1. AUDITOR’S REPORT Reporters: Vilma P. Borlaza Ma. Norita N. Lambot

2. Auditor’s Report A 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.

3. Kinds of Auditor’s Report 1.UNQUALIFIED 2. QUALIFIED 3.DISCLAIMER 4.ADVERSE

4. UNQUALIFIED OPINION Issued 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

5. 1. UNQUALIFIED We have two (2) kinds of unqualified opinion: a)Standard unqualified b)Modified unqualified

6. 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).

7. 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)

8. b) Modified Unqualified(cont.) UNCERTANTY/IES ◦ - subsequent events (ex. litigation) SUBSEQUENT EVENTS ◦ - subsequent events (ex. fire loss)

9. QUALIFIED OPINION Issued 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

10. 2. QUALIFIED Financial Statements are still presented fairly in all material respect...... except for Plant, property and equipment awaiting for the appraisal.

11. 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)

12. DISCLAIMER OF OPINION Issued 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

13. 3. DISCLAIMER RESTRICTIONS on the scope of audit - client imposed limitation UNUSUAL uncertainty/ies - multiple litigation NO Audited FS

14. ADVERSE Issued 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

15. 4. ADVERSE Financial Statements’ overall presentation is very materially misstated T.S.L.

16. 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

17. MODIFIED UNQUA (cont.) 2)Change in accounting principle ◦ - if YES, refer to QUALIFIED ◦ -if NO, disclose in the Notes to FS Ii EFFECT IS MATERIAL

18. MODIFIED UNQUA (cont.) - if YES, issue unqualified (standard) - if NO, the auditor advises the management todisclose DISCLOSED IN THE NOTES TO FS

19. 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

20. 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 Ii EFFECT IS MATERIAL

21. 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

22. MODIFIED UNQUA (cont.) - if YES, issue UNQUALIFIED (std) - if NO, the auditor issues a QUALIFIED opinion with explanatory paragraph MANAGEMENT AGREES

23. MODIFIED UNQUA (cont.) 4)Uncertainties (ex. Litigation liability) IF it is: 1.Probable – adjustment 2.Reasonably possible – disclosure 3. Remote - Neither

24. MODIFIED UNQUA (Uncertainties cont.) Case #1 a)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

25. 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

26. 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

27. 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 Ii EFFECT IS MATERIAL

28. 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

29. 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

30. 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 MANAGEMENT AGREES

31. 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)