October 6, 2021

THE BOARD OF DIRECTORS AND SHAREHOLDERS

ABC Development Corporation
Butuan City

Honorable Directors and Shareholders:

Good day!

I respectfully submit this proposal in relation to the audit engagement discussed during our
preliminary communications.

The audit is an internal audit designed to evaluate the fairness of the financial reports of ABC
Development Corporation, so as to provide a reasonable assurance whether the financial
reports, taken as a whole, are fairly presented in all material respects. The audit shall be
designed and conducted to assess the financial reporting process, as well as to evaluate
whether internal controls are designed, established and enforced to ensure the reliability of
the financial reports. In the event that errors, mistakes, or any form of irregularities were
committed that are significant and relevant to the audit, the auditor shall conduct additional
audit activities to substantiate the existence of such errors, mistakes or irregularities.

The expected output of this audit is an Audit Report which contains the following:

1. Auditor’s Opinion
2. Risk Assessment Report
3. Summary Report on the Effectiveness of Internal Controls
4. Significant Audit Findings
5. Recommendations

The auditor shall design and conduct the audit to produce meaningful results and to achieve
the objectives of the audit. In this regard, the auditor shall do the following audit procedures:
 Obtain an understanding about the nature, business, operations, systems, and
workflow of the two companies to be audited;
 Obtain an understanding about the internal controls procedures that are established
and designed by company, as well as to evaluate the risks associated with those
controls;
 Assess risks associated with the financial reporting process;
 Test the reliability of controls;
 Perform analytical procedures and substantive testing to ascertain the degree of
reliability of the financial reports;
 Document all audit activities consistent to the Internal Audit Standards requirements;
and
 Issue an audit report.

For the complete discussion of the audit procedures to be undertaken, please refer to the Audit
Plan attached.
The audit shall begin upon the approval of the Audit Plan, and is expected to last until
December 10, 2021. Once approved, a checklist will be sent to the Audit Client for the list of
documents needed to be prepared.

Compliance to Health and Safety Protocols

The audit shall be designed and conducted with utmost compliance to the existing regulations
and health and safety protocols. As such, the auditor will conduct the audit in the following
manner:

General Audit Procedure Audit Objective Date and Duration

On-site Audit
1. Observation of business Audit Objectives 1 and 2 October 18, 2021 (4 hours)
processes, systems, and
control procedures

2. Risk Assessment Audit Objectives 3 and 4 October 18, 2021 (4 hours)

3. Test of Controls Audit Objectives 2, 3 and 4 October 25, 2021 (4 hours)

4. Substantive Testing (twice Audit Objective 5 November 8 & 9, 15 & 16,

a week only for a 22 & 23, and 29 & 30, 2021
maximum of 4 weeks) (4 hours per visit)

5. Physical Examination and Audit Objective 5 November 8 & 9, 15 & 16,

Inspection of Documents 22 & 23, and 29 & 30, 2021
(part of the substantive (4 hours per visit)
testing)

6. Additional Follow-up Audit Audit Objectives 5 and 6 December 6, 2021 (4 hours)

Procedures

Off-site Audit
1. Interview with the Audit Objectives 1 and 2 October 18 – 20, 2021
employees via Zoom (1 – 3 hours)

2. Interview with key Audit Objectives 1 and 2 October 18 – 20, 2021

personnel via Zoom (1 – 3 hours)

3. Risk Assessment Audit Objectives 3 and 4 October 18 – 22, 2021

4. Analytical Procedures (for Audit Objectives 3, 4 and 5 October 25 – 29, 2021

Test of Controls and
Substantive Testing)

5. Document Gathering Audit Objective 5 November 8 – December 3,

(invoices, books of 2021
accounts, reports, etc.)

6. Substantive testing and Audit Objective 5 November 8 – December 3,

Physical Examination and 2021
Inspection of Documents
To ensure safety, the auditor shall undergo PCR/antigen testing every three weeks,
beginning October 18, 2021 (Monday), followed on November 8, 2021 (Monday), and finally
on November 29, 2021 (Monday). The tests shall be conducted hours before the actual
visit in the morning.

DATE OF VISIT AND TESTING DATE

Date of Visit Duration of Visit PCR/Antigen Testing Date
October 18, 2021 3-4 hours October 18, 2021 (8:00 AM)
October 25, 2021 4 hours
November 8 & 9, 2021 3-4 hours/day November 8, 2021 (8:00 AM)
November 15 & 16, 2021 4 hours/day
November 22 & 23, 2021 4 hours/day
November 29 & 30, 2021 3-4 hours/day November 29, 2021 (8:00 AM)
December 6, 2021 4 hours

Testing costs shall be shouldered by the Audit Client, and shall be added to the Audit Billing
(reimbursement basis).

Audit Fee

In consideration of the above audit services considering the nature of work involved, the time
to be devoted with the engagement, the degree of difficulty, the technical importance of the
work and the amount of responsibility that the auditor assumes during the engagement, I
propose to perform the above auditing services in consideration of a total of P xxxx for the
entire audit duration under the following terms:

Date Billing Amount

October 26, 2021 20% in Progress xxxx
November 16, 2021 60% in Progress xxxx
December 10, 2021 100% in Progress (Upon Completion) xxxx
TOTAL P xxxx

The auditor shall bill the above audit fee based on the milestones achieved. A copy of progress
report shall be furnished to you for each billing period.

In addition to the above audit fee, the Audit Client shall also shoulder the testing costs for
PCR/Antigen testing to be added and reflected in the billing per above schedule, subject for
reimbursement.

Confidentiality Clause

The auditor shall strictly adhere to the Code of Professional Ethics for CPAs and Internal
Auditors, and shall exercise utmost objectivity, integrity, and professionalism in all audit
undertakings. Above all, the auditor understands the privacy and sensitivity of the data and
records that we will be auditing; hence, he imposes upon himself the strict compliance to
confidentiality, and hereby takes full accountability and responsibility for any divulgence of any
confidential information.
Termination Clause

This proposal and the corresponding audit plan shall be rendered terminated when any of the
following circumstance arises:

Circumstance 1: The auditor fails to follow the proposed audit plan, unless with prior
approval from the Audit Client.

Circumstance 2: There is a violation to the Confidentiality Clause and Non-Disclosure

Agreement on the part of the auditor.

Circumstance 3: Any fortuitous event arises that may prevent the auditor from
rendering the audit engagement.

Circumstance 4: A limitation of the scope or restriction of the audit exists which is

believed to be significant that could lead the audit misleading, and
that there is no other alternative audit procedure to mitigate such
limitation or restriction.

Circumstance 5: When there is a request from the Audit Client to halt and stop the
audit process by reasons beyond the control of the auditor.

The auditor shall communicate in writing when any of the above circumstances arise. Upon
termination, the auditor shall be required to refund the audit fees paid to him under the
following terms:

Reason for Termination Refundable Amount

100% of the Amount Paid,
Circumstances 1 and 2
excluding testing fees reimbursed
60% of the Amount Paid, excluding
Circumstances 3, 4 and 5
testing fees reimbursed

If the above terms merit the board’s approval, I will appreciate it if you could affix your signature
on the Audit Plan attach for your approval. If any part of this letter or in the Audit Plan is not
clear to you, please do not hesitate to call me at my phone number 09153624663.

Thank you.

JISRYL H. RAZ, CPA, MSAIA

Internal Auditor