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TitlePSA 260
TagsAudit Financial Statement Auditor's Report Corporate Governance Governance
File Size148.6 KB
Total Pages10
Document Text Contents
Page 3

PSA 260

Philippine Standards on Auditing (PSAs) are to be applied in the audit of financial statements.

PSAs are also applied, adapted as necessary, to the audit of other information and to related


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 the 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.

The PSA issued by the Auditing Standards and 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.

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PSA 260


6. For corporations covered by the SEC Code of Corporate Governance, as well as

the board of directors is primarily responsible for corporate governance of

such entities. One of the duties of the board of directors is the creation of an audit

committee that will be responsible for the set-up of internal audit functions.

7. For other entities, the auditor uses judgment to determine those persons with

whom audit matters of governance interest are communicated, taking into account

the governance structure of the entity, the circumstances of the engagement and

any relevant legislation. The auditor also considers the legal responsibilities of

those persons. For example, in entities with supervisory boards or with audit

committees, the relevant persons may be those bodies. However, in entities

where a unitary board has established an audit committee, the auditor may decide

to communicate with the audit committee, or with the whole board, depending on

the importance of the audit matters of governance interest.

8. When the entity’s governance structure is not well defined, or those charged with

governance are not clearly identified by the circumstances of the engagement, or

by legislation, the auditor comes to an agreement with the entity about with whom

audit matters of governance interest are to be communicated. Examples include

some owner-managed entities, some not for profit organizations, and some

government agencies.

9. To avoid misunderstandings, an audit engagement letter may explain that the

auditor will communicate only those matters of governance interest that come to

attention as a result of the performance of an audit and that the auditor is not

required to design procedures for the specific purpose of identifying matters of

governance interest. The engagement letter may also:

• Describe the form in which any communications on audit matters of

governance interest will be made;

• Identify the relevant persons with whom such communications will be


Required under BSP Circular No. 283, Series of 2001.

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PSA 260


12. As part of the auditor’s communications, those charged with governance are

informed that:

• The auditor’s communications of matters include only those audit matters

of governance interest that have come to the attention of the auditor as a

result of the performance of the audit;

• an audit of financial statements is not designed to identify all matters that

may be relevant to those charged with governance. Accordingly, the audit

does not ordinarily identify all such matters.

Timing of Communications

13. The auditor should communicate audit matters of governance interest on a

timely basis. This enables those charged with governance to take appropriate


14. In order to achieve timely communications, the auditor discusses with those

charged with governance the basis and timing of such communications. In certain

cases, because of the nature of the matter, the auditor may communicate that

matter sooner than previously agreed.

Forms of Communications

15. The auditor’s communications with those charged with governance may be made

orally or in writing. The auditor’s decision whether to communicate orally or in

writing is affected by factors such as:

• The size, operating structure, legal structure, and communications

processes of the entity being audited;

• The nature, sensitivity and significance of the audit matters of governance

interest to be communicated;

• The arrangements made with respect to periodic meetings or reporting of

audit matters of governance interest;

• The amount of on-going contact and dialogue the auditor has with those

charged with governance.

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