(MIDTERM) AAP - Module 3 Preface (PSA 120 Framework PSQM1)
(MIDTERM) AAP - Module 3 Preface (PSA 120 Framework PSQM1)
Module 3:
PREFACE TO PSAs/FRAMEWORK/PSA 120/PSQM1
INTRODUCTION
This Preface to
1. Philippine Standards on Quality Management;
2. Auditing;
3. Review and Other Assurance; and
4. Related Services
Pronouncements of AASC
Standards Statements
Philippine Standards on Quality
Management (PSQMs)
Philippine Standards on Auditing Philippine Auditing Practice
(PSAs) Statements (PAPSs)
Philippine Standards on Review Philippine Review Engagement
Engagements (PSREs) Practice Statements (PREPSs)
Philippine Standards on Assurance Philippine Assurance Practice
Engagements (PSAEs) Statements (PAEPSs)
Philippine Standards on Related Philippine Related Services Practice
Services (PSRSs) Statements (PRSPSs)
Engagement Standards contain basic principles and essential procedures together with
related guidance in the form of explanatory and other material that provide guidance for
their application.
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AT.1003
In exceptional circumstances, an auditor may judge it necessary to depart from a Standard
in order to more effectively achieve the objective of an engagement. When such a situation
arises, the auditor should be prepared to justify the departure.
This Framework distinguishes audits from related services. Related services comprise
reviews, agreed-upon procedures and compilations.
Agreed-
Nature of service Audit Review upon Compilation
Procedures
Comparative level
High, but not
of assurance Moderate No No
absolute,
provided by the assurance assurance assurance
assurance
auditor
The Framework does not apply to other services provided by auditors such as taxation,
consultancy, and financial and accounting advice.
1. Audit
The auditor's opinion enhances the credibility of financial statements by providing a high,
but not absolute, level of assurance.
2. Review
3. Agreed-upon Procedures
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third parties have agreed and to report on factual findings. The recipients of the report
must form their own conclusions from the report by the auditor.
4. Compilations
Assurance Engagement
Practitioner
The term “practitioner” as used in this framework is broader than the term “auditor” as used
in ISAs and ISREs, which relates only to practitioners performing audit or review
engagements which respect to historical financial information.
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Responsible Party
Intended Users
The intended users are the person, persons or class of persons for whom the practitioner
prepares the assurance report. The responsible party can be one of the intended users, but
not the only one.
Subject Matter
The subject matter, and subject matter information of an assurance engagement can take
many forms, such as:
• Financial performance or conditions (for example, historical or prospective financial
position, financial performance and cash flows)
• Non-financial performance or conditions (for example, performance of an entity)
• Physical characteristics (for example, capacity of facility)
• Systems and processes (for example, an entity’s internal control or IT system)
• Behavior (for example, corporate governance, compliance with regulation, human
resource practices)
Criteria
Criteria are the benchmarks used to evaluate or measure the subject matter including
where relevant benchmarks for presentation and disclosures.
(a) Relevance: relevant criteria contribute the conclusions that assist decision making by
the intended users.
(b) Completeness: criteria are sufficiently complete when relevant factors that could affect
the conclusions in the context of the engagement circumstances are not omitted.
Complete criteria include where relevant benchmarks for presentation and disclosure.
(d) Neutrality: neutral criteria contribute to conclusions that are free from bias
Evidence
The practitioner considers materiality, assurance engagement risk, and the quantity and
quality of available evidence when planning and performing the engagement, in particular
when determining the nature, timing and extent of evidence-gathering procedures.
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• The use of judgment in gathering and evaluating evidence and forming conclusions
based on that evidence.
• In some cases, the characteristics of the subject matter when evaluated or measures
against the identified criteria.
Assurance Report
The practitioner provides a written report containing a conclusion that conveys the
assurance obtained about the subject matter information. PSAs, PSREs and PSAEs establish
basic elements for assurance reports.
PSQM1: QUALITY CONTROL FOR FIRMS THAT PERFORM AUDITS AND REVIEWS OF
HISTORICAL FINANCIAL INFORMATION, AND OTHER ASSURANCE AND RELATED
SERVICES ENGAGEMENTS
Purpose of PSQC 1
To establish basic principles and essential procedures and to provide guidance regarding a
firm’s responsibilities for its system of quality control for:
1. audits of historical information
2. reviews of historical information
3. other assurance
4. related services engagements.
The firm should establish a system of quality control designed to provide it with reasonable
assurance that the
firm and its personnel comply with professional standards (CODE) and regulatory (BOA) and
legal (RA 9298) requirements, and that
reports issued by the firm or engagement partners are appropriate in the circumstances.
System of quality control consists of policies designed to achieve the objectives and the
procedures necessary to implement and monitor compliance with those policies.
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Leadership Responsibilities for Quality Within the Firm
The firm should establish policies and procedures designed to promote an internal culture
based on the recognition that quality is essential in performing engagements. Such policies
and procedures should require the firm’s chief executive officer (or equivalent), or if
appropriate, the firm’s managing board of partners (or equivalent), to assume ultimate
responsibility for the firm’s system of quality control.
Ethical Requirements
The firm should establish policies and procedures designed to provide it with reasonable
assurance that the firm and its personnel comply with relevant ethical requirements.
Independence
At least annually, the firm should obtain written confirmation of compliance with its policies
and procedures on independence from all firm personnel required to be independent by the
Philippine Code.
The firm should establish policies and procedures for the acceptance and continuance of
client relationships and specific engagements, designed to provide it with reasonable
assurance that it will only undertake or continue relationships and engagements where it:
(a) Has considered the integrity of the client and does not have information that would
lead it to conclude that the client lacks integrity
(b) Is competent to perform the engagement and has the capabilities, time and resources
to do so
(c) Can comply with ethical requirements
Human Resources
The firm should establish policies and procedures designed to provide it with reasonable
assurance that it has sufficient personnel with the capabilities, competence and
commitment to ethical principles necessary to perform its engagement in accordance with
professional standards and regulatory and legal requirements and to enable the firm or
engagement partners to issue reports that are appropriate in the circumstances.
Such policies and procedures address the following personnel issues: RP3C4
• Recruitment • Capabilities
• Performance Evaluation • Competence
• Promotion • Career
• Personnel Needs Development
• Compensation
Engagement Performance
The firm should establish policies and procedures designed to provide it with reasonable
assurance that engagements are performed in accordance with professional standards and
regulatory and legal requirements, and that the firm or the engagement partner issue
reports that are appropriate in the circumstances.
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Consultation includes discussion, at the appropriate professional level, with individuals
within or outside the firm who have specialized expertise, to resolve a difficult or
contentious matter.
Differences of Opinion
The firm should establish policies and procedures requiring, for appropriate engagements,
an engagement quality control review that provides an objective evaluation of the
significant judgments made by the engagement team and the conclusions reached in
formulating the report. Such policies and procedures should require engagement quality
control review for all audits of financial statements of listed entities
Where the EQC Reviewer makes recommendations that the engagement partner does not
accept and the matter is not resolved to the reviewer’s satisfaction, the report is not issued
until the matter is resolved.
The firm’s policies and procedures should address the appointment of engagement quality
control reviewers and establish their eligibility through:
(a) The technical qualification required to perform the role, including the necessary
experiences and authority; and
(b) The degree to which an EQC Reviewer can be consulted on the engagement without
compromising the reviewer’s objectivity.
Policies and procedures on documentation of the EQCR should require documentation that:
(a) the procedures required by the firm’s policies on EQCR have been performed;
(b) the EQCR has been completed before the report is issued; and
(c) the reviewer is not aware of any unresolved matters that would cause the reviewer to
believe that the significant judgments the engagement team made and the conclusions
they reached were not appropriate.
Monitoring
The firm should establish policies and procedures designed to provide it with reasonable
assurance that the policies and procedures relating to the system of quality control are
relevant, adequate, operating effectively and complied with in practice.
At least annually, the firm should communicate the results of the monitoring of its quality
control system to engagement partners and other appropriate individuals within the firm,
including the firm’s chief executive office or, if appropriate, its managing board of partners.
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