Name of Corporate Client: TAIAN (SUBIC) ELECTRIC, INC.

Consolidated Audited Financial Statements as of: December 31, 2018 External Auditor:
PETER R. TUMANDA
(REYES, DIANO, TUMANDA & CO.)

Components of Financial
Statements
Additional Components of
Financial Statements
COMMENTS/FINDINGS
Brief Description of Non-Compliance "(See applicable
rule/standard as cited, for complete reference)
There is no tabular schedule of standards and
interpretations as of reporting date which should be
covered by a legal matter paragraph in the Auditor's Report
or a separate report of auditor (Financial Reporting Bulletin
No. 1).
Response of Applicant-External Auditor
The tabular schedule is only an additional component and
not a main component of the financial statements.
Although, we acknowledge the failure to provide the said
schedule but the failure does not affect the Company's
financial statements nor the opinion rendered to the
financial statements.

Statement of Financial Position
The Company presented retirement benefit asset's
remeasurement loss among the "Retained Earnings"
instead of presenting it among the "reserves for
remeasurements on retirement benefits" (PAS 1).
It was an oversight on our part, though the Company did
not include the change in retirement benefit assets in the
Profit/Loss, unfortunately, it was included in Retained
Earnings instead of the Reserves for Remeasurement on
Retirement Benefits. And the amount involved $3,769 is
immaterial.

Statement of Cash Flows
1. Cash flows from investing and financing activities were
presented using the indirect method of cash flows even
though these should have been presented using the direct
method considering that the indirect method is only
allowed on operating cash flows (PAS 7).
1. PAS 7 does not expressly states that investing and
financing activities in statement of cash flows should only
be presented using the direct method. We further explain
that the term "increase" and "decrease" we used for some
items in investing and financing section of statement of
cashflows are in the same context and meaning of
"purchase/acquisition", "proceeds/receipts" and
"payment/disposal" but with no related actual cash flows
because these only resulted from movement of other
related accounts.

2. The 2017 additional acquisition of PPE per Note 9 do not 2. The amount involved falls below the threshold we've set
agree with the Statement of Cash Flows (PAS 1,7 and 16). for materiality, it neither affect the Company's financial
statements nor the opinion rendered to the financial
statements.
3. The Company presented "non-current Trade 3. The noncurrent portion of the Trade and other
Receivables", "Long-term Investments" and "Defined receivables was initially a trade receivable converted into a
Benefit Asset" among the Investing Activities instead of long-term note receivables by the agreement between the
Operating Activities (PAS 7). Company and its related parties since 2014 that will be paid
until March 31, 2022, reclassifying a formerly operating
cash flow to an investing activity. Long-Term Investments
and Defined Benefit Asset are both Non-current Assets and
shall fall under Investing Activities.

4. The movements of "Prepayments" and "Trade and other 4. The movement of "Prepayments" as disclosed in the
payables" per Statement of Financial Position do not agree Statement of Cash Flows include the movement of Prepaid
with the Statement of Cash Flows (PAS 7). Rent, net of current portion, see below computation:

Movement
Prepayments $17,753
Prepaid rent-net of current $29,745
Total movement per SCF $47,498

As for the movement of "Trade and other payables", the

difference/variance is below our assessed materiality.
 COMMENTS/FINDINGS
Brief Description of Non-Compliance "(See applicable
Notes to Financial Statements Response of Applicant-External Auditor
rule/standard as cited, for complete reference)

Financial Instruments
The Company still used PAS 39 on its financial instruments
instead of PFRS 9.
While the Company failed to change the Note 4.1 and 4.2 of
the Notes to the Financial Statements the Company
adopted and used PFRS 9 as mentioned in the Note 3 of the
Notes to Financial Statements (Adoption of New and
Revised Accounting Standards).

Investment in Banks
Trade and Other Receivables
Incomplete disclosure on "Investment in Banks", i.e., This is duly noted and we will correct accordingly.
maturity dates (PFRS 7).
1. Note 4.7 states that "Trade and other receivables" are 1. The fair value is the transaction price.
recognized initially at fair value which is not in accordance
with PFRS 9 Section 5.1.3).

2. Incomplete disclosure on "Due from related parties", i.e., 2. The amount of the transactions are disclosed in Note 19,
the amount of the transactions and maturity dates (PAS there were maturity dates disclosed due to the fact that
24). there is no specific date as to when it will be collected.

Property, Plant and Equipment
3. The Company's accounting policy for impairment of
financial assets is not in accordance with PFRS 9 Section
5.5.
Kindly provide the amount of "Allowance for doubtful
accounts" had the Company used PFRS 9 (Expected Credit
Losses).
Note 4.10 states that "property, plant and equipment are
stated at cost less accumulated depreciation,
amortization…". Property and equipemnt are tangible
assets which are not subject to amortization (PAS 16).
3. The Company used PFRS 9 but failed to disclose it
accordingly.
The amount of "Allowance for doubtful accounts" in the
financial statements were derived using PFRS 9.
The Company is located inside Subic Freeport Zone where
all properties are leased out with Subic Bay Metropolitan
Authority, in such a case, building, plant and facilities are
considered as leasehold improvements subject to
amortization for number of years not exceeding the lease
period. Our disclosure for PPE containing the terms
"depreciation" and "amortization" are similarly used in the
context of spreading the cost of the PPE througout its useful
life. Moveover, there is no misstatement or issues for
including the term amortization in the disclosure since all
the account and information related to depreciation and
PPE have properly stated and used the term "depreciation",
unless otherwise.

Depreciation The 2017 depreciation expense per Note 9 do not agree The variance originated from a lease of equipment to a
with the depreciation expense per Note 13 and 14 and the related party which was subsequently repossessed by the
Statement of Cash Flows (PAS 1,7 and 16). Company. Both the Company and the related party failed to
reconcile the cost and accumulated depreciation
throughout the course of the audit for the year 2017.
Considering the amount involved, this reconciling item has
been considered immaterial.

Due to Related Parties Incomplete disclosure on "Due to related parties", i.e., the It is disclosed properly in Note 19.
amount of the transactions (PAS 24).
Revenue 1. The accounting policy disclosed in Note 4.17 is not in 1. Fair Value is equal to the Transaction Price.
accordance with PFRS 15 (i.e., at transaction price).

2. Incomplete disclosure on "Sale of Goods" and "Sale of 2. Sale of Goods is a straightforward contract to deliver the
Services", i.e., the quantitative and qualitative information ordered goods based on purchase orders and specified
about its contracts with customers and the significant contract price and date of delivery.
judgments and changes in judgments made in applying
PFRS 15.
 3. The Company did not disaggregate its service revenue in
accordance with PFRS 15 (an entity shall disaggregate
revenue recognized from contracts with customers into
categories that depict how the nature, amount, timing and
uncertainty of revenue and cash flows are affected by
economic factors).
Rent Expense Incomplete disclosure on "Rent expense", i.e., the total of
future minimum lease payments under non-cancellable
operating leases for each of the following periods: (i) not
kater than one year; (ii) later than one year and not later
than five years; and (iii) later than five years. (PAS 17).
Defined Benefit Asset Incomplete disclosure on "Defined benefit asset", i.e., an
entity shall disaggregate the fair value of the plan assets required because the Company only established one plan
into classes that distinguish the nature and risks of those asset for the retirement benefits of its employees.
assets, subdividing each class of plan asset into those that
have a quoted market price in an active market (as defined
in IFRS 13 Fair Value Measurement) and those that do not
(PAS 19).
Tax 1. The Company did not consider write-off of "Trade and
other receivables - net" and "Inventories" among the
deductible expenses for 2018 and 2017. Moreover, the
Company did not consider unrealized forex loss among the
non-deductible expenses for 2017 (PAS 12).
2. The Company did not recognize deferred tax during 2017
and 2018 (PAS 12).
Kindly provide the amount of deferred tax that should be
recognized for the years 2018 and 2017 (PAS 12).
3. Rental Income was disclosed in Note 17 (Company as a
Lessor).
As disclosed in Note 17 (Company as a Lessee), the contract
price had already been paid in full at the time of the
commencement of the lease term, hence, there will be no
more future minimum lease payments to be disclosed.
Disaggregation of fair value of the plan assets is not
1. Write-off of "Trade and other receivables - net" and
"Inventories" are not considered as deductible expense
under the 5% Gross Income Tax as per R.A. 7227. Moreover,
the nondeductible unrealized forex loss was included in the
line item "Nondeductible Expenses under SBMA -
Registered Activities" amounting to $439,865 broken down
as Realized Forex Loss - $5,713, Unrealized Forex Loss -
$27,818 and Operating Expenses - $406,334.
2. The Company did not recognize deferred tax during 2017
and 2018 because the unrealized forex loss has no tax effect
even when realized on the subsequent year, stated under
R.A. 7227 5% Gross Income Tax.