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Unlock the secrets of auditing with our authoritative guide, 'Mastering Auditing Excellence.' This comprehensive book is your indispensable companion to navigating the intricate landscape of financial oversight, compliance, and risk management. Whether you're a seasoned auditor or a newcomer to the field, this book offers a wealth of knowledge, practical insights, and real-world examples to enhance your auditing skills.
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(Simplified Module for the New Normal, Second Semester of AY – 2020 - 2021 ) COMPILED BY: PROF. MARK ANECITO R. PERLAS PROF. LADY DIANA P. NOLEAL All rights reserved. March 15, 2021
Prepared by: Prof. Mark Anecito R. Perlas Prof. Lady Diana P. Noleal Instructors Reviewed by: Prof. Lilian DM. Litonjua Chairperson – Accountancy Noted by: Dr. Julieta G. Fonte Dean Approved by: Dr. Emanuel C. De Guzman Vice-President for Academic Affairs
which desire to raise productive capacity by purchasing additional capital equipment, acquiring or leasing idle property, building and expanding factories, and increasing inventory are responsible for sustaining economic growth in the long term, alongside the creation of new jobs. Banks perform the function of safekeeping money and valuables and extending loans, credit and payment services in the form of checking accounts, money orders, cashier’s checks as well as the issuance of debit and credit cards. Large banks (particularly the universal and commercial banks) are also allowed to engage in other intermediation activities such as investment banking (underwriting debt instruments and or stocks for other firms) and may offer other forms of portfolio investment instruments and insurance products. The financial system is composed of two general groups namely: banks and non-bank financial institutions. Banking institutions include: universal banks, commercial banks, thrift or savings banks and the rural and cooperative banks. These institutions are allowed to collect savings and time deposits to fund loans and also perform the function of providing credit and payment services. Large banks, particularly the universal and commercial banks, can engage in other intermediation activities such as investment banking and may offer other forms of portfolio investment instruments and insurance products. Non-bank financial institutions on the other hand, are composed of insurance companies, pension fund institutions, investment banks, financing companies, pawnshops and mutual fund institutions. These institutions are not allowed to collect deposits but may encourage the general public to invest household savings in various financial instruments. Premium payments for term insurance policies, regular contributions to pension funds, investment into mutual funds or purchases of shares of stock in financing companies and pawnshops are some of the ways by which non-bank financial institutions can source funds to finance lending and or investment operations. Universal and commercial banks have the largest resources and offer the widest variety of banking services outside of collecting deposits and providing loans. These other services include underwriting and other functions of investment houses, investing in equities and non-allied undertakings. Thrift banks include savings and mortgage banks, private development banks, stock savings and loan associations and microfinance thrift banks. They accumulate the savings of depositors and provide housing loans and financing for short-term working capital as well as medium- and long-term financing to small and medium scale enterprises engaged in agriculture, services, and industry. Rural and cooperative banks promote and expand the rural community by
mobilizing savings and extending loans and other financial services to farmers to help with the purchase of seeds, livestock, fertilizers, and other farm inputs and the marketing of their produce. Non-bank financial institutions, on the other hand, are composed of insurance companies, pension fund institutions, investment banks, financing companies, pawnshops, and mutual fund institutions. There are several types of non-bank financial institutions offering a wide variety of services such as investment houses, financing companies, investment companies, securities dealers/brokers, lending investors, government non-bank financial institutions, venture capital corporations, non-stock savings and loans associations, pawnshops and credit card companies. Overview, Updates, Statistics of the Specialized Industry in the Philippines The Bangko Sentral ng Pilipinas (BSP) is the independent central monetary authority of the Philippines that has regulatory and supervisory power over banks and non-bank financial institutions. The BSP supervises the nation’s banking system. Non-bank financial institutions such as insurance companies and investment houses are overseen by the Insurance Commission and Securities and Exchange Commission, respectively. The role of financial intermediation in the Philippine economy continues to expand and is expected to create greater prospects for employment over the next several years. The share of financial intermediation output to total service sector output as well as to gross domestic product has continually increased over the recent past.
Recent Issuances
Audit Considerations
The financial statements of banks are prepared in the context of the legal and regulatory requirements and accounting policies are influenced by such regulations. The BSP regulatory accounting principles for banks (RAP) may differ materially from generally accepted accounting principles (GAAP). When the bank is required to prepare a single set of financial statements that comply with both frameworks (i.e., RAP and GAAP), the auditor may express a totally unqualified opinion only if the financial statements have been prepared in accordance with both frameworks. If the financial statements are in accordance with only one of the frameworks, the auditor expresses an unqualified opinion in respect of compliance with that framework and a qualified or adverse opinion in respect of compliance with the other framework. When the bank is required to comply with RAP instead of GAAP, the auditor considers the need to refer to this fact in an emphasis of matter paragraph. By assessing key risks, it is evident that there are challenges on all sides. Banks are under attack, being subject to enforcement actions, fines, penalties, and expensive remediation action. Regulators and politicians are under pressure from the public, and sometimes each other, to deal more firmly with the banking sector, the banks, and bankers involved in breaches of regulations, criminal law, public trust, and confidence. Auditors have perhaps been too accommodating in allowing bank management and directors to somehow “manage” the audit relationship to their advantage, and in order to mitigate their reputation and regulatory risk. Throughout history, in moments of crisis and challenge, there are great opportunities. As stated in the new Basel Committee “Corporate Governance Principles for Banks”, internal audit provides independent assurance ….in promoting an effective governance process and the long-term soundness of the bank. The audit profession must rise to the challenge, embrace the key audit trends for 2015, and raise the standard of auditing to meet the higher level of Banking Governance now required. Assessments:
Auditing Business Process Outsourcing Industry Overview: Today, many multinational organizations are going through finance, tax, or IT transformation project to drive efficiency and reduce costs. Often, these transformations include the use of technology to automate processes or centralizing common functions using shared centers. No matter what delivery model that your organization finds best to support statutory reporting or other compliance tasks, there are four elements that must work together in harmony to enable success: people, process, data, and technology. Business process outsourcing (BPO) remains a strong trend among organizations regardless of size. As early as 2010, 60 percent of CEOs at global enterprises believed that BPO played a very important role in supporting business models (Forbes Insights survey). Today, nearly all companies outsource some part of their operations. Oxford Business Group predicts that the global business process outsourcing industry will be worth $250 billion by the year 2020. Business process outsourcing in the Philippines accounts for 10 to 15 percent of the global BPO market, where the local BPO sector has grown at a compound annual rate of 10 percent over the past decade. The Philippines has also consistently ranked among the top five outsourcing destinations in the world. Module Objectives:
Back-office transactions : This includes check, credit, and debit card processing; collection; receivables; direct and indirect procurement; transportation administration; logistics and dispatch; and warehouse management. IT and software operations : These technical support functions include application development and testing, implementation services, and IT helpdesk. For example, manual data entry can be replaced with automated data capture, increasing data intake and reducing cycle time. Finance and accounting services : These functions include billing services, accounts payable, receivables, general accounting, auditing, and regulatory compliance. Human resource services : BPOs can help address workforce challenges. They can also cover payroll services, healthcare administration, hiring and recruitment, workforce training, insurance processing, and retirement benefits. Knowledge services : These higher-level processes may include data analytics, data mining, data and knowledge management, and internet and web research, as well as developing an information governance program and providing the voice of customer feedback. How does BPO work? Organizational executives arrive at the decision to outsource a business process through a variety of avenues. Startup companies, for example, often need to outsource back-office and front- office functions because they do not have the resources to build the staff and supporting functions to preform them in-house. On the other hand, an established company may opt to outsource a task that it had been performing all along after an analysis determined that an outsourced provider could do the job better and at a lower cost. Management experts advise enterprise executives to identify functions that can be outsourced and then evaluate that function against the pros and cons of outsourcing to determine if shifting that task to an outsourced provider makes strategic sense for the organization. If so, the organization then must go through the process of not only identifying the best vendor for the work, but also shifting the work itself from in-house to the external provider. This requires a significant amount of change management, as the move to an outsourced provider generally impacts staff, established processes and existing workflows.
The shift also impacts the organization's finances -- not only in terms of shifting costs from the internal function to the outsourced providers, but often also in terms of taxes and reporting requirements. The organization may also have to invest in a technology solution to enable the smooth flow of work from the organization itself to the outsource provider, with the extent and cost of that technology solution dependent on the scope of the function being outsourced and the maturity of the technology infrastructure in place at both enterprises. Scope of work As an organization moves a function to a new outsourced provider, it must identify the scope of the work shifting from in-house staff to the external partner. Executives should identify the workflows and processes impacted by this shift and adjust, if necessary, those workflows and processes to accommodate the outsourcing of the work. Executives should also identify the key objectives for outsourcing a function -- whether it's cost savings, increased quality, quicker turnaround or some other objective -- and then use that criteria to determine which provider would be best suited to handle the work. Those objectives should also serve as the basis for contractual obligations that can be used to help assess the performance of the outsourced provider and success of the function once it is outsourced. Overview, Updates, Statistics of the Specialized Industry in the Philippines Globally, the BPO sector is worth over $300 billion. BPO vendors employ more than 3 million people in India, and more than 1 million people in the Philippines. Millions more are employed by BPO companies in Europe and the United States. BPO vendors are located all over the world, especially in developing nations with low income tax. South Africa has shown recent dominance in the BPO market, notably in call centers. Over the years, one of the key reasons behind the growth of BPO in Philippines has been the extended support of the Government led Philippines Development Plan, which ensured
5 Key Factors that Contributed to the Growth of BPO Industry in Philippines
the Philippines and list down your observations from audit report to the financial statements.
Auditing Mining Industry Overview: The mining industry sector is a major backbone of the Philippine economy. The long history of the industry has been much affected by the vicissitudes of the international market, as well as other domestic factors. With the adoption of the 1986 Constitution, the concept of awarding mineral rights has been drastically changed from leasehold to a system of contracts for various modes of production. Such changes have, as expected, temporarily unsettled the industry. The preponderance of small-scale mining, the growing public awareness on the environment, increasing labor and energy costs are concerns which should be addressed. Amidst all these, and in the framework of very stiff competition in the region for investments, new thrusts and directions, without compromising general stability, are urgently required for the overall development not only of the industry but for the whole country. The Philippines is the fifth most mineral-rich country in the world for gold, nickel, copper, and chromite. It is home to the largest copper-gold deposit in the world. The Mines and Geosciences Bureau (MGB) has estimated that the country has an estimated $840 billion worth of untapped mineral wealth, as of 2012. About 30 million hectares of land areas in the Philippines is deemed as possible areas for metallic minerals. According to the Mines and Geosciences Bureau (MGB), about nine million hectares of land areas is identified as having high mineral potential. The Philippines metal deposit is estimated at 21.5 billion metric tons and non-metallic minerals are at 19.3 billion metric tons, as of 2012. Module Objectives:
