AUDIT RISK

We have obtained an understanding of your business including the operations and the
nature of the company. Consequently, we have performed our planning procedures, including
risk assessment. The information we will be using are from the discussion with the
management, where we have identified the possible risks that may impact our audit risk. These
risks that we recognize are the risks of material misstatements in the financial records that in
our judgement require special audit consideration.

We have set out below the significant risks - of error or fraud - for the current period
along with the procedures that we will be using as our approach in order to reduce the risk of
material misstatements in the company’s financial statements.

Significant Audit Risk

Management Override of Controls
Description of Risk

The Philippine Standards on Auditing states that the management is in a unique

position to commit fraudulent financial reporting since they have the power to circumvent
or manipulate the financial accounting records by overriding controls that would
otherwise appear to be functioning correctly and effectively. This is considered in the risk
assessment due to the unpredictability of management override and thus becomes a
significant risk in the overall audit. This does not entail that we are already suspecting
the management of such acts but we approach the audit with professional skepticism.

Audit Approach 

We have updated our understanding and evaluation of internal controls

procedures as part of our audit planning, including completion of a fraud risk
assessment. As part of this, we will seek written assurances from the Audit and
Governance Committee and management on their controls and processes for assessing
the risk of fraud in the financial statements and arrangements in place to identify,
respond to and report fraud. Our testing strategy for this significant risk due to fraud will
include:

 journals recorded in the general ledger and other adjustments made in

preparation of the financial statements;
 consideration and review of material accounting estimates impacting on
amounts included in the financial statements;
 consideration and review of any unusual or significant transactions
outside the normal course of business; and
 consideration of any other local factors.
Revenue Recognition
Description of Risk 

Under the Philippine Standards of Auditing 240, it is included that there is a

presumed risk that revenue streams may be misstated due to the timing of revenue
recognition and in relation to judgments made by judgment as to when it has been
earned. As there is an inherent risk of fraud, we consider it to be a significant risk on all
audits. This presumption can be rebutted if the auditor concludes that there is no risk of
material misstatement due to fraud relating to revenue recognition.

Audit Approach

We will evaluate the design and implementation of controls to mitigate the risk of
income being recognized in the wrong period. In addition, we will undertake a range of
substantive procedures including:

 testing receipts in 2019 to ensure they have been recognized in the right
year
 testing adjustment journals; and
 obtaining direct confirmation of year-end bank balances and testing the
reconciliations to the ledger.

Expenditure Recognition
Description of Risk

Under the Philippine Standards of Auditing 240, it is included that there is a

presumed risk that revenue streams may be misstated due to the timing of expenditure
recognition and in relation to judgments made by judgment as to when it has been
incurred. As there is an inherent risk of fraud, we consider it to be a significant risk on all
audits. This presumption can be rebutted if the auditor concludes that there is no risk of
material misstatement due to fraud relating to expenditure recognition.

Audit Approach

    We will evaluate the design and implementation of controls to mitigate the
risk of income being recognized in the wrong period. In addition, we will undertake a
range of substantive procedures including:

 testing receipts in 2019 to ensure they have been recognized in the right
year
 testing adjustment journals; and
  obtaining direct confirmation of year-end bank balances and testing the
reconciliations to the ledger.

Areas of Audit Focus

Accounts Receivable
Description of Risk

Existence

Valuation

Audit Approach