PAPS-1006

Introduction to PAPS 1006

  • Philippine Auditing Practice Statement (PAPS) 1006 provides auditing guidance specifically for banks.

  • Aimed at assisting auditors in following Philippine Standards on Auditing (PSAs).

Content Overview

  • Key Sections:

    • Introduction to Auditing Standards and Practices Council

    • Audit Objectives (Paragraphs 9-11)

    • Agreeing Terms of Engagement (Paragraphs 12-14)

    • Planning the Audit (Paragraphs 15-55)

    • Internal Control (Paragraphs 57-70)

    • Substantive Procedures (Paragraphs 71-100)

    • Reporting on Financial Statements (Paragraphs 101-103)

    • Appendices covering risk, controls, definitions, and reference materials.

Purpose & Applicability

  • Intended to assist auditors in implementing PSAs without introducing new fundamental principles.

  • Valid for audits of banks recognized by the Bangko Sentral ng Pilipinas (BSP).

Characteristics of Banks

  • Manage large volumes of liquid assets susceptible to theft or fraud.

  • Typically engaged in various activities including lending, borrowing, and investment.

  • Conduct operations across different jurisdictions increasing complexity in compliance and risk management.

Audit Objectives

  • Enable auditors to express opinions on whether financial statements align with accepted Philippine accounting principles.

  • Emphasizes the importance of transparency in financial reporting especially dealing with foreign jurisdictions.

Risk Factors in Bank Audits

  • Unique risks include liquidity crises, high leverage, management fraud, and complexities in valuation of financial instruments.

  • Importance of understanding both internal controls and external regulations to mitigate such risks.

Internal Controls Framework

  • The 1998 Framework for Internal Control Systems serves as a guideline for evaluating banks’ internal controls.

  • Emphasizes on maintaining effective systems to safeguard assets and manage risks.

Substantive Procedures

  • Includes assessments of the bank's internal controls, evaluations of the loan portfolios, and testing for compliance with PSAs.

  • Use of external confirmations, inspections, and analytical procedures critical for validating financial statement assertions.

Appendices Highlights

  • Appendix 1: Fraud risk considerations

  • Appendix 2: Control examples and procedures for significant operations like treasury or lending

  • Appendix 3: Financial ratios for analyzing performance

  • Appendix 4: Risks in securities underwriting and brokerage activities

  • Appendix 5: Risks in private banking and asset management activities

Effective Date and Acknowledgment

  • Effective for audits for periods ending on or after December 31, 2003.

  • Reinforces the importance of regulatory compliance and acknowledges the Basel Committee contributions.