PROCEDURES AND REPORTS

ON SPECIAL PURPOSE AUDIT

ENGAGEMENTS
A. Audits of Financial Statements Prepared in
Accordance with Special Purpose Framework

⮚General Considerations

PSA 800, “Special Considerations – Audit of Financial

Statements Prepared in Accordance with Special Purpose
Frameworks.” deals with special considerations in the
application of PSAs to an audit of financial statements
prepared in accordance with a special framework.
 EXAMPLES OF
SPECIAL PURPOSE FRAMEWORK:
⮚A tax basis of accounting for a set of financial statements that accompany
an entity’s tax return
⮚The cash receipts and disbursements basis of accounting for cash flow
information that an entity may be requested to prepare for creditors.
⮚The financial reporting provisions established by a regulator to meet the
requirements of that regulator
⮚The financial reporting provisions of a contract, such as a bond indenture,
a loan agreement, or a project grant
 REQUIREMENTS
General considerations and principles should be observed:
⮚The auditor should determine the acceptability of the financial reporting
framework applied in the preparation of the financial statement. The auditor
should obtain an understanding of;
a) The purpose for which the financial statements are prepared
b) The intended users
c) The steps taken by management to determine that the applicable
financial reporting framework is acceptable in the circumstance
⮚In planning and performing an audit of special purpose financial statements,
the auditor shall determine whether application of the PSAs requires special
consideration in the circumstances of the engagement.
 REQUIREMENTS (cont.)
⮚The auditor is required to obtain an understanding of the entity’s
selection and application of accounting policies.
⮚When forming an opinion and reporting on special purpose financial
statements, the auditor shall apply the requirements in PSA 700.

PSA 700, requires the auditor to evaluate whether the financial statements
adequately prepare to or describe the applicable financial reporting
framework.
 REQUIREMENTS (cont.)
⮚The auditor’s report on special purpose financial statements should:
a) Shall also describe the purpose which the financial statements are prepared and, if
necessary, the intended users, or refer to a note in the special purpose financial
statements that contains that information

b) If the management has a choice of financial reporting frameworks in the

preparation of such financial statements, the explanation of management’s
responsibility for the financial statement shall also make reference to its
responsibility for determining that the applicable financial reporting framework if
acceptable in the circumstances

c) Shall include an Emphasis of Matter paragraph alerting users of the auditor’s

report that the financial statements are prepared in accordance with a special
purpose framework. The auditor shall include this paragraph under an appropriate
heading.
 ILLUSTRATION OF
AUDITOR’S REPORTS ON
FINANCIAL STATEMENTS
PREPARED IN ACCORDANCE
WITH SPECIAL PURPOSE
FRAMEWORK
B. Audits of Single Financial Statements and Specific
Elements, Accounts or Items of a Financial Statement

PSA 805, “Special Considerations – Audit of Single

Financial Statements and Specific Elements, Accounts
or Items of a Financial Statement,” deals with special
considerations in the application of those PSAs to an audit
of a single financial statement or of a specific element,
account or item of a financial statement may be prepared in
accordance with a general or special purpose framework.
 EXAMPLES OF SPECIFIC ELEMENTS, ACCOUNTS OR
ITEMS OF A FINANCIAL STATEMENT:
⮚Accounts receivable, allowance for doubtful accounts receivable, inventory, the
liability for accrued benefits of a private pension plan, the recorded value of
identified intangible assets, or the liability for “incurred but not reported”
claims in an insurance portfolio, including related notes
⮚A schedule of externally managed assets and income of a private pension plan,
including related notes
⮚A schedule of disbursements in relation to Alease property, including
explanatory notes
⮚A schedule of profit participation or employee bonuses, including explanatory
notes.
 REQUIREMENTS
The following guidelines should be observe:
⮚The auditor is required to comply with all PSAs relevant to the audit
⮚The auditor is required to determine the acceptability of the financial reporting
framework applied in the preparation of the financial statements
⮚PSA 210 requires that the agreed terms of the audit engagement include the
expected form of any reports to be issued by the auditor.
⮚PSA 200 states that PSAs are written in the context of an audit of financial
statements, they are to be adapted as necessary in the circumstances when
applied to audits of other historical financial information.
 REQUIREMENTS (cont.)
⮚When forming an opinion and reporting on a single financial statement or on a specific
element of a financial statements, the auditor shall apply the requirements in PSA 700,
adapted as necessary in the circumstances of the engagement
⮚Ifthe auditor undertakes an engagement to report on single financial statement or on a
specific element of a financial statements in conjunction with an engagement to audit
the entity’s complete set of financial statements, the auditor shall express a separate
opinion for each engagements
⮚If the opinion in the auditor’s report on an entity’s complete set of financial statements
is modified, or that report includes an Emphasis of Matter paragraph, the auditor shall
determine the effect that this may have on the auditor’s report. When deemed
appropriate, the auditor shall modify the opinion on the auditor’s report, accordingly.
⮚Ifthe auditor concludes that it is necessary to express an adverse opinion or disclaim
an opinion on the entity’s complete set of financial statements as a whole, PSA 705
does not permit auditor to include in the same auditor’s report an unmodified opinion.
 REQUIREMENTS (cont.)
⮚If the auditor concludes that it is necessary to express an adverse opinion or disclaim an
opinion on the entity’s complete set of financial statements as a whole but, in the context of
separate audit of a specific element that is included in those financial statements, the auditor
nevertheless considers it appropriate to express an unmodified opinion on that element, that
auditor shall only do so if:
a) The auditor is not prohibited by law or regulation from doing so;
b) That opinion is expressed in an auditor’s report that is not published together with the
auditor’s report containing the adverse opinion or disclaimer of opinion
c) The specific element does not constitute a major portion of the entity’s complete set
of financial statements
⮚The auditor shall not express an unmodified opinion on a single financial statements of a
complete set of financial statements if the auditor has expressed an adverse opinion or
disclaimed an opinion on the complete set of financial statement as a whole.
 ILLUSTRATION OF
AUDITOR’S REPORTS ON
SINGLE FINANCIAL
AND ON A
SPECIFIC ELEMENT OF A
FINANCIAL STATEMENT
C. SUMMARIZED FINANCIAL STATEMENTS

PSA 810 “Engagement to Report on Summary

Financial Statements,” deals with the auditor’s
responsibilities when undertaking an engagement to report
on summary financial statements derived from financial
statements audited in accordance with PSAs by that same
auditor.
 REQUIREMENTS
Engagement Acceptance
• The audit of the financial statements from which the summary financial
statements are derived provides the auditor with the necessary
knowledge to discharge the auditor’s responsibilities. Application of this
PSA will not provide sufficient appropriate evidence on which to base
the opinion on the summary financial statements if the auditor has not
also audited the financial statements from which the summary financial
statements derived.
 CRITERIA
• Management is responsible for the determination of the information that needs to be
reflected in the summary financial statements so that they are consistent, in all
material respects, with or represent a fait summary of audited financial statements.
Factors that may affect the auditor’s determination of the acceptability of the applied
criteria include:
1. The nature of the entity
2. The purpose of the summary financial statement
3. The information needs of the intended users of the summary financial statements
4. Whether the applied criteria will result in summary financial statements that are
not misleading in the circumstances.
 CRITERIA (cont.)
Timing of Work and Events Subsequent to the Date of the Auditor’s
Report on the Audited Financial Statements
• When the auditor reports on the summary financial statements after the
completion of the audit of the financial statements, the auditor is not
required to obtain additional audit evidence on the audited financial
statements, or report on the effects of events that occurred subsequent to
the date of the auditor’s report on the audited financial statements since
the summary financial statements are derived from the audited financial
statements and do not update them.
 Auditor’s Report on Summary Financial Statements
Elements of the Auditor’s Report
⮚Title

-a title indicating the report is the report of an independent auditor. This distinguishes
the report of the independent auditor from reports issued by others.
⮚Addressee

-factors that may affect the auditor’s evaluation of the appropriateness of the addressee
of the summary of financial statements include the terms of the engagement, the nature of
the entity, and the purpose of the summary financial statements.
COMPARATIVES
If the audited financial statements contain comparatives, there is a presumption that the
summary financial statements also would contain comparatives.
Comparatives in Audited Financial Statements – may be regarded as corresponding
figures or as comparative financial information.
NONAUDIT ENGAGEMENTS:
PROCEDURES AND REPORTS
 EXAMINATION OF
PROSPECTIVE FINANCIAL INFORMATION

PSAE 3400, “The Examination of Prospective Financial

Information” establishes standards and provides guidance
on engagements to examine and report on prospective
financial information including examination procedures for
best-estimate and hypothetical assumptions.
 GENERAL GUIDELINES
●Acceptance of Engagement
●Nature and Purpose of Prospective Financial
Information
●Approach and Assurance Regarding Prospective
Financial Information
●Knowledge of the Business
●Examination Procedures
●Presentation and Disclosure
●Report on Examination of Prospective Financial
Information
 ACCEPTANCE OF ENGAGEMENT
• The intended use of the information
• Whether the information will be for general or limited
distribution
• The nature of the assumptions, that is, whether they are best-
estimate or hypothetical assumptions
• The elements to be included in the information
• The period covered by the information
 NATURE AND PURPOSE OF
PROSPECTIVE FINANCIAL INFORMATION

Prospective financial information can include financial statement

o 1 or more elements of financial statement and may be
prepared:
a. As an internal management tool
b. For distribution to third parties
 APPROACH AND ASSURANCE REGARDING
PROSPECTIVE FINANCIAL INFORMATION
The auditor should obtain sufficient appropriate evidence as to whether:
a. Management’s best-estimate assumptions on which the prospective financial
information is based are not unreasonable and, in the case of hypothetical
assumptions, such assumptions are consistent with the purpose of the information.
b. The prospective financial information is properly prepared on the basis of the
assumptions
c. The prospective financial information is properly presented and all material
assumptions are adequately disclosed.
d. The prospective financial information is prepared on a consistent basis with
financial statements, using appropriate accounting principles
 KNOWLEDGE OF THE BUSINESS
The auditor would need to become familiar with the entity’s process for
preparing financial information by considering the following:
• Internal controls over the system
• Nature of the documentation
• Extent to which techniques are used
• Methods used to develop and apply assumptions
• Accuracy of prospective financial information prepared
 EXAMINATION PROCEDURES
When determining the nature, timing, and extent of examination
procedures the auditor’s considerations should include:
a. The likelihood of material misstatement
b. The knowledge obtained during any previous engagement
c. Management’s competence regarding the preparation of prospective
financial information
d. The extent to which the prospective financial information is affected by
the management’s judgment
e. The adequacy and reliability of the underlying data
 PRESENTATION AND DISCLOSURE
The auditor will need to consider whether:
a. The presentation is informative and not misleading
b. Accounting policies are clearly disclosed
c. Assumptions are adequately disclosed
d. Date as of which the prospective financial information was prepared is
disclosed
e. Basis of establishing points in a range is clearly indicate
f. Any change in accounting policy
 REPORT AND EXAMINATION OF PROSPECTIVE
FINANCIAL INFORMATION
a. Title
b. Addressee
c. Identification of the prospective financial information
d. A reference to the Philippine Standards on Auditing applicable to the
examination
e. A statement that management is responsible for the prospective
financial information
f. When applicable, a reference to the purpose and/or restricted
distribution
 REPORT AND EXAMINATION OF PROSPECTIVE
FINANCIAL INFORMATION
g. A statement of negative assurance
h. An opinion that is properly prepared on the basis of the assumptions
i. Appropriate caveats concerning the achievability by the prospective
financial information
j. Auditor’s address
k. Signature
 ENGAGEMENTS TO REVIEW
FINANCIAL STATEMENTS

Philippine Standard on Review Engagements (PSRE) 2400,

“Engagements to Review Financial Statements” is directed
towards the review of financial statements. However, it is to be
applied, adapted as necessary in the circumstances, to the extent
practicable to engagements to review other historical financial or
other information. Guidance in the Philippine Standard on
Auditing (PSA) may be useful to the practitioner in applying this
PSRE.
 NATURE OF SERVICE

Review involves limited investigations of much narrower

scope than an audit and undertaken for the purpose of
providing limited (negative) assurance that the statements
are presented in accordance with PFRS.
 OBJECTIVE OF A REVIEW ENGAGEMENT

To enable an auditor to state whether, on the basis od procedures

which do not provide all the evidence that would required in an
audit, anything has come to the auditor’s attention that causes the
auditor to believe that the FS are not prepared, in all material
aspects, in accordance with an identified financial reporting
framework (negative assurance).
 GENDER PRINCIPLES
a. Independence
b. Integrity
c. Objectivity
d. Professional competence and due care
e. Confidentiality
f. Professional behavior
g. Technical standards
SCOPE OF A REVIEW
It refers to the review procedures deemed necessary in the
circumstances to achieve the objective of the review.

MODERATE ASSURANCE
A review engagement provides a moderate level of
assurance that the information subject to review is free of
material misstatement, that is expressed in the form of
negative assurance.
TERMS OF ENGAGEMENT

The agreed terms would be recorded in an engagement letter or

other suitable form such as a contract.
An engagement letter will be assistance in planning the review
work. It is in the interest of both the auditor and the client that
the auditor send an engagement letter documenting the key terms
of the appointment.
 MATTERS THAT WOULD BE INCLUDED IN THE
ENGAGEMENT LETTER
• Objective of the service performed
• Management’s responsibility for the financial statement
• Scope of the review
• Unrestricted access to information requested
• Sample of the report
• Fact that engagement cannot be relied upon to disclose errors
• Statement that the audit is not being performed and that an audit
opinion will not be expressed
 PLANNING
The auditor should apply judgment in determining specific nature, timing
and extent of review procedure. The auditor should will be guided by such
matters as:
• Any knowledge acquired by carrying out audits or reviews of the FS for
prior periods
• Auditor’s knowledge of the business including knowledge of the
accounting principles
• Entity’s accounting systems
• The extent to which a particular item is affected by management
judgment
• Materiality of transactions and account balances
 PROCEDURES FOR THE REVIEW

Procedures for the review of FS will ordinarily include:

• Obtaining an understanding of the entity’s business
• Inquiries concerning the entity’s accounting principles
• Inquiries concerning the entity’s procedures accumulating
information for disclosure
• Inquiries concerning all material assertions in FS
• Analytical procedures designed to identity relationships and
individual items that appear unusual
 PROCEDURES FOR THE REVIEW

In applying procedures, the auditor would consider the types of matters

that required accounting adjustments in prior periods:
• Inquiries concerning actions taken at meeting of shareholders, BOD,
committees, and other meeting that may affect the FS
• Reading FS to consider whether FS appear to conform with the basis of
accounting indicated
• Obtaining reports from other auditors who have been engaged to audit or
review of FS of the component of entity
• Inquiries of persons having responsibility for financial and accounting
matters.
 CONCLUSIONS AND REPORTING
The report on a review of FS should contain the following basic elements,
ordinarily include the following layout:
a. Title
b. Addressee
c. Opening or inductor paragraph
d. Scope paragraph, describing the nature of a review
e. Statement of negative assurance
f. Date of the report
g. Auditor’s address
h. Auditor’s signature
 CONCLUSIONS AND REPORTING
The review report should:
a. State the nothing has come to the auditor's attention based on the
review that causes the auditor to believe the FS are not presented
fairly, in all material aspects, in accordance with the identified
financial reporting framework
b. If matters have come to the auditor's attention, describe those matters
that impair a fair presentation, in all material aspects, in accordance
with the identified financial reporting framework, including, unless
impracticable, a quantification of the possible effect(s) on the FS
c. If there has been a material scope limitation, describe the limitation.
ENGAGEMENT TO PERFORM
AGREED-UPON PROCEDURES
REGARDING FINANCIAL
INFORMATION
 ENGAGEMENT TO PERFORM AGREED-UPON PROCEDURES
REGARDING FINANCIAL INFORMATION

Philippine Standard on Related Services (PSRS) 4400, “Engagement

to Perform Agreed-upon Procedures Regarding Financial
Information” establishes standards and provides guidance on the
auditor's professiinal responsibilities when an engagement to perform
aggreed-upon procedures regarding financial information is
undertaken and on the form and content of the report that the auditor
issues in connection with such an engagement.
 OBJECTIVE OF AN AGREED-UPOB PROCEDURE
ENGAGEMENT

The objective of an agreed-upon procedures engagement is for the

auditor to carry out procedures of an audit nature to which the auditor
and teh entity and any appropriate third parties have agreed and to
report on factual findings.
 GENERAL PRINCIPLES

Ethical principles giverning the auditor's professional responsibilities

for this type of engagement are:
A. Integrity
B. Objectivity
C. Professional competence and due care
D. Confidentiality
E. Professional behavior
F. Technical standards
The auditor should ensure with representative of the entity and,
ordinarily, other specified parties who will receive copies of the
report of factual finding. Matters to be agreed include:
• Nature of the engagement
• Stated purpose for the engagement
• Identification of financial information
• Nature, timing and extent of the specific procedures applied
• Anticipated form of the report of factual findings
• Limitations on distribution of the report of factual findings
 PROCEDURE

The auditor should document matters which are important in

providing evidence to support the report of the factual findings, and
evidence that the engagement was carried out in accordance with
PSRE 4400 and the terms of the engagement. The procedures applied
my include:
● Inquiry and analysis
● Recomputation, comparison and other clarical accuracy checks
● Observation
● Inspection
● Obtaining confirmation
 FACTUAL FINDINGS SHOULD CONTAIN THE FOLLOWING

A. Title
B. Addressee
C. Identification of specific financial or nonfinancial information
D. Statement taht the procedures performed were those agreed upon
with teh recipient
E. Statement that the engagement was performed in accordance with
PSA applicable to agreed-upob procedures engagement
F. Statement taht the auditor is not independent of tge entity
G. Identification of the purpose
 FACTUAL FINDINGS SHOULD CONTAIN THE FOLLOWING

H. Listing of the specific procedures performed

I. Description of the auditor's factual findings
J. Statement taht the procedures performed do not constitute either as audit or review
and no assurance is expressed
K. Statement that had the auditor performed additional procedure
L. Statement that the report is restricted to those parties
M. Statement that the report relates only to the elements, accounts and tgat it does not
extend t entity's FS
N. Date of the report
O. Auditor's address
P. Auditor's signature
ENGAGEMENT TO COMPILE
FINANCIAL INFORMATION
 IDK

Philippine Standard on Related Services (PSRS) 4410, “Engagements to Compile

Financial Information” establishes standards and provides guidance on the
accountant's professional responsibilities ehen an engagement to compile financial
information is undertaken and the form and content of the report that the accountant
issues in connection with such as compilation
 NATURE OF SERVICE

It involves the preparation of FS from teh accounting records and other representation
of the client.
Teh purpose of a compilation is to organize the client's representations into the format
of FS. If the accountants submit FS that they have generated, or materially altered, to
their client or another party, they are required, at a minimum, to compile and report on
the FS.
 OBJECTIVE OF THE COMPILATION ENGAGEMENT

Its objective is for the accountant to use accounting expertise, as opposed to auditing
expertise, to collect, classify, and summarize financial information.
A compilation would ordinarily include the preparation of FS but may also include the
collection, classification, and summarization of other financial information.
 GENERAL PRINCIPLES

• Integrity
• Objectivity
• Professional competence and due care
• Confidentiality
• Professional behavior
• Technical standards
 DEFINIBG THE TERMS OF THE ENGAGEMENT

• Nature of the engagement

• Facts that engagement cannot be relied upon to disclose errors, illegal acts or other
irregularities
• Nature of financial information
• Fact the management is responsible for the accuracy and completeness of the
information
• Basis of accounting
• Intended use and distribution of the information
• Form of report to be rendered
 PROCEDURES

• Plan the work

• Documet matters that are important in providing evidence
• Obtain general knowledge of the business and operations of the entity and should
be familiar eith the accounting principles abd practices of the industry
• Read the compiled information and consider whether it appears to be appropriate
in form and free from obvious material misstatement
 RESPONSIBILITY OF MANAGEMENT

The accountant should obtain an acknowledgement from management of its

responsibility for the appropriate presentation of the financial information and of
its approval of the financial information. Such acknowledgement may be provided
by representatiosns from management which covers the accuracy and
completeness of the underlying accountinf data abd the complete disclosure of all
material and relevant information tot he accountant.
 REPORTING

• Title
• Addressee
• Statement that the engagement was performed in accordance with the audit
standards applicable
• When relevant, a statement taht accountant is not independent of the entity
• The indentifucation of financial information noting that it is based ib information
provided by management
• Statement taht management is responsible for the financial information compiled
by the accountant
 REPORTING

• Statement taht neither an audit notr a review has been carried out abd that
accordingly no assurance is expressed on the FS
• A paragraph drawing attention to the disclosure of naterial departures from teh
idetifird financial reporting framework
• Date of the report
• Accountant's address
• Accountant signature
 ACCOUNTING SERVICES

Many clients request CPAs to perform accoutning services either addition to or instead
of attestation sevices. Reports resulting fron accounting services provide no explocit
assurance that the information constitutes a fair presentation. Because noe xplicit
assurance is provided, accountants performing such services need not be independent
of their client, although a lack of independence must be indicated in their report
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