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PSA 120: FRAMEWORK OF THE PHILIPPINE STANDARDS OF AUDITING
Fundamentals of Auditing and Assurance Services

 International Harmonization of Audit Standards

 International Auditing and Assurance Standards Board (IAASB)
o Develops International Standards on Auditing (ISAs) and International Standards
Review Engagements (ISREs)
o Develops International Standards on Assurance Engagements (ISAEs)
o Develops related practice statements (IAASB Handbook, 2020 vol 1 & 2)

 In the Philippine Context

 Before the creation of the Auditing and
Assurance Standards Council (AASC) in
December 2005, the Auditing Standards and
Practices Council (ASPC) was responsible for
the promulgation of auditing standards,
practices, and procedures, considered as
Generally Accepted Auditing Standards
(GAAS) in the Philippines.
 The AASC shall have 18 regular members with
a term of 3 years, renewable for another term

 Generally Accepted Auditing Standards (GAAS)

The examination is to be performed by person or persons having

General adequate technical training and proficiency as an auditor
Standards In all matters relating to an engagement, an independence in mental
attitude is to be maintained by the auditor
T-I-P Due professional care is to be exercised in the perfrormance of the audit
and in the preparation of the report

The work is to be adequately planned and assistants, if any, are to be

properly supervised
Standards of There is to be proper study and evaluation of existing internal control as a
Fieldwork basis for reliance thereon and for the dtermination of the resultant extent of
the tests to which auditing procedures are to be restricted
P-I-E Sufficient competent evidential matter is to be obtained through inspection,
observation, inquiries and confirmation to afford a reasonable basis for an
opinion regarding the F/Ss under examination
 The report shall state whether the financial statements are presented in
accordance with generally accepted accounting principles
The report shall identify those circumstances in which principles have not
Standards of been consistently observed in the current period in relation to the preceding
Reporting period
Informative disclosures are to be regarded as reasonably adequate unless
otherwise stated in the report
The report shall either contain an expression of opinion regarding the
G-I-D-O financial statements, taken as a whole, or an assertion to the effect that an
opinion cannot be expressed, the reasons therefore should be stated. In all
cases, where an auditor's name is associated with the financial statements,
the report should contain a clear-cut indication of the character of the
auditor's examination if any and the degree of the responsibility he is taking.

 AASC Pronouncements

FRAMEWORK FOR ASSURANCE RE

ENGAGEMENTS SER

Other Assurance Agreed Upon

Audit Review
Engagements Procedures

Standards 1
PSAs 2
PSREs 3
PSAEs 4
P

Practice
PAPSs PREPs PAEPSs PR
Statements

Engagement AASC Pronouncements

1
Philippine Standards on Auditing (PSAs) & Philippine Auditing & Practice Standards
Audit - Audit of Historical Financial Statements
2
Philippine Standards on Related Engagements (PSREs) & Practice Standards
Review - Review of Historical Financial Statements
3
Philippine Standards on Assurance Engagements (PSAEs) & Practice standards
Other
- Assurance engagements dealing with subject matters
Assurance
other than historical financial information
Engagements
4
Philippine Standards on Related Services (PSRSs) & Practice Standards
Related Services - Compilation, other related services

Philippine Standards on Quality Control

Quality Control - All services covered by engagement standards

 Financial Reporting Framework (PSA 120, par. 3)

Financial statements are ordinarily prepared and presented annually and are directed toward the
common information needs of a wide range of users. Many of those users rely on the financial
statements as their major source of information because they do not have the power to obtain additional
information to meet their specific information needs. Thus, financial statements need to be prepared in
  Framework for Auditing & Related Services

Expounded…

Related Services
Auditing
Review Agreed-Upon Procedures Compilation
In a For agreed-upon
In an audit engagement,
Nutshell In a review procedures, as the In a compilation
the auditor provides a
engagement, the auditor simply provides a engagement,
high level of assurance,
auditor provides a report of the factual although the users
but not absolute level of
moderate level of findings, no assurance is of the compiled
assurance that the
assurance that the expressed. Instead, users information derive
information subject to
information subject to of the report assess for some benefit from
audit is free of material
review is free of themselves the the accountant's
misstatement. This is
material misstatement. procedures and findings involvement, no
expressed positively in
This is expressed in the reported by the auditor assurance is
the audit report
form of negative and draw their own expressed in the
assurance. conclusions from the report.
auditor's work.
 The objective of an audit In a compilation
Objective of financial statements is The objective of a In an engagement to engagement, the
to enable the auditor to review of financial perform agreed-upon accountant is
 express an opinion engaged to use
whether the financial accounting
statements are prepared, expertise as
in all material respects, in opposed to
accordance with an
auditing expertise
identified financial
to collect, classify
reporting framework. The
phrase used to express and summarize
the auditor’s opinion is financial
“present fairly, in all information. This
material respects.” A statements is to enable ordinarily entails
similar objective applies an auditor to state reducing detailed
to the audit of financial or
procedures, an auditor is
whether, on the basis of data to a
other information engaged to carry out
procedures which do manageable and
prepared in accordance those procedures of an
not provide all the understandable
with appropriate criteria audit nature to which the
evidence that would be form without a
(par. 20) auditor and the entity
required in an audit, requirement to test
and any appropriate third
 In forming the audit anything has come to the assertions
parties have agreed and
opinion, the auditor the auditor's attention underlying that
to report on factual
obtains sufficient that causes the auditor information. The
findings. The recipients of
appropriate audit evidence to believe that the procedures
the report must form
to be able to draw financial statements are employed are not
conclusions on which to
their own conclusions
not prepared, in all designed and do
base that opinion (par. 21) from the report by the
material respects, in not enable the
auditor. The report is
accordance with an accountant to
 The auditor’s opinion restricted to those parties
identified financial express any
enhances the credibility of that have agreed to the
reporting framework. A assurance on the
financial statements by procedures to be
providing a high, but not similar objective applies financial
performed since others,
absolute, level of to the review of information.
unaware of the reasons
assurance. Absolute financial or other However, users of
for the procedures, may
assurance in auditing is information prepared in the compiled
misinterpret the results.
not attainable as a result accordance with financial
of such factors as the appropriate criteria. information derive
need for judgment, the some benefit as a
use of testing, the result of the
inherent limitations of any
accountant's
accounting and internal
involvement
control systems and the
fact that most of the because the service
evidence available to the has been
auditor is persuasive, performed with
rather than conclusive, in due professional
nature. (par. 22) skill and care.

 Auditor’s Association with Financial Information (PSA 120; parag. 19)

An auditor is associated with financial information when the auditor attaches a report to
that information or consents to the use of the auditor's name in a professional connection. If the
auditor is not associated in this manner, third parties can assume no responsibility of the auditor.
If the auditor learns that an entity is inappropriately using the auditor's name in association with
financial information, the auditor would require management to cease doing so and consider
what further steps, if any, need to be taken, such as informing any known third party users of the
information of the inappropriate use of the auditor's name in connection with the information.
The auditor may also believe it necessary to take other action, for example, to seek legal advice.