagement:

1. Relevant Ethical requirements such as independence and professional competence will be satisfied.
2. Characteristics:
 a. Appropriate subject matter
*characteristics of the subject matter affect the precision and persuasiveness.
*An appropriate subject matter is one that is identifiable and capable of consistent evaluation

b. Suitable Criteria
- relevance
- completeness
- neutrality
- understandability
- reliability
*criteria need be available to the intended users

c. 3 party relationship- practitioner, responsible party, intended users.

*intended users may be identified through an agreement of the practitioner and responsible
party or by law

d. Sufficient and Appropriate Evidence

e. Written report

*Cannot change assurance engagement to a non-assurance engagement or change a limited assurance

engagement to a reasonable assurance engagement without reasonable justification.
* Professional Skepticism- makes a critical assessment with a questioning mind, of the validity of
evidence obtained and is alert to evidence that contradicts or brings into question the reliability of
documents.

Assurance Engagement Risk- the risk that the practitioner expresses an inappropriate conclusion when
the subject matter information is materially misstated.
Inherent Risk- the susceptibility of the subject matter information to a material misstatement, assuming
that there are no related controls.
Control Risk- risk that a material misstatement that could occur will not be prevented, detected and
corrected, on a timely basis by related internal related controls.

Detection Risk- risk that a practitioner will not detect a material misstatement that exists.

*Reasonable assurance is not absolute assurance.

*Available evidence will be persuasive rather than conclusive.
PSA 120

Financial statements need to be prepared in accordance with:

1. Accounting standards generally accepted in the Philippines
2. International Accounting Standards
3. another authoritative and comprehensive financial reporting framework which has been designed for
use in financial reporting and is identified in the financial statements.

Audit- enables the auditor to express an opinion whether the financial statements are prepared, in all
material respects, in accordance with an identified financial reporting framework.
*The opinion enhances the credibility of financial statements by providing a high, but not absolute level
of assurance.

Related Services:
1. Reviews- to enable an auditor to state whether, on the basis of procedures which do not provide all
the evidence that would be required in an audit, anything has come to the auditor’s attention that
causes the auditor to believe that the financial statements are not prepared, in all material respects, in
accordance with an identified financial reporting framework.

2. Agreed-upon Procedures- the auditor is engaged to carry out those procedures of an audit nature to
which the auditor and the entity and any appropriate third parties have agreed and to report on factual
findings.

3. Compilations- the accountant is engaged to use accounting expertise as opposed to auditing expertise
to collect, classify, and summarize financial information.
PSA 200
*Misstatements are considered material if individually or aggregately, they could reasonably be
expected to influence the economic decisions of users taken on the basis of financial statements.

Audit evidence – Information used by the auditor in arriving at the conclusions on which the auditor’s
opinion is based.

Audit risk – The risk that the auditor expresses an inappropriate audit opinion when the financial
statements are materially misstated. Audit risk is a function of the risks of material misstatement and
detection risk.

Misstatement- A difference between the amount, classification, presentation, or disclosure of a

reported financial statement item and the amount, classification, presentation, or disclosure that is
required for the item to be in accordance with the applicable financial reporting framework.

Professional Judgement- The application of relevant training, knowledge and experience, within the
context provided by auditing, accounting and ethical standards, in making informed decisions about the
courses of action that are appropriate in the circumstances of the audit engagement.

Conduct of an Audit in Accordance with PSAs:

A PSA is relevant to audit when it is:
1. In effect
2. the circumstances addressed by the PSA exist.

*In exceptional circumstances, the auditor may judge it necessary to depart from a relevant
requirement in a PSA. In such circumstances, the auditor shall perform alternative audit procedures to
achieve the aim of that requirement.

Application and Other Explanatory Material:

Responsibilities of Management:
1. Preparation and presentation of the financial statements in accordance of applicable framework.
2. To provide auditor with: all information, additional information, unrestricted access to those within
the entity from whom the auditor determines it necessary to obtain evidence.
3. identification of financial reporting framework.

*Where conflicts exist between the financial reporting framework and the sources from which direction
on its application may be obtained, or among the sources that encompass the financial reporting
framework, the source with the highest authority prevails.

Independence
- Independence of mind and in appearance.

Professional Skepticism
- The auditor may accept records and documents as genuine unless the auditor has reason to
believe the contrary.
- In cases of doubt, the auditor must investigate further and determine what modifications or
additions to audit procedures are necessary to resolve the matter.
Sufficient and Appropriate Audit Evidence and Audit Risk
- Sufficiency is the measure of quantity of audit evidence.
- The higher the assessed risks, the higher the quantity of evidence required.
- The higher the quality of evidence, the less required.
- The appropriateness is the quality of evidence- relevance and reliability in providing support for
conclusions.
- The reliability is influenced by its source and its nature and is dependent circumstances under
which it is obtained.

Audit Risk
- Function of the risks of material misstatement and detection risk.
- The assessment of risk is a matter of professional judgement.
- Does not include the risk that the auditor might express an opinion that the financial statements
are materially misstated when they are not.
- Inherent risk is higher for some assertions and related classes of transactions, account balances,
and disclosures than for others.
- Control risk is a function of the effectiveness of the design, implementation and maintenance of
internal control by management to address identified risks that threaten the achievement of the
entity’s objectives.

Failure to Achieve an Objective

- Whether an objective has been achieved is a matter for the auditor’s professional judgement.

PSA 220: Quality Control for an Audit of Financial Statements

* Unless information provided by the firm or other parties suggest otherwise, the engagement team may
rely on the firm’s system of quality control.

1. Relevant Ethical Requirements

- Integrity
- Objectivity
- Professional competence and due care
- Confidentiality
- Professional Behavior

2. Acceptance and Continuance of Client Relationships and Audit Engagements

- The firm is required to obtain information considered necessary In the circumstances before
accepting or rejecting
- Information such as integrity, competence of engagement team, compliance with ethical
requirements may be considered.

3. Assignment of Engagement Teams

- May or may not include and external expert.