CASE 1: NEW CLIENT ACCEPTANCE

Submitted by:

Alipayo, Michael
Baronia, Rochelle
Cabangunay, Arvie
Catacutan, Anchellie
De Guzman, Dowen Nae
Fernandez, Joy
Imperial, Shaine

GROUP 6
BSA 3-2

Submitted to:

Professor Maria Luisa Oliveros

 TABLE OF CONTENTS

I. INTRODUCTORY MATERIALS
A. THE AUDIT FIRM
B. THE ENGAGEMENT TEAM
C. DUTIES AND RESPONSIBILITIES OF ENGAGEMENT TEAM

II. QUALITY CONTROLS

A. INDEPENDENCE
B. ASSIGNING PERSONNEL TO ENGAGEMENT
C. CONSULTATION
D. SUPERVISION
E. ADVANCEMENT/PROMOTION
F. ACCEPTANCE AND CONTINUANCE OF NEW CLIENT RELATIONSHIP AND SPECIFIC
ENGAGEMENTS
G. RECRUITMENT/HIRING
H. MONITORING/INSPECTION
I. PROFESSIONAL DEVELOPMENT

III. CASE REQUIREMENTS

A. ACCEPTANCE AND CONTINUANCE OF CLIENT RELATIONSHIP POLICIES AND
PROCEDURES
B. PROSPECTIVE CLIENT QUESTIONNAIRE (EXPLANATION PER ITEM ATTACHED)
C. INDEPENDENCE RESOLUTION
D. ENGAGEMENT LETTER TO LONE STAR
E. LETTER TO PREDECESSOR AUDITOR
F. SUPPLEMENTAL LETTER TO MANAGEMENT FOR ASSISTANCE EXPECTATIONS
 INTRODUCTION
AND BACKGROUND
 INTRODUCTION: THE AUDIT FIRMS
WHAT IS AN AUDITING FIRM?
Firm- A sole practitioner, partnership, or other entity of professional accountants. (PSA 220,
Definitions, e.)
- According to a financial dictionary, a company that reviews activities to identify
inefficiencies, reduce costs, and otherwise achieve organizational objectives. Auditing
firms may investigate potential theft or fraud and ensure compliance with applicable
regulations and policies. They also help to ensure the accuracy of reports. Audits are an
essential part of a company's efficiency.

AUDIT FIRM SAMPLE ORGANIZATIONAL CHART

 HOW AUDIT FIRMS ARE ESTABLISHED
Aside from the quality controls that they need to comply (Quality controls are attached in this
documentation).
a. Republic Act 9298 or the Philippine Accountancy Act of 2004, Annex B (see attached
law)

For registration:
b. Registration of Accounting Firms/CPA (From PRC)
Requirements
1. BACC Form No. 02 duly accomplished in three (3) copies and properly notarized with the
required documentary stamp.
2. Short brown envelop for the Certificate of Registration.
3. Documentary stamp worth fifteen (P15) to be affixed to the Certificate of Registration.
4. Xerox copy of the CPA Certificates and current professional identification card(s) of individual
CPA, sole proprietor, partners and staff members.
5. Certified copy of the Code of Good Governance of the individual CPA, firm or partnerships.
6. Sworn statement by the Individual CPA, sole proprietor of the Firm and managing partner fo the
Partnership stating that the Individual CPA and staff member(s), the sole proprietor and staff
member(s) fo the Firm, and all the partners and staff member(s) of the Partnership, as the case
maybe,:

a. had a meaningful participation of their respective internal quality review process, and
b. had undergone adequate and effective training (from organizations duly accredited by the
Board or by its duly authorized representatives) on all he current accounting and auditing
standards, code of ethics, laws and their implementing rules and regulations, circulars,
memoranda, their respective codes of good governance and other related documents that are
required in the practice of public accountancy to ensure professional , ethical and technical
standards, supported with the certified copies of the certificate(s) of attendance or any proof of
meaningful participation in, and proof of adequacy and effectiveness of such training.
7. For first-time applicant:

a. Sworn statement of at least three (3) years of meaningful experience in the scope of work
covered in the practice of public accountancy.
b. Detailed description of such work experience of the individual CPA, sole proprietorship of the
firm and all the partners of the Partnership to be attached to the sworn statement.
8. Sworn Statement by the Individual CPA, sole proprietorship of the Firm and managing partner of
the Partnership stating that the Individual CPA and all his/her staff member(s), sole
proprietorship and all the staff member(s) of the Firm, and all partners and staff member(s) of the
Partnership:
 a. are all of good moral character
b. he/she or they had not been found guilty by a competent court and /or administrative body of
any case involving moral turpitude and /or unethical practices and that neither any of them is a
defendant in any case of similar nature pending before any competent court and /or
administrative agencies supported by a certificate of clearance issued by the proper court,
administrative agencies.
9. Copy of internal quality review procedures being implemented to ensure compliance with the
professional ethical and technical standards required of the practice of public accountancy.
10. Certified copies of all business permits issued by the local and/or national goverment.
11. Additional Requirements:

A. For Partnership
1. Certified copyof the Certificate of Registration issued by the SEC
2. Certified copy of current Articles of Partnership
3. Certified copy of the documents showing the correspondent relationship, membership or
business dealings with foreign CPA firm(s) including complete address and poster address,
telephone number and facsimile numbers, email address and website.
4. Sworn statement stating that:
a. the copy of the document showing the correspondent relationship membership, or business
dealings with the foreign CPA is the faithful reproduction of its original copy
b. the foreign CPA is not directly or indirectly ( through the Filipino CPA) engaged in the
practice of public accountancy in the Philippines, except the authorized foreign CPAs under the
foreign reciprocity provision of the Section23, Article III of P.D. No. 692 and
c. the rights and obligation of the parties in specific terms.
B. For Sole Proprietor
1. Certified copy of the certificate of registration of Firm name Department of Trade and
Industry ( DTI) ( if the applicant prefer to use business name other than his registered name with
PRC)

For Accreditation:
c. Under, Philippine Accountancy Act of 2004, Sec 28- Limitation of the Practice of Public
Accountancy:
Single practitioners and partnerships for the practice of public accountancy shall be
registered certified public accountants in the Philippines; Provided, that from the effectivity of
this Act, a certificate of accreditation shall be issued to certified public accountants in public
practice only upon showing, in accordance with rules and regulations promulgated by the Board
and approved by the Commission, that such registrant has acquired minimum of three (3) years
meaningful experience in any of the areas of public practice including taxation. Provided,
further that this requirement shall not apply to those already granted a certificate of
accreditation prior to the effectivity of this Act. The Securities and Exchange Commission shall
not register any corporation organized for the practice of public accountancy.
Under SEC Memorandum Circular No. 13, Revised Guidelines on Accreditation of Auditing
Firms and External Auditors.
Sec. 4. Scope and Limitation of Accreditation
4.1. Only an external auditor and his auditing firm (if applicable) who is accredited by the
Commission shall be engaged by corporations covered by this Circular for the statutory audit of
their financial statements.
Under Sec 5: Qualification Requirements.
For auditing firms:
1. The auditing firm should be accredited with the BOA;
2. At the time of application, it should have a t least (1) signing practitioner or partner who
is already accredited, or is already qualified and applying for accreditation by the
Commission.
3. It should have adequate policies and procedures related to the elements of a system of
quality control provided for under Philippine Standard on Auditing No. 220, Philippine
Standard on Quality Control No.1 and their amendments. These should be reflected in its
Quality Assurance Manual as required by Section 7.1 of this Circular.
(For Individual or Partner requirement see SEC memo 13)

WHAT ARE THE ROLES AND RESPONSIBILITIES OF AN AUDITING FIRM?

- Providing an Opinion on Financial Statements, external audit firms are responsible for
providing reasonable assurance that the financial statements are free from material
misstatements and prepared according to an accounting framework. External auditors are
not there to fix the problems, although many will issue recommendations to management.
External audit firms also are not responsible for providing absolute assurance of perfect
financial statements; they only test enough data to provide reasonable assurance.
- Understanding the Entity and Its Environment, external auditors are charged with
obtaining a thorough understanding of their client's environment, operations and internal
controls. To do this, auditors will perform an initial risk assessment of the company.
External auditors will often examine the electronic accounting information system to
ensure that the data aren't being compromised. They'll compare the company to others in
the industry to identify any irregularities that could stem from incorrect financial
reporting.
- Obtaining Sufficient Evidence to Form an Opinion
 - Independence, the audit firm is responsible for maintaining an independent attitude and
an appearance of independence from the client. A lack of independence means that the
auditor might fail to address audit problems, which lowers the credibility and assurance
of an external audit. The auditor should not serve as an officer for the client or participate
in management of the client's company. Audit firms also shouldn't have any sort of
financial interest in the client. Audit firm partners should ensure that none of their
auditors have joint ventures or significant investments in the client before auditing the
client.

WHAT COMPRISE AN AUDIT FIRM?

According to Bamber (1983, p. 396) “an audit is usually conducted by an audit team,
which is characterized by a hierarchical structure and division of labor.” Audit teams usually
comprise the audit partner, senior-manager/manager, audit senior, audit staff, and specialists
such as tax professionals (Muczyk et al., 1986). The number of people at each hierarchical level
depends on the size and complexity of the audit (Muczyk et al., 1986). Audit firms “use teams
extensively as the primary means for coordinating people with diverse skills needed for a
particular project” (Dereli et al., 2007, p. 371). Using teams enhance audit effectiveness, since
team members pool their knowledge and expertise (Owhoso et al., 2002), while sharing the work
by assigning audit sections to team members (Vera-Muñoz et al., 2006). While no team member
works independently, “a prerequisite for effective team performance is that individual members
each contribute nonoverlapping outputs” (Owhoso et al., 2002, p. 899). Hence, within an audit
team, value-driven collaboration is essential.

WHAT IS THE STRUCTURE OF AN AUDIT FIRM?

In the case study, Harer & Jones, CPAs has a decentralized structure.
In planning an audit of highly decentralized operation, an auditor assumes that the authority to
make significant risk decisions has been designated to unit managers.
Decentralized firms: there are many unique decisions, a rapidly changing products and
industries, the low-level manager skills must be generalists.
The advantage of decentralization is the autonomy assumed by lower-level of management and
workers. Top management is free to concentrate on more important problems, such as long-range
planning, because low-level management is handling many of the detailed matters on its own.
The general speed of the business activity is increased since low-level management does not
have to wait for upper-level approval (e.g. for an audit firm, the reporting period that a
prospective client gave). It also allows the freedom to think boldly and creatively, stimulates a
sense of potential freedom, raises and morale and provides an excellent training ground for
future top executives.
Why CPA Firms are decentralized?
1. Independent operation – each country/region can operate independently. This guarantees that
the operations of the country/region are able to continue regardless of external factors.
2. Decisions – local employees have the best knowledge base from which to make decisions, so
this would improve tactical-level decisions throughout the company.
3. Speed – Since there are fewer layers of bureaucracy, the company is able to make decisions
more quickly, which is useful in a highly competitive market.
4. Training – giving some authority to local managers is excellent way to observe their decision-
making ability, which can be used to determine advancement to higher positions.
5. Flexibility – there will be more flexibility in meeting competition because prompt and spot
decisions are possible.
ORGANIZATIONAL CHART OF THE ENGAGEMENT TEAM

ANCHELLIE CATACUTAN
MANAGING PARTNER

MICHAEL ALIPAYO
CONTACT PARTNER

DOWEN NAE DE GUZMAN ROCHELLE BARONIA

AUDIT MANAGER TAX MANAGER

JOY FERNANDEZ SHAINE IMPERIAL

SENIOR AUDIT ASSOCIATE SENIOR TAX ASSOCIATE

ARVIE CABANGUNAY ARVIE CABANGUNAY

AUDIT ASSOCIATE TAX ASSOCIATE
BACKGROUND OF PERSONNEL AND DUTIES AND RESPONSIBILITIES
ANCHELLIE CATACUTAN
Managing Partner
Anchellie earned a Bachelor of Science degree in Accountancy and Applied
Economics from the Polytechnic University of the Philippines. She also completed
the Columbia Essentials of Management program at the Columbia University
Graduate School of Business, New York, USA. She is a CPA and a member of
PICPA.

Anchellie is experienced at handling the audit of banks and financial institutions

(investment houses, stock brokerage, asset management, mutual funds, and credit
cards), consumer products, semiconductors, pre -need, and airline companies. He is
a frequent facilitator for Assurance and other Learning & Development (L&D)
trainings, as well as an instructor for the Firm’s International Financial Reporting
Standards (IFRS) workshops as a subject matter expert on financi al instruments.

NATURE OF WORK
1. Establishing Direction: Develops the vision and strategies to achieve that vision; sets and
communicates the long term direction of the firm and ensures that the short term goals,
objectives and tasks are aligned and adjusted in anticipation and in response to outside
forces and internal changes that impact achievement of the firm’s vision and strategies.

2. Alignment and Commitment: Builds consensus throughout the partnership and gains
commitment behind the vision and direction. The MP ensures alignment of people; that
partners’ have input, are heard and that opinions are considered through strong
communication and effective listening skills and through effective mentoring.

3. Ensuring Execution: Is accountable for effecting change and execution of the firm’s
strategies through the activities and priorities of the Executive Committee and the
Management Team. Holds people accountable and works with them to ensure that people
are doing the right things.

4. Setting a Personal Example: The MP provides a positive personal example through words
and behavior. The MP displays personal integrity, supports the professionals at all levels in
the firm; takes responsibility for his or her actions and holds others accountable. Fosters a
learning organization where mistakes are identified, owned and where the firm and its
professionals learn from them.

DUTIES AND RESPONSIBILITIES

1. Provide leadership
The Managing Partner must lead by example exhibiting integrity, energy, enthusiasm,
dedication, and commitment. Such behavior will become contagious throughout the
firm.
2. Build an effective management team

3. Keep your fingers on the finances

The degree to which a Managing Partner needs to be involved in the finances of the firm
depends on the firm’s size and the quality and ability of the internal accounting team.

4. Recruiting and retention

The Managing Partner needs to set a tone that the organization will hire and retain the
best people available. The success of any firm initiative will be enhanced or suppressed
by the people assigned to it.

5. Deal with partner issues

6. Ensure the firm deals effectively with risk management

Managing Partners need to be sure that the firm has policies and procedures in place that
will mitigate the risks facing the firm every day. Such policies and procedures should
address:
a. Acceptance and continuance of clients
b. Going concern issues, especially in today’s economy
c. Quality control in all firm services
d. Personnel policies
e. Billing and collections

7. Participate in the decision making on insurance and benefits

The size of the firm and the management team talent available to deal with insurance and
benefits will determine how much involvement is requires by the Managing
Partner. However, the Managing Partner needs to make certain that the firm is
adequately protected from possible liability and that the benefit plans are consistent with
the firm’s culture and approach to recruiting and retaining people.

8. Take an active role in people development

The Managing Partner needs to make sure the firm is providing for the development of its
people. This starts with a good orientation and “buddy” program for new hires and
continues throughout the employee’s career. Firms seem to concentrate on the technical
development of their people and ignore the soft skills, such as speaking, listening, people
management and leadership. The MP needs to ensure the firm is addressing these issues
as well. In addition, the MP should be sure the firm:
a. Provides mentoring to partners and other future leaders
b. Coaches the firm’s stars to success
c. Maintains the “team” atmosphere
d. Deals promptly and effectively with conflict and performance issues
 9. Provide strategic planning and vision
The Managing Partner needs to lead this effort in the firm and communicate the vision
often. Partners and employees want to know where the firm is headed.

10. Be a catalyst for growth and expansion

Clients are looking for value‐added solutions to their business issues. But commonly,
practice partners are too busy to take the lead in developing these solutions. The
Managing Partner must continually push the firm forward and encourage the
development of new service offerings. The more services a firm provides to a client, the
more revenue per client is generated and the less likely it is that the client will sever the
relationship.

REFERENCES:
Michel Consulting Group LLC (Practice management consulting for CPA firms)
http://www.plattgroupllc.com/apr09/roleofmp.pdf
MICHAEL ALIPAYO
Contact Partner
Michael is a CPA and a partner in Assurance. He specializes in the areas of
telecommunications, manufacturing, and business process outsourcing. Highly
knowledgeable in PFRS, SOX 404, GAAP and the capital markets, he has become a
sought-after resource person on these topics and has considerable technical
expertise in the audit of telecommunication s and reporting on internal controls.
Johnny holds an IFRS accreditation based on the fitm’s requirements and passed
Level 1 of the Chartered Financial Analyst Program.

Michael is an honor graduate of Polytechnic University of the Philippines and

placed 4th in the 1975 CPA Board Examination. He joined the Firm in 1976 and
received the an Award in 1985.

Contact Partner

Contact partners usually are the face of a public accounting firm’s audit department. These
individuals are outgoing and friendly when attempting to bring new companies into the firm’s
client portfolio. Audit partners are also highly educated and trained in various accounting topics,
with several years of experience in the auditing field. Many times, accounting firm partners must
act as salesmen when finding new clients. They attend business events, accounting seminars or
other conferences as opportunities to extend their firm’s audit capabilities and gain new clients.

Audit partners also play an important role in retaining current clients. Partners will make
personal and professional calls on clients to ensure that the accounting firm has completed audit
tasks in a competent, professional manner. An audit partner is a certified public accountant and
full equity partner in a professional accounting firm. When an employee is admitted to the
partnership, she makes a financial investment to purchase equity in the partnership. Each partner
earns a share of the profits, usually in proportion to her ownership percentage. The audit partner
signs and approves the firm's audit report and financial statements for the clients she manages.
Audit partners typically manage one or more key client relationships and the associated revenue
for those relationships.

Key Responsibilities of an Audit Partner

Audit partner is engaged in making significant decisions related to accounting, auditing and
gives an overview of the financial condition of the organization. By employing such
professionals the work is done speedily, and in less time by providing the relevant auditing and
accounting details in clear, concise and structured format. The key responsibilities that need to be
handled by him are as follows:
 1. Audit partners function like marketing people who find the clients for the organization
and try to retain the existing clients. They can earn new clients by attending various
seminars or conferences or any auditing related meetings with the clients
2. Once the clients have been established and retained it is the duty of the audit partners to
ensure that the auditing team is performing as per the clients requirements and follows
the standards
3. He should make sure that the auditing functions are completed in a professional manner
and on the given time. Moreover, he should ensure conformance with the standard
auditing procedures
4. It is his duty for the overall management of the accounting department of the organization
5. He should be able to train and mentor the auditing staff. He makes an official
introduction of his team members to the client
6. He keeps a constant check on the performance of his team members and tries to resolve
the discrepancies if any

He is engaged in identifying the flaws in financial systems and suggests for changes. He gathers
all the information to detect fraud, non-compliance of auditing procedures, extra expenditure,
duplication of records, etc. Based on this knowledge he is engaged in the preparation of reports
and make presentations whenever required. He keeps a check on the inventory and verifies the
entries made in the journals and ledgers. He assesses the financial condition so as to plan future
finances by reviewing the annual reports and other relevant financial information. He should
guide, instruct to carry out activities related to recording, filing and maintenance of financial
data. He should examine the tax records, determine the tax liabilities and ensure their
compliance.
Essential Skills
An individual for this post should have a thorough knowledge of the accounting procedures. If
you are really keen to take up a career as an audit partner you need to have at least some of the
following essential skills:

1. Should have strong interpersonal communication skills as he will need to interact with
the clients as well as the auditing team from whom he needs to get the work done. This
will help in developing a trust with the client and with the internal staff members.
2. Should have an eye for detail
3. Should have an aptitude for math and should be able to resolve complex auditing issues
in a timely manner
4. Should be able to maintain and update the financial records, data and information by
making use of the computers
5. Should have excellent time management and organizational skills
6. Should be comfortable working under pressure for long hours in a target driven
environment

Educational Qualification
In the recent times audit partners should fulfill the CPA requirements. Moreover, with relevant
experience it will help in progressing faster and getting good salary packages.
Work Schedule
The daily routine does not extend beyond forty to forty five hours per week. If there are any
issues, the project needs to be completed on a particular deadline, if he needs to attend the
meetings or conferences the work hours may get longer and need to work during late evenings or
on the weekends.

REFERENCES: (Auditing Standard No. 10, google)

DOWEN NAE DE GUZMAN
Audit Manager

Audit Manager

Dowen graduated from Polytechnic University of the Philippines with a Bachelor of

Science degree in Accountancy. She completed her Masters in Business Administration at
Farthern University of the Philippines.
She is a member of Philippine Institue of Certified Public Accountants (PICPA).
She maintains the highest technical and professional standard in the group, thinks strategically
about client needs by understanding their business and key risks. She also provides additional
help and guidance to clients on a consultancy basis, participates in the development of ways to
meet client needs, contributes to proposal delivery.
Also, it is her duty to identify ways to maximize the relationship with clients and deliver
added value. Most importantly, she monitors and controls auditing staff.

NATURE OF WORK

1. Provide management over a portfolio of clients and deliver high quality audit and
assurance service, including preparing and reviewing audit plans and work.
2. Achieve team and individual budgets and business plan/ performance objectives.
3. Manages project financials, including budgets, WIPS, timely billing and collection and
variance recognition.
4. Addresses situation before they come crises and develops solutions to avoid recurrence.
5. Takes a leadership role in professional, business or community organization
6. Coach, train and develop auditing staff to upgrade their knowledge
7. Be seen as a role model for auditing professionals
8. Carry out practice management activities e.g. resourcing client billing etc
9. Undertake wider office activities, as required.

DUTIES AND RESPONSIBILITIES

While the day-to-day tasks of an audit manager will vary by industry, company size and location,
in general they will be responsible for the following:
1. Planning and performing operational and financial audits
2. Identifying business process risks
3. Developing testing methodologies to evaluate the adequacy of controls
4. Documenting the results of the evaluations
5. Developing recommendations and reports based on audits and presenting these ideas to
senior management
6. Formulating professional development and educational plans for junior staff members
7. Planning and allocating resources and individuals in accordance with skills and schedules
8. In addition to the skills listed above, today’s audit managers must be as technically
proficient as they are mathematically proficient. That’s because there are thousands of
 tools and software programs available for auditors, and many of them have become
ubiquitous in the corporate landscape.
9. Essential skills for audit managers
10. In order to be successful in an audit manager role, you should possess or develop some or
all of these traits:
- Strong background and experience with audit methodologies and techniques
- Prior success conducting external or internal audits
- Ability to build relationships while asking tough questions
- Excellent written and oral communication ability
- Strong time management and organizational skills

REFERENCES:
http://www.sgv.ph/partnersprincipals-4/
http://www.parkerlynch.com/jobs/job-descriptions/Pages/audit-manager.aspx
http://www.pwc.com/th/en/careers/job-auditor-manager.html
ROCHELLE BARONIA
Tax Manager

Rochelle is a CPA-Lawyer. She graduated Bachelor of Science degree in Accountancy from the
Polytechnic University of the Philippines and earned CPA license in 2018 CPA Board Exam.
She also earned her Bachelor of Laws degree from the San Beda College.
Rochelle is experienced in providing diverse tax and audit support services, including tax
compliance reviews, tax due diligence, tax return preparation and filing, tax accounting and
provisioning advisory, tax planning and restructuring for clients in the manufacturing,
semiconductor, mining, logistics, power, utilities, real estate and other sectors. She is also
actively involved in the Firm’s internal and external training programs on tax-related subjects.
She performs independent CPA verification services, tax planning and tax outsourcing work for
clients in varied industries such as insurance, pre-need, real estate and construction, services,
airlines, manufacturing, call center, BPOs, and power, among others.
She obtained Gained Chartered Tax Adviser qualification and almost 4 years in working with tax
related works.
NATURE OF WORK
1. Tax Planning is the analysis of a financial situation or plan from a tax perspective. The
purpose of tax planning is to ensure tax efficiency, with the elements of the financial plan
working together in the most tax-efficient manner possible.
2. Tax preparation is the process of preparing tax returns, often income tax returns, often for a
person other than the taxpayer, and generally for compensation. Tax preparation may be done by
the taxpayer with or without the help of tax preparation software and online services.
3. Tax Due Diligence Review provide an investor with insights as to the potential tax exposures
of an investee company to help determine the valuation to be attributed to the investment and
thus, arrive at a sound and informed business decision.
4. Tax Compliance Review provide a diagnostic evaluation of a company’s tax position,
practices, and procedures to determine whether they comply with Philippine tax laws. The
objective of the undertaking is to identify potential tax exposures and recommend corrective
actions.
DUTIES & RESPONSIBILITIES
1. Assist in company’s tax compliance to ensure companies comply with relevant tax law,
returns and tax payments are on time. Authorize payment of taxes.
2. Assist in reviewing invoices and financial statements to ensure compliance with indirect
and direct taxes.
3. Assist in planning company’s activities to ensure compliance with corporate directives
and minimization of tax costs.
 4. Assist in advising management of the impact of new or proposed legislation, decisions,
regulations and ruling in tax and related areas. Ensure companies’ activities comply with
legal, professional, and ethical standard.
5. Reviews monthly/quarterly/annual tax returns/alpha list and other attachments of ATP
Group including the reconciliation to books.
6. Prepares Quarterly Tax Provision and Tax Package of ATP and updates the
corresponding data/information in Longview tax system.
7. Reviews Quarterly Tax Provision and Tax Package of ATP’s affiliates and
updates the corresponding data/information in Longview tax system.
8. Ensures compliance of ATP Group for monthly/quarterly/annual reports to
government agencies like Central Bank, PEZA, SEC, NSO, Cities of Muntinlupa
and Binan, BIR, etc.
9. Performs regular compliance checking of the Taxes affecting the ATP Group like
Fringe Benefits Tax, Withholding Taxes, Income Tax, Value Added Tax,
Documentary Stamp Tax, Business Tax, etc.
10. Monitors renewal of the business permit and license of the ATP Group.
11. Handles the BIR/PEZA/BOC/SEC audits of the ATP Group.
12. Handles requirements for IRS/GAAP/IFRS compliance.
13. Handles/monitors various tax projects (like Income Tax Holiday applications) of the
ATP Group.
14. Assists in the Year End Financial Statements Audit of the ATP Group.
15. Reviews/oversees the preparation of legal documents such as Board Resolutions,
Country Manager’s Certificate, Contracts, etc.
16. Develops and initiates tax savings strategy (together with Tax Department Manager) for
the ATP Group.
17. Promotes quality of work (thru review and supervision) of all the Corporate
affairs/Tax staff to the satisfaction of the customers (internal or external)
18. Complies with proper operating procedures of safety and health standards/regulations.
19. Supports and implements Environmental Management System with respect to their job.

REFERENCES:
JobStreet.com :
AsiaPacific Regional Tax Manager Job (IT Software Company), Taguig
Monroe Consulting Phils., Inc. (Recruitment Firm)
Amkor Technology Phils. Inc.
Ernst & Young (EY), Co.
JOY FERNANDEZ
Senior Audit Associate

SENIOR AUDIT ASSOCIATE

 Joy D. Fernandez graduated Bachelor of Science in Accountancy from Polytechnic
University of the Philippines and is a member of PICPA. She earned her Master in Business
Administration Degree at Asian Institute of Management. A senior auditor with an
expertise in law and auditing looking to get associated with a reputed company and apply
her skills in training junior auditors, and verifying the financial statements to present
authentic reports. Her audit experience spans various industries including airline and
related services, telecommunications, mining and exploration, information technology,
business process outsourcing, retail, health care, pharmaceuticals, manufacturing,
construction, and freight/logistics.

NATURE OF WORK
1. Ensures successful completion of assigned audit engagements, from start to finish, inclusive of
preplanning and wrap up activities.
2. Depending on assigned engagement, reports to one or more member(s) of the Internal Audit
senior management team.
3. Manages and directs daily activities of more junior auditors assigned to assist the Supervising
Auditor during an engagement.
4. Applies risk and control concepts to scenarios encountered and identifies any potential issues.
5. Communicates identified issues with Internal Audit senior management to ensure any potential
concerns are addressed in a timely and effective manner.

DUTIES AND RESPONSIBILITIES

1. Conducts assigned audit engagements successfully from beginning to end.
2. Identifies and communicates issues raised, offering recommended solutions relevant to
business and risk.
3. Supervises junior auditors assigned to engagements providing guidance and overall review
of deliverables.
4. Ensures audit conclusions are based on a complete understanding of the process,
circumstances, and risk.
5. Develops audit programs and testing procedures relevant to risk and test objectives.
6. Obtains and reviews evidence ensuring audit conclusions are well-documented.
7. Ensures adherence at all times to all applicable department and professional standards.
8. Communicates assigned tasks to engagement team in a manner that is clear and concise
ensuring high quality, accurate, and efficient results.
9. Organizes personal effort along with those of junior auditors to be risk-based, productive,
and efficient at all times.
 10. Ensures adequate focus on personal professional growth relevant to taking on more
challenging assignments, in line with standard audit career progression – proactively seeks
relevant education and training opportunities.
11. Performs other related duties as assigned.

REQUIREMENTS
 Bachelor Degree or above.
 3+ years of external audit experience.
 CPA qualification is advantage.
 Team player with strong interpersonal, communication and project management skills.
 Fluent in English.
 Internationally recognized professional accounting qualification complete or near
completion: ACCA, CPA, CA, ACA or other designation as accepted by the local
accounting institute
 Strong knowledge of US GAAP/GAAS, IFRS and/or International Accounting Standards
as required

GENERAL KNOWLEDGE, SKILLS & ABILITIES:

• Ability to observe and understand business processes ensuring processes are documented
completely and accurately
• Ability to apply audit standards through practical application
• Proactive in researching business best practice concepts in order to apply as appropriate
• Solid listening skills and ability to identify gaps in logic – inquisitive
• Strong organization and follow up skills including the ability to handle competing priorities and
meet all deadlines and commitments
• Reliability
• Possess an appropriate combination of technical expertise in fields such as auditing, finance,
technology, operations, or investigations
• Ability to flourish in a fast-paced, complex environment and willing to adapt to change
• Demonstrated ability to lead a small team and ensure successful results

REFERENCES:
 http://www.pwc.com/th/en/careers/job-senior-auditor.html
 http://jobs.grantthornton.com/jobs/1448768-Audit-Senior-Associate.aspx
 https://careers.deloitte.com/bermuda/experienced-
professionals/opportunities.aspx?JobReqCode=BM115994JG
 http://www.sgv.ph/partnersprincipals-3/
SHAINE IMPERIAL
Senior Tax Associate

Tax consultant with six years of experience working with diverse clients and their global
employees assisting with expatriate tax matters and management of international mobility
programs.
AREAS OF EXPERTISE
 Tax Compliance and Advisory

 Tax briefings

 Hypothetical & estimated tax calculation

 Tax returns

 State audit assistance

 Tax equalization calculation

 Employment tax

 Income tax treaties

 Foreign tax accruals

 Foreign tax payments

 Foreign asset & account analysis

 International assignment analysis

 Policy & process review

 Cost projection & analysis

 Social security tax analysis

 Equity compensation & sourcing

 Year-end review & analysis

 Billing & collection

PROFESSIONAL EXPERIENCE
*06/2010 to Current
Senior Tax Associate
Harer & Jones, CPAs - Big City, USA
Managed day-to-day operations and global coordination of assignee tax services and worked on
client accounts, both large and small, providing U.S. tax services for U.S. expatriates and foreign
nationals.
Advised clients in administration of company tax programs and assisted in development and
review of tax equalization and international assignment policies.
Communicated daily with client's HR contacts facilitating client understanding of international tax
regulations, new developments, tax savings strategies and compliance with tax laws.
*08/2008 to 06/2010
Audit Associate
Harer & Jones, CPAs - Big City, USA
Performed field audits for non-profit and financial organizations, and assisted supervisors in
completing audit reports.
*05/2007 to 08/2008
Intern, Tax

PricewaterhouseCoopers － Florham Park, NJ

Prepared individual tax returns and tax equalization calculations for international employees.

EDUCATIONAL BACKGROUND
*2007
Bachelor of Science in Accountancy
Polytechnic University of the Philippines - Sta. Mesa, Manila

Senior Tax Associate

Senir Tax Associate recommends tax strategies by researching, interpreting, and implementing
tax laws. He is responsible for increasingly complex compliance and financial reporting
assignments and projects, analysis and support of tax positions through audit and controversy
work, identification of process improvement ideas, active participation in department planning
initiatives and deliverables, and regular interaction with Corporate Taxation management.

NATURE OF WORK
1. This position has no supervisory responsibilities.
2. This job operates in a clerical office setting. This role routinely uses standard office equipment
such as computers, phones, photocopiers, filing cabinets and fax machines.
3. This is largely a sedentary role; however, some filing is required. This would require the
ability to lift files, open filing cabinets and bend or stand on a stool as necessary.
4. This is a full time position. Days and hours of work are Monday through Friday, 8:30 a.m. to 5
p.m. Some flexibility in hours is allowed, but the employee must be available during the “core”
work hours of 9:30 a.m. to 3:30 p.m. and must work 37.5 hours each week to maintain full time
status.

DUTIES & RESPONSIBILITIES

1. Serve as the Engagement Lead on specific client accounts, taking responsibility for pre-
engagement planning, execution, and final deliverable development.
2. Develop a detailed engagement work plan, illustrating budgets and schedules.
3. Monitor project status against the work plan and communicate schedule adjustments to
management.
4. Manage tax compliance process (to include resource allocation and budgeting, billing, and
collection), schedule staff, deliver work product(s) on time and within scope, and communicate
engagement status to management.
5.Develop a professional relationship with the client. Gain the respect and confidence of the
client by consistently demonstrating supreme customer service, quality work products, and
professional integrity.
6. Serve as the prime point-of-contact to the client. Ensure that the client is fully informed of
engagement progress and logistics.
7.Gain the respect and confidence of the team through effective client management, timely and
accurate communication, and clear and concise team direction.
8. Prepare timely and accurate bills for professional services rendered.
9. Prepare, organize and maintain engagement work papers and files.
10. Communicate periodically with client following the completion of the engagement to ensure
customer satisfaction.
11. Research tax issues and filing requirements that affect tax compliance.
12. Review tax returns and ensure accuracy and completeness.
13. Research complex tax issues using internal revenue code, treasury regulations and other
relevant authorities/guidance.
14. Draft tax technical memorandums.
15. Perform tax structuring and modeling.

Qualifications:
1. Bachelor's degree in Accounting
2. 3+ years of Tax experience in a public accounting arena
3. Demonstrated writing skills a must; proposal development experience desired
4. Strong tax research and writing skills
5. Proven MS Office skills
6. Experience with tax compliance and research software
7. Solid organizational skills with a demonstrated ability to multi-task

REFERENCES: KPMG
ARVIE CABANUNGAY
Audit Associate

Harer & Jones

June 2013 - Present
 Handling financial operation of the organization, preparing financial statement,
developing auditing theories, researching on feasible business projects
 Executing daily activities of audit engagements of various clients, including
Exchange Commission (SEC) registrants and Securities
 Identifying and communicating auditing and accounting matters to partners,
senior associates, and managers
 Interacting with clients to ensure efficient flow of information from the client to
the audit team
 Identifying performance improvement opportunities and communicating
financial and accounting matters to the senior associates
 Providing presentation and suggestions to clients on their financial status

Junior Audit Associate

IAC & Co
February 2012 - May 2013

 Handled responsibilities of short-term audit plans and verification tests by

applying generally accepted accounting principles and IFRS international
financial reporting standards
 Prepared financial reports for internal control
 Implemented short-term corporate auditors and internal communication reports
 Verified audit reporting issues and conducted audition of specific tasks
 Assigned the tasks of controlling financial records like evaluation practices,
policies, and report configuration
 Verified contract analysis, financial documents and claims investigations
 Handled other essential tasks under the supervision of senior auditor

Education:

 Bachelor of Science in Accountancy

Polytechnic University of the Philippines- Mabini Campus, 2011

References:

Inocencio Cabangunay Accountant

Gerlyn Entero Teacher

JOB SUMMARY
The Audit Associate is responsible for learning and applying technical skills and working
as part of a team carrying out audit tasks under close supervision of Audit Seniors and Audit
Managers.
Essential Functions
Reasonable accommodations may be made to enable individuals with disabilities to perform the
essential functions.

1. Assists in planning work on assigned segments of an audit.

2. Recommends the means of obtaining, analyzing and evaluating evidentiary data.
3. Reviews transactions, documents, records, reports and methods for accuracy and
effectiveness.
4. Prepares acceptable working papers that record and summarize data on the assigned audit
segment.
5. Holds preliminary discussions of apparent deficiencies with operating personnel to verify
and obtain explanations of and reasons for each apparent deficiency and documents
responses.
6. Reports audit findings and makes recommendations for the correction of unsatisfactory
conditions, improvements in operations and reductions in cost.
7. Assists in the performance of special reviews at the request of management.
8. Performs other duties as may be assigned.

RESPONSIBILITIES:
1. Actively develops technical skills on the job and through formal training.
2. Builds strong working relationships with clients.
3. Effectively documents work.
4. Identifies and communicates engagement issues as well as engagement progress in a
timely and organized manner.
5. Assists in developing new business proposals, budgets and fee quotes.
6. Works as an effective team member to complete project components and assigned tasks,
including:
7. Completing segments of audits, compilations and reviews.
8. Assisting with the preparation of financial statements, footnote disclosures and
management letter comments.
9. Assisting with engagement administration including audit programs, budgets and
engagement letters.
10. Preparing Form 990 and related tax returns.

REQUIRED SKILLS:
• Strong organizational skills and attention to detail.
• Strong analytical, technical and research skills.
• Ability to balance multiple priorities and complete assignments within time constraints and
deadlines.
• Strong verbal and written communication skills.
• Ability to quickly adapt to changing client and business dynamics.

REQUIRED QUALITIES:
• Be dedicated to providing personalized attention and service.
• Be a proactive and strategic solution provider.
• Be a relationship builder.
• Be a collaborative team player.
• Be trustworthy.
• Be kind.
 ARVIE MAY FIGUEROA
Tax Associate

Harer & Jones

June 2014 – Present

 Prepared federal and state client tax returns, including: 1040, 1120, 1120S, 1065 & 5500.
 Managed disbursements and receipts of large client estates and trusts.
 Performed ongoing financial management and accounting functions, including: compilation, tax
research and analysis, client assistance in IRS matters.
 Served the firm as a business technology consultant.
 Served the firm remotely on an as-needed basis, while seeking full-time/seasonal employment
with other reputable firms.

Junior Audit Associate

IAC & Co
March 2012 - May 2014

 Created and designed promotional flyers and printed all necessary materials
 Conducted routine clerical functions such as reception, faxing and answering telephones to
respond to customer inquiries, and to screen and determine services needed
 Communicated with private businesses regarding tax services offered and insured proper display
of material
 Contacted businesses or private individuals by telephone to solicit sales of tax services and
answered questions
 Obtained customer demographic information, and entered data onto computers and accurately
analyze data for basic research purposes
 Acquired extra responsibilities such as opening and closing company store, preparing bank
deposits, and delivering documents to other locations
 Worked with individuals with physical impairments and offered in home tax services

REFERENCES:

Francis Javier Hotel Manager

Ester Datul OFW

Medylyn Gellang Teacher

POSITION SUMMARY
 The Tax Associate reports to the Tax Manager and works closely with the other Tax Associates
in the department. The position is responsible for the preparation and review of tax returns,
including ensuring all federal and state income tax returns are prepared timely and accurately and
in compliance with applicable laws. The position is also responsible for 1099 year-end tax
information reporting.
PRIMARY RESPONSIBILITIES
• Tax return preparation: Prepare corporate, fiduciary (complex, grantor, simple and split-
interest), gift, individual, partnership and private foundation tax returns, including preparation of
work papers and lead sheets; preparation of tax projections and related estimated payments;
analyze client information and offer recommendations for reducing client tax liabilities; perform
tax research.
• Assist in preparation of our clients’1099 (1099-B, INT and DIV) year-end tax information
reporting, including reviewing, recommending, and making adjustments to client year-end tax
reports.
• General accounting for client business’ to be used in preparing income tax returns, including
preparation of trial balances and related adjusting journal entries; preparing deposits and
disbursement requests.
• Stay current on latest tax law changes. Take advantage of continuing education opportunities. •
Assist with general administrative functions of the Tax Department.
• Assist with other Corporate accounting projects as needed.
• Special projects, as necessary.

COMPETENCIES REQUIRED
• Minimum 2+ years’ experience in tax preparation.
• Excellent knowledge of federal and state tax laws and regulations.
• Strong knowledge of Excel, Word and Quick Books.
• Strong written and verbal communication skills. Must be able to communicate clearly and
concisely with senior management, client administration, portfolio managers and high-net-worth
clients.
• Strong reconciliation and analysis skills.
• Must be a team player and be willing to work over-time (including weekends) when necessary.

PERSONAL CHARACTERISTICS
• Strong client service focus. Responsive to needs of colleagues and clients.
• Ability to prioritize and multi-task.
• Meticulous attention to detail. Must be thorough and accurate.
• High integrity with a strong work ethic.

EDUCATIONAL REQUIREMENTS
• Bachelors’ degree required.
• Master’s degree in taxation preferred
 QUALITY
CONTROLS
POLICIES AND PROCEDURES
(HARER & JONES, CPA)
[Policies and Procedures are excerpted from KPMG Transparency Report, EYG Transparency
Reports, PwC Transparency Report & Walter J. Haiig II, CPA & Consultant (Proprietor)]
 HARER AND JONES
POLICIES AND PROCEDURES
(Policies & Procedures below are excerpted from EYG Policy)

INDEPENDENCE

 Purpose
The purpose of firm’s independence policies and procedures is to ensure that the
company’s independence is maintained, both in appearance and fact so that the
opinions made by our auditors would always be credible and reliable for the
consummation of the public.

These policies are guaranteed in compliance with the Republic Act 9298 also
known as the Accountancy Act of 2004, Code of Ethics for Professional
Accountants of the Philippines, Generally Accepted Auditing Standards and
Philippine Standard on Auditing.

 Objective
The objective of this section is to assist the firm and members of assurance teams
in:
(a) Identifying threats to independence;
(b) Evaluating whether these threats are clearly insignificant; and

(c) In cases when the threats are not clearly insignificant, identifying and applying
appropriate safeguards to eliminate or reduce the threats to an acceptable level. In
situations when no safeguards are available to reduce the threat to an acceptable
level, the only possible actions are to eliminate the activities or interest creating the
threat, or to refuse to accept or continue the assurance engagement. (COE)

 Independence Threats:

(a) “Self-Interest Threat” occurs when a firm or a member of the assurance team
could benefit from a financial interest in, or other self-interest conflict with, an
assurance client;

(b) “Self-Review Threats” occurs when (1) any product or judgment of a previous
assurance engagement or non-assurance engagement needs to be re-evaluated
in reaching conclusions on the assurance engagement or (2) when a member of
the assurance team was 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;
 (c) “Advocacy Threat” occurs when a firm, or a member of the assurance team,
promotes, or may be perceived to promote, an assurance client’s position or
opinion to the point that objectivity may, or may be perceived to be,
compromised. Such may be the case if a firm or a member of the assurance
team were to subordinate their judgment to that of the client.

(d) “Familiarity Threat” occurs when, by virtue of a close relationship with an

assurance client, its directors, officers or employees, a firm or a member of the
assurance team becomes too sympathetic to the client’s interests.

(e) “Intimidation Threat” occurs when a member of the assurance team may be
deterred from acting objectively and exercising professional skepticism by
threats, actual or perceived, from the directors, officers or employees of an
assurance client.

 EYG INDEPENDENCE POLICY

The following sets forth the key provisions of the EYG independence policy,
including the incremental subsections that highlight additional independence
requirements of the US Securities and Exchange Commission independence
regulations and Public Company Accounting Oversight Board (PCAOB) rules:

Policy 1: The auditor must maintain independence in appearance and in fact;

(a) Independence of mind - the state of mind that permits the provision of an opinion
without being affected by influences that compromise professional judgment, allowing an
individual to act with integrity, and exercise objectivity and professional skepticism; and

(b) Independence in appearance - the avoidance of facts and circumstances that are so
significant a reasonable and informed third party, having knowledge of all relevant
information, including any safeguards applied, would reasonably conclude a firm's or a
member of the assurance team’s integrity, objectivity or professional skepticism had been
compromised. (Code of Ethics for Professional Accountants of the Philippines)
(c) Each professional should be responsible for maintaining his/her personal independence.

Policy 2: The members of the assurance team, the firm and network firms are required to be
independent of the audit client;
 (a) The firm should not have a material direct or indirect financial interest;
(b) It is necessary to evaluate the independence of members of the assurance team by
investigating and gathering information about their immediate and close family.
(c) Certain other financial relationships with audit clients (e.g., loans, credit cards,
insurance products and brokerage accounts) are either prohibited or subject to
limitations.
(d) The tools used to confirm independence in this policy includes family-tree data relating
to affiliates of listed audit clients and is updated by client-serving engagement teams.
The entity data includes notations that indicate independence rules that apply to each
entity, helping our people to determine the types of services they can provide the client.

Policy 3: Involving an additional professional accountant to review the work done or otherwise
advise as necessary. This individual could be someone from outside the firm or network firm, or
someone within the firm or network firm who was not otherwise associated with the assurance
team;

Policy 4: Consulting a third party, such as a committee of independent directors, a professional

regulatory body or another professional accountant;

Policy 5: Rotation of senior personnel;

(a) A senior personnel may only continue his engagement service to the same client with
only a span of 5 years. (A Mandatory Rotation implemented by Securities and
Exchange Commission, Code of the International Ethics Standards Board of
Accountants (IESBA), Insurance Commission of the Philippines, The Bangko Sentral
ng Pilipinas.)
(b) The lead engagement partner and the quality reviewer to be rotated after 5 years.
(c) For newly public interest entity (including newly listed entities) client, the lead
engagement partner and the engagement quality reviewer may remain in place for an
additional two years before rotating off the team, regardless of the time they served
prior to the listing.
(d) Following rotation, partner may not resume the lead or engagement quality review role
until at least two years elapsed.
(e) We have tools to track rotation that enable effective monitoring compliance with
requirements such as software used and trained personnel to check and track the
rotation requirement.
Policy 6: Discussing independence issues with the audit committee or others charged with
governance;

Policy 7: Involving another firm to perform or re-perform part of the assurance engagement;

Policy 8: Removing an individual from the assurance team, when that individual’s financial
interest or relationships create a threat to independence;

Policy 9: No services will be provided that will result in a conflict of interest;

(a) Conflict of Interest – a situation in which a person is in position to derive personal

benefit from actions or decisions made in their official capacity

- a situation in which a corporation or person with a vested interest in a company

becomes unreliable because of the clash between personal interests and professional
interests.

Policy 10: No partner or member of staff or spouse or close relative of an audit partner or member
of the audit staff holds a position as a director or executive of the audit client or even in its
controlled entities;

(a) Timely and accurate completion of annual and quarterly independence confirmations
id a high priority for the responsible leadership teams.

(b) All of the firm professionals, and certain others based on their role or function, are
required to confirm compliance with independence policies and procedures at least once a
year through accomplishing and submitting the independence questionnaire provided by
the firm.

(c) All partners are required to confirm compliance on independence quarterly through
accomplishing and submitting the independence questionnaire provided by the firm.

(d) Close and immediate family members of partners and employees may not hold certain
accounting or financial reporting roles with audit clients or their affiliates.

- Immediate family member includes spouses, spousal equivalents or cohabitants

occupying a relationship generally equivalent to that of a spouse and financially
independent individuals include any person who received more than half of their support
for the most recent calendar year from a professional and/or his or her spouse or spousal
equivalent.
 - Close family member includes an individual’s nondependent parents, stepparents,
children, step children and siblings.

Policy 11: The evaluation of threats to independence and subsequent action should be supported
by evidence obtained before accepting the engagement and while it is being performed.

Policy 12: For certain reporting issuer audit clients, a former member of the audit engagement
team may not accept employment in a financial reporting oversight role until the required “cooling-
off” period of two years has expired.

Policy 13: Immediate family members of partners may hold an employment related financial
interest in an audit client but must be disposed once employment has ended, as soon as there is
ability to sell. Immediate family of category 3 and 4 covered persons may also hold an employment
related financial interest in an audit client but must dispose the interest as soon as they have the
ability to sell, even if they are still employed by the audit client.

 Covered person includes the following categories of persons: (1) the audit
engagement team, (2) always covered persons or those persons in the chain of
command, (3) partners and managerial employees who have provided 10 or
more hours of non-audit services during a particular audit client’s fiscal year
and (4) any partner located in the office in which the lead audit engagement
partner is located.

Policy 14: A professional may not be a member of audit team if the professional has knowledge
that a close family member holds a material financial interest in the audit client.
Policy 15: Purchases or sales of goods and services between professionals and audit clients acting
as a consumer in the ordinary course of business and at arm’s length would generally not create a
threat to independence.

Policy 16: Purchases of goods and services by any professional from audit clients at special rate
and terms available only because of our client relationship, or at rates and terms only available to
employees of the audit client, are prohibited.

Policy 17: Any gifts to and from the client and person in an accounting or FROR at the client
should be of nominal value otherwise it should not be offered nor accepted. Modest gifts in cash
are only permitted when it is a personal gift or when it is a customary practice in a certain country.

 FROR or "financial reporting oversight role" means a role in which a person is

in a position to or does exercise influence over the contents of the financial
statements or anyone who prepares them, such as when the person is a member
of the board of directors or similar management or governing body, chief
executive officer, president, chief financial officer, chief operating officer,
general counsel, chief accounting officer, controller, director of internal audit,
director of financial reporting, treasurer, or any equivalent position.
REFERENCES:
Ethical Requirements Relating to an Audit of Financial Statements (PSA 200)

Paragraph 14. The auditor shall comply with relevant ethical requirements, including those
pertaining to independence, relating to financial statement audit engagements.
(Ref: Para. A14-A17)

Ethical Requirements Relating to an Audit of Financial Statements (Ref: Para. 14 of Code

of Ethics for Professional Accountants of the Philippines)

A14. The auditor is subject to relevant ethical requirements, including those pertaining
to independence, relating to financial statement audit engagements. Relevant
ethical requirements ordinarily comprise Parts A and B of the Code of Ethics for
Professional Accountants in the Philippines (the Code of Ethics) related to an
audit of financial statements together with national requirements that are more
restrictive

Relevant Ethical Requirements: Independence (Ref: PSA 220 Par. A5-A7)

11. The engagement partner shall form a conclusion on compliance with independence
requirements that apply to the audit engagement. In doing so, the engagement partner shall:

(a) Obtain relevant information from the firm and, where applicable, network firms, to identify
and evaluate circumstances and relationships that create threats to independence;

(b) Evaluate information on identified breaches, if any, of the firm’s independence policies and
procedures to determine whether they create a threat to independence for the audit engagement;
and

(c) Take appropriate action to eliminate such threats or reduce them to an acceptable level by
applying safeguards, or, if considered appropriate, to withdraw from the audit engagement, where
withdrawal is permitted by law or regulation. The engagement partner shall promptly report to the
firm any inability to resolve the matter for appropriate action. (Ref: Para. A5-A7)

A6. The engagement partner may identify a threat to independence regarding the audit
engagement that safeguards may not be able to eliminate or reduce to an
acceptable level. In that case, as required by paragraph 11©, the engagement
partner reports to the relevant person(s) within the firm to determine appropriate
action, which may include eliminating the activity or interest that creates the
threat, or withdrawing from the audit engagement, where withdrawal is legally
permitted.

Code of ethics for Professional Accountants (International Federation of Accountants or

IFAC Ref.: 100.11-100.21)
Safeguards that may eliminate or reduce such threats to an acceptable level fall into two broad
categories:
(a) Safeguards created by the profession, legislation or regulation; and
(b) Safeguards in the work environment.

100.12 Safeguards created by the profession, legislation or regulation include, but are not restricted
to:
• Educational, training and experience requirements for entry into the profession.
• Continuing professional development requirements.
• Corporate governance regulations.
• Professional standards.
• Professional or regulatory monitoring and disciplinary procedures.

• External review by a legally empowered third party of the reports, returns, communications or
information produced by a professional accountant.

Ethical Conflict Resolution

100.16 In evaluating compliance with the fundamental principles, a professional accountant may
be required to resolve a conflict in the application of fundamental principles.

100.17 When initiating either a formal or informal conflict resolution process, a professional
accountant should consider the following, either individually or together with others, as part of the
resolution process:
(a) Relevant facts;
(b) Ethical issues involved;
(c) Fundamental principles related to the matter in question;
(d) Established internal procedures; and
(e) Alternative courses of action.
Having considered these issues, a professional accountant should determine the appropriate course
of action that is consistent with the fundamental principles identified. The professional accountant
should also weigh the consequences of each possible course of action. If the matter remains
unresolved, the professional accountant should consult with other appropriate persons within the
firm or employing organization for help in obtaining resolution.

100.18 Where a matter involves a conflict with, or within, an organization, a professional

accountant should also consider consulting with those charged with governance of the
organization, such as the board of directors or the audit committee.

100.19 It may be in the best interests of the professional accountant to document the substance of
the issue and details of any discussions held or decisions taken, concerning that issue.

100.20 If a significant conflict cannot be resolved, a professional accountant may wish to obtain
professional advice from the relevant professional body or legal advisors, and thereby obtain
guidance on ethical issues without breaching confidentiality. For example, a professional
accountant may have encountered a fraud, the reporting of which could breach the professional
accountant’s responsibility to respect confidentiality. The professional accountant should consider
obtaining legal advice to determine whether there is a requirement to report.
100.21 If, after exhausting all relevant possibilities, the ethical conflict remains unresolved, a
professional accountant should, where possible, refuse to remain associated with the matter
creating the conflict. The professional accountant may determine that, in the circumstances, it is
appropriate to withdraw from the engagement team or specific assignment, or to resign altogether
from the engagement, the firm or the employing organization.

Online References:
https://pcaobus.org/Rules/pages/section_3.aspx

 Section 3. Auditing and Related Professional Practice Standards

 Rule 3100. Compliance with Auditing and Related Professional Practice
Standards.
 Rule 3520. Auditor Independence
 HARER AND JONES
POLICIES AND PROCEDURES

ASSIGNING PERSONNEL TO ENGAGEMENT

Policy 1: Before the completion of the planning/survey phase of an assurance engagement, the
engagement leader shall

 Assess the engagement team in order to be satisfied that the engagement team, specialists
and any auditor's experts, collectively have the appropriate competence and capabilities;
and
 Assign roles and responsibilities. [Nov-2011]

Policy 2: The engagement leader is responsible for the engagement and its performance, and for
the assurance engagement report that is issued.

This means the engagement leader

 properly assesses the assignment and structure of the engagement team, including
specialists and auditor's internal experts, taking into consideration the factors included in
the Engagement Team Competency and Resource Assessment Template;
 is satisfied that engagement team roles and responsibilities are properly assigned and
communicated, including responsibilities for maintaining an objective state of mind and
an appropriate level of professional skepticism and for performing work according to the
ethical principle of due care;
 in assigning roles and responsibilities, matches the level of knowledge and experience to
the risk and complexity of the tasks;
 encourages a culture of knowledge sharing and communication, so that engagement team
members draw on the totality of their understanding of the entity and their personal
knowledge and experience; and
 clearly defines the tasks to be performed, including the review responsibilities and
reporting lines to the engagement leader.

Policy 3: The composition of the engagement team and the proper assignment of roles and
responsibilities are essential to the performance of an effective audit. Every audit is different, and
the engagement team is structured to meet those specific circumstances.
Policy 4: The engagement leader assigns roles and responsibilities that provide for development
of each team member, supported by an integrated coaching culture, by

 providing team members with a range of challenging opportunities to build their

knowledge, relationships, and experience;
 engaging team members in setting expectations and measurable goals aligned to the
audit, Office, and personal success;
 leading by example and sharing knowledge and experience; and
 providing for high-quality on-the-job coaching.

This means that auditors

 develop their technical competence, team-working skills, knowledge-sharing abilities,

and professionalism;
 perform high-quality engagements; and
 manage risk appropriately.
REFERENCES:

CPA CANADA ASSURANCE STANDARDS

CSQC 1.31 CPA Canada 5030.23

CSQC 1.A31 CPA Canada 5030.24

PSQC 1
Assignment of Engagement Teams
30. The firm shall assign responsibility for each engagement to an engagement partner and shall
establish policies and procedures requiring that:

a) The identity and role of the engagement partner are communicated to key members of
client management and those charged with governance;
b) The engagement partner has the appropriate competence, capabilities, and authority to
perform the role; and
c) The responsibilities of the engagement partner are clearly defined and communicated to
that partner. (Ref: Para. A30)

31. The firm shall also establish policies and procedures to assign appropriate personnel with the
necessary competence, and capabilities to:

a) Perform engagements in accordance with professional standards and regulatory and legal
requirements; and
b) Enable the firm or engagement partners to issue reports that are appropriate in the
circumstances. (Ref: Para. A31)
Under PSQC 1, Application
Assignment of Engagement Teams
Engagement Partners (Ref: Para. 30)

A30. Policies and procedures may include systems to monitor the workload and availability of
engagement partners so as to enable these individuals to have sufficient time to adequately
discharge their responsibilities.
Engagement Teams (Ref: Para. 31)
A31. The firm’s assignment of engagement teams and the determination of the level of supervision
required, include for example, consideration of the engagement team’s:

 Understanding of, and practical experience with, engagements of a similar nature and
complexity through appropriate training and participation;
 Understanding of professional standards and regulatory and legal requirements;
 Technical knowledge and expertise, including knowledge of relevant information
technology;
 Knowledge of relevant industries in which the clients operate;
 Ability to apply professional judgment; and
 Understanding of the firm’s quality control policies and procedures.
 HARER AND JONES
POLICIES AND PROCEDURES

CONSULTATION
Our consultation policies are built upon culture of collaboration, whereby audit professionals are
encouraged to share perspective on complex accounting, auditing and reporting issues.
Consultation requirements and related policies are designed to involve the right resources, so that
audit teams reach appropriate conclusions.

Consultation includes discussion, at the appropriate professional level, with individuals within or
outside the firm who have specialized expertise, to resolve a difficult or contentious matter.

Consultation uses appropriate research resources as well as the collective experience and collective
expertise of the firm. Consultation helps to promote quality and improves the application of
professional judgement. The firm seeks to establish a culture in which consultation is recognized
as strength and encourages personnel to consult on difficult or contentious matters.
Policy 1: Where the audit firm does not have sufficient internal resources to undertake
consultations on difficult or contentious matters, they are required by to consult externally to
ensure compliance with Philippine Auditing Standards, and to reduce the audit risk to an
acceptably low level by following ethical and auditing standards.

Number of matters which could be considered difficult or contentious matters that may require
consultation within the firm or with external experts (ASIC financial reporting surveillance
program):
1. Revenue recognition, expense deferral, and other comprehensive income classification
2. Asset valuations
3. Off-balance sheet arrangements
4. Going concern
5. Non-IFRS financial information disclosures
6. Operating and financial review
7. Current vs. non-current classifications
8. Estimates and accounting policy judgements
9. Financial instruments, and
10. New accounting standards.

We identified four levels of consultations:

Level 1: Help Desk Queries

Type: Minor queries to assist the firm in its deliberation
Typical Time Commitment: 1-3 hours
Discussion with the external provider: Normally not required
Turnaround Time: Usually 24 hours

Level 2: Consulting Review

Type: Significant issue where the firm has identified an issue, conducted research, and formed a
preliminary conclusion and seeks a review of the rationale and the preliminary conclusion reached.
The opinion reached is that of the firm, however, the audit file would note that a technical
consultation has occurred.
Typical Time Commitment: 3-10 hours
Discussion: May involve discussion with the originator
Turnaround Time: Usually 3 days

Level 3: Formal Independent Opinion

Type: Significant issue where the firm has identified an issue and the facts are presented.
Generally, the firm has not conducted in-depth research, articulated its rationale, or formed a
preliminary view. The external provider is requested to provide a formal independent opinion for
consideration by the accounting firm. Such opinions normally contain the following:
 An Executive Summary
 Identification of Issue(s)
 Information Relied On
 Facts Presented
 Authority Sighted
 Rationale, and
 Conclusions.
Typical Time Commitment: 20 hours plus
Discussion: Normally involves discussion with the external provider
Turnaround Time: Usually 7-10 days

Level 4: Second Opinion

Type: Significant issue where the firm has presented with a technical opinion. The external
provider is requested to provide a second formal independent opinion on first opinion for
consideration by the firm. Such opinions normally contain the following:
 An Executive Summary
 Identification of Issue(s)
 Information Relied On
 Facts Presented
 Authority Sighted
 Rationale, and
 Conclusions.
Typical Time Commitment: 20 hours plus
Discussion: Normally involves discussion with the external provider
Turnaround Time: Usually 7-10 days

Auditing Standard, ‘Quality Control for an Audit’ (PSA 220), sets out engagement performance
requirements, including direction, supervision, reviews, consultations, and quality control reviews.
Consultation is required on difficult or contentious matters. Under PSA 220, the engagement
partner must:
1. Take responsibility for the engagement team undertaking appropriate consultation on difficult
or contentious matters
2. Be satisfied that members of the engagement team have undertaken appropriate consultation
during the course of the engagement, both within the engagement team and between the
engagement team and others at the appropriate level within or outside the firm
3. Be satisfied that the nature and scope of, and conclusions resulting from, such consultations are
agreed with the party consulted, and
4. Determine that conclusions resulting from such consultations have been implemented (PSA
220.18).

Policy 2: If differences of opinion arise within the engagement team, with those consulted or,
where applicable, between the engagement partner and the engagement quality control reviewer,
the engagement team must follow the firm’s policies and procedures for dealing with and
resolving differences of opinion (PSA 220.22).

Differences of opinion shall be identified and resolved in a timely manner in accordance with the
firm’s resolution process. The engagement leader strives to identify differences of opinion as early
as possible and address them on a timely basis. An engagement report cannot be dated until all
differences of opinion have been resolved. At the end of each phase of the engagement (planning,
examination, and reporting), the engagement leader should identify any differences of opinion and
initiate resolution in a timely manner.

The general principles for dealing with differences of opinion to arrive at a satisfactory resolution
are the following:

 Ensure everyone involved has all the facts, knowledge, and technical skill to form
professional opinions on the subject matter in dispute.
 Differences should always be dealt with as soon as they arise. It is not acceptable to defer
resolution to a later date.
 Disagreements can arise from simple miscommunications that can be quickly rectified.
Both sides should listen carefully to the other’s point of view. This is best achieved in a
face-to-face meeting where each person presents his or her views.
  Try to reach consensus.

To help all parties reach agreement, differences of opinion should be addressed on a timely basis
following the steps outlined below.

A difference of opinion shall be resolved following the three-step resolution process:

Direct settlement - Normally, disagreements are resolved directly. This may include discussion,
research, and consultation with other knowledgeable parties. The engagement leader and/or
engagement assistant auditor general typically resolve differences of opinion within the team or
with parties consulted. The engagement leader and the individual who has the difference of opinion
discuss the matter with the engagement assistant auditor general. If the matter is resolved, the
engagement leader updates the documentation to reflect the conclusion and the steps taken to
implement the conclusion reached. . If a disagreement cannot be resolved directly, the engagement
leader and the quality reviewer inform the engagement assistant auditor general. The engagement
leader documents the issue giving rise to the disagreement and the alternative positions, including
their rationale, in the Difference of Opinion template. The issue will then move into Step 2—
Arbitration, and the engagement report will not be dated until all differences of opinion have been
resolved.

Arbitration - If a disagreement cannot be resolved directly within the engagement team, the
engagement leader shall escalate the matter according to the flow chart in the Differences of
Opinion. This flowchart shows the different path of resolutions when differences of opinion arise
during an audit. The arbitrator must consider the matter on a timely basis and meet with the parties
involved, giving them an opportunity to hear all parties' positions and to state their positions prior
to making a determination. If the matter is complex or highly technical, the arbitrator will seek
additional input as necessary. At the discretion of the arbitrator, advice may be sought from other
functional area specialists, including the Professional Practices Group and others within or external
to the Office. If the matter is resolved, the engagement leader shall update the Difference of
Opinion template to reflect the conclusions resulting from the arbitration process and the steps
taken to implement the conclusion reached. . The arbitrator providing the proposed resolution shall
review the documentation and sign-off in the Difference of Opinion template.

For each successive consultation that does not lead to a resolution, the Difference of Opinion
template shall be updated to reflect the views of each of the consultations, the recommended
courses of action, and why these courses of action were not considered appropriate in the
circumstances.
The engagement report shall not be dated before all differences of opinion have been resolved.
If the difference of opinion cannot be resolved or if participants are not satisfied with the decision
reached from the arbitration process, then the issue will move into Step 3—Appeal, with the
Auditor General, for final resolution.

Appeal - If there is dissatisfaction with the appropriateness of the arbitrator's decision, either of
the parties can make a final appeal to the Auditor General. This step should be treated seriously
and taken only where there is concern about a report being inappropriate in the circumstances or
where there are concerns surrounding professional standards or other ethical matters that put the
Office at significant risk.

The engagement leader shall provide the Auditor General with the Difference of Opinion template,
providing the synopsis of the issue and updated to reflect the views of all previous consultations.
The Auditor General will:

 Review the Difference of Opinion template which documents the agreed facts and the
results of all previous consultations,
 Discuss the matter with the parties involved and others as considered necessary,
 Seek advice as required from within or external to the Office,
 Provide additional comments or argument, and
 Make a final determination.

The engagement leader shall update the Difference of Opinion template to reflect the conclusions
with the additional comments and arguments raised and the final determination made by the
Auditor General.

If a previous decision is overturned, the reasons will be communicated to all the parties involved
and the engagement leader will update the Difference of Opinion template accordingly. The appeal
process is the final recourse available within the Office.

Policy 3: Before contracting, the firm should consider whether the external provider is suitably
qualified for the consultation.

Under PSA 220.A21, effective consultation on significant technical, ethical, and other matters
within the firm or, where applicable, outside the firm can be achieved when those consulted have
appropriate knowledge, seniority and experience.

When seeking for a consultation the firm should:

1. Conduct a background check on the prospective external provider to determine its competence
to perform the consultation and has the capabilities, including time and resources, to do so;
2. Consider the integrity of the prospective external provider, and does not have information that
would lead to conclude that the prospective external provider lacks integrity;
Policy 4: Sufficient resources should be available to the external provider to enable appropriate
consultation.

Under PSA 220.A21, effective consultation on significant technical, ethical, and other matters
within the firm or, where applicable, outside the firm can be achieved when those consulted are
given all the relevant facts that will enable them to provide informed advice.

When seeking for a consultation the firm should:

1. Assemble all the relevant facts for consideration including entity type, legislative, professional
and/or other frameworks, and reporting period
2. Pose the question(s) on which a response is required
3. Identify the level of response required (Levels 1-4)
4. Identify the accounting firm contact points for further discussion, and
5. Identify the deadline when the response is preferred.

Policy 5: The nature and scope of such consultations must be documented. Also, conclusions
resulting from such consultations must be documented, including any decisions taken, the basis
for those decisions, and how they are implemented. The documentation must be sufficiently
complete and detailed to enable an understanding of the issue.

In documenting the nature, timing and extent of audit procedures performed, the auditor shall
record:
(a) The identifying characteristics of the specific items or matters tested;
(b) Who performed the audit work and the date such work was completed; and
(c) Who reviewed the audit work performed and the date and extent of such review.

The auditor shall document discussions of significant matters with management, those charged
with governance, and others, including the nature of the significant matters discussed and when
and with whom the discussions took place.

The auditor shall assemble the audit documentation resulting from consultations undertaken during
the course of the audit engagement in an audit file and complete the administrative process of
assembling the final audit file on a timely basis after the date of the auditor’s report. The auditor
must complete the assembly of the final audit file not more than 60 days after the date of the
auditor’s report.

After the assembly of the final audit file has been completed, the auditor shall not delete or discard
audit documentation of any nature before the end of its retention period. The retention period for
audit engagements ordinarily is no shorter than five years from the date of the auditor’s report, or,
if later, the date of the group auditor’s report.
REFERENCES:

Policy 1
 Difficult or Contentious Matters – Areas of ASIC Focus for 30 June 2012 - the ASIC
financial reporting surveillance program findings identified a number of matters which
could be considered difficult or contentious matters that may require consultation within
the firm or with external experts.
 Four levels of consultations: provided by an audit firm in Austalia (GAAP Consulting)
 PSA 220.18 , ‘Quality Control for an Audit’
The engagement partner shall:
(a) Take responsibility for the engagement team undertaking appropriate consultation on
difficult or contentious matters;
(b) Be satisfied that members of the engagement team have undertaken appropriate
consultation during the course of the engagement, both within the engagement team and
between the engagement team and others at the appropriate level within or outside the firm;
(c) Be satisfied that the nature and scope of, and conclusions resulting from, such
consultations are agreed with the party consulted; and
(d) Determine that conclusions resulting from such consultations have been implemented.

Policy 2
 PSA 220.22, ‘Quality Control for an Audit’
If differences of opinion arise within the engagement team, with those consulted or, where
applicable, between the engagement partner and the engagement quality control reviewer,
the engagement team shall follow the firm’s policies and procedures for dealing with and
resolving differences of opinion.
 QC Section 10.46-48
46. The firm should establish policies and procedures for addressing and resolving
differences of opinions within the engagement team; with those consulted; and, when
applicable, between the engagement partner and engagement quality control reviewer.
47. Such policies and procedures should enable a member of the engagement team to
document that member’s disagreement with the conclusions reached after appropriate
consultation.
48. Such policies and procedures should require the following:
a. Conclusions reached be documented and implemented
b. The report not be released until the matter is resolved.
 All the procedures cited are based on OAG (Office of the Auditor General) 3082,
‘Differences of Opinion’

Policy 3 & Policy 4

 PSA 220.A21, ‘Quality Control for an Audit’
 Effective consultation on significant technical, ethical, and other matters within the firm
or, where applicable, outside the firm can be achieved when those consulted:
• Are given all the relevant facts that will enable them to provide informed advice; and
• Have appropriate knowledge, seniority and experience.

Policy 5
 PSA 230, ‘Audit Documentation’
An auditor must prepare audit documentation that is sufficient to enable an experienced
auditor, having no previous connection with the audit, to understand:
1. The nature, timing, and extent of the audit procedures performed to comply with the
Philippine Auditing Standards and applicable legal and regulatory requirements
2. The results of the audit procedures performed, and the audit evidence obtained, and
3. Significant matters arising during the audit, the conclusions reached thereon, and
significant professional judgements made in reaching those conclusions (PSA 230.8).
Significant matters would include difficult or contentious matters
 PSA 220.24 (d) , ‘Quality Control for an Audit’
The auditor shall document:
(d) The nature and scope of, and conclusions resulting from, consultations undertaken
during the course of the audit engagement.
 PSA 230.7, ‘Audit Documentation’
The auditor shall prepare audit documentation on a timely basis.
 PSA 230.14-15, ‘Audit Documentation’
14. The auditor shall assemble the audit documentation in an audit file and complete the
administrative process of assembling the final audit file on a timely basis after the date of
the auditor’s report.
15. After the assembly of the final audit file has been completed, the auditor shall not
delete or discard audit documentation of any nature before the end of its retention period.
 PSA 230.A21, ‘Audit Documentation’
[Proposed] PSQC 1 (Redrafted) requires firms to establish policies and procedures for the
timely completion of the assembly of audit files. An appropriate time limit within which to
complete the assembly of the final audit file is ordinarily not more than 60 days after the
date of the auditor’s report.
 PSA 230.A23
[Proposed] PSQC 1 (Redrafted) requires firms to establish policies and procedures for the
retention of engagement documentation. The retention period for audit engagements
ordinarily is no shorter than five years from the date of the auditor’s report, or, if later, the
date of the group auditor’s report.
 HARER & JONES
POLICIES AND PROCEDURES
SUPERVISION
Supervision entails directing the efforts of professional who are involved in accomplishing the
objectives of the audit and determining whether those objectives have been met. Elements of
supervision include instructing and guiding professionals, keeping informed of significant issues,
reviewing the work performed, resolving issues, and agreeing on appropriate conclusions.
Policy Statement
Policy 1: Considering the capabilities and competencies of individual members on an
engagement team.
 Factors like skill set, relevant professional and industry experience, and the nature of
engagement are assessed for each team member.
 Audit engagement team must have;
a. An understanding of, and practical experience with, audit engagements of a similar
nature and complexity through appropriate training and participation.
b. An understanding of professional standards, regulatory standards and legal
requirements.
c. Appropriate technical knowledge of relevant information technology.
d. Knowledge of relevant industries in which the client operates.
e. Ability to apply professional judgment.

Policy 2: Tracking the progress of an engagement

 Involvement of the engagement leader during the planning process and early in the audit
process.
 Setting the appropriate scope and tone for the audit or other services and helps the
engagement team obtain maximum benefit from the partner’s experience and skill.

Policy 3: Identifying matters for consultation or consideration by more experienced engagement

team members during an engagement.
 Timely involvement of the engagement leader at other stages of the engagement allows
the engagement partner to identify and appropriately address matters significant to the
engagement, including critical areas of judgment, and significant risks.

Policy 4: Reviewing and approving engagement planning and risk assessment prior to the start of
significant fieldwork.
 The work has been performed in accordance with the current financial and audit
standards.
  Review of the appropriateness of certain audit documentation of the financial statements
and related disclosures.

Policy 5: Reviewing all working papers by a professional other than the preparer. The
Engagement Partner’s responsibilities include review of audit documentation related to critical
issues, and significant risks at the financial statement level and the relevant assertion level with
respect to significant accounts and disclosures, including work performed by Harer & Jones
specialists relative to these significant risks.
 All partners who perform review must have received training to serve in this capacity.

Policy 6: Preparing Planning and Completion Documents that summarize significant issues,
which are approved by various parties, including the Engagement Partner and engagement
quality control reviewer.

Policy 7: Performing in-depth technical reviews in certain situations.

 An additional accounting technical resources is provided for the engagement team for
which they are required to consult with in specific situations including complex business
acquisitions, impairment assessments and debt/equity transactions. (Accounting technical
sources
REFERENCES: PSQC 1
Under PSQC 1:
Supervision (Ref: Para. 32(b))
A34. Engagement supervision includes the following:
 Tracking the progress of the engagement;
 Considering the competence and capabilities of individual members of the engagement
team, whether they have sufficient time to carry out their work, whether they understand
their instructions and whether the work is being carried out in accordance with the
planned approach to the engagement;
 Addressing significant matters arising during the engagement, considering their
significance and modifying the planned approach appropriately; and
 Identifying matters for consultation or consideration by more experienced engagement
team members during the engagement.
Review (Ref: Para. 32(c))
A35. A review consists of consideration of whether:
 The work has been performed in accordance with professional standards and regulatory
and legal requirements;
 Significant matters have been raised for further consideration;
 Appropriate consultations have taken place and the resulting conclusions have been
documented and implemented;
 There is a need to revise the nature, timing and extent of work performed;
 The work performed supports the conclusions reached and is appropriately documented;
 The evidence obtained is sufficient and appropriate to support the report; and
 The objectives of the engagement procedures have been achieved.
Engagement Quality Control Review
35. The firm shall establish policies and procedures requiring, for appropriate engagements, an
engagement quality control review that provides an objective evaluation of the significant
judgments made by the engagement team and the conclusions reached in formulating the report.
Such policies and procedures shall:
a) Require an engagement quality control review for all audits of financial statements of
listed entities;
b) Set out criteria against which all other audits and reviews of historical financial
information and other assurance and related services engagements shall be evaluated to
determine whether an engagement quality control review should be performed; and (Ref:
Para. A41)
c) Require an engagement quality control review for all engagements, if any, meeting the
criteria established in compliance with subparagraph (b).
36. The firm shall establish policies and procedures setting out the nature, timing and extent of
an engagement quality control review. Such policies and procedures shall require that the
engagement report not be dated until the completion of the engagement quality control review.
(Ref: Para. A42-A43)
37. The firm shall establish policies and procedures to require the engagement quality control
review to include:
a) Discussion of significant matters with the engagement partner;
b) Review of the financial statements or other subject matter information and the proposed
report;
c) Review of selected engagement documentation relating to significant judgments the
engagement team made and the conclusions it reached; and
d) Evaluation of the conclusions reached in formulating the report and consideration of
whether the proposed report is appropriate. (Ref: Para. A44)
38. For audits of financial statements of listed entities, the firm shall establish policies and
procedures to require the engagement quality control review to also include consideration of the
following:
a) The engagement team’s evaluation of the firm’s independence in relation to the specific
engagement;
b) Whether appropriate consultation has taken place on matters involving differences of
opinion or other difficult or contentious matters, and the conclusions arising from those
consultations; and
c) Whether documentation selected for review reflects the work performed in relation to the
significant judgments made and supports the conclusions reached. (Ref: Para. A45-A46)
Criteria for the Eligibility of Engagement Quality Control Reviewers
39. The firm shall establish policies and procedures to address the appointment of engagement
quality control reviewers and establish their eligibility through:
a) The technical qualifications required to perform the role, including the necessary
experience and authority; and (Ref: Para. A47)
b) The degree to which an engagement quality control reviewer can be consulted on the
engagement without compromising the reviewer’s objectivity. (Ref: Para. A48)
40. The firm shall establish policies and procedures designed to maintain the objectivity of the
engagement quality control reviewer. (Ref: Para. A49-A51)
41. The firm’s policies and procedures shall provide for the replacement of the engagement
quality control reviewer where the reviewer’s ability to perform an objective review may be
impaired.
Documentation of the Engagement Quality Control Review
42. The firm shall establish policies and procedures on documentation of the engagement quality
control review which require documentation that:
a) The procedures required by the firm’s policies on engagement quality control review
have been performed;
b) The engagement quality control review has been completed on or before the date of the
report; and
c) The reviewer is not aware of any unresolved matters that would cause the reviewer to
believe that the significant judgments the engagement team made and the conclusions it
reached were not appropriate.
 HARER AND JONES
POLICIES AND PROCEDURES

(Policy and procedures mentioned below are excerpted from Walter J. Haiig II, CPA &
Consultant (Proprietor) & PwC Transparency Report 2015)

ADVANCEMENT/PROMOTION
Policy1: Firm conducts a review policy for the evaluation of employee performance. All facts of
employment are taken into account to include work product, attitude, attendance, punctuality,
knowledge and initiative.

Policy 2: The evaluation is performed after the first 90 days of employment, at least annually
during employment, and on termination. Employee Performance Evaluation Form should be
used for annual evaluations. An employee is notified of the outcome by the proprietor. Any
deficiencies or exceptional performance will be noted.

Policy 3: The firm’s Professional Framework (Relationships, Business acumen, Global acumen,
Technical Capabilities, Whole Leadership) which makes sure the firm’s people are growing and
becoming quality people, delivering quality work will be one of the basis for the performance
evaluation and promotion.

Policy 3: Appropriate investigation should be done to obtain reasonable assurance that

individuals meet the employment criteria by obtaining, at the firm’s option, completed
application form and college transcripts and by communication with personal references.

Policy 4: The firm has established the following professional staff designation to denote levels of
education, experience and responsibility.
a. Associate
b. Senior Associate
c. Managers
d. Partners

Policy 6: The requires the necessity of satisfying requirements (a) and (b) to be “CPA eligible,”
(outlined below) and commit to completing requirement (c) prior to promotion.
“CPA eligible” means that you are eligible to obtain a CPA license because you have:
a. Passed the Uniform CPA Exam and
b. Met the applicable state board of accountancy’s education requirement and
 c. Met the applicable state board of accountancy’s experience requirement

Policy 5: The firm established skills criteria evaluation for the assessment of promotion and
advancement.
I. Associate
 Knowledge of the firm’s quality control policies and procedures and
adherence to such policies and procedures
 Knowledge of the firm’s personnel policies and procedures and
adherence to such policies and procedures
 Pass CPA examination
 Know the rules and regulations for practice in the State of Washington, and
Code of Conduct of the AICPA
 Understand assignments and follow instructions
 Complete work assignments on a timely basis
 Review own work for obvious errors
 Recognize when assistance is needed
 Ask for help promptly
 Assume full responsibility under supervision for small accounting
engagements involving compiled and reviewed financial statement
 Work on portions of audit engagements
 Prepare financial statements on various bases of accounting
 Have a working knowledge of the various professional standards of the
AICPA and the FASB as they apply to the Firm's clients
 Recognize client problems
 Prepare and review simple individual income tax returns

II. Senior Associate

 Knowledge of the firm’s quality control policies and procedures and
adherence to such policies and procedures
 Knowledge of the firm’s personnel policies and procedures and adherence to
such policies and procedures
 Know the rules and regulations for practice in the State of Washington, and Code
of Professional Conduct of the AICPA
 Understand assignments and follow instructions
 Complete work assignments on a timely basis
 Review own work for obvious errors
 Recognize when assistance is needed
 Ask for help promptly
 Recognize client problems and assist in developing solutions
 Assume full responsibility for small and medium-size audit engagements, including
development of work programs
  Assume full responsibility for compilation and review engagements
 Work on research assignments involving "theory" and such "conceptual" areas as
materiality and interrelationships of accounts.
 Prepare audit programs and time budgets
 Train and supervise the staff members assigned to engagements
 Recognize in advance the possible problems areas of an engagement
 Prepare and review complex individual income tax returns

III. Managers
 Knowledge of the firm’s quality control policies and procedures and
adherence to such policies and procedures
 Knowledge of the firm’s personnel policies and procedures and
adherence to such policies and procedures
 Know the rules and regulations for practice in the State of Washington, and
Code of Professional Conduct of the AICPA
 Understand assignments and follow instructions
 Complete work assignments on a timely basis
 Review own work for obvious errors
 Recognize when assistance is needed
 Ask for help promptl
 Recognize client problems and develop solutions
 Assume full responsibility for all phases of large-size audit engagements,
including development of work program
 Assume full responsibility for complex compilation and review engagements
 Plan research assignments involving "theory" and such "conceptual" areas as
materiality and interrelationships of accounts
 Prepare audit programs and time budgets
 Train and supervise the staff members assigned to engagements
 Recognize in advance the possible problems areas of an engagement
 Prepare and review complex individual and corporate income tax returns

IV. Partners
 Knowledge of the firm’s quality control policies and procedures and
adherence to such policies and procedures
 Knowledge of the firm’s personnel policies and procedures and
adherence to such policies and procedures
 Communication abilities - ability to convey meaning to obtain understanding
 Planning abilities - ability to develop goals and strategies
 Organizing abilities - ability to group work and resources in relation to goals
 Staffing abilities - ability to recruit, select and train people
 Controlling abilities - ability to measure performance and take corrective
action
 Leading abilities - ability to initiate action and motivate people
 Decision-making abilities - ability to select the best solutions to a problem
 Teamwork abilities - ability to work together to achieve common goals
REFERENCES: [PwC Transparecny Report 2015 & Walter J. Haiig II, CPA & Consultant
(Proprietor)]
Under PSQC 1, A28:
A28. Performance evaluation, compensation and promotion procedures give due recognition and
reward to the development and maintenance of competence and commitment to ethical
principles. Steps a firm may take in developing and maintaining competence and commitment to
ethical principles include:
 Making personnel aware of the firm’s expectations regarding performance and ethical
principles;
 Providing personnel with evaluation of, and counseling on, performance, progress and
career development; and
 Helping personnel understand that advancement to positions of greater responsibility
depends, among other things, upon performance quality and adherence to ethical
principles, and that failure to comply with the firm’s policies and procedures may result
in disciplinary action.
Competence is an important consideration when it comes to the advancement of the employees
of the firm. Under PSQC A25:
A25. Competence can be developed through a variety of methods, including the following:
 Professional education.
 Continuing professional development, including training.
 Work experience.
 Coaching by more experienced staff, for example, other members of the engagement
team.
 Independence education for personnel who are required to be independent.
 HARER & JONES
POLICIES AND PROCEDURES

ACCEPTANCE AND CONTINUANCE OF CLIENT RELATIONSHIPS AND SPECIFIC

ENGAGEMENTS
Prior to accepting a new audit engagement, a partner performs an evaluation of the entity and its
principals, its business and engagement-related matters, as appropriate. This evaluation typically
includes a background investigation of the entity and selected senior management personnel.

Policy 1: Evaluation of the integrity and competence of the prospective client’s management and
majority of owners or any client-related matters (strength, reputation and character).
- A contact partner must interview the prospective client to determine the nature of
the desired services and the firm’s ability to provide the services. A developed
prospective client questionnaire must be completed during the interview.
- In line with the integrity and competence of the prospective client, the firm
considers the identity and business reputation of the client’s majority of owners,
key management and officers in charge of the governance, the client’s nature of
business operations and its business practices and the reasons for the proposed
appointment of the firm and non-reappointment of the previous firm.

Policy 2: Assessment of the ability of the firm to perform the services as well as evaluation of
the firm’s independence with respect to the prospective client.

- The firm evaluates the following consideration in compliance with its capabilities
and competencies
 Firm personnel have knowledge of relevant industries or subject matters;
 Firm personnel have experience with relevant regulatory or reporting
requirements, or the ability to gain the necessary skills and knowledge
effectively;
 The firm has sufficient personnel with the necessary competence and
capabilities;
 Experts are available, if needed;
 Individuals meeting the criteria and eligibility requirements to perform
engagement quality control review are available, where applicable; and
 The firm is able to complete the engagement within the reporting deadline.
- A contact partner consults with the managing partner.
- The needs of the client are considered, and an overall evaluation of the
prospective client, including the management integrity, is undertaken.
 - If the agreement has reached, both contact and managing partner must sign the
completed questionnaire. If agreement is not reached concerning acceptance,
additional partners may be consulted regarding the proposed engagement.
- In terms of independence, any potential independence issues and conflicts
identified are resolved in consultation with other parties, and the resolution of all
matters are documented, if not resolved or cannot be resolved, satisfactorily in
accordance with professional and firm standards, the prospective client or
engagement is declined.

Policy 3: Obtaining ethical clearances from the predecessor auditor (if any) and making inquiries
from third parties such as bankers, legal counsel and industry peers.

- Following the interview, a contact partner must check references, corresponds

with the predecessor auditor if any.

Policy 4: Preparation of engagement letter in respond to acceptance of the proposed engagement.

- Upon acceptance of the engagement, the contact partner prepares and engagement
letter in accordance to PSA 210.

Policy 5: When engagement is declined, contact partner must personally notify the prospective
client and follows up a letter setting forth the reasons for not accepting the engagement.

- Discussing with the appropriate level of the client’s management and those
charged with its governance the appropriate action that the firm might take based
on the relevant facts and circumstances.
- If the firm determines that it is appropriate to withdraw, discussing with the
appropriate level of the client’s management and those charged with its
governance withdrawal from the engagement or from both the engagement and
the client relationship, and the reasons for the withdrawal.
- Considering whether there is a professional, regulatory or legal requirement for
the firm to remain in place, or for the firm to report the withdrawal from the
engagement, or from both the engagement and the client relationship, together
with the reasons for the withdrawal, to regulatory authorities.
- Documenting significant matters, consultations, conclusions and the basis for the
conclusions.
REFERENCES: PSQC 1
Acceptance and Continuance of Client Relationships and Specific Engagements
26. The firm shall establish policies and procedures for the acceptance and continuance of client
relationships and specific engagements, designed to provide the firm with reasonable assurance
that it will only undertake or continue relationships and engagements where the firm:

a) Is competent to perform the engagement and has the capabilities, including time and
resources, to do so; (Ref: Para. A18, A23)
b) Can comply with relevant ethical requirements; and
c) Has considered the integrity of the client, and does not have information that would lead
it to conclude that the client lacks integrity. (Ref: Para. A19-A20, A23)
27. Such policies and procedures shall require:

a) The firm to obtain such information as it considers necessary in the circumstances before
accepting an engagement with a new client, when deciding whether to continue an
existing engagement, and when considering acceptance of a new engagement with an
existing client. (Ref: Para. A21, A23)
b) If a potential conflict of interest is identified in accepting an engagement from a new or
an existing client, the firm to determine whether it is appropriate to accept the
engagement.
c) If issues have been identified, and the firm decides to accept or continue the client
relationship or a specific engagement, the firm to document how the issues were
resolved.

28. The firm shall establish policies and procedures on continuing an engagement and the client
relationship, addressing the circumstances where the firm obtains information that would have
caused it to decline the engagement had that information been available earlier. Such policies
and procedures shall include consideration of:

a) The professional and legal responsibilities that apply to the circumstances, including
whether there is a requirement for the firm to report to the person or persons who made
the appointment or, in some cases, to regulatory authorities; and
b) The possibility of withdrawing from the engagement or from both the engagement and
the client relationship. (Ref: Para. A22-A23)
Under PSQC 1 Application:
Competence, Capabilities, and Resources (Ref: Para. 26(a))

A18. Consideration of whether the firm has the competence, capabilities, and resources to
undertake a new engagement from a new or an existing client involves reviewing the specific
requirements of the engagement and the existing partner and staff profiles at all relevant levels,
and including whether:

 Firm personnel have knowledge of relevant industries or subject matters;

 Firm personnel have experience with relevant regulatory or reporting requirements, or the
ability to gain the necessary skills and knowledge effectively;
 The firm has sufficient personnel with the necessary competence and capabilities;
 Experts are available, if needed;
 Individuals meeting the criteria and eligibility requirements to perform engagement
quality control review are available, where applicable; and
 The firm is able to complete the engagement within the reporting deadline.
A19. Consideration of whether the firm has the competence, capabilities, and resources to
undertake a new engagement from a new or an existing client involves reviewing the specific
requirements of the engagement and the existing partner and staff profiles at all relevant levels,
and including whether:

 The identity and business reputation of the client’s principal owners, key management,
and those charged with its governance.
 The nature of the client’s operations, including its business practices.
 Information concerning the attitude of the client’s principal owners, key management and
those charged with its governance towards such matters as aggressive interpretation of
accounting standards and the internal control environment.
 Whether the client is aggressively concerned with maintaining the firm’s fees as low as
possible.
 Indications of an inappropriate limitation in the scope of work.
 Indications that the client might be involved in money laundering or other criminal
activities.
 The reasons for the proposed appointment of the firm and non-reappointment of the
previous firm.
 The identity and business reputation of related parties.
The extent of knowledge a firm will have regarding the integrity of a client will generally grow
within the context of an ongoing relationship with that client.
A20. Sources of information on such matters obtained by the firm may include the following:

 Communications with existing or previous providers of professional accountancy

services to the client in accordance with relevant ethical requirements, and discussions
with other third parties.
 Inquiry of other firm personnel or third parties such as bankers, legal counsel and
industry peers.
 Background searches of relevant databases.
A22. Policies and procedures on withdrawal from an engagement or from both the
engagement and the client relationship address issues that include the following:

 Discussing with the appropriate level of the client’s management and those charged
with its governance the appropriate action that the firm might take based on the
relevant facts and circumstances.
 If the firm determines that it is appropriate to withdraw, discussing with the
appropriate level of the client’s management and those charged with its governance
withdrawal from the engagement or from both the engagement and the client
relationship, and the reasons for the withdrawal.
 Considering whether there is a professional, regulatory or legal requirement for the
firm to remain in place, or for the firm to report the withdrawal from the engagement,
or from both the engagement and the client relationship, together with the reasons for
the withdrawal, to regulatory authorities.
 Documenting significant matters, consultations, conclusions and the basis for the
conclusions.
 HARER AND JONES
POLICIES AND PROCEDURES

(Policy and procedures mentioned below are excerpted from KPMG Transparency Report 2016,
Walter J. Haiig II, CPA & Consultant (Proprietor), PwC Transparency Report 2015)

RECRUITMENT & HIRING

Policy 1: Recruitment of candidates through Universities road shows and walk-ins and online
applications.

- Graduate recruitment process starts with our recruitment roadshow where we talk to
students about PwC career at the top-tier universities.

Policy 2: Shortlist candidates.

- Factors like GPA and accounting degree and extra-curricular activities and internship are
considered.
- Firm considers among other things, an individual’s grade point average, courses/classes
completed, personal achievements, work experience and personal interests.

Policy 3: Assessing the skills of the candidates

- The evaluation of skills is done through the English Test & Aptitude Test set by the firm.

Policy 4: Assessing interactions of the candidates.

- Through Group exercise and Panel interview.

Policy 5: Potential candidates are informed of the firm’s independence policies and are required
to confirm their independence policies prior to joining the firm.
- Before their start date, candidates for professional position get access to the firm’s
independence guidelines to ascertain their independence. Situations involving
independence or conflicts of interest must be resolved before the individual can begin
employment with the firm.

Policy 6: The firm may require an employee, at the sole discretion of the firm, prior to
employment, at the time of employment, or at any time while an individual is an employee of the
Firm, to provide proof of:
a. Degrees obtained
 b. Licenses obtained and/or held
c. Prior work experience
d. Personal achievements
e. Any other significant items on the employment application and/or resume usend in hiring
decision.

Policy 6: The firm reserves the right to independently verify all representations of an employee.
Failure to provide proof of such items upon request of the firm or to falsify a verifying record
will be grounds for immediate termination with cause.

Policy 7: In filling professional staff requirements, the Firm seeks to employ individuals who are
CPAs (Certified Public Accountants) or have the academic training that will enable them to sit
for and pass the CPA exam. In addition, the firm seeks only to hire individuals who have high
levels of integrity, motivation, and aptitude for accounting and business.

- Level of integrity, motivation and aptitude are validated through the evaluation and
trainings said on this article of policies.
REFERENCES: (Policy and procedures mentioned above are excerpted from KPMG
Transparency Report 2016, Walter J. Haiig II, CPA & Consultant (Proprietor), PwC
Transparency Report 2015)

Under PSQC 1
Effective recruitment processes and procedures help the firm select individuals of integrity who
have the capacity to develop the competence and capabilities necessary to perform the firm’s
work and possess the appropriate characteristics to enable them to perform competently.
A25. Competence can be developed through a variety of methods, including the following:
 Professional education.
 Continuing professional development, including training.
 Work experience.
 Coaching by more experienced staff, for example, other members of the engagement
team.
 Independence education for personnel who are required to be independent.
 HARER & JONES
POLICIES AND PROCEDURES

MONITORING AND INSPECTION

Policy 1: Striving for continuous quality enhancement

- Audit Quality program supports our practitioners in their pursuit of quality excellence.
We recognize, however, that superior audit quality is a journey, not a destination.
Advances in technology, regulatory developments, a changing business environment and
many other factors continually present new opportunities to enhance the quality of our
services. Our audit practice, including individual audit engagement files, are regularly
monitored and inspected by us, and by third parties, such as regulators and the provincial
institutes of chartered professional accountants or chartered accountants. The objective of
these reviews is to identify areas where audit quality may be enhanced, and when such
opportunities are identified, we move quickly to implement them.

a. Ongoing engagement reviews

 During each year, a sample of engagements are selected for in-process

reviews of the planning and conduct of the engagements. These reviews,
conducted by appointed reviewers, independent of the engagement team,
assess risk evaluation, audit plan formulation, details of planned audit
testing and evaluation of audit test results at an interim date

 Findings from these reviews are used to make any necessary adjustments
to the engagement that has been reviewed. In addition, as multiple in-
process reviews are undertaken concurrently on several engagements, the
findings are aggregated and additional guidance is provided to the entire
practice on common areas for audit quality enhancement. Annual quality
assurance review

b. Annual quality assurance review

 Audit practice is subject to an annual quality assurance review, or

“practice review” that, over the course of a three-year cycle, covers every
audit partner who signs audit reports.

 Practice reviews cover several practice offices (and/or audit groups) each
year, and every practice office (and/or audit group) is subject to review at
least once every three years. Normally, every audit partner’s performance
is assessed during the three-year cycle based on a review of at least one
engagement for each partner. Consideration is also given to assessing the
 performance of senior managers, particularly those who are candidates for
partner nomination.

 Each year’s practice review plan, process and results are reviewed and
concurred by a partner from another member firm (the “additional
partner”). The additional partner works closely with the firm’s practice
review director and the regional practice review director to oversee the
planning and performance of the practice review.

c. Types of engagements reviewed

 The engagements selected for review include national engagements and

inbound/outbound transnational engagements (i.e., audits of financial
statements that are or may be used across national borders). There are
many factors we consider when selecting engagements for review, such
as:

1. all major industries served by the firm or practice office,

2. first-year engagements,

3. situations where there is a change in control, or

4. deteriorating financial condition.

d. Scope of practice reviews

 Reviewers are chosen from regional or international pools or other

practice offices within the firm, based on their skill level, industry
knowledge and experience on transnational engagements.

Engagements are reviewed to:

 Determine whether quality control procedures have been properly applied to such
engagements

 Assess the adequacy of implementation of the audit approach, including compliance with
the policies and procedures contained in the Firm’s policy manuals

 Monitor compliance with applicable local laws

 Assess the overall quality of service provided to clients

 The overall risk management and quality control policies and procedures of practice
offices within the Firm are also reviewed.
  Reviews of individual engagements consist of discussions with the partner and/or
manager responsible for the engagement and a review of the issued reports and working
papers.

e. Results of practice reviews

 The findings and recommendations resulting from the practice reviews are
included in the Firm’s audit quality plan and presented to the Managing
Partner and Chief Executive. The purpose of the audit quality plan is to
provide suggestions for enhancement in response to findings noted, and to
drive audit quality within the Firm overall. The Firm addresses findings by
drawing up a detailed action plan setting out the action to be taken, the
person(s) responsible, and the timing to implement the recommendations.

f. External inspection processes\

 External inspection processes are conducted to assess and evaluate

whether professional services are being performed in accordance with
professional standards and result in high-quality audits. Our audit practice
is subject to three primary types of external inspections: quality programs
and the performance of public company audits are inspected by CPAB
quality programs and the performance of SEC registrant audits or
interoffice referral work performed for SEC registrants are inspected by
the PCAOB, and audit, compilation, review and tax engagements are
inspected by each provincial Institute of Chartered Accountants or
Chartered Professional Accountants.

Policy 2: Monitoring procedures involve ongoing consideration and evaluation by the firm of the
following matters:

 Relevance and adequacy of the firm’s policies and procedures;

 Appropriateness of the firm’s guidance materials and practice aids;

 Effectiveness of professional development activities;

 Compliance with professional and firm standards, policies, and

procedures; and

 Effectiveness of action plans to address recurring findings related to all

engagement reviews (Quality Performance Reviews (QPR) and Risk
Compliance Programme (RCP), CPA Bermuda peer review and PCAOB
inspections.
Policy 3: Internal Inspection Processes

Harer & Jones, CPAs meets the profession’s quality control standards and monitoring
requirements through the implementation of its internal inspection process, the Quality
Performance Review Programme (QPRP) and Risk Compliance Programme (RCP).

Components of the programme include

 Annual reviews of selected individual Engagement Partners and Directors;

 Reviews by teams that are led by Managing Directors and comprise individuals who have
industry specific knowledge;

 Reviews by teams which are led by individuals from a geographical location other than
the location of the office or area under review;

 Reviews of general and functional controls, including independence, client acceptance

and continuance, personnel evaluations, continued professional education, compliance,
licensing, and workpaper retention;

 Timely feedback of results from the review with the requirement that an action plan be
prepared and implemented based on the results;

 Review and approval of firmwide results and action plans by the Head of Risk
Management; and

 Training and guidance that communicates common inspection findings, those areas
where audit quality can be improved and where appropriate, the tool needed to achieve
improvements in audit quality.

Policy 4: Compliance Testing

- The Compliance Senior Manager is responsible for testing and monitoring compliance
with certain firm policies, such as those related to independence, continuing professional
education, and licensing.

Policy 5: CPAB inspections

- CPAB inspections focus on our compliance with auditing standards and independence
requirements, and we believe this inspection process is essential to achieving our shared
objective to enhance audit quality and serve the public interest.

- Under CPAB’s mandate, registered public accounting firms that conduct over 100 audits
of Canadian reporting issuers are inspected annually. Consequently, Harer & Jones is
inspected on an annual basis.
 - CPAB’s annual inspection comprises a review of our quality control system, which
includes our policies relating to human resources, learning, independence and ethics.
CPAB inspections also include a review of a sample of engagement files to assess
whether engagement teams execute audits in accordance with both Deloitte policies and
Canadian Auditing Standards. CPAB does not inspect entire audit files but instead
focuses on what the inspectors perceive to be higher-risk areas in the audit files of more
complex public companies or companies with greater risks.

- CPAB does not report on audit matters where auditors performed at, or above, required
standards. As a result, CPAB’s findings do not represent a balanced scorecard and cannot
be extrapolated across the public company audit population as a whole. At the conclusion
of an engagement file inspection, CPAB may have comments, verbal findings, findings
or significant inspection findings.

- CPAB defines a significant inspection finding as a significant deficiency in the

application of generally accepted auditing standards related to a material financial
balance or transaction stream which results in the audit firm having to perform additional
audit work in the current year to support the audit opinion and/or needing to make
significant changes to its audit approach. CPAB requires the audit firm to respond in
writing to all significant inspection findings.

Policy 6: CPAB Transparency Protocol

Objectives of the Protocol

The Protocol’s objective is to provide audit committees with relevant information to support
them in their role of overseeing and evaluating the external auditor. Other than communications
with clients expressly permitted by the Protocol, the Firm is prohibited from publicly disclosing
information regarding its CPAB inspection findings.

Sharing information under the Protocol is intended to enhance audit quality by enhancing the
nature and depth of discussions between the auditor and the audit committee on the audit process
and audit quality. This information is expected to allow audit committees to more effectively
oversee the work of management and the auditor. We believe these discussions will also provide
audit committees with greater insights into the increasing rigor of audit regulators and the
developments in professional standards that are changing the way audit firms design and perform
audit engagements.

Participation in the Protocol

While adoption and adherence to the Protocol is voluntary, Deloitte has taken a position that we
will participate fully and comply with all aspects of the Protocol. The practices and procedures
we develop to comply with the Protocol will include the flexibility to tailor our approach to
accommodate the needs and expectations of each reporting issuer’s audit committee.

In the event that CPAB inspects a client’s audit file, in accordance with the Protocol we will
provide that client’s audit committee with:

 a description of the areas inspected by CPAB

 an indication of whether or not there were any significant inspection findings, and

 a description of any significant finding(s), if applicable, and the actions the firm has taken
in response to them.
REFERENCES:

According PSQC (Philippine Standards on Quality Control)

The firm’s policies and procedures emphasize the fundamental principles, which are reinforced
in particular by (a) the leadership of the firm, (b) education and training, (c) monitoring and (d) a
process for dealing with non-compliance. Independence for assurance engagements is so
significant that it is addressed separately in paragraphs 18-27 below. These paragraphs need to
be read in conjunction with the Philippine Code.

Definitions:

“Monitoring” – a process comprising an ongoing consideration and evaluation of the firm’s

system of quality control, including a periodic inspection of a selection of completed
engagements, designed to enable the firm to obtain reasonable assurance that its system of
quality control is operating effectively;

“Inspection” – in relation to completed engagements, procedures designed to provide evidence of

compliance by engagement teams with the firm’s quality control policies and procedures;

Monitoring and inspection

1. The firm should establish policies and procedures designed to provide it with reasonable
assurance that the policies and procedures relating to the system of quality control are
relevant, adequate, operating effectively and complied with in practice. Such policies and
procedures should include an on-going consideration and evaluation of the firm’s system
of quality control, including a periodic inspection of a selection of completed
engagements.

2. The purpose of monitoring compliance with quality control policies and procedures is to
provide an evaluation of:
(a) Adherence to professional standards and regulatory and legal requirements;
(b) Whether the quality control system has been appropriately designed and effectively
implemented; and
(c) Whether the firm’s quality control policies and procedures have been appropriately
applied, so that reports that are issued by the firm or engagement partners are appropriate
in the circumstances.

3. The firm entrusts responsibility for the monitoring process to a partner or partners or
other persons with sufficient and appropriate experience and authority in the firm to
assume that responsibility. Monitoring of the firm’s system of quality control is
performed by competent individuals and covers both the appropriateness of the design
and the effectiveness of the operation of the system of quality control.
 4. On-going consideration and evaluation of the system of quality control includes matters
such as the following:

• Analysis of:

- New developments in professional standards and regulatory and legal requirements, and how
they are reflected in the firm’s policies and procedures where appropriate;
- Written confirmation of compliance with policies and procedures on independence;
- Continuing professional development, including training; and

- Decisions related to acceptance and continuance of client relationships and specific

engagements.

• Determination of corrective actions to be taken and improvements to be made in the

system, including the provision of feedback into the firm’s policies and procedures
relating to education and training.

• Communication to appropriate firm personnel of weaknesses identified in the system, in

the level of understanding of the system, or compliance with it.

• Follow-up by appropriate firm personnel so that necessary modifications are promptly

made to the quality control policies and procedures.
5. The inspection of a selection of completed engagements is ordinarily performed on a
cyclical basis. Engagements selected for inspection include at least one engagement for
each engagement partner over an inspection cycle, which ordinarily spans no more than
three years. The manner in which the inspection cycle is organized, including the timing
of selection of individual engagements, depends on many factors, including the
following:

• The size of the firm.

• The number and geographical location of offices.
• The results of previous monitoring procedures.

• The degree of authority both personnel and offices have (for example, whether
individual offices are authorized to conduct their own inspections or whether only the
head office may conduct them).
• The nature and complexity of the firm’s practice and organization.
• The risks associated with the firm’s clients and specific engagements.

6. The inspection process includes the selection of individual engagements, some of which
may be selected without prior notification to the engagement team. Those inspecting the
 engagements are not involved in performing the engagement or the engagement quality
control review. In determining the scope of the inspections, the firm may take into
account the scope or conclusions of an independent external inspection program.
However, an independent external inspection program does not act as a substitute for the
firm’s own internal monitoring program.

7. The firm should communicate to relevant engagement partners and other appropriate
personnel deficiencies noted as a result of the monitoring process and recommendations
for appropriate remedial action.

8. The firm should evaluate the effect of deficiencies noted as a result of the monitoring
process and should determine whether they are either:
a) Instances that do not necessarily indicate that the firm’s system of quality control is
insufficient to provide it with reasonable assurance that it complies with professional
standards and regulatory and legal requirements, and that the reports issued by the
firm or engagement partners are appropriate in the circumstances; or
b) Systemic, repetitive or other significant deficiencies that require prompt corrective
action.

9. Small firms and sole practitioners may wish to use a suitably qualified external person or
another firm to carry out engagement inspections and other monitoring procedures.
Alternatively, they may wish to establish arrangements to share resources with other
appropriate organizations to facilitate monitoring activities.

10. The firm’s evaluation of each type of deficiency should result in recommendations for
one or more of the following:
(a) Taking appropriate remedial action in relation to an individual engagement or member
of personnel;
(b) The communication of the findings to those responsible for training and professional
development;
(c) Changes to the quality control policies and procedures; and
(d) Disciplinary action against those who fail to comply with the policies and procedures
of the firm, especially those who do so repeatedly.

11. Where the results of the monitoring procedures indicate that a report may be
inappropriate or that procedures were omitted during the performance of the engagement,
the firm should determine what further action is appropriate to comply with relevant
professional standards and regulatory and legal requirements. It should also consider
obtaining legal advice.
12. At least annually, the firm should communicate the results of the monitoring of its quality
control system to engagement partners and other appropriate individuals within the firm,
including the firm’s chief executive officer or, if appropriate, its managing board of
partners. Such communication should enable the firm and these individuals to take
prompt and appropriate action where necessary in accordance with their defined roles and
responsibilities.

13. Information communicated should include the following:

(a) A description of the monitoring procedures performed.
(b) The conclusions drawn from the monitoring procedures.
(c) Where relevant, a description of systemic, repetitive or other significant deficiencies
and of the actions taken to resolve or amend those deficiencies.

14. The reporting of identified deficiencies to individuals other than the relevant engagement
partners ordinarily does not include an identification of the specific engagements
concerned, unless such identification is necessary for the proper discharge of the
responsibilities of the individuals other than the engagement partners.

15. Some firms operate as part of a network and, for consistency, may implement some or all
of their monitoring procedures on a network basis. Where firms within a network operate
under common monitoring policies and procedures designed to comply with this PSQC,
and these firms place reliance on such a monitoring system:
(a) At least annually, the network communicates the overall scope, extent and results of
the monitoring process to appropriate individuals within the network firms;
(b) The network communicates promptly any identified deficiencies in the quality control
system to appropriate individuals within the relevant network firm or firms so that the
necessary action can be taken; and
(c) Engagement partners in the network firms are entitled to rely on the results of the
monitoring process implemented within the network, unless the firms or the network
advises otherwise.

16. Appropriate documentation relating to monitoring:

(a) Sets out monitoring procedures, including the procedure for selecting completed
engagements to be inspected;
(b) Records the evaluation of:
i. Adherence to professional standards and regulatory and legal requirements;
ii. Whether the quality control system has been appropriately designed and
effectively implemented; and
 iii. Whether the firm’s quality control policies and procedures have been
appropriately applied, so that reports that are issued by the firm or
engagement partners are appropriate in the circumstances; and

(c) Identifies the deficiencies noted, evaluates their effect, and sets out the basis for
determining whether and what further action is necessary.
 HARER AND JONES
POLICIES AND PROCEDURES
(Policies and Procedures are excerpted from KPMG and PwC’s Transparency Report)

PROFESSIONAL DEVELOPMENT
Policy 1: Professionals are required to maintain their technical competence and comply with
applicable regulatory and professional requirements.

- The firm provides continuous learning opportunities to help our professionals meet their
CPD requirements as well as their own professional development goals.
- As mandated in Resolution No. 2016-990 “Amendments to the Revised Guidelines on the
Continuing Professional Development (CPD) Program for All Registered and Licensed
Professionals” issued by the Professional Regulation Commission” Section 19, registered
and licensed professionals SHALL complete the required units every three years. As to
Accountancy Profession, they are required to have 120 credit units. This credit unit refers
to the value of an amount of learning that can be transferred to a qualification achieved
from formal, informal learning setting, wherein credits can be accumulated to
predetermined levels for the award of qualification. The CPD Program refers to a set of
learning activities accredited by the CPD Council such as seminars, workshops, technical
lectures or subject matter meetings, non-degree training lectures and scientific meetings,
modules tours and visits, which equip the professionals with advanced knowledge. This is
done to improve the competence of the professionals in accordance with the international
standards of practice, thereby ensuring their contribution in uplifting the general welfare,
economic growth and development of the nation. Everyone, who is subject to this
program, must comply to the statutory requirements, thereby promoting development to
the accountancy profession.
- Training and development programs include varied delivery methods including self-study
courses; classroom courses at the national, business unit, and local levels; and real-time
web-based seminars. The firm also maintains a system that helps professionals monitor
compliance with their CPE requirements.

Policy 2: Audit quality and professional skepticism is continually emphasized to the firm’s
professionals through timely training and communication of accounting, auditing and reporting
matters.
- The firm’s training includes programs designed to enhance professionals’ ability to make
judgments by employing a standardized framework that addresses how biases impact
decision making and how to recognize and overcome biases in making judgments and
applying appropriate professional skepticism.
Policy 3: The firm’s My Development program also helps partners and employees understand
their career opportunities through expansion of their skills, experiences and networks within the
firm.
- To assist individuals in meeting these requirements as well as the relevant local legal and
professional requirements, the firm annually offer courses at all professional levels and
has an annual process for setting individual professional development goals.
- to provide extensive training courses that help our people perform their role and achieve
expectations. We encourage coaching and mentoring to foster a coaching culture. We
embed tips and tools in our in-house and external courses, which people can choose from
to expand on their experience with the firm.
- We want our people to develop and learn from every opportunity, stay open-minded, and
be intellectually curious to maintain positive attitudes towards any challenge they face.
We want them to be able to demonstrate and maintain their professionalism in every
interaction with each other and with clients. These expectations are reflected in the staff
development plan and evaluation process.
- The Assurance practice provides a training curriculum for all partners and staff focused
on the development of technical excellence. The curriculum comprises mandatory, core,
and elective modules. Mandatory learning modules are actively enforced, and failure to
complete a mandatory course will result in remediation as needed to comply with
Assurance standards and firm policies

Policy 4: The firm provides and requires annual experience and training requirements relating to
GAAP/GAAS & IFRS assignments.
- These requirements help to ensure that the engagement team collectively has the
necessary capabilities and competence to perform the audit engagement in accordance
with the relevant professional standards and regulatory requirements.
- We frequently assess our curriculum content to ensure that it continues to build and
support the capabilities and attributes that are essential to our Assurance business.

Policy 5: The firm requires all professionals to complete annual training on independence
standards. The firm also encourages professionals to stay abreast of technical updates by
attending industry-specific training programs and conferences as well as reviewing pertinent
bulletins and periodicals. Staff through attendance at various external training courses.
- We design training programmes that are world class, innovative, and forward-thinking.
We introduce new training techniques into our core curriculum dedicated to getting the
best out of our people. Our training programme includes:
(a) Mandatory: Peer Group Learning
Peer group learning is a part of our Assurance Foundation training programme.
After completing classroom and on-the-job training, which normally takes about a
few weeks, the associates will gather again to attend this session.
(b) Role-based: Quarterly Updates
Quarterly Updates are part of a role-based programme to enhance our technical
knowledge and insights to ensure that we stay relevant and keep up-to-date with
the business issues so that we are well positioned in the marketplace.
(c) Business Skills: Certified Public Accountant Support
This CPA preparation programme is very well-received by our staff as it covers
all exam subjects ranging from auditing and accounting to tax and law to IT
auditing.
(d) Languages: Language Courses
To ensure our workforce is ‘future-fit’ we need to offer more than technical
competence. The language course we offer includes English, Chinese, and
Japanese language courses.
REFERENCES: (KPMG and PwC’s Transparency Report; complied to PSQC 1)
Human Resources (Ref: Para. 29)
A24. Personnel issues relevant to the firm’s policies and procedures related to human resources
include, for example:
 Recruitment.
 Performance evaluation.
 Capabilities, including time to perform assignments.
 Competence.
 Career development.
 Promotion.
 Compensation.
 The estimation of personnel needs.
A25. Competence can be developed through a variety of methods, including the following:
 Professional education.
 Continuing professional development, including training.
 Work experience.
 Coaching by more experienced staff, for example, other members of the engagement
team.
 Independence education for personnel who are required to be independent.
A26. The continuing competence of the firm’s personnel depends to a significant extent on an
appropriate level of continuing professional development so that personnel maintain their
knowledge and capabilities. Effective policies and procedures emphasize the need for continuing
training for all levels of firm personnel, and provide the necessary training resources and
assistance to enable personnel to develop and maintain the required competence and capabilities.
A27. The firm may use a suitably qualified external person, for example, when internal technical
and training resources are unavailable.
 AUDIT CASE
REQUIREMENTS
 HARER & JONES
POLICIES AND PROCEDURES

ACCEPTANCE AND CONTINUANCE OF CLIENT RELATIONSHIPS AND SPECIFIC

ENGAGEMENTS
Prior to accepting a new audit engagement, a partner performs an evaluation of the entity and its
principals, its business and engagement-related matters, as appropriate. This evaluation typically
includes a background investigation of the entity and selected senior management personnel.

Policy 1: Evaluation of the integrity and competence of the prospective client’s management and
majority of owners or any client-related matters (strength, reputation and character).

- A contact partner must interview the prospective client to determine the nature of
the desired services and the firm’s ability to provide the services. A developed
prospective client questionnaire must be completed during the interview.
- In line with the integrity and competence of the prospective client, the firm
considers the identity and business reputation of the client’s majority of owners,
key management and officers in charge of the governance, the client’s nature of
business operations and its business practices and the reasons for the proposed
appointment of the firm and non-reappointment of the previous firm.

Policy 2: Assessment of the ability of the firm to perform the services as well as evaluation of
the firm’s independence with respect to the prospective client.

- The firm evaluates the following consideration in compliance with its capabilities
and competencies
 Firm personnel have knowledge of relevant industries or subject matters;
 Firm personnel have experience with relevant regulatory or reporting
requirements, or the ability to gain the necessary skills and knowledge
effectively;
 The firm has sufficient personnel with the necessary competence and
capabilities;
 Experts are available, if needed;
 Individuals meeting the criteria and eligibility requirements to perform
engagement quality control review are available, where applicable; and
 The firm is able to complete the engagement within the reporting deadline.
- A contact partner consults with the managing partner.
 - The needs of the client are considered, and an overall evaluation of the
prospective client, including the management integrity, is undertaken.
- If the agreement has reached, both contact and managing partner must sign the
completed questionnaire. If agreement is not reached concerning acceptance,
additional partners may be consulted regarding the proposed engagement.
- In terms of independence, any potential independence issues and conflicts
identified are resolved in consultation with other parties, and the resolution of all
matters are documented, if not resolved or cannot be resolved, satisfactorily in
accordance with professional and firm standards, the prospective client or
engagement is declined.

Policy 3: Obtaining ethical clearances from the predecessor auditor (if any) and making inquiries
from third parties such as bankers, legal counsel and industry peers.
- Following the interview, a contact partner must check references, corresponds
with the predecessor auditor if any.

Policy 4: Preparation of engagement letter in respond to acceptance of the proposed engagement.

- Upon acceptance of the engagement, the contact partner prepares and engagement
letter in accordance to PSA 210.

Policy 5: When engagement is declined, contact partner must personally notify the prospective
client and follows up a letter setting forth the reasons for not accepting the engagement.

- Discussing with the appropriate level of the client’s management and those
charged with its governance the appropriate action that the firm might take based
on the relevant facts and circumstances.
- If the firm determines that it is appropriate to withdraw, discussing with the
appropriate level of the client’s management and those charged with its
governance withdrawal from the engagement or from both the engagement and
the client relationship, and the reasons for the withdrawal.
- Considering whether there is a professional, regulatory or legal requirement for
the firm to remain in place, or for the firm to report the withdrawal from the
engagement, or from both the engagement and the client relationship, together
with the reasons for the withdrawal, to regulatory authorities.
- Documenting significant matters, consultations, conclusions and the basis for the
conclusions.
REFERENCES: PSQC 1
Acceptance and Continuance of Client Relationships and Specific Engagements
26. The firm shall establish policies and procedures for the acceptance and continuance of client
relationships and specific engagements, designed to provide the firm with reasonable assurance
that it will only undertake or continue relationships and engagements where the firm:

d) Is competent to perform the engagement and has the capabilities, including time and
resources, to do so; (Ref: Para. A18, A23)
e) Can comply with relevant ethical requirements; and
f) Has considered the integrity of the client, and does not have information that would lead
it to conclude that the client lacks integrity. (Ref: Para. A19-A20, A23)
27. Such policies and procedures shall require:

d) The firm to obtain such information as it considers necessary in the circumstances before
accepting an engagement with a new client, when deciding whether to continue an
existing engagement, and when considering acceptance of a new engagement with an
existing client. (Ref: Para. A21, A23)
e) If a potential conflict of interest is identified in accepting an engagement from a new or
an existing client, the firm to determine whether it is appropriate to accept the
engagement.
f) If issues have been identified, and the firm decides to accept or continue the client
relationship or a specific engagement, the firm to document how the issues were
resolved.

28. The firm shall establish policies and procedures on continuing an engagement and the client
relationship, addressing the circumstances where the firm obtains information that would have
caused it to decline the engagement had that information been available earlier. Such policies
and procedures shall include consideration of:

c) The professional and legal responsibilities that apply to the circumstances, including
whether there is a requirement for the firm to report to the person or persons who made
the appointment or, in some cases, to regulatory authorities; and
d) The possibility of withdrawing from the engagement or from both the engagement and
the client relationship. (Ref: Para. A22-A23)
Under PSQC 1 Application:
Competence, Capabilities, and Resources (Ref: Para. 26(a))

A18. Consideration of whether the firm has the competence, capabilities, and resources to
undertake a new engagement from a new or an existing client involves reviewing the specific
requirements of the engagement and the existing partner and staff profiles at all relevant levels,
and including whether:

 Firm personnel have knowledge of relevant industries or subject matters;

 Firm personnel have experience with relevant regulatory or reporting requirements, or the
ability to gain the necessary skills and knowledge effectively;
 The firm has sufficient personnel with the necessary competence and capabilities;
 Experts are available, if needed;
 Individuals meeting the criteria and eligibility requirements to perform engagement
quality control review are available, where applicable; and
 The firm is able to complete the engagement within the reporting deadline.
A19. Consideration of whether the firm has the competence, capabilities, and resources to
undertake a new engagement from a new or an existing client involves reviewing the specific
requirements of the engagement and the existing partner and staff profiles at all relevant levels,
and including whether:

 The identity and business reputation of the client’s principal owners, key management,
and those charged with its governance.
 The nature of the client’s operations, including its business practices.
 Information concerning the attitude of the client’s principal owners, key management and
those charged with its governance towards such matters as aggressive interpretation of
accounting standards and the internal control environment.
 Whether the client is aggressively concerned with maintaining the firm’s fees as low as
possible.
 Indications of an inappropriate limitation in the scope of work.
 Indications that the client might be involved in money laundering or other criminal
activities.
 The reasons for the proposed appointment of the firm and non-reappointment of the
previous firm.
 The identity and business reputation of related parties.
The extent of knowledge a firm will have regarding the integrity of a client will generally grow
within the context of an ongoing relationship with that client.
A20. Sources of information on such matters obtained by the firm may include the following:

 Communications with existing or previous providers of professional accountancy

services to the client in accordance with relevant ethical requirements, and discussions
with other third parties.
 Inquiry of other firm personnel or third parties such as bankers, legal counsel and
industry peers.
 Background searches of relevant databases.
 A22. Policies and procedures on withdrawal from an engagement or from both the
engagement and the client relationship address issues that include the following:

 Discussing with the appropriate level of the client’s management and those charged
with its governance the appropriate action that the firm might take based on the
relevant facts and circumstances.
 If the firm determines that it is appropriate to withdraw, discussing with the
appropriate level of the client’s management and those charged with its governance
withdrawal from the engagement or from both the engagement and the client
relationship, and the reasons for the withdrawal.
 Considering whether there is a professional, regulatory or legal requirement for the
firm to remain in place, or for the firm to report the withdrawal from the engagement,
or from both the engagement and the client relationship, together with the reasons for
the withdrawal, to regulatory authorities.
 Documenting significant matters, consultations, conclusions and the basis for the
conclusions.

DISCUSSION:
1. It is an important consideration in accepting new client so that the auditing firm is sure
enough that they are providing their services to a credible client which in respect with the
code of ethics that professionals follow. The clients that a firm accepts, reflects their
business practices and reputation.

As mentioned in code of ethics, professionals should observe the fundamental principles:

Sec 100- Introduction and Fundamental Principles

1. Integrity
2. Objectivity
3. Professional Competence
4. Confidentiality
5. l Behavior

2. One of the significant considerations that the firm must undertake, it must review the
specific requirements of the engagement so the firm can assess if it has the capabilities,
competence, time and resources. The firm considers whether the firm have the knowledge
of relevant industries or subject matter, the firm is able to complete the engagement with
the agreed reporting deadline and the firm has sufficient personnel with necessary
capabilities and competence as to performance of the engagement.
Under Code of Ethics Sec 130- Professional Competence and Due Care
 The principle of professional competence and due care imposes the following obligations on
professional competence:
a. To maintain professional knowledge and skill at the level required to ensure that the
clients or employers receive competent professional service; and
b. To act diligently in accordance with applicable technical and professional standards when
providing professional services.
Competent professional service requires the exercise of sound judgment in applying
professional knowledge and skill in the performance of such service.
3. In lieu of the evaluation of the integrity and competence of the prospective client
communications with the predecessor auditor and third parties are integral part for the
firm may obtain information from them that will help in the process of acceptance of the
new client.
4. After the assessment of the firm, if the engagement is accepted, the firm must prepare
engagement letter to be sent to the client. This is important so the client will be notified
on the decision of the firm on the proposed engagement. The engagement letter should
comply with the requirements of PSA 210.
5. In lieu of the disapproval of proposed engagement it is important that the firm can
explain or discuss it clearly to the client and communicate it properly so there will be no
problems that would arise upon act of decline. Certain documentation are required
regarding the decline or withdrawal of the engagement.
Requirement #2: PROSPECTIVE CLIENT QUESTIONNAIRE

Prepared by: Rochelle G. Baronia

HARER & JONES, CPAs

PROSPECTIVE CLIENT QUESTIONNIARE

Prospective Client Lone Star Western Apparel Company

Address 3810 Longhorn Drive, Big City
Nature of Business Manufacturing Company of Western-type Felt Hats (at present)
Date business commenced January 19W8
Type of engagement:
Audit Tax return preparation
Compilation MAS (accounting services)
Review MAS (other) Consulting in the
Tax Planning Electronic Data Processing (EDP) area
Is the engagement expected to be continuing? Yes
Nature of referral:
Referred by Jane Kidman Business Local Attorney
Relationship to Harer & Jones A friend of the successor auditor
Prospective client’s Attorney Warren Ramsey
Have prospective client’s tax returns been audited by the IRS? The Prospective client’s
corporate tax returns have never been audited by IRS.
Audit Client Information:
Are copies of previous year’s financial statements available? Yes
If yes, type of opinion issued if audited The financial statements rendered an
unqualified opinion.
Is there litigation pending against company? None
Comments:
Officers:
Name Title Stock Ownership
James R. Wiggins President and Chairman of the Board 65%
Catherine Meyer Vice President and Secretary-Treasurer 15%
Ross Crothers Vice President-Manufacturing 10%
Claire McCartin Vice President-Marketing 10%
Donna Wiles Controller 0%
Any known independence problems? Donna Wiles’ (controller of the prospective client)
daughter is a staff accountant for Harer & Jones.
Accounting firm being replaced Carl Moore
Reasons: Lone Star’s rapid growth and plans for the future
Will Client give permission to contact predecessor auditor? Yes, Mr. Wiggins gave
permission to contact the company’s predecessor auditor.
Condition of books and records (based on inquiry)
Excellent Good Fair Poor
Do any special accountings or auditing problems appear likely? Yes, because the Lone Star
Company’s growth and operation are increasing significantly and rapidly.
Reference: (banks and other)
Name First National Bank in Big City
Name
Name
Publicly Held Audit Clients
Has Form 8-K been had reporting change of accounting?
Yes No Comments
Obtain copy of accountant’s letter to accompany Form 8-K?
Yes No Comments
Name of underwriters None
Summary of types of outstanding securities and long-term financing:
None

Special comments regarding proposed engagement:

We are facing a potential familiarity threat that would probably affect our independence
towards our client. The controller, Donna Wiles, has a daughter in our firm as that works
as an accounting staff, to eliminate the threat or if cannot be eliminated, at least to reduce
the threat to an acceptable level, we are going to prohibit (absolute prohibition) the
controller’s daughter to work on this audit/project which is in accordance with our firm’s
underlying policy. Consequently, our independence in appearance and in fact would not be
compromised.

Prepared by: Michael Alipayo November 25, 2016

Contact Partner Date
Approved by: Anchellie Catacutan November 25, 2016
Managing Partner Date
 Notes to Prospective Client Questionnaire

 All the questions in the “Prospective Client Questionnaire” are all based in the policy and
procedures of the firm regarding quality control on client acceptance and continuance.

Here are the following other information/s regarding WHATs and WHYs in the
questionnaire. And also further explanations based on standard/s.

1. Asking for the prospective client’s name, address, nature of business and
the date of business commenced.
a. A firm's policies and procedures should provide it with reasonable assurance that it
will undertake or continue relationships and engagements only where it has made an
annual evaluation of the integrity of a client's management and governance personnel,
has the competency and capabilities to perform the engagement, can comply with
legal and ethical requirements, and has obtained an understanding with the client as to
the terms of an engagement. Client acceptance and continuance procedures are the
foundation of the risk assessment process, primarily at the financial statement level.

b. To comply with professional standards, our firm should perform an investigation of

new clients and their management. The following should be determined while
conducting this investigation:

The firm's independence in fact and in appearance.

Qualifications of the firm to undertake the engagement.
Management of the reporting entity is honest and not involved in illegal acts.
The client's financial reporting system, and internal control system, will provide
fairly presented financial statements.
 The investigative procedures include:
 Obtaining credit information for the entity and its officers.
 Discussion of the prospective client with the entity's bankers and attorneys.
 Asking the potential client why the entity is changing CPAs.
 Obtaining management's permission to communicate with the entity's former
auditors.
 Conducting inquiries of former auditors about disagreements, management's
integrity, uncollected fees, or other reasons why the firm should not accept the
audit.
 Reviewing reports of former auditors.
 Asking management if any officers and directors have been convicted of a crime.
 c. Client acceptance and continuance forms need to facilitate new and continuing
client investigations. These forms should be reviewed and updated to annually
evaluate continued association with a client and an engagement. The investigation
of potential new clients and the on-going evaluation of existing clients provide
information that enables a CPA firm to determine that a client meets its quality
standards. Once a decision is made to accept or continue a client relationship, the
quality of client personnel generally should be evaluated as high, high in
competence, and high in integrity. These attributes form the foundation for
assessing risk at the financial statement level and collecting evidence on audit
engagements.
d. Our firm will used the said information to validate the integrity of the prospective
client to the SEC (Securities and Exchange Commission)
i. The commission is bounded by law to act with transparency.
ii. The commission’s powers and functions are:
(a) Have jurisdiction and supervision over all corporations, partnership or
associations who are the grantees of primary franchises and/or a license or a permit
issued by the Government;
(b) Formulate policies and recommendations on issues concerning the
securities market, advise Congress and other government agencies on all aspect of the
securities market and propose legislation and amendments thereto;
(c) Approve, reject, suspend, revoke or require amendments to registration
statements, and registration and licensing applications; (d) Regulate, investigate or
supervise the activities of persons to ensure compliance;
(e) Supervise, monitor, suspend or take over the activities of exchanges,
clearing agencies and other SROs;
(f) Impose sanctions for the violation of laws and rules, regulations and
orders, and issued pursuant thereto;
(g) Prepare, approve, amend or repeal rules, regulations and orders, and issue
opinions and provide guidance on and supervise compliance with such rules, regulation and
orders;
(h) and others.
BASIS: REPUBLIC ACT NO. 8799 THE SECURITIES REGULATION CODE
Securities and Exchange Commission Integrity and Credibility And Independence

2. Type of engagement
a. Finding out what your client needs.

- The type of engament gives the firm the scope of what the client’s needs and
the basis if our firm is capable of doing so and it helps us to decide whether we accept it
or not. Whatever the client’s needs are, your goal at this point is to get as many specifics
 as possible so your firm can determine whether it can meet those needs. You must also
find out about the client’s reporting deadlines to make sure you can get the work done in
time.

b. Follow the standards for the each type of engagement

- basic non-public company standards:

 Statements on Auditing Standards (SAS): SAS are pronouncements of the generally

accepted auditing standards (GAAS).

 Statements on Standards for Accounting and Review Services (SSARS): This

authoritative source addresses services you provide that don’t rise to the level of an audit
— for example, compilations and reviews.

 Statements on Standards for Attestation Engagements (SSAE): These statements address

the standards you must follow when examining, reviewing, or applying agreed-upon
procedures to an assertion about a company fact, which is the responsibility of another
party.

-Your firm will have a current practitioner’s guide to GAAS that contains each of
these standards. The American Institute of Certified Public Accountants (AICPA) website also
contains info about the standards. College auditing textbooks usually provide abbreviated
versions of the statements.

c. Know each type of engagement

i. Audit

- Auditing is a systematic process of objectively obtaining and evaluating

evidences regarding assertions about economic actions and events to ascertain the degree of
correspondence between those assertions and established criteria and communicating the results
to interested users.

-An audit is an evaluation of an organization, system, process, or product. It is

performed by a competent, objective, and unbiased person or persons, known as auditors.

-The purpose is to verify that the subject of the audit was completed or operates
according to approved and accepted standards, statutes, regulations, or practices. It also evaluates
controls to determine if conformance will continue. Auditing is a part of some quality control
certifications such as ISO 9000.

-Audits evaluate conformance now and into the future. An inspection evaluates
conformance in the past. Both are important parts of management.
 -An important type of audit is the financial audit. It is designed to determine
whether the government financial statements are fairly presented in accordance with Generally
Accepted Accounting Principles (GAAP). Government financial reports are not always audited
by outside auditors. Some governments have elected or appointed auditors.

According to: 'American Accounting Association - AAA'

ii. Tax planning

-Tax planning is the analysis of a financial situation or plan from a tax

perspective. The purpose of tax planning is to ensure tax efficiency, with the elements of
the financial plan working together in the most tax-efficient manner possible. Tax
planning is an important part of a financial plan, as reducing tax liability and maximizing
eligibility to contribute to retirement plans are both crucial for success.

iii. Tax return preparation

 Corporate Tax Returns & Payment

o Domestic and resident foreign corporations must file their quarterly income tax
returns within 60 days of the end of each taxable quarter. They must also file a final
adjusted return on or before the 15th of the fourth month following the end of the
tax year – April 15 for taxpayers on calendar year. The quarterly and annual returns
cover the RCIT and the MCIT, as well as income subject to special tax regimes.
o Non-resident foreign corporations are not required to file income tax returns. Taxes
due on their Philippine-sourced income are withheld at the source by the Philippine-
based company making the payment.
o Excess income taxes paid during the year may be applied for refund or the amount
may be carried over to the succeeding quarter. The latter option shall be irrevocable
for that taxable year and no application for cash refund shall be allowed.
o Tax credit certificates (TCCs) may only be used to pay for certain direct internal
revenue tax liabilities of the holder, and are prohibited from being transferred to
any person.
o In 2012 the Philippine government implemented a monetisation programme
running from 2012 to 2016 that allows all value-added tax (VAT) TCCs to be
converted to cash.

iv. MAS, consultation in the Electronic Data Processing (EDP) area

 EDP (electronic data processing), an infrequently used term for what is today usually
called "IS" (information services or systems) or "MIS" (management information
services or systems), is the processing of data by a computer and its programs in an
environment involving electronic communication.
 EDP audit
 o An analysis of an organization's computer and information systems in order to
evaluate the integrity of its production systems as well as potential security cracks.
See EDP auditor. Electronic data processing. Electronic Data Processing (EDP) can
refer to the use of automated methods to process commercial data.
o It is the audit of all information system assets, to ensure that they are adequately
safeguarded against vulnerabilities of natural and man made disasters. The type is
identified with reference to the risk exposure. It is performed by qualified information
system auditors.
o The detection of frauds and errors are by ensuring various safeguards prescribed by
the systems men, internal and external auditors qualified to perform systems audit.
o An information technology audit, or information systems audit, is an examination of
the management controls within an Information technology (IT) infrastructure. The
evaluation of obtained evidence determines if the information systems are
safeguarding assets, maintaining data integrity, and operating effectively to achieve
the organization's goals or objectives. These reviews may be performed in
conjunction with a financial statement audit, internal audit, or other form of
attestation engagement.
3. Continuance of the engagement
a. Client acceptance and continuance procedures should focus on independence
considerations, possible conflicts of interest and whether the firm is competent to
perform the engagement, and has the capabilities, including time and resources to
do so. However, this weakness is not just isolated to the audits of issuers; it is an
area that practice review finds there is scope for improvement in non-issuer audits
too.
b. ISA 210 Agreeing the terms of the audit engagement establishes the
preconditions for accepting an audit, which are:
 An acceptable financial reporting framework has been used in the preparation of
the financial statements those charged with governance agree that they
acknowledge and understand their responsibilities. If the preconditions for an
audit are not present, the auditor must discuss the matter with those charged with
governance. Unless required by law or regulation to do so, the auditor must not
accept the engagement.
c. ISA 220 Quality control for an audit of financial statements deals with those
aspects of engagement acceptance that are within the control of the auditor. The
engagement partner must be satisfied that appropriate procedures regarding the
acceptance and continuance of client relationships and audit engagements have
been followed, and must determine that conclusions reached in this regard are
appropriate.
d. Our firm performs audits and reviews of financial statements, and other assurance
engagements requires to the obtain information considered necessary in the
 circumstances before accepting an engagement with a new client, and when
deciding whether to continue an existing engagement.
e. Ethical requirements
 Audit firms should expect the same commitment to quality and integrity on the
part of their clients as they do of themselves. As a result, many have developed
and implemented improved processes for approving new clients as well as
reviewing relationships with existing clients.
 An important part of the client acceptance process is for the assigned contact
partner to legally contact the predecessor auditor of the client.
i. A professional clearance letter enquires whether there are any professional or
other reasons why the engagement should not be accepted. For example, one
such reason may be a disagreement with some particular accounting treatment
the client wishes to adopt.
ii. However, before the contact auditor can pass on any information to the
prospective auditor, they must have the client’s authority to discuss its affairs.
iii. If the client refuses permission then all the existing auditor can do is advise the
prospective auditor that there are matters they would like to discuss but the
client has refused permission for this, and this should speak volumes.
f. Adequate resources
 Prior to acceptance or continuance of an audit engagement, the engagement
partner must determine that the audit team has the necessary technical expertise
and sufficient resources such as time and access to experts. The increasing
complexity and regulation of audit requires a significant investment of practice
resources to maintain audit competence. Internal and external reviews are an
important mechanism to help practitioners decide whether they are competent and
adequately equipped to perform audits.
g. Considering red flag examples

1. Frequent changes of auditors – can mean an organisation is opinion shopping.

2. Poor financial history – prior failed business or bankruptcy could indicate a
person who takes unjustifiable risks.
3. Work/business history – is there unstable address, employment or
professional history?
4. Overly litigious as a plaintiff or defendant – signals a party who is not afraid
to sue, presents a risk of non-payment or who may not honour their agreements.
5. High turnover in upper management – can indicate a lack of internal stability.
6. Short operating history – where were the management team before they were
at the current organisation?
 7. Foreign operations/plants – complex business structures may be concealing
something.
8. Reluctance to provide references – if they are reluctant to disclose
information now, how will they be once they are a client?
9. Pressure to start work quickly – can be a sign that they do not want you
looking into their background.
10. Regulatory actions – can indicate poor internal controls or a management
team ignoring internal controls.
Basis:
 PES 3 Quality control for firms that perform audits and reviews of financial
statements, and other assurance engagements requires the firm to obtain
information considered necessary in the circumstances before accepting an
engagement with a new client, and when deciding whether to continue an existing
engagement.
 The International Accounting Education Standards Board (IAESB) recently
released for comment an Exposure Draft of International Education Standard
(IES) 8 (Revised), Professional Competence for Engagement Partners Responsible
for Audits of Financial Statements (comments are due 17 April).
 Code of Ethics (Revised 2013)
 ISA 210 Agreeing the terms of the audit engagement
4. Nature of referrals
 An independent service that provides counselling and referrals, not only for our partners
and employees, but also for their immediate family members.
 Perform appropriate actions in the entire engagement acceptance process thoroughly and
review background and reference-check results closely. You should ensure that the issue
is properly discussed with the former auditor as part of the formal process required before
accepting a new Audit client. Additionally, you should advise Risk Management – Audit
of these allegations and obtain its approval before accepting the company as a new Audit
client.
 Prohibition of any advertising of professional accountants beyond their name, address,
telephone number and memberships in professional organizations.

Definitions:
a. Referrals- an act of referring someone or something for consultation, review, or further
action. the directing of a patient to a medical specialist by a primary care physician. a
person whose case has been referred to a specialist doctor or a professional body.
 b. Advertising- The communication to the public of information as to the services or skills
provided by professional accountants in public practice with a view to procuring
professional business.

According to Code of Ethic for professional accountants, Section 150-Professional Behavior

150.1 The principle of professional behavior imposes an obligation on professional accountants
to comply with relevant laws and regulations and avoid any action that may bring discredit to the
profession. This includes actions which a reasonable and informed third party, having knowledge
of all relevant information, would conclude negatively affects the good reputation of the
profession.
150.2 In marketing and promoting themselves and their work, professional accountants should
not bring the profession into disrepute. Professional accountants should be honest and truthful
and should not:
(a) Make exaggerated claims for the services they are able to offer, the qualifications they
possess, or experience they have gained; or
(b) Make disparaging references or unsubstantiated comparisons to the work of others.
RA. 9298, RULE IV
PRACTICE OF ACCOUNTANCY
SEC. 26. Prohibition in the Practice of Accountancy .
- No person shall practice accountancy in this country, or use the title “Certified Public
Accountant”, or use the abbreviated title “CPA” or display or use any title, sign, card,
advertisement, or other device to indicate such person practices or offers to practice accountancy,
or is a certified public accountant, unless such person shall have received from the Board a
Certificate of Registration and be issued a professional identification card or a valid
temporary/special permit duly issued to him/her by the Board and the Commission.
Any advertising of professional accountants beyond their name, address, telephone number and
memberships in professional organizations has been traditionally considered unethical in the
Accountancy Profession.

5. Relation of the referrals and to Harer & Jones

According to PSA 220-Independence
The contact partner shall form a conclusion on compliance with independence
requirements that apply to the audit engagement. In doing so, the engagement partner shall.
(a) Obtain relevant information from the firm and, where applicable, network firms, to
identify and evaluate circumstances and relationships that create threats to independence
(b) Evaluate information on identified breaches, if any, of the firm’s independence policies
and procedures to determine whether they create a threat to independence for the audit
engagement; and
(c) Take appropriate action to eliminate such threats or reduce them to an acceptable level by
applying safeguards, or, if considered appropriate, to withdraw from the audit engagement,
where withdrawal is permitted by law or regulation. The engagement partner shall promptly
report to the firm any inability to resolve the matter for appropriate action.
Ref: Para. 11, A5-A7 of PSA 220

6. Prospective Client Attorney

Persons with Specialized Skill or Knowledge (the auditor can use the attorney’s skill
if there is a litigation/ other cases)
 The auditor should determine whether specialized skill or knowledge is needed to
perform appropriate risk assessments, plan or perform audit procedures, or
evaluate audit results.
 If a person with specialized skill or knowledge employed or engaged by the
auditor participates in the audit, the auditor should have sufficient knowledge of
the subject matter to be addressed by such a person to enable the auditor to:
 Communicate the objectives of that person's work;
 Determine whether that person's procedures meet the auditor's objectives; and
 Evaluate the results of that person's procedures as they relate to the nature, timing,
and extent of other planned audit procedures and the effects on the auditor's
report.

Code of Ethics of Lawyers (CANON 1.)

A Lawyer Should Assist in Maintaining the Integrity and Competence of the Legal
Profession
ETHICAL CONSIDERATIONS
1. A basic tenet of the professional responsibility of lawyers is that every person in our
society should have ready access to the independent professional services of a
lawyer of integrity and competence. Maintaining the integrity and improving the
competence of the bar to meet the highest standards is the ethical responsibility of
every lawyer.
2. The public should be protected from those who are not qualified to be lawyers by
reason of a deficiency in education or moral standards or of other relevant factors
but who nevertheless seek to practice law. To assure the maintenance of high moral
and educational standards of the legal profession, lawyers should affirmatively
assist courts and other appropriate bodies in promulgating, enforcing, and
improving requirements for admission to the bar. In like manner, the bar has a
 positive obligation to aid in the continued improvement of all phases of pre-
admission and post-admission legal education.

7. Prospective Client Tax Return

The firm’s consideration in conjunction with financial disclosure forms, help paint a fuller
picture of the candidate’s financial dealings. It’s a snapshot of their financial positions and
interests. For more than four decades, presidential candidates have seemed to agree with our
perspective, and every candidate since Carter has released tax returns voluntarily to the
public.
Important information from tax returns:
 Yearly income of the candidate

 How much the candidate paid in taxes and the tax rate

 What deductions and tax credits claimed

 Real estate taxes and abatements

 Investments

 And others

Especially important the firm makes disclosure of income tax returns to shed light on
areas of possible conflicts of interest. Yearly salaries are often reported in the news but tax
returns reveal so much more about the character of the prospective client. Their debts gives a
broader sense of the state of their finances, and perhaps more importantly an idea to whom
they could feel beholden. Our firm will learn how much (or little) they paid in taxes, and
whether they utilized loopholes in tax law to avoid paying those taxes. It sheds light on
whether they conducted activity that they have criticized on the campaign trail.
8. Availability of Financial Statements in previous year
The financial statements of a business provide a formal record of its financial activities. As a
business owner, your financial statements offer valuable information about your company's
overall financial position, such as areas of financial strength or weakness. Financial
statements are important to tax authorities to ensure the accuracy of taxes and additional
duties declared and paid by your company.
Uses for Financial Statements
Since all the financial statements of business are related, together they provide a complete
picture of the financial health of the company. Financial statements are useful for tracking
the company's growth and planning its future direction. Accurate financial statements are
important to tax authorities for easy assessment of your financial situation. They provide
 succinct information your accountant, tax preparer or the Internal Revenue Service (IRS) to
evaluate your tax situation.
Parties Involved With Financial Statements
On the inside, managers, employees, owners, shareholders and anyone directly connected to
your company may be involved with your financial statements. Externally, banks, investors,
taxing authorities and other parties may require your company's financial information for a
variety of reasons, such as financing or prospective investments. The company's financial
statements are an invaluable tool for making business decisions, generating an annual report
for shareholders and for tax purposes. Tax authorities will use the statements to determine
your company's tax liability.
Auditing/Legal Issues
An audit is performed by an independent accountant or auditing firm on behalf of a tax
authority. Companies may perform an annual internal audit as a duty to current shareholders,
as well as to ensure the accuracy and fairness of all financial statements. An audit protects
against the misuse or misappropriation of funds and allows for legal action to take place if
funds are misused. It is likely an auditor will require access to all of the company's primary
financial statements.
9. Type of opinion the financial statements rendered (unqualified)
 Why it is important?
An audit report is an appraisal of a small business’s complete financial status. Completed by
an independent accounting professional, this document covers a company’s assets and liabilities,
and presents the auditor’s educated assessment of the firm’s financial position and future. Audit
reports are required by law if a company is publicly traded or in an industry regulated by the
Securities and Exchange Commission (SEC). Companies seeking funding, as well as those
looking to improve internal controls, also find this information valuable. There are four types of
audit reports.
Unqualified Opinion
Often called a clean opinion, an unqualified opinion is an audit report that is issued when an
auditor determines that each of the financial records provided by the small business is free of
any misrepresentations. In addition, an unqualified opinion indicates that the financial
records have been maintained in accordance with the standards known as Generally Accepted
Accounting Principles (GAAP). This is the best type of report a business can receive.
Typically, an unqualified report consists of a title that includes the word “independent.” This
is done to illustrate that it was prepared by an unbiased third party. The title is followed by
the main body. Made up of three paragraphs, the main body highlights the responsibilities of
the auditor, the purpose of the audit and the auditor’s findings. The auditor signs and dates
the document, including his address.
(Ref. AU Section 315.Communications Between Predecessor and Successor Auditors. (.21 - .22)
Discovery of Possible Misstatements in Financial Statements Reported on by a Predecessor
Auditor)
.21 If during the audit or reaudit, the successor auditor becomes aware of information that leads
him or her to believe that financial statements reported on by the predecessor auditor may require
revision, the successor auditor should request that the client inform the predecessor auditor of the
situation and arrange for the three parties to discuss this information and attempt to resolve the
matter. The successor auditor should communicate to the predecessor auditor any information
that the predecessor auditor may need to consider in accordance with section 561, Subsequent
Discovery of Facts Existing at the Date of the Auditor's Report, which sets out the procedures
that an auditor should follow when the auditor subsequently discovers facts that may have
affected the audited financial statements previously reported on. fn 9
Qualified Opinion
In situations when a company’s financial records have not been maintained in accordance with
GAAP but no misrepresentations are identified, an auditor will issue a qualified opinion. The
writing of a qualified opinion is extremely similar to that of an unqualified opinion. A qualified
opinion, however, will include an additional paragraph that highlights the reason why the audit
report is not unqualified.
Adverse Opinion
The worst type of financial report that can be issued to a business is an adverse opinion. This
indicates that the firm’s financial records do not conform to GAAP. In addition, the financial
records provided by the business have been grossly misrepresented. Although this may occur by
error, it is often an indication of fraud. When this type of report is issued, a company must
correct its financial statement and have it re-audited, as investors, lenders and other requesting
parties will generally not accept it.
Disclaimer of Opinion
On some occasions, an auditor is unable to complete an accurate audit report. This may occur for
a variety of reasons, such as an absence of appropriate financial records. When this happens, the
auditor issues a disclaimer of opinion, stating that an opinion of the firm’s financial status could
not be determined.
10.Litigation
Litigation law refers to the rules and practices involved in resolving disputes in the court
system. The term is often associated with tort cases, but litigation can come about in all kinds
of cases, from contested divorces, to eviction proceedings. Likewise, most people think of
litigation as synonymous with trial work, but the litigation process begins long before the
first witness is called to testify. In fact, the vast majority of litigated cases never reach the
inside of a courtroom.
For those looking to determine if a legal matter falls within the category of litigation,
consider whether a lawsuit would solve the matter. If so, the case qualifies as litigation, and
an attorney practicing in this area should be retained. If there is no potential for a lawsuit,
because there is no controversy or because all of the parties are in agreement, then the issue
cannot be described as litigation. Most non-litigation matters, such as property sales, estate
planning, business formations, etc., are handled by attorneys practicing “transactional” law.
Lawsuits: Check out any lawsuits currently pending among the owners of the business. Talking
to the parties of the lawsuits may lead you to vast amounts of insider info that will affect your
decision.
Overly litigious (litigation) as a plaintiff or defendant – signals a party who is not afraid to
sue, presents a risk of non-payment or who may not honour their agreements.
11.Officers of the prospective client
Identifying which prospects will be subject to an investigation. Here, the prospective client’s
firm is asked to identify where the largest risk of exposure exists and begin screening
prospects in those areas. The criteria used for screening a particular prospect are typically
based upon the following factors: (1) size of the engagement in terms of cost volume; (2)
whether the company is publicly traded; (3) whether the company operates in the firm's niche
markets; (4) whether the company operates in certain high risk industries (construction, trash
hauling, scrap, gaming); and (5) the familiarity of the company to the key members of the
firm.
Here are some categories of clients that are candidates for investigation:
• Publicly traded companies
• Audit clients
• Tax clients
• Clients in highly regulated industries
• Clients in traditionally questionable industries(e.g., construction, labor, scrap dealers,
gaming, etc.)
Determine which searches you want done. A business background investigation typically
includes an inquiry into public record sources for the company and its principals. The goal is
to verify the legitimacy of the company, the identity of the key officers and the integrity of
those officers. Depending on the nature and scope of the investigation, the following records
may be reviewed:
• Secretary of State Records
• Criminal Records Search (State and/or Federal Courts)
• Address History Verification
• Business Credit Review
• Bankruptcy Records and Tax Liens
• Education/Professional License Verification for Principals
• Civil Court Records (State and/or Federal Courts)
• National Proprietary Criminal Database Search
• National Newspaper Indices
 • National Security Database Searches
• Related Company Reports
• Regulatory records, including records from the SEC, EPA, FTC, AICPA or other regulatory
or professional body
• Specialized searches, including facilities and location verification.
WHY?
 Ensure the engagement meets the legal requirement of the relevant jurisdictions
 View prospective client due diligence as a necessary step for reducing risk.
 The accounting profession is under increasing scrutiny by state and federal regulators,
requiring firms to become more selective with the entities and people with whom they
do business.
Privacy laws and regulations are always a concern whenever investigating any individual.
However, investigations for commercial purposes are generally unregulated, provided there
is a legitimate business purpose.
All reports should be held in a confidential file and disbursed to only those with a legitimate
need to know. The unauthorized disclosure of the information is still subject to common law
privacy rules in every state.
12.Independence Problems
The audit engagement team
Each audit engagement is the responsibility of an audit engagement partner, whose name and
role is communicated to the key members of the client’s management team and its governance
leaders.
The audit engagement partner is responsible for: determining the nature, timing and extent of the
appropriate auditing procedures required to complete the audit in accordance with Deloitte
policies and the applicable auditing standards; supervising the audit engagement team to ensure
that all audit services are performed effectively; issuing an audit report according to Deloitte
policies; and engaging in constructive dialogue with those charged with governance to discuss
our audit and its findings..
A key responsibility of the audit engagement partner is to staff the audit engagement team so that
it collectively has the appropriate capabilities, competencies and time to perform the audit given:
• The size and complexity of the entity’s business
• The financial reporting framework used in preparing the financial statements
• Applicable professional considerations, including any possible conflicts of interest
or independence matters, and
• The qualifications and experience of individual professional staff.
With the increasing complexity and globalization of today’s business structures, an important
consideration for the audit engagement partner is determining whether there is a need to involve
experts in the engagement. In the large portion of engagements where expert involvement is
required, the engagement partner is responsible to identify and direct the work of experts, and
then carefully consider the results of the expert’s work and their implication on our overall audit
conclusions. All of our audit engagement teams have access to experts in areas such as technical
accounting, control assurance, valuation, tax, actuarial sciences, fraud and other matters.
Highly qualified audit practitioners, an effective and efficient audit methodology and quality
control procedures are clearly important to professional excellence and the delivery of a high
quality audit. Also important, however, are an auditor’s personal ethical attributes, professional
values and behaviour. At Deloitte, we have implemented policies and procedures designed to
foster a culture of integrity and quality.
The importance we place on people’s adherence to our Code of Conduct, independence policies
and procedures and a commitment to accepting only reputable clients is reflected in the “tone at
the top” set by our firm’s senior leaders. They take leading roles in overseeing these policies and
procedures, communicating to our people about their importance to our professional practice,
and emphasizing each individual’s responsibility to understand and comply with these
requirements in order to maintain a strong culture of ethical integrity and independence. Ethics
At Harer & Jones, our Ethical principles define the behaviours expected of the firm’s partners,
professional staff and support staff. These principles, together with firm policies and professional
and regulatory requirements, form the basis of the firm’s Code of Conduct. The Code of Conduct
is aligned with the requirements set out in Parts A and B of the Code of Ethics for Professional
Accountants, which is issued by the International Ethics Standards Board for Accountants, a
standard-setting body ofthe International Federation of Accountants
Partner & Chief Executive, has responsibility for our ethics program with direct access to the
Executive and Board of Directors.
Ref:
Public Company Accounting Oversight Board ("PCAOB")
Interpretations under Rule 102
—Integrity and Objectivity
.02
102-1—Knowing misrepresentations in the preparation of financial statements or records. A
member shall be considered to have knowingly misrepresented facts in violation of rule 102 [ET
section 102.01] when he or she knowingly—
Makes, or permits or directs another to make, materially false and misleading entries in an
entity’s financial statements or records; or
Fails to correct an entity’s financial statements or records that are materially false and misleading
when he or she has the authority to record an entry; or
Signs, or permits or directs another to sign, a document containing materially false and
misleading information.
[Revised, effective May 31, 1999, by the Professional Ethics Executive Committee.]
.03
102-2—Conflicts of interest. A conflict of interest may occur if a member performs a
professional service for a client or employer and the member or his or her firm has a relationship
with another person, entity, product, or service that could, in the member's professional
judgment, be viewed by the client, employer, or other appropriate parties as impairing the
member's objectivity. If the member believes that the professional service can be performed with
objectivity, and the relationship is disclosed to and consent is obtained from such client,
employer, or other appropriate parties, the rule shall not operate to prohibit the performance of
the professional service. When making the disclosure, the member should consider Rule 301,
Confidential Client Information [ET section 301.01].
Certain professional engagements, such as audits, reviews, and other attest services, require
independence. Independence impairments under rule 101 [ET section 101.01], its interpretations,
and rulings cannot be eliminated by such disclosure and consent.
The following are examples, not all-inclusive, of situations that should cause a member to
consider whether or not the client, employer, or other appropriate parties could view the
relationship as impairing the member's objectivity:
 A member has been asked to perform litigation services for the plaintiff in connection
with a lawsuit filed against a client of the member's firm.

 A member has provided tax or personal financial planning (PFP) services for a married
couple who are undergoing a divorce, and the member has been asked to provide the
services for both parties during the divorce proceedings.

 In connection with a PFP engagement, a member plans to suggest that the client invest in
a business in which he or she has a financial interest.

 A member provides tax or PFP services for several members of a family who may have
opposing interests.

 A member has a significant financial interest, is a member of management, or is in a

position of influence in a company that is a major competitor of a client for which the
member performs management consulting services.

 A member serves on a city's board of tax appeals, which considers matters involving
several of the member's tax clients.

 A member has been approached to provide services in connection with the purchase of
real estate from a client of the member's firm.

 A member refers a PFP or tax client to an insurance broker or other service provider,
which refers clients to the member under an exclusive arrangement to do so.

 A member recommends or refers a client to a service bureau in which the member or

partner(s) in the member's firm hold material financial interest(s).

 The above examples are not intended to be all-inclusive.

[Replaces previous interpretation 102-2, Conflicts of Interest, August 1995, effective August 31,
1995.]

13.Reason’s why the previous accounting is replaced

Rapid Growth- Lon Star’s income in 19X1 increase to 31.17% ((576,500-439,500)/439,500)
which is 137,000.
Plans for the future- Lone Star’s Board of directors anticipated the business to Expand and
able to produce BOOTS and BELTS, which include complex accounting and data
processing.
Auditor’s responsibility(MOORE’S Responsibility)
PROFESSIONAL SKEPTICISM
SAS no. 99 reminds auditors they need to overcome some natural tendencies—such as
overreliance on client representations—and biases and approach the audit with a skeptical
attitude and questioning mind. Also essential: The auditor must set aside past relationships
and not assume that all clients are honest. The new standard provides suggestions on how
auditors can learn how to adopt a more critical, skeptical mind-set on their engagements,
particularly during audit planning and the evaluation of audit evidence.
Fraud
Auditors will enter a much expanded arena of procedures to detect fraud as they implement
SAS no. 99. The new standard aims to have the auditor’s consideration of fraud seamlessly
blended into the audit process and continually updated until the audit’s completion. SAS no.
99 describes a process in which the auditor (1) gathers information needed to identify risks of
material misstatement due to fraud, (2) assesses these risks after taking into account an
evaluation of the entity’s programs and controls and (3) responds to the results. Under SAS
no. 99, you will gather and consider much more information to assess fraud risks than you
have in the past. (For the text of the new standard, see Official Releases, page 105.)

14.Permission to contact the predecessor auditor

The firm obtain sufficient appropriate evidential matter to afford a reasonable basis for
expressing an opinion on the financial statements he or she has been engaged to audit,
including evaluating the consistency of the application of accounting principles. The audit
evidence used in analyzing the impact of the opening balances on the current-year financial
statements and consistency of accounting principles is a matter of professional judgment.
Such audit evidence may include the most recent audited financial statements, the
predecessor auditor's report thereon,fn 8 the results of inquiry of the predecessor auditor, the
results of the successor auditor's review of the predecessor auditor's working papers relating
to the most recently completed audit, and audit procedures performed on the current period's
transactions that may provide evidence about the opening balances or consistency.
The contact partner requests that the client authorize the predecessor auditor to allow a
review of the predecessor auditor's working papers. The predecessor auditor may wish to
request a consent and acknowledgment letter from the client to document this authorization
in an effort to reduce misunderstandings about the scope of the communications being
authorized
Ref:
AU Section 315
Communications Between Predecessor and Successor Auditors
01This section provides guidance on communications between predecessor and successor
auditors when a change of auditors is in process or has taken place. It also provides
communications guidance when possible misstatements are discovered in financial
statements reported on by a predecessor auditor. This section applies whenever an
independent auditor is considering accepting an engagement to audit or reaudit (see
paragraph .14 of this section) financial statements in accordance with generally accepted
auditing standards, and after such auditor has been appointed to perform such an
engagement.
.02For the purposes of this section, the term predecessor auditor refers to an auditor who (a)
has reported on the most recent audited financial statementsfn 1 or was engaged to perform
but did not complete an audit of the financial statementsfn 2 and (b) has resigned, declined to
stand for reappointment, or been notified that his or her services have been, or may be,
terminated. The term successor auditor refers to an auditor who is considering accepting an
engagement to audit financial statements but has not communicated with the predecessor
auditor as provided in paragraphs .07 through .10 and to an auditor who has accepted such an
engagement. [As amended, effective for audits of financial statements for periods ending on
or after June 30, 2001, by Statement on Auditing Standards No. 93.]
Change of Auditors
.03An auditor should not accept an engagement until the communications described in
paragraphs .07 through .10 have been evaluated.fn 3 However, an auditor may make a
proposal for an audit engagement before communicating with the predecessor auditor.
The auditor may wish to advise the prospective client (for example, in a proposal) that
acceptance cannot be final until the communications have been evaluated.
.04Other communications between the successor and predecessor auditors, described in
paragraph .11, are advisable to assist in the planning of the engagement. However, the timing
of these other communications is more flexible. The successor auditor may initiate these
other communications either prior to acceptance of the engagement or subsequent thereto.
.05When more than one auditor is considering accepting an engagement, the predecessor
auditor should not be expected to be available to respond to inquiries until a successor
auditor has been selected by the prospective client and has accepted the engagement
subject to the evaluation of the communications with the predecessor auditor as
provided in paragraphs .07 through .10.
.06The initiative for communicating rests with the successor auditor. The communication
may be either written or oral. Both the predecessor and successor auditors should hold in
confidence information obtained from each other. This obligation applies whether or not the
successor auditor accepts the engagement.
 [The following matter subject to inquiry is effective for audits of fiscal years beginning on or
after December 15, 2014. The release adopting this provision, PCAOB Release No. 2014-
002PDF, states that "[t]he amendments to AU sec. 315 require the auditor to make inquiries
regarding the predecessor auditor's understanding of the company's relationships and
transactions with related parties and significant unusual transactions." The PCAOB staff will
recommend consolidating this matter with the preceding list of matters subject to inquiry in
future standard setting.]
The predecessor auditor's understanding of the nature of the company's relationships and
transactions with related parties and significant unusual transactions.fn 5A
.10The predecessor auditor should respond promptly and fully, on the basis of known facts,
to the successor auditor's reasonable inquiries. However, should the predecessor auditor
decide, due to unusual circumstances such as impending, threatened, or potential litigation;
disciplinary proceedings; or other unusual circumstances, not to respond fully to the
inquiries, the predecessor auditor should clearly state that the response is limited. If the
successor auditor receives a limited response, its implications should be considered in
deciding whether to accept the engagement.
Other Communications
.11[The following paragraph is effective for audits of fiscal years beginning on or after
December 15, 2014. See PCAOB Release No. 2014-002PDF. For audits of fiscal years
beginning before December 15, 2014, click here.]
The successor auditor should request that the client authorize the predecessor auditor to allow
a review of the predecessor auditor's working papers. The predecessor auditor may wish to
request a consent and acknowledgment letter from the client to document this authorization
in an effort to reduce misunderstandings about the scope of the communications being
authorized.fn 6 It is customary in such circumstances for the predecessor auditor to make
himself or herself available to the successor auditor and make available for review certain of
the working papers. The predecessor auditor should determine which working papers are to
be made available for review and which may be copied. The predecessor auditor should
ordinarily permit the successor auditor to review working papers, including documentation of
planning, internal control, audit results, and other matters of continuing accounting and
auditing significance, such as the working papers containing an analysis of balance sheet
accounts, those relating to contingencies, related parties, and significant unusual transactions.
Also, the predecessor auditor should reach an understanding with the successor auditor as to
the use of the working papers.fn 7 The extent, if any, to which a predecessor auditor permits
access to the working papers is a matter of judgment.
Successor Auditor's Use of Communications
.12[The following paragraph is effective for audits of fiscal years beginning on or after
December 15, 2010. See PCAOB Release No. 2010-004PDF. For audits of fiscal years
beginning before December 15, 2010, click here.]
The successor auditor must obtain sufficient appropriate evidential matter to afford a
reasonable basis for expressing an opinion on the financial statements he or she has been
engaged to audit, including evaluating the consistency of the application of accounting
 principles. The audit evidence used in analyzing the impact of the opening balances on the
current-year financial statements and consistency of accounting principles is a matter of
professional judgment. Such audit evidence may include the most recent audited financial
statements, the predecessor auditor's report thereon,fn 8 the results of inquiry of the
predecessor auditor, the results of the successor auditor's review of the predecessor auditor's
working papers relating to the most recently completed audit, and audit procedures
performed on the current period's transactions that may provide evidence about the opening
balances or consistency. For example, evidence gathered during the current year's audit may
provide information about the realizability and existence of receivables and inventory
recorded at the beginning of the year. The successor auditor may also apply appropriate
auditing procedures to account balances at the beginning of the period under audit and to
transactions in prior periods.
.13The successor auditor's review of the predecessor auditor's working papers may affect the
nature, timing, and extent of the successor auditor's procedures with respect to the opening
balances and consistency of accounting principles. However, the nature, timing, and extent of
audit work performed and the conclusions reached in both these areas are solely the
responsibility of the successor auditor. In reporting on the audit, the successor auditor should
not make reference to the report or work of the predecessor auditor as the basis, in part, for
the successor auditor's own opinion.

15.Condition of the books(based on inquiry)

The firm design and perform audit procedures that are appropriate in the circumstances for the
purpose of obtaining sufficient appropriate audit evidence.” Evidence is anything that can make
a person believe that a fact, proposition, or assertion is true or false. Audit evidence is all of the
information used by the auditor in arriving at the conclusions on which the audit opinion is
based. Audit evidence includes the accounting records and other information underlying the
financial statements.
Audit evidence is different from the legal evidence required by forensic accounting. In a
civil lawsuit, evidence must be strong enough to incline a person to believe one side or the other.
In a criminal case, evidence must establish proof of a crime beyond a reasonable doubt. Audit
evidence provides only reasonable assurance.

Accounting Records
Accounting records, the primary basis of audit evidence, generally include the records of
initial entries and supporting records. Initial entries include point of sales transactions, electronic
data interchange (EDI), electronic fund transfers (EFT), contracts, invoices, shipping notices,
purchase orders, sales orders, the general and subsidiary ledgers, journal entries, and other
adjustments to the financial statements. Examples of supporting records are computer files,
databases, worksheets, spreadsheets, computer and manual logs, computations, reconciliations,
and disclosures.
Most accounting records are initiated, recorded, processed, and reported in electronic form
such as a database. For the larger companies, accounting records are part of enterprise resource
planning (ERP) which is a system that integrates all aspects of an organization’s activities (such
as database maintenance, financial reporting, operations and compliance) into one accounting
information system.
Evidence Gathering Techniques
An auditor obtains audit evidence by one or more of the following evidence gathering
techniques:
 inquiry;
 observation;
 inspection (of tangible assets, records, or documents);
 recalculation;
 reperformance;
 confirmation;
 analytical procedures.
AUDIT PROCEDURES (EVIDENCE GATHERING TECHNIQUES)
Technique Definition
Inquiry Consists of seeking information of
knowledgeable persons inside or outside
the entity.
Observation Consists of looking at a process or
procedure being performed by others.
Inspection Consists of examining records,
documents, or tangible assets.
Recalculation Consists of checking the arithmetical
accuracy of source documents and
accounting records or performing
independent calculations.
Reperformance Consists of independent execution of
procedures or controls that were
originally performed as part of the
entity’s internal control.
Confirmation Consists of response to an inquiry to
corroborate information contained in the
accounting records.
Analytical Consist of the analysis of significant
procedures ratios and trends including the resulting
investigation of fluctuations and
relationships that are inconsistent with
other relevant information or that
deviate from predictable amounts.
Examples
Obtaining written or oral information from
the client in response to specific questions
during the audit.
Observation by the auditor of the counting of
inventories by entity’s personnel, site visit at
the client’s facilities.
Reviewing sales orders, sales invoices,
shipping documents, bank statements,
customer return documents, customer
complaint letters, etc.
Extending sales invoices and inventory,
adding journals and subsidiary records,
checking the calculation of depreciation
expense and prepaid expense.
Use CAATs to check controls recorded in the
database. Reperform aging of accounts
receivable.
Used to confirm the existence of accounts
receivable and accounts payable, verify bank
balances with banks, cash surrender value of
life insurance, notes payable with lenders or
bondholders.
Calculating trends in sales over the past few
years, comparing net profit as a percentage of
sales in current year with the percentage of
the preceding year, comparing client current
ratio to the industry current ratio, and
comparing budgets to actual results.
Inquiry
The most frequently used technique for evidence gathering is inquiry. Inquiry consists of
seeking information of knowledgeable persons inside or outside the entity. Inquiry of the client is
the obtaining of written or oral information from the client in response to specific questions
during the audit. Inquiries may range from formal written inquiries, addressed to third parties, to
informal oral inquiries, addressed to persons inside the entity.
Responses to inquiries may provide the auditor with information not previously possessed or
with corroborative audit evidence. Alternatively, responses might provide information that
differs significantly from other information that the auditor has obtained, for example,
information regarding the possibility of management override of controls. In some cases,
responses to inquiries provide a basis for the auditor to modify or perform additional audit
procedures.

Corroboration
In a typical audit, the largest amount of audit evidence is obtained from client inquiry, but it
cannot be regarded as conclusive because it is not from an independent source and might be
biased in the client’s favor. Therefore, the auditor must gather evidence to corroborate inquiry
evidence by doing other alternative procedures. For example, the auditor generally makes
inquiries about internal control, accounting entries, and procedures. Later, for corroboration, the
auditor may observe the control procedures (observation) or review related documentation
(inspection).
Observation
Observation consists of looking at a process or procedure being performed by others, for
example, the observation by the auditor of the counting of inventories by the entity’s personnel
or observation of internal control procedures that leave no audit trail. Observation provides audit
evidence about the performance of a process or procedure, but is limited to the point in time at
which the observation takes place and by the fact that the act of being observed may affect how
the process or procedure is performed.
Sufficient evidence is rarely obtained through observation alone. Observation techniques
should be followed up by other types of evidence gathering procedures. For example,
observation evidence such as a quick visual inspection of a printing press may be corroborated
by either a thorough and detailed inspection of the printing press by an auditor’s expert mechanic
or specialist, or inspection of documents and records relating to the equipment, both of which are
evidence gathered by inspection techniques.

Observation of Physical Inventory Procedures

A good example of an observation audit procedure is count of physical inventory. ISA 501
discusses the inspection evidence gathering technique for physical inventory counting. It states:
“If inventory is material to the financial statements, the auditor should obtain sufficient
appropriate audit evidence regarding its existence and condition of the inventory by attendance at
physical inventory counting.
The attendance by the auditor will enable him to evaluate management’s instructions and
procedures for recording and controlling the results of the entity’s physical inventory counting;
observe the performance of management’s count procedures; inspect the inventory; perform test
counts; and perform audit procedures over the entity’s final inventory records to determine
whether they accurately reflect actual inventory count results.
16.Special accounting and auditing problems
Special Accounting:
 Because of Rapid growth it uses complex accounting and because of going wide or
bigger of the company and product line.

 Tax Return Preparation

 Tax planning

 Consultation in Electronic Data Processing (EDP) area

Investigative Red Flags (auditing Problems)
1. Frequent changes of professional service providers. Could mean a firm is opinion shopping.
2. Poor financial history. Prior failed business or bankruptcy could indicate a person who takes
unjustifiable risks.
3. Work/ Business History. Unstable address, employment or professional history.
4. Overly litigious as a plaintiff or defendant. Signals a party who is not afraid to sue, presents a
risk of
non-payment or who may not honor their agreements.
5. High turnover in upper management. Often indicates lack of internal stability.
6. Short operating history. Where were the principals before they were at the current firm?
7. Foreign operations or plants. Hoping you won’t check whether there is a plant in Tunisia.
8. Reluctance to provide references. If they are reluctant to disclose information now, how will
they be
once they are a client?
9. Pressure to get deal quickly. Often a sign that they don’t want you looking into their
background.
10. Regulatory Actions. Often indicates poor internal controls or a management team ignoring
internal
controls.

17.Reference of the BANKS (integrity)

The firm only receive references from independent entities that has a high value of ethic and
integrity.
Importance of Integrity in Financial Careers
It may seem that careers in finance mostly center around technical skills such as math,
economics and the ability to speculate on market trends. Although these abilities are crucial,
financial careers also require personal strengths and characteristics. This is true at all levels, and
across different industries. Personal integrity is an invaluable quality for those working in
finance.
Company Function
First of all, financial institutions need a strong base of integrity in their employees. Whether it's a
bank or a mutual fund, successful operation of a financial company depends on the moral
compass of those involved. For example, in order to generate a profit, an investment firm needs
to operate on the basis of the most accurate and helpful information possible. At every level,
decisions need to be made in the best interest of the company as a whole, rather than based on
the desires of one employee's personal preferences. When greed and dishonesty prevail, financial
companies eventually go bankrupt.
Publicity
Integrity is an effective operational principle for any employee and any financial institution as a
whole. Not only will the embrace of integrity help the team work together efficiently, it will also
be recognized by the wider market. Whether it's a bank, a hedge fund or a loan provider,
customers will be more likely to invest in a company that operates according to principles of
integrity. No one would want to put his money into a company that suffered a public scandal
about misusing funds. On the other hand, investors will gravitate toward companies that display
their integrity by offering the best possible services.
Moving Up
Integrity at work in the financial industry is a crucial way for qualified employees to distinguish
themselves and move up in the company. Employees that work hard whether they are being
observed or not, and whether they think they will be given credit or not, will eventually be
recognized. Integrity is a vital leadership quality that recruiters look for in potential leaders
because it is infectious. A leader who helps others, acts in the best interest of the company, does
the job the way it should be done and practices honesty will have a positive effect on the entire
work environment. Integrity is one of the most directly valuable qualities of a leader.
18.
a. Publicly held audit clients (PHAC)
Publicly Held Audit Client listing (PHAC) which is a tool to assist all partners, directors and
managers to identify prohibited security holdings; (according to KMPG)
According to SEC:
All About Auditors:
What Investors Need to Know
When companies register their securities with the U.S. Securities and Exchange Commission and
file annual and other reports, they must disclose important financial information. In many cases,
this information must be audited. This publication describes the role of the auditor in reviewing a
company's financial books and records.
What Is an Auditor?
An auditor is an independent certified public accountant who examines the financial statements
that a company's management has prepared. The federal securities laws require publicly held
companies that file reports with the SEC to submit financial statements that are accurate,
truthful, and complete and prepared according to a set of accounting standards called "Generally
Accepted Accounting Principles" (or "GAAP"). Many of these financial statements - including
those in the company's annual report and those provided to shareholders in connection with the
solicitation of proxies for annual meetings - must be examined and reported on by an
independent auditor.
b. Form 8-k

In addition to filing annual reports on Form 10-K and quarterly reports on Form 10-Q, public
companies must report certain material corporate events on a more current basis. Form 8-K is the
“current report” companies must file with the SEC to announce major events that shareholders
should know about.
Form 10-K
The federal securities laws require public companies to disclose information on an ongoing basis.
For example, domestic companies must submit annual reports on Form 10-K, quarterly reports
on Form 10-Q, and current reports on Form 8-K for a number of specified events and must
comply with a variety of other disclosure requirements.
The annual report on Form 10-K provides a comprehensive overview of the company's business
and financial condition and includes audited financial statements. Although similarly named, the
annual report on Form 10-K is distinct from the “annual report to shareholders,” which a
company must send to its shareholders when it holds an annual meeting to elect directors.
Following are the deadlines for companies to file Forms 10-K and 10-Q:
Form 10-Q
The federal securities laws require publicly traded companies to disclose information on an
ongoing basis. For example, domestic issuers must submit annual reports on Form 10-K,
quarterly reports on Form 10-Q, and current reports on Form 8-K for a number of specified
events and must comply with a variety of other disclosure requirements.
The Form 10-Q includes unaudited financial statements and provides a continuing view of the
company's financial position during the year. The report must be filed for each of the first three
fiscal quarters of the company's fiscal year.
Companies have four business days to file a Form 8-K for the events specified in the items in
Sections 1-6 and 9 above. However, if the issuer is furnishing a Form 8-K solely to satisfy its
obligations under Regulation FD, then the due date might be earlier. (Issuers with questions
 concerning compliance with Regulation FD should consult with counsel or the SEC’s Division
of Corporation Finance.)
For more information on how to read a Form 8-K, including more detailed descriptions of some
of the events required to be disclosed on Form 8-K, you can read our investor bulletin on How to
Read an 8-K. You can find a company’s Form 8-K filings on the SEC’s EDGAR database. We
have posted information on our website on how to use the EDGAR database. You may wish to
read answers to Frequently Asked Questions about the implementation and interpretation of the
Form 8-K items, produced by the staff of the Division of Corporation Finance.
c. Who accountant the writes the letter to accompany the form 8-k

If we deliver to the former client a letter responsive to the Form 8-K furnished us, our ... Clearance
of the accountants' letter to accompany the former client's Form
d. Who are the underwriters

"Underwriter" is a person who guarantees on a firm commitment and/or declared best effort basis the
distribution and sale of securities of any kind by another company. (Section 3. Definition of Terms.
(3.15.) of REPUBLIC ACT NO. 8799 THE SECURITIES REGULATION CODE)
The Underwriting Agreement contemplates that the Notes will be issued under an Indenture dated as
of April 17, 2012 (as supplemented by Supplemental Indenture No. 9 to be dated December 4, 2015
and the other prior supplemental indentures thereto) among the Company, the Guarantors, and
Manufacturers and Traders Trust Company, as trustee.
The Underwriters and their respective affiliates have performed, and may in the future perform,
various commercial banking, investment banking, hedging, brokerage and advisory services for the
Company and its subsidiaries for which they have received, and will receive, customary fees and
expenses.

19.Outstanding securities and long term financing:

What is 'Long-Term Debt'
Long-term debt consists of loans and financial obligations lasting over one year. Long-term
debt for a company would include any financing or leasing obligations that are to come due
in a greater than 12-month period. Long-term debt also applies to governments: nations can
also have long-term debt.
Why Incur Long-Term Debt?
A company takes on long-term debt in order to acquire immediate capital. For
example, startup ventures require substantial funds to get off the ground and pay for basic
expenses, such as research expenses, Insurance, License and Permit Fees, Equipment and
Supplies and Advertising and Promotion. All businesses need to generate income, and long-
term debt is an effective way to get immediate funds to finance and operations.
 Aside from need, there are many factors that go into a company's decision to take on more or
less long-term debt. During the Great Recession, many companies learned the dangers of
relying too heavily on long-term debt. In addition, stricter regulations have been imposed to
prevent businesses from falling victim to economic volatility. This trend affected not only
businesses, but also individuals, such as homeowners.

20.Special comments
Consist of conclusions, recommendations, observation, solutions and other information needed.
Other References:
IFAC. 2012. International Standards on Auditing 500 (ISA 500), “Audit Evidence”. paragraph 6.
Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services
Pronouncements Part 1 2012 Edition. International Federation of Accountants. New York.

Forensic accounting is the application of accounting methods and financial techniques to collect civil and criminal
legal evidence.

Electronic data interchange (EDI) is the electronic transmission of documents between organizations in a machine-
readable form. EDI allows output of one system to be electronically transmitted and input into another system.
Electronic funds transfer (EFT) is a transfer of funds between two or more organizations or individuals using
computer and network technology.

IFAC. 2012. International Standards on Auditing 501 (ISA 501). “Audit Evidence—Specific
Considerations for Selected Items”. paragraph 4. Handbook of International Quality Control, Auditing,
Review, Other Assurance, and Related Services Pronouncements Part 1 2012 Edition. International
Federation of Accountants. New York.
REQUIREMENT #3: INDEPENDENCE RESOLUTION
On our initial communication with our potential client the Lone Star Western Apparel Co., we
were immediately given knowledge by the company’s president Mr. James Wiggins about the
people that holds the interest or the stocks of the company. Through our policy number 2 letter D,
we were able to tell that there was no probable self-interest threat in this engagement because the
owners of the corporation are not affiliated to any partners or staffs that we have in Harer and
Jones Accounting Firm.
We are also able to communicate with the prospective client’s controller, Mrs. Donna Wiles.
Because of her hospitality, she unintentionally told us that her daughter Ms. Shaine Wiles is
currently an associate staff on our company. With that statement of hers, of course it is our duty to
confirm and to take this into consideration. We are able to confirm that we are facing a potential
familiarity threat that would probably affect our independence towards our client. Through or
company policy on independence under policy number 10, we were able to confirm that Shaine
Wiles was indeed Donna Wiles’ daughter. The evidences that we gathered to prove that this could
possibly end up to an independence threat are the birth certificate she submitted when she was still
applying in the firm and we also had it from Ms. Wiles herself that she is indeed the daughter of
the controller of Lone Star because it is reported in the independence questionnaire accomplished
by her and it is stipulated in the independence questionnaire that if any situations involving
independence issues develop as relates to current clients or clients obtained subsequent to the date
this document is signed, each of us would tell it immediately and directly to the firm’s president.
To eliminate the threat or if cannot be eliminated, at least to reduce the threat to an acceptable
level, we are going to prohibit (absolute prohibition) the controller’s daughter to work on this
audit/project. Reassignment to Ms. Wiles to another audit team is also considered so that she would
still be able to work on other engagement services we accepted from other companies. Terminating
Ms. Wiles is not part of the considerations we’re looking at because there’s no need to actually
fire her from the firm because there was no connivance detected to any of her works. And she was
actually competent on her works so we believe that she is qualified for the job as our staff. Through
the considerations the management come up with, our independence in appearance and in fact
would not be compromised.
 Prepared by: MICHAEL ALIPAYO

Harer& Jones, CPAs

Certified Public Accountants
Big City, USA

April 25, 19x2

Mr. James R. Wiggins

President and Chairman of the Board
Lone Star Western Apparel Co.
3810 Longhorn Drive
Big City, USA

Dear Sir:

You have requested that we audit the financial statements of Lone Star Western Apparel Co. which
comprise the balance sheet as at December 31, 19x1, and the income statement and statement of changes
in equity for then ended, and the summary of significant accounting policies and other explanatory notes.
Additional services like tax planning, tax return preparation and EDP Consulting are considered in this
scope. We are pleased to confirm our acceptance and our understanding of this audit engagement and non-
assurance engagement by means of this letter. Our audit will be conducted in accordance with the objective
of our expressing an opinion on the financial statements.

Auditor’s Responsibilities regarding the Audit of the Financial Statements

We will conduct our audit in accordance with Philippine Standards on Auditing. Those standards require
that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance
whether the financial statements are free from material misstatement. The audit involves performing
procedures to obtain evidence about the amounts and disclosures in the financial statements. The procedures
selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement
of the financial statements.

We wish to state in this regard that the primary objective of our audit is to enable us to express an opinion
on the Company’s financial statements. Because of the test nature and other inherent limitations of an audit,
there are an unavoidable risks that even some material errors or irregularities, including fraud or
defalcations, if they exist, may not be detected. However, we will inform you of any such matters that may
come to our attention.

In making our risk assessment, we consider internal control relevant to the entity’s preparation and
presentation of the financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal
control.

Auditor’s Responsibilities regarding Tax Preparation and Planning Services

We will use professional judgment in resolving questions where the tax law is unclear, or where there may
be conflicts between the taxing authorities’ interpretations of the law and other supportable positions.
Unless otherwise instructed by you in writing, we will resolve such questions in your favor whenever
possible.

We will provide a complimentary review of any prior year income tax returns that we have not prepared,
and inform you of any errors or omissions that we are aware of. With your permission, we will then prepare
the amended return at an additional charge if it is necessary to claim additional refunds and/or minimize
any penalties and interest you may be assessed as a result of owing additional taxes.

In the event we are providing you with additional tax advice and/or planning services, it is our
recommendation that you obtain this information in the form of a signed formal tax planning letter. This is
necessary to avoid any confusion and to make clear the specific nature of our advice. Any advice received
through oral discussions, telephone calls, or email messages that has not been put into such a form cannot
be considered official tax advice due to the inability to verify the source of the information and any
references that may have been used.

Before signing your return we will review your tax return with you to go over the income, deductions, and
credits. This review is necessary to determine that there are no omissions or misstatements and to clarify
any questions or concerns you may have. All taxpayers are required to sign their own return, unless
otherwise allowed by law. You have the final responsibility of the tax return, therefore signing of the
return is your acceptance of the return being prepared correctly based upon the information provided to us.

Auditor’s Responsibilities regarding EDP Consulting

We will study your computer operations to determine if items are being recorded both promptly and
correctly, and we will make recommendations as to any appropriate changes.

Management Responsibilities
Management acknowledges and understands that they are responsible for:
(a) the preparation and fair presentation of the annual financial statements in accordance with
Philippine Financial Reporting Standards.
(b) ensuring that all transactions have been recorded and are reflected in the financial statements.
(c) such internal control as management determines is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to fraud or error. Management
also acknowledges and understands that they are responsible for the design, implementation and
maintenance of internal control to prevent and detect fraud.
(d) providing us with access to all information of which management is aware that is relevant to the
preparation of the financial statements such as records, documentation and other matters.
(e) providing us with additional information that we may request from management for the purpose of
the audit.
(f) providing us with unrestricted access to persons within the Entity from whom we determine it
necessary to obtain audit evidence.

As part of our audit process, we will request from the management and, where appropriate, those charges
with governance, written confirmation concerning representations made to us in connection with the audit.

We look forward to full cooperation with your staff and we trust that they will make available to us whatever
records, documentation and other information are requested in connection with our audit.
Auditor’s Deliverables
The expected form and content of our audit report is provided in Appendix B. However, there may be
circumstances in which a report may differ from its expected form and content.

Fees
We estimate that our fee for the engagement in respect to the engagement period, based on firm’s regular
billing rates, would be P739,900, inclusive of out-of-pocket expenses. This estimate covers only the audit-
related fees; additional services for tax planning and return preparation and EDP consulting would be on a
separate, though similar, fee arrangement.

Please sign and return the attached copy of this letter to indicate your acknowledgement of, and agreement
with, the arrangements for our audit of the financial statements including our respective responsibilities.

Very truly yours,

AYC
ANCHELLIE CATACUTAN
Partner

Agreed and Accepted by:

Lone Star Western Apparel Co.

By:
JAMES R. WIGGINS
President

Date
 APPENDIX A - Computation of Fees/ Billings for Audit Engagement
ENGAGEMENT FEES COMPUTATION

Audit Team Hourly Rates: Total No. of Working

Personnel Hours (May-Mar.)

Engagement Partner 274.31/hour 290 79,549.90

Audit Manager 187.5/hour 408 x 2 153,000
Senior Auditor 103.13/hour 512 52,797.44
Associate Auditor 75.00/hour 596 x 3 134,100

Operating Expenses

Travelling Expenses 72,524.61

Out of Town Expenses (e.g. Board and 143,625.39
Lodging, Air Fares etc.)
Per Diem Meal 75,590.81
Night Shift Transportation Allowance 28,471.85
AUDIT SERVICES
Area of work Proposed Fee
Audit of Financial Statements P 739, 660.00

Matters That Could Impact the Fee that the Firm is Going to Bill the Client:
The proposed fees outlined above are based on the assumptions described in the engagement letter.
The critical factors that cause a change in our fees include:
 Significant changes in the nature or size of the operations of the Company beyond those
contemplated in our planning processes;
 Changes in professional standards or requirements arising as a result of changes in professional
standards or the interpretation thereof;
 Changes in the time of our work;
 The knowledge and skills that members bring to bear on the assignment and the professional
judgment that the team would be called upon to make;
 The level of training and experience of the professionals that will perform the service.
 The time necessary for the services and the degree of responsibility that performing those
services entails;
 Operating expenses that the team would incur in conducting evidence gathering such as
travelling expenses, per diem meal, meal and transportation allowances, board and lodging if
physical inventory checking would be out of town, nigh shift transportation allowances, etc.;
 Fees charged will also depend on the complexity and risks that the auditor might encounter on
the audit of the historical financial statements of the client;
 While the auditor is bound not to charge below the recommended fees, in instances where the
client insists on being charged lower than the recommended rate, notwithstanding the
complexity of the assignment, the auditor is expected in accordance with the code of ethics to
decline the assignment since this may amount to doing sub-standard work to cover costs;
 Where the Accountant provides more than one service, it is encouraged that each
service be billed separately;
 Office time spent travelling, the travelling cost and the related out of pocket
expenses to the extent that they are reasonable are to be charged on the client at
agreed rates ( disbursement fees shall be agreed between parties and should be
commensurate with work done) i.e. printing of materials.

BILLINGS MILESTONES PERCENTAGE

Upon Signing of this engagement letter 30%
Upon start of audit fieldwork 40%
Upon completion of engagement 30%
100%
 APPENDIX B – Expected Form of Report

We have audited the financial statements of Lone Star Western Apparel Co, which comprise the financial
position as at December 31, 19x1, and the income statement and statement of changes in equity for then
ended, and the summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in
accordance with Philippine Financial Reporting Standards, and for such internal control as management
determines is necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.

Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted
our audit in accordance with Philippine Standards on Auditing. Those standards require that we comply
with ethical requirements and plan and perform an audit to obtain reasonable assurance about whether the
financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
financial statements. The procedures selected depend on our judgment, including the assessment whether
due to fraud or error. In making those risk assessments, we consider internal controls relevant to the
preparation and fair presentation of the financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the internal control.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.

Opinion
In our opinion, the financial statements are presented fairly, in all material respects, the financial position
of the Lone Star Western Apparel Co. as at December 31, 19x2, and the results of its operations for the year
then ended in accordance with Philippine Financial Reporting Standards.
REFERENCES:
Engagement letter defines the legal relationship (or engagement) between a professional firm and its
client(s) which based primarily on PSA 210 AGREEING THE TERMS OF AUDIT ENGAGEMENTS.
In making the said letter, certain requirements are needed. Preconditions for an Audit must exist. It is the
use by management of an acceptable financial reporting framework in the preparation of the financial
statements and the agreement of management and, where appropriate, those charged with governance to
the premise on which an audit is conducted.
In order to establish whether the preconditions for an audit are present, the auditor shall:
(a) Determine whether the financial reporting framework to be applied in the preparation of the
financial statements is acceptable; and (Ref: Para. A2-A10)
(b) Obtain the agreement of management that it acknowledges and understands its responsibility:
(Ref: Para A11-A14, A20)
(i) For the preparation of the financial statements in accordance with the applicable
financial reporting framework, including where relevant their fair presentation; (Ref: Para. A15)
(ii) For such internal control as management determines is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud
or error; and (Ref: Para. A16-A19)
(iii) To provide the auditor with:
a. Access to all information of which management is aware that is relevant to the
preparation of the financial statements such as records, documentation and other matters;
b. Additional information that the auditor may request from management for the
purpose of the audit; and
c. Unrestricted access to persons within the entity from whom the auditor
determines it necessary to obtain audit evidence.
If the preconditions for an audit are not present, the auditor shall discuss the matter with management.
Unless required by law or regulation to do so, the auditor shall not accept the proposed audit engagement:
(a) If the auditor has determined that the financial reporting framework to be applied in the
preparation of the financial statements is unacceptable,
(b) (b) If the agreement referred to in paragraph 6b (Obtain the agreement of management that it
acknowledges and understands its responsibility) has not been obtained.
The auditor shall agree the terms of the audit engagement with management or those charged with
governance, as appropriate. (Ref: Para. A21)
Subject to paragraph mentioned above, the agreed terms of the audit engagement shall be recorded in an
audit engagement letter or other suitable form of written agreement and shall include: (Ref: Para. A22-
A25)
(a) The objective and scope of the audit of the financial statements;
(b) The responsibilities of the auditor;
 (c) The responsibilities of management;
(d) Identification of the applicable financial reporting framework for the preparation of the
financial statements; and
(e) Reference to the expected form and content of any reports to be issued by the auditor and a
statement that there may be circumstances in which a report may differ from its expected form and
content.

Policy for Fee and Other Arrangements

Harer & Jones, CPAs estimated fee is based on the quality of the Entity’s accounting records, the
agreed-upon level of preparation and assistance from the Entity’s personnel, and adherence to the
agreed-upon timetable.
Our fees for services are calculated based upon the applicable hourly rates for those professionals
who perform the work-at-hand. Our schedule of hourly rates for such personnel is based on
experience, education, training and level of professional attainment. Currently, our hourly rates
range from P1500 to P2500 for professionals, and for staff support, including individuals involved
in data entry, from P500 to P1500.
Additional time may be incurred for such matters as significant issues, significant unusual and/or
complex transactions, informing management about new professional standards, and any related
accounting advice. There these matters arise and require research, consultation and work beyond
that included in the estimated fee, the Entity and Harer & Jones, CPAs agree to revise the estimated
fee. No significant additional work will proceed without management’s concurrence, and, if
applicable, without the concurrence of those charged with governance. Upon completion of these
services Harer & Jones, CPAs will review with the Entity any fees and expenses incurred in excess
of Harer & Jones, CPAs estimate, following which Harer & Jones, CPAs will render the final
billing. Routine administrative expenses such as long distance telephone calls, photocopies, fax
charges, printing of statements and reports, postage and delivery and secretarial and report
department assistance will be charged on the basis of a percentage of Harer & Jones, CPAs
professional costs. Other disbursements for items such as travel, accommodation and meals will
be charged based on Harer & Jones, CPAs actual disbursements.
Harer & Jones, CPAs invoices are due and payable upon receipt. Amounts overdue are subject to
interest. In order to avoid the possible implication that unpaid fees might be viewed as creating a
threat to Harer & Jones, CPAs independence, it is important that Harer & Jones, CPAs bills be
paid promptly when rendered. If a situation arises in which it may appear that Harer & Jones,
CPAs independence is threatened because of unpaid bills, Harer & Jones, CPAs may be prohibited
from signing the report and, if applicable, any consent.
 Prepared by: SHAINE IMPERIAL

Harer & Jones, CPAs

Certified Public Accountants
Big City, USA

April 27, 19X2

Carl Moore
Small City, USA

Dear Sir:
We have recently been approached by Lone Star Western Apparel Co. who has given us permission
to communicate with you. We have been asked to act as the successor independent auditors. We
should be obliged if you would inform us of any circumstances or information of which you have
knowledge and which we need to consider in deciding whether or not to formally accept this
engagement like:

 Information that might bear on the integrity of management;

 Disagreements with management as to accounting principles, auditing procedures, or other
similarly significant matters; and
 Your understanding as to the reasons of the management for the change of auditors.

Assuming there are no circumstances of which we need to be aware, would you please give us an
access on your previous audit working papers including documentation of planning, internal
control, audit results, and other matters of continuing accounting and auditing significance, such
as the working paper analysis of balance sheet accounts, and those relating to contingencies.

If you are unable to provide any of the information above, please advise us accordingly and, if
possible, indicate where the information may be held.

Should we consider it appropriate, we may also request you to give explanations in the relation to
the above information.

We look forward to receiving your response.

Very truly yours,

AYC
ANCHELLIE CATACUTAN
Partner
Harer & Jones, CPAs
REFERENCES:

Basis:
AU Section 315
Communications Between Predecessor and Successor Auditors
(Supersedes SAS No. 7.)
Source: SAS No. 84; SAS No. 93.
Effective with respect to acceptance of an engagement after March 31, 1998,
unless otherwise indicated.

What is AU?
The “A” and “U” do not stand for words. Interim Reporting Standards of the PCAOB and shared
by the AICPA. Each AU is authoritative unless and until it is superseded by SAS.

*defined is paragraph 2
predecessor auditor refers to an auditor who (a) has reported on the most recent audited financial
statements1or was engaged to perform but did not complete an audit of the financial statements2
and (b) has resigned, declined to stand for reappointment, or been notified that his or her services
have been, or may be, terminated.
successor auditor refers to an auditor who is considering accepting an engagement to audit
financial statements.

.07 Inquiry of the predecessor auditor is a necessary procedure because the predecessor auditor
may be able to provide information that will assist the successor auditor in determining whether to
accept the engagement. The successor auditor should bear in mind that, among other things, the
predecessor auditor and the client may have disagreed about accounting principles, auditing
procedures, or similarly significant matters.

.08 The successor auditor should request permission from the prospective client to make an inquiry
of the predecessor auditor prior to final acceptance of the engagement. Except as permitted by the
Rules of the Code of Professional Conduct, an auditor is precluded from disclosing confidential
information obtained in the course of an engagement unless the client specifically consents. Thus,
the successor auditor should ask the prospective client to authorize the predecessor auditor to
respond fully to the successor auditor's inquiries. If a prospective client refuses to permit the
predecessor auditor to respond or limits the response, the successor auditor should inquire as to
the reasons and consider the implications of that refusal in deciding whether to accept the
engagement.

.09 The successor auditor should make specific and reasonable inquiries of the predecessor auditor
regarding matters that will assist the successor auditor in determining whether to accept the
engagement.
.11 The successor auditor should request that the client authorize the predecessor auditor to allow
a review of the predecessor auditor's working papers. The predecessor auditor may wish to request
a consent and acknowledgment letter from the client to document this authorization in an effort to
reduce misunderstandings about the scope of the communications being authorized.6 It is
customary in such circumstances for the predecessor auditor to make himself or herself available
to the successor auditor and make available for review certain of the working papers. The
predecessor auditor should determine which working papers are to be made available for review
and which may be copied. The predecessor auditor should ordinarily permit the successor auditor
to review working papers, including documentation of planning, internal control, audit results, and
other matters of continuing accounting and auditing significance, such as the working paper
analysis of balance sheet accounts, and those relating to contingencies. Also, the predecessor
auditor should reach an understanding with the successor auditor as to the use of the working
papers.7 The extent, if any, to which a predecessor auditor permits access to the working papers is
a matter of judgment.

.12 The successor auditor must obtain sufficient appropriate audit evidence to afford a reasonable
basis for expressing an opinion on the financial statements he or she has been engaged to audit,
including evaluating the consistency of the application of accounting principles. The audit
evidence used in analyzing the impact of the opening balances on the current-year financial
statements and consistency of accounting principles is a matter of professional judgment. Such
audit evidence may include the most recent audited financial statements, the predecessor auditor's
report thereon,8 the results of inquiry of the predecessor auditor, the results of the successor
auditor's review of the predecessor auditor's working papers relating to the most recently
completed audit, and audit procedures performed on the current period's transactions that may
provide evidence about the opening balances or consistency.
 Prepared by: DOWEN NAE DE GUZMAN

Harer & Jones, CPAs

Certified Public Accountants
Big City, USA

April 25, 19x2

Mr. James R. Wiggins

President and Chairman of the Board
Lone Star Western Apparel Co.
3810 Longhorn Drive
Big City, USA

Dear Sir:

We are pleased to confirm our acceptance and our understanding of this audit engagement by
means of the letter that has been sent firsthand. Our audit will be conducted with the objective of
our expressing an opinion on the financial statements.

An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements in accordance with Philippine Standards on Auditing
(PSAs). Those standards require that we comply with ethical requirements and plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free from
material misstatement.

Inline thereto, our audit will be expectant of the client’s assistance for information contribution
of the said report that will be conducted and must have acknowledge and must understand that:

a) The duration of this audit process is bounded by a specific time period included
formally in our written confirmation – that was firsthand issued audit engagement,
otherwise, extension shall be communicated in accordance to the agreement;

b) The auditor shall establish an open line communication with the management by
giving an access to discuss in any time that obstacles will be foreseen [but shall be
along with a written representation thereto]; and

c) The management must provide us with:

i. Access to all information from the respective responsible parties of the
management in which must be aware that is relevant to the preparation
of the financial reports such as records, documentation and other
matters as of December 31, 19X2 [which comprises of:
 1. Financial statements or a trial balance of general ledger; A
reconciliation of the bank account; An aged listing of accounts
receivable; A depreciation schedule; A list of bad debts written
off during the year from the controller in Accounting
Department;
2. A completed copy of the physical inventory sheets from the
Cost Accountant;
3. A schedule of insurance coverage; and
4. A schedule of property and equipment additions and
retirement];
ii. Additional information that we may request from responsible parties
of the management for the purpose of the audit;
1. Copies of the board of directors’ meetings for the past five
years;
2. Copies of the lease agreements, employment contracts; and
3. Corporate charters and bylaws.
iii. Unrestricted access to persons within the entity from whom we
determine it necessary to obtain audit evidence.

As part of our audit process and of this expectancy, any confirmation from the management
concerning representations made to us in connection with our audit, shall be formally written.

We look forward to full cooperation from your staff during our audit.

Very truly yours,

AYC
ANCHELLIE CATACUTAN
Partner
Harer & Jones, CPAs
REFERENCES:
HARRES & JONES
Philippine Standard on Auditing 210 (Redrafted) AGREEING THE TERMS OF AUDIT
ENGAGEMENTS
Scope of this PSA
1. This Philippine Standard on Auditing (PSA) deals with the auditor’s responsibilities in
agreeing the terms of the audit engagement with management and, where appropriate,
those charged with governance. This includes establishing that certain preconditions for
an audit, responsibility for which rests with management and, where appropriate, those
charged with governance, are present. PSA 220 (Redrafted)1 deals with those aspects of
engagement acceptance that are within the control of the auditor. (Ref: Para. A1)

Requirements
Preconditions for an Audit
(b) Obtain the agreement of management that it acknowledges and understands its responsibility:
(Ref: Para A11-A14, A20)
(i) For the preparation of the financial statements in accordance with the applicable
financial reporting framework, including where relevant their fair presentation; (Ref: Para. A15)
(ii) For such internal control as management determines is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud
or error; and (Ref: Para. A16-A19)
(iii) To provide the auditor with:
a. Access to all information of which management is aware that is relevant to the
preparation of the financial statements such as records, documentation and other matters;
b. Additional information that the auditor may request from management for the
purpose of the audit; and
c. Unrestricted access to persons within the entity from whom the auditor
determines it necessary to obtain audit evidence.

Agreement on Audit Engagement Terms

10. Subject to paragraph 11, the agreed terms of the audit engagement shall be recorded in an
audit engagement letter or other suitable form of written agreement and shall include: (Ref: Para.
A22-A25)
(a) The objective and scope of the audit of the financial statements;
(b) The responsibilities of the auditor;
(c) The responsibilities of management;
(d) Identification of the applicable financial reporting framework for the preparation of
the financial statements; and
 (e) Reference to the expected form and content of any reports to be issued by the auditor
and a statement that there may be circumstances in which a report may differ from its expected
form and content.

11. If law or regulation prescribes in sufficient detail the terms of the audit engagement referred
to in paragraph 10, the auditor need not record them in a written agreement, except for the fact
that such law or regulation applies and that management acknowledges and understands its
responsibilities as set out in paragraph 6(b). (Ref: Para. A22, A26-A27)

Application and Other Explanatory Material

Agreement of the Responsibilities of Management (Ref: Para. 6(b))
A13. PSA 580 (Revised and Redrafted) requires the auditor to request management to provide
written representations that it has fulfilled certain of its responsibilities.12 It may therefore be
appropriate to make management aware that receipt of such written representations will be
expected, together with written representations required by other PSAs and, where necessary,
written representations to support other audit evidence relevant to the financial statements or one
or more specific assertions in the financial statements.

Form and Content of the Audit Engagement Letter

A23. The form and content of the audit engagement letter may vary for each entity. Information
included in the audit engagement letter on the auditor’s responsibilities may be based on PSA
200 (Revised and Redrafted).17 Paragraphs 6(b) and 12 of this PSA deal with the description of
the responsibilities of management. In addition to including the matters required by paragraph
10, an audit engagement letter may make reference to, for example:
• The form of any other communication of results of the audit engagement
• The expectation that management will provide written representations (see also
paragraph A13).
• The agreement of management to make available to the auditor draft financial
statements and any accompanying other information in time to allow the auditor to complete the
audit in accordance with the proposed timetable.