PSA 200

OVERALL OBJECTIVES OF THE INDEPENDENT AUDITOR AND THE CONDUCT OF

AN AUDIT IN ACCORDANCE WITH THE PHILIPPINE STANDARDS ON AUDITING

OBJECTIVES
Auditor:

To obtain reasonable assurance about whether f/s as a whole is free from

material misstatement, whether due to fraud or error
- Enabling auditor to express an opinion whether f/s is prepared in all material

respects in accordance with the framework.

To report on f/s and communicate findings

When reasonable assurance cannot be obtained + qualified opinion is insufficient:

Disclaim opinion or
Withdraw from engagement (where legally permitted)

Establishes the independent auditors responsibilities when conducting an

SCOPE

audit.
- Sets out overall objectives of auditor
- Explains the nature and scope of an audit
- Also: explains scope, authority and structure of PSAs and includes
requirements establishing the general responsibilities of an auditor
BASIC REQUIREMENTS

Ethical requirements relating to and audit of Financial Statements

Professional Skepticism
Professional Judgment
Sufficient Appropriate Evidence and Audit Risk
Conduct of an Audit in Accordance with the PSAs
Complying with PSAs Relevant to the Audit
- Comply with all PSAs relevant to the audit
- Have an understanding of the entire text of a PSA including its application
and other explanatory material
- Not represent compliance with PSAs unless complied with the
requirements of this PSAs and all other relevant PSAs
Objectives Stated in Individual PSAs
Use objectives stated in relevant PSAs to:
- Determine whether additional audit procedures are necessary
- Evaluate whether sufficient an appropriate evidence was obtained
Complying with Relevant Requirements
Auditor shall comply with each requirement of a PSA unless:
- PSA is not relevant
- It is conditional and the condition does not exist
*Necessary to depart = perform alternative audit procedures

EXPLANATORY

Audit of Financial Statements

1. Scope of an Audit
1.1 Auditors opinion deals with whether the f/s are prepared in all material
respects in accordance with the applicable financial reporting framework
therefore, does not assure the future viability of the company not the
efficiency or effectiveness with which management has conducted the
affairs of the entity.
2. Preparation of the Financial Statements
2.1 Management have responsibility:
a. For the preparation and presentation of the f/s in accordance with the
applicable framework. This includes the design, implementation and
maintenance of internal control.
b. To provide auditor with:
- All information
- Additional information
- Unrestricted access
2.2 As part of their responsibility for the preparation and presentation of the
f/s, management are responsible for:
a. Identification of the applicable financial reporting framework
b. Preparation and presentation of the financial statements
c. Adequate description of that framework
2.3 Financial statements may be prepared in accordance with a financial
reporting framework designed to meet:
a. General purpose
b. Special purpose
2.4 Where conflict exists between financial reporting framework and the
sources from which direction on its application may be obtained, or among
the sources that encompass the financial reporting framework, the source
with the highest authority prevails.
2.5 Some financial reporting frameworks are fair presentation frameworks,
while others are compliance frameworks.
2.6 Auditor is required to obtain agreement from management that they
acknowledge their responsibilities as a precondition for accepting the audit
engagement.
3. Form of the auditors opinion

Fair presentation framework presented fairly in all material respects

Compliance framework in accordance with the framework

Ethical Requirements Relating to an Audit of Financial Statements

1. Fundamental principles
a) Integrity
b) Objectivity
c) Professional Competence and due care
d) Confidentiality
e) Professional Behavior
2. Auditor must be independent of the entity subject to the audit:
a) Of mind
b) In appearance
Independence enhances:
a) Integrity
b) Objectivity
c) Professional Skepticism

Professional Skepticism
1. Being alert to:
a) Audit evidence that contradicts other evidence
b) Information that brings into question the reliability of documents and
materials to be used as evidence
c) Conditions that indicate possible fraud
d) Circumstances that suggest the need for additional audit procedures
2. Reduce risk of:
a) Overlooking unusual circumstances
b) Overgeneralizing when drawing conclusions
c) Using inappropriate assumptions in determining nature, timing and
extent of procedures and evaluating results thereof
3. In cases of doubt, PSAs require that the auditor investigate further
4. Auditor cannot be expected disregard past experience of the honesty and
integrity of the entitys management and those charged with governance

Professional Judgment
1. Training, knowledge and experience
2. Appropriately documented
3. Necessary in decisions about:
a) Materiality and audit risk
b) Nature, timing and extent of audit procedures
c) Evaluating whether sufficient appropriate evidence has been obtained
d) Evaluation of managements judgment in applying framework
e) Drawing of conclusions

Sufficient Appropriate Evidence and Audit Risk

1. Sufficiency and Appropriateness of Audit Evidence
1.1 Audit evidence necessary to support auditors opinion and report
1.2 Sufficiency and appropriateness of audit evidence are interrelated
Obtaining more evidence may not compensate for its poor quality
1.3 Appropriateness = quality (relevance and reliability)
Sufficiency = quantity
2. Audit Risk
2.1 A function of the risks of material misstatements and detection risk

2.2 Assessment of risks is a matter of professional judgment rather than

precise measurement
2.3 Audit risk does not include the risk that an auditor might express an
opinion the f/s are materially misstated when they are not. It does not
refer to business risks such as loss from litigation, adverse publicity, etc.
3. Risk of Material Misstatement
3.1 Overall financial Level relate pervasively to the f/s as a whole
Assertion Level assessed to determine nature, timing and extent of
further audit procedures.
a) Inherent Risk higher for some assertions, related classes
(complex calculations, estimates, technical development,
disclosures)
b) Control Risk design, implementation and maintenance of
Internal Control (human errors, controls circumvented,
inappropriate management override)
3.2 Expressed: Quantitative terms
Non quantitative terms
4. Detection Risk
4.1 Bears an inverse relationship to the assessed risks of material
misstatements
4.2 Relates to the nature timing and extent of audit procedures
4.3 Inherent Limitations of an audit
a) The nature of financial reporting
b) The nature of audit procedures
c) Timeliness of financial reporting and the balance between benefit
and cost
o
o
o

Management may not give complete information

Fraud organized scheme designed to conceal it
Audit not official investigation into alleged wrongdoing

Difficulty, time and cost not a valid basis to omit audit procedure
Subsequent discovery of material misstatement does not indicate

failure
Inherent limitations not justification for the auditor to be satisfied
with less than persuasive audit evidence

Conduct of an Audit in Accordance with PSAs

1. Nature of the PSAs
1.1PSAs do not override laws and regulations that govern and audit of
financial statements. In the event that those laws and regulations differ
from the PSAs, an audit conducted only in accordance with laws and
regulations will not automatically comply with PSAs.
2. Considerations Specific to Audits in the Public Sector
3. Considerations Specific to Smaller Entities
4. Failure to Achieve Objective
4.1 Evaluate whether it prevents auditor from achieving overall objectives:
a) Modify opinion
b) Withdraw

Submitted by: Carol Sarah Bravo

4A1