Adoption of the Philippine Standards on Auditing (PSA)

December 22, 2009 SEC NOTICE Notice is hereby given that the Commission En Banc in its meeting of 17 December 2009, resolved to adopt as part of its rules the following Philippine Standards on Auditing (PSA): 1 PSA Nos. Title Revisions 200 Overall Objectives Incorporates relevant provisions of the amended (Revised of the Independent Preface to IAASB and Philippine AASC and Auditor and the pronouncements and uses the new drafting Redrafted) Conduct of an Audit conventions adopted by the IAASB to enhance the in Accordance with clarity (i.e., readability and understandability) of the Philippine Standards standards (referred to as the 'clarity drafting on Auditing conventions'). Conforming Contains further explanation of: (a) the role and Amendments : purpose of objectives of the audit, including the Preface to the relationship between objectives and requirements; (b) Philippine Standards the auditor's consideration of objectives, including on Quality Control, the need for the auditor to have regard to the Auditing, Review, interrelationship amongst the PSAs; (c) the Other Assurance and consequence of a failure to obtain sufficient Related Services and appropriate audit evidence; and, (d) the consequence Other PSAs of a failure to achieve an objective. Describes the inherent limitations of an audit, in the context of: (a) the fundamental nature and characteristics of financial reporting and business processes; (b) the nature of audit evidence and procedures; and (c) the need for the audit to be conducted within a reasonable period of time and at a reasonable cost. 230 Audit The revisions are pursuant to the clarity drafting (Redrafted) Documentation conventions. Expands the requirement for the auditor to document significant matters arising from the audit and the conclusions reached on those matters by referring specifically to the significant professional judgments made in reaching those conclusions. Clarifies that audit documentation that meets the requirements of PSA 230 (Redrafted), together with the specific documentation requirements of other relevant PSAs, provides evidence of the auditor's basis for a conclusion about the achievement of the overall objective of the auditor. 240 The Auditor's The revisions are pursuant to the clarity drafting (Redrafted) Responsibilities conventions. There were no major changes made to Relating to Fraud the extant PSA 240 (Rev. 2005). in an Audit of Financial Statements 250 Consideration of The revisions are pursuant to the clarity drafting (Redrafted) Laws and conventions. There were no major changes made to the Regulations in and extant PSA 250. Audit of Financial Statements 260 Communications The revisions are pursuant to the clarity drafting (Revised with Those Charged conventions. and with Governance Includes a new section dealing with the Redrafted) communication process with those charged with governance in recognition of its importance in audit effectiveness. Requires significantly more specific items to be communicated to those charged with governance. 300 Planning and Audit The revisions are pursuant to the clarity drafting (Redrafted) of Financial conventions. There were no major changes made to the Statements extant PSA 300 (Rev.). 315 Identifying and The revisions are pursuant to the clarity drafting (Redrafted) Assessing the Risks conventions. There were no major changes made to the of Material extant PSA 315 (Rev.). Misstatements Through Understanding the Entity and its Environment 320 Materiality in The revisions are pursuant to the clarity drafting (Revised Planning and conventions. and Performing an Includes a definition of materiality that makes clear Redrafted) Audit that materiality depends on the size and nature of an item judged in the surrounding circumstances. Introduces guidance on the use of percentages of benchmarks for the initial determination of materiality for the financial statements as a whole, when establishing the overall audit strategy. 330 The Auditor's The revisions are pursuant to the clarity drafting (Redrafted) Responses to conventions. There were no major changes made to the Assessed Risks extant PSA 330 (Rev.). 450 Evaluation of Requires the auditor to accumulate misstatements (Revised Misstatements identified during the audit and to consider, as the and Identified during the audit progresses, whether there is a need to change Redrafted) Audit the overall audit strategy and audit plan. Requires the auditor to communicate to management all known and likely misstatements (other than those that are clearly trivial) identified during the audit and to request management to correct all known misstatements. 510 Initial Audit The revisions are pursuant to the clarity drafting (Redrafted) Engagements conventions. There were no major changes made to the Opening Balances extant PSA 510. 530 Audit Sampling The revisions are pursuant to the clarity drafting (Redrafted) conventions. There were no major changes made to the extant PSA 530. 540 Auditing The revisions are pursuant to the clarity drafting (Revised Accounting conventions. and Estimates, Including Introduces requirements for greater rigor and Redrafted) Fair Value skepticism into the audit of accounting estimates, Accounting including consideration of indicators of possible Estimates, and management bias. Related Disclosures Introduces risk assessment procedures that are more comprehensive than those in the extant PSA 540, including the requirements for the auditor to determine the need to use the work of an expert. 550 Related Parties The revisions are pursuant to the clarity drafting (Revised conventions. and Adopts a three-part approach to the audit of related Redrafted) party relationships and transactions: (a) obtaining sufficient appropriate audit evidence about whether related party relationships and transactions have been appropriately accounted for and disclosed; (b) obtaining an understanding of related party relationships and transactions; and (c) identifying fraud risk factors to which related party relationships and transactions specifically give rise in the overall identification and assessment of fraud risks. 560 Subsequent Events The revisions are pursuant to the clarity drafting (Redrafted) conventions. There were no major changes made to the extant PSA 560. 570 Going Concern The revisions are pursuant to the clarity drafting (Redrafted) conventions. There were no major changes made to the extant PSA 570. 580 Written The revisions are pursuant to the clarity drafting (Revised Representations conventions. and Requires the auditor to determine relevant parties Redrafted) from whom written representations (both general and specific) should be requested. Requires the auditor to request relevant parties general written representations that they acknowledge and understand their responsibility for preparing and presenting financial statements and for designing, implementing and maintaining internal controls, and that they believe that all records, documentation, etc. have been made available to the auditor. Requires the auditor to obtain written representations regarding specific assertions in the financial statements ("specific written representations") when the auditor considers it necessary to corroborate other audit evidence. 600 Special The revisions are pursuant to the clarity drafting (Revised Considerations conventions. and Audits of Group Provides for the group auditor to obtain a Redrafted) Financial Statements preliminary understanding of the group at the (Including the Work acceptance and continuance stage, and to consider of component the group auditor's ability to participate Auditors) appropriately in the work of other auditors. Eliminates the distinction between related and unrelated auditors. As a result, the auditor's report on the group financial statements shall not refer to a component auditor, unless required by law or regulation to include such reference. If such reference is required by law or regulation, the auditor's report shall indicate that the reference does not diminish the group engagement partner's or the group engagement partner's firm's responsibility for the group audit opinion. Provides guidance on the type of work to be performed for significant components of a group and for those that are not significant components. 610 Using the Work of The revisions are pursuant to the clarity drafting (Redrafted) Internal Auditors conventions. There were no major changes made to the extant PSA 610. 705 Modification to the The revisions are pursuant to the clarity drafting (Revised Opinion in the conventions. There were no major changes made to the and Independent carved-out portion of extant PSA 700 (Rev.) relating to Redrafted) Auditor's Report modification to the opinion in the auditor's report, except for the inclusion of the definition of "pervasive" which term, in the context of misstatements, is used to describe the effects on the financial statements of misstatements or the possible effects on the financial statements of misstatements, if any, that are undetected due to an inability to obtain sufficient appropriate audit evidence. 706 Emphasis of Matter The revisions are pursuant to the clarity drafting (Redrafted) Paragraphs and conventions. There were no major changes made to the Other Matter carved-out portion of the extant PSA 700 (Rev.). Paragraphs in the Independent Auditor's Report 720 The Auditor's The revisions are pursuant to the clarity drafting (Redrafted) Responsibility in conventions. There were no major changes made to the Relation to Other extant PSA 720. Information in Documents Containing Audited Financial Statements The foregoing standards shall be effective for audits of financial statements beginning December 15, 2009. The above pronouncements and all the final standards on quality control, auditing, review, other assurance and related services may be viewed and downloaded through a hyperlink in the Commission's website at www.sec.gov.ph. cSIACD Issued this 22nd day of December 2009, Mandaluyong City, Philippines. For the Commission: (SGD.) FE B. BARIN Chairperson Footnotes 1. These are adopted from the International Standards on Auditing issued by the International Auditing and Assurance Standards Board (IAASB). The Auditing and Assurance Standards Council and the Board of Accountancy of the Professional Regulation Commission earlier approved these PSAs for adoption by public practitioners in the Philippines.