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.