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

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

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

4. 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).

5. 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)

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

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

8. 2. QUALIFIED 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)

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

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

11. 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

12. 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

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

14. 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

15. 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

16. MODIFIED UNQUA (cont.) - if YES, issue unqualified (std) - if NO, the auditor advises the management to REVISE the FS and disclose in the Notes DISCLOSED IN THE NOTES TO FS

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

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

19. 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

20. 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

21. 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

22. 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

23. MODIFIED UNQUA (Uncertainties cont.) - if YES, UNQUALIFIED(STD) - if NO, the auditor advises the management to REVISE the FS and disclose in the Notes DISCLOSED IN THE NOTES

24. MODIFIED UNQUA (Uncertainties cont.) - if YES, UNQUALIFIED(STD) - if NO, the auditor advises the management to REVISE the FS and disclose in the Notes REFLECTED IN THE BOOKS & DISCLOSED IN THE NOTES TO FS

25. MODIFIED UNQUA (Uncertainties cont.) - if YES, UNQUALIFIED (STD) - if NO, the auditor issues a QUALIFIED/ADVERSE opinion with disclosure in the audit report Note: the opinion depends on the materiality as stated in SRC rule 68 and 68.1 MANAGEMENT AGREES

26. 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)