Auditing Business Process Outsourcing Industry

1. State the nature and background of the specialized industry.

 Business process outsourcing (BPO) is the practice of contracting a specific work
process or processes to an external service provider. It include payroll, accounting,
telemarketing, data recording, social media marketing, customer support, and more.
BPO can be an alternative to labor migration, allowing the labor force to remain in their
home country while contributing their skills abroad. Often divided into two main types of
services: back office and front office. Back-office services include internal business
processes, such as billing or purchasing. Front-office services pertain to the contracting
company’s customers, such as marketing and tech support. BPOs can combine these
services so that they work together, not independently.
2. What are the relevant statistics, and updates of the specialized industry in the
Philippine setting?
 2016 – At an actual growth rate of 17%, the BPO industry is projected to generate 1.3
million new jobs.
 2020 - Investment pledges for January to July 2020 are 37-percent higher compared to
the same period in 2019. According to UNESCO, the Philippines has an average of
98.2-percent literacy rate — 98.2% for females and 98.1% for males. There are 788
BPO companies composed of large and SMEs, according to PEZA.
 Effects of COVID-19
- Before the lockdown, 40% of workers are already working from home.
- 22% of employees continue to work from the office. The government ordered BPO
companies to provide accommodation, shuttle, and meals to employees who work
on-site.
- 18% of IBPAP member companies are looking at the option to retrench some of their
employees.
- 36% of IBPAP member companies do not expect any growth while 3% to 7% are still
expecting some growth
- Enforced community quarantines, which restrict people from going outside their
homes, boost the growth of e-commerce-industries, financial services, and logistics
3. Identify the different audit and accounting considerations and trends for the industry.
Special Economic Zone Act that provides tax incentives, exemptions, and other privileges to
foreign investors.
 Income tax holiday or corporate income tax exemption for four to eight years
 Option to pay a 5% gross income tax in place of all national and local taxes after the tax
holiday.
 Tax-free and duty-free import of capital equipment, spare parts, supplies, and raw
materials
 Permanent resident status for foreign investors (and their immediate family members)
with an initial investment of US$150,000
 Auditing Mining Industry

1. State the nature and background of the specialized industry.

 Mining and mineral processing are activities for extraction and processing minerals for
commercial use. According to the United Nations Environmental Program (UNEP) could
simply be “the extraction of minerals from the earth”. The mining sector can create
employment opportunities both directly in the mines and indirectly on services to the
mines, provide education and health services, increase foreign exchange reserves,
improve infrastructure like roads and water supply, and create other economic activities.
The mining life cycle is divided into the following stages: exploration, development,
extraction, processing, and mine closure.
2. What are the relevant statistics, and updates of the specialized industry in the
Philippine setting?
 2018 EITI Report- shows that mining sector contributes the most in the sector with
0.89% GDP and 5.99% total exports.
 Mineral sector slightly picked up in 2018, coal saw a slight dip in production compared
to its 2017 value.
 Domestic oil production declined from 3 million barrels of oil in 2014 to only 1.1 million
barrels in 2018.
 In 2018, the Philippines accounted for 6.4% of the world’s total estimated reserves of
nickel.
 As of February 2021, there were 309 Mineral Production Sharing Agreements, 5
Financial or Technical Assistance Agreements and 13 existing Exploration Permits for
the mining sector.
 December 15, 2016, the Philippines EITI published a Beneficial Ownership (BO)
roadmap and several milestones of it have been accomplished by the beginning of
2021.
 According to the 2018 EITI Report published in December 2020, 41 out of 65 covered
companies/projects fully or partially disclosed beneficial ownership information and a
total of 128 name entries were declared as beneficial owners.
 SEC Memorandum Circular (MC) No. 15 (issued in July 2019) enhanced the BO
Declaration form.

3. Identify the different audit and accounting considerations and trends for the industry.
PFRS 6 Exploration and Evaluation at Mineral Resources
Key Financial Concepts:
 Revenue: Ore (tons) x Grade (g/t) x Recovery x Payability x Metal Price
 Royalties: Properties often have royalties on them (e.g., 2% Net Smelter Return)
 Operating costs: Per ton basis (e.g., $2.50/ton for mining)
 Capital costs: Includes initial capital (construction of mine) and sustaining capital
(ongoing equipment, etc.)
 Reclamation costs: Takes place at the end of a mine’s life; accrued for accounting
purposes but not accrued in a cash flow model.
 Depreciation: A percentage of production bases over the entire life of the mine
 Taxes: Can often be complicated with mining companies operating in several countries;
mining specific taxes and royalty agreements need to be considered
 Changes in working capital: Changes in accounts receivable, inventory, and accounts
payable should be factored into a cash flow model.
 Banking Industry

1. State the nature and background of the specialized industry (banking).

 A specialized industry is a market that is likely to have distinct or unique way of
accounting transactions or to have specific financial reporting standards. What makes
banking a specialized is it has different and specific policies in terms in accounting and
auditing area. Banking is considered different or more difficult because it is highly
regulated with its various reporting and accreditation requirements. It has also peculiar
transactions due its complex financial informations. Banks perform the function of
safekeeping money and valuables and extending loans, credit and payment services in
the form of checking accounts, money orders, cashier’s checks as well as the issuance
of debit and credit cards.
2. What are the relevant statistics, and updates of the specialized industry in the Philippine
setting?
 COVID-19 pandemic is continuing to affect everything especially the economy of the
country as the business and other specialized industries decelerated. Recent updates,
amendments and other COVID-19 limitations were made in consideration to the
pandemic. Some specialized industries like banking released accounting and auditing
considerations. For instance, auditing in banking is made remotely to prevent gathering
and the spread of the virus.
 As of October 2020, the value of loans granted by universal and commercial banks in
the Philippines amounted to nearly 9.7 trillion Philippine pesos. Of these loans,
approximately 364 billion Philippine pesos have been granted for motor vehicle loans for
household consumption and approximately 1.6 trillion Philippine pesos worth of loans
granted for production of real estate businesses in the country.
3. Identify the different audit and accounting considerations and trends for the industry.
 One of the audit consideration in auditing banks is to identify the particular nature of the
risks associated with the transactions undertaken by it. Recently, due to Covid-19
pandemic, the IFRS discusses accounting considerations that can affect financial
reporting of every business in the industry.
 Banking Laws ( Presidential Decree, Republic Acts and Implementing Rules and
Regulations)
 the auditor adheres to any specific formats and terminology specified by the law, the
regulatory authorities, professional bodies and industry practice
4. Identify, as much as you can, the recent issuances and laws affecting the practice of
banking industries specifically in accounting and auditing area.
 Additional circulars and other issuances are promulgated by the BSP for its
development.
•Circular 1074 and 1075 – certification by external auditors on compliance read only
access to BSP report.
•Circular No. 1080 – provides waiver of monetary penalties for delays of submission of
report and allows electronic submissions.
•Circular No. 1082 – reduction of reserve requirement
•BSP Memorandum No. M-2020-008, Regulatory Relief for BSFIs Affected by Corona
Virus Disease 2019 (COVID-19) as amended by BSP.
•Memorandum Nom M-2020-032, Amendments to the Regulatory Relief for BSFIs
Affected by Corona Virus Disease 2019 (COVID-19)
•BSP Memorandum No. M-2020-022, Reclassification of Debt Securities Measured at
Fair Value to the Amortized Cost
•SEC Memorandum Circular No. 32, Series of 2020