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CHAPTER 2: PROFESSIONAL RESPONSIBILITIES Elements of a Firm’s System of Quality Control (HIT MEAL)

1. Human and Other Engagement Resources

GAAS – set of guidelines or criteria that auditors If resources are insufficient or inappropriate, the partner must
must follow when conducting an audit. take action, such as requesting additional resources, adjusting
audit approaches, extending timelines, or, if necessary,
withdrawing from the engagement. Resources may come from
GENERAL STANDARDS OF STANDARDS OF the firm or obtained directly by the team (e.g., component
STANDARDS FIELD WORK REPORTING auditors).
Resource categories:
Technical Proper GAAP/PFRS Human – engagement team members, external experts,
Training and Planning and Conformity internal auditors
Proficiency Supervision Technological – tools for analysis, communication, and data
Inconsistency processing, used appropriately and in line with firm policies.
Independence Internal Intellectual – methodologies, guides, templates, checklists, and
Control Disclosure
other aids
Professional
Opinion 2. Independence
Care Evidence
Fundamental principles requiring auditors to be impartial and
unbiased. It is considered the “cornerstone of the profession”
*Si GIDO ay nagluto ng PIE at binenta, dahil masarap ito kaya nabinigyan siya ng TIP. Niluto niya ito gamit ang because it adds credibility to the auditor’s work and maintains
GAAS. public confidence. Independence is composed of two key
aspects:
Technical Training and Proficiency – developed through education,
 Independence of Mind (Fact) – this refers to the
training, and practical experience, and maintained through
auditor’s state of mind, which allows them to form a
continuing professional development, research, and consulting with
conclusion without being influenced by factors that
others.
could compromise their professional judgement. It
Independence – it ensures objectivity and credibility by avoiding involves acting with integrity, objectivity, and
conflicts of interest that could impair judgement. professional skepticism. This type of independence is
mental attitude that cannot be regulated.
Professional Care – auditors must act with diligence, thoroughness,  Independence in Appearance – this involves avoiding
and prudence in planning, performing, and reporting on the audit. situations and circumstances that would lead a
This includes exercising professional skepticism, critically reviewing reasonable and informed third party to believe the
work performed, and adhering to field work and reporting standards. auditor is not independent. It is crucial for maintaining
the public trust.
Proper Planning and Supervision – involves understanding the client’s To ensure both types of independence, several measures must
business, assessing risks, and developing an audit strategy. be taken:
 Financial Interest – auditor and their immediate family
Internal Control – strong internal controls often reduce the need for
members cannot have a direct financial interest in a
extensive evidence, while weak controls require more substantive
client
testing (inverse relationship between evidence and controls)
 Fees – auditor cannot provide opinion if fees from
Evidence – must collect enough relevant and reliable evidence to previous year’s audit remain unpaid
support their opinion. The quantity and quality of evidence depends  Management and Consulting – providing consulting
on the auditor’s professional judgement. services, especially those involving management
decisions, can also impair independence
GAAP/PFRS Conformity – report must state whether the FS comply The engagement partner must:
with GAAP or PFRS.  Identify and evaluate circumstances that threaten
independence
Inconsistency – report must disclose if accounting principles were  Implement safeguards to eliminate or reduce these
not applied consistently between the current and prior periods. If threats to an acceptable level
consistent, no explicit statement is necessary.  Document their conclusions on independence and
the basis for those conclusions
Disclosure – FS should contain adequate disclosures to avoid
3. The Ethical Requirements
misleading users. If disclosures are inadequate, the auditor must
These requirements vary by engagement type (listed entities,
state this in report.
public sector) and may also include compliance with laws such
Opinion – report must express an opinion: unqualified, qualified, as anti-money laundering corruption, or bribery regulations.
adverse, or disclaimer. Fundamental principles include:
 Confidentiality
 Objectivity
 Professional Competence and Due Care
THE FIRM’S SYSTEM OF QUALITY MANAGEMENT AND ROLE OF  Professional Behavior
ENGAGEMENT TEAMS  Integrity
The engagement partner is responsible for ensuring compliance,
Quality controls are policies and procedures adopted by CPAs to
resolving and documenting breaches, and maintaining
provide reasonable assurance confirming with professional
independence. Firms support compliance through:
standards in performing audit and related services.
 Communicating and training on ethical and
Under PSQM 1, a firm must design, implement, and operate a system independence requirements.
of quality management for audits, reviews, and other assurance  Providing manuals, guides, and consultation channels.
engagements to provide reasonable assurance that:  Assigning personnel to monitor compliance and
obtain annual independence confirmations.
 The firm and its personnel comply with professional Establishing systems for engagement teams to communicate
standards, laws and regulations. client relationships, non-assurance services, threats to
 Engagement reports are appropriate for the circumstances. independence, and breaches
4. Monitoring and Remediation
The engagement team, led by the engagement partner, is Engagement partner must also stay alert throughout the
responsible for: engagement for issues that could be relevant to the firm’s
process and communicate them to those responsible.
 Applying the firm’s quality responses relevant to the audit.
Relevant information might include prior inspection results,
 Adding engagement-level quality responses when needed.
deficiencies in similar engagements, or issues from past audits of
 Communicating engagement information to the firm to
the same entity. The partner considers any remedial actions
support ongoing quality management.
already taken by the firm and, if necessary, implements
engagement-level responses such as using an expert or
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increasing supervision. If a deficiency is unrelated to the audit, 4. Confidence – need to give users of the services of
no action is required. Importantly, a firm-level deficiency does professional accountants the confident that there exists a
not automatically mean the specific audit was performed framework of professional ethics which governs the
improperly. provision of those services.
5. Engagement Performance
The engagement partner is responsible for directing, supervising, Fundamental Principles (COPPI)
and reviewing the engagement team’s work, ensuring these
1. Confidentiality – should respect the confidentiality of
activities comply with firm policies, professional standards, and
information acquired during the course of performing
legal requirements, and are tailored to the engagement’s
professional services and should not use or disclose any
nature and resources. Reviews must be performed at key points,
such information without proper and specific authority or
covering significant matters, judgements, and other relevant
unless there is a legal or professional right or duty to
issues, and ensuring sufficient audit evidence before issuing the
disclose. Disclosure is only allowed with proper
auditor’s report. The engagement partner also ensure
authorization, when required by law, or under a
appropriate consultations occur on difficult or contentious
professional duty.
matters, confirms conclusions are agreed upon, and ensures
2. Objectivity – should be fair and not allow prejudice or bias,
they are implemented. For engagements requiring
conflict of interest or influence of others to override
engagement quality review, the partner must appoint the
objectivity.
reviewer, cooperate with them, discuss significant issues, and
3. Professional Behavior – should act in a manner consistent
ensure the review is completed before dating the auditor’s
with the good reputation of the profession and refrain from
report. Any differences of opinion must be resolved per firm
any conduct which might bring discredit to the profession.
policies, documented, implemented, and settled before issuing
This obligation requires consideration.
the report.
4. Professional Competence and Due Care – should perform
6. Acceptance and Continuance of Client Relationships and Audit
professional services with due care, competence
Engagements
(attainment and maintenance) and diligence and has a
PSQM 1 requires firms to set quality objectives for accepting
continuing duty to maintain professional knowledge and
and continuing client relationships and engagements. The
skill at a level required to ensure that a client or employer
engagement partner evaluates whether these decisions are
receives the advantage of competent professional service
appropriate by considering:
based pm up-to-date developments in practice, legislation
 Integrity and ethical values of owners, management,
and techniques. Professional accountants must not claim
and governance.
expertise they do not have.
 Availability of sufficient and appropriate resources.
5. Integrity – should be straightforward and honest in
 Management’s acknowledgement of its responsibilities.
performing professional services; implies not merely honesty
 Competence, capability, and available time of the
buy fait dealing and truthfulness.
engagement team.
 Significant matters from current or prior engagements
affecting continuation.
7. Leadership Responsibilities STRUCTURE
The engagement partner has overall responsibility for managing
and achieving quality on the audit engagement, including The code set out below is divided into three parts:
fostering an environment that reflects the firm’s culture and
 PART A applies to all professional accountants unless
expected behaviors. This involves:
otherwise specified.
 Being sufficiently involved throughout the audit to assess
 PART B applies only to those professional accountants in
whether significant judgements and conclusions are
public practice.
appropriate.
 PART C applies to employed professional accountants, and
 Taking clear, consistent actions to promote:
may also apply, in appropriate circumstances, to
 Shared responsibility for quality among all
accountants employed in public practice.
team members.
 Adherence to professional ethics, values,
and attitudes.
THREATS TO INDEPENDENCE
 Open, safe communication within the team.
 Continuous professional skepticism. 1. Self-Interest Threats – occurs when a firm or a member of
the assurance team could benefit from a financial interest
OVERVIEW ON QUALITY ASSURANCE REVIEW (QAR) in, or other self-interest conflict with, an assurance client.
2. Self-Review Threats – occurs when:
The QAR program aims to enhance the credibility and reliability  Any product or judgement of a previous
of audited financial statements in the Philippines whether by (non)assurance engagement needs to be re-
solo CPA practitioners or large firms. Instituted under RA 9298 evaluated in reaching conclusions on the
(the Philippine Accountancy Act of 2004), the program is part of assurance engagement.
the BOA’s legal mandate to enforce compliance with  When a member of the assurance team was
accounting, auditing, and ethical standards. previously a director or officer of the assurance
client, or was an employee in a position to exert
direct and significant influence over the subject
matter of the assurance engagement.
THE CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS IN THE 3. Advocacy Threats – occurs when a firm, or a member of
PHILIPPINES the assurance team, promotes, or may be perceived to
promote, an assurance client’s position or opinion to the
Objectives
point that objectivity may, or may be perceived to be,
The Code recognizes that the objectives of the accountancy
profession are to work to the highest standards of professionalism, to compromised. Such may be the case if a firm or a member
attain the highest standards of professionalism, to attain the highest of the assurance team were to subordinate their
levels of performance and generally to meet the public interest judgement to that of the client.
requirement set out above. These objectives require four basic 4. Familiarity Threats – occurs when, by virtue of a close
needs to be met: relationship with an assurance client, its directors, officers or
1. Credibility – need for credibility in information and employees, a firm or a member of the assurance team
information systems. becomes too sympathetic to the client’s interests.
2. Professionalism – need for individuals who can be clearly 5. Intimidation Threats – occurs when a member of the
identified by clients, employers and other interested parties assurance team may be deterred from acting objectively
as professional persons in the accountancy field. and exercising professional skepticism by threats, actual or
3. Quality of Services – need for assurance that all services perceived, from the directors, officers or employees of an
obtained from a professional accountant are carried out assurance client.
to the highest standards of performance.
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Safeguards

Firms and assurance team members must maintain independence

by assessing the threats an applying safeguard to eliminate or
reduce them to any acceptable level, documenting actions taken.
Safeguards vary by circumstance, and decisions should reflect what
a reasonable, informed third party would deem acceptable,
considering the threat’s significance, the engagement’s nature,
intended users, and the firm’s structure. Safeguards fall into three
broad categories:

1. Safeguards created by the profession, legislation or

regulation
2. Safeguards within the assurance client
3. Safeguards within the firm’s own systems and procedures
 Firm-wide safeguards
 Engagement-specific safeguards

NOTE: When the safeguards available are insufficient to eliminate

the threats to independence or to reduce them to an acceptable
level, or when a firm chooses not to eliminate the activities, or
interest creating the threat, the only course of an action available
will be refusal to perform, or withdrawal from, the assurance
engagement.