THE AUDITOR’S REPORT ON FINANCIAL STATEMENTS

(Based on PSA 700 revised – The Independent Auditor’s Report

On a Complete Set of General Purpose Financial Statements)

Introduction

At the end of the audit, the auditor shall:

a) Form an opinion on the financial statements (FSs) based on an evaluation of the conclusions drawn from the
audit evidence obtained; and
b) Express clearly that opinion through a written report that also describes the basis for the opinion.

Auditor’s Opinions

Types of Auditor’s Opinions

a) Unmodified (unqualified) opinion—The opinion expressed when the FSs are prepared, in all material respects, in
accordance with the applicable FRF.
b) Modified opinion—The three types of are:
i. Qualified opinion – the auditor is satisfied that the FSs are presented fairly, except for a specific aspect of
them.
ii. Adverse opinion – the auditor does not believe the FSs are fairly presented.
iii. Disclaimer of opinion – the auditor does not know if the FSs are presented fairly.

The table below illustrates how the auditor’s judgment about the affects the type of opinion to be expressed.

Nature of Matter Giving Rise to the Material but Not Material and Pervasive
Modification Pervasive
FSs are materially misstated Qualified opinion Adverse opinion
Inability to obtain SAAE (Scope limitation):
Due to management imposed Qualified opinion Resign, if appropriate; or
limitation Disclaimer of opinion
Other limitations Qualified opinion Disclaimer of opinion

Pervasive effects or possible effects on the FSs are those that, in the auditor’s judgment:
a) Are not confined to specific elements, accounts or items of the FSs;
b) If so confined, represent or could represent a substantial proportion of the FSs; or
c) In relation to disclosures, are fundamental to users’ understanding of the FSs.

Auditor’s Reports

The auditor’s report shall be in writing (hard copy format or an electronic medium).

Standard Auditor’s Report

The following are the parts of a standard auditor’s report with unqualified opinion without emphasis of matter
paragraph and other matter paragraph:
a) Title
b) Addressee
c) Sub-title (if the report includes “Other Reporting Responsibilities” paragraph in (h))
d) Introductory Paragraph
e) Management’s Responsibility for the financial statements
f) Auditor’s Responsibility
g) Auditor’s Opinion
h) Other Reporting Responsibilities, if applicable
i) Signature of the Auditor
j) Date of the Auditor’s Report
k) Auditor’s Address
Title

The auditor’s report shall have a title that clearly indicates that it is the report of an independent auditor. For
example, “Independent Auditor’s Report,” affirms that the auditor has met all of the relevant ethical requirements
regarding independence and distinguishes the independent auditor’s report from reports issued by others.

Addressee

The auditor’s report is normally addressed to those for whom the report is prepared, often either to the shareholders
and/or to TCWG of the entity.

Introductory Paragraph

The introductory paragraph in the auditor’s report shall:

a) Identify the entity whose FSs have been audited;
b) State that the FSs have been audited;
c) Identify the title of each statement comprising the FSs;
d) Refer to the summary of significant accounting policies and other explanatory information; and
e) Specify the date or period covered by each FS comprising the FSs.

Management’s Responsibility for the Financial Statements

This section describes the responsibilities of those in the organization responsible for the FSs and internal control
relevant to the preparation of FSs that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

This section states that the responsibility of the auditor is to express an opinion on the FSs based on the audit.

Auditor’s Opinion

This includes a section with the heading “Opinion.” Use the phrase: The financial statements present fairly, in all
material respects, in accordance with [the applicable financial reporting framework].

Other Reporting Responsibilities

If the auditor addresses other reporting responsibilities (e.g., reportorial requirement of regulatory authorities) in the
auditor’s report on the FSs that are in addition to to report on the FSs, these shall be addressed in a separate section
in the auditor’s report that shall be sub-titled “Report on Other Legal and Regulatory Requirements”.

Signature of the Auditor

The auditor’s report shall be signed. The auditor’s signature is either in the name of the audit firm, the personal
name of the auditor or both, as appropriate.

In the Philippines, Securities Regulation Code (SRC) Rule 68 requires that the auditor’s report on FSs filed with the
Securities and Exchange Commission (SEC), which will likewise be filed with the Bureau of Internal Revenue (BIR),
be manually signed. In case of an auditing firm, the certifying partner shall sign his/her own signature and shall
indicate that he/she is signing for the firm, the name of which is also indicated in the report. The auditor is also
required to state the signing accountant’s license number, Tax Identification No. (TIN), Privilege Tax Receipt (PTR)
No., registration number with the PRC/BOA, and accreditation issued by the SEC.

Date of the Auditor’s Report

The auditor’s report shall be dated no earlier than the date on which the auditor has obtained SAAE on which to base
the auditor’s opinion on the FSs, including evidence that:
a. All the statements that comprise the FSs, including the related notes, have been prepared; and
b. Those with the recognized authority have asserted that they have taken responsibility for those FSs.

The date of the auditor’s report informs the user of the auditor’s report that the auditor has considered the effect of
events and transactions of which the auditor became aware and that occurred up to that date.

In the Philippines, under SRC Rule 68, management is required to submit to the SEC, together with the FSs, a
‘Statement of Management Responsibility’ that indicates, that the company’s Board of Directors reviewed and
approved the FSs before such statements are submitted to the stockholders of the company.

Modifications to Auditor’s Report

The instances of modifications include when the auditor:

 adds “Emphasis of Matter Paragraph”
 includes “Other of Matter Paragraph”
 provides modified auditor’s opinion

Emphasis of Matter Paragraph

A paragraph included in the auditor’s report that refers to a matter appropriately presented or disclosed in the FSs, in
the auditor’s judgment, is of such importance that it is fundamental to users’ understanding of the FSs. The auditor
can include emphasis of matter paragraph provided the auditor has obtained SAAE that the matter is not materially
misstated in the FSs. The inclusion of this paragraph in the auditor’s report does not affect the auditor’s opinion.

When the auditor includes an Emphasis of Matter paragraph in the auditor’s report, the auditor shall:
 Include it immediately after the Opinion paragraph;
 Use the heading “Emphasis of Matter,” or other appropriate heading;
 Include in the paragraph a clear reference to the matter being emphasized and to where relevant disclosures
that fully describe the matter can be found in the FSs; and
 Indicate that the auditor’s opinion is not modified in respect of the matter emphasized

Other Matter Paragraph

A paragraph included in the auditor’s report that refers to a matter other than those presented or disclosed in the FSs
that, in the auditor’s judgment, is relevant to users’ understanding of the audit, the auditor’s responsibilities or the
auditor’s report.

The auditor shall include this paragraph immediately after the Opinion paragraph and any Emphasis of Matter
paragraph, or elsewhere in the auditor’s report if the content of the Other Matter paragraph is relevant to the Other
Reporting Responsibilities section.

Modified Auditor’s Opinions

Description of Introductory Paragraph

 Qualified or Adverse Opinion – No modification made.
 Disclaimer of Opinion – Amend this paragraph of the auditor’s report to state that the auditor was only engaged
(not audited) to audit the FSs.

Description of Auditor’s Responsibility Paragraph

 Qualified or Adverse Opinion – Amend this section to state that the auditor believes that the audit evidence the
auditor has obtained is sufficient and appropriate to provide a basis for the auditor’s modified audit opinion.
 Disclaimer of Opinion – Amend this section to state only the following: “Our responsibility is to express an
opinion on the financial statements based on conducting the audit in accordance with Philippine Standards on
Auditing. Because of the matter(s) described in the Basis for Disclaimer of Opinion paragraph, however, we were
not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion.”
Basis for Modification Paragraph
 The auditor shall include additional paragraph on the standard auditor’s report immediately before the opinion
paragraph, and use the heading “Basis for Qualified Opinion,” “Basis for Adverse Opinion,” or “Basis for
Disclaimer of Opinion,” as appropriate.

Opinion Paragraph
 The auditor shall use the heading “Qualified Opinion,” “Adverse Opinion,” or “Disclaimer of Opinion,” as
appropriate, for the opinion paragraph.

Sample of Auditor’s Reports

INDEPENDENT AUDITOR’S REPORT

The Board of Directors and Shareholders

Report on the Financial Statements

We have audited [if disclaimer of opinion, We were engaged to audit] the accompanying financial statements of
[Name of Client], which comprise the statements of financial position as at [Reporting Date], 2012 and 2011, and the
statements of [comprehensive income, income, operations, or other appropriate title used in the financial
statements], statements of changes in equity and statements of cash flows for the years then ended, and a summary
of significant accounting policies and other explanatory information.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with
[Applicable Financial Reporting Framework], and for such internal control as management determines is necessary to
enable the preparation of financial statements that are free from material misstatement, whether due to fraud or
error.

Auditors’ Responsibility

[If qualified opinion or adverse ]

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our
audits in accordance with Philippine Standards on Auditing. Those standards require that we comply with ethical
requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial
statements. 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 auditors consider internal control relevant to the entity’s preparation and fair presentation 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 entity’s internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates made by management,
as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our [qualified
or adverse, as appropriate] audit opinion.

[If disclaimer of opinion]

Our responsibility is to express an opinion on these financial statements based on conducting the audit in accordance
with Philippine Standards on Auditing. Because of the matter described in the Basis for Disclaimer of Opinion
paragraph, however, we were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit
opinion.

Opinion [If unqualified/unmodified opinion]

In our opinion, the financial statements present fairly, in all material respects, the financial position of [Name of
Client] as at [Reporting Date], 2012 and 2011, and its financial performance and its cash flows for the years then
ended in accordance with [Applicable financial reporting framework].

[If qualified opinion]

Basis for Qualified Opinion

The Company’s inventories are recognized in the statement of financial position at P16 million Based on the audit
evidence obtained, we believe that an adjustment to inventories of P5 million is required to recognize slow moving
items at their net realized value. The tax effect of this adjustment is P1.5 million. Accordingly, we believe that
shareholders’ equity and profit for the year are overstated by P3.5 million respectively.]

Qualified Opinion

In our opinion, except for the effects of the matters descried in the basis for qualified opinion paragraph, the
financial statements present fairly, in all material respects, the financial position of [Name of Client] as of [Reporting
Date], 2012 and 2011, and its financial performance and its cash flows for the years ended in accordance with
Philippine Financial Reporting Standards.

[If adverse opinion]

Basis for Adverse Opinion

As discussed in Note X to the financial statements, the Company’s financing arrangements expired and the amount
outstanding was payable on December 31, 20XI. The company has been unable to re-negotiate or obtain
replacement financing and is considering filling for bankruptcy. Based on the audit evidence obtained, we believe
that the company will not be able to meet its obligations in the ordinary course of business. Accordingly, we do not
agree with management’s preparation and presentation of financial statements on a going concern basis. Had the
financial statements been prepared on a liquidation basis of accounting, we believe that it would have had a
significant negative effect on the company’s financial position and financial performance.
Adverse Opinion

Adverse Opinion

In our opinion, because of the significance of the matter discussed in the basis for adverse opinion paragraph, the
financial statements do not present fairly, in all material respects the financial position [Name of Client] as of
[Reporting Date], 2012 and 2011, and of its financial performance and its cash flows for the years then ended in
accordance with Philippine Financial Reporting Standards.

[If disclaimer of opinion]

Basis for Disclaimer of Opinion

The company’s investment in its joint venture XYZ (Country X) Company is carried at xxx on the company’s
statement of financial position, which represents over 90% of the company’s net assets as at December 31, 2012.
We were not allowed access to the management and the auditors of XYZ, including XYZ’s auditors’ audit
documentation. As a result, we were unable to determine whether any adjustments were necessary in respect of the
company’s proportional share of XYZ’s assets that it controls jointly, its proportional share of XYZ’s liabilities for which
it is jointly responsible, its proportional share of XYZ’s income and expenses for the year, and the elements making
up the statement of changes in equity and statement of cash flow.

Disclaimer of Opinion
Because of the significance of the matter described in the Basis for Disclaimer of Opinion paragraph, we have not
been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. Accordingly, we do
not express an opinion on the financial statements.

[If with emphasis of a matter]

Emphasis of Matter

We draw attention to Note X to the financial statements, which appropriately describe the significant uncertainty
related to the outcome of a lawsuit in which the company is the defendant. The lawsuit alleges infringement of
certain patent right and claims royalties and punitive damages in the amount of P10 million to the outcome of the
lawsuit, the company believes that it will be able to successfully defend its case and, accordingly, no provision for
any liability that may result has been recognized in the financial statements. Our opinion is not qualified in respect of
this matter.

Report on Other Legal and Regulatory Requirements

[NAME OF AUDITING FIRM]

BOA Registration No.
SEC Accreditation No.
TIN

By:

[NAME OF PARTNER]
Partner
CPA License No.
SEC A.N.
TIN
BIR AN.
PTR No., Issued on [Date, Place of Issue]
Makati City, Philippines
[Date of Auditors’ Report]

Supplementary Information Presented with the Financial Statements

Supplementary information – information that is presented together with the FSs that is not required by the
applicable FRF used to prepare the FSs, normally presented in either supplementary schedules or as additional notes.

The auditor shall evaluate whether such supplementary information is clearly differentiated from the audited FSs. If
such supplementary information is not clearly differentiated, the auditor shall ask management to change how the
unaudited supplementary information is presented. If management refuses to do so, the auditor shall explain in the
auditor’s report that such supplementary information has not been audited. The fact that supplementary information
is unaudited does not relieve the auditor of the responsibility to read that information to identify material
inconsistencies with the audited financial statements.

Comparative Information

The two broad approaches to the auditor’s reporting responsibilities in respect of comparative information are:
a) Corresponding figures –comparative information where amounts and other disclosures for the prior period are
included as an integral part of the current period FSs, 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; and
b) Comparative FSs –comparative information where amounts and other disclosures for the prior period are
included for comparison with the FSs of the current period but, if audited, are referred to in the auditor’s
opinion. The level of information included in those comparative FSs is comparable with that of the FSs of the
current period.
Audit Procedures

The auditor shall evaluate whether:

a) The comparative information agrees with the amounts and other disclosures presented in the prior period or,
when appropriate, have been restated; and
b) The accounting policies reflected in the comparative information are consistent with those applied in the current
period or, if there have been changes in accounting policies, whether those changes have been properly
accounted, presented and disclosed.

If the auditor becomes aware of a possible material misstatement in the comparative information while performing
the current period audit, the auditor shall perform such additional audit procedures necessary to obtain SAAE,
including requesting written representations for all periods referred to in the auditor’s opinion.

Audit Reporting

The essential audit reporting differences between the approaches are:

a) For corresponding figures, the auditor’s opinion on the FSs refers to the current period only; whereas
b) For comparative FSs, the auditor’s opinion refers to each period for which FSs are presented.

Corresponding figures

The auditor’s opinion shall not refer to the corresponding figures because the auditor’s opinion is on the current
period FSs includes corresponding figures, except:
a) Modification in auditor’s report on the prior period remain unresolved
b) Misstatement in prior period FSs
c) Prior period FSs not audited
d) Prior period FSs audited by a predecessor auditor

Modification in auditor’s report on the prior period remain unresolved

The auditor shall modify the auditor’s opinion on the current period’s FSs.

Misstatement in prior period FSs

If the auditor obtains audit evidence that a material misstatement exists in the prior period FSs on which an
unmodified opinion has been previously issued, and the corresponding figures have not been properly restated, the
auditor shall express a qualified opinion or an adverse opinion in the auditor’s report on the current period FSs.

When the prior period FSs that are misstated have not been amended and an auditor’s report has not been reissued,
but the corresponding figures have been properly restated or appropriate disclosures have been made in the current
period FSs, the auditor’s report may include an Emphasis of Matter paragraph.

Prior period FSs not audited

The auditor shall state in an Other Matter paragraph in the auditor’s report that the corresponding figures are
unaudited.

Prior period FSs audited by a predecessor auditor

The auditor shall state (if nor prohibited by law to do so) in an Other Matter paragraph in the auditor’s report:
a) That the FSs of the prior period were audited by the predecessor auditor;
b) The type of opinion expressed and, if the opinion was modified, the reasons therefore; and
c) The date of that report.

Comparative financial statements

The auditor’s opinion shall refer to each period for which FSs are presented on which an audit opinion is expressed.
Opinion on Prior Period FSs Different from Previous Opinion

The opinion expressed on the prior period FSs may be different from the opinion previously expressed if the auditor
becomes aware of circumstances or events that materially affect the FSs of a prior period during the course of the
audit of the current period. The auditor shall disclose the substantive reasons for the different opinion in an Other
Matter paragraph.

Prior Period FSs Audited by a Predecessor Auditor

In addition to expressing an opinion on the current period’s FSs, the auditor shall state in an Other Matter paragraph:
a) that the FSs of the prior period were audited by a predecessor auditor;
b) the type of opinion expressed and, if the opinion was modified, the reasons therefore; and
c) the date of that report,
unless the predecessor auditor’s report on the prior period’s FSs is reissued with the FSs.

Prior Period Financial Statements Not Audited

If the prior period FSs were not audited, the auditor shall state in an Other Matter paragraph that the comparative
FSs are unaudited.

Other Information in Documents Containing Audited Financial Statements

Other information refers to financial and non-financial information (other than the FSs and the auditor’s report
thereon) which is included, either by law, regulation or custom, in a document containing audited FSs and the
auditor’s report thereon. Other information may comprise, for example:
 A report by management or TCWG on operations.
 Financial summaries or highlights.
 Employment data.
 Planned capital expenditures.
 Financial ratios.
 Names of officers and directors.
 Selected quarterly data.

“Documents containing audited FSs” refers to annual reports (or similar documents), that are issued to owners (or
similar stakeholders), containing audited FSs and the auditor’s report, as well as other documents containing audited
FSs, such as those used in securities offerings.

The auditor’s opinion does not cover other information and the auditor has no specific responsibility for determining
whether or not other information is properly stated. However, the auditor reads the other information because the
credibility of the audited FSs and the auditor’s report may be undermined by material inconsistencies between the
audited FSs and other information.

Material Inconsistencies

If, on reading the other information, the auditor identifies a material inconsistency, the auditor shall determine
whether the audited FSs or the other information needs to be revised.

Material Inconsistencies Identified in Other Information Obtained Prior to the Date of the Auditor’s Report

If revision of the audited FSs is necessary and management refuses to make the revision, the auditor shall modify
the opinion in the auditor’s report.

If revision of the other information is necessary and management refuses to make the revision, the auditor shall
communicate this matter to TCWG; and
a) Include in the auditor’s report an Other Matter paragraph describing the material inconsistency.
b) Withhold the auditor’s report.
c) Withdraw from the engagement, if possible.
d) Seek advice from the auditor’s legal counsel.

Material Inconsistencies Identified in Other Information Obtained Subsequent to the Date of the Auditor’s Report

If revision of the audited FSs is necessary, the auditor shall follow the relevant requirements in “Subsequent Events”.

If revision of the other information is necessary and management agrees to make the revision, the auditor shall carry
out the procedures necessary under the circumstances, which may include reviewing the steps taken by management
to ensure that individuals in receipt of the previously issued FSs, the auditor’s report thereon, and the other
information are informed of the revision.

If revision of the other information is necessary, but management refuses to make the revision, the auditor shall
notify TCWG of the auditor’s concern regarding the other information and take any further appropriate action, which
may include obtaining advice from the auditor’s legal counsel.

Material Misstatements of Fact

If, on reading the other information for the purpose of identifying material inconsistencies, the auditor becomes
aware of an apparent material misstatement of fact, the auditor shall discuss the matter with management.
Misstatement of fact occurs when other information that is unrelated to matters appearing in the audited FSs that is
incorrectly stated or presented. A material misstatement of fact may undermine the credibility of the document
containing audited FSs.

If the auditor concludes that there is a material misstatement of fact in the other information which management
refuses to correct, the auditor shall notify TCWG of the auditor’s concern and take any further appropriate action,
which may include obtaining advice from the auditor’s legal counsel.

Audit of Financial Statements Prepared in Accordance with Special Purpose Framework

Introduction

Special purpose FSs are FSs prepared in accordance with a special purpose framework designed to meet the financial
information needs of specific users.

Examples of special purpose frameworks are:

 A tax basis of accounting for a set of FSs that accompany an entity’s 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 such as
SEC, BSP or IC; or
 The financial reporting provisions of a contract, such as a bond indenture, or a project grant.

The financial reporting framework (FRF) must be acceptable. The financial information needs of the intended users
are a key factor in determining the acceptability of the FRF and is a matter of professional judgment.

The auditor shall comply with (a) relevant ethical requirements, including independence and (b) all PSAs relevant to
the audit.

Forming an Opinion and Reporting Considerations

Description of the applicable financial reporting framework:

a) The auditor’s report shall also describe the purpose for which the FSs are prepared and, if necessary, the
intended users, or refer to a note in the special purpose FSs that contains that information; and
b) If management has a choice of financial reporting frameworks in the preparation of such FSs, the explanation of
management’s responsibility for the FSs shall also make reference to its responsibility for determining that the
applicable financial reporting framework is acceptable in the circumstances.

The auditor’s report shall include an Emphasis of Matter paragraph alerting users of the auditor’s report that the FSs
are prepared in accordance with a special purpose framework and that, as a result, the FSs may not be suitable for
another purpose. In addition to the above, the auditor may consider it appropriate to indicate that the auditor’s
report is intended solely for the specific users.

INDEPENDENT AUDITOR’S REPORT

[Appropriate Addressee]

We have audited the accompanying financial statements of ABC Company, which comprise the balance sheet as at
December 31, 20X1, and the income statement, statement of changes in equity and cash flow statement for the year
then ended, and a summary of significant accounting policies and other explanatory information. The financial
statements have been prepared by management of ABC Company based on the financial reporting provisions of
Section Z of the contract dated January 1, 20X1 between ABC Company and DEF Company (“the contract”).

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation of these financial statements in accordance with the financial
reporting provisions of Section Z of the contract; this 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.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit
in accordance with Philippine Standards on Auditing. Those standards require that we comply with ethical
requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial
statements. The procedures selected depend on the auditor’s 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 entity’s 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 entity’s internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by management, as well as
evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.

Opinion

In our opinion, the financial statements of ABC Company for the year ended December 31, 20X1 are prepared, in all
material respects, in accordance with the financial reporting provisions of Section Z of the contract.

Basis of Accounting and Restriction on Distribution and Use

Without modifying our opinion, we draw attention to Note X to the financial statements, which describes the basis of
accounting. The financial statements are prepared to assist ABC Company to comply with the financial reporting
provisions of the contract referred to above. As a result, the financial statements may not be suitable for another
purpose. Our report is intended solely for ABC Company and DEF Company and should not be distributed to or used
by parties other than ABC Company or DEF Company.

[Auditor’s signature]

[Date of the auditor’s report]

[Auditor’s address]
Audits of Single Financial Statements and Specific Elements, Accounts or Items of a Financial
Statement

Introduction

“Element of a financial statement” or “element” means an “element, account or item of a financial statement.”
Examples of Specific Elements, Accounts or Items of a Financial Statement
 Accounts receivable, allowance for doubtful accounts receivable, inventory, including related notes.
 A schedule of externally managed assets and income of a private pension plan, including related notes.
 A schedule of disbursements in relation to a lease property, including explanatory notes.
 A schedule of profit participation or employee bonuses, including explanatory notes.

Considerations When Accepting the Engagement

The auditor shall comply with relevant ethical requirements, including independence and all PSAs relevant to the
audit.

If the auditor is not also engaged to audit the entity’s complete set of financial statements, the auditor shall
determine whether the audit of a single financial statement or of a specific element of those financial statements in
accordance with PSAs is practicable.

Form of opinion

The auditor’s decision as to the expected form of opinion is a matter of professional judgment. It may be affected by
whether use of the phrase “presents fairly, in all material respects” in the auditor’s opinion on a single financial
statement or on a specific element of a financial statement prepared in accordance with a fair presentation
framework is generally accepted in the particular jurisdiction.

Forming an Opinion and Reporting Considerations

If the auditor undertakes an engagement to report on a single financial statement or on a specific element of a
financial statement in conjunction with an engagement to audit the entity’s complete set of financial statements, the
auditor shall express a separate opinion for each engagement.

If the auditor concludes that it is necessary to express an adverse opinion or disclaim an opinion on the entity’s
complete set of financial statements as a whole, PSA 705 does not permit the auditor to include in the same auditor’s
report an unmodified opinion on a single financial statement that forms part of those financial statements or on a
specific element that forms part of those financial statements. This is because such an unmodified opinion would
contradict the adverse opinion or disclaimer of opinion on the entity’s complete set of financial statements as a
whole.

If the auditor concludes that it is necessary to express an adverse opinion or disclaim an opinion on the entity’s
complete set of financial statements as a whole but, in the context of a separate audit of a specific element that is
included in those financial statements, the auditor nevertheless considers it appropriate to express an unmodified
opinion on that element, the auditor shall only do so if:
a) The auditor is not prohibited by law or regulation from doing so;
b) That opinion is expressed in an auditor’s report that is not published together with the auditor’s report containing
the adverse opinion or disclaimer of opinion; and
c) The specific element does not constitute a major portion of the entity’s complete set of financial statements.

INDEPENDENT AUDITOR’S REPORT

[Appropriate Addressee]

We have audited the accompanying balance sheet of ABC Company as at December 31, 20X1 and a summary of
significant accounting policies and other explanatory information (together “the financial statement”).
Management’s Responsibility for the Financial Statement

Management is responsible for the preparation and fair presentation of this financial statement in accordance with
those requirements of the Financial Reporting Framework in Jurisdiction X relevant to preparing such a financial
statement, and for such internal control as management determines is necessary to enable the preparation of the
financial statement that is free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on the financial statement based on our audit. We conducted our audit in
accordance with Philippine Standards on Auditing. Those standards require that we comply with ethical requirements
and plan and perform the audit to obtain reasonable assurance about whether the financial statement is free from
material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial
statement. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of
material misstatement of the financial statement, whether due to fraud or error. In making those risk assessments,
the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial
statement 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 entity’s internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates, if any, made by
management, as well as evaluating the overall presentation of the financial statement.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
Opinion

In our opinion, the financial statement presents fairly, in all material respects, the financial position of ABC Company
as at December 31, 20X1 in accordance with those requirements of the Financial Reporting Framework in Jurisdiction
X relevant to preparing such a financial statement.

[Auditor’s signature]

[Date of the auditor’s report]

[Auditor’s address]

Engagements to Report on Summary Financial Statements

Introduction

Summary FSs refer to historical financial information that is derived from FSs but that contains less detail than the
FSs, while still providing a structured representation consistent with that provided by the FSs of the entity’s economic
resources or obligations at a point in time or the changes therein for a period of time.

Engagement Acceptance

The auditor shall accept an engagement to report on summary FSs only when the auditor has been engaged to
conduct an audit of the FSs from which the summary FSs are derived.

Form of Opinion

When the auditor has concluded that an unmodified opinion on the summary FSs is appropriate, the auditor’s opinion
shall use one of the following phrases:
a) The summary FSs are consistent, in all material respects, with the audited FSs, in accordance with [the applied
criteria]; or
b) The summary FSs are a fair summary of the audited FSs, in accordance with [the applied criteria].

When the auditor’s report on the audited FSs contains a qualified opinion, an Emphasis of Matter paragraph, or an
Other Matter paragraph, but the auditor is satisfied that the summary FSs are consistent, in all material respects,
with or are a fair summary of the audited FSs, in accordance with the applied criteria, the auditor’s report on the
summary FSs shall:
a) State that the auditor’s report on the audited FSs contains a qualified opinion, an Emphasis of Matter paragraph,
or an Other Matter paragraph; and
b) Describe:
i. The basis for the qualified opinion on the audited FSs, and that qualified opinion; or the Emphasis of Matter
or the Other Matter paragraph in the auditor’s report on the audited FSs; and
ii. The effect thereof on the summary FSs, if any.

When the auditor’s report on the audited FSs contains an adverse opinion or a disclaimer of opinion, the auditor’s
report on the summary FSs shall
a) State that the auditor’s report on the audited FSs contains an adverse opinion or disclaimer of opinion;
b) Describe the basis for that adverse opinion or disclaimer of opinion; and
c) State that, as a result of the adverse opinion or disclaimer of opinion, it is inappropriate to express an opinion on
the summary FSs.

If the summary FSs are not consistent, in all material respects, with or are not a fair summary of the audited FSs, the
auditor shall express an adverse opinion on the summary FSs.

The Date of the Auditor’s Report

The auditor shall date the auditor’s report no earlier than:

a) The date on which the auditor has obtained sufficient appropriate evidence on which to base the opinion,
including evidence that the summary FSs have been prepared and those with the recognized authority have
asserted that they have taken responsibility for them; and
b) The date of the auditor’s report on the audited FSs.
Restriction on Distribution or Use or Alerting Readers to the Basis of Accounting

When distribution or use of the auditor’s report on the audited FSs is restricted, or the auditor’s report on the audited
FSs alerts readers that the audited financial statements are prepared in accordance with a special purpose
framework, the auditor shall include a similar restriction or alert in the auditor’s report on the summary FSs.

REPORT OF THE INDEPENDENT AUDITOR ON THE SUMMARY FINANCIAL STATEMENTS

[Appropriate Addressee]

The accompanying summary financial statements, which comprise the summary balance sheet as at December 31,
20X1, the summary income statement, summary statement of changes in equity and summary cash flow statement
for the year then ended, and related notes, are derived from the audited financial statements of ABC Company for
the year ended December 31, 20X1. We expressed an unmodified audit opinion on those financial statements in our
report dated February 15, 20X2. Those financial statements, and the summary financial statements, do not reflect
the effects of events that occurred subsequent to the date of our report on those financial statements.

The summary financial statements do not contain all the disclosures required by [describe financial reporting
framework applied in the preparation of the audited financial statements of ABC Company]. Reading the summary
financial statements, therefore, is not a substitute for reading the audited financial statements of ABC Company.

Management’s Responsibility for the Summary Financial Statements

Management is responsible for the preparation of a summary of the audited financial statements in accordance with
[describe established criteria].

Auditor’s Responsibility
Our responsibility is to express an opinion on the summary financial statements based on our procedures, which
were conducted in accordance with Philippine Standard on Auditing (PSA) 810, “Engagements to Report on Summary
Financial Statements.”

Opinion

In our opinion, the summary financial statements derived from the audited financial statements of ABC Company for
the year ended December 31, 20X1 are consistent, in all material respects, with (or a fair summary of) those financial
statements, in accordance with [describe established criteria].

[Auditor’s signature]

[Date of the auditor’s report]

[Auditor’s address]

REVIEW, OTHER ASSURANCE SERVICES, AND RELATED SERVICES

Review Engagements

The objective of a review of FSs is to enable a practitioner to state whether, on the basis of procedures which do not
provide all the evidence that would be required in an audit, anything has come to the practitioner’s attention that
causes the practitioner to believe that the FSs are not prepared, in all material respects, in accordance with the
applicable financial reporting framework (negative assurance).

A review engagement provides a moderate level of assurance.

The practitioner should comply with the Code of Ethics general principles, such as:
a) Independence;
b) Integrity;
c) Objectivity;
d) Professional competence and due care;
e) Confidentiality;
f) Professional behavior; and
g) Technical standards.

The practitioner should conduct a review in accordance with PSRE 2400.

The practitioner should plan and perform the review with an attitude of professional skepticism.

Terms of engagement

The practitioner and the client should agree on the terms of the engagement.

Planning

The practitioner should plan the work so that an effective engagement will be performed. In planning a review of
financial statements, the practitioner should obtain or update the knowledge of the business.

Documentation

The practitioner should document matters which are important in providing evidence to support the review report,
and evidence.

Procedures and Evidence

The practitioner should apply judgment in determining the specific nature, timing and extent of review procedures,
which are primarily through inquiry and analytical procedures to obtain sufficient appropriate evidence and to be able
to draw conclusions.

The practitioner should apply the same materiality considerations as would be applied if an audit opinion on the FSs
were being given.

The practitioner should inquire about events subsequent to the date of the FSs that may require adjustment of or
disclosure in the FSs. The practitioner does not have any responsibility to perform procedures to identify events
occurring after the date of the review report.

If the practitioner has reason to believe that the information subject to review may be materially misstated, the
practitioner should carry out additional or more extensive procedures as are necessary to be able to express negative
assurance or to confirm that a modified report is required.

Conclusions and Reporting

The review report should contain a clear written expression of negative assurance.

The report on a review of FSs should contain the following basic elements, ordinarily in the following layout:
a) Title;
b) Addressee;
c) Opening or introductory paragraph i
d) Scope paragraph
e) Statement of negative assurance;
f) Date of the report;
g) Practitioner’s address; and
h) Practitioner’s signature.

The review report should:

a) State that nothing has come to the practitioner’s attention based on the review that causes the practitioner to
believe the FSs are not presented fairly, in all material respects, in accordance with the applicable financial
reporting framework; or
b) If matters have come to the practitioner’s attention, describe those matters that impair a fair presentation, in all
material respects, in accordance with the applicable financial reporting framework, including, unless
impracticable, a quantification of the possible effect(s) on the FSs, and either:
i. Express a qualification of the negative assurance provided; or
ii. When the effect of the matter is so material and pervasive, give an adverse opinion; or
c) If there has been a material scope limitation, describe the limitation and either:
i. Express a qualification of the negative assurance; or
ii. When the possible effect of the limitation is so significant and pervasive that the practitioner concludes
that no level of assurance can be provided, not provide any assurance.

The practitioner should date the review report as of the date the review is completed.

SAMPLE UNQUALIFIED REVIEW REPORT

REVIEW REPORT TO .....

We have reviewed the accompanying financial statements of ABC Company, which comprise the statement of
financial position as at December 31, 19XX, and the statement of comprehensive income, statement of changes in
equity and statement of cash flows for the year then ended. These financial statements are the responsibility of the
Company’s management. Our responsibility is to issue a report on these financial statements based on our review.

We conducted our review in accordance with the Philippine Standard on Review Engagements 2400. This Standard
requires that we plan and perform the review to obtain moderate assurance as to whether the financial statements
are free of material misstatement. A review is limited primarily to inquiries of company personnel and analytical
procedures applied to financial data and thus provides less assurance than an audit. We have not performed an audit
and, accordingly, we do not express an audit opinion.
Based on our review, nothing has come to our attention that causes us to believe that the accompanying financial
statements are not presented fairly, in all material respects, in accordance with Philippine Financial Reporting
Standards (or Philippine Financial Reporting Standard for Small and Medium-sized Entities).

PRACTITIONER

Date

Address

Examination of Prospective Financial Information

Introduction

“Prospective financial information” means financial information based on assumptions about events that may occur in
the future and possible actions by an entity. It is highly subjective in nature and its preparation requires the exercise
of considerable judgment. Prospective financial information can be in the form of:
 a forecast,
 a projection or
 a combination of both, for example, a one year forecast plus a five year projection.

A “forecast” means prospective financial information prepared on the basis of assumptions as to future events which
management expects to take place and the actions management expects to take as of the date the information is
prepared (best-estimate assumptions).

A “projection” means prospective financial information prepared on the basis of:

a) Hypothetical assumptions about future events and management actions which are not necessarily expected to
take place, such as when some entities are in a start-up phase or are considering a major change in the nature
of operations; or
b) A mixture of best-estimate and hypothetical assumptions.
Such information illustrates the possible consequences as of the date the information is prepared if the events and
actions were to occur (a “what-if” scenario).

Management is responsible for the preparation and presentation of the prospective financial information, including
the identification and disclosure of the assumptions on which it is based. The auditor may be asked to examine and
report on the prospective financial information to enhance its credibility whether it is intended for use by third parties
or for internal purposes.

The Auditor’s Assurance

When reporting on the reasonableness of management’s assumptions the auditor provides only a moderate level
of assurance. However, when in the auditor’s judgment an appropriate level of satisfaction has been obtained, the
auditor is not precluded from expressing positive assurance regarding the assumptions.

Acceptance of Engagement

Before accepting an engagement to examine prospective financial information, the auditor would consider, amongst
other things:
 The intended use of the information;
 Whether the information will be for general or limited distribution;
 The nature of the assumptions, that is, whether they are best-estimate or hypothetical assumptions;
 The elements to be included in the information; and
 The period covered by the information.

The auditor should not accept, or should withdraw from, an engagement when the assumptions are clearly
unrealistic or when the auditor believes that the prospective financial information will be inappropriate for its
intended use.
The auditor and the client should agree on the terms of the engagement.

Knowledge of the Business

The auditor should obtain a sufficient level of knowledge of the business to be able to evaluate whether all significant
assumptions required for the preparation of the prospective financial information have been identified.

Period Covered

The auditor should consider the period of time covered by the prospective financial information. Since assumptions
become more speculative as the length of the period covered increases, as that period lengthens, the ability of
management to make best-estimate assumptions decreases.

Examination Procedures

When determining the nature, timing and extent of examination procedures, the auditor’s considerations should
include:
a) The likelihood of material misstatement;
b) The knowledge obtained during any previous engagements;
c) Management’s competence regarding the preparation of prospective financial information;
d) The extent to which the prospective financial information is affected by the management’s judgment; and
e) The adequacy and reliability of the underlying data.

Report on Examination of Prospective Financial Information

When the auditor believes that the presentation and disclosure of the prospective financial information is not
adequate, the auditor should express a qualified or adverse opinion in the report on the prospective financial
information, or withdraw from the engagement as appropriate. An example would be where financial information fails
to disclose adequately the consequences of any assumptions which are highly sensitive.

When the examination is affected by conditions that preclude application of one or more procedures considered
necessary in the circumstances, the auditor should either withdraw from the engagement or disclaim the opinion and
describe the scope limitation in the report on the prospective financial information.

The following is an example of an extract from an unmodified report on a forecast:

We have examined the forecast in accordance with Philippine Standard on Assurance Engagements. Management is
responsible for the forecast including the assumptions set out in Note X on which it is based.

Based on our examination of the evidence supporting the assumptions, nothing has come to our attention which
causes us to believe that these assumptions do not provide a reasonable basis for the forecast. Further, in our
opinion the forecast is properly prepared on the basis of the assumptions and is presented in accordance with
Philippine Financial Reporting Standards.

Actual results are likely to be different from the forecast since anticipated events frequently do not occur as expected
and the variation may be material.

The following is an example of an extract from an unmodified report on a projection:

We have examined the projection in accordance Philippine Standard on Assurance Engagements. Management is
responsible for the projection including the assumptions set out in Note X on which it is based.

This projection has been prepared for (describe purpose). As the entity is in a start-up phase the projection has
been prepared using a set of assumptions that include hypothetical assumptions about future events and
management’s actions that are not necessarily expected to occur. Consequently, readers are cautioned that this
projection may not be appropriate for purposes other than that described above.
Based on our examination of the evidence supporting the assumptions, nothing has come to our attention which
causes us to believe that these assumptions do not provide a reasonable basis for the projection, assuming that
(state or refer to the hypothetical assumptions). Further, in our opinion the projection is properly prepared on the
basis of the assumptions and is presented in accordance with Philippine Financial Reporting Standards.

Even if the events anticipated under the hypothetical assumptions described above occur, actual results are still likely
to be different from the projection since other anticipated events frequently do not occur as expected and the
variation may be material.
Agreed-upon Procedures Engagements

Introduction

The objective of an agreed-upon procedures engagement is for the auditor to carry out procedures of an audit
nature to which the auditor and the entity and any appropriate third parties have agreed and to report on factual
findings.

An engagement to perform agreed-upon procedures may involve the auditor in performing certain procedures
concerning individual items of financial data (for example, accounts payable, accounts receivable, purchases from
related parties and sales and profits of a segment of an entity), a financial statement (for example, a balance sheet)
or even a complete set of financial statements.

As the auditor simply provides a report of the factual findings of agreed-upon procedures, no assurance is expressed.
Instead, users of the report assess for themselves the procedures and findings reported by the auditor and draw
their own conclusions from the auditor’s work.

The report is restricted to those parties that have agreed to the procedures to be performed since others, unaware of
the reasons for the procedures, may misinterpret the results.

General Principles of an Agreed-Upon Procedures Engagement

The auditor should comply with the Code of Ethics general principles, such as:
a. Integrity;
b. Objectivity;
c. Professional competence and due care;
d. Confidentiality;
e. Professional behavior; and
f. Technical standards.

The auditor should conduct an agreed-upon procedures engagement in accordance with this PSRS and the terms of
the engagement.

Defining the Terms of the Engagement

Matters that would be included in the engagement letter include the following:
 A listing of the procedures to be performed as agreed upon between the parties.
 A statement that the distribution of the report of factual findings would be restricted to the specified parties who
have agreed to the procedures to be performed.

Planning

The auditor should plan the work so that an effective engagement will be performed.

Documentation

The auditor should document matters which are important in providing evidence to support the report of factual
findings, and evidence that the engagement was carried out in accordance with this PSRS and the terms of the
engagement.

Procedures and Evidence

The auditor should carry out the procedures agreed upon and use the evidence obtained as the basis for the report
of factual findings.

The procedures applied in an engagement to perform agreed-upon procedures may include the following:
 Inquiry and analysis.
 Recomputation, comparison and other clerical accuracy checks.
 Observation.
 Inspection.
 Obtaining confirmations.

Reporting

The report on an agreed-upon procedures engagement needs to describe the purpose and the agreed-upon
procedures of the engagement in sufficient detail to enable the reader to understand the nature and the extent of
the work performed.

Illustration of a Report of Factual Findings in Connection with Accounts Payable

REPORT OF FACTUAL FINDINGS

To (those who engaged the auditor)

We have performed the procedures agreed with you and enumerated below with respect to the accounts payable of
ABC Company as at (date), set forth in the accompanying schedules (not shown in this example). Our engagement
was undertaken in accordance with the Philippine Standard on Related Services. The procedures were performed
solely to assist you in evaluating the validity of the accounts payable and are summarized as follows:
1. We obtained and checked the addition of the trial balance of accounts payable as at (date) prepared by ABC
Company, and we compared the total to the balance in the related general ledger account.
2. We compared the attached list (not shown in this example) of major suppliers and the amounts owing at (date)
to the related names and amounts in the trial balance.
3. We obtained suppliers’ statements or requested suppliers to confirm balances owing at (date).
4. We compared such statements or confirmations to the amounts referred to in 2. For amounts which did not
agree, we obtained reconciliations from ABC Company. For reconciliations obtained, we identified and listed
outstanding invoices, credit notes and outstanding checks, each of which was greater than Pxxx. We located
and examined such invoices and credit notes subsequently received and checks subsequently paid and we
ascertained that they should in fact have been listed as outstanding on the reconciliations.

We report our findings below:

a) With respect to item 1 we found the addition to be correct and the total amount to be in agreement.
b) With respect to item 2 we found the amounts compared to be in agreement.
c) With respect to item 3 we found there were suppliers’ statements for all such suppliers.
d) With respect to item 4 we found the amounts agreed, or with respect to amounts which did not agree, we found
ABC Company had prepared reconciliations and that the credit notes, invoices and outstanding checks over Pxxx
were appropriately listed as reconciling items with the following exceptions:

(Detail the exceptions)

Because the above procedures do not constitute either an audit or a review made in accordance with Philippine
Standards on Auditing, we do not express any assurance on the accounts payable as of (date).

Had we performed additional procedures or had we performed an audit or review of the financial statements in
accordance with Philippine Standards on Auditing, other matters might have come to our attention that would have
been reported to you.

Our report is solely for the purpose set forth in the first paragraph of this report and for your information and is not
to be used for any other purpose or to be distributed to any other parties. This report relates only to the accounts
and items specified above and does not extend to any financial statements of ABC Company, taken as a whole.

AUDITOR

Date

Address

Compilation Engagements
Introduction

A compilation engagement would ordinarily include the preparation of financial statements (which may or may not be
a complete set of financial statements) but may also include the collection, classification and summarization of other
financial information.

The objective of a compilation engagement is for the accountant to use accounting expertise, as opposed to auditing
expertise, to collect, classify and summarize financial information. This ordinarily entails reducing detailed data to a
manageable and understandable form without a requirement to test the assertions underlying that information. The
procedures employed are not designed and do not enable the accountant to express any assurance on the financial
information. However, users of the compiled financial information derive some benefit as a result of the accountant's
involvement because the service has been performed with professional competence and due care.

General Principles of a Compilation Engagement

The accountant should comply with the Code of Professional Ethics general principles, such as:
a) integrity;
b) objectivity;
c) professional competence and due care;
d) confidentiality;
e) professional behavior; and
f) technical standards.

Defining the Terms of the Engagement

An engagement letter confirms the accountant's acceptance of the appointment and helps avoid misunderstanding
regarding such matters as the objectives and scope of the engagement, the extent of the accountant's
responsibilities and the form of reports to be issued.

Planning

The accountant should plan the work so that an effective engagement will be performed.

Documentation

The accountant should document matters which are important in providing evidence that the engagement was
carried out in accordance with this PSA and the terms of the engagement.

Procedures

The accountant requires a general understanding of the nature of the entity's business transactions, the form of its
accounting records and the accounting basis on which the financial information is to be presented through
experience with the entity or inquiry of the entity's personnel.

If the accountant becomes aware that information supplied by management is incorrect, incomplete, or otherwise
unsatisfactory, the accountant should consider performing the above procedures and request management to provide
additional information or if the accountant becomes aware of material misstatements, the accountant should try to
agree appropriate amendments with the entity. If such additional information or amendments are not made and the
financial information is considered to be misleading, the accountant should withdraw from the engagement.

Responsibility of Management

The accountant should obtain an acknowledgment from management of its responsibility for the appropriate
presentation of the financial information and of its approval of the financial information.

Reporting on a Compilation Engagement

The financial information compiled by the accountant should contain a reference such as "Unaudited," "Compiled
without Audit or Review" or "Refer to Compilation Report" on each page of the financial information or on the front of
the complete set of financial statements.

EXAMPLE OF A REPORT ON AN ENGAGEMENT TO COMPILE FINANCIAL STATEMENTS

COMPILATION REPORT TO .....

On the basis of information provided by management we have compiled, in accordance with the Philippine Standard
on Related Services, the balance sheet of ABC Company as of December 31, 19XX and statements of income,
changes in equity and cash flows for the year then ended. Management is responsible for these financial statements.
We have not audited or reviewed these financial statements and accordingly express no assurance thereon.

Accountant

Date

Address