AUDITING THEORY

Daniel G. Calaor

AUDITING THEORY SKELETON

REFERENCE NO. TITLE

Glossary of Terms (December 2002) (Amended by PSA
220 Rev.)
IAASB – Interim Terms of Reference (August 2004)
Preface (December Preface to the International Standards on Quality
2006) Control, Auditing, Review, Other Assurance and Related
Services and Preface to the Philippine Standards on
Quality Control, Auditing, Review, Other Assurance and
Related Services
PSQC Philippine Standards on Quality Control
1 (Redrafted) Quality Control for Firms that perform audits and review of
Historical Information, and other assurance and related
services engagements
PSA Philippine Standards on Auditing
120 Framework of Philippine Standards on Auditing
200 (Revised and Overall objectives of the Independent Auditor and the
Redrafted) Conduct of an Audit in accordance with International
Standards on Auditing
210 (Redrafted) Agreeing the Terms of Audit Engagements
220 (Redrafted) Quality Control for Audits of Historical Financial Statements
230 (Redrafted) Audit Documentation
240 (Redrafted) The Auditor’s Responsibilities Relating to Fraud in an Audit
of Financial Statements
250 (Redrafted) Consideration of Laws and Regulations in an Audit of
Financial Statements
260 (Revised and Communication with Those Charged with Governance.
Redrafted)
265 (New) Communicating deficiencies in Internal Control to Those
Charged with Governance and Management
300 (Redrafted) Planning an Audit of Financial Statements
315 (Redrafted) Identifying and Assessing the Risks of Material
Misstatement through Understanding the Entity and its
Environment
320 (Revised and Materiality in Planning and Performing an Audit
Redrafted)
330 (Redrafted) The Auditor’s Responses to Assessed Risks
402 (Revised and Audit Considerations relating to an entity using Service
Redrafted) Organizations
500 (Redrafted) Audit Evidence
501 (Redrafted) Audit Evidence – Additional Considerations on Specific
items
505 (Revised and External Communications
Redrafted)
510 (Redrafted) Initial Audit Engagements – Opening Balances
520 (Redrafted) Analytical Procedures
530 (Redrafted) Audit Sampling
540 (Revised and Auditing Accounting Estimates, including Fair Value
Redrafted) accounting estimates, and related disclosures
550 (Revised and Related Parties
Redrafted)
560 (Redrafted) Subsequent Events
570 (Redrafted) Going Concern
580 (Revised and Written Representations
Redrafted)
600 (Revised and Special Considerations – Audits of Group Financial
Redrafted) Statements (including the work of Component Auditors)
610 (Redrafted) Using the Work of Internal Auditors
620 (Revised and Using the Work of an Expert
Redrafted)
700 (Revised and The Independent Auditor’s Report on a Complete Set of
Redrafted) General-Purpose Financial Statements
701 (Revised) Communicating Key Audit Matters in the Independent
Auditor’s Report
705 (Revised and Modifications to the Opinion in the Independent Auditor’s
Redrafted)
706 (Revised and Emphasis of Matter Paragraphs and Other Matter
Redrafted) Paragraphs in the Independent Auditor’s Report
710 (Redrafted) Comparative Information – Corresponding Figures and
Comparative Financial Statements
720 (Redrafted) The Auditor’s Responsibilities relating to Other Information
800 (Revised and Special Considerations – Audits of Financial Statements
Redrafted) prepared in accordance with Special Purpose Frameworks
805 (Revised and Special Considerations – Audits of Single Financial
Redrafted) Statements and Specific Elements, Accounts, or items of a
Financial Statements
810 (Revised and Engagements to Report on Summary Financial Statements
Redrafted)
PAPs Philippine Auditing Practice Statements
1000 Inter-Bank Confirmation Procedures
1000Ph Audit Evidence – Practical Problems in an Audit of Financial
Statements
1001Ph Guidance in Dealing with “Tentative Financial Statements”
1002Ph The Auditor’s Report on General Purpose Financial
Statements prepared in accordance with a Philippine
Financial Reporting Framework other than PFRS
1003Ph Guidance in Dealing with Reports required by the SEC
relating to increase in Capital Stock of a Corporation
1004 The relationship between Bangko Sentral ng Pilipinas (BSP)
and Bank’s External Auditors
1005 Rev The Special Considerations in the Audit of Small entities
1006 Audits of the Financial Statements of Banks
1010 The Consideration of Environmental Matters in the Audit of
Financial Statements
1012 Auditing Derivative Financial Instruments [(amended by PSA
220 (Revised)]
1013 Electronic Commerce – Effect on the Audit of Financial
Statements
1014 Reporting by Auditors on Compliance with International
Financial Reporting Standards
PSREs Philippine Standards on Review Engagements
2400 (Revised) Engagements to Review Historical Financial Statements
2410 Review of Interim Financial Information performed by the
Independent Auditor of the Entity (amended in 2008)
PSAEs Philippine Standards on Assurance Engagements
3000 Rev Assurance Engagements other than Audits or Reviews of
Historical Financial Information
3400 The Examination of Prospective Financial Information
(formerly known as PSA 810)
3410 Assurance Statements on Greenhouse Financial
Statements
PSRSs Philippine Standards on Related Services
4400 Engagements to Perform Agreed-upon Procedures
regarding Financial Information (formerly known as PSA
920)
4410 (Revised) Compilation Engagements
RA 9298 (Philippine Accountancy Act of 2004) effective
May 13, 2004
Code of Ethics for Professional Accountants in the
Philippines (Based on 2013 IFAC Code of Ethics)
effective April 6, 2016
Preface to Philippine Standards on Quality Control, Auditing, Review, Other
Assurance and Related Services

Auditing and Assurance Standards Council (AASC) has its mission to PROMULGATE
the auditing standards, practices and procedures which shall be generally accepted by
the accounting profession in the Philippines.

To facilitate the preparation by the AASC of its pronouncements and to attain uniformity
of those pronouncements with international accounting standards, the AASC has
approved the adoption of the International Standards on Auditing (ISAs), International
Standards on Assurance Engagements (ISAEs) , International Standards on Review
Engagements (ISREs) and International Standards on Related Services (ISRSs) issued
by International Auditing and Assurance Board (IAASB) created by the International
Federation of Accountants (IFAC).

Pronouncements of the AASC shall be in the form of:

• Philippine Standards on Quality Control (PSQCs)
• Philippine Standards on Auditing (PSAs)
• Philippine Standards on Review Engagements (PSREs)
• Philippine Standards on Assurance Engagements (PSAEs)
• Philippine Standards on Related Services (PSRSs)
• Philippine Auditing Practice Statements (PAPSs)
• Philippine Review Engagement Practice Statements (PREPSs)
• Philippine Assurance Engagement Practice Statements (PAEPs)
• Philippine Related Services Practice Statements (PRSPs)

AASC was created by the Professional Regulation Commission upon the

recommendation of the Board of Accountancy (BOA) to assist the BOA in the
establishment and promulgation of auditing standards in the Philippines. The AASC
replaced the Auditing Standards and Practices Council (ASPC) which was established
by the Philippines Institute of CPAs (PICPA) and the Association of the CPAs in Public
Practice (ACPAPP) and previously set generally accepted auditing standards in the
Philippines, also based on International Standards and Practice Statements.

Authority attaching to the Philippine Standards issued by the AASC:

• PSAs are to be applied, as appropriate, in the AUDIT of historical financial
statements.
• PSREs are to be applied in the REVIEW of historical financial information.
• PSAEs are to be applied in assurance engagements dealing with subject matter
OTHER THAN historical information.
• PSRSs are to be applied to compilation engagements, engagement to apply
agreed-upon procedures to information and other related services engagements
as specified by the AASC.
• PSA, PSRSs, PSAEs, PSRS are collectively referred to as the AASC’s
Engagement Standards.
 • PSQCs are to be applied for all services falling under the AASCs Engagements
Standards.
• The AASCs engagements standards contain BASIC PRINCIPLES and
ESSENTIAL PROCEDURES together with related guidance in the form of
explanatory and other material, including appendices. The basic principles and
essential procedures are to be understood and applied in the context of the
explanatory and other materials that provide guidance for their application. It is
therefore necessary to consider the whole text of a Standard to understand and
apply the basic principles and essential procedures.

They also represent “pronouncements on generally accepted auditing standards,

interpretations and opinions issued by the AASC to apply whenever an independent
examination of financial statements OF ANY ENTITY, whether profit-oriented or not, for
the purpose of expressing an opinion thereon. They may have application, as
appropriate, to other activities of the auditor.

The nature of the Philippine Standards issued by the AASC requires professional
accountants to exercise PROFESSIONAL JUDGMENT in applying them. In exceptional
circumstances, a professional accountant may judge it to depart from a basic principle
or essential procedure of an Engagement Standard to achieve more effectively the
objective of the engagement. When such a situation arises, the professional accountant
should be prepared to justify the departure.

Authority attaching to the Practice Statements issued by the AASC:

• PAPS are issued to provide interpretative guidance and practical assistance of
professional accountants in implementing PSAs and to promote good practice.
• PREPSs, PAEPs and PRSPSs are issued to serve the same purpose for the
implementation of PSREs, PSAEs and PSRSs, respectively.

Professional accountants should be aware of and consider Practice Statements

applicable to the engagement. A professional accountant who does not consider and
apply the guidance included in a relevant Practice Statement should be prepared to
explain how the basic principles and essential procedures in the Engagement
Standard(s) addressed by the Practice Statement have been complied with.

Exposure period for the proposed Philippine Standard or Practice Statement is

generally not shorter than 90 DAYS. Exposure draft is widely distributed to interested
organizations and persons for comment. The exposure draft shall also be published in
the PICPA Accounting Times and ACPAPP Bulletin to give it further exposure.

Issuance of exposure drafts requires approval by a majority of the members of the

Council; issuance if the Philippine Standards and Practice Statements, as well as
interpretations, requires approval of AT LEAST TEN (10) MEMBERS.

Each final Philippine Standard and Practice Statement, as well as interpretations, if

deemed appropriate, shall be submitted to the Professional Regulation Commission
(PRC) through the Board of Accountancy (BOA) for approval after which
pronouncements shall be published in the Official Gazette. After publication, the AASC
pronouncement becomes operative from the effective date stated therein.

Numbering of Philippine Standards and Practice Statements that are Philippine specific
and are not adopted from International pronouncements will be numbered consecutively
with suffix “Ph” as follows:
• For Philippine Standards – starting from 100Ph
• For Philippine Practice Statements – starting from 1000Ph

Philippine Standards and Practice Statements adopted from International

pronouncements will use the same numbers as their counterpart International
pronouncements.