AUDITOR’S REPORT

Reporters:

Vilma P. BorlazaMa. Norita N. Lambot

Auditor’s ReportA formal opinion issued by an

auditor as a result of an audit performed on an “auditee”.

It is considered an essential tool when reporting financial information to user, particularly in business.

Kinds of Auditor’s Report

1. UNQUALIFIED2. QUALIFIED3. DISCLAIMER4. ADVERSE

UNQUALIFIED OPINIONIssued when the FS presented

are free of material misstatements and are presented fairlyin accordance with PFRS

Often referred to as a Clean opinion

The best type of report

1. UNQUALIFIED

We have two (2) kinds of unqualified opinion:

a) Standard unqualifiedb)Modified unqualified

a) Standard Unqualified

The six (6) paragraph format

- For listed Companies, the auditor has other reporting responsibilities to issue a separate auditor’s opinion on supplementary schedules required to be submitted by the entity to the SEC (in addition to the audit of the financial statements).

b) Modified Unqualified

REFERENCE on the work of another auditor

CHANGE in accounting principle (from IFRS to IFRS-immaterial)

DEPARTURE from IFRS (from IFRS to Non-IFRS-immaterial)

b) Modified Unqualified(cont.)

UNCERTANTY/IES◦- subsequent events (ex. litigation)

SUBSEQUENT EVENTS◦- subsequent events (ex. fire loss)

QUALIFIED OPINIONIssued when the auditor

encountered one of two types of situations which do not comply with PFRS, but the rest of the FS are fairly presented.

Very similar to Unqualified, but with a certain exception

2. QUALIFIEDFinancial Statements are still

presented fairly in all material respect . . .

. . . except for Plant, property and equipment awaiting for the appraisal.

2. QUALIFIED(cont.) RESTRICTIONS on the scope of

audit (scope limitation) ex. circumstance-imposed limitation

CHANGE in accounting principle (a material effect)

DEPARTURE from IFRS (a material effect)

UNCERTAINTY (subsequent events ex. litigation)

DISCLAIMER OF OPINIONIssued when the auditor could

not form and consequently refuses to present an opinion on the FS

Also issued when the audit work cannot be completed due to various reasons

3. DISCLAIMER

RESTRICTIONS on the scope of audit- client imposed limitation

UNUSUAL uncertainty/ies- multiple litigation

NO Audited FS

ADVERSEIssued when the auditor

determines that the FS are materially misstated and, when considered as a whole, do not conform with PFRS

It is considered the opposite of a clean or unqualified opinion

4. ADVERSE

Financial Statements’ overall presentation is very materially misstated

T.S.L.

MODIFIED UNQUALIFIED

WHEN TO MODIFY?1) Reference on the work of

another auditor◦- continuing auditor◦- predecessor◦- successor (how to modify?)

- add additional info to the opening paragraph

- never assume full responsibility for two years

MODIFIED UNQUA (cont.)

2) Change in accounting principle

◦- if YES, refer to QUALIFIED◦ - if NO, disclose in the Notes to FS

IiEFFECT IS MATERIAL

YES

NO

MODIFIED UNQUA (cont.)

- if YES, issue unqualified (standard) - if NO, the auditor advises the management

todisclose

DISCLOSED IN THE NOTES TO FS

YES

NO

MODIFIED UNQUA (cont.)

- if YES, issue unqualified (standard) - if NO, the auditor discloses in the Audit

Report through a Separate Explanatory Paragraph (preceding the Opinion paragraph stating only the nature and potential effect )

MANAGEMENT AGREES

YES

NO

MODIFIED UNQUA (cont.)

3) Departure from IFRS

◦- if YES, disclose in the Notes to FS and record

◦ - if NO, disclose in the Notes to FS

IiEFFECT IS MATERIAL

NO

YES

MODIFIED UNQUA (cont.)

- if YES, issue unqualified (std) - if NO, the auditor advises the management

to REVISEthe FS and disclose in the Notes

DISCLOSED IN THE NOTES TO FS

YES

NO

MODIFIED UNQUA (cont.)

- if YES, issue UNQUALIFIED (std) - if NO, the auditor issues a QUALIFIED

opinion with explanatory paragraph

NOMANAGEMENT AGREES

YES

MODIFIED UNQUA (cont.)

4) Uncertainties (ex. Litigation liability)

IF it is:1. Probable – adjustment2. Reasonably possible – disclosure3. Remote - Neither

MODIFIED UNQUA (Uncertainties cont.)

Case #1a) During the period of audit, a

litigation liability occurred and recorded in the amount of P10M. After December 31, xx but before April 15, xx, a COURT SETTLEMENT of P11M occurred.

- REQUIREMENT: ADJUSTMENT AND

DISCLOSURE

MODIFIED UNQUA (Uncertainties cont.)

Case #1 (cont.)b) During the period of audit, a

litigation liability occurred and recorded in the amount of P10M. After December 31, xx but before April 15, xx, a COURT ORDER of P11M occurred.

- REQUIREMENT: DISCLOSURE

MODIFIED UNQUA (Uncertainties cont.)

Case #1 (cont.)c) During the period of audit, a

litigation liability occurred and recorded in the amount of P10M. After December 31, xx but before April 15, xx, a FIRE LOSS of P10M occurred.

- REQUIREMENT: DISCLOSURE

MODIFIED UNQUA (Uncertainties cont.)

◦- if YES, reflect in the books and disclose in the Notes to FS

◦ - if NO, disclose in the Notes to FS

IiEFFECT IS MATERIAL

YES

NO

MODIFIED UNQUA (Uncertainties cont.)

- if YES, UNQUALIFIED(STD) - if NO, the auditor advises the management

to REVISEthe FS and disclose in the Notes

DISCLOSED IN THE NOTES

YES

NO

MODIFIED UNQUA (Uncertainties cont.)

- if YES, UNQUALIFIED(STD) - if NO, the auditor advises the management

to REVISEthe FS and disclose in the Notes

REFLECTED IN THE BOOKS & DISCLOSED IN THE NOTES TO FS

YES

NO

MODIFIED UNQUA (Uncertainties cont.)

- if YES, UNQUALIFIED (STD) - if NO, the auditor issues a

QUALIFIED/ADVERSEopinion with disclosure in the audit report

Note: the opinion depends on the materiality as stated in SRC rule 68 and 68.1

NOMANAGEMENT AGREES

YES

MODIFIED UNQUA (Uncertainties cont.)

- The auditor issues a QUALIFIED opinion when only one account is concerned

An ADVERSE opinion is issued when more than one account is involved. But remember, this kind of opinion is unacceptable to SEC and might cost you your license.

(… through an Emphasis of a Matter paragraph following the Opinion paragraph)

THANK YOU!