AUDITING THEORY

The CPA Profession

 Characteristics of a Profession
Mastery of a particular intellectual skill, acquired
by training and education.
Adherence by its members to a common code of
values and conduct established by its
administrating body, including maintaining an
outlook which is essentially objective; and
Acceptance of a duty to society as a whole
(usually in return for restrictions in use of a title
or in the granting of a qualification).
 Attributes that make
Accountancy a Profession
To join the profession, an individual must obtain a degree of BS Accountancy
and continue learning through work experience and continuing professional
education. The CPA board exams must be passed before the CPA license is
given.
CPAs adhere to their own Code of Ethics which is mandatory for all
members of the profession. Failure to adhere to the Code will usually result
in an investigation of the CPAs conduct.
CPAs are viewed as guardians of public interest. By providing assurance to
the financial statements and other subject matter, they serve as the
connecting arm between the financial statements prepared by management
and the public.
 Organizations that Affect the
Accountancy Profession
Regulatory Government Agencies
PRC BOA
COA
SEC
BSP
Insurance Commission
BIR

Standard setting Bodies

AASC
FRSC
 Auditing & Assurance
Standards Council
Mission:
The promulgation of auditing standards,
practices and procedures which shall be
generally accepted by the accounting
profession in the Philippines
 AASC Composition
15 regular members (including a chairman)
Accredited National Prof. Org. Of CPAs
Public Practice 6
Commerce & Industry 1
Academe 1
Government 1
Board of Accountancy 1
Securities & Exchange Commission 1
Commission on Audit 1
Bangko Sentral ng Pilipinas 1
Org. of CPAs in active public practice - 1
 AASC - Pronouncements
Philippine Standards on Auditing (PSAs)
Interpretations of PSAs
Philippine Auditing Practice Statements
(PAPs)
 Authority Attached to
PSAs and Interpretations
Apply to independent examination of
financial statements of any entity when
conducted for purposes of expressing an
opinion thereon.
Apply to other related activities of auditors.
Apply to material matters
 Purposes of the Interpretations
To provide practice assistance to auditors
in implementing the PSAs or to promote
good practice.
Not intended to have the authority over the
PSAs
 Essential Parts of the PSAs
Basic principles and essential procedures
(identified in bold type black lettering)
Related guidance (explanatory and other
materials)
Applicability/limitations (part of introductory
paragraphs)
 Bases of PSAs/PAPs
Pronouncements of the International
Auditing Practices Committee (IAPC) of
the International Federation of
Accountants (IFAC)
International Standards on Auditing (ISAs)
International Auditing Practices Statements
(IAPS)
 The International Financial
Reporting Standards (IFRS)
An effort to improve the financial reporting
standards and strengthen the oversight of
corporate financial reporting in the years
following the 1997 financial crisis.
The adoption of the IFRS is assumed to
enhance the comparability, reliability and
the transparency of corporate financial
reporting.
 The International Accounting
Standards Board (IASB)
The body in charge of setting the
international standards.
The interpretative body of the IASB is the
International Financial Reporting
Interpretations Committee (IFRIC)
 Financial Reporting Standards
Council (FRSC)
The FRSC is the accounting standard setting
body created by the Professional Regulation
Commission (PRC) upon recommendation by
the Board of Accountancy (BOA) to assist
BOA in carrying out its powers and functions.
The main function of FRSC is to establish
and improve accounting standards that will
be generally accepted in the Philippines
 FRSC cont
The FRSC monitors the technical activities of the
IASB and issues Invitations to Comment on
exposure drafts or proposed IFRSs.
The FRSC also monitors the issuances of the IFRIC
of the IASB, which it adopts as Philippine
Interpretations.
The FRSC issues new releases to announce the
issuance of final standards and interpretations,
exposure drafts and other matters which are posted
in the PICPA website.
 Composition of FRSC
Board of Accountancy 1
Securities and Exchange Commission 1
Bangko Sentral ng Pilipinas 1
Bureau of Internal Revenue 1
Commission on Audit 1
Major organization of preparers and users of financial 1
statements
Accredited national professional organization of CPAs:
Public practice 2
Commerce and industry 2
Academe or education 2
Government 2
Total 14
 Philippine Interpretations
Committee (PIC)
Formed by the FRSC in August 2006 to
assist in establishing and improving
financial reporting standards in the
Philippines.
The primary goal is to issue
implementation guidance on PFRSs.
 Philippine Interpretations
Philippine Interpretations IFRIC (these
correspond to the Interpretations of International
Financial Reporting Interpretations Committee
(IFRIC) of the IASB);
Philippine Interpretations SIC (these correspond
to Interpretations of the Standing Interpretations
Committee (SIC) of the IASC);
Philippine Interpretations (these are
interpretations developed by the Philippine
Interpretations Committee)
 Working Procedures
Initial preparation of drafts by workgroups
Deliberation en banc on proposed exposure drafts
Distribution of approved exposure draft to
organizations and persons for comments (three
months)
Evaluation of comments and suggestions received
from exposure and appropriate revision of draft as
necessary
Issuance of PSA or PAPs
Submission to PRC/BOA for final approval
 Regulation of the
Accountancy Profession
R. A. 9298
The law regulating the practice of
accountancy in the Philippines, known as the
Philippine Accountancy of 2004.
The Board of Accountancy
The body authorized by law to promulgate
rules and regulations affecting the practice of
the accountancy profession in the Philippines.
 Regulation of the
Accountancy Profession
The State recognizes the importance of accountants in
nation building and development. Hence, it shall
develop and nurture competent, virtuous, productive and
well rounded professional accountants whose
standards of practice and service shall be excellent,
qualitative, world class and globally competitive
through inviolable, honest, effective, and credible
licensure examinations and through regulatory
measures, programs and activities that foster their
professional growth and development.
 R.A. 9298 Objectives
The standardization and regulation of
accounting education;
The examination for registration of certified
public accountants; and
The supervision, control, and regulation of
the practice of accountancy in the
Philippines.
 Scope of Practice
Public Accountancy
Commerce and industry
Education/Academe
Government
 Public Practice
A person holding out himself/herself as one
skilled in the knowledge, science and practice of
accounting, and as a qualified person to render
professional services as a CPA; or offering to
more than one client, on a fee or otherwise,
services such as:
Audit
Design, installation and review of accounting systems and controls
Preparation of income tax returns
 Commerce & Industry
A person involved in decision making requiring
professional knowledge in the science of
accounting, as well as the accounting aspects of
finance and taxation, or when he/she represents
his/her employer before govt. agencies on tax
and other matters related to accounting; or when
such employment requires that the holder
thereof must be a CPA.
 For a business which has a paid-up capital of at
least P5,000,000 and/or an annual revenue of at
least P10,000,000, duly registered CPAs should
occupy any position which requires;
Supervising the recording of financial transactions, preparation of
financial statements;
Coordinating with the external auditors for the audit of such financial
statements; and
Other related functions
 Education / Academe
A person in an educational institution,
which involves teaching of accounting,
auditing, management advisory services,
finance, business law and taxation, and
other technically related subjects.
 Government
A person who holds, or is appointed to, a
position in an accounting professional group in
government or in a government owned and
controlled corporation, including those
performing proprietary functions, where decision
making requires professional knowledge in the
science of accounting, or where civil service
eligibility as a CPA is a prerequisite.
 Board of Accountancy
Under the supervision and
administrative control of the PRC.
Composed of a chairman and 6
members, appointed by the president of
the Phils.
There are 3 recommendees for each
position, from a list of 5 nominees
submitted by the APO.
 Qualifications of BOA members
Must be a natural-born citizen and a
resident of the Phils.
Must be a duly registered CPA with at
least 10 years of work experience in any
scope of practice of the accountancy.
Must be of good moral character and
must not have been convicted of any
crime of moral turpitude.
 Qualifications
Must not have any interest, directly or
indirectly, in any school, college,
university, or institution conferring an
academic degree necessary for the
admission to the practice of accountancy,
or CPA review schools.
Must not be a director or officer of the
APO at the time of his appointment.
 Term of Office
3 years.
Any vacancy occurring within the term
of a member shall be filled up for the
unexpired portion of the term only.
No person who has served 2
consecutive complete terms shall be
eligible for reappointment until the
lapse of 1 year.
Functions and Powers of BOA
To prescribe and adopt the rules and
regulations necessary for carrying out the
provisions of this Act.
To supervise the registration, licensure
and practice of accountancy in the Phils.
To administer oaths in connection with this
Act
 Functions cont
To issue, suspend, revoke, or reinstate the
Certificate of Registration of the
accountancy profession,
To adopt an official seal,
To prescribe and/or adopt a Code of
Ethics for the practice of accountancy.
 Functions cont
To monitor the conditions affecting the
practice of accountancy and adopt such
measures as may be deemed necessary.

(refer to notes for additional functions)

 Grounds for Suspension or
Removal of BOA Members
Neglect of duty or incompetence
Violation or tolerance of any violation of RA 9298 and its
IRR or the CPAs Code of Ethics
Final judgment of crimes involving moral turpitude; and
Manipulation or rigging of the CPAs licensure
examination results, disclosure of secret and confidential
information in the examination questions prior to the
conduct of the said examination or tampering of grades.
 Annual Report
The Board, shall, at the close of each calendar
year, submit an annual report to the President of
the Philippines through the Commission giving a
detailed account of its proceedings and
accomplishments during the year and making
recommendations for the adoption of measures
that will upgrade and improve the conditions
affecting the practice of accountancy in the
Philippines.
 The CPA Examination
Qualifications of Applicants
A Filipino citizen;
Of good moral character;
A holder of the degree of Bachelor of Science in
Accountancy conferred by an institution duly
recognized by CHED or other authorized government
office;
Has not been convicted of any criminal offense
involving moral turpitude.
Scope of CPA Examination
Theory of Accounts
Business Law and Taxation
Management Services
Auditing Theory
Auditing Problems
Practical Accounting Problems I
Practical Accounting Problems II
Rating in the CPA Examination
To pass the examination, a candidate must
obtain a general average of 75%, with no grades
lower than 65% in any given subject..
Any candidate who fails in 2 complete CPA
Examination shall be disqualified from taking
another set of examination unless he/she takes
at least 24 units of refresher course.
 Practice of Accountancy
The practice of accountancy shall be in the
form of single proprietorship or
partnership.
A certificate of accreditation shall be
issued by the BOA provided that the
applicant must have 3 years of meaningful
experience including taxation.
 Prohibition in the
Practice of Accountancy
No person shall practice accountancy
using the title Certified Public
Accountant, or use the title CPA unless
such person shall have received from the
Board a certificate of
registration/professional license and be
issued a professional identification card.
Ownership of Working Papers
All working papers, schedules and memoranda
made by a CPA and his staff in the course of an
examination, including those prepared and
submitted by the client, incident to or in the course
of an examination, shall be treated confidential and
privileged and remain the property of the CPA in the
absence of a written agreement between the CPA
and the client
 Accreditation to Practice
Public Accountancy
CPAs, firms and partnerships of CPAs,
engaged in the practice of public
accountancy, shall register with the
Commission and the Board, such
registration to be renewed every 3 years
 Accredited Professional
Organization
All registered CPAs shall be united and
integrated through their membership in a
one and only registered and accredited
national professional organization, which
shall be registered with the SEC as a
nonprofit organization and recognized by
the BOA subject to the approval of the
PRC.
 Continuing Professional
Education
All CPAs shall abide by the requirements,
rules and regulations on continuing
professional education to be promulgated
by the BOA, subject to the approval of the
PRC, in coordination with the accredited
national professional organization.
 Foreign Reciprocity
A person who is not a citizen of the
Philippines shall not be allowed to practice
accountancy in the Phils., unless he/she
can show proof that the country of which
he/she is a citizen also admits citizens of
the Phils. to the practice of the same
profession without restriction.
 Coverage of Temporary Permits
A foreign CPA called for consultation or for a
specific purpose which is essential to the
development of the country
A foreign CPA engaged as professor, lecturer or
critic in fields essential to accountancy education
in the Phils. and his/her engagement is confined to
teaching only; and
A CPA who is an internationally recognized expert
or with specialization in any branch of
accountancy and his/her service is essential for
the advancement of accountancy in the Phils.
 Penal Provision
Any person who shall violate any of the
provisions of this Act or any or its IRR,
shall, upon conviction, be punished by
A fine of not less than P50,000, or
By imprisonment of a period not exceeding
two years, or
Both
End of Presentation