AuditingandAssuranceStandardsCounci

PhilippineStandardonAuditing210(Redrafted)

AGREEINGTHETERMSOFAUDITENGAGE
MENTS
ConformingAmendmentstoOtherPSAs
PHILIPPINESTANDARDONAUDITING210(REDRAFTED)
AGREEINGTHETERMSOFAUDITENGAGEMENTS

(Effectiveforauditsoffinancialstatementsforperiodsbeginning onorafterDecember15,2009)

CONTENTS
Paragra
ph

Introduction
ScopeofthisPSA..................................................................................................
.....1EffectiveDate..............................................................................................
...............2Objective..........................................................................................
..........................3Definitions.............................................................................
.....................................45Requirements
PreconditionsforanAudit.....................................................................................
....68AgreementonAuditEngagementTerms.............................................................
......912RecurringAudits.............................................................................................
...........13AcceptanceofaChangeintheTermsoftheAuditEngagement..................
............1417AdditionalConsiderationsinEngagementAcceptance......................................
.......1821
ApplicationandOtherExplanatoryMaterial

ScopeofthisPSA..................................................................................................
....A1PreconditionsforanAudit............................................................................
.............A2A20AgreementonAuditEngagementTerms.........................................................
.........A21A27RecurringAudits...........................................................................................
............A28AcceptanceofaChangeintheTermsoftheAuditEngagement...............
...............A29A33AdditionalConsiderationsinEngagementAcceptance....................................
........A34A37
Acknowledgment
Appendix1:ExampleofanAuditEngagementLetterAppendix2:DeterminingtheAc
ceptabilityofGeneralPurposeFrameworks

PhilippineStandardonAuditing(PSA)210,AgreeingtheTermsofAuditEngagemen
tsshouldbereadinconjunctionwithPSA200(RevisedandRedrafted),OverallObj
ectivesoftheIndependentAuditorandtheConductofanAuditinAccordancewithPhi
lippineStandardsonAuditing.

Introduction
ScopeofthisPSA
1.
ThisPhilippineStandardonAuditing(PSA)dealswiththeauditorsresponsibi
litiesinagreeingthetermsoftheauditengagementwithmanagementand,w
hereappropriate,thosechargedwithgovernance.Thisincludesestablishing
thatcertainpreconditionsforanaudit,responsibilityforwhichrestswithman
agementand,whereappropriate,thosechargedwithgovernance,areprese
nt.PSA220(Redrafted)1
dealswiththoseaspectsofengagementacceptancethatarewithinthecontr
oloftheauditor.
(Ref:Para.A1)

EffectiveDate
2.
ThisPSAiseffectiveforauditsoffinancialstatementsforperiodsbeginnin
gonorafterDecember15,2009.

Objective
3.
Theobjectiveoftheauditoristoacceptorcontinueanauditengagementonl
ywhenthebasisuponwhichitistobeperformedhasbeenagreed,through:

(a)

Establishingwhetherthepreconditionsforanauditarepresent;and

(b)
Confirmingthatthereisacommonunderstandingbetweentheauditorandm
anagementand,whereappropriate,thosechargedwithgovernanceofthete
rmsoftheauditengagement.

Definitions
1. 4.

ForpurposesofthePSAs,thefollowingtermhasthemeaningattributedb
elow:
2. Preconditionsforanaudit
Theusebymanagementofanacceptablefinancialreportingframeworki
nthepreparationofthefinancialstatementsandtheagreementofmana
gementand,whereappropriate,thosechargedwithgovernancetothepr
2
emise onwhichanauditisconducted.
ForthepurposesofthisPSA,referencestomanagementshouldbereadher
eafterasmanagementand,whereappropriate,thosechargedwithgovern
ance.

1
PSA220 (Redrafted),QualityControlforanAuditofFinancialStatements.
2
PSA200 (RevisedandRedrafted),OverallObjectivesoftheIndependentAuditorand theCond
uctofan AuditinAccordancewith PhilippineStandardsonAuditing,paragraph 13.

Requirements
PreconditionsforanAudit
6.
Inordertoestablishwhetherthepreconditionsforanauditarepresent,the
auditorshall:

(a)
Determinewhetherthefinancialreportingframeworktobeappliedinthepre
parationofthefinancialstatementsisacceptable;and(Ref:Para.A2A10)
1 (b)

Obtaintheagreementofmanagementthatitacknowledgesandunderst
andsitsresponsibility:(Ref:ParaA11A14,A20)
(i)

Forthepreparationofthefinancialstatementsinaccordancewiththeapp
licablefinancialreportingframework,includingwhererelevanttheirfair
presentation;(Ref:Para.A15)
(ii)

Forsuchinternalcontrolasmanagementdeterminesisnecessarytoena
blethepreparationoffinancialstatementsthatarefreefrommaterialmis
statement,whetherduetofraudorerror;and(Ref:Para.
A16A19)

(iii)

Toprovidetheauditorwith:

a.

Accesstoallinformationofwhichmanagementisawarethatisrelevanttothe
preparationofthefinancialstatementssuchasrecords,documentationand
othermatters;
b.

Additionalinformationthattheauditormayrequestfrommanagementforth
epurposeoftheaudit;and
c.
Unrestrictedaccesstopersonswithintheentityfromwhomtheauditordeter
minesitnecessarytoobtainauditevidence.

LimitationonScopePriortoAuditEngagementAcceptance
7.
Ifmanagementorthosechargedwithgovernanceimposealimitationonthes
copeoftheauditorsworkinthetermsofaproposedauditengagementsuchth
attheauditorbelievesthelimitationwillresultintheauditordisclaiminganopi
niononthefinancialstatements,theauditorshallnotacceptsuchalimiteden
gagementasanauditengagement,unlessrequiredbylaworregulationtodo
so.
OtherFactorsAffectingAuditEngagementAcceptance
8.
Ifthepreconditionsforanauditarenotpresent,theauditorshalldiscussthem
atterwithmanagement.Unlessrequiredbylaworregulationtodoso,theaudi
torshallnotaccepttheproposedauditengagement:
(a)
Iftheauditorhasdeterminedthatthefinancialreportingframeworkt
obeappliedinthepreparationofthefinancialstatementsisunaccept
able,exceptasprovidedinparagraph19;or
(b) Iftheagreementreferredtoinparagraph6(b)hasnotbeenobtained.
AgreementonAuditEngagementTerms

Theauditorshallagreethetermsoftheauditengagementwithmanagement
orthosechargedwithgovernance,asappropriate.(Ref:Para.A21)

10.

2
3
4
5

Subjecttoparagraph11,theagreedtermsoftheauditengagementshall
berecordedinanauditengagementletterorothersuitableformofwritten
agreementandshallinclude:(Ref:Para.A22A25)
(a) Theobjectiveandscopeoftheauditofthefinancialstatements;
(b) Theresponsibilitiesoftheauditor;
(c) Theresponsibilitiesofmanagement;
(d)

Identificationoftheapplicablefinancialreportingframeworkfortheprep
arationofthefinancialstatements;and
(e)

Referencetotheexpectedformandcontentofanyreportstobeissuedbyt
heauditorandastatementthattheremaybecircumstancesinwhicharep
ortmaydifferfromitsexpectedformandcontent.
Iflaworregulationprescribesinsufficientdetailthetermsoftheauditengage
mentreferredtoinparagraph10,theauditorneednotrecordtheminawritten
agreement,exceptforthefactthatsuchlaworregulationappliesandthatma
nagementacknowledgesandunderstandsitsresponsibilitiesassetoutinpa
ragraph6(b).(Ref:
Para.A22,A26A27)

12.
Iflaworregulationprescribesresponsibilitiesofmanagementsimilartothos
edescribedinparagraph6(b),theauditormaydeterminethatthelaworregul
ationincludesresponsibilitiesthat,intheauditorsjudgment,areequivalenti
neffecttothosesetoutinthatparagraph.Forsuchresponsibilitiesthatareeq
uivalent,theauditormayusethewordingofthelaworregulationtodescribet
heminthewrittenagreement.Forthoseresponsibilitiesthatarenotprescrib
edbylaworregulationsuchthattheireffectisequivalent,thewrittenagreem
entshallusethedescriptioninparagraph6(b).(Ref:Para.A26)
RecurringAudits
13.
Onrecurringaudits,theauditorshallassesswhethercircumstancesrequiret
hetermsoftheauditengagementtoberevisedandwhetherthereisaneedtor
emindtheentityoftheexistingtermsoftheauditengagement. (Ref:Para.A28)
AcceptanceofaChangeintheTermsoftheAuditEngagement

Theauditorshallnotagreetoachangeinthetermsoftheauditengagementw
herethereisnoreasonablejustificationfordoingso.(Ref:Para.A29A31)
1 15.
If,priortocompletingtheauditengagement,theauditorisrequestedtoc
hangetheauditengagementtoanengagementthatconveysalowerleve

lofassurance,the
auditorshalldeterminewhetherthereisreasonablejustificationfordoin
gso.(Ref:Para.A32A33)
Ifthetermsoftheauditengagementarechanged,theauditorandmanagem
entshallagreeonandrecordthenewtermsoftheengagementinanengagem
entletterorothersuitableformofwrittenagreement.
1 17.

2
2

Iftheauditorisunabletoagreetoachangeofthetermsoftheauditengage
mentandisnotpermittedbymanagementtocontinuetheoriginalaudite
ngagement,theauditorshall:
(a)

Withdrawfromtheauditengagementwherepossibleunderapplicablela
worregulation;and
(b)
Determinewhetherthereisanyobligation,eithercontractualorotherwis
e,toreportthecircumstancestootherparties,suchasthosechargedwith
governance,ownersorregulators.

AdditionalConsiderationsinEngagementAcceptance
FinancialReportingStandardsSupplementedbyLaworRegulation
18.
Iffinancialreportingstandardsestablishedbyanauthorizedorrecognizedst
andardssettingorganizationaresupplementedbylaworregulation,theau
ditorshalldeterminewhetherthereareanyconflictsbetweenthefinancialr
eportingstandardsandtheadditionalrequirements.Ifsuchconflictsexist,t
heauditorshalldiscusswithmanagementthenatureoftheadditionalrequir
ementsandshallagreewhether:

(a)

Theadditionalrequirementscanbemetthroughadditionaldisclosuresinthe
financialstatements;or
(b)
Thedescriptionoftheapplicablefinancialreportingframeworkinthefinanci
alstatementscanbeamendedaccordingly.
Ifneitheroftheaboveactionsispossible,theauditorshalldeterminewheth
eritwillbenecessarytomodifytheauditorsopinioninaccordancewithPSA
705(RevisedandRedrafted).3 (Ref:Para.A34)

FinancialReportingFrameworkPrescribedbyLaworRegulation
OtherMattersAffectingAcceptance
19.

Iftheauditorhasdeterminedthatthefinancialreportingframeworkprescrib
edbylaworregulationwouldbeunacceptablebutforthefactthatitisprescrib
edbylaworregulation,theauditorshallaccepttheauditengagementonlyifth
efollowingconditionsarepresent:(Ref:Para.A35)

(a)
Managementagreestoprovideadditionaldisclosuresinthefinancialstatem
entsrequiredtoavoidthefinancialstatementsbeingmisleading;and
1 (b) Itisrecognizedinthetermsoftheauditengagementthat:
2 (i)
TheauditorsreportonthefinancialstatementswillincorporateanEmph
asisofMatterparagraph,drawingusersattentiontotheadditionaldisclo
sures,inaccordancewithPSA706(RevisedandRedrafted); 4 and

(ii)
Unlesstheauditorisrequiredbylaworregulationtoexpresstheauditors
opiniononthefinancialstatementsbyusingthephrasespresentfairly,i
nallmaterialrespectsinaccordancewiththeapplicablefinancialreporti
ngframework,theauditorsopiniononthefinancialstatementswillnotin
cludesuchphrases.

PSA705 (RevisedandRedrafted),ModificationstotheOpinion in theIndependentAuditorsRep

ort.

20.
Iftheconditionsoutlinedinparagraph19arenotpresentandtheauditorisr
equiredbylaworregulationtoundertaketheauditengagement,theaudito
rshall:

(a)

Evaluatetheeffectofthemisleadingnatureofthefinancialstatementsonthe
auditorsreport;and
(b)
Includeappropriatereferencetothismatterinthetermsoftheauditengage
ment.

AuditorsReportPrescribedbyLaworRegulation
21.
Insomecases,laworregulationoftherelevantjurisdictionprescribesthela
youtorwordingoftheauditorsreportinaformorintermsthataresignifican
tlydifferentfromtherequirementsofPSAs.Inthesecircumstances,theaud
itorshallevaluate:

(a)

Whetherusersmightmisunderstandtheassuranceobtainedfromtheaudit
ofthefinancialstatementsand,ifso,
(b)
Whetheradditionalexplanationintheauditorsreportcanmitigatepossible
5
misunderstanding.
Iftheauditorconcludesthatadditionalexplanationintheauditorsreportcan
notmitigatepossiblemisunderstanding,theauditorshallnotaccepttheaudi
tengagement,unlessrequiredbylaworregulationtodoso.Anauditconducte
dinaccordancewithsuchlaworregulationdoesnotcomplywithPSAs.Accord
ingly,theauditorshallnotincludeanyreferencewithintheauditorsreporttot
heaudithavingbeenconductedinaccordancewithPSAs.6 (Ref:Para.A36A37)

***

PSA706 (Revisedand Redrafted),EmphasisofMatterParagraphsand OtherMatterParagra

phsin theIndependentAuditorsReport.
5
PSA706 (RevisedandRedrafted).
6
SeealsoPSA700 (Redrafted),Formingan Opinion andReporting on FinancialStatements,p
aragraph 43.

ApplicationandOtherExplanatoryMaterial
ScopeofthisPSA(Ref:Para.1)
A1.Assuranceengagements,whichincludeauditengagements,mayonlybeaccep
tedwhenthepractitionerconsidersthatrelevantethicalrequirementssucha
sindependenceandprofessionalcompetencewillbesatisfied,andwhenthe
7
engagementexhibitscertaincharacteristics.
Theauditorsresponsibilitiesinrespectofethicalrequirementsinthecontext
oftheacceptanceofanauditengagementandinsofarastheyarewithintheco
ntroloftheauditoraredealtwithinPSA220(Redrafted).8
ThisPSAdealswiththosematters(orpreconditions)thatarewithinthecontro
loftheentityanduponwhichitisnecessaryfortheauditorandtheentitysman
agementtoagree.
PreconditionsforanAudit
TheFinancialReportingFramework(Ref:Para.6(a))
A2.Aconditionforacceptanceofanassuranceengagementisthatthecriteriareferr
edtointhedefinitionofanassuranceengagementaresuitableandavailablet
ointendedusers.9
Criteriaarethebenchmarksusedtoevaluateormeasurethesubjectmatteri
ncluding,whererelevant,benchmarksforpresentationanddisclosure.Suita

blecriteriaenablereasonablyconsistentevaluationormeasurementofasub
jectmatterwithinthecontextofprofessionaljudgment.ForpurposesofthePS
As,theapplicablefinancialreportingframeworkprovidesthecriteriatheaudi
torusestoauditthefinancialstatements,includingwhererelevanttheirfairp
resentation.
A3Withoutanacceptablefinancialreportingframework,managementdoesnotha
veanappropriatebasisforthepreparationofthefinancialstatementsandth
eauditordoesnothavesuitablecriteriaforauditingthefinancialstatements
.Inmanycasestheauditormaypresumethattheapplicablefinancialreporti
ngframeworkisacceptable,asdescribedinparagraphsA8A9.
DeterminingtheAcceptabilityoftheFinancialReportingFramework
A4.Factorsthatarerelevanttotheauditorsdeterminationoftheacceptability
ofthefinancialreportingframeworktobeappliedinthepreparationofth
efinancialstatementsinclude:

1
2

Thenatureoftheentity(forexample,whetheritisabusinessenterprise,apub
licsectorentityoranotforprofitorganization);
Thepurposeofthefinancialstatements(forexample,whethertheyareprep
aredtomeetthecommonfinancialinformationneedsofawiderangeofusers
orthefinancialinformationneedsofspecificusers);

7
PhilippineFrameworkforAssuranceEngagements,paragraph 17.
8
PSA220 (Redrafted),paragraphs911.
9
PhilippineFrameworkforAssuranceEngagements,paragraph 17(b)(ii).

1
2

Thenatureofthefinancialstatements(forexample,whetherthefinancialsta
tementsareacompletesetoffinancialstatementsorasinglefinancialstate
ment);and
Whetherlaworregulationprescribestheapplicablefinancialreportingfram
ework.

A5.Manyusersoffinancialstatementsarenotinapositiontodemandfinancialstate
mentstailoredtomeettheirspecificinformationneeds.Whilealltheinformat
ionneedsofspecificuserscannotbemet,therearefinancialinformationneed
sthatarecommontoawiderangeofusers.Financialstatementspreparedina
ccordancewithafinancialreportingframeworkdesignedtomeetthecommo
nfinancialinformationneedsofawiderangeofusersarereferredtoasgeneral
purposefinancialstatements.
A6.Insomecases,thefinancialstatementswillbepreparedinaccordancewithafina
ncialreportingframeworkdesignedtomeetthefinancialinformationneedso
fspecificusers.Suchfinancialstatementsarereferredtoasspecialpurposefi
nancialstatements.Thefinancialinformationneedsoftheintendeduserswil
ldeterminetheapplicablefinancialreportingframeworkinthesecircumstan
ces.PSA800(RevisedandRedrafted)discussestheacceptabilityoffinancialr

eportingframeworksdesignedtomeetthefinancialinformationneedsofspe
cificusers.10
A7.Deficienciesintheapplicablefinancialreportingframeworkthatindicatethatth
eframeworkisnotacceptablemaybeencounteredaftertheauditengageme
nthasbeenaccepted.Whenuseofthatframeworkisprescribedbylaworregul
ation,therequirementsofparagraphs1920apply.Whenuseofthatframeworkisnotprescribedbylaworregulation,m
anagementmaydecidetoadoptanotherframeworkthatisacceptable.Whe
nmanagementdoesso,asrequiredbyparagraph16,newtermsoftheaudite
ngagementareagreedtoreflectthechangeintheframeworkasthepreviousl
yagreedtermswillnolongerbeaccurate.
Generalpurposeframeworks
A8.Atpresent,thereisnoobjectiveandauthoritativebasisthathasbeengenerallyre
cognizedgloballyforjudgingtheacceptabilityofgeneralpurposeframework
s.Intheabsenceofsuchabasis,financialreportingstandardsestablishedbyo
rganizationsthatareauthorizedorrecognizedtopromulgatestandardstobe
usedbycertaintypesofentitiesarepresumedtobeacceptableforgeneralpur
posefinancialstatementspreparedbysuchentities,providedtheorganizati
onsfollowanestablishedandtransparentprocessinvolvingdeliberationand
considerationoftheviewsofawiderangeofstakeholders.Examplesofsuchfi
nancialreportingstandardsinclude:
InternationalFinancialReportingStandards(IFRSs)promulgatedbytheInte
rnationalAccountingStandardsBoard;
PhilippineFinancialReportingStandards(PFRSs)issuedbytheFinancialRep
ortingStandardsCouncil;
InternationalPublicSectorAccountingStandards(IPSASs)promulgatedbyt
heInternationalPublicSectorAccountingStandardsBoard;and
Accountingprinciplespromulgatedbyanauthorizedorrecognizedstandard
ssettingorganizationinaparticularjurisdiction,providedtheorganizationfo
llowsanestablishedandtransparentprocessinvolvingdeliberationandcon
siderationoftheviewsofawiderangeofstakeholders.
PSA800(Revised andRedrafted),SpecialConsiderations
AuditsofFinancialStatementsPrepared in AccordancewithSpecialPurposeFrameworks,pa
ragraph 8.

Thesefinancialreportingstandardsareoftenidentifiedastheapplicable
financialreportingframeworkinlaworregulationgoverningtheprepara
tionofgeneralpurposefinancialstatements.
Financialreportingframeworksprescribedbylaworregulation
A9.Inaccordancewithparagraph6(a),theauditorisrequiredtodeterminewheth
erthefinancialreportingframework,tobeappliedinthepreparationofthefi
nancialstatements,isacceptable.Insomejurisdictions,laworregulation
mayprescribethefinancialreportingframeworktobeusedinthepreparati
onofgeneralpurposefinancialstatementsforcertaintypesofentities.Inth
eabsenceofindicationstothecontrary,suchafinancialreportingframewo
rkispresumedtobeacceptableforgeneralpurposefinancialstatementspr
eparedbysuchentities.Intheeventthattheframeworkisnotconsideredto

beacceptable,paragraphs1920apply.
Jurisdictionsthatdonothavestandardssettingorganizationsorprescribedfinancia
lreportingframeworks
A10.Whenanentityisregisteredoroperatinginajurisdictionthatdoesnothaveana
uthorizedorrecognizedstandardssettingorganization,orwhereuseofthefi
nancialreportingframeworkisnotprescribedbylaworregulation,manage
mentidentifiesafinancialreportingframeworktobeappliedinthepreparati
onofthefinancialstatements.Appendix2containsguidanceondeterminin
gtheacceptabilityoffinancialreportingframeworksinsuchcircumstances.
AgreementoftheResponsibilitiesofManagement(Ref:Para.6(b))
A11.AnauditinaccordancewithPSAsisconductedonthepremisethatmanagemen
thasacknowledgedandunderstandsthatithastheresponsibilitiessetoutinp
11
aragraph6(b).
Incertainjurisdictions,suchresponsibilitiesmaybespecifiedinlaworregulat
ion.Inothers,theremaybelittleornolegalorregulatorydefinitionofsuchresp
onsibilities.PSAsdonotoverridelaworregulationinsuchmatters.However,t
heconceptofanindependentauditrequiresthattheauditorsroledoesnotin
volvetakingresponsibilityforthepreparationofthefinancialstatementsorfo
rtheentitysrelatedinternalcontrol,andthattheauditorhasareasonableexp
ectationofobtainingtheinformationnecessaryfortheauditinsofarasmana
gementisabletoprovideorprocureit.Accordingly,thepremiseisfundament
altotheconductofanindependentaudit.Toavoidmisunderstanding,agree
mentisreachedwithmanagementthatitacknowledgesandunderstandsth
atithassuchresponsibilitiesaspartofagreeingandrecordingthetermsofthe
auditengagementinparagraphs912.
A12.Thewayinwhichtheresponsibilitiesforfinancialreportingaredividedbetwee
nmanagementandthosechargedwithgovernancewillvaryaccordingtoth
eresourcesandstructureoftheentityandanyrelevantlaworregulation,and
therespectiverolesofmanagementandthosechargedwithgovernancewit
hintheentity.Inmostcases,
PSA200(Revised andRedrafted),paragraph A2.

managementisresponsibleforexecutionwhilethosechargedwithgovernan
cehaveoversightofmanagement.Insomecases,thosechargedwithgovern
ancewillhave,orwillassume,responsibilityforapprovingthefinancialstate
mentsormonitoringtheentitysinternalcontrolrelatedtofinancialreporting
.Inlargerorpublicentities,asubgroupofthosechargedwithgovernance,suc
hasanauditcommittee,maybechargedwithcertainoversightresponsibiliti
es.
A13.PSA580(RevisedandRedrafted)requirestheauditortorequestmanagement
toprovidewrittenrepresentationsthatithasfulfilledcertainofitsresponsibil
12
ities.
Itmaythereforebeappropriatetomakemanagementawarethatreceiptofs
uchwrittenrepresentationswillbeexpected,togetherwithwrittenreprese
ntationsrequiredbyotherPSAsand,wherenecessary,writtenrepresentati

onstosupportotherauditevidencerelevanttothefinancialstatementsoron
eormorespecificassertionsinthefinancialstatements.
A14.Wheremanagementwillnotacknowledgeitsresponsibilities,oragreetoprovi
dethewrittenrepresentations,theauditorwillbeunabletoobtainsufficienta
13
ppropriateauditevidence.
Insuchcircumstances,itwouldnotbeappropriatefortheauditortoacceptthe
auditengagement,unlesslaworregulationrequirestheauditortodoso.Inca
seswheretheauditorisrequiredtoaccepttheauditengagement,theauditor
mayneedtoexplaintomanagementtheimportanceofthesematters,andth
eimplicationsfortheauditorsreport.
PreparationoftheFinancialStatements(Ref:Para6(b)(i))
A15.Mostfinancialreportingframeworksincluderequirementsrelatingtotheprese
ntationofthefinancialstatements;forsuchframeworks,preparationofthefi
nancialstatementsinaccordancewiththefinancialreportingframeworkincl
udespresentation.Inthecaseofafairpresentationframeworktheimportanc
eofthereportingobjectiveoffairpresentationissuchthatthepremiseagreed
withmanagementincludesspecificreferencetofairpresentationinaccorda
ncewiththefinancialreportingframework.
InternalControl(Ref:Para.6(b)(ii))
A16.Managementmaintainssuchinternalcontrolasitdeterminesisnecessaryto
enablethepreparationoffinancialstatementsthatarefreefrommaterial
misstatement,whetherduetofraudorerror.Internalcontrol,nomatterho
weffective,canprovideanentitywithonlyreasonableassuranceaboutach
ievingtheentitysfinancialreportingobjectivesduetotheinherentlimitati
onsofinternalcontrol.14
A17.AnindependentauditconductedinaccordancewiththePSAsdoesnotactasas
ubstituteforthemaintenanceofinternalcontrolnecessaryforthepreparatio
noffinancialstatementsbymanagement.Accordingly,theauditorisrequire
dtoobtaintheagreementofmanagementthatitacknowledgesandundersta
ndsitsresponsibilityforinternalcontrol.However,theagreementrequiredb
yparagraph6(b)(ii)doesnot
12

PSA580(Revised andRedrafted),Written Representations,paragraphs1011.

13

PSA580(Revised andRedrafted),paragraph A28.

14

PSA315(Redrafted),IdentifyingandAssessingtheRisksofMaterialMisstatementthrough Un
derstanding theEntityandItsEnvironment,paragraph A42.

implythattheauditorwillfindthatinternalcontrolmaintainedbymanage
menthasachieveditspurposeorwillbefreeofdeficiencies.
A18.Itisformanagementtodeterminewhatinternalcontrolisnecessarytoenable
thepreparationofthefinancialstatements.Theterminternalcontrolenc

ompassesawiderangeofactivitieswithincomponentsthatmaybedescrib
edasthecontrolenvironment;theentitysriskassessmentprocess;theinf
ormationsystem,includingtherelatedbusinessprocessesrelevanttofina
ncialreporting,andcommunication;controlactivities;andmonitoringofc
ontrols.Thisdivision,however,doesnotnecessarilyreflecthowaparticula
rentitymaydesign,implementandmaintainitsinternalcontrol,orhowitm
15
ayclassifyanyparticularcomponent.
Anentitysinternalcontrol(inparticular,itsaccountingbooksandrecords,
oraccountingsystems)willreflecttheneedsofmanagement,thecomplexi
tyofthebusiness,thenatureoftheriskstowhichtheentityissubject,andrel
evantlawsorregulation.
A19.Insomejurisdictions,laworregulationmayrefertotheresponsibilityofmanage
mentfortheadequacyofaccountingbooksandrecords,oraccountingsyste
ms.Insomecases,generalpracticemayassumeadistinctionbetweenaccou
ntingbooksandrecordsoraccountingsystemsontheonehand,andinternalc
ontrolorcontrolsontheother.Asaccountingbooksandrecords,oraccountin
gsystems,areanintegralpartofinternalcontrolasreferredtoinparagraphA1
8,nospecificreferenceismadetotheminparagraph6(b)
(ii)forthedescriptionoftheresponsibilityofmanagement.Toavoidmisunder
standing,itmaybeappropriatefortheauditortoexplaintomanagementthes
copeofthisresponsibility.
ConsiderationsRelevanttoSmallerEntities(Ref:Para.6(b))
A20.Oneofthepurposesofagreeingthetermsoftheauditengagementistoavoid
misunderstandingabouttherespectiveresponsibilitiesofmanagementa
ndtheauditor.Forexample,whenathirdpartyhasassistedwiththeprepara
tionofthefinancialstatements,itmaybeusefultoremindmanagementtha
tthepreparationofthefinancialstatementsinaccordancewiththeapplica
blefinancialreportingframeworkremainsitsresponsibility.
AgreementonAuditEngagementTerms
AgreeingtheTermsoftheAuditEngagement(Ref:Para.9)
A21.Therolesofmanagementandthosechargedwithgovernanceinagreeingthet
ermsoftheauditengagementfortheentitydependonthegovernancestruct
ureoftheentityandrelevantlaworregulation.
AuditEngagementLetterorOtherFormofWrittenAgreement

16

(Ref:Para.1011)

A22.Itisintheinterestsofboththeentityandtheauditorthattheauditorsendsanaud
itengagementletterbeforethecommencementoftheaudittohelpavoidmis
understandingswithrespecttotheaudit.Insomecountries,however,theobj
ective
15

PSA315(Redrafted),paragraph A47and Appendix 1.

16

Intheparagraphsthatfollow,anyreferenceto an auditengagementletteristo betaken asaref

erencetoan auditengagementletterorothersuitableformofwrittenagreement.

andscopeofanauditandtheresponsibilitiesofmanagementandoftheaudi
tormaybesufficientlyestablishedbylaw,thatis,theyprescribethematters
describedinparagraph10.Althoughinthesecircumstancesparagraph11
permitstheauditortoincludeintheengagementletteronlyreferencetothe
factthatrelevantlaworregulationappliesandthatmanagementacknowle
dgesandunderstandsitsresponsibilitiesassetoutinparagraph6(b),theau
ditormayneverthelessconsideritappropriatetoincludethemattersdescri
bedinparagraph10inanengagementletterfortheinformationofmanage
ment.
FormandContentoftheAuditEngagementLetter
A23.Theformandcontentoftheauditengagementlettermayvaryforeachentity.In
formationincludedintheauditengagementletterontheauditorsresponsi
bilitiesmaybebasedonPSA200(RevisedandRedrafted).17
Paragraphs6(b)and12ofthisPSAdealwiththedescriptionoftheresponsibili
tiesofmanagement.Inadditiontoincludingthemattersrequiredbyparagra
ph10,anauditengagementlettermaymakereferenceto,forexample:
Elaborationofthescopeoftheaudit,includingreferencetoapplicablelegisla
tion,regulations,PSAs,andethicalandotherpronouncementsofprofession
albodiestowhichtheauditoradheres.
Theformofanyothercommunicationofresultsoftheauditengagement.
Thefactthatbecauseoftheinherentlimitationsofanaudit,togetherwiththei
nherentlimitationsofinternalcontrol,thereisanunavoidableriskthatsome
materialmisstatementsmaynotbedetected,eventhoughtheauditisprope
rlyplannedandperformedinaccordancewithPSAs.
Arrangementsregardingtheplanningandperformanceoftheaudit,includin
gthecompositionoftheauditteam.
Theexpectationthatmanagementwillprovidewrittenrepresentations(see
alsoparagraphA13).
Theagreementofmanagementtomakeavailabletotheauditordraftfinanci
alstatementsandanyaccompanyingotherinformationintimetoallowthea
uditortocompletetheauditinaccordancewiththeproposedtimetable.
Theagreementofmanagementtoinformtheauditoroffactsthatmayaffectt
hefinancialstatements,ofwhichmanagementmaybecomeawareduringth
eperiodfromthedateoftheauditorsreporttothedatethefinancialstatemen
tsareissued.
Thebasisonwhichfeesarecomputedandanybillingarrangements.
Arequestformanagementtoacknowledgereceiptoftheauditengagementl
etterandtoagreetothetermsoftheengagementoutlinedtherein.
A24.Whenrelevant,thefollowingpointscouldalsobemadeintheauditengage
mentletter:

1
2
3

Arrangementsconcerningtheinvolvementofotherauditorsandexpertsins
omeaspectsoftheaudit.
Arrangementsconcerningtheinvolvementofinternalauditorsandothersta
ffoftheentity.
Arrangementstobemadewiththepredecessorauditor,ifany,inthecaseofa
ninitialaudit.

4
5
6

Anyrestrictionoftheauditorsliabilitywhensuchpossibilityexists.
Areferencetoanyfurtheragreementsbetweentheauditorandtheentity.
Anyobligationstoprovideauditworkingpaperstootherparties.

PSA200(Revised andRedrafted),paragraphs39.

AnexampleofanauditengagementletterissetoutinAppendix1.
AuditsofComponents
A25.Whentheauditorofaparententityisalsotheauditorofacomponent,thefactors
thatmayinfluencethedecisionwhethertosendaseparateauditengagemen
tlettertothecomponentincludethefollowing:
Whoappointsthecomponentauditor;
Whetheraseparateauditorsreportistobeissuedonthecomponent;
Legalrequirementsinrelationtoauditappointments;
Degreeofownershipbyparent;and
Degreeofindependenceofthecomponentmanagementfromtheparentent
ity.
ResponsibilitiesofManagementPrescribedbyLaworRegulation(Ref:Para.1112)
A26.If,inthecircumstancesdescribedinparagraphsA22andA27,theauditorconcl
udesthatitisnotnecessarytorecordcertaintermsoftheauditengagementi
nanauditengagementletter,theauditorisstillrequiredbyparagraph11tos
eekthewrittenagreementfrommanagementthatitacknowledgesandund
erstandsthatithastheresponsibilitiessetoutinparagraph6(b).However,in
accordancewithparagraph12,suchwrittenagreementmayusethewordin
gofthelaworregulationifsuchlaworregulationestablishesresponsibilitiesf
ormanagementthatareequivalentineffecttothosedescribedinparagraph
6(b).Theaccountingprofession,auditstandardssetter,orauditregulatorin
ajurisdictionmayhaveprovidedguidanceastowhetherthedescriptioninla
worregulationisequivalent.
Considerationsspecifictopublicsectorentities
A27.Laworregulationgoverningtheoperationsofpublicsectorauditsgenerallyma
ndatetheappointmentofapublicsectorauditorandcommonlysetoutthepu
blicsectorauditorsresponsibilitiesandpowers,includingthepowertoacces
sanentitysrecordsandotherinformation.Whenlaworregulationprescribes
insufficientdetailthetermsoftheauditengagement,thepublicsectoraudito
rmaynonethelessconsiderthattherearebenefitsinissuingafullerauditeng
agementletterthanpermittedbyparagraph11.
RecurringAudits(Ref:Para.13)
A28.Theauditormaydecidenottosendanewauditengagementletterorotherwr
ittenagreementeachperiod.However,thefollowingfactorsmaymakeita
ppropriatetorevisethetermsoftheauditengagementortoremindtheent
ityofexistingterms:

Anyindicationthattheentitymisunderstandstheobjectiveandscopeofthe

2
3
4
5
6
7
8

audit.
Anyrevisedorspecialtermsoftheauditengagement.
Arecentchangeofseniormanagement.
Asignificantchangeinownership.
Asignificantchangeinnatureorsizeoftheentitysbusiness.
Achangeinlegalorregulatoryrequirements.
Achangeinthefinancialreportingframeworkadoptedinthepreparationofth
efinancialstatements.
Achangeinotherreportingrequirements.

AcceptanceofaChangeintheTermsoftheAuditEngagement
RequesttoChangetheTermsoftheAuditEngagement(Ref:Para.14)
A29.Arequestfromtheentityfortheauditortochangethetermsoftheauditengage
mentmayresultfromachangeincircumstancesaffectingtheneedfortheser
vice,amisunderstandingastothenatureofanauditasoriginallyrequestedor
arestrictiononthescopeoftheauditengagement,whetherimposedbymana
gementorcausedbyothercircumstances.Theauditor,asrequiredbyparagr
aph14,considersthejustificationgivenfortherequest,particularlytheimpli
cationsofarestrictiononthescopeoftheauditengagement.
A30.Achangeincircumstancesthataffectstheentitysrequirementsoramisund
erstandingconcerningthenatureoftheserviceoriginallyrequestedmay
beconsideredareasonablebasisforrequestingachangeintheauditenga
gement.
A31.Incontrast,achangemaynotbeconsideredreasonableifitappearsthatthec
hangerelatestoinformationthatisincorrect,incompleteorotherwiseunsa
tisfactory.Anexamplemightbewheretheauditorisunabletoobtainsuffici
entappropriateauditevidenceregardingreceivablesandtheentityasksfo
rtheauditengagementtobechangedtoareviewengagementtoavoidaqu
alifiedopinionoradisclaimerofopinion.
RequesttoChangetoaRevieworaRelatedService(Ref:Para.15)
A32.Beforeagreeingtochangeanauditengagementtoarevieworarelatedservice
,anauditorwhowasengagedtoperformanauditinaccordancewithPSAsma
yneedtoassess,inadditiontothemattersreferredtoinparagraphsA29A31above,anylegalorcontractualimplicationsofthechange.
A33.Iftheauditorconcludesthatthereisreasonablejustificationtochangetheaudit
engagementtoarevieworarelatedservice,theauditworkperformedtothed
ateofchangemayberelevanttothechangedengagement;however,thewor
krequiredtobeperformedandthereporttobeissuedwouldbethoseappropri
atetotherevisedengagement.Inordertoavoidconfusingthereader,therep
ortontherelatedservicewouldnotincludereferenceto:

1
2

(a)
(b)

Theoriginalauditengagement;or

Anyproceduresthatmayhavebeenperformedintheoriginalauditengagem
ent,exceptwheretheauditengagementischangedtoanengagementtound
ertakeagreeduponproceduresandthusreferencetotheproceduresperformedisanormal
partofthereport.
AdditionalConsiderationsinEngagementAcceptance
FinancialReportingStandardsSupplementedbyLaworRegulation(Ref:Para.18)
A34.Insomejurisdictions,laworregulationmaysupplementthefinancialreporting
standardsestablishedbyanauthorizedorrecognizedstandardssettingorga
nizationwithadditionalrequirementsrelatingtothepreparationoffinancials
tatements.Inthosejurisdictions,theapplicablefinancialreportingframewo
rkforthepurposesofapplyingthePSAsencompassesboththeidentifiedfina
ncialreportingframeworkandsuchadditionalrequirementsprovidedtheyd
onotconflictwiththeidentifiedfinancialreportingframework.Thismay,fore
xample,bethecasewhenlaworregulationprescribesdisclosuresinaddition
tothoserequiredbythefinancialreportingstandardsorwhentheynarrowthe
rangeofacceptablechoicesthatcanbemadewithinthefinancialreportingst
andards.18
FinancialReportingFrameworkPrescribedbyLaworRegulation
OtherMattersAffectingAcceptance(Ref:Para.19)
A35.Laworregulationmayprescribethatthewordingoftheauditorsopinionuseth
ephrasespresentfairly,inallmaterialrespectsinacasewheretheauditorc
oncludesthattheapplicablefinancialreportingframeworkprescribedbyla
worregulationwouldotherwisehavebeenunacceptable.Inthiscase,theter
msoftheprescribedwordingoftheauditorsreportaresignificantlydifferent
fromtherequirementsofPSAs(seeparagraph21).
AuditorsReportPrescribedbyLaworRegulation(Ref:Para.21)
A36.PSAsrequirethattheauditorshallnotrepresentcompliancewithPSAsunlesst
19
heauditorhascompliedwithallofthePSAsrelevanttotheaudit.
19Whenlaworregulationprescribesthelayoutorwordingoftheauditorsrep
ortinaformorintermsthataresignificantlydifferentfromtherequirements
ofPSAsandtheauditorconcludesthatadditionalexplanationintheauditor
sreportcannotmitigatepossiblemisunderstanding,theauditormayconsi
derincludingastatementintheauditorsreportthattheauditisnotconduct
edinaccordancewithPSAs.Theauditoris,however,encouragedtoapplyPS
As,includingthePSAsthataddresstheauditorsreport,totheextentpractic
able,notwithstandingthattheauditorisnotpermittedtorefertotheauditbe
ingconductedinaccordancewithPSAs.

18

PSA700 (Redrafted),paragraph15,includesarequirementregardingtheevaluation ofwheth

erthefinancialstatementsadequatelyrefertoordescribetheapplicablefinancialreportingfra
mework.
19

PSA200(Revised andRedrafted),paragraph 20.

ConsiderationsSpecifictoPublicSectorEntities
A37.Inthepublicsector,specificrequirementsmayexistwithinthelegislationgover
ningtheauditmandate;forexample,theauditormayberequiredtoreportdir
ectlytoaminister,thelegislatureorthepubliciftheentityattemptstolimitthe
scopeoftheaudit.

Acknowledgment
ThisPSAisbasedonInternationalStandardonAuditing210(Redrafted),Agreei
ngtheTermsofAuditEngagements,issuedbytheInternationalAuditingandAs
suranceStandardsBoard.
TherearenosignificantdifferencesbetweenthisPSA210(Redrafted)andISA21
0(Redrafted),exceptforthedeletionoffootnote23,Appendix2andfootnotes43
,44andlastsentenceoffootnote45oftheconformingamendmentstoPSA700(R
edrafted),whichdonotapplyinthePhilippinesandarethereforenotused.

Appendix
1
(Ref:Paras.A2324)

ExampleofanAuditEngagementLetter
Thefollowingisanexampleofanauditengagementletterforanauditofgeneralpur
posefinancialstatementspreparedinaccordancewithPhilippineFinancialReporti
ngStandards.Thisletterisnotauthoritativebutisintendedonlytobeaguidethatm
aybeusedinconjunctionwiththeconsiderationsoutlinedinthisPSA.Itwillneedtob
evariedaccordingtoindividualrequirementsandcircumstances.Itisdraftedtoref
ertotheauditoffinancialstatementsforasinglereportingperiodandwouldrequire
adaptationifintendedorexpectedtoapplytorecurringaudits(seeparagraph13oft
hisPSA).Itmaybeappropriatetoseeklegaladvicethatanyproposedletterissuitabl
e.
***
Totheappropriaterepresentativeofmanagementorthosechargedwithgoverna
nceofABCCompany:20
[Theobjectiveandscopeoftheaudit]
You21
haverequestedthatweauditthefinancialstatementsofABCCompany,whichcom
prisethebalancesheetasatDecember31,20X1,andtheincomestatement,state
mentofchangesinequityandcashflowstatementfortheyearthenended,andasu
mmaryofsignificantaccountingpoliciesandotherexplanatoryinformation.Wear

epleasedtoconfirmouracceptanceandourunderstandingofthisauditengageme
ntbymeansofthisletter.Ourauditwillbeconductedwiththeobjectiveofourexpres
singanopiniononthefinancialstatements.
[Theresponsibilitiesoftheauditor]
WewillconductourauditinaccordancewithPhilippineStandardsonAuditing(PSAs)
.Thosestandardsrequirethatwecomplywithethicalrequirementsandplanandperf
ormtheaudittoobtainreasonableassuranceaboutwhetherthefinancialstatement
sarefreefrommaterialmisstatement.Anauditinvolvesperformingprocedurestoo
btainauditevidenceabouttheamountsanddisclosuresinthefinancialstatements.
Theproceduresselecteddependontheauditorsjudgment,includingtheassessme
ntoftherisksofmaterialmisstatementofthefinancialstatements,whetherduetofr
audorerror.Anauditalsoincludesevaluatingtheappropriatenessofaccountingpoli
ciesusedandthereasonablenessofaccountingestimatesmadebymanagement,a
swellasevaluatingtheoverallpresentationofthefinancialstatements.
Becauseoftheinherentlimitationsofanaudit,togetherwiththeinherentlimitation
sofinternalcontrol,thereisanunavoidableriskthatsomematerialmisstatements
maynotbedetected,eventhoughtheauditisproperlyplannedandperformedinac
cordancewithPSAs.

20

Theaddresseesand referencesintheletterwouldbethosethatareappropriatein thecircumst

ancesoftheengagement,includingtherelevantjurisdiction.Itisimportanttorefertotheappro
priatepersonsseeparagraph A21.
21

Throughoutthisletter,referencestoyou,we,us,management,thosechargedwithgo
vernanceand auditorwould beused oramended asappropriateinthecircumstances.

Inmakingourriskassessments,weconsiderinternalcontrolrelevanttotheentitysp
reparationofthefinancialstatementsinordertodesignauditproceduresthatareap
propriateinthecircumstances,butnotforthepurposeofexpressinganopiniononth
eeffectivenessoftheentitysinternalcontrol.However,wewillcommunicatetoyoui
nwritingconcerninganysignificantdeficienciesininternalcontrolrelevanttotheau
ditofthefinancialstatementsthatwehaveidentifiedduringtheaudit.
[Theresponsibilitiesofmanagementandidentificationoftheapplicablefinancial
reportingframework(forpurposesofthisexampleitisassumedthattheauditorha
snotdeterminedthatthelaworregulationprescribesthoseresponsibilitiesinapp
ropriateterms;thedescriptionsinparagraph6(b)ofthisPSAarethereforeused).]
Ourauditwillbeconductedonthebasisthat[managementand,whereappropri
ate,thosechargedwithgovernance]22
acknowledgeandunderstandthattheyhaveresponsibility:

(a)
Forthepreparationandfairpresentationofthefinancialstatementsinaccor
dancewithPhilippineFinancialReportingStandards;23

(b)
Forsuchinternalcontrolas[management]determinesisnecessarytoenabl
ethepreparationoffinancialstatementsthatarefreefrommaterialmisstate
ment,whetherduetofraudorerror;and
1. (c) Toprovideuswith:
2. (i)
Accesstoallinformationofwhich[management]isawarethatisrelevantt
othepreparationofthefinancialstatementssuchasrecords,documenta
tionandothermatters;
3. (ii)
Additionalinformationthatwemayrequestfrom[management]forthep
urposeoftheaudit;and
(iii)
Unrestrictedaccesstopersonswithintheentityfromwhomwedeter
mineitnecessarytoobtainauditevidence.

Aspartofourauditprocess,wewillrequestfrom[managementand,whereappropria
te,thosechargedwithgovernance],writtenconfirmationconcerningrepresentatio
nsmadetousinconnectionwiththeaudit.
Welookforwardtofullcooperationfromyourstaffduringouraudit.
[Otherrelevantinformation]
[Insertotherinformation,suchasfeearrangements,billingsandotherspecifict
erms,asappropriate.]

22

Useterminologyasappropriatein thecircumstances.
23

Or,ifappropriate,Forthepreparation offinancialstatementsthatgiveatrueandfairviewin ac
cordancewith InternationalFinancialReportingStandards.[Thisfootnotedoesnotapplyin th
ePhilippinesand thereforenotused.]

[Reporting]
[Insertappropriatereferencetotheexpectedformandcontentoftheauditorsrepo
rt.]
Theformandcontentofourreportmayneedtobeamendedinthelightofourauditfin
dings.
Pleasesignandreturntheattachedcopyofthislettertoindicateyouracknowledge

mentof,andagreementwith,thearrangementsforourauditofthefinancialstatem
entsincludingourrespectiveresponsibilities.
XYZ&Co.
AcknowledgedandagreedonbehalfofABCCompanyby
(signed)
.....................
.NameandTitl
eDate

Appendix
2

(Ref:Para.A10
)

[ThisAppendix2doesnotapplyinthePhilippinesandisthereforenotused.]

DeterminingtheAcceptabilityofGeneralPurposeFrameworks
JurisdictionsthatDoNotHaveAuthorizedorRecognizedStandardsSettingOrga
nizationsorFinancialReportingFrameworksPrescribedbyLaworRegulation

AsexplainedinparagraphA10ofthisPSA,whenanentityisregisteredoroper
atinginajurisdictionthatdoesnothaveanauthorizedorrecognizedstandard
ssettingorganization,orwhereuseofthefinancialreportingframeworkisno
tprescribedbylaworregulation,managementidentifiesanapplicablefinan
cialreportingframework.Practiceinsuchjurisdictionsisoftentousethefinan
cialreportingstandardsestablishedbyoneoftheorganizationsdescribedin
paragraphA8ofthisPSA.
Alternatively,theremaybeestablishedaccountingconventionsinaparticul
arjurisdictionthataregenerallyrecognizedasthefinancialreportingframe
workforgeneralpurposefinancialstatementspreparedbycertainspecified
entitiesoperatinginthatjurisdiction.Whensuchafinancialreportingframe
workisadopted,theauditorisrequiredbyparagraph6(a)ofthisPSAtodeter
minewhethertheaccountingconventionscollectivelycanbeconsideredtoc
onstituteanacceptablefinancialreportingframeworkforgeneralpurposefi
nancialstatements.Whentheaccountingconventionsarewidelyusedinap
articularjurisdiction,theaccountingprofessioninthatjurisdictionmayhave
consideredtheacceptabilityofthefinancialreportingframeworkonbehalfo
ftheauditors.Alternatively,theauditormaymakethisdeterminationbycons
ideringwhethertheaccountingconventionsexhibitattributesnormallyexhi
bitedbyacceptablefinancialreportingframeworks(seeparagraph3below)
,orbycomparingtheaccountingconventionstotherequirementsofanexisti
ngfinancialreportingframeworkconsideredtobeacceptable(seeparagrap
h4below).
1. 3.
Acceptablefinancialreportingframeworksnormallyexhibitthefollowin

gattributesthatresultininformationprovidedinfinancialstatementstha
tisusefultotheintendedusers:
2. (a)
Relevance,inthattheinformationprovidedinthefinancialstatementsisr
elevanttothenatureoftheentityandthepurposeofthefinancialstateme
nts.Forexample,inthecaseofabusinessenterprisethatpreparesgener
alpurposefinancialstatements,relevanceisassessedintermsoftheinfo
rmationnecessarytomeetthecommonfinancialinformationneedsofa
widerangeofusersinmakingeconomicdecisions.Theseneedsareordin
arilymetbypresentingthefinancialposition,financialperformanceand
cashflowsofthebusinessenterprise.
3. (b)
Completeness,inthattransactionsandevents,accountbalancesanddis
closuresthatcouldaffectconclusionsbasedonthefinancialstatements
arenotomitted.
4. (c)
Reliability,inthattheinformationprovidedinthefinancialstatements:
5. (i)
Whereapplicable,reflectstheeconomicsubstanceofeventsandtransa
ctionsandnotmerelytheirlegalform;and
6. (ii)
Resultsinreasonablyconsistentevaluation,measurement,presentatio
nanddisclosure,whenusedinsimilarcircumstances.
7. (d)
Neutrality,inthatitcontributestoinformationinthefinancialstatements
thatisfreefrombias.
8. (e)

Understandability,inthattheinformationinthefinancialstatementsiscl
earandcomprehensiveandnotsubjecttosignificantlydifferentinterpre
tation.
Theauditormaydecidetocomparetheaccountingconventionstotherequir
ementsofanexistingfinancialreportingframeworkconsideredtobeaccept
able.Forexample,theauditormaycomparetheaccountingconventionstoIF
RSs.Foranauditofasmallentity,theauditormaydecidetocomparetheacco
untingconventionstoafinancialreportingframeworkspecificallydevelope
dforsuchentitiesbyanauthorizedorrecognizedstandardssettingorganizat
ion.Whentheauditormakessuchacomparisonanddifferencesareidentifie
d,thedecisionastowhethertheaccountingconventionsadoptedintheprep
arationandpresentationofthefinancialstatementsconstituteanacceptabl
efinancialreportingframeworkincludesconsideringthereasonsforthediffe
rencesandwhetherapplicationoftheaccountingconventions,orthedescri
ptionofthefinancialreportingframeworkinthefinancialstatements,couldr
esultinfinancialstatementsthataremisleading.
Aconglomerationofaccountingconventionsdevisedtosuitindividualprefe
rencesisnotanacceptablefinancialreportingframeworkforgeneralpurpos

efinancialstatements.Similarly,acomplianceframeworkwillnotbeanacce
ptablefinancialreportingframework,unlessitisgenerallyacceptedinthepa
rticularjurisdictionsbypreparersandusers.23

CONFORMINGAMENDMENTSTOOTHERPSAsASARESULTOFPSA210(REDRA
FTED),AGREEINGTHETERMSOFAUDITENGAGEMENTS

PSA200(RevisedandRedrafted),OverallObjectivesoftheIndep
endentAuditorandtheConductofanAuditinAccordancewithPhili
ppineStandardsonAuditing
[Noamendmentsareproposedtoparagraphs13.]
4.
Thefinancialstatementssubjecttoauditarethoseoftheentity,preparedan
dpresentedbymanagementoftheentitywithoversightfromthosecharged
withgovernance.PSAsdonotimposeresponsibilitiesonmanagementorth
osechargedwithgovernanceanddonotoverridelawsandregulationsthatg
overntheirresponsibilities.However,anauditinaccordancewithPSAsiscon
ductedonthepremisethatmanagementand,whereappropriate,thosecha
rgedwithgovernancehaveacknowledgedcertainresponsibilitiesthataref
undamentaltotheconductoftheaudit.Theauditofthefinancialstatements
doesnotrelievemanagementorthosechargedwithgovernanceoftheir
those responsibilities.(Ref:Para.A2A11)
[Noamendmentsareproposedtoparagraphs512.]
Definitions
13.
ForpurposesofthePSAs,thefollowingtermshavethemeaningsattributedbe
low
(j)
Premise,relatingtotheresponsibilitiesofmanagementand,whereap
propriate,thosechargedwithgovernance,onwhichanauditisconduc
ted
Thatmanagementand,whereappropriate,thosechargedwithgover
nancehaveacknowledgedandunderstandthattheyhavethefollowin
gresponsibilitiesthatarefundamentaltotheconductofanauditinacc
ordancewithPSAs.Thatis,responsibility:

(i)
Forthepreparationandpresentationofthefinancialstatementsinaccordan
cewiththeapplicablefinancialreportingframework;,includingwhererelev
anttheirfairpresentationthisincludesthedesign,implementationandmain
tenanceofinternalcontrolrelevanttothepreparationandpresentationoffin

ancialstatementsthatarefreefrommaterialmisstatements,whetherdueto
fraudorerror;and
(ii)
Forsuchinternalcontrolasmanagementand,whereappropriate,thosechar
gedwithgovernancedetermineisnecessarytoenablethepreparationoffina
ncialstatementsthatarefreefrommaterialmisstatement,whetherduetofr
audorerror;and
(iii)

Toprovidetheauditorwith:
a.

Access to Aall information,

suchasrecordsanddocumentation,andothermatters
ofwhichmanagementand,whereappropriate,thosec
hargedwithgovernanceareawarethat is are
relevanttothepreparationandpresentationof the
financialstatementssuchasrecords,documentation
andothermatters;

b.
Any
aAdditionalinformationthattheauditormayrequestfrommanagementand
,whereappropriate,thosechargedwithgovernanceforthepurposeoftheau
dit; and
c.
Unrestrictedaccesstopersons those
withintheentityfromwhomtheauditordeterminesitnecessarytoobtainaud
itevidence.
Inthecaseofafairpresentationframework,theresponsibilityis(i)abo
vemayberestatedasforthepreparationandfairpresentationoffina
ncialstatementsinaccordancewiththefinancialreportingframewor
k;inaccordancewiththeapplicablefinancialreportingframework.
Thisappliestoallreferencestopreparationandpresentationofthefin
ancialstatementsinthePSAs.
Thepremise,relatingtotheresponsibilitiesofmanagementand,wh
ereappropriate,thosechargedwithgovernance,onwhichanauditis
conductedmayalsobereferredtoasthepremise.

[Noamendmentsareproposedtoparagraphs1424andA1.]
PreparationoftheFinancialStatements(Ref:Para.4)
A2.
Laworregulationmayestablishtheresponsibilitiesofmanagementand,wh
ereappropriate,thosechargedwithgovernanceinrelationtofinancialrepor
ting.However,theextentoftheseresponsibilities,orthewayinwhichtheyar
edescribed,maydifferacrossjurisdictions.Despitethesedifferences,aAna
uditinaccordancewithPSAsisconductedonthepremisethatmanagement
and,whereappropriate,thosechargedwithgovernancehaveacknowledge
dandunderstandthattheyhaveresponsibility:

(a)

Forthepreparationandpresentationofthefinancialstatementsinaccordan
cewiththeapplicablefinancialreportingframework;,includingwhererelev
anttheirfairpresentationthisincludesthedesign,implementationandmain
tenanceofinternalcontrolrelevanttothepreparationandpresentationoffin
ancialstatementsthatarefreefrommaterialmisstatements,whetherdueto
fraudorerror;and
(b)
Forsuchinternalcontrolasmanagementand,whereappropriate,thosechar
gedwithgovernancedetermineisnecessarytoenablethepreparationoffina
ncialstatementsthatarefreefrommaterialmisstatement,whetherduetofr
audorerror;and
(bc)Toprovidetheauditorwith:

(i)
Access to
Aallinformation,suchasrecordsanddocumentation,andothermattersofw
hichmanagementand,whereappropriate,thosechargedwithgovernance
areawarethat is are
relevanttothepreparationandpresentationofthefinancialstatementssuc
hasrecords,documentationandothermatters;
(ii)
Any
aAdditionalinformationthattheauditormayrequestfrommanagementand
,whereappropriate,thosechargedwithgovernanceforthepurposeoftheau
dit; and
(iii)

A3.

Unrestrictedaccesstopersons those
withintheentityfromwhomtheauditordeterminesitnecessar
ytoobtainauditevidence.

AspartoftheirresponsibilityfortThe preparation
andpresentationofthefinancialstatements, by
managementand,whereappropriate,thosechargedwithgovernancerequ
ires areresponsiblefor:
Theidentificationoftheapplicablefinancialreportingframework,inthecont
extofanyrelevantlawsorregulations.
Thepreparationandpresentationofthefinancialstatementsinaccordance
withthatframework.
TheinclusionofAanadequatedescriptionofthatframeworkinthefinancial
statements.

[NoamendmentsareproposedtoparagraphsA4A9.]
A10.Becauseofthesignificanceofthepremisetotheconductofanaudit,theauditor
isrequiredtoobtainthe agreement of from
managementand,whereappropriate,thosechargedwithgovernancethat
theyacknowledgeandunderstandthattheyhavetheir

responsibilitiessetoutinparagraphA2asapreconditionforacceptingtheau
24
ditengagement.
Theauditorisalsorequiredtoobtainwrittenrepresentationsaboutwhether
managementand,whereappropriate,thosechargedwithgovernancehav
25
efulfilledthoseresponsibilities.
[NoamendmentsareproposedtoparagraphsA11A76.]

24

PSA210(Redrafted),paragraph 6(b).
25

PSA580(Revised andRedrafted),Written Representations,paragraphs1011.

PSA580(RevisedandRedrafted),WrittenRepresentations
[Noamendmentsareproposedtoparagraphs15.]
Objectives
6.

Theobjectivesoftheauditorare:

(a)
Toobtainwrittenrepresentationsfrommanagementand,whereappropriat
e,thosechargedwithgovernancethat they management believes that
theyhaveit has fulfilled
theirresponsibilityforthepreparationofthefinancialstatementsandforthe
completenessoftheinformationprovidedtotheauditorthefundamentalres
ponsibilitiesthatconstitutethepremiseonwhichanauditisconducted;
(Ref:Para.A2A3)

(b)
Tosupportotherauditevidencerelevanttothefinancialstatementsorspecifi
cassertionsinthefinancialstatementsbymeansofwrittenrepresentationsi
fdeterminednecessarybytheauditororrequiredbyotherPSAs;and

(c)
Torespondappropriatelytowrittenrepresentationsprovidedbymanageme
ntand,whereappropriate,thosechargedwithgovernance,or if
management or,whereappropriate,thosechargedwithgovernancedoes
notprovidethewrittenrepresentationsrequestedbytheauditor.

[Noamendmentsareproposedtoparagraph7.]
Definitions
8.
ForpurposesofthisPSA,referencestomanagementshouldbereadasma
nagementand,whereappropriate,thosechargedwithgovernance.Furth
ermore,inthecaseofafairpresentationframework,managementisrespon
sibleforthepreparationandfairpresentationofthefinancialstatementsina
ccordancewiththeapplicable
financialreportingframeworkinaccordancewiththeapplicable
financialreportingframework.
[Noamendmentsareproposedtoparagraphs9.]
WrittenRepresentationsaboutManagementsResponsibilities
Preparation andPresentationoftheFinancialStatements
10.
Theauditorshallrequestmanagementtoprovideawrittenrepresentationth
atithasfulfilleditsresponsibilityforthepreparationandpresentationofthefi
nancialstatementsinaccordancewiththeapplicablefinancialreportingfra
mework,includingwhererelevanttheirfairpresentation,assetoutintheter
msoftheauditengagement.26
and,inparticular,whetherthefinancialstatementsarepreparedandpresent
edinaccordancewiththeapplicablefinancialreportingframework.(Ref:Para.
A9A11,A16,A24)

PSA210,Agreeing theTermsofAuditEngagements,paragraph 6(b)(i).

InformationProvidedandCompletenessofTransactionstotheAuditor
11.
Theauditorshallrequestmanagementtoprovideawrittenrepresentationth
at:

(a)
Iithasprovidedtheauditorwithallrelevantinformationandaccessasagreed

inthetermsoftheauditengagement,27 and
(b)
thataAlltransactionshavebeenrecordedandarereflectedinthefinancialst
atements.(Ref:Para.A9A11,A16,A24)

DescriptionofManagementsResponsibilitiesintheWrittenRepresentations
12.
Managementsresponsibilitiesshallbedescribedinthewrittenrepresent
ationsrequiredbyparagraphs10and11inthemannerinwhichtheseresp
onsibilitiesaredescribedinthetermsoftheauditengagement.
(Ref:Para.A3)

[Noamendmentsareproposedtoparagraphs1320andA1.]
Premise,relatingtoManagementsResponsibilities,onwhichanAuditisConducted
(Ref:Para.6(a),12)

A2.Laworregulationmayestablishmanagementsresponsibilitiesinrelationtofina
ncialreporting.However,theextentoftheseresponsibilities,orthewayinwhi
chtheyaredescribed,maydifferacrossjurisdictions.Despitethesedifferenc
es,anauditinaccordancewithPSAsisconductedonthepremisethatmanage
menthasresponsibility:

(a)
Forthepreparationandpresentationofthefinancialstatementsinaccordan
cewiththeapplicablefinancialreportingframework;thisincludesthedesign
,implementationandmaintenanceofinternalcontrolrelevanttotheprepar
ationandpresentationoffinancialstatementsthatarefreefrommaterialmis
statement,whetherduetofraudorerror;and
1 (b) Toprovidetheauditorwith:
2 (i)

Allinformation,suchasrecordsanddocumentation,andothermattersth
atarerelevanttothepreparationandpresentationofthefinancialstatem
ents;
(ii)
Anyadditionalinformationthattheauditormayrequestfrommanageme
nt;and

(iii)
Unrestrictedaccesstothosewithintheentityfromwhomthea
28
uditordeterminesitnecessarytoobtainauditevidence.

27

PSA210,paragraph 6(b)(iii).
28

[Proposed]PSA200 (Revisedand Redrafted),OverallObjectiveoftheIndependentAudito

r,andtheConductofan Auditin AccordancewithPhilippineStandardson Auditing,paragr
aph[8].

A3.
[Proposed]PSA210(Redrafted)requirestheauditortoobtaintheagreeme
ntofmanagementthatitacknowledgesandunderstandsthoseresponsibil
itiesasapreconditionforacceptingtheauditengagement. 29
Ifmanagementsresponsibilitiesprescribedbylaworregulationareequiv
alentineffecttothosedescribedinparagraphA2,theauditormayusethew
ordingofthelaworregulationtodescribetheminthetermsoftheauditenga
30
gement.
[NoamendmentsareproposedtoparagraphsA4A8.]
WrittenRepresentationsaboutManagementsResponsibilities(Ref:Para.1011)
A9.Auditevidenceobtainedduringtheauditthatmanagementhasfulfilledis
fulfilling
theresponsibilitiesreferredtoinparagraphs10and11thatitagreedtointhet
ermsoftheauditengagementisnotsufficientwithoutobtainingconfirmatio
nfrommanagementthatitbelievesthatithasfulfilledthoseresponsibilities.
Thisisbecausetheauditorisnotabletojudgesolelyonotherauditevidencew
hethermanagementhaspreparedthefinancialstatementsandprovidedinf
ormationtotheauditoronthebasisoftheagreedacknowledgementandund
erstandingofitsresponsibilities.Forexample,theauditorcouldnotconclude
thatmanagementhasprovidedtheauditorwithallrelevantthe information
agreedinthetermsoftheauditengagementdescribedinparagraphA2(b)wit
houtaskingitwhether,andreceivingconfirmationthat,suchinformationhas
beenprovided.
[NoamendmentsareproposedtoparagraphsA10A20.]
FormofWrittenRepresentations(Ref:Para.15)
A21.Writtenrepresentationsarerequiredtobeincludedinarepresentationletterad
dressedtotheauditor.Insomejurisdictions,however,managementmayber
equiredbylaworregulationtomakeawrittenpublicstatementaboutitsrespo
nsibilities.Althoughsuchstatementisarepresentationtotheusersofthefina
ncialstatements,ortorelevantauthorities,theauditormaydeterminethatiti
sanappropriateformofwrittenrepresentationinrespectofsomeorallofther
epresentationsrequiredbyparagraph10or11.Consequently,therelevant
matterscoveredbysuchstatementneednotbeincludedintherepresentatio
nletter.Factorsthatmayaffecttheauditorsdeterminationinclude:

1
2
3

Whetherthestatementincludesconfirmationofthefulfillmentoftherespon
sibilitiesreferredtoinparagraphs10and11thatareequivalenttosomeorallo
fthosesetoutinthetermsoftheauditengagement.
Whetherthestatementhasbeengivenorapprovedbythosefromwhomthea
uditorrequeststherelevantwrittenrepresentations.
Whetheracopyofthestatementisprovidedtotheauditorasnearaspractica

bleto,butnotafter,thedateoftheauditorsreportonthefinancialstatements
(seeparagraph14).
[NoamendmentsareproposedtoparagraphsA22A27.]

29

[Proposed]PSA210 (Redrafted),paragraph[4(b)].
30

[Proposed]PSA210 (Redrafted),paragraph[11].

WrittenRepresentationsaboutManagementsResponsibilities(Ref:Para.20)
A28.AsexplainedinparagraphA9,theauditorisnotabletojudgesolelyonotheraudi
tevidencewhethermanagementhasfulfilledtheresponsibilitiesreferredtoi
nparagraphs10and11preparedandpresentedthefinancialstatementsand
providedinformationtotheauditoronthebasisoftheagreedacknowledgem
entandunderstandingofitsresponsibilities.Therefore,if,asdescribedinpar
agraph20(a),theauditorconcludesthatthewrittenrepresentationsaboutth
esemattersareunreliable,orifmanagementdoesnotprovidethosewrittenr
epresentations,theauditorisunabletoobtainsufficientappropriateauditev
idence.Thepossibleeffectsonthefinancialstatementsofsuchinabilityaren
otconfinedtospecificelements,accountsoritemsofthefinancialstatement
sandarehencepervasive.[Proposed]
PSA705(RevisedandRedrafted)requirestheauditortodisclaimanopiniono
nthefinancialstatementsinsuchcircumstances.31
[NoamendmentsareproposedtoparagraphA29andAppendix1.]

[Proposed] PSA705 (Revisedand Redrafted),paragraph [12].

Appendix 2
(Ref:Para.A23)

IllustrativeRepresentationLetter
Thefollowingillustrativeletterincludeswrittenrepresentationsthatarerequiredby
thisandotherPSAsineffectforauditsoffinancialstatementsforperiodsbeginningo
norafteras at December 1531,
20092007.Itisassumedinthisillustrationthattheapplicablefinancialreportingfra
meworkisPhilippineFinancialReportingStandards;therequirementofPSA570(Re
32
drafted)
toobtainawrittenrepresentationisnotrelevant;andthattherearenoexceptionstot
herequestedwrittenrepresentations.Iftherewereexceptions,therepresentations
wouldneedtobemodifiedtoreflecttheexceptions.
(EntityLetterhead)
(ToAuditor)(Date)
Thisrepresentationletterisprovidedinconnectionwithyourauditofthefinancialsta
33
tementsofABCCompanyfortheyearendedDecember31,20XX
forthepurposeofexpressinganopinionastowhetherthefinancialstatementsarepr
esentedfairly,inallmaterialrespects,inaccordancewithPhilippineFinancialReport
ingStandards.
Weconfirmthat(,tothebestofourknowledgeandbelief,havingmadesuchinquiries
asweconsiderednecessaryforthepurposeofappropriatelyinformingourselves):
FinancialStatements

Wehavefulfilledourresponsibilities,assetoutinthetermsoftheauditengagem

entdated[insertdate],forthepreparationandpresentationofthefinancialstat
ementsinaccordancewithPhilippineFinancialReportingStandards;assetouti
nthetermsoftheauditengagementdated[insertdate]andinparticular,thefina
ncialstatementsarefairlypresentedinaccordancetherewithPhilippineFinanci
alReportingStandards.

InformationProvided
Wehaveprovidedyouwith:
a

suchasrecordsanddocumentation,andothermattersthat is are
relevanttothepreparationandpresentationofthefinancialstatementssuc
hasrecords,documentationandothermatters;
oAdditionalinformationthatyouhaverequestedfromusforthepurposeofth
eaudit; and
oUnrestrictedaccesstopersons those
withintheentityfromwhomyoudeterminedit

Access to allinformationofwhichweareaware,

necessarytoobtainauditevidence.
[NootheramendmentsareproposedtoAppendix2.]
32

PSA570(Redrafted),Going Concern.[Seefootnote15.]
33

Wheretheauditorreportson morethan oneperiod,theauditoradjuststhedateso thattheletterp

ertainstoallperiodscovered bytheauditorsreport.

PSA700(Redrafted),ForminganOpinionandReportingonFinanci
alStatements
[Noamendmentsareproposedtoparagraphs126.Paragraphs2425areincludedforinformationonly.]
ManagementsResponsibilityfortheFinancialStatements

2
3

Thissectionoftheauditorsreportdescribestheresponsibilitiesofthoseinth
eorganizationthatareresponsibleforthepreparationofthefinancialstatem
ents.Theauditorsreportneednotreferspecificallytomanagement,buts
hallusethetermthatisappropriateinthecontextofthelegalframeworkinthe
particularjurisdiction.Insomejurisdictions,theappropriatereferencemay
betothosechargedwithgovernance.
TheauditorsreportshallincludeasectionwiththeheadingManagements
[orotherappropriateterm]ResponsibilityfortheFinancialStatements.
Theauditorsreportshalldescribemanagementsresponsibilityfortheprep
arationofthefinancialstatementsinthemannerinwhichthatresponsibilityi
sdescribedinthetermsoftheauditengagement.Thedescriptionshallinclud
eanexplanationthatmanagementisresponsibleforthepreparationofthefi
nancialstatementsinaccordancewiththeapplicablefinancialreportingfra
mework,andforsuchinternalcontrolasitdeterminesisnecessary;thisrespo
nsibilityincludesthedesign,implementationandmaintenanceofinternalc
ontrolrelevantto enable
thepreparationoffinancialstatementsthatarefreefrommaterialmisstate
ment,whetherduetofraudorerror.(Ref:Para.A20A22)
Wherethefinancialstatementsarepreparedinaccordancewithafairpresen
tationframework,theexplanationofmanagementsresponsibilityforthefin
ancialstatementsintheauditorsreportshallrefertothepreparationandfai
rpresentationofthesefinancialstatements.

[Noamendmentsareproposedtoparagraphs28A4.]
DescriptionoftheApplicableFinancialReportingFramework(Ref:Para.15)
A5.AsexplainedinPSA200(RevisedandRedrafted),thepreparationofthefinancial
statementsbymanagementand,whereappropriate,thosechargedwithgo
vernancerequirestheinclusionofhaveresponsibilityforthepreparationofth
efinancialstatementsinaccordancewiththeapplicablefinancialreportingfr
ameworkandforanadequatedescriptionofthat
34
theapplicablefinancialreportingframeworkinthefinancialstatements.

Thatdescriptionisimportantbecauseitadvisesusersofthefinancialstatem
entsoftheframeworkonwhichthefinancialstatementsarebased.
[NoamendmentsareproposedtoparagraphsA6A19.]

PSA200(Revised andRedrafted),paragraphsA2A3.

ManagementsResponsibilityfortheFinancialStatements(Ref:Para.26)
A20.PSA200(RevisedandRedrafted)explainsthepremise,relatingtotheresponsib
ilitiesofmanagementand,whereappropriate,thosechargedwithgovernan
35
ce,onwhichanauditinaccordancewithPSAsisconducted.
Managementand,whereappropriate,thosechargedwithgovernanceacce
ptresponsibilityareresponsibleforthepreparationofthefinancialstatemen
tsinaccordancewiththeapplicablefinancialreportingframework,including
whererelevanttheirfairpresentation.
Forexample,inthecaseofmanygeneralpurposeframeworks,management
isresponsibleforthepreparationoffinancialstatementsthatfairlypresentth
efinancialposition,financialperformanceandcashflowsoftheentityinaccor
dancewiththoseframeworks.ThisManagementalsoacceptsresponsibility
includesthedesign,implementationandmaintenanceofforsuchinternalco
ntrolrelevant asitdeterminesisnecessaryto enable
thepreparationoffinancialstatementsthatarefreefrommaterialmisstatem
ent,whetherduetofraudorerror.Insomejurisdictions,laworregulationpresc
ribingmanagementsresponsibilitiesmayspecificallyrefertoaresponsibilit
yfortheadequacyofaccountingbooksandrecords,oraccountingsystem.As
books,recordsandsystemsareanintegralpartofinternalcontrol(asdefinedi
36
nPSA315(Redrafted) )nospecificreferenceismadetotheminparagraph2
6forthedescriptionofmanagementsresponsibilities.Thedescriptionofma
nagementsresponsibilitiesintheauditorsreportincludesreferencetoboth
responsibilitiesasithelpstoexplaintousersthepremiseonwhichanauditisc
onducted.
A21.Theremaybecircumstanceswhenitisappropriatefortheauditortoaddtoth
edescriptionofmanagementsresponsibilityinparagraph26toreflectad
ditionalresponsibilitiesthatarerelevanttothepreparationofthefinancial
statementsinthecontextoftheparticularjurisdictionorthenatureofthee
ntity.
A22.
Paragraph26isconsistentwiththeforminwhichtheresponsibilitiesareagre
edintheengagementletterorothersuitableformofwrittenagreement,asre
37
quiredbyPSA210(Redrafted).
PSA210(Redrafted)providessomeflexibilitybyexplainingexplains
that,iflaworregulationprescribestheresponsibilitiesofmanagementand,w
hereappropriate,thosechargedwithgovernanceinrelationtofinancialrepo
rting,theauditormaydeterminethatthelaworregulationincludesresponsib
ilitiesthat,intheauditorsjudgment,areequivalentineffecttothosesetoutin
PSA210(Redrafted).Forsuchresponsibilitiesthatareequivalent,theauditor

mayusethewordingofthelaworregulationtodescribethemintheengageme
ntletterorothersuitableformofwrittenagreement.Insuchcases,thiswordin
gmayalsobeusedintheauditorsreporttodescribemanagementsresponsi
bilitiesasrequiredbyparagraph26.Inothercircumstances,includingwheret
heauditordecidesnottousethewordingoflaworregulationasincorporatedi
ntheengagementletter,thewordingofparagraph26isused.Forthosethatar
enotprescribedbylaworregulationsuch

35

PSA200 (RevisedandRedrafted),paragraph13(j).
36

PSA315(Redrafted),IdentifyingandAssessingtheRisksofMaterialMisstatementsThrough U
nderstanding theEntityandItsEnvironment,paragraph 4(c).
37

PSA210(Redrafted),paragraphs6(b)(i)and (ii).

thattheireffectisequivalent,theengagementletterorothersuitableformof
38
writtenagreementreflectsthedescriptioninPSA210(Redrafted). 38
A22a.
Insomejurisdictions,laworregulationprescribingmanagementsresponsi
bilitiesmayspecificallyrefertoaresponsibilityfortheadequacyofaccounti
ngbooksandrecords,oraccountingsystem.Asbooks,recordsandsystems
areanintegralpartofinternalcontrol(asdefinedinPSA315(Redrafted)39),th
edescriptionsinPSA210(Redrafted)andinparagraph26donotmakespecifi
creferencetothem.
[WhentheconformingamendmentsareincludedinPSA700(Redrafted),paragrap
hA22awillbecomeparagraphA23andthePSAwillberenumberedaccordingly.Noa
mendmentsareproposedtoparagraphsA23A25.]
AuditorsOpinion(Ref:Para.3537)
Wordingoftheauditorsopinionprescribedbylaworregulation
A26.PSA210(Redrafted)explainsthat,insomecases,laworregulationoftherelev
antjurisdictionprescribesthewordingoftheauditorsreport(whichinparti
cularincludestheauditorsopinion)intermsthataresignificantlydifferent
fromtherequirementsofPSAs.Inthesecircumstances,PSA210(Redrafted
)requirestheauditortoevaluate:

(a)

Whetherusersmightmisunderstandtheassuranceobtainedfromtheaudit
ofthefinancialstatementsand,ifso,
(b)

Whetheradditionalexplanationintheauditorsreportcanmitigatepossible
misunderstanding.
Iftheauditorconcludesthatadditionalexplanationintheauditorsreportca
nnotmitigatepossiblemisunderstanding,PSA210(Redrafted)requiresthe
auditornottoaccepttheauditengagement,unlessrequiredbylaworregulat
iontodoso.InaccordancewithPSA210(Redrafted),anauditconductedinac
cordancewithsuchlaworregulationdoesnotcomplywithPSAs.Accordingly
,theauditordoesnotincludeanyreferenceintheauditorsreporttotheaudit
havingbeenconductedinaccordancewithPhilippineStandardsonAuditing
40
.
[NoamendmentsareproposedtoparagraphsA27A54.]

38

[PSA210 (Redrafted),paragraph[tobeinserted].]
39

PSA315(Redrafted),IdentifyingandAssessingtheRisksofMaterialMisstatementsthroughU
nderstanding theEntityandItsEnvironment,paragraph 4(c).
40

PSA210(Redrafted),paragraph 21.

Appendi
x

(Ref:Para.A16
)

IllustrationsofAuditorsReportsonFinancialStatements
Illustration1:Anauditorsreportonfinancialstatementspreparedinaccord
ancewithafairpresentationframeworkdesignedtomeetthecommonfinan
cialinformationneedsofawiderangeofusers(e.g.,PhilippineFinancialRepo
rtingStandards).
Illustration2:Anauditorsreportonfinancialstatementspreparedinaccord
ancewithacomplianceframeworkdesignedtomeetthecommonfinancialin
formationneedsofawiderangeofusers.
Illustration3:Anauditorsreportonconsolidatedfinancialstatementsprepa
redinaccordancewithafairpresentationframeworkdesignedtomeettheco
mmonfinancialinformationneedsofawiderangeofusers(e.g.,PhilippineFin
ancialReportingStandards).
Illustration1:Circumstancesincludethefollowing:
1 Auditofacompletesetoffinancialstatements.

2
3
4

Thefinancialstatementsarepreparedforageneralpurposebymanagemen
toftheentityinaccordancewithPhilippineFinancialReportingStandards.
Thetermsoftheauditengagementreflectdescriptionofmanagementsres
ponsibilityforthefinancialstatementsinPSA210(Redrafted).
Inadditiontotheauditofthefinancialstatements,theauditorhasotherrepor
tingresponsibilitiesrequiredunderlocallaw.

INDEPENDENTAUDITORSREPORT[A
ppropriateAddressee]
ReportontheFinancialStatements41
WehaveauditedtheaccompanyingfinancialstatementsofABCCompany,whichco
mprisethebalancesheetasatDecember31,20X1,andtheincomestatement,state
mentofchangesinequityandcashflowstatementfortheyearthenended,andasum
maryofsignificantaccountingpoliciesandotherexplanatoryinformation.

ThesubtitleReportontheFinancialStatementsisunnecessaryin circumstanceswhenthese
condsubtitleReportonOtherLegaland RegulatoryRequirementsisnotapplicable.

Managements

42

ResponsibilityfortheFinancialStatements

Managementisresponsibleforthepreparationandfairpresentationofthesefinan
43
cialstatementsinaccordancewithPhilippineFinancialReportingStandards, ;th
isincludesthedesign,implementationandmaintenanceofandforsuchinternalc
ontrolrelevant asmanagementdeterminesisnecessaryto enable
thepreparationandfairpresentationoffinancialstatementsthatarefreefrommat
erialmisstatement,whetherduetofraudorerror.
AuditorsResponsibility
Ourresponsibilityistoexpressanopiniononthesefinancialstatementsbasedonou
raudit.WeconductedourauditinaccordancewithPhilippineStandardsonAuditing
.Thosestandardsrequirethatwecomplywithethicalrequirementsandplanandper
formtheaudittoobtainreasonableassuranceaboutwhetherthefinancialstateme
ntsarefreefrommaterialmisstatement.
Anauditinvolvesperformingprocedurestoobtainauditevidenceabouttheamount
sanddisclosuresinthefinancialstatements.Theproceduresselecteddependonth
eauditorsjudgment,includingtheassessmentoftherisksofmaterialmisstatemen
tofthefinancialstatements,whetherduetofraudorerror.Inmakingthoseriskassess
ments,theauditorconsidersinternalcontrolrelevanttotheentityspreparationand
fairpresentation44
ofthefinancialstatementsinordertodesignauditproceduresthatareappropriatein

thecircumstances,butnotforthepurposeofexpressinganopinionontheeffectiven
essoftheentitysinternalcontrol.45
Anauditalsoincludesevaluatingtheappropriatenessofaccountingpoliciesusedan
dthereasonablenessofaccountingestimatesmadebymanagement,aswellaseval
uatingtheoverallpresentationofthefinancialstatements.
Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetop
rovideabasisforourauditopinion.
Opinion
Inouropinion,thefinancialstatementspresentfairly,inallmaterialrespects,thefi
nancialpositionofABCCompanyasatDecember31,20X1,and(of)itsfinancialper
formanceand
42

Orothertermthatisappropriatein thecontextofthelegalframework in theparticularjurisdicti

on.
43

Dependingonthecircumstances,Wheremanagementsresponsibilityistopreparefinancialst
atementsthatgiveatrueandfairview,thissentencemayread:Managementisresponsiblefort
hepreparation offinancialstatementsthatgiveatrueandfairviewin accordancewith Internat
ionalFinancialReportingStandards,and forsuch[Thisfootnotedoesnotapplyin thePhilipp
inesand isthereforenotused.]
44

DependingonthecircumstancesIn thecaseoffootnote43,thissentencemayread:Inmaki
ngthoseriskassessments,theauditorconsidersinternalcontrolrelevanttotheentitysprep
arationoffinancialstatementsthatgiveatrueand fairviewin ordertodesignauditprocedur
esthatareappropriatein thecircumstances,butnotforthepurposeofexpressinganopinion
ontheeffectivenessoftheentitysinternalcontrol.[Thisfootnotedoesnotapplyin thePhili
ppinesandisthereforenotused.]
45

In circumstanceswhentheauditoralso hasresponsibilityto expressan opinion on theeffecti

venessofinternalcontrolin conjunction with theauditofthefinancialstatements,thissenten
cewouldbeworded asfollows:In makingthoseriskassessments,theauditorconsidersintern
alcontrolrelevanttotheentityspreparation andfairpresentationofthefinancialstatementsin
ordertodesign auditproceduresthatareappropriatein thecircumstances.Inthecaseoffootn
ote43,thissentencemayread:Inmaking thoserisk assessments,theauditorconsidersinter
nalcontrolrelevanttotheentityspreparation offinancialstatementsthatgiveatrueandfairvi
ewin orderto designauditproceduresthatareappropriatein thecircumstances.[Thislastse
ntencedoesnotapplyinthePhilippinesandisthereforenotused.]

itscashflowsfortheyearthenendedinaccordancewithPhilippineFinancialRe
portingStandards.
ReportonOtherLegalandRegulatoryRequirements
[Formandcontentofthissectionoftheauditorsreportwillvarydependingonthenat
ureoftheauditorsotherreportingresponsibilities.][Auditorssignature]
[Dateoftheauditorsreport][Auditorsaddress]
[Illustrations2and3arenotreproducedhere.Thedescriptionofmanagementsresp

onsibilityforthefinancialstatementsandrelevantfootnotesinthoseillustrationswi
llbeamendedassetoutinthedescriptionofthatresponsibilityandrelevantfootnote
sinIllustration1.
Inaddition,illustrativeexamplesofauditorsreportsinotherPSAswillbeamend
edaccordingly.]
PSA210(Redrafted)

AdditionalConformingAmendments
PSA580(Revised andRedrafted),Written Representa
tions.

PSA240(Redrafted),TheAuditorsRe
sponsibilitiesRelatingtoFraudinanAu
ditofFinancialStatements

39.

Theauditorshallobtainwrittenrepresentationsfrommanagementand,whe
reapplicable,thosechargedwithgovernancethat:
(a)
(b)

(c)

TheyItacknowledgestheiritsresponsibilityforthedesign,implement
ationandmaintenanceofinternalcontroltopreventanddetectfraud;
TheyhaveIthasdisclosedtotheauditortheresultsofmanagementsit
sassessmentoftheriskthatthefinancialstatementsmaybematerially
misstatedasaresultoffraud;
TheyhaveIthasdisclosedtotheauditortheiritsknowledgeoffraudors
uspectedfraudaffectingtheentityinvolving:
(i)

Management;

(ii)

Employeeswhohavesignificantrolesininternalcontrol;or

(iii)

Otherswherethefraudcouldhaveamaterialeffectonthefinanc
ialstatements;and

(d) TheyhaveIthasdisclosedtotheauditortheiritsknowledgeofanyalleg
ationsoffraud,orsuspectedfraud,affectingtheentitysfinancialstate
mentscommunicatedbyemployees,formeremployees,analysts,reg
ulatorsorothers.(Ref:Para.A57A58)

A12. Managementacceptsresponsibilityisresponsiblefortheentitysinternalco
ntrolandforthepreparationoftheentitysfinancialstatements.Accordingly
,itisappropriatefortheauditortomakeinquiriesofmanagementregarding
managementsownassessmentoftheriskoffraudandthecontrolsinplaceto
preventanddetectit.Thenature,extentandfrequencyofmanagementsas
sessmentofsuchriskandcontrolsmayvaryfromentitytoentity.Insomeentit
ies,managementmaymakedetailedassessmentsonanannualbasisorasp
artofcontinuousmonitoring.Inotherentities,managementsassessment
maybelessstructuredandlessfrequent.Thenature,extentandfrequencyof
managementsassessmentarerelevanttotheauditorsunderstandingofth
eentityscontrolenvironment.Forexample,thefactthatmanagementhasn
otmadeanassessmentoftheriskoffraudmayinsomecircumstancesbeindic
ativeofthelackofimportancethatmanagementplacesoninternalcontrol.

PSA580(RevisedandRedrafted)46establishesrequirementsandprovidesg
A57. uidanceonobtainingappropriaterepresentationsfrommanagementand,w
hereappropriate,thosechargedwithgovernanceintheaudit.Inadditiontoa
cknowledgingthattheyhavefulfilledtheiritsresponsibilityforthepreparati
onofthefinancialstatements,it

inmakingaccountingestimatesarereasonable.(Ref:Para.A126A127)

PSA550(RevisedandRedrafted),RelatedParties
A16.Theauditisconductedonthepremisethatmanagementand,whereappropriat
e,thosechargedwithgovernancehaveacknowledgedandunderstandthatt
heyhaveresponsibilityforthepreparationandpresentationofthefinancialst
atementsinaccordancewiththeapplicablefinancialreportingframework,in
cludingwhererelevanttheirfairpresentation,andforsuch.Thisincludesthe
design,implementationandmaintenanceofinternalcontrolasmanagemen
tand,whereappropriate,thosechargedwithgovernance,determineisnece
ssarytoenablerelevant
tothepreparationandpresentationoffinancialstatementsthatarefreefrom
47
materialmisstatement,whetherduetofraudorerror.
Accordingly,wheretheframeworkestablishesrelatedpartyrequirements,
management,withoversightfromthosechargedwithgovernance,isrespon
sibleforthedesign,implementationandmaintenanceofadequatecontrolso
verrelatedpartyrelationshipsandtransactionssothattheseareidentifiedan
dappropriately.accountedforanddisclosedinaccordancewiththeframewo
rk.Intheiroversightrole,thosechargedwithgovernanceareresponsiblefor
monitoringhowmanagementisdischargingitsresponsibilityforsuchcontro
ls.Regardlessofanyrelatedpartyrequirementstheframeworkmayestablis
h,thosechargedwithgovernancemay,inordertofulfilltheiroversightrespon
sibilities,obtaininformationfrommanagementtoenablethemtounderstan
dthenatureandbusinessrationaleoftheentitysrelatedpartyrelationshipsa
ndtransactions.

PSA200(Revised andRedrafted),paragraph A2.

PSA560(Redrafted),SubsequentEvents
ManagementResponsibilityTowardsAuditor(Ref:Para.10)
A11. As explainedinPSA210(Redrafted),agreed in
thetermsoftheauditengagement, includetheagreementofmanagement
hasaresponsibilitytoinformtheauditorofrelevant facts
thatmayaffectthefinancialstatements,of which management it may
becomes
awareduringtheperiodfromthedateoftheauditorsreporttothedatethefin
48
ancialstatementsareissued.

PSA570(Redrafted),GoingConcern
16.
Wheneventsorconditionshavebeenidentifiedthatmaycastsignificantdou

btontheentitysabilitytocontinueasagoingconcern,theauditorshallobtain
sufficientappropriateauditevidencetodeterminewhetherornotamaterial
uncertaintyexiststhroughperformingadditionalauditprocedures,includin
gconsiderationofmitigatingfactors.Theseproceduresshallinclude:
(Ref:Para.A15).
(e)
Requestingwrittenrepresentationsfrommanagementandor,whe
reappropriate,thosechargedwithgovernance,regardingtheirpla
nsforfutureactionandthefeasibilityoftheseplans.

[Proposed]
PSA210 (Redrafted),AgreeingtheTermsofAuditEngagements,paragraph A22[A23].

ThisPSA210(Redrafted),AgreeingtheTermsofAuditEngagements,wasunani
mouslyapprovedforadoptiononApril27,2009bythemembersoftheAuditinga
ndAssuranceStandardsCouncil.

BenjaminR.Punongbayan,Chairman

FelicidadA.Abad

AntonioP.Acyatan

ErwinVincentG.Alcala

FroilanG.Ampil

DavidL.Balangue

Ma.GraciaF.CasalsDiaz

EliseoA.Fernandez

JudithV.Lopez

JaimeP.Naranjo

Ma.CeciliaF.Ortiz

NestorioC.Roraldo

JoaquinP.Tolentino

JaimeE.Ysmael