REPORTS ON AUDITED

FINANCIAL
STATEMENTS

MODULE 9
INTRODUCTION

PSA 700 (Revised), Forming an Opinion and

Reporting on Financial Statements, states that the
objectives of the auditor are to form an opinion on
the financial statements based on an evaluation of
the conclusions drawn from the audit evidence
obtained; and express clearly that opinion through a
written report that also describes the basis for the
opinion.
There are two forms of audit opinion: unmodified
opinion and modified opinion. The modified opinion
will be either Qualified Opinion, Adverse Opinion, or
Disclaimer Opinion.
BASIC ELEMENTS OF AN
AUDITOR’S REPORT

PSA 700 requires that the auditor’s report shall be in writing.

A written report encompasses reports issued in hard copy
and those using an electronic medium.
1. TITLE
The auditor’s report shall use the title “INDEPENDENT
AUDITOR’S REPORT” because it will clearly indicates
that it is the report of an auditor who has met all of
the relevant ethical requirements regarding
independence and, therefore, distinguishes the
independent auditor’s report from reports issued by
others.
BASIC ELEMENTS OF AN
AUDITOR’S REPORT

2. ADDRESSEE
The auditor’s report is normally addressed to those for
whom the report is prepared, often either to the
shareholders or to those charged with governance of
the entity whose financial statements are being audited.
BASIC ELEMENTS OF AN
AUDITOR’S REPORT

3. OPINION – The first paragraph in the opinion section in the

auditor’s report shall:
a. Identify the entity whose financial statements have been
audited;
b. State that the financial statements have been audited;
c. Identify the title of each statement that comprises the
financial statements;
d. Refer to the summary of significant accounting policies
and other explanatory information; and
e. Specify the date or period covered by each financial
statement comprising the financial statements.
BASIC ELEMENTS OF AN
AUDITOR’S REPORT

3. OPINION – The second paragraph in the opinion section

is the “auditor’s opinion.”
When expressing an unmodified opinion on financial
statements prepared in accordance with a fair
presentation framework, the auditor’s opinion shall,
unless otherwise required by law or regulation, use the
following phrase:
The financial statements present fairly, in all material
respects, … in accordance with [the applicable
financial reporting framework].
The phrases “present fairly, in all material respects,” and
“give a true and fair view” are regarded as being
equivalent.
BASIC ELEMENTS OF AN
AUDITOR’S REPORT

4. BASIS FOR OPINION – The auditor’s report shall include a

section, directly following the Opinion section, with the
heading “Basis for Opinion”, that:
States that the audit was conducted in accordance with
Philippine Standards on Auditing;
Refers to the section of the auditor’s report that
describes the auditor’s responsibilities under the PSAs;
BASIC ELEMENTS OF AN
AUDITOR’S REPORT

Includes a statement that the auditor is independent of the

entity in accordance with the relevant ethical requirements
relating to the audit, and has fulfilled the auditor’s other
ethical responsibilities in accordance with these
requirements. The statement shall identify the jurisdiction of
origin of the relevant ethical requirements [Code of Ethics for
Professional Accountants in the Philippines (Philippine Code
of Ethics)] or refer to the International Ethics Standards Board
for Accountants’ Code of Ethics for Professional Accountants
IESBA Code); and
(d) States whether the auditor believes that the audit
evidence the auditor has obtained is sufficient and
appropriate to provide a basis for the auditor’s opinion.
BASIC ELEMENTS OF AN
AUDITOR’S REPORT

5. GOING CONCERN – Where applicable, the auditor shall

report in accordance with PSA 570 (Revised).
6. KEY AUDIT MATTERS. For audits of complete sets of
general purpose financial statements of listed entities, the
auditor shall communicate key audit matters in the
auditor’s report in accordance with PSA 701.
BASIC ELEMENTS OF AN
AUDITOR’S REPORT

7. RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS –

The auditor’s report shall include a section with a heading
“Responsibilities of Management for the Financial
Statements.”
o The auditor’s report shall use the term that is
appropriate in the context of the legal framework in the
particular jurisdiction and need not refer specifically to
“management”. In some jurisdictions, the appropriate
reference may be to those charged with governance.
BASIC ELEMENTS OF AN
AUDITOR’S REPORT

8. AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE

FINANCIAL STATEMENTS – This section of the auditor’s
report in its first paragraph shall:
a. State that the objectives of the auditor are to:
i. Obtain reasonable assurance about whether the
financial statements as a whole are free from
material misstatement, whether due to fraud or
error; and
ii. Issue an auditor’s report that includes the auditor’s
opinion.
BASIC ELEMENTS OF AN
AUDITOR’S REPORT

b. State that reasonable assurance is a high level of

assurance, but is not a guarantee that an audit
conducted in accordance with PSAs will always detect
a material misstatement when it exists; and
c. State that misstatements can arise from fraud or error,
and either:
i. Describe that they are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements; or
ii. Provide a definition or description of materiality in accordance with
the applicable financial reporting framework.
Location of the description of the auditor’s responsibilities for
the audit of the financial statements
a. Within the body of the auditor’s report;
b. Within an appendix to the auditor’s report, in which case the
auditor’s report shall include a reference to the location of the
appendix; or
c. By a specific reference within the auditor’s report to the location
of such a description on a website of an appropriate authority,
where law, regulation or national auditing standards expressly
permit the auditor to do so.
BASIC ELEMENTS OF AN
AUDITOR’S REPORT

9. OTHER REPORTING RESPONSIBILITIES – If the auditor

addresses other reporting responsibilities in the auditor’s
report on the financial statements that are in addition to
the auditor’s responsibilities under the PSAs, these other
reporting responsibilities shall be addressed in a separate
section in the auditor’s report with a heading titled “Report
on Other Legal and Regulatory Requirements”
BASIC ELEMENTS OF AN
AUDITOR’S REPORT

10. NAME OF ENGAGEMENT PARTNER – The name of the

engagement partner shall be included in the auditor’s
report for audits of complete sets of general purpose
financial statements of listed entities unless, in rare
circumstances, such disclosure is reasonably expected to
lead to a significant personal security threat.
intended to provide further transparency to the users of
the auditor’s report of a complete set of general
purpose financial statements of a listed entity.
BASIC ELEMENTS OF AN
AUDITOR’S REPORT

11. SIGNATURE OF THE AUDITOR – The auditor’s signature is

either in the name of the audit firm, the personal name of
the auditor or both, as appropriate for the particular
jurisdiction. In addition to the auditor’s signature, in
certain jurisdictions, the auditor may be required to
declare in the auditor’s report the auditor’s professional
accountancy designation or the fact that the auditor or
firm, as appropriate, has been recognized by the
appropriate licensing authority in that jurisdiction.
In some cases, law or regulation may allow for the use
of electronic signatures in the auditor’s report.
BASIC ELEMENTS OF AN
AUDITOR’S REPORT

12. AUDITOR’S ADDRESS – The auditor’s report shall name

the location in the jurisdiction where the auditor practices.
13. DATE OF THE AUDITOR’S REPORT – The auditor’s report
shall be dated no earlier than the date on which the
auditor has obtained sufficient appropriate audit evidence
on which to base the auditor’s opinion on the financial
statements.
Key Audit Matters

Philippine Standard on Auditing (PSA) 701 deals with the

auditor’s responsibility to communicate key audit matters
in the auditor’s report.
It is intended to address both the auditor’s judgment as to
what to communicate in the auditor’s report and the form
and content of such communication. The purpose of
communicating key audit matters is to enhance the
communicative value of the auditor’s report by providing
greater transparency about the audit that was performed.
Key Audit Matters

Key audit matters are those matters that, in the auditor’s

professional judgment, were of most significance in the
audit of the financial statements of the current period. Key
audit matters are selected from matters communicated
with those charged with governance.
Key Audit Matters

Communicating Key Audit Matters

The auditor shall describe each key audit matter, using an
appropriate subheading, in a separate section of the
auditor’s report under the heading “Key Audit Matters.”
Key Audit Matters Not a Substitute for Expressing a Modified
Opinion
The auditor shall not communicate a matter in the Key
Audit Matters section of the auditor’s report when the
auditor would be required to modify the opinion in
accordance with PSA 705 as result of the matter.
Key Audit Matters

Descriptions of Individual Key Audit Matters

The description of each key audit matter in the Key Audit
Matters section of the auditor’s report shall include a
reference to the related disclosure(s), if any, in the financial
statements and shall address:
a. Why the matter was considered to be one of most
significance in the audit and therefore determined to be
a key audit matter; and
b. How the matter was addressed in the audit.
Key Audit Matters

Circumstances in Which a Matter Determined to Be a Key

Audit Matter Is Not Communicated in the Auditor’s Report
The auditor shall describe each key audit matter in the
auditor’s report unless:
a. Law or regulation precludes public disclosure about the matter; or
b. In extremely rare circumstances, the auditor determines that the
matter should not be communicated in the auditor’s report because
the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such
communication. This shall not apply if the entity has publicly
disclosed information about the matter.
Forms of Audit Opinion

UNMODIFIED OPINION
Unmodified opinion is expressed when the auditor
concludes that the financial statements are prepared, in all
material respects, in accordance with the applicable
financial reporting framework (e.g. PFRS). It also implies
the auditor’s adherence to generally accepted auditing
standards in the conduct of audit.
Forms of Audit Opinion

MODIFIED OPINION
PSA 705 (Revised), Modifications to the Opinion in the
Independent Auditor's Report, states that the auditor shall
modify the opinion in the auditor’s report when:
a. the auditor concludes that, based on the audit evidence
obtained, the financial statements as a whole are not
free from material misstatement; or
b. the auditor is unable to obtain sufficient appropriate
audit evidence to conclude that the financial
statements as a whole are free from material
misstatement.
Forms of Audit Opinion

TYPES OF MODIFIED OPINION

PSA 705 (Revised), Modifications to the Opinion in the
Independent Auditor's Report, states that the auditor shall
modify the opinion in the auditor’s report when:
a. the auditor concludes that, based on the audit evidence
obtained, the financial statements as a whole are not
free from material misstatement; or
b. the auditor is unable to obtain sufficient appropriate
audit evidence to conclude that the financial
statements as a whole are free from material
misstatement.
 Modified Opinion

Auditor’s judgment about pervasiveness of the

effects or possible effects on the financial
Nature of matter giving statements
rise to modification
Material but not Material and
pervasive Pervasive
Financial statements are
materially misstated Qualified Adverse

Inability to obtain
sufficient appropriate Qualified Disclaimer of Opinion
audit evidence
Form and Content of the Auditor’s Report When the Opinion Is
Modified
1. Auditor’s Opinion
When the auditor modifies the audit opinion, the auditor
shall use the heading “Qualified Opinion,” “Adverse
Opinion,” or “Disclaimer of Opinion,” as appropriate, for
the Opinion section.
2. Basis for Opinion
When the auditor modifies the opinion on the financial
statements, the auditor shall, in addition to the specific
elements required by PSA 700 (Revised):
a. Amend the heading “Basis for Opinion” to “Basis for
Qualified Opinion,” “Basis for Adverse Opinion,” or “Basis
for Disclaimer of Opinion,” as appropriate; and
b. Within this section, include a description of the matter
giving rise to the modification.
3. Description of Auditor’s Responsibilities for the Audit of
the Financial Statements When the Auditor Disclaims an
Opinion on the Financial Statements
When the auditor disclaims an opinion on the financial
statements due to an inability to obtain sufficient
appropriate audit evidence, the auditor shall amend the
description of the auditor’s responsibilities required by
PSA 700 (Revised) to include only the following:
a. A statement that the auditor’s responsibility is to
conduct an audit of the entity’s financial
statements in accordance with Philippine
Standards on Auditing and to issue an auditor’s
report;
b. A statement in the Opinion section, that the auditor
was not able to obtain sufficient appropriate audit
evidence to provide a basis for an audit opinion on
the financial statements; and
c. The statement about auditor independence and
other ethical responsibilities required by PSA 700
(Revised).
4. Considerations When the Auditor Disclaims an Opinion on
the Financial Statements
Unless required by law or regulation, when the auditor
disclaims an opinion on the financial statements, the
auditor’s report shall not include a Key Audit Matters
section in accordance with PSA 701.
5. Other Considerations Relating to an Adverse Opinion or
Disclaimer of Opinion
When the auditor considers it necessary to express an
adverse opinion or disclaim an opinion on the financial
statements as a whole, the auditor’s report shall not
also include an unmodified opinion with respect to the
same financial reporting framework on a single
financial statement or one or more specific elements,
accounts or items of a financial statement.
GOING CONCERN:
Implications for the Auditor’s Report

Use of Going Concern Basis of Accounting Is Inappropriate

PSA 570 states that if the financial statements have been
prepared using the going concern basis of accounting but,
in the auditor’s judgment, management’s use of the going
concern basis of accounting in the preparation of the
financial statements is inappropriate, the auditor shall
express an ADVERSE OPINION.
GOING CONCERN:
Implications for the Auditor’s Report

Use of Going Concern Basis of Accounting Is Appropriate but

a Material Uncertainty Exists
Adequate Disclosure of a Material Uncertainty Is Made in
the Financial Statements
The auditor shall express an unmodified opinion and the auditor’s report
shall include a separate section under the heading “Material Uncertainty
Related to Going Concern” to:
a. Draw attention to the note in the financial statements; and
b. State that these events or conditions indicate that a material
uncertainty exists that may cast significant doubt on the entity’s
ability to continue as a going concern and that the auditor’s opinion
is not modified in respect of the matter.
GOING CONCERN:
Implications for the Auditor’s Report

Use of Going Concern Basis of Accounting Is Appropriate but

a Material Uncertainty Exists
Adequate Disclosure of a Material Uncertainty Is Not Made
in the Financial Statements
The auditor shall:
a. Express a qualified opinion or adverse opinion, as appropriate, in
accordance with PSA 705; and
b. In the Basis for Qualified (Adverse) Opinion section of the
auditor’s report, state that a material uncertainty exists that may
cast significant doubt on the entity’s ability to continue as a
going concern and that the financial statements do not
adequately disclose this matter.
Audits of Group of Financial
Statements

PSA 600 deals with special considerations that apply to

group audits, in particular those that involve component
auditors.
a. To determine whether to act as the auditor of the group financial
statements;
b. To communicate clearly with component auditors about the scope and
timing of their work on financial information related to components and
their findings; and
c. To obtain sufficient appropriate audit evidence about the financial
information of the components and the consolidation process to express
an opinion whether the group financial statements are prepared, in all
material respects, in accordance with the applicable financial reporting
framework.
Audits of Group of Financial
Statements

RESPONSIBILITY
The auditor’s report on the group financial statements shall
not refer to a component auditor, unless required by law or
regulation to include such reference. If such reference is
required by law or regulation, the auditor’s report shall
indicate that the reference does not diminish the group
engagement partner’s or the group engagement partner’s
firm’s responsibility for the group audit opinion.
Audits of Group of Financial
Statements

ACCEPTANCE AND CONTINUANCE

In applying PSA 220, the group engagement partner shall determine
whether sufficient appropriate audit evidence can reasonably be
expected to be obtained in relation to the consolidation process and
the financial information of the components on which to base the
group audit opinion.
For this purpose, the group engagement team shall obtain an
understanding of the group, its components, and their environments
that is sufficient to identify components that are likely to be
significant components.
Audits of Group of Financial
Statements

UNDERSTANDING THE COMPONENT AUDITORS

When the group engagement team plans to request a component
auditor to perform work on the financial information of a component,
the group engagement team shall obtain an understanding of the
following:
a. Whether the component auditor understands and will comply with the
ethical requirements that are relevant to the group audit and, in particular,
is independent;
b. The component auditor’s professional competence;
c. Whether the group engagement team will be able to be involved in the
work of the component auditor to the extent necessary to obtain sufficient
appropriate audit evidence; and
d. Whether the component auditor operates in a regulatory environment that
actively oversees auditors.
Audits of Group of Financial
Statements

COMMUNICATION WITH THE COMPONENT AUDITOR

The group engagement team shall communicate its
requirements to the component auditor on a timely basis.
This communication shall set out the work to be performed,
the use to be made of that work, and the form and content
of the component auditor’s communication with the group
engagement team.
Audits of Group of Financial
Statements

EVALUATING THE SUFFICIENCY AND APPROPRIATENESS OF

AUDIT EVIDENCE OBTAINED
If the group engagement team concludes that the work of
the component auditor is insufficient, the group
engagement team shall determine what additional
procedures are to be performed, and whether they are to be
performed by the component auditor or by the group
engagement team.
Using the Work of an Auditor’s
Expert

PSA 620 deals with the auditor’s responsibilities relating to

the work of an individual or organization in a field of
expertise other than accounting or auditing, when that
work is used to assist the auditor in obtaining sufficient
appropriate audit evidence.
Auditor’s expert is an individual or organization possessing
expertise in a field other than accounting or auditing,
whose work in that field is used by the auditor to assist the
auditor in obtaining sufficient appropriate audit evidence.
Using the Work of an Auditor’s
Expert

The auditor shall not refer to the work of an auditor’s expert in

an auditor’s report containing an unmodified opinion unless
required by law or regulation to do so. If such reference is
required by law or regulation, the auditor shall indicate in the
auditor’s report that the reference does not reduce the
auditor’s responsibility for the auditor’s opinion.
If the auditor makes reference to the work of an auditor’s
expert in the auditor’s report because such reference is
relevant to an understanding of a modification to the auditor’s
opinion, the auditor shall indicate in the auditor’s report that
such reference does not reduce the auditor’s responsibility for
that opinion.
Report on Comparatives

PSA 710 (Redrafted) Comparative Information-Corresponding

Figures and Comparative Financial Statements, defines
comparative information as the amounts and disclosures
included in the financial statements in respect of one or more
prior periods in accordance with the applicable financial
reporting framework.
There are two different broad approaches to the auditor’s
reporting responsibilities in respect of such comparative
information: corresponding figures and comparative financial
statements. The approach to be adopted is often specified by
law or regulation but may also be specified in the terms of
engagement.
Report on Comparatives

Corresponding figures are comparative information where

amounts and other disclosures for the prior period are
included as an integral part of the current period financial
statements, and are intended to be read only in relation to
the amounts and other disclosures relating to the current
period (referred to as “current period figures”). The level of
detail presented in the corresponding amounts and
disclosures is dictated primarily by its relevance to the
current period figures.
Report on Comparatives

Comparative financial statements are comparative

information where amounts and other disclosures for the
prior period are included for comparison with the financial
statements of the current period but, if audited, are referred
to in the auditor’s opinion. The level of information
included in those comparative financial statements is
comparable with that of the financial statements of the
current period.
Report on Comparatives

The essential audit reporting differences between the

approaches are:
a. For corresponding figures, the auditor’s opinion on the
financial statements refers to the current period only;
whereas
b. For comparative financial statements, the auditor’s
opinion refers to each period for which financial
statements are presented.
Other Reporting Considerations

PSA 720 (Revised) The Auditor’s Responsibilities Relating

to Other Information deals with the auditor’s
responsibilities relating to other information, whether
financial or non-financial information (other than financial
statements and the auditor’s report thereon), included in an
entity’s annual report.
Other Reporting Considerations

Annual report is a document, or combination of documents, prepared

typically on an annual basis by management or those charged with
governance in accordance with law, regulation or custom, the
purpose of which is to provide owners (or similar stakeholders) with
information on the entity’s operations and the entity’s financial results
and financial position as set out in the financial statements.
An annual report contains or accompanies the financial statements
and the auditor’s report thereon and usually includes information
about the entity’s developments, its future outlook and risks and
uncertainties, a statement by the entity’s governing body, and reports
covering governance matters.
Other Reporting Considerations

Responding When a Material Inconsistency Appears to Exist

or Other Information Appears to Be Materially Misstated
If the auditor identifies that a material inconsistency
appears to exist (or becomes aware that the other
information appears to be materially misstated), the auditor
shall discuss the matter with management and, if
necessary, perform other procedures.
Other Reporting Considerations

Responding When the Auditor Concludes That a Material

Misstatement of the Other Information Exists
If the auditor concludes that a material misstatement of
the other information exists, the auditor shall request
management to correct the other information.
Other Reporting Considerations

Responding When a Material Misstatement in the Financial

Statements Exists or the Auditor’s Understanding of the Entity
and Its Environment Needs to Be Updated
If the auditor concludes that a material misstatement in the
financial statements exists or the auditor’s understanding
of the entity and its environment needs to be updated, the
auditor shall respond appropriately in accordance with the
other PSAs.
Securities and Exchange Commission,
Securities Regulation Code (SRC) Rule 68,
As Amended

SRC Rule is the implementing rules and regulations (IRR) of

Republic Act No. 8799 otherwise known as the Securities
Regulation Code of 2000. SRC Rule 68 is the IRR that specifically
deals with the financial reporting requirements of entities
registered with the SEC.
The Rule is consists of Part I – General Financial Reporting
Requirements and Part II – Additional Requirements for Issuers
of Securities to the Public. The Rule is effective for audited
financial statements covering periods ending ended December
31, 2011 and onwards, and for interim financial statements
starting the first quarter of 2012, and thereafter.