COMPLETING THE AUDIT

The procedures being performed in completing the audit are necessary. These procedures are
usually performed by audit managers or other senior members of the audit team who have extensive
audit experience with the client because the procedures involve many subjective judgments by the
auditor. These procedures do not pertain to specific transaction cycles or accounts.

REVIEWING RELATED PARTY TRANSACTIONS

Management’s responsibility: Identification and disclosure of:

a. Related parties; and
b. Related party transactions

Auditor’s responsibility

1. Review related party transactions to ensure that they have been properly identified, recorded
and disclosed in the financial statements
2. Obtain a written representation from management concerning:
a. Completeness of information on identification of related parties; and
b. Adequacy of disclosure in the FS

 The auditor needs to have the level of knowledge of the entity’s business and industry that
will enable identification of the events and transactions and practices that may have material
effect on the financial statements.
 An audit cannot be expected to detect all related party transactions.

Reasons for the review: The auditor should modify the auditor’s report in case of:
 Inability to obtain sufficient appropriate audit evidence concerning related parties and
transactions with such parties
 Inadequate disclosure in the FS

PERFORM SUBSEQUENT EVENTS REVIEW

 Subsequent events refer to events occurring between period end (the date of the financial
statements or the balance sheet date) and the date of the auditor’s report that may affect the
financial statements and the auditor’s report.
 These events are also called post-balance sheet events/transactions since they occur after
or subsequent to the balance sheet date.
 Subsequent events may also refer to facts discovered after the date of the auditor’s report.
 The period between the date of the financial statements and the date of the auditor's report is
called the subsequent period. During this period, the auditor has an active responsibility to
investigate certain subsequent events.

Types of subsequent events:

1. Those requiring adjustment – those that provide evidence of conditions that existed at the
date of the financial statements.
Examples:
 Settlement of litigation in excess of amount recorded
 Loss on uncollectible accounts resulting from of customer’s continued deteriorating financial
condition leading to bankruptcy
2. Those requiring disclosure – events that are indicative of conditions that arose after the date
of the financial statements.
Examples:
 Issuance of bonds/stocks after the BS date
 Major purchase of a business
 Loss on inventory due to fire that occurred in the subsequent period
 Loss of plant due to flood
 Loss on uncollectible receivable because of a major catastrophe suffered by the customer
after the BS date

Subsequent events relevant to the auditor: limited to those subsequent events (both requiring
adjustment or disclosure) that occur subsequent to date of the FS and the date of the auditor’s
report

Auditor’s responsibility for subsequent events:

1. Perform audit procedures designed to identify subsequent events

The auditor should perform procedures designed to obtain sufficient appropriate audit
evidence that all events up to the date of the auditor’s report that may require adjustment of, or
disclosure in, the financial statements have been identified.

These procedures would include:

a. Reviewing procedures management has established to ensure that subsequent events
are identified.
b. Inquiry:
 Inquiring of management as to whether any subsequent events have occurred
which might affect the financial statements.
 Inquiring of the entity’s legal counsel concerning litigation claims, and
assessments
c. Reading minutes of the meetings (of shareholders, those charged with governance,
audit and executive committees) including those held after period end and inquiring
about matters discussed at meetings for which minutes are not yet available.
d. Reading the entity’s latest available interim financial statements as well as budgets and
cash flow forecasts and other related management reports; compare them with the
financial statements under audit.
e. Obtaining representation letter from management regarding whether any events
occurred during the subsequent period that require adjustments to or disclosure in the
financial statements.

Examples of inquiries of management on specific matters are:

 Current status of items that were accounted for on the basis of preliminary or
inconclusive data
 New commitments, borrowings or guarantees
 Sales or acquisition of assets that have occurred or are planned
 Issue of new shares or debentures or an agreement to merge or liquidate that is
made or planned
 Any assets that have been appropriated by government or destroyed, for
example, by fire or flood
 Any developments regarding risk areas and contingencies
 Any unusual accounting adjustments made or contemplated
 Any events that have occurred or are likely to occur which will bring into
question the appropriateness of accounting policies used in the financial
 statements (such as going-concern issues).

2. To consider/evaluate the effect of subsequent events (whether such events are

properly accounted for and adequately disclosed) on the financial statements and on
the auditor’s report

When subsequent events that materially affect the financial statements are identified, the
auditor should consider whether such events are properly accounted for and adequately
disclosed in the financial statements.

LITIGATIONS AND CLAIMS

Litigation and claims involving an entity may have a material effect on the financial statements and
thus may be required to be disclosed and/or provided for in the financial statements.

Audit procedures regarding litigation and claims:

1. Identify existence of any litigation and claims

The auditor should carry out procedures to identify existence of any litigations and claims
involving the entity which may result in a material misstatement of the financial statements.
Such procedures would include the following:
 Make appropriate inquiries of management including obtaining representations
 Review minutes of those charged with governance and correspondence with the entity’s
legal counsel
 Examine legal expense accounts, and
 Use any information obtained regarding the entity’s business including information obtained
from discussions with any in-house legal department.

2. Communicate directly with the entity’s lawyers.

The auditor should seek direct communication with the entity’s lawyers when litigation or
claims have been identified or when the auditor believes they may exist. The letter would
ordinarily specify the following:
 A list of litigation and claims;
 Management’s assessment of the outcome of the litigation or claim and its estimate of the
financial implications, including costs involved; and
 A request that the entity’s legal counsel confirm the reasonableness of management’s
assessments and provide the auditor with further information if the list is considered by
the entity’s legal counsel to be incomplete or incorrect.

The letter, which should be prepared by management and sent by the auditor, should
request the lawyer to communicate directly with the auditor.

If management refuses to give the auditor permission to communicate with the entity’s legal
counsel, this would be a scope limitation and should ordinarily lead to a qualified opinion or a
disclaimer of opinion. Where the entity’s legal counsel refuses to respond in an appropriate
manner and the auditor is unable to obtain sufficient appropriate audit evidence by applying
alternative audit procedures, the auditor would consider whether there is a scope limitation which
may lead to a qualified opinion or a disclaimer of opinion.

PERFORMING WRAP-UP PROCEDURES

Performing analytical procedures in the overall review at/near the end of the audit

Analytical procedures involve analysis of significant ratios and trends including the
resultant investigation of fluctuations and relationships that are inconsistent with other relevant
information or expectation:

Analytical procedures are required to be performed during the planning and overall review
stages.

 Purpose of performing analytical procedures in the overall review stage of the audit:
to ensure that the auditor’s overall conclusion as to whether the financial statements as a whole
are consistent with the auditor’s understanding of the entity.

 Auditor’s focus when performing analytical procedures in the overall review stage:
a. Identifying unusual fluctuations or transactions or unexpected account balances that were
not previously identified
 Requires investigation, adequate explanation and appropriate corroborative evidence
by performing additional tests of details
b. Assessing the validity of the conclusions reached and evaluating the overall financial
statements presentation

Assessing going concern assumption

 Financial statements are ordinarily prepared based on going concern basis, contrary to the
quitting concern basis, in the absence of information to the contrary. This means that the assets
and liabilities are recorded on the basis that the entity will be able to realize its assets and
discharge its liabilities in the normal course of business.

 Going concern assumption – an entity is ordinarily viewed as continuing in business for the
foreseeable future with neither the intention nor the necessity of liquidation, ceasing trading or
seeking protection from creditors pursuant to laws and regulations.

Management’s responsibility:
a. Management should assess the entity’s ability to continue as a going concern – making a
judgment about the future outcome of uncertain events or conditions (for a period of one
year from balance sheet date)
b. To disclosure (based on the result of assessment)

Disclosure requirements if FS are not prepared on a going concern basis:

a. The fact that FS are not prepared on a going concern basis
b. The basis on which the FS are prepared, and
c. The reasons why the entity is not regarded as a going concern

Auditor’s responsibility:
a. Overall evaluation of the appropriateness of management’s use of the going concern
assumption in the preparation of the financial statements
b. Identifying material uncertainties about the entity’s ability to continue as a going concern
that need to be disclosed in the financial statements
c. Whether such events or conditions are adequately disclosed in the financial statements
d. Consider report modification because of these events or conditions
 e. If conditions or events such as those identified previously create substantial doubt as to the
ability of the entity to continue as a going concern, the auditor should consider whether
management has feasible plans (plans for and the ability to implement alternative means of
maintaining adequate cash flows)

The auditor has no responsibility to predict future events or conditions that may cause an
entity to cease to continue as a going concern. Thus, auditors are not required to design
audit procedures solely to detect going concern problems.

Examples of events/conditions that may signify existence

of a material going concern uncertainty

Events or conditions that may give rise to business risks, that individually or collectively, may
cast doubt about the entity’s ability to continue as a going concern:

Financial events and conditions:

 Net liability or net current liability position
 Maturing fixed-term borrowings without realistic prospects of renewal or repayment
 Indications of withdrawal of financial support by debtors and other creditors
 Negative operating cash flows
 Adverse key financial ratios
 Substantial operating losses
 Significant deterioration in value of assets used to generate cash flows
 Arrears or discontinuance of dividends
 Inability to pay creditors on due dates
 Inability to comply with the terms of loan agreements or other statutory requirements
 Change from credit to cash-on-delivery transactions with suppliers
 Inability to obtain financing for essential new product development or other essential
investments

Operating events and conditions:

 Loss of key management without replacement
 Loss of a major market, franchise, license, or principal supplier
 Labor difficulties or shortages of important supplies

Other events and conditions:

 Noncompliance with capital or statutory requirements
 Pending legal or regulatory proceedings against the entity that may, if successful,
result in claims that are unlikely to be satisfied
 Changes in legislation or government policy expected to adversely affect the entity

Factors that can mitigate the adverse effects of identified material going concern
uncertainty: The auditor should consider whether management has plans for and the ability to
implement alternative means of maintaining adequate cash flows to mitigate events and conditions
that may cast doubt about the entity’s ability to continue as a going concern.

Examples of mitigating factors:

 When there is a history of profitable operations and a ready access to financial resources
 Management has plans and ability to maintain adequate cash flows by alternative means,
such as:
 Disposal of assets (including disposal of operations producing negative cash flows)
 Borrowing money or restructuring debt
 Leasing (instead of purchasing) of PPE items
  Renewal or, extension or rescheduling of loan repayments
 Reducing or delaying or postponing expenditures
 Obtaining additional capital
 Reducing or postponing dividend payments
 Availability of alternative source of supply in case of loss of a principal supplier

Audit procedures to identify conditions and events that may cast doubt about an entity’s
ability to continue as a going concern:
 Analytical procedures
 Subsequent events review
 Review of compliance with debt and loan agreements
 Reading minutes of meetings
 Inquiry of legal counsel
 Confirmation with related and third parties of arrangements for financial support

MANAGEMENT REPRESENTATION LETTER:

 Auditor’s responsibility: The auditor should obtain appropriate written representations from
management.

Management letter vs. management representation letter:

Management letter is a letter to management regarding internal control
deficiencies/weaknesses. On the other hand, management representation letter is a
letter from the management confirming its responsibility and its oral representations.

 Management’s responsibility: Management has responsibility to provide written

representations (this responsibility is included in the engagement letter that sets out the terms of
engagement).

 Purposes of a management representation letter:

a. Main: To emphasize or impress upon management its ultimate responsibility for the
financial statements

b. Other purposes:
 It confirms oral representations made by management during the audit
 It reduces the possibility of misunderstanding between the auditor and the client
concerning the matters that are the subject of the representations
 It documents management’s acceptance acknowledgment of its responsibility for fair
presentation of the financial statements
 It may provide corroborative evidence when audit evidence may not be reasonably
expected to be available
For example: Audit evidence to corroborate management’s intention to hold a specific
investment for long-term appreciation or to discontinue a line of business
 It complements, but do not replace or substitute, other audit procedures or other audit
evidence that the auditor could reasonably expect to be available

 Forms of management representations: Management representations may be verbal,

whether solicited or unsolicited, or written, whether explicitly such as contained in a management
representation letter or implicitly such as contained in financial information provided. The forms
of representations include:
a. A representation letter from management – known as the management
representation letter or client’s representation letter
 b. A letter from the auditor ( confirmatory letter) – outlining the auditor’s understanding
of management’s representations, duly acknowledged and confirmed by management
c. Relevant minutes of meetings (of the board of directors or similar body)
d. Signed copy of the financial statements
e. Matters communicated in discussions or electronically such as e-mails or telephone
messages.
f. Schedules, analyses, and reports prepared by the entity, and management’s notations
and comments therein.

 Basic elements of a management representation letter:

a. Addressee: Should be addressed to the auditor
b. Contents: Should contain the specified information
c. Date: Should be appropriately dated (ordinarily coincides with date of the auditor’s
report)
d. Signatory: Should be appropriately signed by the members of management who have
primary or overall responsibility for financial and operating aspects of the entity

Appropriate signatory of a management representation letter:

 Owner-manager
 Chief/senior executive officer
 Chief/senior financial officer
 Other members of management

 Basic contents of management representation letter:

 That management acknowledges its responsibility for the fair presentation of the financial
statements in accordance with the applicable financial reporting framework
 That management has approved the financial statements
 That management acknowledges its responsibility for the design and implementation of
internal control to prevent and detect error
 That management believes the effects of those uncorrected financial statement
misstatements aggregated by the auditor during the audit are immaterial, both individually
and in the aggregate, to the financial statements taken as a whole

 Classification of matters to be included in a management representation letter:

Written confirmation or representations should be obtained for all significant representations
provided to the auditor for all financial statements on which the auditor reports. These
representations are grouped below:
a. Representations that directly relate to items that are material, either individually or in
aggregate, to the financial statements.
b. Representations not directly related to items that are material to the financial
statements but are significant, either individually or in aggregate, to the engagement.
c. Representations that are relevant to management’s judgments or estimates that are
material, either individually or in aggregate, to the financial statements.

Specific matters included in a management representation letter:

 Management’s acknowledgement of its responsibility for the fair presentation of
the FS
 Management’s acknowledgement of its responsibility for the design and
implementation of internal control to prevent and detect error
 Availability of all financial records and related data and minutes of meetings (of
shareholders, board of directors, and committee of directors)
 Irregularities involving management or employees
 Confirmation on the completeness of the information provided regarding the
 identification of related parties
 That the FS are free of material misstatements, including omissions
 Compliance or noncompliance with aspects of contractual agreements or
requirements of regulatory that could have a material effect on the FS in the
event of noncompliance.
 Plans or intentions that may materially alter the carrying value or classification of
assets and liabilities
 Plans to abandon lines of product or other plans or intentions that will result in
any excess or obsolete inventory, and no inventory is stated at an amount in
excess of net realizable value
 Satisfactory title on assets and liens or encumbrances on the company’s assets
 Communications from regulatory agencies concerning noncompliance with/or
deficiencies in financial reporting practices
 Information or recording and/or disclosure of:
 The identity of, and balances and transactions with, related parties
 Losses arising from sale and purchase commitments
 Agreements and options to buy back assets previously sold
 Assets pledged as collateral
 All liabilities, both actual and contingent
 Formal or informal compensating balance arrangements or other
arrangements involving restrictions on cash balances and credit line or similar
arrangements
 Subsequent events requiring adjustment of or disclosure in the FS
 Claims and assessments in connection with litigation
 Capital stock repurchase options and agreements, and capital stock reserved
for options, warrants, conversions and other requirements

 Limitations of management representations: although management representations are

considered part of evidential matter, they (are):
 Not a substitute for performing other audit procedures or a means to reduce the auditor’s
responsibility
 Not as the sole source of evidence on significant audit matters
 Cannot be substitute for other audit evidence that the auditor could reasonably expect to be
available

 Auditor’s responsibility on representations relating to matters that are material to the

financial statements:
a. Seek corroborative audit evidence from sources inside or outside the entity;
b. Evaluate whether the representations made by management appear reasonable and
consistent with other audit evidence obtained, including other representations; and
c. Consider whether the individuals making the representations can be expected to be well
informed on the particular matters.

 Example of a management representation letter: The following letter is not intended to be

a standard letter. Representations by management will vary from one entity to another and from
one period to the next.

(Entity Letterhead)

(To Auditor) (Date)

This representation letter is provided in connection with your audit of the financial statements
of ABC Company for the year ended December 31, 19X1 for the purpose of expressing an
opinion as to whether the financial statements present fairly, in all material respects, the
financial position of ABC Company as of December 31, 19X1 and of the results of its
operations and its cash flows for the year then ended in accordance with (indicate applicable
financial reporting framework).

We acknowledge our responsibility for the fair presentation of the financial

statements in accordance with (indicate applicable financial reporting framework).

We confirm, to the best of our knowledge and belief, the following representations:

 There have been no irregularities involving management or employees who have a

significant role in internal control or that could have a material effect on the financial
statements.

 We have made available to you all books of account and supporting documentation and
all minutes of meetings of shareholders and the board of directors (namely those held on
March 15, 19X1 and September 30, 19X1, respectively).

 We confirm the completeness of the information provided regarding the identification of

related parties.

 If required, add “On behalf of the board of directors (or similar body).”

 The financial statements are free of material misstatements, including omissions.

 The Company has complied with all aspects of contractual agreements that could have a
material effect on the financial statements in the event of noncompliance.

 There has been no noncompliance with requirements of regulatory authorities that could
have a material effect on the financial statements in the event of noncompliance.

 The following have been properly recorded and, when appropriate, adequately disclosed
in the financial statements:
 The identity of, and balances and transactions with, related parties.
 Losses arising from sale and purchase commitments.
 Agreements and options to buy back assets previously sold.
 Assets pledged as collateral.

 We have no plans or intentions that may materially alter the carrying value or
classification of assets and liabilities reflected in the financial statements.

 We have no plans to abandon lines of product or other plans or intentions that will result
in any excess or obsolete inventory, and no inventory is stated at an amount in excess of
net realizable value.

 The Company has satisfactory title to all assets and there are no liens or encumbrances
on the company’s assets, except for those that are disclosed in Note X to the financial
statements.

 We have recorded or disclosed, as appropriate, all liabilities, both actual and contingent,
and have disclosed in Note X to the financial statements all guarantees that we have
given to third parties.
  Other than . . . described in Note X to the financial statements, there have been no
events subsequent to period end which require adjustment of or disclosure in the
financial statements or Notes thereto.

 The . . . claim by XYZ Company has been settled for the total sum of XXX which has been
properly accrued in the financial statements. No other claims in connection with litigation
have been or are expected to be received.

 There are no formal or informal compensating balance arrangements with any of our
cash and investment accounts. Except as disclosed in Note X to the financial statements,
we have no other line of credit arrangements.

 We have properly recorded or disclosed in the financial statements the capital stock
repurchase options and agreements, and capital stock reserved for options, warrants,
conversions and other requirements.

Yours truly,

(Senior Executive Officer)

(Senior Financial Officer)

 Legal representation letter – client’s letter of inquiry to lawyer who have been consulted by
the client concerning litigation, claims, or assessments to provide corroborative evidential matter;
such letter of inquiry should be mailed only by the auditor after preparation by the client and
review by the auditor

 Application of materiality:
1. Representations may be limited to matters that are considered either individually or
collectively material to the financial statements
2. Materiality limits would not apply when obtaining written client representation on:
a. Fraud or irregularities involving management
b. Availability of minutes of meetings

 Effect if management refuses to provide the necessary written representations:

Refusal by management to provide a written representation requested by the auditor that the
auditor deems necessary constitutes a scope limitation and would result in a qualified opinion or
a disclaimer of opinion. In such circumstances, also consider:
a. Any reliance placed on other representations made by management during the audit; and
b. Any additional implications of the refusal on the auditor’s report.

 When management representation is contradicted by other audit evidence: The

auditor should investigate the circumstances and, when necessary, reconsider the reliability of
other representations made by management

SUBSEQUENT DISCOVERY OF OMITTED PROCEDURES AFTER SUBMISSION OF THE AUDIT

REPORT
  Omitted audit procedures may be discovered (after the audit report has been submitted) during
a firm's internal inspection program or during peer review.
 Auditor’s action:
a. The auditor should assess the importance of the omitted procedures to his ability to
support the audit opinion.
b. The auditor should determine whether other audit procedures that were applied tend to
compensate for the omitted audit procedures. If so, no further action is necessary.
c. If, on the other hand, the omitted audit procedures impair the auditor's ability to support
the previously issued opinion, and there are people relying (or likely to rely) on the
report, then the auditor should promptly undertake to apply the omitted procedures or
the corresponding alternative procedures.
d. If, after applying the omitted procedures, the auditor determines that the financial
statements are materially misstated and that the auditor's report is inappropriate, the
auditor should discuss the matter with the management and take steps to prevent future
reliance on the report.

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]