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Actual Findings
Reviewed by
the
Commission
(2015 & 2016)
COMPONENTS OF FINANCIAL STATEMENTS FINDINGS
Auditor’s Report 1.The financial reporting framework

(PSAs 570 and 700, as revised) cited in the Management’s Responsibility
paragraph is inconsistent with that in the
Opinion paragraph of the Auditor’s Report /
The financial reporting framework cited in
the Management’s Responsibility and
Opinion paragraphs of the Auditor’s Report
is incorrect. As a holder of secondary
license of the Commission, the company
should have adopted Full PFRS.
Auditor’s Report 2. There is no legal matter paragraph in the auditor’s report

to cover the information required by Revenue Regulation
(PSAs 570 and 700, as revised) 15-2010.
3. There is no emphasis of a matter paragraph discussing

going concern issue due to the capital deficiency of the
company / There is no emphasis of a matter paragraph
in the Auditor's Report that discusses specific
management plans to address the company’s
capital deficiency or a reference to the Notes to FS
discussing the same and that the auditor conducted
sufficient audit procedures to verify the validity of the
aforementioned plan.
Auditor’s Report 1. The Auditor’s Report failed to indicate the

expiration dates of licenses and accreditations of the
(SRC Rule 68, as amended and SEC auditing firm and signing partner (SRC Rule 68, as
Financial Reporting Bulletin No. 1) amended).
2. The Auditor’s Report failed to cover the

supplemental documents required under SRC Rule
68, as amended.
Supplemental documents required by 1. The following documents are not attached to the AFS:
SRC Rule 68, as amended a. Audited Schedule of all effective standards

and interpretations under PFRS as of year- end
b. Audited Reconciliation Schedule of Retained Earnings
Available for Dividend Declaration
c. Schedule of financial soundness indicators in two (2)
comparative periods
d. Schedule showing the following information for two
comparative periods: (i) ratio or percentage of total real
estate investments to total assets; (ii) total receivables to
total assets (iii) total DOSRI receivables to net worth (iv)
amount of receivables from a single corporation to total
receivables.
Statement of Financial Position / 1. Material items are not cross-referenced to related Notes
to FS.
Statement of Comprehensive Income /
Statement of Changes in Equity / 2. There is no indication of the presentation currency.
Statement of Cash Flow
3. Incorrect classification of cash flows according to its
(PAS 1 and 7 / Sections 3, 7 and 8) activities – operating, investing or financing.
4. Major classes of gross cash receipts and payments are

incorrectly presented on a net basis.
NOTES TO FINANCIAL STATEMENTS FINDINGS
Basis of Preparation 1. The company failed to adopt the correct financial

(SRC Rule 68, as amended) reporting framework.
Accounting Policies, Changes in 1.There is no discussion on the impact of new

Accounting Estimates and Errors accounting standards.
(PAS 8 / Section 10)
Significant Estimates and Judgments 1. Incomplete disclosures on the significant judgments and
(PAS 1 / Section 8) estimates made by the Company (i.e. assessment
of impairment of financial assets, inventories and
non-financial assets, estimating useful lives of property
equipment and investment property and assessment of
lease arrangements whether financing or operating leases)
are usually missed out.
There is no disclosure of the amount of tax relating to

Comprehensive Income each component of other comprehensive income
(PAS 1 / Sections 5 and 29) either in the statement of comprehensive income or in the
notes to the financial statements.
Financial Assets 1. There are no accounting policies on subsequent

(PAS 39 and PFRS 7 / Section 11) measurement, derecognition and impairment of
financial assets.
2. Incomplete disclosures on Loans and Receivables, i.e.,

interest rate, maturity.
3. The accounting policies on initial recognition and

subsequent measurement on financial assets as cited in
the Notes to FS are not in accordance with PAS
39/Sec. 11 of PFRS for SME.
The accounting policy on measurement of Inventories

Inventories as cited in the Notes to FS is not in accordance with
(PAS 2 / Section 13) PAS 2/Sec. 13 of PFRS for SMEs.
There is no explanatory note/disclosure on said

Other Current/Non-Current Assets account despite materiality of amount.
(PAS 1 / Section 8)
2. Incomplete disclosures on Loans and Receivables, i.e.,
interest rate, maturity.
1. There are no accounting policies on initial recognition

Property Plant and Equipment subsequent measurement, and derecognition on
(PAS 16 / Section 17) PPE.
2. Incomplete disclosures on PPE, i.e., roll forward analysis

of carrying amount of PPE, carrying amount of assets used
as collateral for liabilities, estimated useful lives of each
PPE, depreciation methods used.
3. Based on the Notes to FS, the company measured its

PPE using the cost model. This is inconsistent with the
Statement of Financial Position/Statement of
Changes in Equity which shows a “Revaluation
Surplus” account thus support the use of the
revaluation model.
1. There are no accounting policies on initial recognition

Investment Property and subsequent measurement of Investment
(PAS 40 / Section 16) Property.
2. The company incorrectly used the property’s zonal

value as its basis of fair value. This is not in
accordance with PFRS 13/Secs. 11.27-11.32 of PFRS for
SMEs.
3. Considering that the company measured its

Investment Property at cost, the same should be reclassified under
PPE in compliance with Secs. 16.7 and 17.1 of PFRS for SME.
4. There is no disclosure on rental income from investment property

and direct operating expenses arising from investment property that
generated rental income during the period.
5. There is no disclosure of the amount of fair value of

investment properties which were subsequent
measured at cost model.
Despite the company's control over its subsidiary, the

Investment in Subsidiary company failed to prepare consolidated financial
(PFRS 10 / Section 9) statements. There is likewise no disclosure of its
justification/basis for said non-consolidation.
1. There is no accounting policy on financial liabilities.

Financial Liabilities
(PAS 39 and PFRS 7 / Section 11) 2. The accounting policies on initial recognition and
subsequent measurement of financial liabilities are not in
accordance with PAS 39/Sec. 11 of PFRS for SMEs.
3. Incomplete disclosures, i.e., interest rate, maturity

analysis, assets used as collateral, terms of payment,
details of defaults and breaches, covenants and
warranties.
There are no disclosures of the nature and amount of

Other Current/Non-Current Liabilities each items comprising "accrued expenses" despite
(PAS 1 / Section 8) materiality of amount.
1. Incomplete disclosure on “Appropriated Retained

Equity Earnings”, i.e., specific details of appropriation and
(SEC Financial Reporting Bulletin Nos. 6 timeline of implementation/usage, and date of approval by
the BOD.
and 15)
2. The company’s retained earnings exceeds its paid-in capital
by 100%. There is however no disclosure of any appropriation to
comply with Section 43 of the Corporation Code.
3. Incomplete disclosures on “Deposit for Future Stock

Subscription”, i.e., date of approval by BOD and stockholders on
increase in capitalization, date of filing of application and status
thereof
1. There is no specific revenue recognition policy for

Revenues each revenue sources (including Miscellaneous
(PAS 18 / Section 23) Income and Interest Income).
2. There is no explanatory note on “Other Income”

despite materiality of amount.
3. There is no disclosure of the nature and amount of each items

deducted from "Gross Sales" to arrive at "Sales-net".
There is no disclosure of the nature and amount of

Cost and Expenses each items deducted from "Gross Purchases" to arrive
(PAS 1 / Section 8) at "Net Purchases".
There are no accounting policies and disclosures on

Employee Benefits Employee Benefits / Retirement Benefits.
(PAS 19 / Section 28)
1. There are no disclosures details of lease arrangements

Leases such as basis of contingent rent, existence and terms
(PAS 17 / Section 20) of renewal or purchase options and restrictions
imposed by lease arrangements.
2. Incomplete disclosures on Leases, i.e., general

description of the lessee’s significant leasing
arrangement. The total future minimum lease
payments under non-cancellable operating leases
for each of the following periods: (a) not later than one
year; (b) later than one year and not later than five years; (c)
later than five years.
Incomplete disclosures on related party transactions,

Related Party Transactions i.e., specific nature of relationship with affiliates,
(PAS 24 / Section 33) whether or not the outstanding balances are secured,
details of guarantees given or received, provision for
doubtful accounts, interest rate applied, terms of payment,
maturity, breakdown of key management personnel
compensation (including post-employment benefit), details
and volume of transactions.
1. There are no discussions on financial risk

Financial Risk Management management.
(PFRS 7)
2. There are no quantitative analyses of each financial risk.
a. There is no disclosure on the credit quality

of financial assets that are neither past due
nor impaired.
b. There is no disclosure on the analysis of
age of financial assets that are past due at
reporting date but not impaired.
c. There is no disclosure on sensitivity
analysis for each type of market risk.
3. Considering that the company adopted PFRS for SME,

the discussion on financial risk management is not
necessary.
1. There is failure to distinguish the difference between

Fair Value Measurement the different hierarchy, especially Level 2 from Level 3.
(PFRS 13)
2. There is failure to disclose the valuation process used
for financial instruments classified under Level 3.
Despite incurring losses for consecutive years, there is

Income Taxes failure to disclose the nature of the evidence
(PAS 12 / Section 29) supporting the recognition of deferred tax assets.
NOTES TO FINANCIAL STATEMENTS
FINDINGS
1. There is no discussion on capital management.

Capital Management
(PAS 1) 2. Incomplete discussion on capital management, i.e.,
externally-imposed capital requirement, policies and
processes for managing capital, summary of
quantitative data about what the company
manages as capital.
The amended AFS failed to fully comply with the

Prior Period Errors requirements of PAS 8/Section 10 of PFRS for SMEs by
(PAS 8 / Section 10) restating the comparative amounts for the prior period
presented in which the error occurred.
Actual Findings
Reviewed by
the
Commission
(2019)
COMPONENTS OF FINANCIAL STATEMENTS Brief Description of Non-Compliance
1. There is no emphasis of matter paragraph in the auditor’s report despite the

Auditor's Report company incurred capital deficiency based on the Statement of Financial
Position. (Revised SRC Rule 68).
2. The Reconciliation of Retained Earnings Available for Dividend

Declaration was not covered by a legal matter paragraph in the Auditor’s
Report or a separate report of auditor (Financial Reporting Bulletin No. 1 and
SRC Rule 68, as amended).
3. The other matter paragraph failed to disclose the date of the report of the
prior period AFS audited by a predecessor auditor (PSA 710).
4. The “Material Uncertainty Related to Going Concern” paragraph of the

Auditor’s report did not include a statement that the auditor’s opinion is not
modified in respect of the material uncertainty (PSA 570 (rev)).
5. The Financial Statements were prepared under an incorrect financial

reporting framework, (SRC Rule 68 (as amended) / Revised SRC Rule 68).
6. The company failed to report its financial statements in accordance

with PFRS for SMEs as amended in 2015 (PSA 700 and SRC Rule 68, as
amended) / Revised SRC Rule 68).
The amount of total assets does not agree with total

liabilities and equity (PAS 1).
Statement of Financial
Position
1. The Company presented its cash flows from financing

Statement of Cash Flow and investing activities using the indirect method of cash
flows instead of direct method (PAS 7/ Section 7 of PFRS
for SMEs/Section 3 of PFRS for SEs).
2. The cash flows arising from availment and payment of

loans should have been classified under financing
activities. (Section 7 of PFRS for SMEs).
3. The Company classified “loans payable (current portion)”

among its operating cash flows instead of financing cash
flows (PAS 7/ Section 7 of PFRS for SMEs /Section 3 of
PFRS for SEs).
4. Amounts reported in the Statement of Cash Flows were

inconsistent with the amounts reported in the Notes to
Financial Statements or the rest of the Financial
Statements (PAS 1 and 7).
1. The Supplemental Written Statement of Independent Auditor

failed to provide the number of stockholders owning 100 or more
shares as of December 31, 2019 (SRC Rule 68, as amended).
Supplemental Schedules
2. There is no Audited Reconciliation Schedule of Retained Earnings
required under SRC Rule 68,
for Dividend Declaration (SRC Rule 68, as amended, Financial
as amended Reporting Bulletin No. 01 and 14).
3. schedule showing the following information is not attached to the

CUIFS as of September 30, 2019:
(i) Gross and net proceeds as disclosed in the final

prospectus;
(ii) Actual gross and net proceeds;
(iii) Each expenditure item where the proceeds was used; and
(iv) Balance of the proceeds as of end of reporting period. The same
deficiency has been noted in the CUIFS as of June 30, 2019 and still
pending compliance up to this date.
It is recommended that the required information be provided in the

subsequent submission of the Company’s financial statements.
NOTES TO FINANCIAL STATEMENTS Brief Description of Non-Compliance
1. The company failed to provide a discussion of the reason for its

capital deficiency and concrete plan to address the same (SRC Rule 68,
as amended & PAS 1).
Corporate Information
2. A note disclosure of the AFS indicates that the Company has an
Investment in Subsidiary. Therefore, the company should have
prepared consolidated financial statements or provided the following
disclosure:
a.) The fact the financial statements are separate financial statements;
b.) The exemption from consolidation has been used; and
c.) The name and country of corporation or residence of the entity
whose consolidated financial statements that comply with PFRS have
been produced for public use;
d.) The address where those consolidated financial
statements are obtainable (PAS 27).
3. The notes to the financial statements failed to disclose the following

information in connection with its subsidiaries:
Corporate Information a.) the composition of the group; and

b.) the interest that non-controlling interests have in the
group’s activities and cash flows (paragraph 12); and
c.) the nature and extent of significant restrictions on its ability to
access or use assets, and settle liabilities, of the group (paragraph 13).
1. The company incorrectly adopted PFRS. Considering

the asset and liability size of the company, it should have
Basis of Preparation of FS adopted PFRS for SMEs. (Sec. 8 of PFRS for SMEs & SRC
Rule 68, as amended).
2. The Auditor’s Report states that the FY 2019 AFS

was prepared “in accordance with Philippine
Financial Reporting Standards (PFRS)”. Considering that
the total assets and liabilities of the FY 2019 and 2018
did not breached the threshold criteria, the accounting
framework adopted by the Company should be PFRS for
SMEs (Revised SRC Rule 68).
1. Incomplete accounting policy on “Cash”, i.e., initial and

subsequent measurement (PFRS 9/Section 11 of PFRS
for SMEs/ Section 6 of PFRS for SEs).
Cash and Cash Equivalents
2. The accounting policy of Cash and Cash equivalents

indicates that these are carried in the statements of
financial position at face amount or at nominal amount.
This is not in accordance with PFRS 9 which requires
to be measured at amortized cost.
1. Incomplete accounting policy on “Trade and other

receivables”, i.e., initial recognition, subsequent
measurement and derecognition policy (PFRS 9/ Section
11 of PFRS for SMEs /Section 6 of PFRS for SEs).
Receivables
2. Note on accounting policy states that “Trade
Receivables” are “subsequently measured at amortized
cost using the effective interest method”. This is not in
accordance with Section 11.14.a of PFRS for SMEs
which prescribed that “debt instruments that are
classified as current assets or current liabilities shall be
measured at the undiscounted amount of the cash or
other consideration expected to be paid or received”.
3. Incomplete disclosure on “Loans Receivable”, i.e., terms i.e.,

interest rates; and write-off policy, including the indicators that
there is no reasonable expectation of recovery and information
about the policy for financial assets that are written-off but are
Receivables still subject to enforcement activity (PFRS7).
4. Considering the nature of the Company, it is highly unlikely

that there was no allowance for uncollectible accounts
recognized relating to its “Loans and receivables”.
Paragraph 5.5.17 states that an entity shall measure
expected credit losses of a financial instrument in a way that
reflects: a) an unbiased and probability-weighted
amount that is determined by evaluating a range of possible
outcomes; b) the time value of money; and c) reasonable and
supportable information that is available without undue cost or
effort at the reporting date about past events, current
conditions and forecasts of future economic conditions (PFRS
9).
1. The company continues to classify its financial

instruments under the categories provided by PAS 39
which has already been superseded (PFRS 9).
Financial Instruments
2. The Company’s accounting policies on classification and
measurement of financial assets and liabilities, and
impairment of financial assets are not in accordance with
PFRS 9. The same deficiency has been noted in the CUIFS
as of June 30, 2019 which the Company undertook to
address in its subsequent submission of CUIFS.
1. There is no accounting policy on “Inventory” (PAS 2/

Section 13 of PFRS for SMEs).
Inventories 2. Incomplete disclosure on “Inventory”, i.e., the carrying

amount of inventories carried at fair value less costs to
sell, the cost formula used, the carrying amount in
classifications of inventory appropriate to the entity, and
the amount of inventories recognized as an expense
during the period (PAS 2/ Section 13 of PFRS for SMEs).
3. There is a failure to disclose the amount of the

inventories at lower of cost and net realizable value (PAS
2).
1. Note on accounting policy of “Trade Receivables and

Advances to Related Parties” states that “an allowance for
impairment of receivables are established when there is an
Financial Assets/Investments objective evidence that the Company will not be able to
collect all amounts due…” which seems to be in
accordance with PAS 39. This is inconsistent with the
same note under “Impairment” which is in accordance with
PFRS9 ECL.
2. There is no accounting policy on “Investment in Shares

of Stock” (PAS 1).
1. The following disclosures as required under PAS 27 were not

disclosed in the Notes to financial statements:
Investments in Subsidiaries a. Nature of the relationship between parent and a

subsidiary when the parent does not own, directly or indirectly through
subsidiaries, more than half of the
voting power;
b. The end of the reporting period of the financial statements
of a subsidiary when such financial
statements are used to prepare consolidated financial
statements and as of a date or for a period that is different from
that of the parent’s financial statements,
and the reason for using a different date or period;
c. The nature and extent of any significant restrictions (i.e., resulting
from borrowing arrangements or regulatory
requirements) on the ability of subsidiaries to transfer funds to the
parent in the form of cash dividends or to
repay loans or advances;
d. A schedule that shows the effect of any changes in a
parent’s ownership interest in a subsidiary that do not result in a loss of
control on the equity attributable to owners of the parents;
Incomplete disclosures on Investment in Associates, i.e.,

the nature of the entity’s relationship with associate (by,
for example, describing the nature of the activities of the
Investment in Associates joint arrangement or associate and whether they are
strategic to the entity’s activities), the principal place of
business (and country of incorporation, if applicable and
different from the principal place of business) of the
associate, and the proportion of ownership interest or
participating share held by the entity and, if different, the
proportion of voting rights held (if applicable); financial
information particularly on its assets (PFRS 12).
1. Incomplete accounting policy on “Investment Property”, i.e., initial

recognition and subsequent measurement (PAS 40).
2. Incomplete disclosure on “Investment Property”, i.e., the extent to which

Investment Property the fair value of investment property (as measured or disclosed in the
financial statements) is based on a valuation by an independent valuer who
holds a recognised and relevant professional qualification and has recent
experience in the location and category of the investment property being
valued. If there has been no such valuation, that fact shall be disclosed,
direct operating expenses (including repairs and maintenance) arising from
investment property that generated rental income during the period, the
useful lives or the depreciation rates used, the depreciation methods used,
and a reconciliation of the carrying amount of investment property at the
beginning and end of the period, showing the additions, disposals and
depreciation (PAS 40).
3. Note indicates that the Company’s Investment Properties

are subsequently measured at cost. This is not in
accordance with the required measurement using “cost
model” which requires that the same should be carried at
cost less any accumulated impairment losses (PAS 40 and
16).
1. Incomplete accounting policy on “Properties and Equipment”, i.e.,

initial recognition and subsequent measurement (PAS 16/ Section 12 of PFRS
for SEs/ Section 17 of PFRS for SMEs).
Property and Equipment 2. Incomplete disclosure on “Property and equipment”, i.e., the useful lives or
the depreciation rates used; a reconciliation of the carrying amount at the
beginning and end of the period for 2017; amounts of restrictions on title, and
carrying amounts of property, plant and equipment pledged as security for liabilities
(PAS 1/PAS 16/Section 12 of PFRS for SEs/ Section 17 of PFRS for SMEs).
3. Notes indicate that Building and Building improvements are carried at revalued
amount. There is a failure to provide the following disclosure requirement:
(a) Methods and significant assumptions applied in
estimating the items of fair values;
(b) The extent to which the fair values were determined directly by reference to
observable prices in an active market or recent market transactions on arm’s length
terms or were estimated using other valuation techniques;
(c) The revaluation surplus, indicating the change for the
period and any restriction on the distribution of the balance to shareholders
(PAS 16).
4. There is no movement analysis on its Property and Equipment at

appraised value (PAS 16).
1. Incomplete disclosure on “Intangible Asset”, i.e., a

reconciliation of the carrying amount at the beginning and end
of the reporting period showing separately: (i) additions;
Intangible Assets (ii) disposals; (iii) acquisitions through business
combinations; (iv) amortization; (v) impairment losses; and (vi)
other changes (Section 18 of PFRS for SMEs).
2. Incomplete accounting policy on “Intangible property”, i.e.,

initial recognition and subsequent measurement (Section 18 of
PFRS for SMEs).
3. The Company recorded pre-operating expenses among its

non-current assets and amortized such. This is inconsistent with
PAS 38 which requires pre-operating expenses to be expensed
outright (PAS 38).
4. There is no disclosure on the basis for determining that

certain intangible asset has an indefinite life (PAS 38, par.
118).
1. A note disclosure states that trade and other receivables “are

recognized initially at the transaction price…”. However,
another note disclosure states that “financial liabilities are
Liabilities initially measured at fair value…”. Please note that Section 11.2
of PFRS for SMEs states that “an entity shall choose to apply
either: (a) the requirements of both Sections 11 and 12 in full;
or (b) the recognition and measurement requirements of PAS 39
Financial Instruments: Recognition and Measurement1 and
the disclosure requirements of Sections 11 and 12 to account
for all of its financial instruments”.
2. Incomplete disclosure on “Loans Payable”, i.e., maturity

date, interest rates, terms and conditions, covenants and
warranties (PFRS 7/ Section 6 of PFRS for SEs/ Section 11 of
PFRS for SMEs).
3. Incomplete disclosure on “Deposits for future shares

subscription”, i.e., the nature of consideration received; the date
of the presentation for filing to the Commission; the date of the
Liabilities Commission’s approval; information about the increase in the
authorized capital stock (i.e., old and new authorized capital
stock, number of shares, par value per share.) (FRB 6).
4. Incomplete accounting policy on “Trade and other payables”,

i.e., initial recognition; subsequent measurement and
derecognition policy (PFRS 9/ Section 11 of PFRS for SMEs
/Section 6 of PFRS for SEs).
5. A note disclosure showed that “Loans Payable” has no fixed

repayment term. Considering the foregoing, such should be
recognized among current liabilities since it can be implied that
it is payable on demand (Sections 4, 11 and 33 of PFRS for
SMEs).
Incomplete disclosure on “Capital Stock”, i.e., the number

of shares authorized, the number of shares issued and
fully- paid, and issued but not fully paid and a reconciliation
Equity of the number of shares outstanding at the beginning and
at the end of the period (PAS 1).
1. Based on a note disclosure, it seems that the Company still used

PAS 18 on its accounting policy for “Revenue”. This is evidenced by
revenue being measured at fair value instead of the transaction price
Revenue and revenue on contracts being recognized using the percentage of
completion method instead of either the output or the input method
(PFRS 15).
2. Incomplete disclosure on “Revenue”, i.e., the qualitative and

quantitative information on its contracts with customers; the
significant judgements, and changes in the judgements, made in
applying this Standard to those contracts; and any assets recognized
from the costs to obtain or fulfill a contract with a customer
(disaggregation of the revenue from contracts with
customers in accordance with PFRS 15 B87-89, revenue recognized
in the reporting period from performance obligations satisfied (or
partially satisfied) in previous periods (for example, changes in
transaction price), the aggregate amount of the transaction price
allocated to the performance obligations that are unsatisfied (or
partially unsatisfied) as of the end of the reporting period, etc.) (PFRS
15).
3. There is no qualitative disclosure on the nature, timing and

uncertainty of revenue and cash flows arising from contracts
with customers (PFRS 15).
Revenue
4. A note disclosure indicates that the Revenue is measured at the fair
value of the consideration received or receivable and represents
amounts receivable for goods and services provided in the normal
course of business. This is not in accordance PFRS 15 which
requires revenue to be measured at transaction price.
5. The Company did not disaggregate its revenue in

accordance with PFRS 15 (an entity shall disaggregate revenue
recognized from contracts with customers into categories that
depict how the nature, amount, timing and uncertainty of revenue and
cash flows are affected by economic factors).
6. The Notes to financial statement failed to disclose whether or not

the company is acting as principal or agent on its contract obligations
(PFRS 15).
There is no explanatory notes on “Miscellaneous Expense”

despite materiality of the amount (Section 8 of PFRS for
Costs and Expenses SMEs).
Incomplete disclosures on Finance lease, the present value

Leases of future minimum lease payments at the end of the
reporting period for each of the following period (PAS 17):
(a) Not later than one year;
(b) Later than one year and not later than five years
(c) Later than five years.
1. There is failure to disclose the nature of the related party relationship

(PAS 24/Section 33 of PFRS for SMEs).
Related Party Transactions
2. A note disclosure showed that “Due to related party” has no fixed
repayment term. Considering the foregoing, such should be recognized
among current assets since it can be implied that it is payable on
demand (Sections 4, 11 and 33 of PFRS for SMEs).
3. No disclosures about the name of the company’s ultimate

controlling party, irrespective of whether there have been transactions
between them (PAS 24 / Section 33 of PFRS for SMEs (as amended)).
4. Incomplete disclosures on related party transaction, i.e., date of

maturity, whether they are secured, and the nature of the consideration
to be provided in settlement; details of any guarantees given or
received; and key management personnel compensation in total and
for each of the following categories:
(a) short-term employee benefits; (b) post-employment benefits;
(c) other long-term benefits;
(d) termination benefits; and
(e) share-based payment (PAS 24).
Incomplete disclosures on Business Combinations, i.e.,

Business Combinations accounting method used in the acquisition of its new
subsidiary (PAS 1 and PFRS 3).
1. The Company did not recognize any retirement for

its employees (PAS 19).
2. Note 2 states that “the Company accrues retirement

benefits cost for all regular full-time employees based on
Retirement/Employee the requirements of RA 7641”. Under
Benefits Philippine Interpretations Committee Q&A No. 2013-03,
benefits due under RA 7641 are accounted as Defined
Benefit Plan under Section 28 of PFRS for SMEs, thus
disclosure in Note 10 however is not compliant with the
prescribed disclosures of the said plan.
3. Incomplete disclosure on “Retirement payable”, i.e.,

the date of the most recent comprehensive actuarial
valuation and, if it was not as of the reporting date, a
description of the adjustments that were made to measure
the defined benefit obligation at the reporting date (Section
Retirement/Employee 28 of PFRS for SMEs).
Benefits
4. The company did not disclose the reasons why using the
projected unit credit method to measure its obligation and
cost under defined benefit plans would involve undue cost
or effort (Section 28 of PFRS for SMEs (as amended).
5. The Company failed to disclose the maturity analysis of

its undiscounted benefit payments.
Incomplete disclosures on Foreign Currency

Foreign Currency Transactions, i.e., the amount of exchange differences
Transactions recognized in profit or loss during the period (Sec. 30.25 of
PFRS for SMEs).
Critical Accounting Estimates There is no discussion on the recoverability of the deferred

tax assets (Paragraph 125 of PAS 1).
There were no disclosures as to the nature of these prior

Prior Period Adjustment period adjustments (PAS 8).
1. Incomplete disclosure on “Liquidity risk”, i.e., a maturity

analysis for non-derivative financial liabilities (including
issued financial guarantee contracts) that shows the
Financial Risk Management remaining contractual maturities and a maturity analysis
for derivative financial liabilities. The maturity analysis shall
include the remaining contractual maturities for those
derivative financial liabilities for which contractual
maturities are essential for an understanding of the timing
of the cash flows (PFRS 7).
2. Incomplete disclosures on credit risk, i.e., maximum

amount of exposure (before deducting the value of
collateral), description of the collateral, information
Financial Risk Management about credit quality of financial assets that are neither
past due nor impaired, and information about the credit
quality of financial assets whose terms have been
renegotiated (PFRS7.36).
3. Incomplete disclosures on market risk, i.e., a

sensitivity analysis of each type of market risk to which the
entity is exposed, and additional information if the
sensitivity analysis is not representative of the entity's risk
exposure (PFRS 7.40-42).
There is no disclosure of fair value measurement of the

Fair Value Measurement financial assets and non-financial assets through fair value
hierarchy (PAS 1 and PFRS 13).
The company did not disclose the following as regards the

Events after the Reporting effects of the COVID-19 outbreak, a non-adjusting event
Period after the reporting period, in its financial statements:
(a) the nature of the event; and
(b) an estimate of its financial effect, or a statement that
such an estimate cannot be made (Section 21 PAS 10).
There is no disclosure of fair value measurement of the

Fair Value Measurement financial assets and non-financial assets through fair value
hierarchy (PAS 1 and PFRS 13).
The company did not disclose the following as regards the

Events after the Reporting effects of the COVID-19 outbreak, a non-adjusting event
Period after the reporting period, in its financial statements:
(a) the nature of the event; and
(b) an estimate of its financial effect, or a statement that
such an estimate cannot be made (Section 21 PAS 10).
1. There is no disclosure on the reversal of

appropriations amounting to P50M during 2018 (PAS 1).
2. The Reconciliation of Retained Earnings Available

Retained Earnings for Dividend Declaration showed “Retained earnings
appropriation for expansion”. However, the Company did
not provide its related disclosures (Financial Reporting
Bulletin No. 15 and SRC Rule 68, as amended).
3. Despite adjustments to the company's Retained

Earnings, it still exceeds 100% of its paid-in capital. There is
no disclosure of any appropriation to comply with the
requirements of Sec. 43 of the Corporation Code.
4. The company's retained earnings exceed 100% of its

paid-in capital. There is no disclosure of any
appropriation to comply with the requirements of Sec. 43
of the Corporation Code.
Retained Earnings
5. Incomplete disclosure on Appropriated Retained
Earnings, i.e., date of the Board of Directors; specific details
of the project and its timeline (PAS 1 and Sec. 43
of the Corporation Code).
Actual Findings
Reviewed by
the
Commission
(2020)
1. The “Material Uncertainty Related to Going Concern”

paragraph of the Auditor’s report did not include a statement
that the auditor’s opinion is not modified in respect of the
material uncertainty (PSA 570 (rev)).
Auditor's Report
2. The Auditor’s Responsibilities for the Audit of the Financial
Statements section of the Auditor’s Report failed to include a
paragraph that the auditor’s responsibility includes evaluating
the overall presentation, structure and content of the financial
statements, including the disclosures, and whether the financial
statements represent the underlying transactions and events in
a manner that achieves fair presentation (Paragraph 38.b.v of
PSA 700 (rev.)).
3. The opinion paragraph states that the AFS was prepared “…in
accordance with PFRS”, while the responsibilities of
management and those charged with governance
paragraph which states that the AFS was prepared “…in
accordance with PFRS for SMEs…” (Revised SRC Rule 68).
4. The Company disclosed in its notes to financial statements

that the Company has discontinued releasing of loans to
borrowers. However, the auditor’s report did not include a
statement explaining the Company’s ability to continue as going
Auditor's Report concern despite the fact that the Company has discontinued its
only revenue producing activity. (PSA 570)
5. The Auditor’s Report failed to specify the year/s to engage in

the audit of financial statement (Revised SRC Rule 68).
6. There is no legal matter paragraph in the auditor's report to

cover the information required by Revenue Regulation 15-
2010. (PSA 700).
7. Reconciliation of Retained Earnings Available for Dividend

Declaration was not covered in the auditor’s report
(Revised SRC Rule 68).
The Statement of Management’s Responsibility failed to

Statement of Management’s cover the 2019 comparative financial statement (Part
Responsibility I.2.B.iii of Revised SRC Rule 68).
Statement of Financial The Company did not present its “Property and equipment
Position at cost” and “Property and equipment at revalued
amount” as a separate line item in the Statement of
Financial Position in compliance with paragraph 59 of
PAS1.
1. The Cash Flows from Operating Activities includes “Acquisition of

Financial Assets at fair value through profit or loss” and “Proceeds from
disposal of financial assets at fair value through profit or loss”. There is
however no disclosure in the Notes of the said activities (PAS 1 and PAS
7).
Statement of Cash Flow
2. The Cash Flows from Investing Activities includes
“Acquisitions of Investment Securities at FVOCI and Investment
Securities at amortized cost” and “Proceeds from maturities/sale of
Investment Securities at FVOCI and Investment Securities at amortized
cost”. There is however no disclosure in the Notes of the said activities
(PAS 1 and PAS 7).
3. The Company presented its cash flows from financing and investing
activities using the indirect method of cash flows instead of direct method
(PAS 7/ Section 7 of PFRS for SMEs/Section 3 of PFRS for SEs).
4. The cash flows arising from availment and payment of loans are
recognized under operating activities when it should have been classified
under financing activities. (PAS 7/ Section 7 of PFRS for SMEs).
5. The Statement of Cash Flows failed to separately disclose the cash

flows from interest received and paid and classify them as cash flows from
operating activities (Paragraphs 31 of PAS 7).
6. Non-cash transactions were reported in the Statement of Cash flows.

Statement of Cash Flow PAS 7 states that investing and financing transactions that do not require
the use of cash or cash equivalents shall be excluded from the Statement
of Cash flows.
7. Changes in “Advances to and long-term loans from related party” are

recognized under operating activities. PAS 7 states that operating activities
are the principal revenue- producing activities of the entity. Considering the
nature of activities, said changes should have been presented under
investing and financing activities, respectively.
8. The movement in some of the accounts do not tie to the increase

(decrease) amount in the statement of cash flows (PAS 7).
9. There is no disclosure of changes in liabilities arising from financing

activities, including both changes arising from cash flows and non-cash
changes (Disclosure initiative (amendment to PAS 7)).
1. The list of all the effective standards and interpretations

under PFRS is no longer required to be attached in the AFS
(Revised SRC Rule 68).
Supplemental Schedules 2. The Schedule for Financing Company does not include the
required under the Revised ratio for following:
SRC Rule 68
a) “Amount of Receivables from a Single Corporation to
Total Receivables”.
b) ratio or percentage of total real estate investments to total
assets;
c) total receivables to total assets;
d) total Directors, Officers, Stockholders and Related
Interests (DOSRI)’s receivables to net worth
e) Details (per issue) of underwriting activities per year; and
f) Transaction with DOSRI (Revised SRC Rule 68).
3. The company failed to include a Reconciliation of Retained

Earnings Available for Dividend Declaration which is
required for stock corporations with unrestricted retained
earnings in excess of 100% of paid-in capital stock (Part 1.5.B of
Supplemental Schedules Revised SRC Rule 68).
required under the Revised
SRC Rule 68 4. The Supplemental Statement of Independent Auditor shows
that it does not include the number of stockholders owning
100 or more shares as of December 31, 2020 (Revised SRC
Rule 68).
5. There is no map showing the relationships between and

among the Company and its ultimate parent, middle parent,
subsidiaries or co-subsidiaries and associates. This map must
be covered by the Auditor’s Report (Revised SRC Rule 68).
1. The Company has neither PPE nor rent expense. This

cannot support the business address provided on Note 1
(PAS 1).
Corporate Information 2. The company failed to disclose the date when the AFS
were approved and authorized for issuance by the BOD
(PAS 1 and PSA 700).
1. The Company did not disclose that the AFS is not

prepared on a going concern basis and the Company’s
basis used in the preparation of the financial statement
(e.g., liquidation basis) (PSA 570 Revised par. A27,
Basis of Preparation of FS PAS1.25). Based on Notes to financial statements, the AFS
was prepared using the applicable PFRS and PAS
without discussion of the modifications on accounting
policies made to reflect the fact that the ‘going concern’
assumption is no longer appropriate in measuring its
remaining accounts.
2. The Financial Statements were prepared under an

incorrect financial accounting framework, i.e., PFRS, PFRS
for SMEs, PFRS for SEs (Revised SRC Rule 68).
1. The classification of receivables in Statement of

Financial Position is inconsistent with the terms of the
loans granted disclosed in the Notes to Financial
Statements, i.e. It is stated in the Notes that the term of
Receivables the loans granted by the Company ranges from 90 days to
ten years while all receivables are classified under current
assets in the Statement of Financial Position (PAS 1).
2. Incomplete disclosure on “Loans and receivables”,

i.e., interest rates and whether secured or unsecured (PAS
1).
1. The company continues to classify its financial instruments under

the categories provided by PAS 39 which has already been superseded
(PFRS 9).
2. There is no assessment made for the expected credit loss (ECL) of

Financial Instruments
the Company’s financial assets (PFRS 9).
3. There is no accounting policy on subsequent measurement for the

Company’s Financial Instruments (PFRS 9).
4. There is no derecognition policy on financial liabilities (PFRS9).
5. Inconsistent disclosures relating to “Financial Liabilities”, i.e., Note to

“Accounting Policies Adopted” states that financial liabilities are
recognized initially at its transaction price while it is disclosed in Note
to “Trade and Other Payables” that financial liabilities are measured
initially at their nominal values (PFRS 7/ Section 11 of PFRS for SMEs).
1. The note to financial statements disclosed that “trade and other

receivable” is recognized initially at the transaction price. However, based
on same Note under “Financial Instruments”, it states that “all financial
assets are initially recognized at fair value” which is not in accordance with
Section 11 of PFRS for SMEs which states “An entity shall choose to apply
Financial Assets/Investments either:
(a) the requirements of both Sections 11 and 12 in full; or
(b) the recognition and measurement requirements of PAS 39 Financial
Instruments: Recognition and Measurement and the disclosure
requirements of Sections 11 and 12 to account for all of its financial
instruments”.
2. The company failed to disclose the maturity dates of “Rent receivable”

and “Notes Receivable” (PFRS 7/ Sections 8 and 11 of PFRS for SMEs).
3. Based on Note 2 (Accounting Policy) the Company failed to classify its

financial assets in accordance with PFRS 9.
4. Considering the nature of business of the Company and the effect of

COVID-19 pandemic, it is highly unlikely that there is no ECL for 2020.
Moreover, Note 3 (credit risk) showed that there are past due accounts for
“loans and receivables” which are more than 30 days (PFRS 7 and 9).
1. Inconsistent application of accounting policy. i.e.,

improvements on investment property were depreciated while the
investment property itself was not (PAS 40).
2. Incomplete disclosure on Investment Property, i.e., the useful lives or the

depreciation rates used and the depreciation methods used (PAS 40/
Investment Property Section 16 of PFRS for SMEs).
3. Incomplete disclosure on the methods and significant assumptions

applied in determining the fair value of investment property, the extent to
which the fair value of investment property (as measured or disclosed in
the financial statements) is based on a valuation by an independent valuer
who holds a recognized and relevant professional qualification and has
recent experience in the location and class of the investment property
being valued. (Section 16 of PFRS for SMEs).
4. The Notes stated that investment properties, except land, are

carried at cost less accumulated depreciation and
amortization and any impairment in residual value.
However, investment property are tangible assets which are not
subject to amortization (Paragraph 30 of PAS 16).
Investment Property
5. The company adopted the cost model as its accounting policy
for recognizing and measuring investment properties, however, it
did not disclose its fair value (Paragraph 79.e of PAS 40).
Furthermore, in the exceptional cases when an entity cannot
measure the fair value of the investment property reliably, it
should disclose a description of the investment property, an
explanation of why fair value cannot be measured reliably, and, if
possible, the range of estimates within which fair value is highly
likely to lie (Paragraph 79.e of PAS 40).
1. Incomplete disclosures on “Property and Equipment”, i.e.,

accounting policy used, the useful lives or the depreciation rates
used, reconciliation of carrying amounts of property and
equipment presented in Notes to Financial Statements has no
comparative figures (PAS 16/Section 12 of PFRS for SEs/
Property and Equipment Section 17 of PFRS for SMEs).
2. The company did not recognize any depreciation for the year
on its fixed assets despite it not being fully depreciated (PAS
16).
3. Inconsistent disclosure of accounting policy relating to

Property and Equipment, i.e., It is disclosed in Note to
“Accounting Estimates” that property and equipment is stated at
revalued amount based on the fair value of the property while it
is stated in Note to “Accounting Policies” property and
Property and Equipment equipment after initial recognition are stated at cost less any
accumulated depreciation and any accumulated impairment
losses (PAS 1).
4. A note states that “Property, plant and equipment are

stated at historical cost less accumulated depreciation and
amortization. However, Property and Equipment are
tangible assets which are not subject to amortization (PAS16).
5. There are no disclosures on fully depreciated assets still in

use (PAS 16).
Incomplete disclosure on “intangible assets”, i.e., the useful

lives or the amortization rates used and the amortization
methods used (Section 13 of PFRS for SEs).
Intangible Assets
1. Incomplete disclosure on “Borrowings”, i.e when an entity has

pledged financial assets as collateral for liabilities or contingent
liabilities, it shall disclose the following:
a. the carrying amount of the financial assets pledged as collateral;
and
b. the terms and conditions relating to its pledge. (Section
Liabilities 11 of PFRS for SMEs)
2. The Notes to financial statements indicate that, there have been no

instances of default and the Company is compliant with all the
terms and conditions of all borrowing. There is however no disclosures
of the terms and conditions of all borrowing, particularly, specific ratios
and the corresponding threshold that should be maintained to verify
company’s compliance thereof (PAS 1 and 39).
3. A note disclosed the outstanding balances and amounts/volume of

“Due to Related Parties” during 2020 and 2019. A review however,
showed that the movement between 2019 to 2020 outstanding
balances do not agree with its amounts/volume (PAS24).
4. A note disclosed that the non-current portion of the outstanding

balance “Due to Related Parties” are due after the reporting period.
Considering the foregoing, such should be recognized among current
liabilities since it can be implied that it is payable on demand (PAS 1).
5. Note pertaining to Non-current Liabilities, shows that it includes

Liabilities Accounts Payable-Long term. Said note states that accounts payable –
long term refers to payable with no definite terms of payment. “No
definite terms” is considered as “on demand” which means the
accounts payable may be demanded anytime. Thus, it should
have been presented under Current Liabilities (PAS 1 and PAS 24).
6. Inconsistent disclosure of information relating to “Loans payable”,

i.e., It is disclosed in Notes to Loans Payable and Fair Value
Measurements that loans are interest bearing while it is indicated in
Notes to Amount “Due to Related Parties” that loans are non-interest
bearing (PAS 1).
7. The Notes to Financial Statements reported Provision for Income

Tax which was computed using the income tax rate of 25%.
Considering that the CREATE Act was enacted after the financial
statements were authorized for issue, the taxable income should be
computed using the applicable income tax rate as of 31 December
2020 which is 30% (Paragraph 404 of PFRS for SEs and PIC Q&A No.
Liabilities 2020-07).
8. The company did not disclose the terms and breakdown of “Payable
to Government Agencies” and “Other Payable” (PAS 1 paragraph 112,
PFRS 9).
9. The company did not disclose information regarding its long-

term debt which would normally include the terms and conditions of
the debt instrument (such as interest rate, maturity, repayment
schedule, and restrictions that the debt instrument imposes on the
entity) (Section 11.42 of PFRS for SMEs (as amended)).
1. Incomplete disclosure on equity, i.e., externally imposed

capital requirement. (PAS 1)
2. Incomplete disclosures on “Common stock”, i.e.,

the number of shares issued and fully paid, and issued but
Equity not fully paid (PAS 1).
1. The accounting policy on the recognition and

measurement of revenue is still based on PAS 18 instead of PFRS 15.
2. Incomplete disclosure on “Revenue”, i.e., qualitative and quantitative

information about all of the following:
a) its contracts with customers (i.e., disaggregation of revenues,
Revenue when the entity typically satisfies its performance obligations,
the significant payment terms, the nature of the goods or services that
the entity has promised to transfer, highlighting any performance
obligations to arrange for another party to transfer goods or
services, obligations for returns, refunds and other similar obligations;
and types of warranties and related obligations. (see par. 113-122 of
PFRS 15)
b) the significant judgements, and changes in the judgements,
made in applying this PFRS 15 to those contracts (i.e., the timing of
satisfaction of performance obligations and the transaction price and
the amounts allocated to performance obligations. (see par. 124-
126).
c) any assets recognized from the costs to obtain or fulfil a contract
with a customer in accordance with paragraph 91 or 95 (see
paragraphs 127–128). (PFRS 15).
There is no disclosure of the nature and breakdown of the

“Miscellaneous” account presented in the general and
administrative expenses (Section 8 of PFRS for SMEs).
Costs and Expenses

1. The accounting policy on leases is still based on PAS 17 instead of

PFRS 16.
2. The required disclosures under Section 20 of PFRS for SMEs for lessor
were not disclosed:
Leases a. the future minimum lease payments under non-cancellable operating

leases for each of the following periods:
(i) not later than one year;
(ii) later than one year and not later than five years; and
(iii) later than five years.
b. total contingent rents recognized as income;
c. a general description of the lessor’s significant leasing arrangements,
including, for example, information about contingent rent, renewal or
purchase options and escalation clauses and restrictions imposed by
lease arrangements; and
d. the requirements for disclosure about assets in accordance with
Section 17 (Property, Plant and Equipment), Section 18 (Intangible
Assets other than Goodwill), Section 27 (Impairment of Assets),
and Section 34 (Specialized Activities) of PFRS for SMEs apply to lessors
for assets provided under operating leases.
3. Incomplete disclosures on leases, i.e., the nature of

the lessor’s leasing activities and how the lessor manages
the risk associated with any rights it retains in underlying
assets.
Leases In particular, a lessor shall disclose its risk management

strategy for the rights it retains in underlying assets, including
any means by which the lessor reduces that risk. Such
means may include, for example, buy-back agreements,
residual value guarantees or variable lease payments for use
in excess of specified limits. (PFRS 16)
1. Incomplete disclosures on related party transactions and

balances, i.e.,
a. nature of the relationship with related parties;

b. nature of the consideration to be given in settlement;
Related Party Transactions c. terms and conditions, including whether the outstanding
balances are secured;
d. the nature of the consideration to be provided in
settlements and;
e. details of guarantees. (PAS 24)
2. Incomplete disclosure on Related Party Transaction, i.e., nature

of the consideration to be given or received and compensation of
key management personnel for each of the following categories:
a. short term employee benefits b. post-employment benefits;

c. other long-term benefits;
d. termination benefits; and
e. share based payments (PAS 24).
3. Incomplete disclosure for “advances received for future

subscription”, i.e.,
a. nature of the related party transaction;

b. their terms and conditions (whether interest bearing and
Related Party Transactions maturity dates), including whether they are secured, and the
nature of the consideration to be provided in settlement;
c. details of any guarantees given or received;
d. date of BOD’s approval on proposed increase in authorized
capital stock;
e. date of stockholders’ approval on proposed increase in
authorized capital stock;
f. date when the application for approval of proposed increase has
been presented for filing or has been filed with the Commission;
g. information about the increase in the authorized capital stock.
(Section 26 of PFRS for SEs and FRB 6).
1. The Company did not recognize any retirement for its

employees (RA 7641 and PAS 19).
2. There are no disclosures on the Company’s short-term

employee benefits, post-employment benefits, other long-
Retirement/Employee term employee benefits and termination benefits (PAS 19).
Benefits
1. Incomplete disclosure on “Loans and Receivables”, i.e., when

an entity holds collateral (of financial or non-financial assets) and
is permitted to sell or repledge the collateral in the absence of
default by the owner of the collateral, it shall disclose:
Financial Risk Management a) the fair value of the collateral held;

b) the fair value of any such collateral sold or repledged, and
whether the entity has an obligation to return it; and
c) the terms and conditions associated with its use of the
collateral. (PFRS 7)
2. Incomplete disclosure on “Liquidity risk”, i.e., a maturity analysis

for non derivative financial liabilities (including issued financial
guarantee contracts) that shows the remaining contractual
maturities and a maturity analysis for derivative financial liabilities.
The maturity analysis shall include the remaining contractual
maturities for those derivative financial liabilities for which
contractual maturities are essential for an understanding of the
timing of the cash flows (PFRS 7).
3. Incomplete disclosure on “Currency Risk”, i.e., sensitivity

analysis for each type of market risk to which the entity is exposed
at the end of the reporting period, showing how profit or loss and
equity would have been affected by changes in the relevant risk
variable that were reasonably possible at that date; (b) the
Financial Risk Management methods and assumptions used in preparing the sensitivity
analysis; and (c) changes from the previous period in the methods
and assumptions used, and the reasons for such changes. (PFRS7)
4. The disclosures for “Credit Risk” are not in accordance with

PFRS 7.
5. The maturity analysis of liabilities per “Liquidity Risk” is

inconsistent with the maturity analysis disclosed in the notes to
liabilities (PAS 1 and 24 and PFRS 7).
1. The Notes to Financial Statements failed to disclose

the following as regards the effects of the enactment of
CREATE Law, a non-adjusting event after the reporting period,
in its financial statements:
Events after the Reporting a) The nature of the event; and

Period
b) An estimate of its financial effect or a statement that such
an estimate cannot be made. (Section 32.10 of PFRS for
SMEs (as amended))
1. Despite adjustments to the company's Retained Earnings,

it still exceeds 100% of its paid-in capital. There is no
disclosure of any appropriation to comply with the
requirements of Sec. 42 of the Revised Corporation Code.
Retained Earnings 2. It is disclosed in the notes to financial statements that as

at December 31, 2020 and 2019, the Group has unpaid
dividends. However, the date of the approval by the Board of
Directors of the declared dividends are not disclosed (PAS
1).
3. The Reconciliation of Retained Earnings Available

for Dividend Declaration showed “Retained earnings
appropriation for expansion”. However, the Company did not
provide its related disclosures (Financial Reporting Bulletin
No. 15 and Revised SRC Rule 68).
The Philippine Financial
Reporting Standards
By Marco Fernando Lumanlan Ng
mtpf.marcong@gmail.com
0922-856-0648 (Sun) /0917-599-2012 (Globe)

/ 045-322-8033 (Landline)
http://abandc.co/
https://www.facebook.com/#!/abandc.com.ph
QUALITY ASSURANCE REVIEW IN CONSIDERATION
WITH PSA PROCEDURES
PRESENTED BY: MARCO FERNANDO L. NG
WELCOME – PRESENTATION OBJECTIVES
1. Agenda
2. Ground Rules
3. Introductions
Managing Partner Direct Tel : 0922-856-0648 / 0917-599-2012
M. Ng & T. Lopez Partnership Firm Tel Landline : 045-322-8033
Angeles City, Pampanga Email :mtpf.marcong@gmail.com
Background Experience
• Marco is the Managing Partner of M. Ng & T. Lopez Partnership Firm, one of

the dynamic accounting and assurance firm in Angeles City. Marco has performed various audit services and fraud investigation namely to the following
industry:
• A recipient of the 2017 PICPA Young Achiever Awards for Public Practice
Importer/Distributor – Managed the forensic audit of a partnership, engage in importing and
• A member of the PICPA Quality Assurance Review team for Public Practice
distribution of animal and pet products, relating to allegation of misappropriation of cash
• A national speaker for PICPA, CICA, CrFA, CIA (under ExelCIA), and other in collections and diversion of partnership funds by the managing partner and employees. The
house training facilitated by PowerMax and Business Essence. project entailed performing procedures to establish the amount involved in the said employee
fraud.
• Marco is one of founders of the Firm which started on November 2013. Prior to
this, he started his career with one of the big 4 firms in the Philippines where he Multinational Company – Managed the independent review of costing methodology and
spent 4 years conducting external audit engagement with Public and Private analysis of costing data of a multinational company based in the Philippines, with export
companies. Then he joined the biggest auditing firm in the Philippines where he business to other countries. The review was made to support a dispute in another country
spent 3 years doing Fraud Investigation and Dispute services for large involving the multinational company. The project entailed procedures in documenting cost
multinational companies and state auditors of the Philippines. And finally he allocation process and gathering information regarding the computation of gross margin and
spent 3 years conducting external and internal audit work in New York and Los earnings before taxes
Angeles California for one Hedge Funds and Private Equity Funds with one of
the largest US firm. Government sector –supervised the development and preparation of a fraud audit manual to
be integrated in the regular audit of Government agencies. These project required review of
Skills and affiliation the current state of fraud auditing within the audit institution, developing and preparing the
fraud audit manual, developing of training materials, and conducting of training programs of
• Marco is Certified Fraud Examiner (CFE), Certified Internal Auditor (CIA), Certified Public
Accountant (CPA) Both in the Philippines and in the US, and a Chartered Global selected state auditors.
Management Accountant.
Health Service - Supervised and helped assist the forensic audit of a private hospital relating
• Marco has maintained his membership with the Association of Certified Fraud Examiner
to allegation of improper of cash collections made by the company’s procurement manager
(ACFE), Institute of Internal Auditors (IIA), American Institute of Accountants (AICPA),
Chartered Institute of Management Accountants (CIMA), and Philippines Institute Certified from external sales agents.
Public Accountants (PICPA).
7 PHASES OF AUDIT
THE AUDIT PROCESS IS DIVIDED INTO SEVEN PHASES
Study and
Pre-Engagement Evaluation of
Audit Planning Substantive Tests
Procedures Client’s Internal
Control System
Completing the Issuance of the Post-audit

Audit Engagement Audit Report responsibilities
PRE-PLANNING AND PLANNING DOCUMENTATION
WHY PLAN?
This Photo by Unknown Author is licensed under CC BY-SA

IT’S A VUCA
WORLD
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THE KEY TO
SUCCESS IS
PROPER
STRATEGIC
PLANNING AND
IMPLEMENTATION
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600.7 In evaluating a prospective client, we consider
whether there are professional reasons not to act as auditor
when the independence of the auditor, its partners, managers
and professional staff may be threatened or compromised by
accepting the appointment as auditor.
INDEPENDENCE
600.8 There must be evidence that the engagement
ISSUES partner has formed a conclusion on compliance with
independence requirements including:
• Identifying and evaluating circumstances that create threats to independence.

• Evaluating identified threats.
• Taking action to eliminate threats or reduce them to an acceptable level by
applying safeguards, or declining the appointment.
600.9 At least annually, the firm shall obtain written
confirmation from its professional staff that they have
complied with the independence requirements.
600.10 In addition to the above considerations,

ANNUAL engagements may need to be declined where:
INDEPENDENCE
• An entity is operating in a specialized industry in which the auditor
DECLARATION lacks the required expertise, and expert assistance is not available.
• An entity operates a significant operation where the auditor is not
represented, and there are no alternative audit procedures that can
be adopted to cover these operations.
• The entity reporting deadlines coincide with existing client pressures.
• An Engagement Quality Control Review is required and no suitably
qualified and objective reviewer is available.
600.11 A partner, designated as the Engagement Quality
Control Reviewer, is responsible for evaluating the
prospective audit engagement. While retaining overall
responsibility, the evaluating partner may delegate some of
the evaluation procedures. For example, gathering certain
background information may be delegated.
WHO PERFORMS
THE EVALUATION
600.12 The evaluating partner does not delegate
discussions with predecessor auditors and only delegates
enquiries of third parties to another partner.
600.13In conducting an evaluation of a
prospective client, the evaluating partner or his
designate must:
PROCEDURES consider the engagement risks to be faced in
accepting the audit;
consider whether the Auditor has enough
IN capability and manpower to be able to act as
the principal auditor
make enquiries, as appropriate, from the
EVALUATING A following sources to gather enough
information to arrive at a decision whether to
accept or not an audit engagement:
PROSPECTIVE • within the prospective client or third

parties
• using investigation services
CLIENT • from predecessor auditors;

conclude on acceptance
600.14The evaluation of the prospective audit
PROCEDURES client must be completed prior to accepting an
appointment as auditor. If the evaluation is not
completed prior to the deadline for submitting a
IN proposal, we include comments in the proposal
stating that it is subject to completion of required
professional enquiries.
EVALUATING A 600.15Before contacting third parties and

collecting information on a prospective client,
take steps to ensure that all partners and staff are
PROSPECTIVE aware of:
• The firm’s policies to protect confidential
CLIENT •
information maintained on clients;
Requirements of any privacy legislation; and
CONT… • Requirements of the applicable code of ethics.

PROCEDURES
IN 600.16 We document the collection of
information, the evaluation process and
the conclusion reached regarding
EVALUATING A acceptance or rejection of the prospective
audit client. An evaluation of prospective
PROSPECTIVE client form should be completed to
document the basis for the conclusion
CLIENT reached. The evaluating partner signs on

the form.
CONT…
600.17 Out of the existing audit engagements of the auditor,
it is important for the engagement partners to identify for
each audit period which are the clients that need formal re-
evaluation.
600.18 The identification activity focuses on significant

RE-EVALUATION changes in the circumstances of the entity or in the terms or
OF EXISTING conditions of our audit. The following factors may be
considered:
CLIENT
• new legal, regulatory or professional requirements that alter our reporting
responsibilities and the nature, timing, or extent of our audit procedures;
• a significant change in the nature, size, or structure of the entity's business;
• a significant change in principal owners, management or other personnel;
• audit findings which indicate that management may be providing misleading or
incomplete information or there is material weakness in controls and no steps
are being taken to correct the deficiencies.
600.19In considering continuance of the audit
engagement for identified audit client, the
RE- following needs to be considered:

• updating our understanding of the entity's
business risks and the related audit risks;
EVALUATION • obtaining an acceptable level of confidence

that the entity's management and principal
owners have the integrity to provide us with
OF EXISTING meaningful representations and full disclosure
in connection with our audit;
• considering our ability to address the audit
CLIENT •
risks;
considering the business risk that we face in
continuing with the audit.
CONT…
600.20 When the engagement partner concludes that the
auditor's relationship with an existing client requires formal
re-evaluation we follow the process for acceptance of
prospective audits, adapting it as necessary.
RE-EVALUATION
OF EXISTING
CLIENT CONT…
600.21 We document the formal re-evaluation process and
conclusions reached. The evaluation needs to describe the
reasons for the formal re-evaluation, the methods used to
conduct the formal re-evaluation and the conclusions reached.
The engagement partner approves the re-evaluation.
ILLUSTRATIVE CLIENT EVALUATION
Exhibit 600 - 2 Prospective Client Eval Form - 2018.pdf

ILLUSTRATIVE INDEPENDENCE CONFIRMATION
Exhibit 600 - 1 Independence Confirmation - 2018.pdf

ILLUSTRATIVE ENGAGEMENT LETTER
Exhibit 600 - 3 Illustrative Engagement Letter - 2018.pdf

AUDIT PLANNING AND STRATEGY –
DOCUMENTATIONS
Objective: This checklist sets out the items required to be considered in developing the audit strategy.
AUDIT STRATEGY
Client Name: Client Code:
Period End : Partner: Manager:
Prepared by: Date:

Subject : Audit Strategy Checklist
Reviewed by: Date:
WP
Factor to Consider Comment
Ref
The financial reporting framework on which

the financial information to be audited has been
prepared, including any need for reconciliations to
another financial reporting framework.
Industry-specific reporting requirements such

as reports mandated by industry regulators.
IDENTIFYING AND ASSESSING RISKS OF MATERIAL
MISSTATEMENT THROUGH UNDERSTANDING THE
ENTITY AND ITS ENVIRONMENT
Understand the entity, in order to:
 Identify and assess risks of material misstatement
 Design and perform audit procedures
 Provide a frame of reference for judgments

WHAT DO WE NEED TO GET AN UNDERSTANDING OF?
 Industry, regulatory and other external factors
 Nature of the entity
 Selection, application and reasons for changes of accounting policies
 Objectives, strategies and related business risks
 Measurement and review of the entity’s financial performance
 Internal control
HOW DO WE GET THIS UNDERSTANDING?
 Enquiries of management (and others within the entity)
 Analytical procedures (on both financial and non-financial data)
 Observation and inspection
 Audit team discussion of the susceptibility of the FD to material

misstatement
 Prior period knowledge (but should check that it is still relevant)

SIGNIFICANT RISKS ARE THOSE THAT REQUIRE SPECIAL
AUDIT CONSIDERATION, SUCH AS:
 Risk of fraud
 The degree of subjectivity in the financial information
 Unusual transactions
 Significant transactions with a related party
 Complexity of the transactions

DOCUMENTATION REQUIREMENTS
 The discussion among the audit team

concerning the susceptibility of the FS to
material misstatements, including any significant
decisions reached
 Key elements of the understanding gained of

the entity including the elements of the entity
and its control specified in the ISA as
mandatory, the sources of the information
gained and the risk assessment procedures
carried out
 The identified and assessed risks of material misstatement
 Significant risks identified and related controls evaluated
 The overall responses to address the risks of material

misstatement
 Nature, extent and timing of further audit procedures

linked to the assessed risks at the assertion level
 If the auditors have relied on evidence about

effectiveness of controls from previous audits, conclusions
about how this is appropriate
AUDIT METHODOLOGIES: RISK-BASED AUDIT
The increased use of risk-based auditing reflects two factors:
1) The growing complexity of the business

environment increases the danger of fraud or
misstatement. Factors such as the developing use
of computerised systems and the growing
internationalisation of business are relevant here.
2) Pressures are increasingly exerted by audit clients

for the
‘TOP-DOWN’ APPROACH
also known as the business risk approach
 controls testing is aimed at…
 high level controls

 substantive testing is reduced.
OTHER AUDIT STRATEGIES
 Systems audit
 Balance sheet approach
 Transaction cycle approach
 Directional testing
MATERIALITY CRITERIA
MATERIALITY GUIDELINES
Starting points for the consideration of materiality:
Value %
Profit before tax 5

Gross profit ½-1
Revenue ½-1
Total assets 1-2
Net assets 2-5
Profit after tax 5-10
DOCUMENTATION
 Materiality for the FS as a whole
 Materiality for particular balances, classes of transactions or disclosures
 Performance materiality
 Any revisions to the above

EVALUATING MATERIAL MISSTATEMENTS
ISA 450.5
The auditor shall accumulate

misstatements identified during the
audit, other than those that are clearly
trivial.
EVALUATING MATERIAL MISSTATEMENTS
ISA 450.15
The auditor shall include in the audit documentation:
 The amount below which misstatements would be regarded as clearly trivial
 All misstatements accumulated during the audit and whether they have been
corrected
 The auditor’s conclusion as to whether uncorrected misstatements are

material, individually or in aggregate, and the basis for that conclusion
ILLUSTRATIVE AUDIT STRATEGY CHECKLIST
Illustrative Audit Strategy Checklist.pdf

ILLUSTRATIVE AUDIT PLANNING MEMORANDUM
Illustrative Audit Planning Memorandum.pdf

ILLUSTRATIVE AUDIT UNDERSTANDING MEMO
Illustrative Audit Understanding Memorandum.pdf

ILLUSTRATIVE ANALYTICAL PROCEDURES
Illustrative Analytical Procedure documentation.pdf

SECTION 600 ENGAGEMENT MANAGEMENT –
DOCUMENTATIONS
600.89 Working papers are records kept by the auditor of the
procedures applied, and the tests performed, the information
obtained and the pertinent conclusions reached. Examples include:
schedules, transcripts, analyses, notes and other memoranda
(including computer files) prepared and accumulated in connection
with an audit.
MANAGING AUDIT
DOCUMENTATION
600.90 Managing the audit working papers is important in providing

evidence that the audit was performed appropriately (in relation to
standards of auditing and other legal requirements)
600.91 Auditors design working papers
to suit the needs of each audit, taking
account of the auditor’s policies and legal
and professional requirements. Overall
GUIDE IN guidelines in preparing the working papers
are:
PREPARING • use of standard working papers is

recommended
• working papers should be clear and
WORKING •
concise
working papers use professional language
PAPERS • all outstanding points are cleared to

finalize the working papers
• discard review points once cleared.
600.92 The form and content of
working papers are affected by matters
GUIDE IN such as the:

• Nature of the engagement.
• Nature of the audit procedures to be
PREPARING performed.
• Form of the auditor's report.
• Identified risks of material
WORKING misstatement
• Size and complexity of the entity.
• Condition of the entity's accounting
PAPERS and internal control systems.
• Needs in the particular circumstances
for direction, supervision and review of
CONT… work performed by assistants.
• Audit methodology and tools used.
600.93 Also, to improve audit efficiency, the auditor
may utilize schedules, analyses and other
GUIDE IN
documentation prepared by the entity. In such
circumstances, the auditor would need to be
satisfied that those materials have been properly
prepared.
PREPARING 600.94 Working papers ordinarily include:

• Information concerning the organizational
WORKING structure of the audit client.

• Extracts or copies of important legal documents,
agreements and minutes.
PAPERS • Information concerning the industry, economic

environment and legislative environment within
which the entity operates.
CONT… • Evidence of the planning process including audit

programs and any changes thereto.
• Evidence of the auditor's understanding of the
accounting and internal control systems.
• Evidence of control risk assessments and any
revisions thereof.
GUIDE IN • Evidence of the auditor's consideration of the
work of internal auditing and conclusions
reached.
PREPARING • Analyses of transactions and balances.
• Analyses of significant ratios and trends.
WORKING • A record of the nature, timing and extent of

audit procedures performed and the results
of such procedures.
PAPERS • Evidence that the work performed by

assistants was supervised and reviewed.
CONT…
• An indication as to who performed the audit
procedures and when they were performed.
• Details of procedures applied regarding
components whose financial statements are
audited by another auditor.
GUIDE IN • Copies of communications with other auditors,

experts and other third parties.
Copies of letters or notes concerning audit
PREPARING
•
matters communicated to or discussed with the
entity, including the terms of the engagement
and material weaknesses in internal control.
WORKING • Letters of representation received from the

entity.
• Conclusions reached by the auditor concerning
PAPERS significant aspects of the audit, including how

exceptions and unusual matters, if any, disclosed
by the auditor's procedures were resolved or
treated.
CONT… • Copies of the financial statements and auditor's
report.
600.95 The Firm shall adopt and use
standard working papers to facilitate the
STANDARD audit supervision and review while
providing a means to control its quality.
The auditors need to consider the factors
AUDIT stated in statement 600.95 when applying
the use of standard working papers.
WORKING While certain portion of the standard

working paper may not be applicable to
certain clients, especially the small and
PAPERS owner-managed clients, the auditor need
not remove such portion but just to
indicate that it is not applicable.
600.97Audit working papers may be printed or
retained electronically. To determine that
electronic documents are maintained by the one
who is conversant with the contents of the
ELECTRONIC document and that extraneous information is not

being retained, the following guidance applies to
electronic media:
FORMAT • completion of the audit
WORKING
Upon completion of an audit, finalized
documents on disk drives maintained by
the audit team, including support staff, are
moved to either the appropriate file
PAPERS server or to disks for storage with the working

paper files. Additional electronic copies of
entity-related documents are not retained, except
as set forth in this paragraph.
professional staff
• Following completion of an audit, the professional staff
assigned are in possession of no audit-specific information,
whether on their personal computers, on their support staff's
computers or otherwise.
ELECTRONIC
FORMAT personal computers
WORKING • Annually, all individuals review the information stored on their
personal computers, and their support staff's computers, for
PAPERS CONT… compliance with the retention guidance.
Auditor’s Internet addresses
• Correspondence sent from, or received at, the auditor’s
address is subject to the same policies, including retention
policies, as other correspondence.
600.98 Well organized working papers facilitate the review of
the audit and provide efficient access to audit evidence
supporting the audit conclusion. Much of audit working papers
apply to either the period under audit or to one period to the
next. As such, working papers may be grouped generally into
WORKING PAPER current files and permanent files, correspondingly.
ORGANIZATION
AND INDEXING 600.99 In the case of recurring audits, some working paper files
may be classified as "permanent" audit files which are updated
with new information of continuing importance, as distinct from
current audit files which contain information relating primarily
to the audit of a single period.
600.100 Current files contain working papers relating primarily to
the audit of a specific period. Each period's current audit working
papers include all the appropriate information needed to support
the opinion for specific audit.
CURRENT FILES
600.101 These working papers may need to be newly created each

period, or they may be continuous, updating working papers from
the prior period. If information is brought forward, we retain a copy
on the previous audit current file. For example, analytical
procedures, analyses of trends and ratios, calculations of important
accounting estimates.
600.102 Current working papers file generally
include:
• evidence of our consideration of the work of
internal auditing and conclusions reached;
• details of procedures applied regarding
components whose financial statements are
audited by other auditors;
CURRENT • copies of communications with other auditors,

external experts and other third parties;
• copies of letters or notes concerning audit
matters communicated to or discussed with the
FILES CONT… entity, including the terms of the audit and

material weaknesses;
• analyses of transactions, balances and significant
ratios and trends;
• evidence that work performed was supervised
and reviewed;
• letters of representation received from the
entity.
600.103 When we issue our audit
opinion we retain a copy of current
CURRENT working papers that support our opinion.
Where these working papers may be
useful for the succeeding period's audit,
FILES CONT… we retain a copy as of the date of our
audit report.We then update the original
during the succeeding period's audit.
600.104 These continuing use working papers
do not need to be recreated each period. Instead,
we update them, primarily by adding new
information and by discarding information that is no
longer relevant. Permanent files usually consist of
working papers and documents relating to or
containing:
• Information concerning the legal and
PERMANENT organizational structure of the entity.

• Extracts or copies of important legal documents,
agreements and minutes.
• Information concerning the industry, economic
FILES environment and legislative environment within
which the entity operates and any updates
thereto.
• audit programs template as tailored to specific
audit engagement and any changes thereto.
• Evidence of the auditor's understanding of the
accounting and internal control systems and any
changes thereto.
600.105 To better organize the working
papers and facilitate access to these, it
may be recommended that a separate file
for reports related to an engagement be
maintained. This file may contain the
following:
• Auditor’s report and audited financial
statements
REPORT FILES • Report on the review of internal
control system, if required as part of
the audit
• Management report
• Other reports issued in relation to the
audit engagement
600.106 All other working papers used
by the audit team that may not be
classified under the above grouping may
OTHER FILES be filed under other files. Most of the
documents included in this file are
engagement administration and
management related files.
600.107 In order to facilitate the access to and review
of working papers, the auditor implements a standard
working paper indexing system. Such system also
allows common understanding to all members of the
audit team and the audit division staff when locating for
WORKING specific files in the working papers.
PAPERS
INDEXING
600.108 The standard working papers indexing system
recommends the following as the standard index
numbers when indexing working papers.
WORKING PAPERS INDEXING CONT…
Working Paper Title Appendix Ref.

Planning P
Internal Control Evaluation and Risk Assessment ICRA
Trial Balance TB
Working Balance Sheet WBS
Working Profit and Loss WPL
Cash A-10
Receivables A-20
Inventory A-30
WORKING PAPERS INDEXING CONT…
Property, Plant and Equipment A-40

Investments /Financial Assets A-50
Accounts Payable L-10
Accrued Expenses L-20
Income Tax Payable L-30
Notes Payable / Long-Term Liabilities L-40
Shareholders’ Equity E-10
Revenue R-10
Cost of Sales COS-10
Operating Expenses OE-10
Interest Expense IE-10
STANDARD AUDIT WORKING PAPERS CONT…
600.96 The table below lists standard working papers auditors may consider.
Working Paper File/Folder Title Appendix Ref.
Permanent Working Paper File/Folder PWP

Current Working Paper File/Folder CWP
Client Financial Statements File/Folder CFS
Client Income Tax Return File/Folder CITR
Client Letter File CLTR
Thank you
for your attention

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Actual Findings

Auditor’s Report 1.The financial reporting framework

Auditor’s Report 2. There is no legal matter paragraph in the auditor’s report

3. There is no emphasis of a matter paragraph discussing

Auditor’s Report 1. The Auditor’s Report failed to indicate the

2. The Auditor’s Report failed to cover the

SRC Rule 68, as amended a. Audited Schedule of all effective standards

4. Major classes of gross cash receipts and payments are

Basis of Preparation 1. The company failed to adopt the correct financial

Accounting Policies, Changes in 1.There is no discussion on the impact of new

There is no disclosure of the amount of tax relating to

Financial Assets 1. There are no accounting policies on subsequent

2. Incomplete disclosures on Loans and Receivables, i.e.,

3. The accounting policies on initial recognition and

The accounting policy on measurement of Inventories

There is no explanatory note/disclosure on said

1. There are no accounting policies on initial recognition

2. Incomplete disclosures on PPE, i.e., roll forward analysis

3. Based on the Notes to FS, the company measured its

1. There are no accounting policies on initial recognition

2. The company incorrectly used the property’s zonal

3. Considering that the company measured its

4. There is no disclosure on rental income from investment property

5. There is no disclosure of the amount of fair value of

Despite the company's control over its subsidiary, the

1. There is no accounting policy on financial liabilities.

3. Incomplete disclosures, i.e., interest rate, maturity

There are no disclosures of the nature and amount of

1. Incomplete disclosure on “Appropriated Retained

3. Incomplete disclosures on “Deposit for Future Stock

1. There is no specific revenue recognition policy for

2. There is no explanatory note on “Other Income”

3. There is no disclosure of the nature and amount of each items

There is no disclosure of the nature and amount of

There are no accounting policies and disclosures on

1. There are no disclosures details of lease arrangements

2. Incomplete disclosures on Leases, i.e., general

Incomplete disclosures on related party transactions,

1. There are no discussions on financial risk

a. There is no disclosure on the credit quality

3. Considering that the company adopted PFRS for SME,

1. There is failure to distinguish the difference between

Despite incurring losses for consecutive years, there is

1. There is no discussion on capital management.

The amended AFS failed to fully comply with the

1. There is no emphasis of matter paragraph in the auditor’s report despite the

2. The Reconciliation of Retained Earnings Available for Dividend

4. The “Material Uncertainty Related to Going Concern” paragraph of the

5. The Financial Statements were prepared under an incorrect financial

6. The company failed to report its financial statements in accordance

The amount of total assets does not agree with total

1. The Company presented its cash flows from financing

2. The cash flows arising from availment and payment of

3. The Company classified “loans payable (current portion)”

4. Amounts reported in the Statement of Cash Flows were

1. The Supplemental Written Statement of Independent Auditor

3. schedule showing the following information is not attached to the

(i) Gross and net proceeds as disclosed in the final

It is recommended that the required information be provided in the

1. The company failed to provide a discussion of the reason for its

3. The notes to the financial statements failed to disclose the following

Corporate Information a.) the composition of the group; and