Philippine standards on auditing (PSA) PSA 200

Auditing Standards and Practices Council Philippine Standard on Auditing 200 OBJECTIVE AND GENERAL PRINCIPLES GOVERNING AN AUDIT OF FINANCIAL STATEMENTS PSA 200 PHILIPPINE STANDARD ON AUDITING 200 OBJECTIVE AND GENERAL PRINCIPLES GOVERNING AN AUDIT OF FINANCIAL STATEMENTS CONTENTS Paragraphs Introduction Objective of an Audit 2-3 General Principles of an Audit 4-6 Scope of an Audit Reasonable Assurance 8-11 Responsibility for the Financial Statements 12 Effective Date 13-14 Acknowledgment 15-16 Philippine Standards on Auditing (PSAs) are to be applied in the audit of financial statements PSAs are also to be applied, adapted as necessary, to the audit of other information and to related services PSAs contain the basic principles and essential procedures (identified in bold type black lettering) together with related guidance in the form of explanatory and other material The basic principles and essential procedures are to be interpreted in the context of the explanatory and other material that provide guidance for their application To understand and apply the basic principles and essential procedures together with the related guidance, it is necessary to consider the whole text of the PSA including explanatory and other material contained in the PSA not just that text which is black lettered In exceptional circumstances, an auditor may judge it necessary to depart from a PSA in order to more effectively achieve the objective of an audit When such a situation arises, the auditor should be prepared to justify the departure PSAs need only be applied to material matters PSA 200 The PSAs issued by the Auditing Standards Practices Council (Council) are based on International Standards on Auditing (ISAs) issued by the International Auditing Practices Committee of the International Federation of Accountants The ISAs on which the PSAs are based are generally applicable to the public sector, including government business enterprises However, the applicability of the equivalent PSAs on Philippine public sector entities has not been addressed by the Council It is the understanding of the Council that this matter will be addressed by the Commission on Audit itself in due course Accordingly, the Public Sector Perspective set out at the end of an ISA has not been adopted into the PSAs PSA 200 Introduction The purpose of this Philippine Standard on Auditing (PSA) is to establish standards and provide guidance on the objective and general principles governing an audit of financial statements This PSA is to be read in conjunction with the Framework of Philippine Standards on Auditing Objective of an Audit The objective of an audit of financial statements is to enable the auditor to express an opinion whether the financial statements are prepared, in all material respects, in accordance with an identified financial reporting framework The phrase used to express the auditor’s opinion is “present fairly, in all material respects.” Although the auditor’s opinion enhances the credibility of the financial statements, the user cannot assume that the opinion is an assurance as to the future viability of the entity nor the efficiency or effectiveness with which management has conducted the affairs of the entity General Principles of an audit The auditor should comply with the “Code of Professional Ethics for Certified Public Accountants” promulgated by the Board of Accountancy and approved by the Philippine Professional Regulation Commission Ethical principles governing the auditor’s professional responsibilities are: (a) independence; (b) integrity; (c) objectivity; (d) professional competence and due care; (e) confidentiality; (f) professional behavior; and (g) technical standards The auditor should conduct an audit in accordance with Philippine Standards on Auditing These contain basic principles and essential procedures together with related guidance in the form of explanatory and other material PSA 200 -2- The auditor should plan and perform the audit with an attitude of professional skepticism recognising that circumstances may exist which cause the financial statements to be materially misstated For example, the auditor would ordinarily expect to find evidence to support management representations and not assume they are necessarily correct Scope of an Audit The term “scope of an audit” refers to the audit procedures deemed necessary in the circumstances to achieve the objective of the audit The procedures required to conduct an audit in accordance with PSAs should be determined by the auditor having regard to the requirements of PSAs, relevant professional bodies, legislation, regulations and, where appropriate, the terms of the audit engagement and reporting requirements Reasonable Assurance An audit in accordance with PSAs is designed to provide reasonable assurance that the financial statements taken as a whole are free from material misstatement Reasonable assurance is a concept relating to the accumulation of the audit evidence necessary for the auditor to conclude that there are no material misstatements in the financial statements taken as a whole Reasonable assurance relates to the whole audit process However, there are inherent limitations in an audit that affect the auditor’s ability to detect material misstatements These limitations result from factors such as: 10 • The use of testing • The inherent limitations of any accounting and internal control system (for example, the possibility of collusion) • The fact that most audit evidence is persuasive rather than conclusive Also, the work undertaken by the auditor to form an opinion is permeated by judgment, in particular regarding: (a) the gathering of audit evidence, for example, in deciding the nature, timing and extent of audit procedures; and (b) the drawing of conclusions based on the audit evidence gathered, for example, assessing the reasonableness of the estimates made by management in preparing the financial statements PSA 200 -3- 11 Further, other limitations may affect the persuasiveness of evidence available to draw conclusions on particular financial statement assertions (for example, transactions between related parties) In these cases, certain PSAs identify specified procedures which will, because of the nature of the particular assertions, provide sufficient appropriate audit evidence in the absence of: (a) unusual circumstances which increase the risk of material misstatements beyond that which would ordinarily be expected; or (b) any indication that a material misstatement has occurred Responsibility for the Financial Statements 12 While the auditor is responsible for forming and expressing an opinion on the financial statements, the responsibility for preparing and presenting the financial statements is that of the management of the entity The audit of the financial statements does not relieve management of its responsibilities Effective Date 13 This PSA shall be effective for audits of financial statements for periods ending on or after June 30, 2003 14 This PSA supersedes Statement of Auditing Standards of the Philippines No 1, The Objectives, Scope and Responsibilities of an Independent Auditor in Undertaking an Audit, issued by the Auditing Standards and Practices Council Acknowledgment 15 This PSA, Objective and General Principles Governing an Audit of Financial Statements, is based on International Standard on Auditing (ISA) 200 of the same title issued by the International Auditing Practices Committee of the International Federation of Accountants 16 This PSA differs from ISA 200 with respect to the deletion of the section on Public Sector Perspective included in ISA 200 PSA 200 -4- This Philippine Standard on Auditing 200 was unanimously approved on December 6, 2001 by the members of the Auditing Standards and Practices Council: Benjamin R Punongbayan, Chairman Antonio P Acyatan, Vice Chairman Felicidad A Abad David L Balangue Eliseo A Fernandez Nestorio C Roraldo Editha O Tuason Joaquin P Tolentino Joycelyn J Villaflores Carlito B Dimar Froilan G Ampil Erwin Vincent G Alcala Horace F Dumlao Isagani O Santiago Eugene T Mateo Emma M Espina Edijer A Martinez ... material matters PSA 200 The PSAs issued by the Auditing Standards Practices Council (Council) are based on International Standards on Auditing (ISAs) issued by the International Auditing Practices... from ISA 200 with respect to the deletion of the section on Public Sector Perspective included in ISA 200 PSA 200 -4- This Philippine Standard on Auditing 200 was unanimously approved on December... has not been adopted into the PSAs PSA 200 Introduction The purpose of this Philippine Standard on Auditing (PSA) is to establish standards and provide guidance on the objective and general principles