CHAPTER 11: The Auditor’s Report on Financial Statements

AUDITORS REPORT ON FINANCIAL Responsibility of Auditor

STATEMENTS
 to clearly express the auditor's opinion on the
I. Unmodified Report FSs
II. Modifications to the Opinion  to evaluate if the FSs, as a whole, are free from
III. Emphasis of Matter and Other Matter material misstatement
Paragraphs  to form judgment about:
IV. Key Audit Matters and Other Information 1. consistency of chosen accounting policies
V. Report on Group FSs with the financial reporting framework and
VI. Special Purpose FSs appropriate for the situation
2. reasonableness of management’s
 audit’s objective accounting estimates
 to express an opinion on whether the 3. relevance, reliability, comparability and
financial statements comply with the understandability information presented in
applicable financial reporting framework FSs
 responsibility of management 4. sufficiency of disclosures to inform users
 preparing financial statements and including the impact of material transactions and
a description of the applicable framework events
 financial reporting framework
I. THE UNMODIFIED REPORT
 basis for evaluating the fair presentation of
the FSs  an auditor’s opinion on the fair presentation of
FSs
Preparation of General Purpose Financial
 most common report
Statements
 FS are fairly presented
Two Types of Financial Reporting Framework  based on the auditor’s evaluation of the audit
evidence
1. compliance framework
 uniform wording in the auditor’s report
 requires compliance with the
 to require audits conducted under PSAs
requirements of the framework
 to standardize the report's format
 does NOT contain the
 to enhance credibility and improves reader
acknowledgements below
understanding
2. fair presentation framework
 to help alert readers when modified opinions
 requires compliance with the
are issued
requirements of the framework
ACKNOWLEDGEMENTS: Basic Elements of the Unmodified Report
 to provide additional disclosures
beyond the framework's
requirements for fair presentation
 to deviate from the framework's
requirements to ensure fair
presentation
INCLUDES:
1. Philippine Financial Reporting
Standards (PFRS)
2. PFRS for Small and Medium Sized
Entities (SMEs)
3. PFRS for Small Entities (SES)
1. Title 5. Responsibilities for the Financial Statements

 report of an independent auditor  to emphasize the responsibility of the client to

 purpose: FSs
1. to distinguish the auditor's report from INCLUDES:
reports that the might be issued by others  a section titled "Responsibilities of
2. to emphasize the independence of the Management and Those Charged with
auditor with respect to the client being Governance for the Financial Statements"
audited  to describe:
a. management's responsibility for the
2. Addressee
 preparation and fair presentation of
 to address the report to the: the financial statements
a. shareholders - emphasizes the auditor’s  establishment and maintenance of
independence from management internal controls to prevent material
b. board of directors – inappropriate: report misstatement
to members of management since they  assessment of the entity's ability to
prepare FSs continue as a going concern
 required by Philippine SEC: to include the  determination whether the going
client’s complete mailing address if filed with concern basis of accounting is
regulatory agencies appropriate, including disclosing
relevant concerns
3. Auditor's Opinion
b. responsibility of those charged with
 interest of readers of FSs governance for overseeing the financial
 placed in the first section of report reporting process
 with heading "Opinion" 6. Auditor's Responsibilities for the Audit of the
INCLUDES: Financial Statements
 name of the entity whose FSs have been
audited  to allow readers to understand the audit's
 financial statements have been audited objectives and the auditor's level of
 title of each of FSs audited including the responsibility
date and period covered  INCLUDES:
 summary of significant accounting  a section titled "Auditor's Responsibilities
policies and explanatory notes for the Audit of the Financial
 an opinion on the FSs stating that Statements”
 should:
"In our opinion, the accompanying financial
statements present fairly, in all material respects, a. State that the objectives of the auditor are to:
[...] in accordance with [the applicable financial  Obtain reasonable assurance about
reporting framework].
whether the FSs as a whole are free from
4. Basis for Opinion ALL material misstatement
 Issue a report with auditor's opinion
 to describes the framework for an audit
 to enable the auditor to express an opinion on b. State that reasonable assurance is a high level
the financial statements. of assurance, no guarantee of detection all
INCLUDES: material misstatement
 audit followed PSAs c. State that misstatement can arise from fraud
 description of the auditor's and error, and
responsibilities under the PSAs
 statement of auditor’s independence and  material that could influence users'
adherence to ethical responsibilities economic decisions
 statement of sufficient and appropriate  definition or description of materiality as
audit evidence to support the opinion per applicable financial reporting framework
d. State the exercise of professional judgment 8. Auditor's signature
and maintains professional skepticism
 signed in the name of the audit firm and/or the
e. State the auditor's responsibilities are: auditor's personal name as appropriate
 signed by the partner's personal name
 To identify and assess the risks of material
 requirement of SEC when FSs submitted to
misstatement of the FSs
regulatory bodies
 To understand internal control to design
appropriate audit procedures 9. Auditor's address
 To evaluate the appropriateness of the
accounting policies used and the  name the location in the jurisdiction where the
reasonableness of the accounting estimates auditor maintains his office
and related disclosures; 10. Date of the report
 To conclude on the appropriateness of
management's use of the going concern  marks when the auditor's responsibility for
basis of accounting, and subsequent events ends
 To evaluate the fair presentation of the FSs  to indicate the:
 To present auditor’s responsibilities:  consideration of the effects of subsequent
1. within the body of the auditor's report events on the FSs until this date
2. within an appendix to the auditor's report  completion of all necessary audit
OR procedures to support their opinion
3. by a specific reference to the location of
NOT REQUISITE: to perform any procedures after
such a description on the website of a
the report date
regulatory body like the Board of
Accountancy NOTE: The auditor's report cannot be dated earlier
than the approval date of the financial statements.
f. State that the auditor communicates with those
charged with governance the: REASON: The auditor cannot determine that they
have sufficient evidence until management has
 planned scope and timing of the audit
prepared the financial statements and accepted
 significant audit findings responsibility for them.
 any significant deficiencies in internal
control USUALLY: The approval date of FSs as the date of
their audit report
7. Other Reporting Responsibilities
II. MODIFICATIONS TO THE OPINION
 to report on matters beyond the FSs under PSA
EXAMPLE: supplementary information to meet  unmodified opinion
Bureau of Internal Revenue requirements  issued only when the auditor is satisfied that
INCLUDES: 1. FS: in accordance with the applicable
 a section titled "Report on the Audit of the financial reporting framework
Financial Statement" 2. audit: in accordance with PSA
 auditors should NOTE: Failure to meet any requirements will lead
 inquire how management prepared the to modify opinion on the FSs
supplementary information
 ensure the supplementary information is Material Misstatement/ Departure from PFRS
consistent with the financial statements and
PRESUMPTION: fair presentation of financial
the auditor’s knowledge of the entity
statements, when complied
 consider if a client representation letter is
needed regarding the supplementary EXPN: Departures from the framework's specific
information requirements result in material misstatements in the
FSs.
Causes of Material Misstatement Circumstance Imposed Scope Limitation
1. Inappropriate accounting policy selected REASONS:
2. Misapplication of selected accounting policy 1. nature or timing of the auditor's work,
3. Inappropriate or inadequate disclosure EXAMPLE: the auditor is appointed after
the client’s fiscal year has ended
Responsibility of Auditor
2. circumstances beyond entity’s control
 to inform the client about any material EXAMPLE: client's accounting records are
misstatements and to insist on revising the FSs not adequate.
 if no revision, issue either a qualified or adverse Failure to Perform Audit Procedures
opinion
 depends on the materiality and  to design and perform alternative procedures to
pervasiveness of the misstatements' effects gather sufficient evidence for FS assertions
on the financial statements CASE 01: alternative procedures provide
sufficient appropriate evidence
Scope Limitation  not a scope limitation
 causes: CASE 02: no alternative procedures can be
1. when the auditor cannot perform required performed or cannot provide enough evidence
audit procedures as per PSA  issue either a qualified opinion or a
2. restrictions imposed by management or disclaimer
limitations due to specific circumstances Materiality and Pervasiveness Consideration
 result: unable to obtain sufficient appropriate
evidence about an assertion  to determine the appropriate audit opinion
1. Qualified Opinion
Client Imposed Scope Limitation
 misstatement is significant but does not
 restriction by the management overshadow the FSs’ overall fair
EXAMPLE: confirming receivable balances with presentation
customers 2. Adverse Opinion
 request to remove if this limitation will affect  the misstatement is highly material and
opinion on FSs making the FSs materially misleading
 refuse to remove: EXAMPLE: An inventory error can have a
 communicate the issue to those charged pervasive effect because it impacts various items
with governance like cost of sales, gross profit, income tax, net
 explore the possibility of performing income, assets, liabilities, and equity.
alternative procedures to obtain sufficient
appropriate evidence MODIFICATION OF THE AUDITOR'S REPORT

Failure to Obtain Sufficient Appropriate  consistency in the auditor’s report

Evidence  enhances users' understanding and alerts
them to unusual circumstances
 effect: material, NOT pervasive  uniform wording may not always be possible
 issue a qualified opinion for modified opinions
 effect: material, AND pervasive
Material Disclaimer of
1. resign from the engagement, OR Misstatement Opinion
 depend on the engagement's Qualified Adverse Qualified Adverse
Opinion Section Modified Modified Modified Modified
completion stage when the scope Basis for Modified Modified Modified Modified
limitation is imposed Opinion Section
 to finish the audit when nearly complete Responsibilities
for the FS
Not
modified
Not
modified
Not
modified
Not
modified
 to issue a disclaimer of opinion and Section
Auditor’s Not Not Modified Modified
explain the scope limitation in the report responsibilities modified modified
before resigning Section
2. issue a disclaimer of opinion
Opinion Section Material Misstatement (Qualified or Adverse
Opinion)
Qualified Opinion Due to Material Misstatement
 misstatement: specific amounts or quantitative
 heading: “Qualified Opinion"
disclosure
 statement of opinion:
 include in the "Basis for Opinion" section:
 fair presentation of FSs in all material
 a description of the nature of misstatements
aspects as per applicable reporting
 a quantification of the financial effects of the
framework
misstatement or a disclosure of omitted
EXPN: effects of the issue described in the
information, if practicable
"Basis for Qualified Opinion" section
Omission of Narrative Disclosure (Qualified or
Qualified Opinion Due to Scope Limitation
Adverse Opinion)
 heading: “Qualified Opinion"
 misstatement: non-disclosure of information
 statement of opinion:
 auditor should:
 fair presentation of FSs in all material
 discuss the non- disclosure with those
aspects as per applicable reporting
charged with governance
framework
 describe the nature of the omitted
EXPN: effects of the issue described in the
information in the Basis for Opinion section
"Basis for Qualified Opinion" section
of the report
Adverse Opinion  include the omitted information, if
practicable
 due to material misleading  Basis for Opinion section
 heading: "Adverse Opinion"
 amend the last section
 outlined: Basis for Adverse section
 indicate the audit evidence obtained is
 statement of opinion: sufficient and appropriate that supports a
 the FSs do not fairly present the entity's "qualified" or "adverse" opinion as
financial position and performance as per applicable
the applicable reporting framework
Scope Limitation (Qualified or Disclaimer of
Disclaimer of Opinion Opinion)
 heading: "Disclaimer of Opinion"  Basis for Opinion section
 outlined: Basis for Disclaimer of Opinion  explain the reason for the inability to
section obtain sufficient appropriate audit
 statement of opinion: evidence
 no expression of opinion on FSs  in a disclaimer of opinion, OMIT the
 lack of audit evidence elements that
 amend opening statement  makes reference to the auditor's
o indicate the auditor was engaged to responsibility
audit the financial statements, rather The auditor could not fulfill their responsibilities due to the
inability to obtain sufficient evidence, and it also signals to the
than have audited the FSs users that the normal audit processes were not fully completed.
 audit evidence obtained is sufficient and
BASIS FOR OPINION
appropriate to provide a basis for the
 auditor’s report auditor's opinion
 provide a description of the issue that led to
AUDITOR'S RESPONSIBILITIES
the modification of the opinion on the FSs
 use appropriate headings:  qualified or an adverse opinion
o "Basis for Qualified Opinion"  the Auditor's Responsibilities section will not
o "Basis for Adverse Opinion" be modified
o "Basis for Disclaimer of Opinion"
 disclaimer of an opinion  adequate disclosures and no-other issues
 the Auditor's Responsibilities section should involved
be modified to include ONLY the following  issue an unmodified opinion
statements:
Going Concern Appropriate - Material
1. auditor’s responsibility
Uncertainty Exists
 to conduct an audit
 to issue an auditor's report  material uncertainty
2. inability to obtain evidence  arises when the going concern issue
3. independence and fulfilment of ethical significantly impacts the FSs, requiring clear
responsibilities disclosures
PIECEMEAL OPINION  going concern basis of accounting:
appropriate and a material uncertainty exists
 an unmodified opinion on one or more  opinion type and report depend on the
components of the FSs adequacy of disclosures in the financial
 an adverse or disclaimer of opinion on the FSs statements' notes
taken as a whole. a. sufficient disclosure
 PROHIBITED: contradict or overshadow the  issue an unmodified opinion with a
overall adverse or disclaimer opinion on FSs separate section "Material
Uncertainty Related to Going
GOING CONCERN
Concern" that
GEN RULE: Going concern is assumed unless  highlights the relevant note in the
explicitly otherwise. financial statements
 indicates the existence of
Responsibility of Auditor material uncertainty affecting the
 to consider management's use of the going entity's ability to continue as a
concern basis when planning and performing going concern, while confirming
audit procedures the opinion is unmodified
 to evaluate any material uncertainties about the b. insufficient disclosure
entity's ability to continue as going concern to  issue qualified or adverse opinion
be disclosed  state the reason for the modification
in the "Basis for Qualified or
Going Concern Assumption is Appropriate and Adverse Opinion" section
No Material Uncertainty Exists  to evaluate whether the FSs:
Responsibility of Management  describe the key conditions and events
causing significant doubt, along with
 to mitigate any potential issues arise related to management's plans to address them.
going concern  indicate the material uncertainty regarding
the entity's ability to continue as a going
Responsibility of Auditor
concern and its potential inability to realize
 to evaluate whether the FSs contain adequate assets or meet liabilities
disclosures about the:
Going Concern Assumption Inappropriate
1. principal events or conditions identified;
2. management's evaluation of the  FSs shall not be prepared
significance of those events of conditions in  alternative basis used for presenting the FSs
relation to the entity's ability to meet its  assets and liabilities: measured as per
obligations; applicable accounting standards
3. management’s mitigation plan  IF entity insists on using the going concern
4. management’s significant judgments as part basis
of going concern’s assessment  leads to misleading FSs
 to issue an adverse opinion
Multiple Uncertainties Affecting the Financial  number of key audit matters
Statements  vary based on the entity's size, complexity,
and business environment
 to issue a disclaimer of opinion
 large: reduce the usefulness of the auditor's
 ORDINARY: addition going concern section or
communication
emphasis of matter paragraph about going
 determined solely based on their
concern issues
significance in the current period's audit
 adequate to meet the auditor's reporting
 auditor: to select a limited number of
responsibilities
significant matters
KEY AUDIT MATTERS
Manner of Communicating and Documenting
 traditional auditor's report format Key Audit Matters
 standardized
 to use professional judgment to determine the
 focus: opinion regarding fair presentation of
level of detail and order of key audit matters
FSs
 auditor’s report
 tailor-made report format
 clearly identify each key audit matter, with
 growing demand for enhanced transparency
reference to the notes in the FSs
in audit reports from the public and
 explain:
investors
1. why the matter was considered to be
 to communicate significant matters that
most significant
influenced auditor’s judgment in forming
2. how the matter was addressed in the
opinions
audit
 key audit matters
 auditor MUST:
 to report them for listed entities
 document key audit matters and significant
 to assist readers understand significant professional judgments
issues in the current period's audit and
 communicate the key audit matters to those
areas requiring significant management
charged with governance
judgment or focus
EXAMPLE:
 determined by the auditor's professional
 key audit matters
judgment
 not included in Key Audit Matters
 most significant issues in the current
Section
period's audit of the FSs
 included in Basis for Qualified or
Identifying Key Audit Matters Adverse) Opinion or Going Concern
sections
STEP 01: Categorize the matters that were 1. issues leading to modified
communicated with those charged with opinions
governance. 2. going concern uncertainties
 areas: significant risks OR significant NOTE: The communication of the key audit matters
auditor judgment required is not a substitute for expressing a modified opinion
 areas: difficult to obtain evidence on the client's FSs.
 circumstances: required of substantial
modifications to the auditor's planned  disclaimer of opinion: excluded the key audit
approach matters in report
 mandatory: listed entities
STEP 02: Determine which of these matters  optional: non-listed entities requested by the
required significant auditor's attention. auditor or client
STEP 03: Which of these matters that required  in rare cases: no key audit matters
significant attention are the most significance to the  must inform those charged with
audit of the current period. governance, state this in the report, and
document the rationale
EMPHASIS OF MATTER AND OTHER MATTER
PARAGRAPHS
Other Matter Paragraph
 addition of extra paragraphs
 to communicate matters not presented or
 to highlight IMPORTANT matters affecting
disclosed in the financial statements that are
the FSs or the audit report
relevant to users' understanding
 to help readers better understand the
 to include an "Other Matter" paragraph in an
financial statements and the auditor's report
unmodified opinion report
 do not change unmodified opinion
 to enhance readers' understanding of the
 not a substitute for a modified opinion
auditor's responsibilities and the audit report
Emphasis of Matter  circumstances which require Other Matter
paragraph include:
 circumstances which require Emphasis of 1. Financial statements prepared using more
Matter paragraph include: than one financial frameworks
1. significant uncertainties  when an entity's shares are listed in the
 future events beyond the entity's control stock market of several jurisdictions
2. early application of new accounting EXAMPLE: PFRS and US GAAP
standard in advance of its effective date 2. Limiting the use of the auditor's report
3. a major catastrophe that has a significant  FSs for a specific purpose can be
effect on the entity's financial position prepared using a general purpose
4. a subsequent discovery of facts affecting framework when it meets users' needs
the previously issued opinion  auditor's report
 new auditor's report is required for the
 tailored for specific users
amended FSs
 not be distributed to or used by
5. financial statements prepared using a
others
special purpose framework
3. Subsequent discovery of facts
 special purpose financial statements:
 required to amend FSs
using cash basis, modified cash basis,
 to explain the reason for amendment
or other accounting bases
4. Reporting on comparative information
Excessive Use of Emphasis of Matter
REPORTING ON COMPARATIVE INFORMATION
paragraphs
 from preceding periods helps users identify
 reduces their effectiveness in auditor
trends and changes in an entity over time
communication.
 suggest inadequate presentation or disclosures Two Financial Reporting Frameworks for
in client’s FSs Comparatives
 be limited to matters that are already presented
1. Comparative Financial Statements
or disclosed in the financial statements
o ensures that the auditor's report supports  show previous year's numbers next to
the financial statements rather than current numbers, but the previous numbers
undermining their credibility are not complete on their own
2. Corresponding Figures
Relationship between Emphasis of Matter and  include last year's numbers in the same
Key Audit Matters financial statement as current numbers, and
both are meant to be read together for a
 Auditors emphasize key audit matters to
complete picture
enhance readers' understanding of the FSs.
 Auditor may do:
 highlighting a matter first in the Key Audit
Matters section
 adding descriptions to show the matter's
importance for understanding the FSs
Reporting on Comparative Financial Statements When a continuing auditor's updated report on prior
year FSs is different from the report previously
 to issue a report identifying the comparative issued, the auditor's report should include an
financial statements specifically "Other Matter" paragraph stating:
 to express for audit’s opinion separately for
each period presented 1. the fact that the updated report is different
 comparative financial statements from the previous opinion
 only to prior period financial statements 2. the date of the prior year's report
presented with the current year's 3. the type of opinion previously issued
statements 4. the reasons for changing the auditor's
 all references to comparative information opinion
pertain solely to the financial information of 2. Prior Period Financial Statements Audited by
prior periods Another Auditor
Scenarios for Reporting on Comparative  auditor's reporting responsibility
Financial Statements
 depends on whether the predecessor
1. Prior Period Financial Statements Audited by auditor will reissue his report on the prior
a Continuing Auditor period FSs

 auditor’s report The predecessor auditor reissues the report on

 should cover both the current year's and the prior period financial statements.
prior periods' financial statements audited Steps to Confirm the Appropriateness of a
by the firm Previously Issued Audit Report
 not be reissued; instead, update to confirm
its appropriateness for the prior period’s 1. Compare current FSs to the previously audited
financial statements FSs.
2. Discuss with the successor auditor any events
Updating the report involves either: affecting the prior period FSs.
 re-expressing the opinion originally issued; OR 3. Obtain a letter from the successor auditor
confirming no significant subsequent events
 expressing an opinion different from the one
that could impact the predecessor's report.
originally issued
 If the auditor reissues the predecessor’s report
 arise of new information
on prior period FSs, it will use the original date
 a different opinion on prior period FSs
and wording.
 to change the original opinion on the prior
year’s FSs The predecessor auditor does not reissue the
report on the prior period financial statements.
EXAMPLE:
 the successor auditor's report on the current
 presentation of corrected prior period material
year's FSs includes an "Other Matter"
misstatements in the current period by the client
paragraph stating
 issue an unmodified opinion on comparative 1. the fact that the prior period financial
FSs statements were audited by another auditor
 resolution of prior period leading to a disclaimer 2. the date of the predecessor auditor's report
during the current year 3. the type of opinion issued by the
 issue an unmodified opinion on the prior predecessor auditor and if the opinion is
period FSs modified, the reasons therefore
3. Prior Period Financial Statements not audited

 include an "Other Matter" paragraph in the

current year's report to state this fact
 responsibility of auditor Determination Whether Material Inconsistencies
 to ensure that opening balances are free Exist
from material misstatements
 to compare selected items in the other
 IF misstatements in the prior period that impact
information with similar items in the FSs
the current year
 to assess whether the other information aligns
 ask management to revise the statements
with the audit evidence obtained and the
 refusal: issue a qualified or adverse opinion
conclusions reached during the audit
Reporting on Corresponding Figures
Material Inconsistency
 auditor's report
 identifying a material inconsistency when
 only to the current period's FSs reading other information
 auditor's opinion  to discuss the matter with management and
 focus: current period as a whole, including determine whether:
corresponding figures 1. the audited FSs need to be amended
 prior period report: a qualified, adverse, or  refusal of management: issue a
disclaimer opinion and issues remains unsolved qualified or an adverse opinion
 to modify the current period report to 2. the other information needs to be
reference the corresponding figures amended
OTHER INFORMATION ACCOMPANYING  refusal of management:
AUDITED FINANCIAL STATEMENTS  to evaluate if management's rationale of
refusal raises concerns about their
 listed companies integrity, especially if there is suspicion
 FSs and the auditor's report in their annual of intent to mislead
reports  to consider issuing a disclaimer of
 other information (as per PSA 720) opinion on the FSs if the refusal raises
 information in the annual report, excluding doubts about integrity and the reliability
the FSs and auditor's report of audit evidence OR
 to withdraw from the engagement
Auditor's Responsibility Regarding Other
3. the auditor's understanding of the entity
Information
needs to be updated
 to express an opinion on the fair presentation of  the other information inconsistent with
the FSs auditor’s understanding of the entity and
 limited to the FSs specified in the auditor's its environment
report  to update understanding of the entity
 no responsibility  to revise the risk assessment and
 to provide assurance on the reliability of perform additional audit procedures
other information in the annual report based on the updated risk
 to perform audit procedures to verify other assessment of material
information included in the annual report to misstatements
shareholders Material Misstatement of Fact
PSA 720: Auditor's Responsibility to Review
 to identify indications of incorrect statements
Other Information
or presentations
 check for material inconsistencies:  to review other information for material
1. between the other information and FSs inconsistencies
2. between the other information and the  to uphold the ethical principle of integrity,
auditor’s knowledge of the entity from the ensuring they are not associated with
audit misleading information
 identifying a material misstatement of fact  group level
 consolidated financial reporting of an entity that consists of multiple
 to discuss it with the entity's management components, such as subsidiaries, divisions, or other entities that are
under common control
and suggest consulting a qualified third  evaluating the financial statements of the entire group as a single
party entity, rather than assessing each component separately

 refusal of management  result: ensure that no issues materially affect

 to inform the audit committee of the group financial statements
auditor’s concerns and, if necessary, Component, Audited by Another Auditor is
seek legal advice Significant
Other Information Section in the Auditor's  group auditor
Report
 to evaluate the reliance on the component
 obtaining, or expects to obtain, other auditor's work to express opinion on the
information by the report date group FSs
 to identify the other information and outline the  to understand about the component
responsibilities of both management and the auditor’s:
auditor regarding it 1. understanding and compliance with the
 to address material inconsistencies and ethical requirements, independence
apparent misstatements promptly 2. professional competence
 other information: materially misstated 3. work if has sufficient and appropriate
 to specify the nature of the misstatement in evidence can be obtained
the section Methods for Group Auditor to Gather
NOTE: An agreement with management should be Information about Component Auditors
established regarding when the other information  first year of involving a component auditor
will be available to the auditor.  to inquire with a reputable third party or
AUDIT OF GROUP FINANCIAL STATEMENTS request the component auditor to complete
relevant questionnaires
 an audit engagement involving multiple audit  satisfaction of component auditor's
firms independence and reputation
 one firm must act as the group auditor  to discuss the requirements with the
 group auditor component auditor
 to report on the entity's FSs that include  to provide audit instructions to the
information from components audited by component auditor and reviews their
other auditors working papers to ensure the work is
 to assess whether their own participation is sufficient and appropriate
adequate to act as the group auditor for  no satisfaction of component auditor's
expressing an opinion on the group financial professional competence, independence, or
statements quality of work
 to conduct their own audit of the
This consideration involves assessment of
component's financial statements
 the materiality of the portion of the FSs audited
Reporting Responsibility of Group Auditor
 the auditor's knowledge of the overall financial
statements  direction, supervision, and performance of the
 the importance of the component(s) audited by group audit in line with professional standards
another auditor and legal requirements
 to ensure that the issued auditor's report is
Component is Not Significant
appropriate for the circumstances
 the group auditor's procedures may be limited  to retain sole responsibility for the audit opinion
to performing analytical procedures at the group on the group FSs
level  to not refer the component auditor on auditor’s
report
 component auditor Key Considerations When Accepting an
 perform work on the FS of their respective Engagement for a Single Financial Statement or
components and are responsible for their Specific Element
findings and conclusions
1. to review related accounts to express an
REPORTS ON SPECIAL PURPOSE FINANCIAL opinion on a specific component
STATEMENTS 2. to relate materiality based on the specific
account, requiring a more thorough examination
 special purpose framework than in a full audit
 to present FSs that adhere to a financial 3. to separate the component auditor's report from
reporting framework tailored for specific the entity's FSs to avoid confusion about its
users due to contractual or regulatory scope
obligations
EXAMPLES: Compliance with Ethical Requirements and
1. Other comprehensive basis of Relevant PSAs
accounting such as cash basis, modified
 for all audit engagements, including single
cash basis, or other basis of accounting
financial statements or specific elements
that has authoritative support,
 impractical for the auditor to fully comply with
2. Financial reporting provisions
PSAs when not auditing the complete FSs
established by government regulators
 lack the same understanding of the entity, its
such as the Banko Sentral ng Pilipinas
environment, and internal controls
(BSP) or Cooperative Development
 USSUALY: accepted only if the auditor is also
Authority (CDA); and
engaged to audit the entire set of FSs
3. Financial reporting provisions of a
contract, such as bond indenture, a loan Reporting Responsibility of Auditor
agreement or a project grant.
 separate opinions for single financial
NOTE: PSAs for auditing general purpose FSs also statements or specific elements
apply to special purpose FS audits.  on the complete set of FSs:
 auditor's report on special purpose FSs 1. a modified opinion: may require
modifications or emphasis in the specific
 include an Emphasis of Matter paragraph
element report
 highlights: prepared under a special
2. an adverse opinion or disclaimer:
purpose framework and may not be suitable
prohibits an unmodified opinion on a single
for other uses
statement in the same report
 indicated by restricting the distribution or
3. an adverse opinion or disclaimer but
use of the report in an Other Matter
consideration of unmodified opinion on
paragraph
that element; the auditor shall only do so
Audit of Single FS or Specific Element of a provided:
Financial Statement a. The auditor is not prohibited by law or
regulation from doing so,
 to express an opinion on a single financial b. The report on specific element is not
statement or specific components published together with the auditor's
 auditor’s opinion: limited to the specific account report on the complete set of financial
or component identified in the report statement; and
EXAMPLE: franchise agreements related to c. The specific element does not constitute
royalty payments based on revenue to a major portion of the entity's complete
accurately compute royalty payments set of financial statement.
Audit’s Report on Summary Financial
Statements

 may be reported if auditor audited the complete

FSs from which the summary is derived
 to express opinion whether:
1. the summary FSs are consistent with the
audited FSs or
2. the summary FSs are a fair summary of the
audited FSs
 contains:
1. a qualified opinion, emphasis of matter,
or other matter; the summary is consistent
with the audited FSs
 to state this in the summary report
2. an adverse opinion or disclaimer
 to state the fact that opinion was issued
on the audited FSs
 RESULT: inappropriate for the auditor
to express an opinion on the summary
FSs