PSRE-2400

PHILIPPINE STANDARD ON REVIEW ENGAGEMENTS 2400 (Previously PSA 910)

ENGAGEMENTS TO REVIEW FINANCIAL STATEMENTS CONTENTS Paragraph Introducti Introduction on ... ...................................... ......................................................... ...................................... ...................................... .................................. ............... 1-2 Objective Objective of a Review Review Engagement Engagement ...................................................... .......................................................................... .......................... ...... 3 General General Principles Principles of a Review Review Engagement Engagement .................................................. .............................................................. ............ 4-7 Scope of a Review Review .................................................... ....................................................................... ...................................... ................................... ................ 8 Moderate Moderate Assurance Assurance ................................................... ...................................................................... ...................................... ................................... ................ 9 Terms Terms of Engagemen Engagementt ... ..................................... ......................................................... ....................................... .................................10-12 ..............10-12 Planning Planning ................................................. .................................................................... ...................................... ....................................... ........................... ....... 13-15 Work Perform Performed ed by Others ... ....................................... .......................................................... ...................................... .............................. ........... 16 Documentat Documentation ion ... ....................................... .......................................................... ...................................... ....................................... .............................. .......... 17 Procedures Procedures and Evidence Evidence ... ....................................... .......................................................... ...................................... ........................... ........ 18-22 Conclusio Conclusions ns and Reporting Reporting ... ....................................... .......................................................... ....................................... ........................ .... 23-28 Effective Date Acknowledgment Appendix 1: Example of an Engagement Letter for a Review of Financial Statements Statements Appendix 2: Illustrative Detailed Procedures that may be Performed in an Engagement to Review Financial Statements Appendix 3: Form of Unqualified Review Report Appendix 4: Examples of Review Reports Other than Unqualified

Philippine Standard on Review Engagements (PSRE) 2400, “Engagements to Review Financial Statements” should be read in the context of the “Preface to the Philippine Standards on Quality Control, Auditing, Review, Other Assurance and Related Services,” which sets out the application and authority of PSREs.

ENGAGEMENTS TO REVIEW FINANCIAL STATEMENTS

Introduction 1.

The purpose purpose of of this this Philippine Philippine Standard Standard on Review Review Engagement Engagementss (PSRE) (PSRE) is to establish establish standards and provide provide guidance guidance on the practitioner’s practitioner’s professional professional responsi responsibil bilitie itiess when when a practit practition ioner, er, who is not the auditor auditor of an entity, entity, undertakes an engagement to review financial statements and on the form and conten contentt of the report report that that the practi practiti tione onerr issues issues in connec connectio tion n with with such such a review review.. A practi practiti tione oner, r, who is the auditor auditor of the entity entity,, engage engaged d to perfor perform m a review of interim financial information performs such a review in accordance with PSRE PSRE 2410, 2410, “Rev “Review iew of Inte Interi rim m Finan Financi cial al Inform Informat ation ion Perf Perform ormed ed by the the Independent Auditor of the Entity.”

2.

This PSRE is dire directe cted d towar towards ds the the revi review ew of fina financi ncial al stat stateme ements nts.. Howeve However, r, it it is to be applie applied, d, adapte adapted d as necess necessary ary in the circum circumsta stance nces, s, to engage engagemen ments ts to revie review w other other histo historic rical al finan financia ciall inform informati ation. on. Guidan Guidance ce in the Phili Philippi ppine ne Standards on Auditing (PSAs) may be useful to the practitioner in applying this PSRE. ∗

Objective Objective of a Review Engagement Engagement 3.

The objective of a review of financial statements is to enable a practitioner to state whether, on the basis of procedures which do not provide all the evidence that would be required in an audit, anything has come to the practition practitioner’s er’s attention attention that causes the practition practitioner er to believe believe that the fina financ ncia iall stat statem emen ents ts are are not not prep prepar ared ed,, in all all mate materi rial al resp respec ects ts,, in accordan accordance ce with the applicab applicable le financi financial al reportin reporting g framewor framework k (negativ (negativee assurance).

General Principles Principles of a Review Engagement Engagement 4.

The practitioner should comply with the Code of Ethics for Professional Philippines Philippines issued by the Philippine Board of Accountancy (the Ethics Code). Ethical principles principles governing the practitioner’s practitioner’s professional professional responsibilitie responsibilitiess are:

Accountants in the

(a) (a)

Inde Indepe pend nden ence ce;;

(b) (b)

Inte Integ grity rity;;

(c) (c)

Obje Object ctiv ivit ity; y;

(d)

Professi Professional onal competen competence ce and due care; care;

(e) (e)

Conf Confid iden enti tial alit ity; y;

(f) (f)

Profe Profess ssion ional al behavi behavior; or; and

(g)

Techni Technical cal stan standar dards. ds.

___________________ ∗

Paragraph 2 of this PSRE was amended in December 2007 to clarify the application of the PSRE.


5.

The practitioner should conduct a review in accordance with this PSRE.

6.

The practitioner should plan and perform the review with an attitude of professional professional skepticism recognizing recognizing that circumstances may exist which cause the financial statements to be materially misstated.

7.

For the purpose of expressing negative assurance in the review report, the Practi Practitio tioner ner should should obtain obtain suffic sufficien ientt approp appropria riate te eviden evidence ce primari primarily ly through inquiry and analytical procedures to be able to draw conclusions.

Scope of a Review 8.

The The term term “sco “scope pe of a revi review ew”” refe refers rs to the the revi review ew proc proced edur ures es deem deemed ed nece necess ssar ary y in the circumstances to achieve the objective of the review. The procedures required to cond conduc uctt a revi review ew of fina financ ncia iall stat statem emen ents ts shou should ld be dete determ rmin ined ed by the the practi practiti tione onerr havin having g regar regard d to the the requir requirem ement entss of this this PSRE, PSRE, relev relevant ant professional bodies, legislation, regulation and, where appropriate, the terms of the review review engagem engagement ent and report reporting ing requir requirem ement ents. s.

Moderate Assurance 9.

A revie review w engag engagem emen entt provide providess a mode modera rate te level level of assu assuran rance ce that that the information subject to review is free of material misstatement, this is expressed in the form form of negative negative assuran assurance. ce.

Terms of Engagement 10.

The The pract practit ition ioner er and the clien clientt shoul should d agree agree on the terms terms of the engagement. The agreed terms would be recorded in an engagement letter or other suitable form such as a contract.

11.

An engagem engagement ent lette letterr will be of assist assistance ance in in planning planning the the review review work. work. It It is in the interests of both the practitioner and the client that the practitioner sends an enga engage gem ment ent lett letter er docu docume ment ntin ing g the the key key term termss of the the appo appoin intm tmen ent. t. An engagement letter confirms the practitioner’s acceptance of the appointment and helps avoid misunderstanding regarding such matters as the objectives and scope of the engagement, engagement, the extent of the practitioner’ practitioner’ss responsibiliti responsibilities es and the form of reports reports to be issu issued ed..

12.

Matters that would be included included in the the engagement engagement letter include the following following:: •

The objecti objective ve of the servic servicee being being perform performed. ed.

•

Manage Managemen ment’s t’s respon responsib sibili ility ty for the financ financial ial statem statements ents..

•

The scope scope of the review review,, includi including ng refere reference nce to this this PSRE .

•

Unrest Unrestric ricted ted access access to whatev whatever er record records, s, docume documenta ntatio tion n and other other information requested in connection with the review.


•

A sampl samplee of the the repor reportt expec expecte ted d to be rend render ered ed..

•

The fact fact that that the the engagem engagement ent cannot cannot be relied relied upon upon to disclo disclose se errors errors,, illegal acts or other irregularities, for example, fraud or defalcations that may exist.

•

A stat statem emen entt that that an audi auditt is not not bein being g perf perfor orm med and and that that an audi auditt opin opinio ion n will will not be express expressed. ed. To emphas emphasize ize this point and to avoid avoid confusi confusion, on, the practitioner may also consider pointing out that a review engagement will not satis satisfy fy any statu statuto tory ry or thir third d part party y requ requir irem emen ents ts for for an audi audit. t.

An example of an engagement letter for a review of financial statements appears in Appendix 1 to this PSRE.

Planning 13.

The practitioner should plan the work so that an effective engagement will be performed.

14.

In planning a review of financial statements, statements, the practitioner should obtain or update update the knowle knowledge dge of the busine business ss includi including ng consid considera eration tion of the entity’s organization, accounting systems, operating characteristics and the nature of its assets, liabilities, revenues and expenses.

15.

The practit practitioner ioner needs to possess possess an understa understandin nding g of such such matters matters and other other matte matters rs releva relevant nt to the finan financi cial al statem statement ents, s, for examp example, le, a knowl knowledg edgee of the entity’s production and distribution methods, product lines, operating locations and related related parties. The practitio practitioner ner requires requires this understandi understanding ng to be able to make relevant inquiries and to design appropriate procedures, as well as to assess the responses and other information obtained.

Work Performed by Others 16.

When using work performed by another practitioner practitioner or an expert, the practit practitione ionerr should should be sat satisf isfied ied that such such work is adequat adequatee for the purposes of the review.

Documentation 17.

The practi practition tioner er should should documen documentt matter matterss which which are import important ant in providi providing ng eviden evidence ce to support support the review report, report, and eviden evidence ce that the review was carried out in accordance with this PSRE.

Procedures Procedures and Evidence Evidence 18.

The practitioner should apply judgment in determining the specific nature, timing and extent of review procedures. The practitioner practitioner will be guided by such matters as the following:


•

Any knowl knowledg edgee acqui acquire red d by carry carrying ing out audit auditss or review reviewss of the financial statements for prior periods.

•

The practit practitione ioner’s r’s knowledg knowledgee of the business business includin including g knowledg knowledgee of the account accounting ing princip principles les and practices practices of the industry industry in which the entity entity operates.

•

The The enti entity ty’s ’s acco accoun unti ting ng syst system ems. s.

•

The extent extent to which which a particu particular lar item is affect affected ed by managem management ent judgmen judgment. t.

•

The mate materia riali lity ty of tran transac sacti tions ons and and accoun accountt balan balances ces..

19.

The practitioner practitioner should apply the same materiality materiality considerations as would be applied if an audit opinion on the financial statements were being given. Although there is a greater risk that misstatements will not be detected in a review than in an audit audit,, the the judgm judgmen entt as to what what is mate materi rial al is made made by refer referen ence ce to the the information on which the practitioner is reporting and the needs of those relying on that infor informat mation ion,, not to thelev the level el of assur assuranc ancee provid provided. ed.

20.

Procedures Procedures for the the review review of financial financial statem statements ents will will ordina ordinarily rily include include the following: •

Obtain Obtaining ing an unders understan tanding ding of the entity’ entity’ss busi busines nesss and and the indust industry ry in which it operates.

•

Inquiries Inquiries concernin concerning g the entity’s entity’s accountin accounting g principle principless and practice practices. s.

•

Inquir Inquiries ies concern concerning ing the entity’s entity’s proced procedure uress for for recordi recording, ng, classif classifyin ying g and summarizing transactions, accumulating information for disclosure in the financial statements and preparing financial statements.

•

Inquiries Inquiries concerning concerning all material material assertions assertions in the financial financial statements. statements.

•

Analyt Analytica icall procedu procedures res design designed ed to identi identify fy relati relations onship hipss and indivi individua duall items that appear unusual. Such procedures would include: ○

○

○

Comparison of the financial statements with statements for prior periods. Comparison of the financial statements with anticipated results and financial position. Study of the relationships of the elements of the financial statem statement entss that that would would be expect expected ed to confor conform m to a predic predictab table le pattern based on the entity’s experience or industry norm.

In applying these procedures, the practitioner would consider the types of matters that required required accounting adjustments adjustments in prior periods. •

Inquir Inquiries ies concern concerning ing actions actions taken taken at meetin meetings gs of shareh sharehold olders ers,, the the board of directors, committees of the board of directors and other meetings that may affect the financial statements.


•

Reading Reading the financ financial ial statem statements ents to consid consider, er, on the basis of inform informati ation on coming coming to the practit practitione ioner’s r’s attenti attention, on, whether whether the financi financial al statement statementss appear appear to conform conform with the basis of accounting accounting indicated. indicated.

•

Obtainin Obtaining g reports reports from other other practit practitione ioners, rs, if any and if consider considered ed necess necessary ary,, who have have been been engage engaged d to audit audit or review review the financ financial ial statements of components of the entity.

•

Inquir Inquiries ies of person personss having having respons responsibi ibilit lity y for financ financial ial and accoun accountin ting g matters concerning, for example: ○

○

○

○

○

Whether Whether all transactio transactions ns have been recorded. recorded. Whether Whether the financial statements statements have been prepared prepared in accordance accordance with with the basis of accoun accountin ting g indica indicated ted.. Changes Changes in the entity’s entity’s business business activities activities and accounting accounting principles principles and practices. Matters Matters as to which which questions questions have have arisen arisen in the course course of of applying applying the foregoing procedures. procedures. Obtaining Obtaining written written representat representations ions from management management when considered appropriate.

Appendix 2 to this PSRE provides an illustrative list of procedures which are often used. The list is not exhaustive, nor is it intended that all the procedures suggested suggested apply to every review engagemen engagement. t. 21.

The practitioner should inquire about events subsequent to the date of the financial financial statements statements that may require adjustment adjustment of or disclosur disclosuree in the financial statements. The practiti practitioner oner does not have any responsibilit responsibility y to perform procedures to identify events occurring after the date of the review report.

22.

If the practitioner has reason to believe that the information subject to review review may be materia materially lly misstated, misstated, the practiti practitioner oner should carry carry out addition additional al or more extensive extensive procedures procedures as are necessary necessary to be able to express express negative negative assuran assurance ce or to confir confirm m that that a modifie modified d report report is required.

Conclusions and Reporting 23.

The review report should contain a clear written expression of negative assura assurance nce.. The The practi practitio tioner ner should should review review and assess assess the conclu conclusio sions ns drawn drawn from the evidenc evidencee obtaine obtained d as the basis basis for the expressio expression n of negative assurance.

24.

Based on the work performed, the practitioner should assess whether any information obtained during the review indicates that the financial statements are not presented fairly, in


all materi material al respects respects,, in accordanc accordancee with the applica applicable ble financi financial al reportin reporting g framework.

25.

The report on a review of financial statements describes the scope of the engagement to enable the reader to understand the nature of the work performed and make it clear that an audit was not performed and, therefore, that an audit opinion is not expressed.

26.

The report on a review of financial statements should contain the following basic elements, ordinarily in the following layout: 2

(a)

Title;

(b)

Addressee;

(c)

Opening or introductory paragraph including:

(d)

(i)

Identification of the financial statements on which the review has been performed; and

(ii)

A statement of the responsibility of the entity’s management and the responsibility of the practitioner;

Scope paragraph, describing the nature of a review, including:

(i)

A reference to this PSRE applicable to review engagements, ;

(ii)

A statement that a review is limited primarily to inquiries and analytical procedures; and

(iii)

A statement that an audit has not been performed, that the procedures undertaken provide less assurance than an audit and that an audit opinion is not expressed;

(e)

Statement of negative assurance;

(f)

Date of the report;

(g)

Practitioner’s address; and

(h)

Practitioner’s signature.

Appendices 3 and 4 to this PSRE contain illustrations of review reports. 27.

The review report should:

(a)

2

State that nothing has come to the practitioner’s attention based on the review that causes the practitioner to believe the financial statements are not presented

It may be appropriate appropriate to use the term “independent” “independent” in the title to distinguish distinguish the practitioner’s practitioner’s report report from reports that might be issued by others, such as officers of the entity, or from the reports of other practitioners who may not have to abide by the same ethical requirements as an independent practitioner.


fairly, fairly, in all material respects, respects, in accordance with the applicable financial reporting framework (negative assurance); or

(b) (b)

(c)

28.

If matters have come to the practitioner’s practitioner’s attention, describe those matters that impair a fair presentation, in all mate materi rial al resp respec ects ts,, in acco accord rdan ance ce with with the the appl applic icab able le fina financ ncia iall repo report rtin ing g fram framew ewor ork, k, incl includ udin ing, g, unle unless ss impr imprac acti tica cabl ble, e, a quanti quantific ficati ation on of the possib possible le effect effect(s) (s) on the financ financial ial statem statement ents, s, and either:

(i) (i)

Expr Expres esss a quali qualifi fica cati tion on of the the negat negativ ivee assur assuranc ancee provi provided ded;; or

(ii)

When When the the effe effect ct of the the matte atterr is so mate materi rial al and and perv pervas asiv ivee to the financi financial al statem statements ents that the practit practitione ionerr conclud concludes es that a qualif qualific icati ation on is not adequa adequate te to disclo disclose se the misle misleadi ading ng or incompl incomplete ete nature nature of the financi financial al stateme statements nts,, give an adverse adverse statement that the financial statements are not presented fairly, in all material respects, in acco accord rdan ance ce with with the the appl applic icab able le fina financ ncia iall repo report rtin ing g framework; or

If the there re has been been a mater material ial scope scope limita limitatio tion, n, descri describe be the limit limitati ation on and either: either:

(iii)

Express a qualification of the negative assurance provided regarding the possible adjustments to the financial statements that might have been determined to be necessary had the limitation not existed; or

(iv)

When When the possi possible ble effe effect ct of the the limi limitat tatio ion n is so signi signifi fican cantt and perv pervas asiv ivee that that the the prac practit tition ioner er conc conclu ludes des that that no leve levell of assurance can be provided, not provide any assurance.

The practitioner should date the review report as of the date the review is comple completed ted,, which which includ includes es perform performing ing proced procedure uress relati relating ng to events events occurr occurring ing up to the date date of the report report.. Howev However, er, since since the practi practitio tioner ner’s ’s respon responsib sibil ility ity is to report report on the financ financial ial statem statement entss as prepar prepared ed and presented by management, the practitioner should not date the review report earlier than the date on which the financial statements were approved by management.

Effective Date This PSRE is effective for engagements to review financial statements for periods ending on or after December 31, 2003.

Acknowledgment This PSRE is based on International Standard on Review Engagements 2400, “Engagements “Engagements to Review Financial Financial Statements,” Statements,” issued by t he International International Auditing Auditing and Assurance Standards Board.

This PSRE 2400 differs from ISRE 2400 mainly with respect to the deletion of the phrases “give a true and fair view,” “relevant national standards or practices,” and “relevant national accounting standards,” or variants of these phrases, and the revision in the components of “financial statements” in the example review engagement letter and illustrative review reports presented in the appendices.


Appendix Appendix 1 Examp Example le of an Engage Engageme ment nt Lette Letterr for for a Review Review of Finan Financia ciall Statements The following letter is for use as a guide in conjunction with the consideration outlined in para paragra graph ph 10 of this this PSRE PSRE and and will will need need to be varied varied accor accordin ding g to indiv individu idual al requirements and circumstances. To the Board of Directors (or the appropriate representative of senior management): This lett letter er is to conf confir irm m our our unde unders rsta tandi nding ng of the the term termss and and objec objecti tive vess of our engagement and the nature and limitations of the services we will provide. We will perform the following services: We will review the financial statements of ABC Company, which comprise the statement of financial position as at December 31, 19XX, and the statement statement of comprehensive comprehensive income, income, statem statement ent of changes changes in equity equity and statement statement of cash flows for the year then then ended, ended, in accordance with the Philippine Standard on Review Engagements (PSRE) 2400. We will not perform an audit of such financial statements and, accordingly, we will not express an audit opinion on them. Accordingly, we expect to report on the financial statements as follows: (see Appendix 3 to this PSRE) Responsibil Responsibility ity for the financial financial statements, statements, including including adequate adequate disclosur disclosure, e, is that of the managem management ent of the company company.. This This includ includes es the mainten maintenanc ancee of adequat adequatee account accounting ing records records and internal internal controls and the selectio selection n and applicat application ion of accountin accounting g policies. policies. (As (As part part of our our revi review ew proc proces ess, s, we will will requ reques estt writ writte ten n repr repres esen enta tati tion onss from from management management concerning assertions made in connection with the review. 3) This letter will be effective for future years unless it is terminated, amended or superseded (if applicable). applicable).

Our engagement cannot be relied upon to disclose whether fraud or errors, or illegal acts exist. exist. However, we will will inform inform you of any material material matters matters that that come come to our attention. attention. Please sign and return the attached copy of this letter to indicate that it is in accordance with your understanding of the arrangements for our review of the financial statements. XYZ & Co Acknowledged on behalf of ABC Company by ( signed ) Name and Title Date _____________________ 3

This sentence should be used at the discretion of the practitioner.


Appendix 2 Illustrative Detailed Procedures that may be Performed in an Engagement to Review Financial Statements 1.

The inquiry and analytical review procedures carried out in a review of finan financia ciall statem statement entss are determ determine ined d by the the practi practiti tione oner’ r’ss judgme judgment. nt. The procedures listed below are for illustrative purposes only. It is not intended that all the procedures suggested apply to every review engagement. This Appendix is not intended to serve as a program or checklist in the conduct of a review.

General

2.

Discuss Discuss terms terms and scope of the engagement engagement with the client and the engagement engagement team.

3.

Prepa Prepare re an enga engagem gemen entt lette letterr settin setting g forth forth the the terms terms and scope scope of the engagement.

4.

Obtain an underst understanding anding of the entity’s entity’s business business activities activities and the system for recording financial information and preparing financial statements.

5.

Inquire Inquire whether whether all financia financiall informa information tion is recorded: recorded: (a) (a)

Com Complet pletel ely y;

(b) (b)

Prom Prompt ptly ly;; and and

(c)

After After the necessary necessary authoriza authorizatio tion. n.

6.

Obtain the trial balance and determine determine whether whether it agrees with the general general ledger ledger and the financial statements.

7.

Consider Consider the results results of previous previous audits and review engagements, engagements, including including accounting adjustments required.

8.

Inquire Inquire whether whether there have been any significant significant changes in the entity entity from from the previous year (e.g., changes in ownership or changes in capital structure).

9.

Inquire Inquire about the accounti accounting ng policies policies and consider consider whether: whether:

10.

(a)

They comply comply with the applicabl applicablee financial financial reporting reporting framework framework;;

(b)

They They have have been been applie applied d appro appropri priate ately ly;; and

(c)

They have been applied applied consiste consistently ntly and, if not, consider consider whether whether disclosure has been made of any changes in the accounting policies.

Read the the minutes minutes of meetings meetings of sharehol shareholders, ders, the the board board of directors directors and and other other appropriate committees in order to identify matters that could be important to the review.


11.

Inquire Inquire if if actions actions taken at shareho shareholder, lder, board of directo directors rs or comparabl comparablee meetings that affect the financial statements have been appropriately reflected therein.

12.

Inquire Inquire about about the the existen existence ce of trans transacti actions ons with with relate related d parties, parties, how such such transactions have been accounted for and whether related parties have been properly disclosed.

13.

Inquire Inquire about about continge contingencie nciess and commitm commitments ents..

14.

Inquire Inquire about about plans plans to dispos disposee of major major asset assetss or busin business ess segme segments. nts.

15.

Obtain the financial financial stateme statements nts and discuss them with management. management.

16.

Consider Consider the the adequacy adequacy of disclosur disclosuree in the the financia financiall statement statementss and their their suitability as to classification and presentation.

17.

Compar Comparee the the result resultss shown shown in the curr current ent period period financ financial ial statem statement entss with with those those shown in financial statements for comparable prior periods and, if available, with budgets and forecasts.

18.

Obtain Obtain explan explanati ations ons from manage manageme ment nt for for any unusual unusual fluctu fluctuati ations ons or inconsistencies in the financial statements.

19.

Consider the effect of any unadjusted errors - individual individually ly and in aggregate. aggregate. Bring the errors to the attention of management and determine how the unadjusted errors will influence the report on the review.

20.

Consider Consider obtaining obtaining a represen representati tation on lette letterr from from manage managemen ment. t.

Cash

21.

Obtain the bank bank reconcil reconciliatio iations. ns. Inquire Inquire about any old old or unusua unusuall reconcilin reconciling g items with client personnel.

22.

Inquire Inquire about about transfer transferss between between cash cash accounts accounts for the the period period before before and after after the review date.

23.

Inquire Inquire wheth whether er there there are any any restricti restrictions ons on on cash cash accou accounts. nts.

Receivables

24.

Inquire Inquire about about the the accounting accounting policies policies for initially initially recording recording trade trade receivab receivables les and determine whether any allowances are given on such transactions.

25.

Obtain a schedule schedule of receivabl receivables es and and determine determine whether whether the the total total agrees agrees with with the trial balance.

26.

Obtain and conside considerr explanati explanations ons of significan significantt variations variations in account account balances balances from previous periods or from those anticipated.


27.

Obtain an aged aged analysis analysis of the trade receivables. receivables. Inquire Inquire about the reason reason for unusually large accounts, credit balances on accounts or any other unusual balances and inquire about the collectibility of receivables.

28.

Discuss Discuss with with management management the classif classificat ication ion of receivabl receivables, es, including including noncurrent balances, net credit balances and amounts due from shareholders, directors and other related parties in the financial statements.

29.

Inquire Inquire about about the method method for for identif identifying ying “slow “slow paymen payment” t” account accountss and settin setting g allowances for doubtful accounts and consider it for reasonableness. reasonableness.

30.

Inquire whether receivables receivables have have been pledged, factored or discounted. discounted.

31.

Inquire Inquire about about procedu procedures res applie applied d to ensur ensuree that that a proper proper cutoff cutoff of sales sales transactions and sales returns has been achieved.

32.

Inquire Inquire whether whether accounts accounts represen representt goods goods shipped shipped on consignm consignment ent and, if so, whether adjustments have been made to reverse these transactions and include the goods in inventory. inventory.

33.

Inquire Inquire whether whether any large credits credits relating relating to revenue revenue recorde recorded d have been issued after the balance sheet date and whether provision has been made for such amounts.

Inventories

34.

Obtain the inventory inventory list and determin determinee wheth whether: er: (a)

The total total agrees agrees with with the the balance balance in the trial trial balanc balance; e; and

(b)

The list is based based on a physical physical count count of of inven inventory. tory.

35.

Inquire Inquire about the method method for counting counting inventory inventory..

36.

Where a physical physical count was not carried carried out on the balance balance sheet sheet date, date, inquire inquire whether: (a)

A perpetu perpetual al inven inventory tory system system is used used and and whethe whetherr periodi periodicc compar comparison isonss are made with actual quantities on hand; and

(b)

An integ integrated rated cost system system is is used used and whether whether it has produc produced ed reliab reliable le information in the past.

37.

Discuss Discuss adjustmen adjustments ts made made resulti resulting ng from from the the last last physica physicall inventory inventory count.

38.

Inquir Inquiree about proced procedure uress applied applied to control control cutoff cutoff and any invent inventory ory movements.

39.

Inquire Inquire about the basis basis used used in valuing valuing each each category category of of the inventory inventory and, and, in particular, regarding the elimination of inter-branch profits. Inquire whether inventory is valued at the lower of cost and net realizable value.


40.

Consider Consider the the consist consistency ency with with which which inventory inventory valuati valuation on methods methods have been applied, including factors such as material, labor and overhead.

41.

Compare amounts of major major inventory categories with those of prior prior periods and with those anticipated for the current period. Inquire about major fluctuations and differences.

42.

Compare Compare inventory inventory turnover turnover with with that in previous previous periods. periods.

43.

Inquire Inquire about about the method method used for for identif identifying ying slow moving and obsolet obsoletee inventory inventory and whether whether such inventory inventory has been accounted accounted for at net realizable realizable value.

44.

Inquir Inquiree whethe whetherr any of the invent inventory ory has been consig consigned ned to the entity entity and, and, if so, whether adjustments have been made to exclude such goods from inventory.

45.

Inquire whether any inventory is pledged, stored at other locations or on consignment to others and consider whether such transactions have been accounted for appropriately.

Investments (Including Associated Companies and Marketable Securities)

46.

Obtain a schedule schedule of the investments investments at at the balance balance sheet sheet date date and determine determine whether it agrees with the trial balance.

47.

Inquire Inquire about the accounting accounting policy applied applied to investments. investments.

48.

Inquire Inquire from from manageme management nt about about the carryin carrying g values values of investments investments.. Consider Consider whether there are any realization problems.

49.

Consider Consider whether whether there has been proper accounting accounting for gains and losses losses and investment income.

50.

Inquire Inquire about about the classificat classification ion of long-term long-term and shortshort-term term investments. investments.

Property and Depreciation

51.

Obtain a schedule of the property indicating the cost and accumulated depreciation and determine whether it agrees with the trial balance.

52.

Inquire about the accounting policy applied regarding the provision for deprec depreciat iation ion and dist disting inguis uishin hing g betwee between n capit capital al and and maint maintena enance nce items items.. Consider Consider whether whether the property property has suffered suffered a material material,, permanent permanent impairment impairment in value.

53.

Discuss Discuss with with manag manageme ement nt the the additi additions ons and and deleti deletions ons to to property property account accountss and accounting for gains and losses on sales or retirements. Inquire whether all such transactions have been accounted for.

54.

Inquire about the consistency consistency with which which the depreciation depreciation method method and rates have been applied and compare depreciation provisions with prior years.

55.

Inquire Inquire whether whether there there are any liens on the property. property.


56.

Discuss Discuss whether whether lease lease agre agreemen ements ts have been properl properly y reflect reflected ed in the financi financial al statements in conformity with current accounting pronouncements.

Prepaid Expenses, Intangibles and Other Assets

57.

Obtain schedules schedules identifyi identifying ng the the nature nature of these accounts and discuss with management the recoverability thereof.

58.

Inquire about the basis for recording these accounts and the the amortization amortization methods used.

59.

Compare balances of related expense accounts with those of prior periods and discuss significant variations with management.

60.

Discuss the classification classification between long-term long-term and short-term short-term accounts with management.

Loans Payable

61.

Obtain from management management a schedule of loans loans payable and determine determine whether whether the total agrees with the trial balance.

62.

Inquire whether there are any loans where management management has has not complied complied with with the provisions of the loan agreement and, if so, inquire as to management’s actions and whether appropriate appropriate adjustments have been made in the financial statements.

63.

Consider the reasonableness reasonableness of interest interest expense in relation to loan balances.

64.

Inquir Inquiree wheth whether er loans loans paya payable ble are secure secured. d.

65.

Inquire whether loans payable have been classified classified between noncurrent and current.

Trade Payables

66.

Inquire Inquire about about the accoun accounting ting polici policies es for initia initially lly recordi recording ng trade trade payables payables and and whether the entity is entitled to any allowances given on such transactions.

67.

Obtain and consi consider der explan explanatio ations ns of signi significa ficant nt variati variations ons in account account balances balances from previous periods or from those anticipated.

68.

Obtain a schedule schedule of trade payables and determine determine whether whether the total agrees with the trial balance.

69.

Inquire whether balances are reconciled reconciled with with the the creditors’ creditors’ statements statements and compare with prior period balances. Compare turnover with prior periods.

70.

Consider Consider whether whether there could be materia materiall unrecord unrecorded ed liabili liabilities. ties.

71.

Inquire whether payables to shareholde shareholders, rs, directors and other related parties are separately disclosed.


Accrued and Contingent Liabilities

72.

Obtain a schedule schedule of the the accrued accrued liabilities liabilities and determine determine whether whether the total agrees with the trial balance.

73.

Compare major balances of related related expense accounts with similar accounts for prior periods.

74.

Inquire about approvals for such accruals, accruals, terms terms of payment, payment, compliance compliance with with terms, collateral and classification.

75.

Inquire Inquire about the method method for for determining determining accrued accrued liabil liabilities ities..

76.

Inquire as to the the nature nature of amounts included in contingent contingent liabilities liabilities and commitments.

77.

Inquire Inquire whether whether any any actual actual or contingent contingent liabil liabilities ities exist which have not not been been recorded in the accounts. If so, discuss with management whether provisions need to be made in the accounts or whether disclosure should be made in the notes to the financial statements.

Income and Other Taxes

78.

Inquire from management management if if there there were were any any events, events, including disputes with taxation authorities, which could have a significant effect on the taxes payable by the entity.

79.

Consider the tax tax expense expense in relation relation to the entity’ entity’ss income income for the period. period.

80.

Inquire Inquire from from manag managemen ementt as to the the adequacy adequacy of the the recorde recorded d deferred deferred and and current tax liabilities including provisions in respect of prior periods.

Subsequent Events

81.

Obtain from management management the the latest latest interim interim financial financial statem statements ents and and compare compare them them with with the financ financial ial statem statement entss being being review reviewed ed or with with those those for compar comparabl ablee perio periods ds from from the prece precedin ding g year. year.

82.

Inquire about events after the balance sheet date that that would would have a material effect on the financial financial statements under review and, in particular, inquire whether: (a)

Any substantial substantial commitments commitments or uncert uncertaintie aintiess have have arisen arisen subsequent subsequent to the balance sheet date;

(b)

Any signi significa ficant nt changes changes in the the share share capita capital, l, long-t long-term erm debt debt or workin working g capital have occurred up to the date of inquiry; and

(c)

Any unusual unusual adjustm adjustments ents have been made during the period period between between the balance sheet date and the date of inquiry.

Consider the need for adjustments or disclosure in the financial financial statements.


83.

Obtain and read the minutes of meetings of shareholders, directors and appropriate committees subsequent to the balance sheet date.

Litigation

84.

Inquire Inquire from from manag manageme ement nt wheth whether er the the entity entity is is the subje subject ct of any legal legal actionsactionsthreatened, pending or in process. Consider the effect thereof on the financial statements.

Equity

85.

Obtain and consider a schedule of the transactions in the equity accounts, including new issues, retirements and dividends.

86.

Inquire Inquire whether whether there there are are any restrictions restrictions on retained retained earning earningss or other equity accounts.

Operations

87.

Compare Compare results results with with those those of prior prior periods periods and those those expected expected for the the current current period. Discuss significant variations with management.

88.

Discuss Discuss whether whether the the recogniti recognition on of major major sales sales and expenses expenses have have taken taken place place in the appropriate periods.

89.

Consider Consider extraordin extraordinary ary and unusual unusual items. items.

90.

Consider Consider and and discuss discuss with with managem management ent the the relati relationshi onship p between between relate related d items items in the revenue account and assess the reasonableness thereof in the context of similar relationships for prior periods and other information available to the practitioner.


Appendix Appendix 3 Form of Unqualified Review Report REVIEW REPORT TO ... We have have review reviewed ed the accom accompan panyi ying ng fina financi ncial al state stateme ments nts of ABC Compan Company, y, which which comprise the statement of financial position as at December 31, 19XX, and thestatement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to issue a report on these financial statements based on our review. We conduc conducted ted our review review in accor accordan dance ce with with the Phili Philippi ppine ne Stan Standar dard d on Revie Review w Engagem Engagements ents 2400. 2400. This This Standa Standard rd requir requires es that that we plan plan and perfor perform m the review review to obtain obtain modera moderate te assuran assurance ce as to whethe whetherr the financ financial ial statem statements ents are free free of materi material al misstat misstateme ement. nt. A review review is limited limited primaril primarily y to inquirie inquiriess of company company personnel personnel and analytical procedures applied to financial data and thus provides less assurance than an audit. audit. We have have not perform performed ed an audit and, accordi accordingl ngly, y, we do not express express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying financial statements are not presented fairly, in all material respects, in accordance with Philippine Financial Reporting Standards (or Philippine Financial Reporting Standard for Small and Medium-sized Entities). PRACTITIONER Date Address


Appendix 4 Examples of Review Reports Other than Unqualified Qualification for a Departure from Philippine Financial Reporting Standards

REVIEW REPORT TO … We have have review reviewed ed the the accom accompan panyi ying ng fina financi ncial al stat statem ement entss of ABC Compan Company, y, which which comprise the statement of financial position as at December 31, 19XX, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to issue a report on these financial statements based on our review. We conduc conducte ted d our review review in accor accordan dance ce with with the the Phili Philippi ppine ne Stan Standar dard d on Revie Review w Engage Engagemen ments ts 2400. 2400. This This Standa Standard rd requi requires res that we plan plan and perfo perform rm the the review review to obtain obtain modera moderate te assuran assurance ce as to whethe whetherr the financ financial ial statem statements ents are free free of mater material ial misstat misstateme ement. nt. A review review is limited limited primaril primarily y to inquirie inquiriess of company company personnel personnel and analytical procedures applied to financial data and thus provides less assurance than an audit. We have not performed an audit, and, accordingly, we do not express an audit opinion. Management Management has informed informed us that inventory has been stated stated at its cost which is in excess of its net realiz realizable able value. value. Managem Management’ ent’ss computa computation tion,, which which we have reviewed, reviewed, shows shows that inventory, if valued at the lower of cost and net realizable value as required by Philippine Financi Financial al Reporti Reporting ng Standard Standards, s, would would have been decrease decreased d by $X, and net income income and shareholde shareholders’ rs’ equity would have been decreased decreased by $Y. Based on our review, except for the effects of the overstatement of inventory described in the previous paragraph, nothing has come to our attention that causes us to believe that the accompanying financial statements are not presented fairly, in all material respects, in accordance with Philippine Financial Reporting Standards. PRACTITIONER Date Address


Adverse Report for a Departure from Philippine Financial Reporting Standards

REVIEW REPORT TO … We have reviewed the accompanying accompanying financial financial statements statements of ABC Company, which comprise the the state stateme ment nt of finan financia ciall posit positio ion n as at Decem December ber 31, 19XX, 19XX, and and the the state stateme ment nt of compreh comprehens ensive ive income income , statement statement of changes in equity and statement statement of cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to issue a report on these financial statements based on our review. We conduc conducted ted our review review in accor accordan dance ce with with the Phili Philippi ppine ne Stan Standar dard d on Revie Review w Engagements 2400. This Standard requires that we plan and perform the review to obtain mode modera rate te assura assurance nce as to whet whethe herr the the fina financ ncia iall stat statem emen ents ts are are free free of mate materi rial al misstat misstateme ement. nt. A review review is limited limited primaril primarily y to inquirie inquiriess of company company personnel personnel and analytical procedures applied to financial data and thus provides less assurance than an audit. audit. We have have not perform performed ed an audit and, accordi accordingl ngly, y, we do not express express an audit opinion. As noted in footnote X, these financial statements do not reflect the consolidation of the financial statements of subsidiary companies, the investment in which is accounted for on a cost basis. Under Philippine Financial Reporting Sta Standards, ndards, the financial statements statements of the subsidiaries are required to be consolidated. Based on our review, because of the pervasive effect on the financial statements of the matter discussed in the preceding paragraph, the accompanying financial statements are not presen presente ted d fairly fairly,, in all mater materia iall respec respects ts,, in accord accordanc ancee with with Phili Philippi ppine ne Financ Financial ial Reporting Standards. Standards. PRACTITIONER Date Address

PSRE-2400

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