[2] PSA 200

• Purpose of an audit: To enhance the degree of __________ of intended users in the financial statements

  confidence
• How the purpose of the audit is achieved

  1. The auditor expresses an opinion on whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework

  2. The opinion is on whether the financial statements are presented fairly, in all material respects, in accordance with the framework
• Financial statements


  Those of the entity, prepared and presented by management of the entity with oversight from those charged with governance
• The audit of the financial statements does not relieve management or those charged with governance of their responsibilities
• What PSAs require the auditor to do

  Obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error
• Reasonable assurance


  A high level of assurance obtained when the auditor has obtained sufficient appropriate audit evidence to reduce audit risk, but not an absolute level of assurance due to inherent limitations of an audit
• Materiality


  The concept applied by the auditor in planning, performing the audit, and evaluating the effect of identified misstatements
• Materiality consideration


  Misstatements, including omissions, are considered material if they could reasonably be expected to influence the economic decisions of users
• Judgments about materiality


  Made in light of surrounding circumstances, affected by the auditor's perception of the financial information needs of users and the size or nature of a misstatement
• The auditor's opinion deals with the financial statements as a whole and the auditor is not responsible for the detection of misstatements that are not material to the financial statements as a whole
• Effective date: December 15, 2009
• Objectives of an auditor

  • To obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error
  • To report on the financial statements, and communicate as required by the PSAs, in accordance with the auditor's findings
• If reasonable assurance cannot be obtained and a qualified opinion is insufficient, the PSAs require the auditor to disclaim an opinion or withdraw from the engagement, where withdrawal is legally permitted
• Auditor requirements


  • Comply with relevant ethical requirements, including those pertaining to independence, relating to financial statement audit engagements
  • Recognize that circumstances may exist that cause the financial statements to be materially misstated
  • Exercise professional judgment in planning and performing an audit of financial statements
  • Obtain sufficient appropriate audit evidence to reduce audit risk to an acceptably low level and enable the auditor to draw reasonable conclusions on which to base the auditor's opinion
  • Comply with all PSAs relevant to the audit
  • Have an understanding of the entire text of a PSA
  • Not represent compliance with PSAs in the auditor's report unless the auditor has complied with the requirements
• Objectives stated in individual PSAs

  • Determine whether any audit procedures in addition to those required by the PSAs are necessary
  • Evaluate whether sufficient appropriate audit evidence has been obtained
• In exceptional circumstances, the auditor may judge it necessary to depart from a relevant requirement in a PSA, but if an objective in a relevant PSA cannot be achieved, the auditor shall evaluate whether this prevents the auditor from achieving the overall objectives and thereby requires the auditor to modify the opinion or withdraw from the engagement
• Scope of the auditor's opinion

  • Deals with whether the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework
  • Does not assure the future viability of the entity nor the efficiency or effectiveness with which management has conducted the affairs of the entity
• Applicable laws and regulations may require auditors to provide opinions on other specific matters, in which case the auditor would be required to undertake further work
• Premise of an audit

  Management and those charged with governance have responsibility for the preparation and presentation of the financial statements in conformity with the applicable financial reporting framework and free from material misstatement, and to provide the auditor with all relevant information, any additional information requested, and unrestricted access
• Responsibilities of those charged with governance

  • Identification of the applicable financial reporting framework
  • Preparation and presentation of the financial statements in accordance with that framework
  • Adequate description of that framework in the financial statements
• Financial reporting framework


  • Designed to meet the common financial information needs of a wide range of users or the financial information needs of specific users
  • May encompass both financial reporting standards established by an authorized or recognized standards setting organization and legislative or regulatory requirements, with the source with the highest authority prevailing
  • The requirements of the applicable financial reporting framework determine the form and content of the financial statements
• Fair presentation vs compliance frameworks

  • Fair presentation frameworks encompass primarily the financial reporting standards established by an organization authorized or recognized to promulgate standards for general purpose financial statements
  • The auditor is required to obtain agreement from management, understand their responsibilities, and obtain written representations about whether management and those charged with governance have fulfilled those responsibilities
• Auditor's opinion


  • Will depend upon the applicable financial reporting framework and any applicable laws or regulations
  • The opinion required by the PSAs is on whether the financial statements are presented fairly, in all material respects
• Fundamental principles of professional ethics

  • Integrity
  • Objectivity
  • Professional competence and due care
  • Confidentiality
  • Professional behavior
• Purpose of auditor independence

  • Safeguards the auditor's ability to form an audit opinion without being affected by influences that might compromise that opinion
  • Enhances the auditor's ability to act with integrity, be objective, and maintain an attitude of professional skepticism
• The Philippine Standard on Quality Control sets out the responsibilities of the firm for establishing policies and procedures designed to provide reasonable assurance that the firm and its personnel comply with relevant ethical requirements, including those pertaining to independence
• Professional skepticism


  • Includes being alert to audit evidence that contradicts other evidence, information that brings into question the reliability of documents and responses, conditions that may indicate possible fraud, and circumstances suggesting the need for additional audit procedures
  • Maintaining professional skepticism is necessary to reduce overlooking unusual circumstances and over generalizing when drawing conclusions
• Auditor's role


  • To form an audit opinion without being affected by influences that might compromise that opinion
• Auditor's ability


  • Enhances auditor's ability to act with integrity
• Auditor's objectivity


  • To be objective
• Auditor's professional skepticism


  • To maintain an attitude of professional skepticism
• Philippine Standard on Quality Control sets out the responsibilities of the firm for establishing policies and procedures designed to provide it with reasonable assurance that the firm and its personnel comply with relevant ethical requirements, including those pertaining to independence
• Professional skepticism


  • Includes being alert to: audit evidence that contradicts other audit evidence obtained, information that brings into question the reliability of documents and responses to inquiries to be used as audit evidence, conditions that may indicate possible fraud, circumstances that suggest the need for audit procedures in addition to those required by the PSAs
• Maintaining professional skepticism


  • Is necessary to reduce: overlooking unusual circumstance, over generalizing when drawing conclusions from audit observations, using inappropriate assumptions in determining the nature, timing, and extent of the audit procedures and evaluating the results thereof
• Professional skepticism


  • Is necessary to the critical assessment of audit evidence: questioning contradictory evidence, questioning reliability, consideration of the sufficiency and appropriateness of audit evidence
• The auditor may accept records and documents as genuine unless the auditor has reason to believe the contrary
• The auditor is required to consider the reliability of information to be used as audit evidence
• In cases of doubt, the PSAs require that the auditor investigate further and determine what modifications or additions to audit procedures are necessary to resolve the matter
• The auditor cannot be expected to disregard past experience of the honesty and integrity of the entity's management and those charged with governance
• However, it does not relieve the auditor of the need to maintain professional skepticism or allow the auditor to be satisfied with less-than-persuasive audit evidence when obtaining reasonable assurance