AUDI 24 – AUDITING IN SPECIALIZED INDUSTRIES

PFRS 17: INSURANCE CONTRACTS Variable Fee Approach

Effective Date: January 2023 An instrument/contract with mixture of

investment/equity and insurance obligations.
 Option(s): PFRS 15 [Revenue Recognition / Revenue The recognition and measurement of insurance
Contracts] contract revenue are based on the fulfillment of the
performance obligation related to investment-related
If: services provided by the insurer.
- Does not reflect an assessment. This approach applies to insurance contracts that
- The contracts compensate the customer by include investment components or have discretionary
providing services. participation features.
- It arises primarily from the customer’s use of AUDITING OF SPECIALIZED INDUSTRIES
service.
Key areas in Income Statement
Premium Allocation Approach
• Premium
Revenue is recognized in a systematic manner over
• Insurance claims
the coverage period of the insurance contract.
The recognition of revenue is based on the pattern of • Commission expense
transfer of insurance coverage to the policyholder over Key areas in Balance Sheet
time.
Typically used for insurance contracts that provide • Provisions/Estimation
coverage over a relatively short period or where there • Liabilities [Insurance]
is a high degree of uncertainty in the estimates required • Cash
for the Building Blocks approach.

Premiums received
INVESTMENT HOUSE/COMPANIES
Less: Insurance acquisition cash flow
Initial Measurement Securities and Exchange Commission (SEC)
Plus: Premium received
Amortization of acquisition cash flows • All companies should file registration to SEC.
Less: Insurance revenue recognized • SEC issue certification after the registration =
Component paid Certificate of Incorporation (COI)
Incurred claims
Carrying amount of insurance liability Securities Exchange Regulation Code (SRC)

• Governing bodies for investment houses

Building Blocks Approach • SEC transactions: trading/buy and sell of share of
stocks.
Considers/computes the CSM.
Considers time value of money. Investment House
Considers no initial recognition of profit.
• Means a duly licensed enterprise authorized to
Nota Bene: underwrite securities of another person or enterprise,
including securities of the government and its
CSM → Contractual Service Margin instrumentalities.
- Represents the unearned profit that an insurer expects • An investment house is a company or financial
to recognize over the coverage period of the insurance institution that specializes in managing and investing
contract. money on behalf of its clients.
- It represents the portion of the insurance contract • It typically offers a range of investment services, such
liability that is not yet recognized as revenue. as buying and selling stocks, bonds, mutual funds, and
- Recognized in the financial statements as revenue is other financial assets.
earned over the coverage period of the insurance • They have expert knowledge and experience in
contract. analyzing investment opportunities and making
- Was introduced under I(P)FRS 17 informed decisions to help their clients achieve their
financial goals.
Primary consideration in CSM • When you invest your money with an investment
house, you essentially become a shareholder or
- To recognize and measure the unearned profit that participant in their investment activities. They pool
an insurer expects to recognize over the coverage together funds from different investors to create
period of an insurance contract. portfolios, which are diversified collections of various
investments. By diversifying the investments, they aim
PV of the expected future cash flows/claims arising from the
to reduce risk and increase the potential for returns.
insurance contract
• The main idea behind an investment house is to
Less: PV of the fulfillment cash flow / Premiums to be paid
provide individuals and organizations with access to
Contractual Service Margin
investment expertise, diversification, and potentially
 higher returns on their money than they might achieve
on their own. It is like having a team of financial experts
working on your behalf to help you make the most of
your investments.

Investment house companies

1. Financial Instruments
- Financial instruments are contractual agreements
between parties that create a financial asset for
one entity and a financial liability or equity
instrument for another entity.
- Financial instruments can be categorized into
various types, including:
a. Investment in Equities (Stocks)
o Trading [F.V. P/L]
o Held for sale/Available for sale
[F.V. OCI, Election or Mandatory]
o Held to maturity (Amortized Cost)
b. Investment in Associate
c. Investment in Joint Venture
*Broker’s commission varies depending on value of transaction,
d. Investment in Subsidiary
with a maximum allowable commission rate of 1.5% (please
2. Financial Flows refer to Table 2 below)
- Financial flows refer to the movement of money or
**VAT included
financial instruments between different entities or
***If a buying client chooses to be issued and maintain a physical
sectors within an economy.
certificate in his/her name, an upliftment/withdrawal fee of
- They represent the transfer of funds or the exchange P50.00 per certificate issuance request and transfer fee of
of financial assets and liabilities. P100.00 + 12% VAT will be charged. In the illustration above,
Critical Points the combined upliftment/withdrawal fee and transfer fee to be
paid by the buying client will amount to P162.00 (P50.00 +
Income Statement – revenue recognition P112.00).
Balance Sheet – investments / financial instruments
held for trading purposes. PSE’s Trading Cycle

Legal Frameworks (Governing Laws)

Securities and Exchange Commission

Securities Regulation Code (SRC)
o Statement of Management Responsibility (SMR)
o Disclosure requirements
o Short sale
o Insiders trading Violations of SRC

Portfolio Manager

• also known as an investment manager or fund

manager.
• A professional responsible for managing investment
portfolios on behalf of individuals, institutions, or funds.
• Their primary role is to make investment decisions and
oversee the allocation of assets within a portfolio to
achieve the investment objectives set by the client or
fund.

Philippine Stock Exchange (PSE)

• It is a self-regulatory organization that facilitates the

buying and selling of publicly listed stocks and other
securities in the country.
• The PSE provides a marketplace where investors and
traders can participate in the trading of stocks and
other financial instruments.

Buying Transaction REAL ESTATE

Mr. X wishes to buy a stock whose market price is P10.00. • Real estate refers to land and any permanent structures
Based on the Board Lot Table, the number of shares he can buy or improvements attached to it, including buildings,
at a regular transaction should be in multiples of 100 shares. In houses, apartments, commercial properties, and natural
this case, if Mr. X wants to buy 1,000 shares (which is a multiple resources such as minerals, water, and crops.
of 100 shares) his required cash outflow will be as follows:
• It encompasses both the physical property and the legal environmental regulations, tax requirements, and
rights associated with it. licensing obligations.
• Real estate is a valuable asset class and plays a 9. Internal Controls: Auditors assess the effectiveness of
significant role in various sectors of the economy, the company's internal controls over financial reporting
including residential, commercial, industrial, and and operations. They examine processes for recording
agricultural. and safeguarding assets, monitoring revenue and
• Real estate can also include rights and interests in land, expense recognition, and ensuring compliance with
such as easements, leases, mortgages, and other forms policies and procedures.
of ownership or use. It encompasses the ownership,
development, management, and transfer of properties, as Balance Sheet of a Real Estate Company
well as the activities related to buying, selling, leasing, and 1. Assets:
financing real estate. a. Real Estate Properties: The company's owned or
• Real estate is typically categorized into different sectors, leased properties, including land, buildings, and other
including residential real estate (homes and apartments), structures.
commercial real estate (office buildings, retail spaces, b. Investment Properties: Properties held for rental
hotels), industrial real estate (warehouses, factories), and income or capital appreciation.
agricultural real estate (farmland). c. Property under Development: Properties currently
being developed or under construction.
Auditing Real Estate Companies
d. Cash and Cash Equivalents: Liquid funds available
1. Property Valuation: Auditors assess the fair value of real to the company.
estate properties owned or held by the company. This e. Accounts Receivable: Amounts owed to the
involves verifying the valuation methods used, examining company by customers or tenants.
supporting documentation, and assessing the f. Other Current Assets: Current assets other than
reasonableness of property values. cash and accounts receivable, such as prepaid
2. Revenue Recognition: Auditors scrutinize the expenses and inventory.
recognition of rental income and sales revenue. They 2. Liabilities:
review lease agreements, sales contracts, and other a. Loans and Mortgages Payable: Outstanding debts
relevant documents to ensure revenue is recognized in and mortgages related to property acquisitions or
accordance with applicable accounting standards. They development.
also verify the completeness and accuracy of revenue b. Accounts Payable: Amounts owed by the company
recorded. to suppliers, contractors, or other creditors.
3. Property Acquisitions and Disposals: Auditors c. Accrued Expenses: Unpaid expenses, such as
examine the processes and procedures followed in utilities, property taxes, or maintenance costs.
acquiring and disposing of real estate properties. They d. Other Current Liabilities: Current liabilities other
evaluate the accuracy of the purchase and sale than loans and accounts payable, including accrued
transactions, review supporting documentation, and salaries and taxes.
assess the completeness of disclosures related to these 3. Equity:
activities. a. Share Capital: The capital contributed by
4. Lease Agreements: Auditors review lease agreements to shareholders through the issuance of shares.
ensure compliance with relevant accounting standards b. Retained Earnings: Accumulated profits or losses
and assess the proper classification of leases as either retained within the company.
operating leases or finance leases. They also examine the c. Other Reserves: Reserves or provisions set aside for
completeness and accuracy of lease-related disclosures, specific purposes, such as contingencies or capital
such as lease commitments and rental income improvements.
recognition. 4. Other Items:
5. Financing and Debt: Auditors examine loan agreements, a. Deferred Tax Assets/Liabilities: Temporary
mortgages, and other financing arrangements to verify the differences between accounting and tax values that
accuracy of interest expense, debt balances, and impact future tax obligations.
compliance with debt covenants. They assess the b. Intangible Assets: Non-physical assets like
completeness of disclosures related to the company's trademarks, patents, or leasehold rights.
financing activities. c. Goodwill: Excess of the purchase price over the fair
6. Expenses and Cost Capitalization: Auditors review value of acquired entities or properties.
expenses incurred by the real estate company, such as
Income Statement of a Real Estate Company
property operating expenses, marketing expenses,
development costs, and general overheads. They assess 1. Revenues:
the appropriateness of expense recognition and the a. Rental Income: Income generated from leasing or
proper capitalization of costs related to property renting properties owned by the company.
development or improvement. b. Sales Revenue: Revenue from the sale of properties
7. Related Party Transactions: Auditors scrutinize developed or held for resale.
transactions with related parties, such as entities under c. Other Operating Revenues: Additional revenue
common control, key management personnel, and sources, such as parking fees, service charges, or
significant shareholders. They assess the fairness of management fees.
these transactions, ensure proper disclosure, and 2. Operating Expenses:
evaluate any potential conflicts of interest. a. Property Operating Expenses: Costs associated
8. Regulatory Compliance: Auditors evaluate the real with operating and maintaining properties, including
estate company's compliance with applicable laws, property management fees, repairs and maintenance,
regulations, and industry-specific guidelines. This utilities, insurance, and property taxes.
includes reviewing compliance with zoning regulations,
 b. General and Administrative Expenses: Overhead Revenue (BIR). They assess and appraise properties to
expenses related to the company's overall operations, establish their taxable values for the computation of real
such as salaries, rent, utilities, professional fees, and property taxes. They also provide assistance during tax
office supplies. assessments, dispute resolutions, and appeals related to
c. Marketing and Advertising Expenses: Costs property valuation.
incurred to promote and market properties or real 4. Compensation: Real Estate Assessors are typically
estate services. salaried employees of the government or hired on a
d. Depreciation and Amortization: Allocation of the contractual basis. Their compensation is not directly tied
cost of long-term assets over their useful lives. to specific property transactions.
e. Property Development Expenses: Costs incurred
during the development or construction of properties, The legal compliance requirements for real estate in the
including land acquisition, construction costs, permits, Philippines include the following:
and architectural fees.
1. Ownership and Title: The real estate property should
3. Non-Operating Items:
have a clean title and ownership must be established. It is
a. Interest Income: Income earned from interest-
essential to verify the title's authenticity and accuracy by
bearing investments or bank accounts.
conducting a title search with the Register of Deeds.
b. Interest Expense: Interest paid on loans or
2. Zoning and Land Use: Ensure that the property is zoned
mortgages related to property financing.
for the intended use, whether it is residential, commercial,
c. Other Non-Operating Income/Expenses:
or agricultural. Zoning regulations are determined by local
Miscellaneous income or expenses not directly related
government units (LGUs) and should be complied with.
to the company's primary operations.
3. Building Permits and Construction: Obtaining the
4. Income Taxes:
necessary building permits and complying with
a. Current Income Tax Expense: Taxes payable on the
construction regulations are crucial. Building plans should
company's taxable income for the reporting period.
be submitted to the relevant LGU for approval, and
b. Deferred Income Tax Expense/Benefit: Changes in
inspections may be conducted during the construction
deferred tax assets or liabilities based on temporary
process.
differences between accounting and tax values.
4. Environmental Compliance: Real estate projects should
5. Net Income/Loss: The final figure representing the
adhere to environmental laws and regulations.
company's profit or loss after deducting all expenses, taxes,
Environmental impact assessments may be required for
and non-operating items from revenues.
certain developments, particularly those with potential
REAL ESTATE BROKER AND ASSESSOR environmental impact.
5. Taxation: Real estate transactions are subject to various
Real Estate Broker: taxes, such as documentary stamp tax, capital gains tax,
and real property tax. Ensure compliance with tax
1. Role: A Real Estate Broker acts as an intermediary obligations and keep proper records of transactions.
between buyers and sellers of real estate properties. They 6. Developer's License: If you are a real estate developer,
facilitate property transactions, including sales, leases, you must secure a license from the Housing and Land
and rentals. Use Regulatory Board (HLURB) to legally engage in real
2. Licensing: Real Estate Brokers are required to obtain a estate development activities.
license from the Professional Regulatory Board of Real 7. Real Estate Brokerage: Real estate brokers and
Estate Service (PRBRES) under the Professional salespersons must be licensed by the Professional
Regulation Commission (PRC). They must pass the Regulatory Board of Real Estate Service (PRBRES).
licensure examination and meet the requirements set by They should comply with regulations related to contracts,
the board. commissions, and fiduciary responsibilities.
3. Scope: Real Estate Brokers assist clients in buying, 8. Foreign Ownership: Foreign individuals and entities are
selling, or leasing real estate properties. They provide restricted from owning land in the Philippines, except in
market analysis, property valuation, marketing services, certain cases, such as condominium units. Familiarize
and negotiation support. They also handle the necessary yourself with the limitations and requirements if you are a
documentation and legal processes related to real estate foreign investor.
transactions.
4. Commission: Real Estate Brokers typically earn a AGRICULTURE
commission or fee based on the value of the property or
transaction. The commission is usually a percentage of Legal Requirements
the property's sale or lease price.
1. Business Registration: Register your agricultural
Real Estate Assessor: company with the Securities and Exchange Commission
(SEC) if it is a corporation, or with the Department of
1. Role: A Real Estate Assessor is responsible for assessing Trade and Industry (DTI) if it is a sole proprietorship or
and determining the fair market value of real properties for partnership. This process involves submitting the
taxation purposes. They evaluate properties, conduct necessary documents, such as articles of incorporation,
research, analyze market trends, and use various by-laws, and registration forms.
valuation methods to determine the property's value. 2. Licenses and Permits: Obtain the required licenses and
2. Licensing: Real Estate Assessors must be licensed by permits specific to agricultural activities. This may include
the Bureau of Local Government Finance (BLGF) under clearances from government agencies such as the
the Department of Finance. They are required to pass the Department of Agriculture (DA), Bureau of Plant Industry
Real Estate Appraiser Licensure Examination conducted (BPI), Bureau of Animal Industry (BAI), and the local
by the PRC. government unit (LGU) where your company operates.
3. Scope: Real Estate Assessors primarily work for local The specific licenses and permits depend on the nature of
government units (LGUs) or the Bureau of Internal
 your agricultural activities, such as crop production, regulations, labor laws, land ownership or lease
livestock raising, or fisheries. requirements, and taxation obligations.
3. Land Ownership or Lease: Ensure compliance with land b. Review licenses, permits, and documentation related
ownership or lease requirements. The Constitution of the to agricultural activities and ensure compliance with
Philippines restricts land ownership to Filipino citizens or government agencies' requirements.
corporations with at least 60% Filipino ownership. If your c. Assess the company's adherence to industry
agricultural company involves land acquisition or lease, standards and best practices.
make sure you comply with the relevant laws and 6. Reporting:
regulations. a. Prepare an audit report summarizing the findings,
4. Environmental Compliance: Comply with environmental conclusions, and recommendations from the audit.
regulations related to agriculture. This may include b. Clearly communicate any significant issues,
securing an Environmental Compliance Certificate (ECC) deficiencies, or non-compliance with laws and
from the Environmental Management Bureau (EMB) or regulations.
conducting an Environmental Impact Assessment (EIA) if c. Provide actionable recommendations for
your activities have potential environmental impacts. improvement in financial management, operational
5. Labor and Employment: Comply with labor and efficiency, and compliance.
employment laws, such as providing appropriate
contracts to employees, complying with minimum wage Steps to conduct a financial statement audit for
and working hour regulations, and ensuring workplace agricultural companies
safety and health standards are met.
1. Planning and Preparation:
6. Tax Obligations: Register with the Bureau of Internal
a. Understand the agricultural company's business
Revenue (BIR) for taxation purposes. Agricultural
model, operations, and industry-specific accounting
companies may have specific tax obligations related to
practices.
their activities, such as value-added tax (VAT) on certain
b. Assess the company's financial reporting risks and
products or exemptions for specific agricultural inputs.
identify key areas that require detailed examination.
Auditing Agricultural Companies c. Develop an audit plan, including the scope, objectives,
and timeline for the audit.
1. Planning and Preparation: 2. Risk Assessment:
a. Familiarize yourself with the industry and specific a. Identify and evaluate the risks specific to the
regulations governing agricultural companies in the agricultural industry, such as commodity price
Philippines. volatility, weather-related risks, or government
b. Understand the company's organizational structure, subsidies.
operations, and key processes. b. Assess the company's internal controls and identify
c. Determine the scope and objectives of the audit, control weaknesses or deficiencies that may impact
including the specific areas to be reviewed. financial reporting.
2. Risk Assessment: 3. Preliminary Analytical Procedures:
a. Identify and assess the risks associated with the a. Conduct preliminary analytical procedures to gain an
agricultural company's operations, such as market understanding of the company's financial performance
volatility, crop diseases, weather conditions, or and identify any unusual or unexpected trends or
regulatory compliance. fluctuations.
b. Evaluate internal controls in place to mitigate these b. Compare financial ratios, such as profitability, liquidity,
risks and identify areas that require additional and efficiency metrics, with industry benchmarks and
attention during the audit. prior periods' results.
3. Financial Statement Audit: 4. Testing and Substantive Procedures:
a. Review the company's financial statements, including a. Test the company's internal controls to determine their
the balance sheet, income statement, and cash flow design and operational effectiveness. This may
statement. involve performing walkthroughs, inquiries, and
b. Verify the accuracy and completeness of financial observation of control activities.
transactions by examining supporting documentation b. Select and test a sample of financial transactions to
such as invoices, receipts, bank statements, and verify their accuracy, completeness, and compliance
reconciliations. with accounting standards.
c. Conduct substantive testing, including sampling c. Verify the valuation and existence of assets, such as
transactions and performing analytical procedures to crops, livestock, and agricultural inventories.
assess the reasonableness of financial data. d. Confirm balances with third parties, such as banks,
d. Evaluate the company's compliance with accounting suppliers, or customers, if applicable.
principles and relevant reporting standards. e. Review supporting documentation, such as invoices,
4. Operational Audit: receipts, bank statements, contracts, and
a. Assess the company's operational processes, such as agreements, to ensure proper documentation and
crop production, livestock management, procurement, recording of transactions.
storage, and distribution. 5. Revenue Recognition and Agricultural Activity:
b. Review operational controls, including quality control a. Evaluate the company's revenue recognition policies
measures, inventory management, and compliance and practices, focusing on the specific requirements
with health and safety regulations. for agricultural activities, such as the recognition of
c. Identify areas for operational improvement and crop sales, livestock sales, or government subsidies.
recommend best practices. b. Assess the measurement and valuation of biological
5. Compliance Audit: assets and agricultural inventories in accordance with
a. Evaluate the company's compliance with applicable relevant accounting standards.
laws and regulations, including environmental
 c. Review the company's accounting for agricultural 5. Improved Efficiency and Quality: BPO providers are
activity expenses, such as seed costs, fertilizers, typically focused on delivering specific services and
pesticides, and labor. processes. They often employ standardized and
6. Financial Statement Presentation and Disclosure: optimized processes, leading to improved efficiency,
a. Review the presentation of the financial statements, productivity, and quality of output.
ensuring compliance with applicable accounting
standards and disclosure requirements. To establish a Business Process Outsourcing (BPO) company
b. Assess the adequacy and appropriateness of the in the Philippines, you will need to follow several key steps.
financial statement disclosures related to agricultural
1. Research and Planning:
activities, risks, and uncertainties.
- Conduct thorough market research to identify the
c. Evaluate the fair presentation of financial information
BPO services you want to offer and assess the
and the consistency of accounting policies and
demand for those services in the Philippines.
estimates.
- Define your target market, competition, and potential
7. Audit Documentation and Reporting:
clients.
a. Maintain detailed and comprehensive audit
- Develop a comprehensive business plan that
documentation of the procedures performed, findings,
includes your goals, financial projections, and
and conclusions.
strategies.
b. Summarize the results of the audit in an audit report,
2. Legal and Regulatory Requirements:
which includes an opinion on the fair presentation of
- Register your business with the appropriate
the financial statements and any significant issues or
government agencies. This typically involves
exceptions identified during the audit.
registering with the Securities and Exchange
Commission (SEC) and obtaining a Mayor's
BUSINESS PROCESS OUTSOURCING (BPO) Business Permit from the local government unit
where you plan to operate.
• Business Process Outsourcing (BPO) refers to the - Consult with a lawyer to ensure compliance with
practice of contracting specific business processes or local laws, labor regulations, and taxation
tasks to external service providers. requirements.
• In BPO, companies delegate non-core or non-strategic - Determine the legal structure of your company, such
functions to specialized service providers, allowing as whether it will be a sole proprietorship,
them to focus on their core competencies and achieve partnership, or corporation.
greater efficiency and cost savings. 3. Office Setup and Infrastructure:
- Find suitable office space in a location that is
Two Main Types of BPO: conducive to running a BPO operation. Areas like
Metro Manila, Cebu, and Davao are popular BPO
1. Back-Office Outsourcing: This involves outsourcing
hubs.
internal business functions that are not customer-
- Set up the necessary infrastructure, including high-
facing but are critical for the company's operations.
speed internet connections, reliable power supply,
Examples include finance and accounting, payroll
and modern office equipment.
processing, data entry, procurement, and HR
4. Recruitment and Staffing:
administration.
- Establish a recruitment process to hire qualified
2. Front-Office Outsourcing: This refers to outsourcing
employees. The Philippines has a large pool of
customer-facing processes and functions. It typically
skilled professionals in various BPO domains.
involves customer service, technical support, sales
- Advertise job openings through online job portals,
support, telemarketing, and other interactions with
social media, and recruitment agencies.
customers or clients.
- Conduct interviews and assessments to select
Companies choose to outsource their business processes candidates who meet your requirements.
for several reasons, including: 5. Training and Development:
- Provide comprehensive training programs to equip
1. Cost Reduction: Outsourcing allows companies to your employees with the necessary skills and
access skilled labor at lower costs, particularly in knowledge to deliver high-quality BPO services.
countries with lower labor costs. This helps reduce - Offer continuous professional development
operational expenses and increase cost savings. opportunities to keep your employees up to date with
2. Focus on Core Competencies: By outsourcing non- industry trends and technologies.
core functions, companies can concentrate their 6. Client Acquisition and Relationship Management:
resources and attention on their core competencies and - Develop a marketing and sales strategy to attract
strategic activities, enhancing their competitiveness and clients. Attend industry conferences, establish
performance. partnerships, and leverage online marketing
3. Access to Expertise: BPO providers often have channels to promote your services.
specialized knowledge, skills, and technology in specific - Build strong relationships with your clients by
areas. By outsourcing, companies can benefit from the delivering exceptional service, maintaining open
expertise and experience of these service providers communication, and consistently meeting their
without having to develop such capabilities in-house. expectations.
4. Scalability and Flexibility: Outsourcing provides 7. Data Security and Compliance:
companies with the ability to scale their operations up or - Implement robust data security measures to protect
down based on business needs. It offers flexibility in sensitive client information.
adjusting resources and capacity without significant - Ensure compliance with data protection laws and
upfront investments or long-term commitments. industry regulations, such as the General Data
Protection Regulation (GDPR) if you serve clients
from the European Union.
8. Quality Assurance and Process Improvement: 7. Human Resources and Talent Management:
- Establish a quality assurance framework to monitor - Assess HR policies and procedures, including
and assess the performance of your BPO recruitment, employee onboarding, training and
operations. development, performance management, and
- Continuously improve your processes and employee benefits.
workflows to enhance efficiency and deliver better - Review compliance with labor laws, employment
results to your clients. contracts, and employee data privacy.
9. Network and Industry Involvement: - Evaluate talent retention strategies and employee
- Join industry associations and attend networking engagement initiatives.
events to stay connected with other BPO 8. Business Continuity and Disaster Recovery:
professionals and gain insights into industry best - Evaluate the company's business continuity plans
practices. and disaster recovery procedures.
- Assess the adequacy of backup systems, offsite
Audit of BPO data storage, and contingency plans to ensure
uninterrupted operations in the event of disruptions
1. Financial Reporting and Controls:
or disasters.
- Review financial statements to assess accuracy,
9. Contract and Revenue Management:
completeness, and compliance with accounting
- Review contract management processes, including
standards.
contract review, renewal, and compliance.
- Evaluate internal controls related to financial
- Assess revenue recognition practices, billing
processes, such as revenue recognition, accounts
procedures, and controls over revenue and
payable and receivable, payroll, and general ledger.
accounts receivable.
- Verify the adequacy of financial controls to prevent
fraud, misappropriation of assets, and errors. Board of Investments and Philippine Economic Zone
2. Data Security and Privacy: Authority
- Assess the company's data security measures to
protect sensitive client information and comply with • The Board of Investments (BOI) and the Philippine
applicable laws and regulations. Economic Zone Authority (PEZA) are two
- Evaluate access controls, authentication protocols, government agencies in the Philippines that play a
encryption methods, and backup procedures. significant role in promoting investments and economic
- Review privacy policies, data handling processes, development.
and compliance with data protection regulations. • While they share some similarities, they have distinct
3. Compliance with Regulations and Contracts: functions and areas of focus. Here are the key
- Ensure compliance with local laws, industry differences between BOI and PEZA:
regulations, and contractual obligations with clients.
- Review contracts and service level agreements 1. Mandate and Focus:
(SLAs) to confirm that the company is meeting its - BOI: The BOI is an attached agency of the
commitments. Department of Trade and Industry (DTI). Its primary
- Assess compliance with labor laws, tax regulations, mandate is to promote investments in priority
intellectual property rights, and other applicable industries and encourage economic development in
legal requirements. the country. It offers incentives and benefits to both
4. Operational Processes and Performance: local and foreign investors across various sectors.
- Evaluate the effectiveness and efficiency of - PEZA: PEZA is a government-owned and controlled
operational processes, such as workflow corporation (GOCC) under the Office of the
management, service delivery, and quality President. Its main focus is the development and
assurance. management of economic zones throughout the
- Review performance metrics and key performance Philippines. PEZA provides incentives and
indicators (KPIs) to assess productivity, accuracy, assistance specifically to export-oriented
and customer satisfaction. businesses operating within its designated
- Analyze process documentation, standard operating economic zones.
procedures (SOPs), and process improvement 2. Incentives and Benefits:
initiatives. - BOI: The BOI offers a range of fiscal and non-fiscal
5. IT Systems and Infrastructure: incentives to registered enterprises. These
- Assess the reliability, security, and performance of incentives include income tax holidays, reduced
the company's IT systems, including hardware, income tax rates, tax exemptions on imported capital
software, and network infrastructure. equipment, simplified import and export procedures,
- Review IT governance practices, change and various non-tax benefits like easier employment
management procedures, and IT disaster recovery of foreign nationals.
plans. - PEZA: PEZA provides similar incentives to
- Evaluate the implementation of IT security businesses operating within its economic zones.
measures, including firewalls, antivirus software, These incentives include income tax holidays,
intrusion detection systems, and access controls. preferential tax rates after the tax holiday period,
6. Vendor Management and Outsourcing: exemptions from local government fees, simplified
- Evaluate the company's relationships with third- import and export procedures, and other non-tax
party vendors and service providers. benefits.
- Assess vendor selection processes, due diligence, 3. Jurisdiction:
contract management, and monitoring of vendor - BOI: The BOI operates nationwide and covers
performance. investments in various sectors across the
- Review the company's risk management practices Philippines.
related to outsourcing activities.
 - PEZA: PEZA's jurisdiction is specific to the degrees, certifications, or licenses depending on the level
economic zones it manages. These economic zones of education they are involved in.
are strategically located throughout the country and 6. Compliance with Labor Laws: Educational institutions
are designed to attract export-oriented industries. must comply with Philippine labor laws, including proper
4. Registration Process: employment contracts, payment of wages, benefits, and
- BOI: Businesses seeking BOI registration must go working conditions for their staff and employees.
through a registration process with the BOI, 7. Health and Safety: Educational institutions are expected to
submitting the necessary documents, investment provide a safe and healthy environment for students and
plans, and complying with specific requirements for staff. This includes complying with safety standards, fire
their chosen industry. safety regulations, and implementing health protocols.
- PEZA: To operate within a PEZA economic zone, 8. Financial and Administrative Regulations: Educational
businesses need to secure a PEZA registration. This institutions are subject to financial and administrative
involves submitting an application, providing regulations, including proper bookkeeping, transparency in
necessary documents, and meeting the financial transactions, and compliance with tax obligations.
requirements set by PEZA.
5. Industry Focus: "Proprietary Educational Institution" Vs. "Non-Proprietary
- BOI: The BOI covers a wide range of industries, Educational Institution"
including manufacturing, agriculture, tourism,
1. Ownership and Governance:
infrastructure, and services. It encourages
- Proprietary Educational Institution: A proprietary
investments in priority sectors that contribute to the
educational institution is privately owned and
country's economic development.
operated by an individual, partnership, corporation,
- PEZA: PEZA primarily focuses on export-oriented
or any for-profit entity. It is primarily driven by the
industries, such as manufacturing, information
goal of making a profit. The owner(s) have full
technology (IT) and IT-enabled services, business
control over the institution's operations, decision-
process outsourcing (BPO), logistics, and other
making, and financial management.
export-related activities.
- Non-Proprietary Educational Institution: A non-
6. Reporting and Compliance:
proprietary educational institution is typically a non-
- BOI: Registered enterprises with the BOI are
stock, non-profit organization. It may be governed by
required to submit periodic reports on their
a board of trustees or directors who are responsible
operations, investments, and compliance with the
for overseeing the institution's operations. The
terms of their registration.
primary objective of non-proprietary institutions is to
- PEZA: Companies operating within PEZA economic
provide education and fulfill a specific educational
zones need to comply with PEZA's regulations and
mission rather than generating profit for
guidelines, including reporting requirements, regular
shareholders or owners.
remittances, and compliance with environmental
2. Profit Orientation:
standards.
- Proprietary Educational Institution: Proprietary
institutions are profit-oriented, meaning they aim to
EDUCATIONAL INSTITUTION generate income and make a profit from the
educational services they provide. The owners
Legal Requirements expect financial returns on their investment in the
institution.
1. Registration and Recognition: Educational institutions in
the Philippines are required to register with the Department - Non-Proprietary Educational Institution: Non-
proprietary institutions are not profit-oriented. They
of Education (DepEd) or the Commission on Higher
may rely on various sources of funding, such as
Education (CHED) depending on the level of education they
tuition fees, donations, grants, or subsidies, to
provide. This process involves submitting necessary
documents, meeting specific standards, and complying with sustain their operations. Any surplus generated is
usually reinvested in the institution to improve
applicable regulations.
facilities, enhance programs, or expand services.
2. Accreditation: Accreditation is a voluntary process that
3. Regulation:
verifies the quality of education provided by an institution. It
is typically done by accrediting bodies recognized by DepEd - Proprietary Educational Institution: Proprietary
institutions are subject to regulations imposed by
or CHED, such as the Philippine Accrediting Association of
government agencies such as the Department of
Schools, Colleges, and Universities (PAASCU) and the
Education (DepEd) or the Commission on Higher
Association of Christian Schools, Colleges, and Universities
Accrediting Agency, Inc. (ACSCU-AAI). Education (CHED). They need to comply with
requirements related to registration, curriculum,
3. Compliance with Curriculum and Standards:
facilities, teacher qualifications, and other standards
Educational institutions must follow the prescribed
set by the regulatory authorities.
curriculum and standards set by DepEd or CHED. These
- Non-Proprietary Educational Institution: Non-
standards include guidelines for subjects, learning
proprietary institutions also need to comply with
outcomes, instructional hours, and academic requirements.
government regulations and standards set by
4. Licensing and Permits: Educational institutions are
DepEd or CHED. However, they may have
required to obtain appropriate licenses and permits from the
additional regulatory requirements and obligations
local government unit (LGU) where they operate. This may
related to their non-profit status, such as reporting
include business permits, zoning clearances, sanitary
financial information, transparency in operations,
permits, and fire safety clearances.
5. Teacher Qualifications: The qualifications for teachers and compliance with tax regulations.
4. Mission and Focus:
and instructors in educational institutions are regulated by
- Proprietary Educational Institution: Proprietary
DepEd or CHED. Generally, teachers must hold appropriate
institutions often operate with a market-oriented
approach, focusing on meeting the demands of
 students and parents, and may prioritize profit over including the design and effectiveness of controls over
other considerations. Their educational programs financial transactions, data security, fraud prevention, and
may be tailored to attract students and gain a risk management. They may identify weaknesses in
competitive advantage in the education market. controls and provide recommendations for improvement.
- Non-Proprietary Educational Institution: Non- 9. Governance and Board Oversight: Auditors review the
proprietary institutions are generally mission-driven, institution's governance structure, including the role and
aiming to provide quality education, contribute to the responsibilities of the board of directors or trustees. They
community, and fulfill a specific educational purpose. assess the effectiveness of board oversight, adherence to
Their focus may be on imparting knowledge, governance policies, conflict of interest management, and
promoting certain values or ideologies, or the institution's compliance with applicable governance
addressing specific educational needs in society. codes and regulations.
10. Student Welfare and Safety: Auditors evaluate the
Audit of Educational Institutions institution's measures to ensure student welfare and safety,
including policies and procedures for child protection,
1. Financial Management: Auditors review the institution's
student discipline, health and safety protocols, and
financial management practices, including budgeting,
emergency preparedness.
revenue generation, expense allocation, cash
management, and financial reporting. They assess the
accuracy and completeness of financial records, adherence
to accounting principles and standards, and compliance
with applicable laws and regulations.
2. Tuition and Fee Collection: Auditors examine the
institution's policies and procedures for tuition and fee
collection, assessing whether there are adequate controls
to ensure the accurate recording, tracking, and
reconciliation of student payments. They may also verify the
accuracy of tuition and fee rates, discounts, scholarships,
and financial aid programs.
3. Procurement and Contracts: Auditors review the
institution's procurement process, including the acquisition
of goods and services, vendor selection, bidding
procedures, and contract management. They assess
compliance with procurement policies, the existence of
competitive bidding, and the adequacy of internal controls
to prevent fraud and abuse.

4. Payroll and Employee Benefits: Auditors examine the

institution's payroll process, including the accuracy and
timeliness of salary payments, deductions, and tax
withholdings. They also review employee benefits
programs, such as health insurance, retirement plans, and
leave accruals, to ensure compliance with legal
requirements and proper administration.

5. Compliance with Laws and Regulations: Auditors assess

the institution's compliance with various laws and
regulations applicable to educational institutions, such as
those related to accreditation, student enrollment, teacher
qualifications, labor laws, tax obligations, and data privacy.
They review policies, procedures, and records to ensure
adherence to these requirements.
6. Student Enrollment and Academic Records: Auditors
examine the institution's student enrollment processes,
including admission criteria, enrollment procedures, student
records management, and compliance with enrollment
regulations. They verify the accuracy and completeness of
student records, including attendance, grades, transcripts,
and other academic documentation.
7. Facilities and Asset Management: Auditors evaluate the
institution's management of physical facilities, such as
classrooms, laboratories, libraries, and dormitories. They
review asset management practices, including the
acquisition, utilization, and disposal of assets, maintenance
procedures, and controls over asset records.
8. Internal Controls and Risk Management: Auditors
assess the institution's internal control environment,