PSA 200

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 auditors opinion is present fairly, in
all material respects.

3.) Although the auditors 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 auditors professional responsibilities are:

(a) Independence;
(b) Integrity;
(c) Objectivity;
(d) Professional competence and due care;
(e) Confidentiality;
(f) Professional behavior; and
(g) Technical standards.

6. ) The auditor should plan and perform the audit with an attitude of
professional skepticism recognizing 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 auditors
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 700

7.) For purposes of the PSAs, the following terms have the meanings attributed
below:

(a) General purpose financial statements Financial statements prepared in

accordance with a general purpose framework.

(b) General purpose framework A financial reporting framework designed

to meet the common financial information needs of a wide range of users.
The financial reporting framework may be a fair presentation framework or a
compliance framework.
The term fair presentation framework is used to refer to a financial
reporting framework that requires compliance with the requirements of the
framework and:

(i) Acknowledges explicitly or implicitly that, to achieve fair presentation

of the financial statements, it may be necessary for management to
provide disclosures beyond those specifically required by the
framework; or

(ii) Acknowledges explicitly that it may be necessary for management to depart

from a requirement of the framework to achieve fair presentation of the financial
statements. Such departures are expected to be necessary only in extremely
rare circumstances.

The term compliance framework is used to refer to a financial reporting

framework that requires compliance with the requirements of the framework,
but does not contain the acknowledgements in (i) or (ii)
above.5
(c) Unmodified opinion The opinion expressed by the auditor when the
auditor concludes that the financial statements are prepared, in all material
respects, in accordance with the applicable financial reporting framework. 6

Forming an Opinion on the Financial Statements

10.) The auditor shall form an opinion on whether the financial statements are
prepared, in all material respects, in accordance with the applicable financial
reporting framework.7 8
11.) In order to form that opinion, the auditor shall conclude as to whether the
auditor has obtained reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error. That conclusion shall take into account:

(a) The auditors conclusion, in accordance with PSA 330 (Redrafted), whether
sufficient appropriate audit evidence has been obtained; 9

(b) The auditors conclusion, in accordance with PSA 450 (Revised and
Redrafted), whether uncorrected misstatements are material, individually or in
aggregate;10 and

(c) The evaluations required by paragraphs 12-15.

 12.)The auditor shall evaluate whether the financial statements are prepared,
in all material respects, in accordance with the requirements of the applicable
financial reporting framework. This evaluation shall include consideration of the
qualitative aspects of the entitys accounting practices, including indicators of
possible bias in managements judgments. (Ref: Para. A1-A3)

13.) In particular, the auditor shall evaluate whether, in view of the

requirements of the applicable financial reporting framework:

(a) The financial statements adequately disclose the significant

accounting policies selected and applied;
(b) The accounting policies selected and applied are consistent with the
applicable financial reporting framework and are appropriate;
(c) The accounting estimates made by management are reasonable;
(d) The information presented in the financial statements is relevant,
reliable, comparable and understandable;

(e) The financial statements provide adequate disclosures to enable the

intended users to understand the effect of material transactions and events on
the information conveyed in the financial statements; and (Ref: Para. A4)
(f) The terminology used in the financial statements, including the title of
each financial statement, is appropriate.

14.) When the financial statements are prepared in accordance with a fair
presentation
framework, the evaluation required by paragraphs 12-13 shall also include
whether the financial statements achieve fair presentation. The auditors
evaluation as to whether the financial statements achieve fair presentation shall
include consideration of:

(a) The overall presentation, structure and content of the financial

statements; and
(b) Whether the financial statements, including the related notes,
represent the underlying transactions and events in a manner that achieves fair
presentation.

15.) The auditor shall evaluate whether the financial statements adequately
refer to or describe the applicable financial reporting framework. (Ref: Para. A5-A10)

Auditors Report

20.) The auditors report shall be in writing.

Title
21.) The auditors report shall have a title that clearly indicates that it is the
report of an independent auditor. (Ref: Para. A15)

Addressee
22.) The auditors report shall be addressed as required by the circumstances of
the engagement. (Ref: Para. A16)

Introductory Paragraph
23.) The introductory paragraph in the auditors report shall: (Ref: Para. A17-A19)

(a) Identify the entity whose financial statements have been audited;
(b) State that the financial statements have been audited;
(c) Identify the title of each statement that comprises the financial
statements;
(d) Refer to the summary of significant accounting policies and other
explanatory information; and
(e) Specify the date or period covered by each financial statement
comprising
the financial statements.

Managements Responsibility for the Financial Statements

24.) This section of the auditors report describes the responsibilities of those in
the organization that are responsible for the preparation of the financial
statements. The auditors report need not refer specifically to management,
but shall use the term that is appropriate in the context of the legal framework
in the particular jurisdiction. In some jurisdictions, the appropriate reference
may be to those charged with governance.

25.) The auditors report shall include a section with the heading
Managements [or other appropriate term] Responsibility for the Financial
Statements.

26.) The auditors report shall describe managements responsibility for the
preparation of the financial statements in the manner in which that
responsibility is described in the terms of the audit engagement. The description
shall include an explanation that management is responsible for the preparation
of the financial statements in accordance with the applicable financial reporting
framework; this responsibility includes the design, implementation and
maintenance of internal control relevant to the preparation of financial
statements that are free from material misstatement, whether due to fraud or
error.
Auditors Responsibility
28.) The auditors report shall include a section with the heading Auditors
Responsibility.

29.) The auditors report shall state that the responsibility of the auditor is to
express an opinion on the financial statements based on the audit. (Ref: Para. A23)

30.) The auditors report shall state that the audit was conducted in accordance
with PSAs. The auditors report shall also explain that those standards require
that the auditor comply with ethical requirements and that the auditor plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free from material misstatement. (Ref: Para. A24-A25)

31.) The auditors report shall describe an audit by stating that:

(a) An audit involves performing procedures to obtain audit evidence about the
amounts and disclosures in the financial statements;
(b) The procedures selected depend on the auditors judgment, including the
assessment of the risks of material misstatement of the financial statements,
whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entitys preparation 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 entitys internal control. In circumstances when the auditor
also has a responsibility to express an opinion on the effectiveness of internal
control in conjunction with the audit of the financial statements, the auditor shall
omit the phrase that the auditors consideration of internal control is not for the
purpose of expressing an opinion on the effectiveness of internal control; and

(c) An audit also includes evaluating the appropriateness of the accounting

policies used and the reasonableness of accounting estimates made by
management, as well as the overall presentation of the financial statements.

32.) Where the financial statements are prepared in accordance with a fair
presentation framework, the description of the audit in the auditors report shall
refer to the entitys preparation and fair presentation of the financial
statements.

33.) The auditors report shall state whether the auditor believes that the audit
evidence the auditor has obtained is sufficient and appropriate to provide a
basis for the auditors opinion.
Auditors Opinion

34.) The auditors report shall include a section with the heading Opinion.

35.)When expressing an unmodified opinion on financial statements prepared in

accordance with a fair presentation framework, the auditors opinion shall,
unless otherwise required by law or regulation, use following phrase: (Ref: Para.
A26-A32)
The financial statements present fairly, in all material respects, in accordance
with [the applicable financial reporting framework].

36.) When expressing an unmodified opinion on financial statements prepared in

accordance with a compliance framework, the auditors opinion shall be that the
financial statements are prepared, in all material respects, in accordance with
[the applicable financial reporting framework]. (Ref: Para. A26, A28-A32)

37.) If the reference to the applicable financial reporting framework in the

auditors opinion is not to PFRS issued by the FRSC or IFRS issued by the IASB or
IPSAS issued by the IPSASB, the auditors opinion shall identify the jurisdiction of
origin of the framework.

Other Reporting Responsibilities

38.) If the auditor addresses other reporting responsibilities in the auditors
report on the financial statements that are in addition to the auditors
responsibility under the PSAs to report on the financial statements, these other
reporting responsibilities shall be addressed in a separate section in the
auditors report that shall be sub-titled Report on Other Legal and Regulatory
Requirements, or otherwise as appropriate to the content of the section. (Ref:
Para. A33-A34)
39.)If the auditors report contains a separate section on other reporting
responsibilities, the headings, statements and explanations referred to in
paragraphs 23-37 shall be under the sub-title Report on the Financial
Statements. The Report on Other Legal and Regulatory Requirements shall
follow the Report on the Financial Statements. (Ref: Para. A35)

Signature of the Auditor

40.) The auditors report shall be signed. (Ref: Para. A36)

Date of the Auditors Report

41.) The auditors report shall be dated no earlier than the date on which the
auditor has obtained sufficient appropriate audit evidence on which to base the
auditors opinion on the financial statements, including evidence that: (Ref: Para.
A37-A40)
(a) All the statements that comprise the financial statements, including the
related notes, have been prepared; and
(b) Those with the recognized authority have asserted that they have taken
responsibility for those financial statements.

Auditors Address
42.) The auditors report shall name the location in the jurisdiction where the
auditor practices.

PSA 705

Types of Modified Opinions

2. )This PSA establishes three types of modified opinions, namely, a qualified

opinion, an adverse opinion, and a disclaimer of opinion. The decision regarding
which type of modified opinion is appropriate depends upon: (Ref: Para. A1)

(a) The nature of the matter giving rise to the modification, that is, whether the
financial statements are materially misstated or, in the case of an inability to
obtain sufficient appropriate audit evidence, may be materially misstated; and
(b) The auditors judgment about the pervasiveness of the effects or possible
effects of the matter on the financial statements.

Objective
4.) The objective of the auditor is to express clearly an appropriately modified
opinion on the financial statement that is necessary when:
(a) The auditor concludes, based on the audit evidence obtained, that the
financial statements as a whole are not free from material misstatement; or
(b) The auditor is unable to obtain sufficient appropriate audit evidence to
conclude that the financial statements as a whole are free from material
misstatement.

Requirements
Circumstances When a Modification to the Auditors Opinion Is Required

6.) The auditor shall modify the opinion in the auditors report when:
(a) The auditor concludes that, based on the audit evidence obtained, the
financial statements as a whole are not free from material misstatement; or
(Ref: Para. A2-A7)
(b) The auditor is unable to obtain sufficient appropriate audit evidence to
conclude that the financial statements as a whole are free from material
misstatement. (Ref: Para. A8-A12)

Determining the Type of Modification to the Auditors Opinion

Qualified Opinion
7.) The auditor shall express a qualified opinion when:
(a) The auditor, having obtained sufficient appropriate audit evidence, concludes
that misstatements, individually or in the aggregate, are material, but not
pervasive, to the financial statements; or
(b) The auditor is unable to obtain sufficient appropriate audit evidence on
which to base the opinion, but the auditor concludes that the possible effects on
the financial statements of undetected misstatements, if any, could be material
but not pervasive.

Adverse Opinion
8.) The auditor shall express an adverse opinion when the auditor, having
obtained sufficient appropriate audit evidence, concludes that misstatements,
individually or in the aggregate, are both material and pervasive to the financial
statements.

Disclaimer of Opinion
9.) The auditor shall disclaim an opinion when the auditor is unable to obtain
sufficient appropriate audit evidence on which to base the opinion, and the
auditor concludes that the possible effects on the financial statements of
undetected misstatements, if any, could be both material and pervasive.
10.) The auditor shall disclaim an opinion when, in extremely rare circumstances
involving multiple uncertainties, the auditor concludes that, notwithstanding
having obtained sufficient appropriate audit evidence regarding each of the
individual uncertainties, it is not possible to form an opinion on the financial
statements due to the potential interaction of the uncertainties and their
possible cumulative effect on the financial statements.
PSA 706

Definitions
5.) For the purposes of the PSAs, the following terms have the meanings
attributed below:

(a) Emphasis of Matter paragraph A paragraph included in the auditors

report that refers to a matter appropriately presented or disclosed in the
financial statements that, in the auditors judgment, is of such importance that it
is fundamental to users understanding of the financial statements.

Circumstances in Which an Emphasis of Matter Paragraph May Be Necessary

(Ref: Para.
6)
A1. Examples of circumstances where the auditor may consider it necessary to
include
an Emphasis of Matter paragraph are:
An uncertainty relating to the future outcome of exceptional litigation or
regulatory action.
Early application (where permitted) of a new accounting standard (for
example, a new
Philippine Financial Reporting Standard) that has a pervasive effect on the
financial statements in advance of its effective date.
A major catastrophe that has had, or continues to have, a significant effect on
the entitys financial position.

(b) Other Matter paragraph A paragraph included in the auditors report

that refers to a matter other than those presented or disclosed in the financial
statements that, in the auditors judgment, is relevant to users understanding
of the audit, the auditors responsibilities or the auditors report.

PSA 800

Objective

5.) The objective of the auditor, when applying PSAs in an audit of financial
statements prepared in accordance with a special purpose framework, is to
address appropriately the special considerations that are relevant to:
(a) The acceptance of the engagement;
(b) The planning and performance of that engagement; and
(c) Forming an opinion and reporting on the financial statements.
Definitions
6.) For purposes of the PSAs, the following terms have the meanings attributed
below:

(a) Special purpose financial statements Financial statements prepared in

accordance with a special purpose framework. (Ref: Para. A4)
(b) Special purpose framework A financial reporting framework designed to
meet the financial information needs of specific users. The financial reporting
framework may be a fair presentation framework or a compliance framework. 2
(Ref: Para. A1-A4)

Special Purpose Frameworks (Ref: Para. 6)

A1. Examples of special purpose frameworks are:

A tax basis of accounting for a set of financial statements that accompany an
entitys tax return;
The cash receipts and disbursements basis of accounting for cash flow
information that an entity may be requested to prepare for creditors;
The financial reporting provisions established by a regulator to meet the
requirements of that regulator; or
The financial reporting provisions of a contract, such as a bond indenture, a
loan agreement, or a project grant.

PSA 805

Definitions
6.) For purposes of this PSA, reference to:

(a) Element of a financial statement or element means an element,

account or item of a financial statement;

(b) Philippine Financial Reporting Standards means the Philippine Financial

Reporting Standards issued by the Philippine Financial Reporting Standards
Council; and

(c) A single financial statement or to a specific element of a financial statement

includes the related notes. The related notes ordinarily comprise a summary of
significant accounting policies and other explanatory information relevant to the
financial statement or to the element.
PSA 810

Definitions
4.) For purposes of this PSA, the following terms have the meanings attributed
below:
(a) Applied criteria The criteria applied by management in the preparation of
the summary financial statements.

(b) Audited financial statements Financial statements1 audited by the

auditor in accordance with PSAs, and from which the summary financial
statements are derived.

(c) Summary financial statements Historical financial information that is

derived from financial statements but that contains less detail than the financial
statements, while still providing a structured representation consistent with that
provided by the financial statements of the entitys economic resources or
obligations at a point in time or the changes therein for a period of time. 2
Different jurisdictions may use different terminology
to describe such historical financial information.

PSA 710

Definitions
6.) For purposes of the PSAs, the following terms have the meanings attributed
below:
(a) Comparative information The amounts and disclosures included in the
financial statements in respect of one or more prior periods in accordance with
the applicable financial reporting framework.

(b) Corresponding figures Comparative information where amounts and

other disclosures for the prior period are included as an integral part of the
current period financial statements, and are intended to be read only in relation
to the amounts and other disclosures relating to the current period (referred to
as current period figures). The level of detail presented in the corresponding
amounts and disclosures is dictated primarily by its relevance to the current
period figures.
(c) Comparative financial statements Comparative information where
amounts and other disclosures for the prior period are included for comparison
with the financial statements of the current period but, if audited, are referred to
in the auditors opinion. The level of information included in those comparative
financial statements is comparable with that of the financial statements of the
current period.

For purposes of this PSA, references to prior period should be read as prior
periods when the comparative information includes amounts and disclosures
for
more than one period.

PSA 720

Definitions
5. For purposes of the PSAs the following terms have the meanings attributed
below:

(a) Other information Financial and non-financial information (other than the
financial statements and the auditors report thereon) which is included, either
by law, regulation or custom, in a document containing audited financial
statements and the auditors report thereon.

(b)Inconsistency Other information that contradicts information contained in

the audited financial statements. A material inconsistency may raise doubt
about the audit conclusions drawn from audit evidence previously obtained and,
possibly, about the basis for the auditors opinion on the financial statements.
Unqualified Report
In an unqualified report, the auditors conclude that the financial statements of your
business present fairly its affairs in all material aspects. The opinion embodies the
assumptions that your business observed compliance with generally accepted
accounting principles and statutory requirements. Also known as a clean report,
such a report implies that any changes in the accounting policies, their application
and effects, are adequately determined and divulged. This opinion does not tell that
your business is in good economic health. It merely states that your financial report
is transparent and thorough and has not hidden important facts.

An opinion is said to be unqualified when the Auditor concludes that the Financial
Statements give a true and fair view in accordance with the financial reporting
framework used for the preparation and presentation of the Financial Statements. An
Auditor gives a Clean opinion or Unqualified Opinion when he or she does not have any
significant reservation in respect of matters contained in the Financial Statements. The
most frequent type of report is referred to as the "Unqualified Opinion", and is regarded
by many as the equivalent of a "clean bill of health" to a patient, which has led many to
call it the "Clean Opinion", but in reality it is not a clean bill of health, because the
Auditor can only provide reasonable assurance regarding the Financial Statements, not
the health of the company itself, or the integrity of company records not part of the
foundation of the Financial Statements. [2] This type of report is issued by an auditor
when the financial statements are free of material misstatements and are presented
fairly in accordance with the Generally Accepted Accounting Principles (GAAP), which in
other words means that the company's financial condition, position, and operations are
fairly presented in the financial statements. It is the best type of report an auditee may
receive from an external auditor.

An Unqualified Opinion indicates the following

(1) The Financial Statements have been prepared using the Generally Accepted
Accounting Principles which have been consistently applied;

(2) The Financial Statements comply with relevant statutory requirements and
regulations;

(3) There is adequate disclosure of all material matters relevant to the proper
presentation of the financial information subject to statutory requirements, where
applicable;
(4) Any changes in the accounting principles or in the method of their application and
the effects thereof have been properly determined and disclosed in the Financial
Statements.

Qualified Report

A qualified report is one in which the auditor concludes that most matters have been
dealt with adequately, except for a few issues. An auditors report is qualified when
there is either a limitation of scope in the auditors work, or when there is a
disagreement with management regarding application, acceptability or adequacy of
accounting policies. For auditors an issue must be material or financially worth
consideration to qualify a report. The issue should not be pervasive, that is, the
issue should not misrepresent the factual financial position. If issues are material
and pervasive, the auditor issues a disclaimer or adverse opinion. A qualified audit
report does not mean that your business is suffering, and it doesn't mean that your
financial statement isn't transparent. It merely reflects the auditors inability to give a
clean report.

A Qualified Opinion report is issued when the auditor encountered one of the two
types of situations which do not comply with generally accepted accounting principles,
however the rest of the financial statements are fairly presented. This type of opinion is
very similar to an unqualified or "clean opinion", but the report states that the financial
statements are fairly presented with a certain exception which is otherwise misstated.
The two types of situations which would cause an auditor to issue this opinion over the
unqualified opinion are:

Single deviation from GAAP this type of qualification occurs when one or more
areas of the financial statements do not conform with GAAP (e.g. are misstated), but
do not affect the rest of the financial statements from being fairly presented when
taken as a whole. Examples of this include a company dedicated to a retail business
that did not correctly calculate the depreciation expense of its building. Even if this
expense is considered material, since the rest of the financial statements do
conform with gaap, then the auditor qualifies the opinion by describing the
 depreciation misstatement in the report and continues to issue a clean opinion on
the rest of the financial statements.

Limitation of scope this type of qualification occurs when the auditor could not
audit one or more areas of the financial statements, and although they could not be
verified, the rest of the financial statements were audited and they conform to GAAP.
Examples of this include an auditor not being able to observe and test a company's
inventory of goods. If the auditor audited the rest of the financial statements and is
reasonably sure that they conform with GAAP, then the auditor simply states that the
financial statements are fairly presented, with the exception of the inventory which
could not be audited.

Auditor's report on financial statements[edit]

See also: Financial audit
It is important to note that auditor's reports on financial statements are neither
evaluations nor any other similar determination used to evaluate entities in
order to make a decision. The report is only an opinion on whether the
information presented is correct and free from material misstatements,
whereas all other determinations are left for the user to decide.