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Facts of the Case:

Sulficio Tagud, Jr. retired both from the management and the board of 2GO Group, Inc.
in April, and Dennis Uy became president and chief executive officer (Rappler, 05.18.2017.).
Frederic DyBuncio of SM Investments was elected ExCom chairman. Then waves of rumors and
speculations of accounting overstatements of previous years income persist to stain the
companys credibility and integrity. The Philippine Stock Exchange (PSE) suspended trading of
2GO shares for two days after the logistics firm submitted revised financial results for 2015,
2016 and the first quarter of 2017 (ABS-CBN News, 07.10.2017). The Securities and Exchange
Commission (SEC) is investigating the alleged discrepancy in bookkeeping of leading logistics
provider 2GO Group, Inc. unearthed by the new investor group now running the company,
business news headlines flashed (Philippine Daily Inquirer-PDI, 07.10.2017).

In May, Uy, through his Chelsea Logistics announced that it locked in a $200-million
(P10.96 billion) loan with Bank of China granted under the initial $3-billion financing package it
committed during the state visit of President Duterte to China in October 2016 (Rappler,
05.18.2017). Chelsea Logistics said it plans to raise about P8 billion more via initial public
offering this year. This will be the second company of the Udenna group to go public after
Phoenix Petroleum Philippines, Inc.

President Rodrigo Duterte rang the bell for Phoenix Petroleum at the Philippine Stock
Exchange (PSE) -- the first Philippine president in recent history to attend the anniversary of the
listing of a company at the PSE (Rappler, 07.11.2017). Dennis Uy donated P30 million for
Dutertes presidential campaign in 2016, according to Rappler, reportedly in appreciation of then
Mayor Dutertes saving him from a smuggling case in Davao (as revealed in an anecdote by
Duterte himself at that PSE speech) (Ibid.). Duterte has appointed Uy Presidential Adviser on
Sports and Uy has joined some of Dutertes official foreign trips (Ibid.). The Dealmaker who
bet big on Duterte is building a casino-to-oil empire, a Bloomberg news article bannered

But Dennis Uys reportedly unwelcome takeover of 2GO, in partnership with SM

Investments makes an intriguing case. The restatement of the companys reported earnings for
2015 and 2016 is curious, because it does not immediately appear to benefit the new owners of
2GO. The recent special audit was supposed to establish the baseline accountability of the new

Interviews with insiders with knowledge of various elements of the case gave background
facts and a timeline: the 2GO integrated transport solutions provider group was formerly the
Aboitiz Transport Corp. (of the Superferry brand) which was part of the Aboitiz conglomerate.
Aboitiz Equity Ventures sold the unit to the Negros Navigation Company, Inc. (NENACO) in
2010 for $81 million (Rappler, 04.10.2017). NENACO had two major funders/investors, the
Kuwaiti KGLI-NM Holdings, Inc. (2008) and the China-ASEAN Marine B.V. (2010). By 2016,
both funders were willing to sell, and the 2GO president, Sulficio Tagud, Jr. called on the
companys right of first refusal (per contract of sale) to buy their shares before these were
offered to a third party.
Mr. Tagud signed a Term Sheet for the buy-back of the Kuwaiti shares in May 2016 and
obtained approval for a loan of $120M for this purpose from Banco de Oro (BDO), NENACOs
primary banker. However, due to the conditions of the loan which NENACO could not easily
comply with, the deadline for the option of first refusal came on June 29 and lapsed. Then in
August 2016, Tagud was informed in a letter from Udenna that it had already acquired the
Kuwaiti shares, apparently through a $120-M loan also. No, Uy did not use the $200-million
loan with Bank of China (acquired after Dutertes state visit) for the 2GO purchase, one insider
opined, as he related above incidents.

Meanwhile, Tagud worked on the buy-back of the Chinese shares, acquiring approval of
a $100-M loan from the Philippine National Bank (PNB) and the Standard Chartered Bank, after
a P10-M deposit on the purchase. In December 2016 Undenna filed a complaint with the SEC
questioning why a mandatory Tender Offer was not filed by Tagud for the purchase of the
Chinese shares. The controversy coupled with the Uy purchase of the Kuwaiti shares perhaps
alarmed Standard Chartered, and the closing date of Dec. 31, 2016 for the loan to Tagud was not

In January 2017, SM Investments bought the Chinese shares, and in March a nominee
company of the SM Group, Unique Choice Global Ltd, bought out the rest of the shares of
Taguds group.

The recent SGV audit review significantly altered bottom lines, with net income for 2015
cut by 90% to P105.13 million from the P1.08 billion previously reported; 2016 profit slashed by
74% to P344.03 million from P1.35 billion; and this years first quarter recording a P264.863-
million net loss from a P267.562-million net income originally (, 07.13.2017).
Among the findings in the SGV audit were differences in 2GOs equity, which stood at P3.66
billion in the first quarter of 2017. Previously, its equity was stated at P6.59 billion, a difference
of 80%. SGVs review covered major items such as how 2GO books revenues and the
recoverability of trade and other receivables. For the latter, SGV said 2GO had trade and
receivables amounting to P3.86 billion in the first quarter of 2017 after removing doubtful
accounts of P1.46 billion. We considered the recoverability of trade and other receivables as a
key audit matter because the determination of the allowance for doubtful receivables involves
significant managements judgment and estimations, SGV said. (Philippine Daily Inquirer-PDI,

SEC regulations require companies to file financial reports that are accurate, truthful, and
complete and prepared according to a set of "Internationally Accepted Principles of Accounting."
And to ensure these files faithful presentation, these must also be examined and reported by
internal and independent auditors.

Now investigations kicked off whether or not the audit results of the previous auditor of
2GO - KPMG RG Manabat are misrepresentations, failing to adhere to established standards
since there had been notable differences as compared to current audits of SGV which paved way
to reclassification of accounts and even restatement of 2015 and 2016 financial statements.This
therefore imposes questions whether there are deficiencies in 2GOs previous financial
statements, whether there had been limps in past internal accounting and external auditing.

KPMG RG Manabats vice chairperson and head of audit, Sharon Dayoan, insisted that
"The restatements that you now see in the news are essentially relating to items of judgment and
estimates made by (2GO's) management. When we did our audit, it was an audit on the judgment
and estimates made by management at the time that we had to deliver our opinion."

Focusing then at these reclassifications and restatement of data, I honestly couldnt

wholly comprehend the larger picture since perhaps deeper details should at least be known on
the elements of each account in question, which lead to understanding what could have been the
more appropriate treatment for such. The two different auditors have two conflicting judgments
regarding receivables, current and non- current liabilities, revenue accounts and even that of the
equity portion, which led to opposing numbers shown in their financial statements. The applied
auditing judgement and estimate couldnt be fully verified as neither right or not.

The transition from SGV (til 2014) to KPMG RG Manabat (2014 2016) and back to
SGV again rings clamours on applied auditing measures. A companys board and management
has the authority to choose who it employs to carry out the task of auditing. Thus with this
company takeover came changes in auditors. I know there are intricacies again applicable to such
transition, however honestly, I am somehow unknowledgeable on what theses certain
pronouncements of respected bodies are, concerning what if the current auditor finds
uncorrected mistakes from the previous audit of another auditor? . But with two varying views,
at this point as SEC rolls out continued pursuit of certainty, we actually cant be certain of the
alleged misstatements of the previous auditor whether such arose from fraud or error; neither can
we ascertain the reliability of the restated financial documents which pointed these suspected
auditing inconsistencies. Both are taking responsibility of their respective auditing opinion about
the financials of 2GO, both are insisting their honest review and denying possible ulterior
intentions and collusion with respective managements, but at the end of this, the side proven
guilty without reasonable doubt shall stain its reputable name and more importantly face criminal
raps. If theres one thing certain about this, we as future accountants must be responsible enough
to live out excellence in our profession with utmost integrity and credibility.