Mindanao State University

College of Business Administration and Accountancy

DEPARTMENT OF ACCOUNTANCY
Marawi City

OTHER AUDIT REPORTING CONSIDERATIONS AND ISSUES

Accounting 151

The various types of reports and letters that an auditor may

be called on to prepare is literally infinite. The more the A SAMPLE OTHER MATTER PARAGRAPH
auditor’s specialized skill and experience is understood and Expressing an Opinion Different from the One
used, the greater the diversity of out of the ordinary reports Originally Issued
and reporting situations that will be encountered.
Other Matter
REPORTING ON COMPARATIVE INFORMATION
In our report dated March 16, 20X1, we expressed an
Comparative information covering one or more preceding
opinion that the 20X0 financial statements did not fairly
periods provides the users of the financial statements with
present the financial position, results of operations and
information necessary to identify trends and changes
cash flows in accordance with Philippine Financial
affecting an entity over a period of time. If comparative
Reporting Standards because of two departures from
information is presented, the auditor should determine
such principles: (1) the company carried its inventories
whether the comparatives comply in all material respects
at cost and (2) the company did not provide for
with the financial reporting framework. There are two
deferred income taxes with respect to differences
financial reporting frameworks for comparatives:
between income for financial reporting purposes and
A. Comparative financial statements – comparative
taxable income. As described in Note X, the company
information where amounts and other disclosures
has changed its method of accounting for these items
for the prior period are included for comparison
and restated its 20X0 financial statements to conform to
with the financial statements of the current period
Philippine Financial Reporting Standards. Accordingly,
but do not form part of the current period financial
our present opinion on the restated 20X0 financial
statements.
statements, as presented herein, is different from that
B. Corresponding figures – comparative information expressed in our previous report.
where amounts and other disclosures for the
preceding period are included as part of the
B. Prior period financial statements audited by
current period financial statements and are
another auditor.
intended to be read in relation to the amounts and
other disclosures relating to the current period. When the financial statements of the prior period
These corresponding figures are not presented as were audited by another auditor, there are two
complete financial statements capable of reporting options as follows:
standing alone but are an integral part of the  The predecessor auditor may reissue his
current period financial statement. audit report on the prior period financial
statements bearing the original date and
 REPORTING ON COMPARATIVE FINANCIAL STATEMENTS original wording of such report after taking
The comparative financial statements for the prior period(s) steps to determine whether his report is still
are considered separate financial statements. Accordingly, appropriate. These steps include:
the level of information included in those financial a. Comparing the current period
statements approximates that of the financial statements of financial statements with the
the current period. Thus, when reporting on comparative financial statements audited.
financial statements, the auditor should issue a report in b. A discussion with the successor
which the comparative financial statements are specifically auditor about any circumstances or
identified because the auditor’s opinion is expressed events that may affect the financial
individually on the financial statements on each period statements of the prior period.
presented. c. Obtaining a representation letter
A number of unique problems can arise when an auditor from the successor auditor.
issues an opinion on comparative financial statements in In this case, both auditors issue separate
which two or more periods are being presented. Three reports pertaining to different periods
uncommon situations related to comparative financial included in the financial statements.
statements can occur:  In some instances, the predecessor may
A. Prior period financial statements audited by a find it more appropriate not to reissue his
continuing auditor. report on the prior period financial
The continuing auditor’s report should cover the statements. In this occasion, the successor
current year’s financial statements as well as those auditor’s report on the current year
for the prior period that were audited by the firm. In financial statements should include an
addition, the auditor should not simply reissue his Other Matter paragraph stating:
prior year’s report but he should update his report a. The fact that the prior period
on the financial statements of the prior period to financial statements were audited by
determine if the report is still appropriate. Updating another auditor.
the report involves either: b. The date of the predecessor auditor’s
 Re-expressing the opinion originally issued. report.
 Expressing an opinion different from the c. The type of opinion issued by the
one originally issued. If this is the case, the predecessor auditor and if the
continuing auditor’s report should include opinion is modified, the reasons
an Other Matter paragraph stating: therefore.
a. The fact that the updated report is If the auditor concludes that a material
different from the previous opinion. misstatement exists that affects the prior period
b. The date of prior year’s report and financial statements on which the predecessor
the type of opinion previously issued. auditor had previously reported without
c. The reasons for changing the modification, the auditor should communicate the
auditor’s opinion. misstatement with the appropriate level of

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 management and those charged with governance On the other hand, if the auditor’s report on the prior
and request that the predecessor auditor be period, as previously issued, included a qualified opinion, a
informed. If the prior period financial statements disclaimer of opinion, or an adverse opinion and the matter
are amended, and the predecessor auditor agrees which gave rise to the modification is resolved and properly
to issue a new auditor’s report on the amended accounted for and disclosed in the financial statements in
financial statements of the prior period, the auditor accordance with the applicable financial reporting
should report only on the current period. framework, the auditor’s opinion on the current period
financial statements need not refer to the previous
modification.
A SAMPLE OTHER MATTER PARAGRAPH
Opinion of Predecessor Auditor Not Reissued If the auditor obtains audit evidence that a material
misstatement exists in the prior period financial statements
Opinion on which an unmodified opinion has been previously
In our opinion, the financial statements present fairly, in issued, and the corresponding figures have not been
all material respects, the financial position of the properly restated or appropriate disclosures have not been
company at December 31, 20X1 and of its financial made, the auditor should express a qualified opinion or an
performance and its cash flows for the year then ended adverse opinion in the auditor’s report on the current
in accordance with Philippine Financial Reporting period financial statements, modified with respect to the
Standards. corresponding figures included therein.
If the financial statements of the prior period were audited
Other Matter
by a predecessor auditor and the auditor is permitted by
The financial statements of the company for the year law or regulation to refer to the predecessor auditor’s
ended December 31, 20X0 were audited by another report on the corresponding figures and decides to do so,
auditor who expressed an unmodified opinion on those the auditor should state in an Other Matter paragraph in
statements on March 16, 20X1. the auditor’s report:
A. That the financial statements of the prior period
C. Prior period financial statements not audited. were audited by the predecessor auditor.
When the prior financial statements were not B. The date of that report.
audited, the auditor should state in the report on C. The type of opinion expressed by the predecessor
the current year’s financial statements through an auditor and, if the opinion was modified, the
Other Matter paragraph that the comparative reasons therefore.
financial statements are unaudited. In addition, the If the prior period financial statements were not audited,
auditor should perform appropriate procedures to the auditor should state in an Other Matter paragraph in
provide reasonable assurance that the prior period the auditor’s report that the corresponding figures are
financial statements do not contain material unaudited. Such a statement does not, however, relieve
misstatements that could affect the financial the auditor of the requirement to obtain sufficient
statements of the current period. appropriate audit evidence that the opening balances do
In situations where the incoming auditor identifies not contain misstatements that materially affect the current
that the prior period financial statements are period’s financial statements.
materially misstated, the auditor should request the REPORTING ON OTHER INFORMATION ACCOMPANYING THE
management to revise the prior year’s figures, AUDITED FINANCIAL STATEMENTS (PSA 720)
otherwise, the auditor should issue a qualified or Other information refers to financial and non-financial
adverse opinion. information, other than the financial statements and the
 REPORTING ON CORRESPONDING FIGURES auditor’s report thereon, which is included, either by law,
regulation or custom, in a document containing audited
Corresponding figures, unlike comparative financial
financial statements and the auditor’s report thereon.
statements, cannot stand on their own. They are included
Normally, entities publish many documents that contain
as part of the current period financial statements and are
other information in addition to the audited financial
intended to be read only in relation to the amounts and
statements and the auditor’s report. Examples of other
other disclosures relating to the current period. The level of
information include a report by management or the board
detail presented in the corresponding amounts and
of directors, financial summaries and highlights, planned
disclosures is dictated primarily by its relevance to the
capital expenditures, employment data, financial ratios,
current period figures.
names of directors and officers and selected quarterly
When the comparatives are presented as corresponding data. Collectively, these other information may be referred
figures, the auditor should issue a report that refers only to in the client’s annual report as management’s discussion
the financial statements of the current period except if the and analysis (MDA).
circumstances discussed below exist. The comparatives
are not specifically identified because the auditor’s opinion  AUDITOR’S RESPONSIBILITY
is on the current period’s financial statements as a whole The auditor has no responsibility to corroborate the other
including the corresponding figures. information as they do not form part of the financial
If the auditor’s report on the prior period, as previously statements. However, the auditor should read the other
issued, included a qualified opinion, a disclaimer of opinion, information to determine that it is not materially inconsistent
or an adverse opinion and the matter which gave rise to with the audited financial statements. A material
the modification is unresolved, the auditor should modify inconsistency exists when the other information contradicts
the auditor’s opinion on the current period’s financial the information contained in the audited financial
statements. In the Basis for Modification paragraph in the statements.
auditor’s report, the auditor should either: In addition, in the course of reading the other information
A. Refer to both the current period’s figures and the for the purpose of identifying material inconsistencies, the
corresponding figures in the description of the auditor may become aware of an apparent of a material
matter giving rise to the modification when the misstatement of facts. A material misstatement of facts
effects or possible effects of the matter on the exists when other information not related to the financial
current period’s figures are material. statements is incorrectly stated or presented.
B. In other cases, explain that the audit opinion has Thus, the objective of the auditor is to respond appropriately
been modified because of the effects or possible when documents containing the audited financial
effects of the unresolved matter on the statements and the auditor’s report thereon include other
comparability of the current period’s figures and information that could undermine the credibility of those
the corresponding figures. financial statements and the auditor’s report.

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In this connection, the auditor should make appropriate prepares financial information that should be
arrangements with management or those charged with included in the group financial statements.
governance to obtain the other information prior to the B. Component auditor – is an auditor who, at the
date of the auditor’s report. If it is not possible to obtain all request of the group engagement team, performs
the other information prior to the date of the auditor’s work on financial information related to a
report, the auditor should read such other information as component for the group audit.
soon as practicable. Obtaining the other information prior C. Component management – refers to management
to the date of the auditor’s report enables the auditor to responsible for preparing the financial information
resolve possible material inconsistencies and apparent of a component.
material misstatements of fact with management on a D. Group – refers to all the components whose
timely basis. An agreement with management as to when financial information is included in the group
the other information will be available may be helpful. financial statements. A group always has more
than one component.
 EFFECT ON THE AUDITOR’S REPORT
E. Group audit – refers to the audit of group financial
Material Inconsistency statements. The audit opinion on the group
If on reading the other information, the auditor identifies a financial statements is referred to as the group
material inconsistency the auditor should determine audit opinion.
whether the audited financial statements or the other F. Group engagement partner – is the partner or other
information needs to be amended. If the amendment is person in the firm who is responsible for the group
necessary, the following guideline should be observed: audit engagement and its performance and for
the auditor’s report on the group financial
A. If the material inconsistency is identified prior to the
statements that is issued on behalf of the firm.
date of the auditor’s report:
Where joint auditors conduct the group audit, the
 If the amendment is necessary in the audited
joint engagement partners and their engagement
financial statements and the entity refuses to
teams collectively constitute the group
make the amendment, the auditor should
engagement partner and the group engagement
express a qualified or an adverse opinion.
team.
 If the amendment is necessary in the other
G. Group engagement team – refers to the partners,
information and the entity refuses to make the
including the group engagement partner, and staff
amendment, the auditor should
who establish the overall group audit strategy,
communicate the matter with those charged
communicate with component auditors, perform
with governance and the auditor should
work on the consolidation process, and evaluate
consider doing any of the following:
the conclusions drawn from the audit evidence as
a. Adding an Other Matter paragraph to
the basis for forming an opinion on the group
describe the material inconsistency.
financial statements.
b. Withholding the auditor’s report.
H. Group financial statements – are the financial
c. Withdrawing from the engagement.
statements that include the financial information of
B. If the material inconsistency is identified subsequent more than one component. The term “group
to the date of the auditor’s report: financial statements” also refers to combined
 If the amendment is necessary in the audited financial statements aggregating the financial
financial statements and the entity refuses to information prepared by components that have no
make the amendment, the auditor should parent but are under common control.
follow the relevant standards on subsequent I. Group management – refers to management
events. responsible for preparing and presenting the group
 If the amendment is necessary in the other financial statements.
information and the entity refuses to make the J. Significant component – a component identified
amendment, the auditor should notify those by the group engagement team that is either of
charged with governance of the auditor’s individual financial significance to the group, or
concern regarding the other information and that, due to its specific nature or circumstances, is
take any further appropriate action. likely to include significant risks of material
Material Misstatement of Fact misstatement of the group financial statements.
If on reading the other information the auditor becomes  UNDERSTANDING THE GROUP AUDITOR
aware that a material misstatement of fact exists, the When one or more audit firms participate in an audit
auditor should discuss with management and when, engagement, one firm has to act as the group auditor. The
following such discussions, the auditor still considers that group auditor (group engagement partner and group
there is an apparent material misstatement of fact, the engagement team) is the auditor with responsibility for
auditor should request management to consult with a reporting on the financial statements of an entity when
qualified third party, such as the entity’s legal counsel and those financial statements include financial information of
the auditor should consider the advice received. one or more components audited by another auditor.
When the auditor concludes that there is a material The auditor should consider whether his own participation is
misstatement of fact in the other information which sufficient to be able to act as the group auditor who will
management refuses to correct, the auditor should notify express an opinion on group financial statements. This
those charged with governance of the auditor’s concern consideration involves:
regarding the other information and take any further A. The materiality of the portion of the financial
appropriate action. statement audited.
B. The auditor’s knowledge of the overall financial
REPORTING ON AUDITS OF GROUP FINANCIAL STATEMENTS
statements.
(PSA 600)
C. The importance of the component audited by
Due to the existence of some financial relationships and
another auditor.
interests such as control, significant influence or joint control
over another entity, group financial statements tend to be Acceptance and Continuance
more meaningful than separate financial statements and In applying PSA 220, the group engagement partner should
are usually necessary for fair presentation. In understanding determine whether sufficient appropriate audit evidence
the responsibility of the auditor in the audit of these financial can reasonably be expected to be obtained in relation to
statements, the following definitions of PSA 600 are relevant: the consolidation process and the financial information of
A. Component – refers to an entity or business activity the components on which to base the group audit opinion.
for which group or component management For this purpose, the group engagement team should

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obtain an understanding of the group, its components, and  A request that the component auditor,
their environments that is sufficient to identify components knowing the context in which the group
that are likely to be significant components. engagement team will use the work of the
Where component auditors will perform work on the component auditor, confirms that the
financial information of such components, the group component auditor will cooperate with the
engagement partner should evaluate whether the group group engagement team.
engagement team will be able to be involved in the work  The ethical requirements that are relevant
of those component auditors to the extent necessary to to the group audit and, in particular, the
obtain sufficient appropriate audit evidence. independence requirements.
 In the case of an audit or review of the
If the group engagement partner concludes that it will not
financial information of the component,
be possible for the group engagement team to obtain
component materiality (and the amount or
sufficient appropriate audit evidence due to restrictions
amounts lower than the materiality level for
imposed by group management and the possible effect of
particular classes of transactions, account
this inability will result in a disclaimer of opinion on the group
balances or disclosures, if applicable) and
financial statements, the group engagement partner
the threshold above which misstatements
should either:
cannot be regarded as clearly trivial to the
A. In the case of a new engagement, not accept the
group financial statements.
engagement or in the case of a continuing
engagement, resign from the engagement.  Identified significant risks of material
B. Where law or regulation prohibits an auditor from misstatement of the group financial
declining or resigning from an engagement, having statements, due to fraud or error, that are
performed the audit of the group financial relevant to the work of the component
statements to the extent possible, disclaim an auditor. The group engagement team
opinion on the group financial statements. should request the component auditor to
communicate on a timely basis any other
Understanding the Component Auditor identified significant risks of material
After considering that it is appropriate to serve as the group misstatement of the group financial
auditor, judgment as to whether to rely on work of other statements, due to fraud or error, in the
auditors or not should be made: component, and the component auditor’s
A. Whether the component auditor understands and responses to such risks.
will comply with the ethical requirements  A list of related parties prepared by group
particularly the independence requirement. management, and any other related
B. The component auditor’s professional competence. parties of which the group engagement
C. Whether the group engagement team will be able team is aware. The group engagement
to be involved in the work of the component team should request the component
auditor to the extent necessary to obtain sufficient auditor to communicate on a timely basis
appropriate audit evidence. related parties not previously identified by
D. Whether the component auditor operates in a group management or by the group
regulatory environment that actively oversees engagement team. Moreover, the group
auditors. engagement team should determine
If the group auditor has not been satisfied about the whether to identify such additional related
professional competence and independence of the parties to other component auditors.
component auditor or has concerns about other matters D. The group engagement team should request the
affecting component’s financial statements, the group component auditor to communicate matters
auditor should obtain sufficient appropriate evidence relevant to the group engagement team’s
relating to the financial information of the component by conclusion with regard the group audit. Such
auditing the financial statements of the component. communication should include:
Additional Considerations  Whether the component auditor has
complied with ethical requirements that
A. When significant risks of material misstatement of are relevant to the group audit.
the group financial statements have been  Whether the component auditor has
identified in a component on which a component complied with the group engagement
auditor performs the work, the group engagement team’s requirements.
team should evaluate the appropriateness of the  Identification of the financial information of
further audit procedures to be performed to the component on which the component
respond to the identified significant risks of material auditor is reporting.
misstatement of the group financial statements.  Information on instances of non-
Based on its understanding of the component compliance with laws or regulations that
auditor, the group engagement team should could give rise to a material misstatement
determine whether it is necessary to be involved in of the group financial statements.
the further audit procedures.  A list of uncorrected misstatements of the
B. The group engagement team should design and financial information of the component
perform further audit procedures on the (the list need not include misstatements
consolidation process to respond to the assessed that are below the threshold for clearly
risks of material misstatement of the group financial trivial misstatements communicated by the
statements arising from the consolidation process. group engagement team.
This should include evaluating whether all  Indicators of possible management bias.
components have been included in the group  Description of any identified material
financial statements. weaknesses in internal control over financial
C. The group engagement team should communicate reporting at the component level.
its requirements to the component auditor on a  Other significant matters that the
timely basis. This communication should set out the component auditor communicated or
work to be performed, the use to be made of that expects to communicate to those charged
work, and the form and content of the component with governance of the component,
auditor’s communication with the group including fraud or suspected fraud involving
engagement team. It should also include the component management, employees who
following: have significant roles in internal control at

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 the component level or others where the A. A tax basis of accounting for a set of financial
fraud resulted in a material misstatement of statements that accompany an entity’s tax return.
the financial information of the component. B. The cash receipts and disbursements basis of
 Any other matters that may be relevant to accounting for cash flow information that an entity
the group audit, or that the component may be requested to prepare for creditors.
auditor wishes to draw to the attention of C. The financial reporting provisions established by a
the group engagement team, including regulator to meet the requirements of that
exceptions noted in the written regulator.
representations that the component D. The financial reporting provisions of a contract,
auditor requested from component such as a bond indenture, a loan agreement, or a
management. project grant.
 The component auditor’s overall findings,
 SPECIAL CONSIDERATIONS
conclusions or opinion.
PSAs observed when auditing generally purpose financial
 GROUP AUDITOR’S REPORTING RESPONSIBILITY
statements also apply to special purpose financial
The group auditor is responsible for the direction, supervision statements. However, the auditor is to address appropriately
and performance of the group audit engagement in the special considerations that are relevant to:
compliance with professional standards and regulatory and A. Acceptance of the engagement.
legal requirements, and whether the auditor’s report that is
PSA 210 requires the auditor to determine the
issued is appropriate in the circumstances. As a result, the
acceptability of the financial reporting framework
auditor’s report on the group financial statements should
applied in the preparation of the financial
not refer to a component auditor, unless required by law or
statements. In an audit of special purpose financial
regulation to include such reference. If such reference is
statements, the auditor should obtain an
required by law or regulation, the auditor’s report should
understanding of:
indicate that the reference does not diminish the group
 The purpose for which the financial
engagement partner’s or the group engagement partner’s
statements are prepared.
firm’s responsibility for the group audit opinion.
 The intended users.
In this regard, the group auditor is required to obtain  The steps taken by management to
sufficient appropriate audit evidence on which to base the determine that the applicable financial
audit opinion. The group engagement team should reporting framework is acceptable in the
evaluate whether sufficient appropriate audit evidence has circumstances.
been obtained from the audit procedures performed on
In the case of special purpose financial statements,
the consolidation process and the work performed by the
the financial information needs of the intended
group engagement team and the component auditors on
users are a key factor in determining the
the financial information of the components, on which to
acceptability of the financial reporting framework
base the group audit opinion. For significant components,
applied in the preparation of the financial
this will involve:
statements.
A. Reviewing the work conducted by component
auditors. B. Planning and engagement performance.
If the group engagement team concludes that the In planning and performing an audit of special
work of the component auditor is insufficient, the purpose financial statements, the auditor should
group engagement team should determine what determine whether application of the PSAs requires
additional procedures are to be performed, and special consideration in the circumstances of the
whether they are to be performed by the engagement.
component auditor or by the group engagement Application of some of the requirements of the
team. PSAs in an audit of special purpose financial
B. If necessary, auditing the financial information of statements may require special consideration by
the component. the auditor. For example, in PSA 320, judgments
For components that are not significant, the group auditor about matters that are material to users of the
should apply analytical review procedures to be able to financial statements are based on a consideration
obtain audit evidence that there are no significant risks of of the common financial information needs of users
material misstatements at the aggregated financial as a group. In the case of an audit of special
information of the components that could affect the group purpose financial statements, however, those
financial statements as a whole. judgments are based on a consideration of the
financial information needs of the intended users.
Further, the group engagement partner should evaluate
the effect on the group audit opinion of any uncorrected Further, PSA 315 requires the auditor to obtain an
misstatements (either identified by the group engagement understanding of the entity’s selection and
team or communicated by component auditors) and any application of accounting policies. In the case of
instances where there has been an inability to obtain financial statements prepared in accordance with
sufficient appropriate audit evidence. the provisions of a contract, the auditor should
obtain an understanding of any significant
REPORTING ON AUDITS OF FINANCIAL STATEMENTS PREPARED interpretations of the contract that management
IN ACCORDANCE WITH SPECIAL PURPOSE FRAMEWORK (PSA made in the preparation of those financial
800) statements. An interpretation is significant when
A financial statement audit is ordinarily conducted by an adoption of another reasonable interpretation
independent CPA to serve as basis for the expression of would have produced a material difference in the
opinion regarding the fairness of the financial statements, information presented in the financial statements.
for the consumption by the general public. These are called
general purpose financial statements and are prepared C. Reporting considerations.
using general purpose framework such as PFRSs or PFRSs for When forming an opinion and reporting on special
SMEs. purpose financial statements, the auditor should
In some instances, some entities may be required by their apply the requirements in PSA 700. PSA 700 requires
contractual commitments or government regulators to the auditor to evaluate whether the financial
present financial statements that comply with a financial statements adequately refer to or describe the
reporting framework designed to meet the needs of specific applicable financial reporting framework.
users. Such frameworks are referred to as special purpose In the case of financial statements prepared in
frameworks. Examples of special purpose frameworks are: accordance with the provisions of a contract, the

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 auditor should evaluate whether the financial
statements adequately describe any significant Auditor’s Responsibility
interpretations of the contract on which the Our responsibility is to express an opinion on these
financial statements are based. financial statements based on our audit. We
As per PSA 800, the following are required for auditor’s conducted our audit in accordance with Philippine
report on special purpose financial statements: Standards on Auditing. Those standards require that we
A. The auditor’s report should also describe the comply with ethical requirements and plan and
purpose for which the financial statements are perform the audit to obtain reasonable assurance
prepared and, if necessary, the intended users, or about whether the financial statements are free from
refer to a note in the special purpose financial material misstatement.
statements that contains that information. An audit involves performing procedures to obtain
B. If management has a choice of financial reporting audit evidence about the amounts and disclosures in
frameworks in the preparation of such financial the financial statements. The procedures selected
statements, the explanation of management’s depend on the auditor’s judgment, including the
responsibility for the financial statements should assessment of the risks of material misstatement of the
also make reference to its responsibility for financial statements, whether due to fraud or error. In
determining that the applicable financial reporting making those risk assessments, the auditor considers
framework is acceptable in the circumstances. internal control relevant to the entity’s preparation of
C. The auditor’s report should include an Emphasis of the financial statements in order to design audit
Matter paragraph alerting users of the auditor’s procedures that are appropriate in the circumstances,
report that the financial statements are prepared in but not for the purpose of expressing an opinion on the
accordance with a special purpose framework effectiveness of the entity’s internal control.
and that, as a result, the financial statements may An audit also includes evaluating the appropriateness
not be suitable for another purpose. The auditor of accounting policies used and the reasonableness of
should include this paragraph under an accounting estimates made by management, as well
appropriate heading. as evaluating the overall presentation of the financial
The special purpose financial statements may be statements.
used for purposes other than those for which they
We believe that the audit evidence we have obtained
were intended. For example, a regulator may
is sufficient and appropriate to provide a basis for our
require certain entities to place the special
audit opinion.
purpose financial statements on public record. To
avoid misunderstandings, the auditor alerts users of Opinion
the auditor’s report that the financial statements
In our opinion, the financial statements of ABC
are prepared in accordance with a special
Company for the year ended December 31, 20X1 are
purpose framework and, therefore, may not be
prepared, in all material respects, in accordance with
suitable for another purpose.
the financial reporting provisions of Section Z of the
D. In addition to the alert required above, the auditor contract.
may consider it appropriate to indicate that the
auditor’s report is intended solely for the specific Basis of Accounting and Restriction on Distribution and
users. Depending on the law or regulation of the Use
particular jurisdiction, this may be achieved by Without modifying our opinion, we draw attention to
restricting the distribution or use of the auditor’s Note X to the financial statements, which describes the
report. In these circumstances, the Emphasis of a basis of accounting. The financial statements are
Matter paragraph referred to above may be prepared to assist ABC Company to comply with the
expanded to include these other matters, and the financial reporting provisions of the contract referred to
heading modified accordingly. above. As a result, the financial statements may not be
suitable for another purpose. Our report is intended
solely for ABC Company and DEF Company and should
A SAMPLE AUDIT REPORT ON SPECIAL PURPOSE
not be distributed to or used by parties other than ABC
FINANCIAL STATEMENTS
Company or DEF Company.
Following a Compliance Framework
[Auditor’s signature]
INDEPENDENT AUDITOR’S REPORT
[Date of the auditor’s report]
[Appropriate Addressee]
[Auditor’s address]
We have audited the accompanying financial
statements of ABC Company, which comprise the
balance sheet as at December 31, 20X1, and the REPORTING ON AUDITS OF SINGLE FINANCIAL STATEMENTS
income statement, statement of changes in equity and AND SPECIFIC ELEMENTS, ACCOUNTS OR ITEMS OF A
cash flow statement for the year then ended, and a FINANCIAL STATEMENT (PSA 805)
summary of significant accounting policies and other Auditors are often engaged to audit and express an
explanatory information. The financial statements have opinion on the financial statements taken as a whole. In
been prepared by management of ABC Company some instances, however, auditors may also be requested
based on the financial reporting provisions of Section Z to express an opinion on a single financial statement or a
of the contract dated January 1, 20X1 between ABC specific element, account or item of a financial statement
Company and DEF Company (“the contract”). which may be prepared in accordance with a general or
special purpose framework such as the following:
Management’s Responsibility for the Financial
Statements A. Accounts receivable, allowance for doubtful
accounts receivable, inventory, the liability for
Management is responsible for the preparation of these
accrued benefits of a private pension plan, the
financial statements in accordance with the financial
recorded value of identified intangible assets, or
reporting provisions of Section Z of the contract. This
the liability for “incurred but not reported” claims in
includes the design, implementation and maintenance
an insurance portfolio, including related notes.
of internal control relevant to the preparation of
B. A schedule of externally managed assets and
financial statements that are free from material
income of a private pension plan, including related
misstatement, whether due to fraud or error.
notes.

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 C. A schedule of net tangible assets, including related of material transactions and events on the
notes. information conveyed in the financial statement or
D. A schedule of disbursements in relation to a lease the element.
property, including explanatory notes. B. Planning and engagement performance.
E. A schedule of profit participation or employee
In planning and performing the audit of a single
bonuses, including explanatory notes.
financial statement or of a specific element of a
Since this type of engagement does not result to an financial statement, the auditor should adapt all
expression of an opinion on financial statements taken as a PSAs relevant to the audit as necessary in the
whole, the auditor’s opinion should be confined only to the circumstances of the engagement. This includes
specific account or element of a financial statement considering the fact that the:
identified in the report.  The auditor may need to examine other
 SPECIAL CONSIDERATIONS related accounts to be able to express
opinion on a specific component of a
PSAs observed when auditing generally purpose financial financial statement.
statements also apply to special purpose financial  Materiality should be related to the specific
statements. However, the auditor is to address appropriately account rather to the financial statements
the special considerations that are relevant to: taken as a whole and accordingly, the
A. Acceptance of the engagement. auditor’s examination will ordinarily be more
In the case of an audit of a single financial extensive than if the same component were
statement or of a specific element of a financial to be audited in connection with a report on
statement, acceptance and procedures apply the entire financial statements.
irrespective of whether the auditor is also engaged C. Reporting considerations.
to audit the entity’s complete set of financial
When forming an opinion and reporting on a single
statements though this type of engagement will
financial statement or on a specific element of a
most likely be accepted if the auditor is also
financial statement, the auditor should apply the
engaged to audit the complete set of financial
requirements in PSA 700 adapted as necessary in
statements.
the circumstances of the engagement. Further the
If the auditor is not also engaged to audit the auditor should consider the following guidelines:
entity’s complete set of financial statements, the  If the auditor undertakes an engagement to
auditor should determine whether the audit of a report on a single financial statement or on a
single financial statement or of a specific element specific element of a financial statement in
of those financial statements in accordance with conjunction with an engagement to audit the
PSAs is practicable. entity’s complete set of financial statements,
Compliance with the requirements of PSAs relevant the auditor should express a separate opinion
to the audit of a single financial statement or of a for each engagement.
specific element of a financial statement may not  An audited single financial statement or an
be practicable when the auditor is not also audited specific element of a financial
engaged to audit the entity’s complete set of statement may be published together with
financial statements. In such cases, the auditor the entity’s audited complete set of financial
often does not have the same understanding of statements provided there is sufficient
the entity and its environment, including its internal differentiation of the audited statements. If the
control, as an auditor who also audits the entity’s auditor concludes that the presentation of the
complete set of financial statements. The auditor single financial statement or of the specific
also does not have the audit evidence about the element of a financial statement does not
general quality of the accounting records or other differentiate it sufficiently from the complete
accounting information that would be acquired in set of financial statements, the auditor should
an audit of the entity’s complete set of financial ask management to rectify the situation. The
statements. Accordingly, the auditor may need auditor should also differentiate the opinion
further evidence to corroborate audit evidence on the single financial statement or on the
acquired from the accounting records. In the case specific element of a financial statement from
of an audit of a specific element of a financial the opinion on the complete set of financial
statement, certain PSAs require audit work that statements. The auditor should not issue the
may be disproportionate to the element being auditor’s report containing the opinion on the
audited. For example, although the requirements single financial statement or on the specific
of PSA 570 are likely to be relevant in the element of a financial statement until satisfied
circumstances of an audit of a schedule of with the differentiation.
accounts receivable, complying with those  If the opinion in the auditor’s report on an
requirements may not be practicable because of entity’s complete set of financial statements is
the audit effort required. If the auditor concludes modified, or that report includes an Emphasis
that an audit of a single financial statement or of a of Matter paragraph or an Other Matter
specific element of a financial statement in paragraph, the auditor should determine the
accordance with PSAs may not be practicable, effect that this may have on the auditor’s
the auditor may discuss with management whether report on a single financial statement or on a
another type of engagement might be more specific element of those financial statements.
practicable. When deemed appropriate, the auditor
PSA 210 requires the auditor to determine the should modify the opinion on the single
acceptability of the financial reporting framework financial statement or on the specific element
applied in the preparation of the financial of a financial statement, or include an
statements. In the case of an audit of a single Emphasis of Matter paragraph or an Other
financial statement or of a specific element of a Matter paragraph in the auditor’s report,
financial statement, this should include whether accordingly.
application of the financial reporting framework will  If the auditor concludes that it is necessary to
result in a presentation that provides adequate express an adverse opinion or disclaim an
disclosures to enable the intended users to opinion on the entity’s complete set of
understand the information conveyed in the financial statements as a whole, PSA 705 does
financial statement or the element, and the effect not permit the auditor to include in the same

Prepared by: Mohammad Muariff S. Balang, CPA, First Semester, AY 2013-2014 Page|7 of 11
 auditor’s report an unmodified opinion on a
single financial statement that forms part of assessment of the risks of material misstatement of the
those financial statements or on a specific financial statement, whether due to fraud or error. In
element that forms part of those financial making those risk assessments, the auditor considers
statements. This is because such an internal control relevant to the entity’s preparation and
unmodified opinion would contradict the fair presentation of the financial statement in order to
adverse opinion or disclaimer of opinion on design audit procedures that are appropriate in the
the entity’s complete set of financial circumstances, but not for the purpose of expressing an
statements as a whole. opinion on the effectiveness of the entity’s internal
 If the auditor concludes that it is necessary to control.
express an adverse opinion or disclaim an An audit also includes evaluating the appropriateness
opinion on the entity’s complete set of of accounting policies used and the reasonableness of
financial statements as a whole but, in the accounting estimates, if any, made by management,
context of a separate audit of a specific as well as evaluating the overall presentation of the
element that is included in those financial financial statement.
statements, the auditor nevertheless considers We believe that the audit evidence we have obtained
it appropriate to express an unmodified is sufficient and appropriate to provide a basis for our
opinion on that element, the auditor should audit opinion.
only do so if:
a. The auditor is not prohibited by law or Opinion
regulation from doing so. In our opinion, the financial statement presents fairly, in
b. The report on specific element is not all material respects, the financial position of ABC
published together with the auditor’s Company as at December 31, 20X1 in accordance with
report on the complete set of financial those requirements of the Financial Reporting
statement. Framework in Jurisdiction X relevant to preparing such a
c. The specific element does not constitute financial statement.
a major portion of the entity’s complete
set of financial statements. [Auditor’s signature]
 The auditor should not express an unmodified
opinion on a single financial statement of a [Date of the auditor’s report]
complete set of financial statements if the
auditor has expressed an adverse opinion or [Auditor’s address]
disclaimed an opinion on the complete set of
financial statements as a whole. This is the
REPORTING ON SUMMARY FINANCIAL STATEMENTS (PSA 810)
case even if the auditor’s report on the single
The auditor may be requested to report on summary
financial statement is not published together
financial statements which highlight the entity’s financial
with the auditor’s report containing the
position and results of operations. Summary financial
adverse opinion or disclaimer of opinion. This is
statements refer to historical financial information that is
because a single financial statement is
derived from financial statements while still providing a
deemed to constitute a major portion of those
structured representation consistent with that provided by
financial statements.
the financial statements of the entity’s economic resources
or obligations at a point in time or the changes therein for a
A SAMPLE AUDIT REPORT ON A SINGLE FINANCIAL period of time.
STATEMENT Acceptance of the Engagement
Following a General Purpose Framework
The auditor should accept an engagement to report on
INDEPENDENT AUDITOR’S REPORT summary financial statements only when the auditor has
been engaged to conduct an audit in accordance with
[Appropriate Addressee] PSAs of the financial statements from which the summary
financial statements are derived.
We have audited the accompanying balance sheet of
ABC Company as at December 31, 20X1 and a Before accepting an engagement to report on summary
summary of significant accounting policies and other financial statements, the auditor should:
explanatory information. A. Determine whether the applied criteria are
acceptable.
Management’s Responsibility for the Financial Statement
B. Obtain the agreement of management that it
Management is responsible for the preparation and fair acknowledges and understands its responsibility:
presentation of this financial statement in accordance  For the preparation of the summary financial
with those requirements of the Financial Reporting statements in accordance with the applied
Framework in Jurisdiction X relevant to preparing such a criteria.
financial statement. This includes the design,  To make the audited financial statements
implementation and maintenance of internal control available to the intended users of the
relevant to the preparation and fair presentation of the summary financial statements without undue
financial statement that is free from material difficulty (or, if law or regulation provides that
misstatement, whether due to fraud or error. the audited financial statements need not be
Auditor’s Responsibility made available to the intended users of the
Our responsibility is to express an opinion on the summary financial statements and establishes
financial statement based on our audit. We conducted the criteria for the preparation of the summary
our audit in accordance with Philippine Standards on financial statements, to describe that law or
Auditing. Those standards require that we comply with regulation in the summary financial
ethical requirements and plan and perform the audit to statements).
obtain reasonable assurance about whether the  To include the auditor’s report on the
financial statement is free from material misstatement. summary financial statements in any
An audit involves performing procedures to obtain document that contains the summary
audit evidence about the amounts and disclosures in financial statements and that indicates that
the financial statement. The procedures selected the auditor has reported on them.
depend on the auditor’s judgment, including the C. Agree with management the form of opinion to be
assessment of the risks of material misstatement of the expressed on the summary financial statements.

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If the auditor concludes that the applied criteria are  Apply the procedures described above and
unacceptable or is unable to obtain the agreement of any further procedures necessary to enable
management on acknowledging its responsibility, the the auditor to express the prescribed opinion.
auditor should not accept the engagement to report on  Evaluate whether users of the summary
the summary financial statements, unless required by law or financial statements might misunderstand
regulation to do so. An engagement conducted in the auditor’s opinion on the summary
accordance with such law or regulation does not comply financial statements and, if so, whether
with PSA 810. additional explanation in the auditor’s report
Accordingly, the auditor’s report on the summary financial on the summary financial statements can
statements should not indicate that the engagement was mitigate possible misunderstanding.
conducted in accordance with PSA 810. The auditor should If, the auditor concludes that an additional
include appropriate reference to this fact in the terms of explanation in the auditor’s report on the summary
the engagement. The auditor should also determine the financial statements cannot mitigate possible
effect that this may have on the engagement to audit the misunderstanding, the auditor should not accept
financial statements from which the summary financial the engagement, unless required by law or
statements are derived. regulation to do so. An engagement conducted in
Nature of Procedures and Planning Considerations accordance with such law or regulation does not
comply with PSA 810. Accordingly, the auditor’s
The auditor should perform the following procedures, and report on the summary financial statements should
any other procedures that the auditor may consider not indicate that the engagement was conducted
necessary, as the basis for the auditor’s opinion on the in accordance with PSA 810.
summary financial statements:
C. The auditor’s report on the summary financial
A. Evaluate whether the summary financial statements
statements may be dated later than the date of
adequately disclose their summarized nature and
the auditor’s report on the audited financial
identify the audited financial statements.
statements. In such cases, the auditor’s report on
B. When summary financial statements are not the summary financial statements should state that
accompanied by the audited financial statements, the summary financial statements and audited
evaluate whether they describe clearly: financial statements do not reflect the effects of
 From whom or where the audited financial events that occurred subsequent to the date of the
statements are available. auditor’s report on the audited financial statements
 The law or regulation that specifies that the that may require adjustment of, or disclosure in, the
audited financial statements need not be audited financial statements.
made available to the intended users of the
D. The auditor may become aware of facts that
summary financial statements and establishes
existed at the date of the auditor’s report on the
the criteria for the preparation of the
audited financial statements, but of which the
summary financial statements.
auditor previously was unaware. In such cases, the
C. Evaluate whether the summary financial statements auditor should not issue the auditor’s report on the
adequately disclose the applied criteria. summary financial statements until the auditor’s
D. Compare the summary financial statements with consideration of such facts in relation to the
the related information in the audited financial audited financial statements in accordance with
statements to determine whether the summary PSA 560 has been completed.
financial statements agree with or can be E. The auditor’s report on summary financial
recalculated from the related information in the statements should include the following elements:
audited financial statements.  A title clearly indicating it as the report of an
E. Evaluate whether the summary financial statements independent auditor.
are prepared in accordance with the applied  An appropriate addressee.
criteria.  An introductory paragraph that:
F. Evaluate, in view of the purpose of the summary a. Identifies the summary financial
financial statements, whether the summary financial statements on which the auditor is
statements contain the information necessary, and reporting, including the title of each
are at an appropriate level of aggregation, so as statement included in the summary
not to be misleading in the circumstances. financial statements.
G. Evaluate whether the audited financial statements b. Identifies the audited financial
are available to the intended users of the summary statements.
financial statements without undue difficulty, unless c. Refers to the auditor’s report on the
law or regulation provides that they need not be audited financial statements, the date
made available and establishes the criteria for the of that report and the fact that an
preparation of the summary financial statements. unmodified opinion is expressed on the
Reporting Considerations audited financial statements.
d. If the date of the auditor’s report on the
A. When the auditor has concluded that an
summary financial statements is later
unmodified opinion on the summary financial
than the date of the auditor’s report on
statements is appropriate, the auditor’s opinion
the audited financial statements, states
should, unless otherwise required by law or
that the summary financial statements
regulation, use one of the following phrases:
and the audited financial statements
 The summary financial statements are
do not reflect the effects of events that
consistent, in all material respects, with the
occurred subsequent to the date of the
audited financial statements, in accordance
auditor’s report on the audited financial
with [the applied criteria].
statements.
 The summary financial statements are a fair
e. A statement indicating that the
summary of the audited financial statements,
summary financial statements do not
in accordance with [the applied criteria].
contain all the disclosures required by
B. If law or regulation prescribes the wording of the the financial reporting framework
opinion on summary financial statements in terms applied in the preparation of the
that are different from those described above, the audited financial statements, and that
auditor should: reading the summary financial

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 statements is not a substitute for reading
the audited financial statements. Opinion
 A description of management’s responsibility In our opinion, the summary financial statements
for the summary financial statements, derived from the audited financial statements of ABC
explaining that management is responsible for Company for the year ended December 31, 20X1 are
the preparation of the summary financial consistent, in all material respects, with those financial
statements in accordance with the applied statements, in accordance with [describe established
criteria. criteria].
 A statement that the auditor is responsible for
expressing an opinion on the summary [Auditor’s signature]
financial statements based on the procedures
required by PSA 810. [Date of the auditor’s report]
 A paragraph clearly expressing an opinion. [Auditor’s address]
 The auditor’s signature.
 The date of the auditor’s report.
 The auditor’s address. H. When the auditor’s report on the audited financial
F. If the addressee of the summary financial statements contains a qualified opinion, an
statements is not the same as the addressee of the Emphasis of Matter paragraph, or an Other Matter
auditor’s report on the audited financial statements, paragraph, but the auditor is satisfied that the
the auditor should evaluate the appropriateness of summary financial statements are consistent, in all
using a different addressee. material respects, with or are a fair summary of the
audited financial statements, in accordance with
G. The auditor should date the auditor’s report on the
the applied criteria, the auditor’s report on the
summary financial statements no earlier than:
summary financial statements should, in addition to
 The date on which the auditor has obtained
the elements enumerated in E above:
sufficient appropriate evidence on which to
 State that the auditor’s report on the audited
base the opinion, including evidence that
financial statements contains a qualified
the summary financial statements have been
opinion, an Emphasis of Matter paragraph, or
prepared and those with the recognized
an Other Matter paragraph.
authority have asserted that they have taken
responsibility for them.  Describe the basis for the qualified opinion
 The date of the auditor’s report on the on the audited financial statements, and
audited financial statements. that qualified opinion or the Emphasis of
Matter or the Other Matter paragraph in the
auditor’s report on the audited financial
A SAMPLE AUDIT REPORT ON SUMMARY FINANCIAL statements and the effect thereof on the
STATEMENTS summary financial statements, if any.
I. When the auditor’s report on the audited financial
REPORT OF THE INDEPENDENT AUDITOR ON THE SUMMARY statements contains an adverse opinion or a
FINANCIAL STATEMENTS disclaimer of opinion, the auditor’s report on the
summary financial statements should in addition to
[Appropriate Addressee] the elements enumerated in E above:
The accompanying summary financial statements,  State that the auditor’s report on the audited
which comprise the summary balance sheet as at financial statements contains an adverse
December 31, 20X1, the summary income statement, opinion or disclaimer of opinion.
summary statement of changes in equity and summary  Describe the basis for that adverse opinion or
cash flow statement for the year then ended, and disclaimer of opinion; and
related notes, are derived from the audited financial  State that, as a result of the adverse opinion
statements of ABC Company for the year ended or disclaimer of opinion, it is inappropriate to
December 31, 20X1. We expressed an unmodified audit express an opinion on the summary financial
opinion on those financial statements in our report statements.
dated February 15, 20X2. Those financial statements, J. If the summary financial statements are not
and the summary financial statements, do not reflect consistent, in all material respects, with or are not a
the effects of events that occurred subsequent to the fair summary of the audited financial statements, in
date of our report on those financial statements. accordance with the applied criteria, and
The summary financial statements do not contain all the management does not agree to make the
disclosures required by [describe financial reporting necessary changes, the auditor should express an
framework applied in the preparation of the audited adverse opinion on the summary financial
financial statements of ABC Company]. Reading the statements.
summary financial statements, therefore, is not a K. When distribution or use of the auditor’s report on
substitute for reading the audited financial statements the audited financial statements is restricted, or the
of ABC Company. auditor’s report on the audited financial statements
Management’s Responsibility for the Summary Financial alerts readers that the audited financial statements
Statements are prepared in accordance with a special
purpose framework, the auditor should include a
Management is responsible for the preparation of a similar restriction or alert in the auditor’s report on
summary of the audited financial statements in the summary financial statements.
accordance with [describe established criteria].
Other Considerations
Auditor’s Responsibility A. If the audited financial statements contain
Our responsibility is to express an opinion on the comparatives, but the summary financial
summary financial statements based on our statements do not, the auditor should determine
procedures, which were conducted in accordance whether such omission is reasonable in the
with Philippine Standard on Auditing (PSA) 810, circumstances of the engagement. The auditor
“Engagements to Report on Summary Financial should determine the effect of an unreasonable
Statements.” omission on the auditor’s report on the summary
financial statements.

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 B. If the summary financial statements contain should request management to include the
comparatives that were reported on by another auditor’s report in the document.
auditor, the auditor’s report on the summary B. If management does not do so, the auditor should
financial statements should also contain the determine and carry out other appropriate actions
matters that PSA 710 requires the auditor to include designed to prevent management from
in the auditor’s report on the audited financial inappropriately associating the auditor with the
statements. summary financial statements in that document.
C. The auditor should evaluate whether any C. The auditor may be engaged to report on the
unaudited supplementary information presented financial statements of an entity, while not
with the summary financial statements is clearly engaged to report on the summary financial
differentiated from the summary financial statements. If, in this case, the auditor becomes
statements. If the auditor concludes that the entity’s aware that the entity plans to make a statement in
presentation of the unaudited supplementary a document that refers to the auditor and the fact
information is not clearly differentiated from the that summary financial statements are derived
summary financial statements, the auditor should from the financial statements audited by the
ask management to change the presentation of auditor, the auditor should be satisfied that:
the unaudited supplementary information. If  The reference to the auditor is made in the
management refuses to do so, the auditor should context of the auditor’s report on the
explain in the auditor’s report on the summary audited financial statements.
financial statements that such information is not
 The statement does not give the impression
covered by that report.
that the auditor has reported on the
D. The auditor should read other information included summary financial statements.
in a document containing the summary financial
If the above are not met, the auditor should
statements and related auditor’s report to identify
request management to change the statement to
material inconsistencies, if any, with the summary
meet them, or not to refer to the auditor in the
financial statements. If, on reading the other
document.
information, the auditor identifies a material
inconsistency, the auditor should determine D. Alternatively, the entity may engage the auditor to
whether the summary financial statements or the report on the summary financial statements and
other information needs to be revised. If, on include the related auditor’s report in the
reading the other information, the auditor document. If management does not change the
becomes aware of an apparent material statement, delete the reference to the auditor, or
misstatement of fact, the auditor should discuss the include an auditor’s report on the summary
matter with management. financial statements in the document containing
the summary financial statements, the auditor
Auditor Association
should advise management that the auditor
A. If the auditor becomes aware that the entity plans disagrees with the reference to the auditor, and
to state that the auditor has reported on summary the auditor should determine and carry out other
financial statements in a document containing the appropriate actions designed to prevent
summary financial statements, but does not plan to management from inappropriately referring to the
include the related auditor’s report, the auditor auditor.

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