Based On PSA 700 Revised - The Independent Auditor's Report On A Complete Set of General Purpose Financial Statements
Based On PSA 700 Revised - The Independent Auditor's Report On A Complete Set of General Purpose Financial Statements
[Appropriate addressee]
We have audited the accompanying financial statements of ABC Company which comprise a balance
sheet as at date December 31, 20X1, and the income statement, statement of changes in equity and
cash flow statement for the year ended, and a summary of significant accounting policies and other
explanatory notes.
Auditor’s responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We
conducted our audit in accordance with Philippine Standards on Auditing. Those standards require that
we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance
whether the financial statements are free from material misstatement. An audit involves performing
procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The
procedures selected depend upon the auditor’s judgment, including the assessment of the risks of
material misstatements on the financial statements whether due to fraud or error. In making those risk
assessments; the auditor considers internal control relevant to the entity’s preparation and fair
presentation of the financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal
control of the entity. An audit also includes evaluating the appropriateness of the accounting policies
used and the reasonableness of accounting estimates made by the management, as well as evaluating
the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
Opinion
In our opinion, the financial statements fairly, in all material respects, the financial position of ABC
Company as of December 31, 20X1, and of its financial performance and its cash flows for the year then
ended in accordance with the Philippine Financial Reporting Standards.
Report on other legal and regulatory requirements
[Form and content of this section of the auditor’s report will vary depending on the nature of the
auditor’s other reporting responsibilities]
[Auditor’s signature]
[Date of Auditor’s report]
[Auditor’s address]
Without qualifying our opinion, we draw attention to Note X in the financial statements which
indicates that the Company incurred a net loss of P_____ during the year ended December 31,20X1 and,
as of date, the company’s current liabilities exceeded its total assets by P_____. These conditions, along
with other matters, as set forth in Note X, indicate the existence of a material uncertainty which may
cast significant doubt about the Company’s ability to continue as a going concern.
Qualified opinion
Should be expressed when the auditor concludes that the unqualified opinion cannot be
expressed but that the effect of any disagreement with management, or limitation on
scope is not so material and pervasive as to require an adverse opinion or a disclaimer
of opinion.
A qualified opinion should be expressed as being “except for” the effects of the matter
to which the qualification relates.
Adverse opinion
Should be expressed when the effect of the disagreement is so material and pervasive
to the financial statements that the auditor concludes that a qualification of the report
is not adequate to disclose the misleading or incomplete nature of the financial
statements.
Disclaimer of Opinion
Should be expressed when the possible effect of a limitation on the scope is so material
and pervasive that the auditor has not been able to obtain sufficient appropriate audit
evidence and accordingly is unable to express an opinion on the financial statements.
REPORT MODIFICATIONS
Limitation on scope
Our responsibility is to express an opinion on these financial statements based on our audit.
Except as discussed in the following paragraph, we conducted our audit in accordance with …
(auditor’s responsibility paragraph)
We did not observe the counting of the physical inventories as of December 31, 20X1, since that
date was prior to the time we were initially engaged as auditors for the company. Owing to the
nature of the company’s records, we were unable to satisfy ourselves as to inventory quantities
by other audit procedures.
In our opinion, except for the effects of such adjustments, if any, as might have been determined
to be necessary had we been able to satisfy ourselves as to physical inventory quantities, the
financial statements fairly presents, in all material respects … (opinion paragraph)
(The paragraph discussing the scope of the audit would either be omitted or amended according
to the circumstances)
We were not able to observe all physical inventories and confirm accounts receivables due to
limitations placed on the scope of our work by the company)
Because of the significance of the matters discussed in the preceding paragraph, we do not
express an opinion on the financial statements.
Our responsibility is to express an opinion on these financial statements based on our audit.
Except as discussed in the following paragraph, we conducted our audit in accordance with …
(auditor’s responsibility paragraph)
As discussed in the Note X to the financial statements, no depreciation has been provided in the
financial statements which practice, in our opinion, is not in accordance in PFRS. The provision
for the year ended December 31, 20X1, should be xxx based on the straight-line method of
depreciation using annual rates of 5% for the building and 20% for the equipment. Accordingly,
the fixed assets should be reducedby accumulated depreciation of xxx and the loss for the year
and accumulated deficit should be increased by xxx and xxx, respectively.
In our opinion, except for the effects of such adjustments, if any, as might have been determined
to be necessary had we been able to satisfy ourselves as to physical inventory quantities, the
financial statements fairly presents, in all material respects … (opinion paragraph)
4. DISAGREEMENT ON ACCOUNTING POLICIES – INADEQUATE DISCLOSURES
QUALIFIED OPINION
We have audited … (remaining words are the same as in the introductory page)
Management is responsible for … (same as illustrated in the management’s responsibility
paragraph)
Our responsibility is to express an opinion on these financial statements based on our audit.
Except as discussed in the following paragraph, we conducted our audit in accordance with …
(auditor’s responsibility paragraph)
On January 31,20X2, the Company issued debentures in the amount of… for the purpose of
financing plant expansion. The debenture agreement restricts the payment of future cash
dividends to earnings after December 31,19X1, which restrictions was not disclosed in the
company’s financial statements. Disclosure of this is required by the PAS 1, Presentation of
financial statements.
In our opinion, except for the omission of the information included in the preceding paragraph,
the financial statements present fairly, in all material respects… (opinion paragraph)
Our responsibility is to express an opinion on these financial statements based on our audit.
Except as discussed in the following paragraph, we conducted our audit in accordance with …
(auditor’s responsibility paragraph)
In our opinion, because of the effects of the matters discussed in the preceding paragraph(s), the
financial statements do not present fairly, in all material respects, the financial position of ABC
Company as of December 31,19X1, and of its financial performance and its cash flows for the
year then ended in accordance with PFRS… (Opinion paragraph)
Facts discovered after the date of the auditor’s report but before the financial statements are
issued
4. During the period from the date of the auditor’s report to the date the financial
statements are issued:
o The responsibility to inform the auditor of facts which may affect the financial
statements rests with management
o When the auditor becomes aware of the facts that will materially affect the
financial statements, the auditor should:
Consider whether the financial statements needed amendment
Discuss the matter with the management
Take the action appropriate in the circumstances
5. When the management amends the financial statements, the auditor would carry out
the procedures necessary in the circumstances and would provide management with a
new report on the amended financial statements
6. The new auditor’s report would be dated not earlier than the date the amended
financial statements are signed or approved and, accordingly, the procedures to identify
subsequent events would be extended to the date of the new auditor’s report
7. When management does not amend the financial statements but the auditor believes
they need to be amended and the auditor’s report has not been released to the entity,
the auditor should express a qualified opinion or an adverse opinion.
5. Division of responsibility
o When the principal auditor bases the audit opinion on the financial statements
taken as a whole solely upon the report of another auditor regarding the audit of
one or more components, the principal auditor’s report should state this fact
clearly and should indicate the magnitude of the portion of the financial
statements audited by the other auditor.
CORRESPONDING FIGURES
o For the prior periods, these are an integral part of the current period financial
statements and have to be read in conjunction with the amounts and other
disclosures relating to the current period.
o These are not presented as complete financial statements capable of standing
alone
o The auditor should obtain sufficient appropriate audit evidence that the
corresponding figures meet the requirements of GAAP in the Philippine
o The auditor should assess whether:
Accounting policies used for the corresponding figures are consistent
with those of the current period or whether appropriate adjustments
and/or disclosures have been made
Corresponding figures agree with the amounts and other disclosures
presented in prior period or whether appropriate adjustments and/or
disclosures have been made
COMPARATIVE FINANCIAL STATEMENTS
These comparative financial statements for the prior period(s) are considered separate
financial statements.
These are presented for comparison with the financial statements of the current period,
but do not form part of the current period financial statements
The auditor should obtain sufficient appropriate evidence that the comparative financial
statements meet the requirements of GAAP in the Philippines
The auditor should assess whether:
o Accounting policies of the prior period are consistent with those of the current
period or whether appropriate adjustments and/or disclosures have been made
o Prior period figures presented agree with the amounts and other disclosures
presented in the prior period or whether appropriate judgments and disclosures
have been made
3. When the incoming auditor decides to refer to the predecessor auditor’s report, the
incoming auditor’s report should indicate:
a. That the financial statements of the prior period were audited by another
auditor
b. Type of report issued by the predecessor auditor and, if the report was modified,
the reasons therefore;
c. Date of that report
4. When the prior period financial statements were not audited, the incoming auditor
should state that the corresponding figures are unaudited.
5. If the incoming auditor identifies that the corresponding figures are materially
misstated, the auditor should request management to revise the corresponding figures
or if management refuses to do so, appropriately modify the report
INCOMING AUDITOR
When the financial statements of the prior period were audited by another auditor,
The predecessor auditor may reissue the audit report on the prior period with the
incoming auditor only reporting on the current period; or
The incoming auditor’s report should state that the prior period was audited by another
auditor and the incoming auditor’s report should indicate:
o That the financial statements of the prior period was audited by another auditor
o The type of report issued by the predecessor auditor, and if the report was
modified, the reasons; therefore
o Date of the report
1. An entity ordinarily issues on an annual basis a document which includes its audited
financial statements together with the auditor’s report thereon, also called “annual
report”.
Material inconsistencies
2. This exists when the other information contradicts information contained in the audited
financial statements
3. If, on reading the other information, the auditor identifies material inconsistency, the
auditor should determine whether the financial statements need to be amended
If the amendment is necessary and the entity refuses to make an
amendment, the auditor should express a qualified or adverse opinion
If the amendment is necessary and the entity refuses to make an
amendment, the auditor should consider including in the auditor auditor’s
report an emphasis of matter paragraph.
SOURCE: CPAR