Republic of the Philippines

COMMISSION ON AUDIT
Commonwealth Avenue, Quezon City, Philippines

INDEPENDENT AUDITORS REPORT

THE BOARD OF TRUSTEES

Local Water Utilities Administration
Katipunan Road, Balara
Quezon City

Report on the financial statements

We were mandated to audit the accompanying financial statements of the Local Water
Utilities Administration, which comprise the statement of financial position as at December
31, 2011, and the statement of income, statement of changes in equity, and statement of cash
flows for the year then ended, and a summary of significant accounting policies and other
explanatory information.

Managements Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial
statements in accordance with generally accepted state accounting principles in the Philippines
and for such internal control as management determines is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to
fraud or error.

Auditors Responsibility

Our responsibility is to express an opinion on these financial statements based on conducting

the audit in accordance with Philippine Standards on Auditing. Because of the matters
described in the Basis of Disclaimer of Opinion paragraph, however, we were not able to obtain
sufficient, appropriate audit evidence to provide as basis for an audit opinion.

Basis for Disclaimer of Opinion

The Notes to the financial statements stated that the Company has an ongoing clean up
activities on its books which resulted to certain adjustments in the financial statements. The
Company still expects adjustments on certain items as the clean-up activities continue. The
restated figures for 2010 are still subject for validation.

Note 1 of the Notes to Financial Statements stated that the accompanying financial statements
of LWUA for the year ended December 31, 2011 are still subject for further review and
validation on certain transactions, balances and possible adjustments as stated/detailed in
Note 3.

As discussed in Note 3, the new Board of Trustees upon assumption to Office in June 2011
immediately directed a clean-up of LWUAS books to reflect its true financial condition and
performance. The clean-up activities have not yet been completed as of December 31, 2011
and are still on-going as at audit report date. Many issues have been identified and addressed,
several issues required possible adjustments in the financial statements, and others required
policy changes and reforms and systems improvement.

Disclaimer of Opinion

Because of the significance of the matters discussed in the Basis for Disclaimer of Opinion
paragraphs, we have not been able to obtain sufficient appropriate evidence to provide a basis
for an audit opinion. Accordingly, we do not express an opinion on the financial statements.

Report on the Supplementary Information Required Under Revenue Regulations 15-

2010

Our audit was conducted for the purpose of forming an opinion on the basic financial
statements taken as a whole. The supplementary information on taxes, duties and license
fees in Note 31 to the financial statements is presented for purposes of filing with the Bureau
of Internal Revenue and is not a required part of the basic financial statements. Such
information is the responsibility of management. Because of the significance of the matters
described in the Basis for Disclaimer of Opinion paragraphs, it is inappropriate to and we do
not express an opinion on the information referred to above.

COMMISSION ON AUDIT

PRISCILLA DG. CRUZ

Supervising Auditor

March 7, 2013