In Partial Fulfillment of the Requirements

for the Subject ACT141: Auditing and Assurance Policies

GROUP 5: INTIMIDATION THREAT

Submitted to:
GENEVIEVE G. PANERIO, CPA

Submitted by:
BATALLA, Michael
DAYOC, Jorei Pheti Dosdos
DELA CERNA, Carl Ace
SABAL, Ar-Rahman
SASUMAN, Mariah Jans
SUMALINOG, Jannah Abigael
TECSON, PJ

October 23, 2023

 FADE IN:

INT. ACCOUNTING ACE OFFICE – MORNING 1

WE SEE a modern office. The name of the auditing firm can be seen
on the board in front. The Audit Team, in their corporate
attires, is all seated in their seats, reading papers.

NARRATOR:

Accounting Ace is a rising auditing firm in the

Philippines that offers a wide range of services,
including financial statement audits, internal audits,
compliance audits, and forensic audits. The firm is
committed to providing its clients with personalized
service and attention to detail.

Just then, a senior auditor walks inside the office, AR-RAHMAN,

smiley. He proceeds to the center of everyone.

AR-RAHMAN:

Everyone, I have a big announcement.

Everyone stops what they’re doing and listens to AR-RAHMAN.

NARRATOR:

This is AR-RAHMAN SABAL; he is a senior auditor with

over 10 years of experience. He is known for his
attention to detail, his ability to identify and
assess risks, and his commitment to providing high-
quality services to his clients. He is also a valuable
member of his team and a great mentor to junior
auditors.

AR-RAHMAN:

I'm pleased to announce that our client, Pinoy

Investment Corporation, has chosen us to be their
 auditor again this year. This is a testament to the
hard work and dedication of our team, and we're
grateful for their continued trust.

Everyone looks happy and claps their hands.

JOREI:

What a fantastic news!

NARRATOR:

Meet JOREI PHETI DAYOC, a junior auditor. He is a hard

worker and a team player and is always eager to learn
new things.

MICHAEL:

Exactly! Congrats, everyone!

NARRATOR:

Meet MICHAEL BATALLA, also a junior auditor. He is so

far, enjoying his career as an auditor, and is looking
forward to making a positive contribution to the audit
profession.

AR-RAHMAN:

I expect you to work hard and give your best on this

assignment. We have a responsibility to our clients
and to the public to ensure that their financial
statements are accurate and reliable. I know we can do
it, and I'm confident that we will produce a high-
quality audit. Let's give it our all!
 CUT TO:

INT. PINOY INVESTMENT CORPORATION OFFICE – MORNING 2

WE SEE a spacious modern office. The name of the company can be

seen on the board in front. The CEO, CARL, is sitting and is busy
with his laptop. The representative of the management, PJ, is
also busy with some papers.

NARRATOR:

Pinoy Investment Corporation is a diversified

conglomerate with interests in real estate,
infrastructure, financial services, and technology. It
is one of the biggest investment corporations in the
Philippines and is committed to helping the country
grow and develop.

CARL receives a phone call from his secretary, EMILY.

CARL:

Let my guests in, EMILY. I’ve been waiting for them.

NARRATOR:

This is CARL ACE DELA CERNA; he is the CEO of Pinoy

Investment Corporation. He has over 20 years of
experience in the investment industry and is known for
his sharp business acumen and his ability to identify
and capitalize on investment opportunities.

PJ:

Oh, they’re here.

NARRATOR:

Meet PJ TECSON, the head of management of Pinoy

Investment Corporation. He is a visionary leader with
over 15 years of experience in the finance industry.
 Under PJ's leadership, Pinoy Investment Corporation
has experienced significant growth and success.

CARL stands up and polishes his suit. After a while, the Audit
Team walks in. PJ stands up. CARL walks towards the Audit Team.

CARL:

Welcome, everyone. I’m glad to see you again.

AR-RAHMAN:

It's always a pleasure to be back here.

CARL:

That’s good to hear. Well, please have a seat,

everyone.

Everyone takes their seats.

CARL:

First of all, I’d like to formally welcome you once

again. Thank you for coming. Also, we’ve already
reviewed the terms of engagement and we agree with it.

PJ:

Please let me know if you have any questions or

concerns during the audit process. We are here to help
you in any way that we can.

AR-RAHMAN:

We appreciate your trust and confidence in us. We are

committed to doing our best work and we look forward
to working with you and your team in the coming weeks.

NARRATOR:

Little did they know that this audit engagement would

test their ethical principles as CPAs, challenging
 them to stand up for what is right even when it is
difficult.

CUT TO:

INT. PINOY INVESTMENT CORPORATION OFFICE – MORNING 3

EVERYONE is busy with their laptops/papers.

NARRATOR:

On the first few days, the audit team gave their all
in performing their audit engagement, knowing quite
well that this new client is one the biggest ones they
have handled, if not the biggest. From there, the
senior auditor delegated the audit tasks to his team.

AR-RAHMAN:

Guys, listen, this is our third year as auditors in

this company and I want to do your work to the best of
your abilities. Since our approach for the 2 previous
engagements has been effective, we will follow the
same procedures as before.

MICHAEL AND JOREI:

(agrees or nods)!!!

AR-RAHMAN:

Although we’ve been with them for the last 2 years

that doesn’t mean that they’re all free from material
misstatements. It is our duty as auditors to assess
carefully their subject matter and give professional
judgment about it. As a team, I want you guys to be
honest and communicate with me everything that you’ll
see.
 MICHAEL:

Yes, sir!

JOREI:

Besides, we can’t afford to fail in this engagement

since this is the biggest client we’ve had.

Auditors are scanning documents.

NARRATOR:

In the initial stage of the audit engagement, their

audit ran smoothly. The team has been careful with
their work and no such misappropriations or material
misstatements have been discovered yet.

CUT TO:

INT. ACCOUNTING ACE OFFICE – MORNING 4

EVERYONE is occupied with their laptops/papers.

NARRATOR:

Halfway through the audit, the auditors already

noticed some material misstatements in the client’s FS
and decided to confront the client’s management.

MICHAEL:

Sir, I noticed something. Upon touring their

facilities, particular equipment was non-existent but
they are listed and included in our client's balance
sheet, which heavily overstates their total assets.

JOREI:

Also, it seems that there is an unexplained increase

in the ratio of gross profit to sales suggesting the
existence of fictitious sales.
 AR-RAHMAN:

This is quite serious. Junior, kindly appoint a

meeting with the CEO of XXX company tomorrow.

MICHAEL:

Noted, Sir.

CUT TO:

INT. PINOY INVESTMENT CORPORATION OFFICE - MORNING 5

NARRATOR:

The following day…

AR-RAHMAN:

Good morning, Sir!

CARL:

Hey, there’s my favorite team. Come in. So, how’s the

audit prep and busy season going? Are we going to
receive yet another unqualified opinion for this year?

Carl showing an awkward or unsure expression.

AR-RAHMAN:

Yeah, about that…

CARL:

Why? What’s wrong?

AR-RAHMAN:

Although our previous two audit engagements went

smoothly, this year, however, as we’re going through
with the audit program, we can’t help but notice a lot
of material irregularities in your FS.
 MICHAEL:

Right, for instance, we noticed that a lot of the

sales reported this year were unsubstantiated with the
necessary documents.

JOREI:

And the team feels like an issue of fictitious sales

is very likely.

MICHAEL:

Also, in verifying the company’s assertion of

existence as to its classes of PPE, we noticed how
some of the items of PPE listed in your FS were
nonexistent upon our warehouse and site visit.

JOREI:

Not only that, but when we went to the actual site, we

noticed that some items of your equipment were already
unusable. Yet, its stated value in your FS did not
reflect its true condition, which heavily overstates
your total assets.

AR-RAHMAN:

And unfortunately, these misstatements could result

from us issuing a qualified opinion only.

CARL:

Ahh, I see what you guys are doing, you’re probably

just asking for a raise, huh? So how much? 100k? 200K?

Auditors showing confused expressions.

AR-RAHMAN:

Sir, that’s not what we’re here for.

 CARL:

Guys, I know your company is quite in a tight spot

financially at the moment.

CEO gestures the secretary to write a cheque.

PJ:

Yes, sir.

Secretary writes the cheque.

PJ:

Here’s a check for 200k. You will be holding on to

this until you make a decision.

Secretary hands the cheque to the senior auditor.

CARL:

There, I assume this meeting is over?

MICHAEL:

Sir, I don’t think you understand the gravity of your

situation. We’re not just talking about a peso or two
here; we’re talking millions.

JOREI:

Yeah, you can’t just buy your way out of this. The
misstatements that we found have some very serious
implications.

CARL:

Is that a threat? Mr. Senior, need I remind you and

your juniors that we’re the leading investment
corporation here in the country and that we are your
BIGGEST client? Need i remind you how much audit fee
your company has received from our last engagements
alone?
 PJ:

Based on the records, you already received P3M for the

past two years.

AR-RAHMAN:

Guys, control yourselves.

CARL:

Finally, a person with some sense. Anyway, Imma leave

you this cheque. Think about it and think about it
hard. Oh, and by the way, just a heads-up, we will
replace you with another auditing firm, should you
express a qualified opinion, and you don’t wanna lose
us, do you?

Anyway, I have more important things to attend to so

if you don’t mind…

CEO leaves the office.

CUT TO:

INT. ACCOUNTING ACE OFFICE - MORNING 6

NARRATOR:

Despite all the confusions due to the conversation

with the client company, the audit team held an urgent
meeting.

AR-RAHMAN:

It seems that we don’t have a choice. The client wants

an unqualified opinion. We have to comply if we want
to keep this engagement.
 MICHAEL:

But Sir, with all due respect, compliance with

unethical demands is a violation of the code of ethics
and against our principles as auditors. We cannot turn
a blind eye to material misstatements and fraud.

AR-RAHMAN:

I understand your concern, Michael, but if we push

back, they will find another firm that is willing to
do their bidding. They are our biggest client. Losing
them would be too risky for us given our current
financial condition.

JOREI:

Yeah, I just realized that given our current

circumstance, we could use a little extra, you know,
incentive.

MICHAEL:

Sir, maybe we can find another client. As long as we

continue to practice integrity, professional
competence and due care, and professional behavior and
we are not involved in any business scandals, our firm
will continue to foster and more clients will come to
us. Sir, we have to protect our reputation.

JOREI:

Come on, Michael. We’re not saints. We are auditors

trying to make a living. To do that, sometimes you
have to bend the rules to survive.

MICHAEL:

We took an oath, an oath to serve the public’s

interest, to ensure transparency and honesty. If we
cave in to this pressure, what’s the point of being
 auditors? We have to stand firm, or our profession
means nothing.

AR-RAHMAN:

We are in a really vulnerable position. I’m afraid

there is nothing much we can do.

MICHAEL:

The Code of Ethics states that we can report this to

the higher ups, the regulators and they will help us
decide on this matter.

JOREI:

And what if they don’t listen, Michael? Remember that

our client also has the biggest influence in the
industry. They are very well-known and have lot of
connections. We might lose our jobs, and for what? A
futile attempt at being noble?

MICHAEL:

But… Sir [looking at AR] [worried]

AR-RAHMAN:

I’ve made my decision. We will issue the unqualified

opinion. We cannot risk this. Michael, please
understand the stakes.

MICHAEL:

I fully understand and I’ve decided that I won’t be a

part of this. I am sorry, but I am leaving this firm.
I’ll send my resignation letter tomorrow. Good luck,
everyone.

Michael leaves the room.

AR and Jorei sigh in disbelief.

 CUT TO:

INT. DIAMOND AUDITING SERVICES OFFICE - MORNING 7

NARRATOR:

After his resignation, Michael applied in a new audit

firm whose values align with his. Five years later, in
his new firm, Michael learns that Pinoy Investment
Corporation has collapsed due to the very
misstatements his old team tolerated.

Jannah goes to Michael showing him a news article. It reads,

"Shareholders of Collapsed Company Sue Audit Firm, Alleging
Negligence"

JANNAH:

Hey, Michael, have you seen this?

Jannah shows Michael the article on her phone.

MICHAEL:

What is it?

JANNAH:

It's about your old firm, apparently, they're being

sued for negligence by the shareholders of that
company you used to audit.

Michael checks the news article.

MICHAEL:

Wow, I can't believe it.

JANNAH:

I know. It's pretty crazy.

 MICHAEL:

You know, looking back, quitting that job was the

hardest decision of my life. My boss was pressuring me
to give the company an unqualified opinion. I just
couldn't compromise my integrity, so I quit right then
and there. But I knew it was the right thing to do. I
am proud of myself for standing up for what I believed
in, even when it was hard.

JANNAH:

That's terrible! But you know what, you're a good

Auditor, Michael, and you deserve to work for a firm
that shares your values. We're glad to have you here.

MICHAEL:

Thank you, Jannah, I really appreciate that. I am

grateful to be working with you and all the amazing
people at this firm.

Michael smiles and closes the article.

Both Jannah and Michael continue working.

CUT TO:

CONCLUSION 8

NARRATOR:

Pinoy Investment Corporation employed bribery and

threats to pressure the auditors into rigging the
audit in their favor. As a consequence, the audit team
was divided over how to balance professional ethics
with client pressure.

Pinoy Investment Corporation’s unethical behavior and

the auditors' compromised ethics are a cautionary tale
for all accountants. The conflict emphasizes the
essential of upholding professional ethics and
highlights the importance of abiding by the
Philippines' Code of Ethics for Professional
Accountants. Accountants must uphold the values in the
Code, especially in difficult situations. These
guidelines help accountants make sound decisions,
maintain transparency, and ensure the accuracy and
reliability of financial information.