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In our observation through the auditor’s report has remained unchanged for quite some time.

However, in the wake of the recent global financial crisis, there were calls for more informative auditor’s
reports for the auditors to provide more transparent and relevant information about the audits
performed. Investors, other users and stakeholders demanded more than the standard “pass/fail”
opinion on a company’s financial statements. Responding to these calls, the IAASB revised the existing
ISAs relating to the auditor’s report and introduced a significant number of changes. The new auditor’s
report will address the above concerns, and will improve communication among auditors, management,
audit committees and stockholders. In addition, it is expected to contribute to the continued relevance
of the financial statement audit and the public’s confidence in the financial statements of companies.

Aside from the increased transparency and enhanced informational value of the auditor’s
report, changes to auditor reporting will also result in an enhanced communication between the auditor
and investors as well as between auditors and those charged with governance, it will increased attention
by management and to those charged with governance to the disclosures in the financial statements to
which reference is made in the auditor’s report and renewed focus of the auditor on matters to be
reported, which could indirectly result in an increase in professional skepticism.

The centerpiece of the new auditor’s report and the most notable change in it for listed entities
is the Key Audit Matters section. This section are those matters that, in the auditor’s judgment, were
most significant in the audit of the financial statements. In a sense, this will describe the key focus areas
in the audit. In most cases, Key Audit Matters will relate to significant or complex matters disclosed in
the financial statements. The Key Audit Matters section of the auditor’s report shall include an
explanation on why the matter was considered as one with the most significance in the audit and
therefore determined to be a Key Audit Matters, and how it was addressed in the audit. There would
also be a reference to the related disclosure elsewhere in the financial statements.

Other changes that we observed to the new auditor's report. First, the auditor’s opinion will be
positioned at the beginning of the report, followed by the Basis for Opinion. Second, the Basis for
Opinion section will be included in all auditor’s reports and will explain that the audit was conducted in
accordance with PSAs and whether the audit evidence obtained is sufficient and appropriate to provide
a basis for the opinion. Third, the Basis for Opinion section will also include a new affirmative statement
that the auditor is independent of the entity and has fulfilled the auditor’s other relevant ethical
responsibilities relating to the audit. Fourth, transparency of the auditor’s responsibilities related to
other information will increases. Fifth, the description of management’s responsibility for going concern
reflects the requirements of the applicable financial reporting framework while the description of the
auditor’s responsibility reflects responsibilities under Philippine Standards on Auditing 570, Going
Concern, which are required regardless of the applicable framework. Sixth, identification of those
charged with governance within the management’s responsibilities section will be required when a
separate body exists that is responsible for the oversight of the financial reporting process. Seventh, the
auditor’s responsibilities section will provide a fuller explanation of the concept of a risk-based audit, as
well as clarification on the meaning of certain audit-technical terms and consequently, a fuller
description of the auditor’s responsibilities in relation to specific matters, including fraud; internal
control, accounting policies and estimates, evaluating the overall presentation, structure and content of
the financial statements and disclosures, group audits, and communications with those charged with
governance.

We observed that the effect of the new standards on the financial reporting process it will
remains management’s responsibility, with the oversight of those charged with governance, to
communicate relevant information to users about the entity and its financial performance, including
providing adequate disclosures in accordance with the applicable financial reporting framework.
Auditor’s report should not be the original source of information about the entity. The new style
auditor’s reports may result in enhanced disclosure by management in the financial statements.
Notwithstanding, the effect of the new standards on the audit process the changes to the auditing
reporting standards do not change the underlying work effort required in an ISA audit, but rather focus
on increased transparency about the audit that was performed. However, time commitment will be
required from senior members on the audit team and the firm’s internal quality assurance functions
with regard to the identification of Key Audit Matters and the articulation thereof in the auditor’s
report.