Philippine Standard on Auditing 200

OBJECTIVE AND GENERAL PRINCIPLES

GOVERNING AN AUDIT OF FINANCIAL
STATEMENTS
Auditing Standards and Practices Council
PSA 200
PHILIPPINE STANDARD ON AUDITING 200
OBJECTIVE AND GENERAL PRINCIPLES GOVERNING AN AUDIT OF
FINANCIAL STATEMENTS
CONTENTS
Paragraphs
Introduction 1
Objective of an Audit 2-3
General Principles of an Audit 4-6
Scope of an Audit 7
Reasonable Assurance 8-11
Responsibility for the Financial Statements 12
Effective Date 13-14
Acknowledgment 15-16
Philippine Standards on Auditing (PSAs) are to be applied in the audit of financial
statements.
PSAs are also to be applied, adapted as necessary, to the audit of other
information and to
related services.
PSAs contain the basic principles and essential procedures (identified in bold
type black
lettering) together with related guidance in the form of explanatory and other
material. The
basic principles and essential procedures are to be interpreted in the context of
the explanatory
and other material that provide guidance for their application.
To understand and apply the basic principles and essential procedures together
with the related
guidance, it is necessary to consider the whole text of the PSA including
explanatory and other
material contained in the PSA not just that text which is black lettered.
In exceptional circumstances, an auditor may judge it necessary to depart from
a PSA in order
to more effectively achieve the objective of an audit. When such a situation
arises, the auditor
should be prepared to justify the departure.
PSAs need only be applied to material matters.
PSA 200
The PSAs issued by the Auditing Standards Practices Council (Council) are based
on
International Standards on Auditing (ISAs) issued by the International Auditing
Practices
Committee of the International Federation of Accountants.
The ISAs on which the PSAs are based are generally applicable to the public
sector, including
government business enterprises. However, the applicability of the equivalent
PSAs on
Philippine public sector entities has not been addressed by the Council. It is the
understanding
of the Council that this matter will be addressed by the Commission on Audit
itself in due
course. Accordingly, the Public Sector Perspective set out at the end of an ISA
has not been
adopted into the PSAs.
PSA 200
Introduction
1. The purpose of this Philippine Standard on Auditing (PSA) is to establish
standards and provide guidance on the objective and general principles
governing an audit of financial statements. This PSA is to be read in
conjunction with the Framework of Philippine Standards on Auditing.
Objective of an Audit
2. The objective of an audit of financial statements is to enable the auditor to
express an opinion whether the financial statements are prepared, in all
material respects, in accordance with an identified financial reporting
framework. The phrase used to express the auditor’s opinion is “present
fairly, in all material respects.”
3. Although the auditor’s opinion enhances the credibility of the financial
statements, the user cannot assume that the opinion is an assurance as to the
future viability of the entity nor the efficiency or effectiveness with which
management has conducted the affairs of the entity.
General Principles of an audit
4. The auditor should comply with the “Code of Professional Ethics for
Certified Public Accountants” promulgated by the Board of Accountancy
and approved by the Philippine Professional Regulation Commission.
Ethical principles governing the auditor’s professional responsibilities are:
(a) independence;
(b) integrity;
(c) objectivity;
(d) professional competence and due care;
(e) confidentiality;
(f) professional behavior; and
(g) technical standards.
5. The auditor should conduct an audit in accordance with Philippine
Standards on Auditing. These contain basic principles and essential
procedures together with related guidance in the form of explanatory and other
material.
PSA 200
-2-
6. The auditor should plan and perform the audit with an attitude of
professional skepticism recognising that circumstances may exist which
cause the financial statements to be materially misstated. For example, the
auditor would ordinarily expect to find evidence to support management
representations and not assume they are necessarily correct.
Scope of an Audit
7. The term “scope of an audit” refers to the audit procedures deemed
necessary
in the circumstances to achieve the objective of the audit. The procedures
required to conduct an audit in accordance with PSAs should be
determined by the auditor having regard to the requirements of PSAs,
relevant professional bodies, legislation, regulations and, where
appropriate, the terms of the audit engagement and reporting
requirements.
Reasonable Assurance
8. An audit in accordance with PSAs is designed to provide reasonable assurance
that the financial statements taken as a whole are free from material
misstatement. Reasonable assurance is a concept relating to the accumulation
of the audit evidence necessary for the auditor to conclude that there are no
material misstatements in the financial statements taken as a whole.
Reasonable assurance relates to the whole audit process.
9. However, there are inherent limitations in an audit that affect the auditor’s
ability to detect material misstatements. These limitations result from factors
such as:
• The use of testing.
• The inherent limitations of any accounting and internal control system
(for example, the possibility of collusion).
• The fact that most audit evidence is persuasive rather than conclusive.
10. Also, the work undertaken by the auditor to form an opinion is permeated by
judgment, in particular regarding:
(a) the gathering of audit evidence, for example, in deciding the nature,
timing and extent of audit procedures; and
(b) the drawing of conclusions based on the audit evidence gathered, for
example, assessing the reasonableness of the estimates made by
management in preparing the financial statements.
PSA 200
-3-
11. Further, other limitations may affect the persuasiveness of evidence
available
to draw conclusions on particular financial statement assertions (for example,
transactions between related parties). In these cases, certain PSAs identify
specified procedures which will, because of the nature of the particular
assertions, provide sufficient appropriate audit evidence in the absence of:
(a) unusual circumstances which increase the risk of material
misstatements beyond that which would ordinarily be expected; or
(b) any indication that a material misstatement has occurred.
Responsibility for the Financial Statements
12. While the auditor is responsible for forming and expressing an opinion on the
financial statements, the responsibility for preparing and presenting the
financial statements is that of the management of the entity. The audit of the
financial statements does not relieve management of its responsibilities.
Effective Date
13. This PSA shall be effective for audits of financial statements for periods
ending on or after June 30, 2003.
14. This PSA supersedes Statement of Auditing Standards of the Philippines No.
1, The Objectives, Scope and Responsibilities of an Independent Auditor in
Undertaking an Audit, issued by the Auditing Standards and Practices Council.
Acknowledgment
15. This PSA, Objective and General Principles Governing an Audit of Financial
Statements, is based on International Standard on Auditing (ISA) 200 of the
same title issued by the International Auditing Practices Committee of the
International Federation of Accountants.
16. This PSA differs from ISA 200 with respect to the deletion of the section on
Public Sector Perspective included in ISA 200.
PSA 200
-4-
This Philippine Standard on Auditing 200 was unanimously approved on
December 6,
2001 by the members of the Auditing Standards and Practices Council:
Benjamin R. Punongbayan, Chairman Antonio P. Acyatan, Vice Chairman
Felicidad A. Abad David L. Balangue
Eliseo A. Fernandez Nestorio C. Roraldo
Editha O. Tuason Joaquin P. Tolentino
Joycelyn J. Villaflores Carlito B. Dimar
Froilan G. Ampil Erwin Vincent G. Alcala
Horace F. Dumlao Isagani O. Santiago
Eugene T. Mateo Emma M. Espina
Edijer A. Martinez