AUDMOD5 REPORTS OF OTHER ASSURANCE AND RELATED SERVICES

ENGAGEMENTS TO REVIEW FINANCIAL STATEMENTS (PSRE 2400)

1. The objective of a review of financial statements is to enable an auditor 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 auditor's attention that causes the auditor to believe that the
financial statements are not prepared, in all material respects, in accordance with Philippine
Financial Reporting Standards (negative assurance).

2. For the purpose of expressing negative assurance in the review report, the auditor should
obtain sufficient appropriate audit evidence primarily through inquiry and analytical
procedures to be able to draw conclusions.

3. A review engagement provides a moderate level of assurance that the information subject to
review is free of material misstatement. This is expressed in the form of negative assurance.

4. In planning a review of financial statements, the auditor should obtain or update the
knowledge of the business including consideration of the entity's organization, accounting
systems, operating characteristics and the nature of its assets, liabilities, revenues, and
expenses.

5. Procedures for the review of financial statements will ordinarily include:

 Obtaining an understanding of the entity's business and the industry in which it operates.
 Inquiries concerning the entity's
 Accounting principles and practices.
 Procedures for recording, classifying, and summarizing transactions, and accumulating
information for disclosures.
 Actions taken at meetings of stockholders, the board of directors, and committees.
 Analytical procedures designed to identify relationships and individual items that appear
unusual. Examples:
 Comparison of the financial statements with those from prior periods.
 Comparison of the statements with anticipated results, such as previously prepared
budgets or forecasts.
 Study of the relationships of the elements of the financial statements that are expected to
form a predictable pattern.
 Reading the financial statements to consider, on the basis of information coming to the
auditor's attention, whether the financial statements appear to conform with the basis of
accounting indicated.
 Obtaining reports from other auditors, if any and if considered necessary, who have been
engaged to audit or review the financial statements or components of the entity.
 Inquiries of persons having responsibility for financial 'and accounting matters concerning,
for example:
 Whether all transactions have been recorded.
 Whether the financial statements have been prepared in accordance with the basis of
accounting indicated.
 Changes in the entity's business activities and accounting principles and practices.
 Matters as to which questions have arisen in the course of applying the foregoing
procedures.
 Obtaining written representations from management when considered appropriate.

6. If the auditor has reason to believe that the information subject to review may be materially
misstated, the auditor should carry out additional or more extensive procedures as are
necessary to be able to express negative assurance or to confirm that a modified report is
required.

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EXAMPLE OF AN UNQUALIFIED REVIEW REPORT
We have reviewed the accompanying balance sheet of AAA Company at December 31, 20XX, and the related
statements of income, changes in equity and 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 conducted our review in accordance with the Philippine Standard on Review Engagements 2400. This Standard
requires that we plan and perform the review to obtain moderate assurance as to whether the financial statements
are free of material misstatement. A review is limited primarily to inquiries of company 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.

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.

ENGAGEMENTS ON AGREED-UPON PROCEDURES (PSRS 4400)

1. An engagement to perform agreed-upon procedures may involve the auditor in performing
certain procedures concerning:
 Individual items of financial data (for example, accounts payable, accounts receivable,
purchases from related parties and sales and profits of a segment of an entity).
 A financial statement (for example, a balance sheet).
 A complete set of financial statements.

2. 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 the entity and any appropriate third
parties have agreed and to report on factual findings.

3. As the auditor simply provides a report of the factual findings of agreed-upon procedures, no
assurance is expressed. Users of the report assess for themselves the procedures and
findings reported by the auditor and draw their own conclusions from the auditor's work.

4. The report is restricted to those parties that have agreed to the procedures to be performed
since others, unaware of the reasons for the procedures, may misinterpret the results.

5. Independence is not a requirement for an agreed-upon procedures engagement.

REPORTING
6. The report on an agreed-upon procedures engagement needs to describe the purpose and the
agreed-upon procedures of the engagement in sufficient detail to enable the reader to
understand the nature and the extent of the work performed.
7. The report of factual findings should contain:
 title;
 addressee (ordinarily the client who engaged the auditor to perform the agreed-upon
procedures);
 identification of specific financial or non-financial information to which the agreed-upon
procedures have been applied;
 a statement that the procedures performed were those agreed upon with the recipient;
 a statement that the engagement was performed in accordance with the Philippine Standard
on Related Services applicable to agreed-upon procedures engagements;
 a statement that the auditor is not independent of the entity if such is the case;
 identification of the purpose for which the agreed-upon procedures were performed;
 a listing of the specific procedures performed;
 a description of the auditor's factual findings including sufficient details of errors and
exceptions found;
 a statement that the procedures performed do not constitute either an audit or a review
and, as such, no assurance is expressed;
 a statement that had the auditor performed additional procedures, an audit or a review,
other matters might have come to light that would have been reported;

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  a statement that the report is restricted to those parties that have agreed to the procedures
to be performed;
 a statement (when applicable) that the report relates only to the elements, accounts, items
or financial and non-financial information specified and that it does not extend to the
entity's financial statements taken as a whole;
 date of the report;
 auditor's address; and
 auditor's signature.

ENGAGEMENTS TO COMPILE FINANCIAL INFORMATION (PSRS 4410)

1. A compilation engagement would ordinarily include the preparation of financial statements
(which may or may not be a complete set of financial statements) but may also include the
collection, classification and summarization of other financial information.

2. The objective of a compilation engagement is for the accountant to use accounting expertise, as
opposed to auditing expertise, to collect, classify and summarize financial information.

3. The procedures employed are not designed and do not enable the accountant to express any
assurance on the financial information.

4. Independence is not a requirement for a compilation engagement. However, where the

accountant is not independent, a statement to that effect would be made in the
accountant's report.

5. The accountant should obtain a general knowledge of the business and operations of the entity
and should be familiar with the accounting principles and practices of the industry in which
the entity operates and with the form and content of the financial information that is
appropriate in the circumstances.

6. The accountant is not ordinarily required to:

 Make any inquiries of management to assess the reliability and completeness of the
information provided;
 assess internal controls;
 verify any matters; or
 verify any explanations.

If the accountant becomes aware that information supplied by management is incorrect,

incomplete, or otherwise unsatisfactory, the accountant should consider performing the above
procedures and request management to provide additional information.

If management refuses to provide additional information, the accountant should withdraw

from the engagement, informing the entity of the reasons for the withdrawal.

7. The accountant should read the compiled information and consider whether it appears to be
appropriate in form and free from obvious material misstatements.

8. The accountant should obtain an acknowledgment from management of its responsibility for
the appropriate presentation of the financial information and of its approval of the financial
information.

9. The financial information compiled by the accountant should contain a reference such as
"Unaudited," "Compiled without Audit or Review," or "Refer to the Compilation Report" on
each page of the financial information or on the front of the complete set of financial
statements.

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Example of a report on an engagement to compile financial statements
On the basis of information provided by management we have compiled, in accordance with the Philippine Standard
on Related Services applicable to compilation engagements, the balance sheet of XXX Company as of December 31,
20XX and statements of income, changes in equity and cash flows for the year then ended. Management is responsible
for these financial statements. We have not audited or reviewed these financial statements and accordingly express no
assurance thereon.

THE EXAMINATION OF PROSPECTIVE FINANCIAL INFORMATION (PSAE 3400)

1. "PROSPECTIVE FINANCIAL INFORMATION” means financial information based on
assumptions about events that may occur in the future and possible actions by an entity. It can
be in the form of a forecast, a projection, or a combination of both, for example, a one year
forecast plus a five year projection.

2. A "FORECAST" means prospective financial information prepared on the basis of assumptions

as to future events which management expects to take place and the actions management
expects to take as of the date the information is prepared (best-estimate assumptions).

3. A "PROJECTION" means prospective financial information prepared on the basis of:

 hypothetical assumptions about future events and management actions which are not
necessarily expected to take place, such as when some entities are in a start-up phase or are
considering a major change in the nature of operations; or
 a mixture of best-estimate and hypothetical assumptions.

4. Prospective financial information can include financial statements or one or more elements of
financial statements and may be prepared:
 as an internal management tool, for example, to assist in evaluating a possible capital
investment; or
 for distribution to third parties.

5. Management is responsible for the preparation and presentation of the prospective financial
information, including the identification and disclosure of the assumptions on which it is
based.

6. In an engagement to examine prospective financial information, the auditor should obtain

sufficient appropriate evidence as to whether:
 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;
 the prospective financial information is properly presented and all material assumptions
are adequately disclosed, including a clear indication as to whether they are best-estimate
assumptions or hypothetical assumptions; and
 the prospective financial information is prepared on a consistent basis with historical
financial statements, using appropriate accounting principles.

7. The auditor should not express any opinion as to whether the results shown in the prospective
financial information will be achieved.

8. When reporting on the reasonableness of management's assumptions, the auditor provides

only a moderate level of assurance.

9. The auditor should not accept, or should withdraw from, an engagement when the
assumptions are clearly unrealistic or when the auditor believes that the prospective financial
information will be inappropriate for its intended use.

10. The auditor should obtain written representations from management regarding the intended
use of the prospective financial information, the completeness of significant management
assumptions and management's acceptance of its responsibility for the prospective financial
information.

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Example of an unmodified report on a forecast
We have examined the forecast (include name of the entity, the period covered by the forecast and provide suitable
identification such as by reference to page numbers or by identifying the individual statements) in accordance with
Philippine Standard on Assurance Engagements applicable to the examination of prospective financial information.
Management is responsible for the forecast including the assumptions set out in Note X on which it is based.

Based on our examination of the evidence supporting the assumptions, nothing has come to our attention which
causes us to believe that these assumptions do not provide a reasonable basis for the forecast. Further, in our opinion
the forecast is properly prepared on the basis of the assumptions and is presented in accordance with Philippine
Financial Reporting Standards.

Actual results are likely to be different from the forecast since anticipated events frequently do not occur as expected
and the variation may be material.

Example of an unmodified report on a projection

We have examined the projection (include name of the entity, the period covered by the forecast and provide suitable
identification. such as by reference to page numbers or by identifying the individual statements) in accordance with
Philippine Standard on Assurance Engagements applicable to the examination of prospective financial information.
Management is responsible for the projection including the assumptions set out in Note X on which it is based.

This projection has been prepared for (describe purpose). As the entity is in a start-up phase the projection has been
prepared using a set of assumptions that include hypothetical assumptions about future events and management's
actions that are not necessarily expected to occur. Consequently, readers are cautioned that this projection may not be
appropriate for purposes other than that described above.

Based on our examination of the evidence supporting the assumptions, nothing has come to our attention which
causes us to believe that these assumptions do not provide a reasonable basis for the projection, assuming that (state
or refer to the hypothetical assumptions). Further, in our opinion the projection is properly prepared on the basis of
the assumptions and is presented in accordance with Philippine Financial Reporting Standards.

Even if the events anticipated under the hypothetical assumptions described above occur, actual results are still likely
to be different from the projection since other anticipated events frequently do not occur as expected and the
variation may be material.

 When the auditor believes that the presentation and disclosure of the prospective
information is not adequate, the auditor should express a qualified or adverse opinion or
withdraw from the engagement as appropriate.

 When the auditor believes that one or more significant assumptions do not provide a
reasonable basis for the prospective financial information, the auditor should either express
an adverse opinion or withdraw from the engagement as appropriate.

 When the examination is affected by conditions that preclude application of one or more
procedures considered necessary in the circumstances, the auditor should either withdraw
from the engagement or disclaim the opinion describe the scope limitation in the report on
the prospective financial information.

MULTIPLE CHOICE QUESTIONS

1. Financial statements of an entity that have been reviewed by an accountant should be

accompanied by a report stating that a review
A. Provides only limited assurance that the financial statements are fairly presented.
B. Includes examining, on a test basis, information that is the representation of management.
C. Consists principally of inquiries of company personnel and analytical procedures applied to
financial data.
D. Does not contemplate obtaining corroborating evidential matter or applying certain other
procedures ordinarily performed during an audit.

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2. An accountant’s report on a review of the financial statements of an entity should state that the
accountant
A. Does not express an opinion or any form of limited assurance on the financial statements.
B. Conducted the review in accordance with the Philippine Standard on Review Engagements.
C. Obtained reasonable assurance about whether the financial statements are free of material
misstatements.
D. Examined evidence, on a test basis, supporting the amounts and disclosures in the financial
statements.

3. Financial statements of an entity that have been reviewed by an accountant should be

accompanied by a report stating that
A. The scope of the inquiry and analytical procedures performed by the accountant has not
been restricted.
B. The financial statements are the responsibility of the company’s management.
C. A review includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.
D. A review is greater in scope than a compilation, the objective of which is to present
financial statements that are free of material misstatements.

4. An accountant who reviews the financial statements of an entity should issue a report stating
that a review
A. Provides less assurance than an audit.
B. Provides negative assurance that internal control is functioning as designed.
C. Provides only limited assurance that the financial statements are fairly presented.
D. Is substantially more in scope than a compilation.

5. When compiling the financial statements of an entity, an accountant should

A. Review agreements with financial institutions for restrictions on cash balances.
B. Understand the accounting principles and practices of the entity's industry.
C. Inquire of key personnel concerning related parties and subsequent events.
D. Perform ratio analyses of the financial data of comparable prior periods.

6. When compiling an entity's financial statements, an accountant would be LEAST likely

A. Perform analytical procedures designed to identify relationships that appear to be unusual.
B. Read the compiled financial statements and consider whether they appear to include
adequate disclosure.
C. Obtain an acknowledgment from management of its responsibility for the financial
statements.
D. Plan the work so that an effective engagement will be performed.

7. Which of the following should NOT be included in an accountant's report based upon the
compilation of an entity's financial statements?
A. A statement that a compilation of the company's financial statements was made in
accordance with the Philippine Standard on Related Services applicable to compilation
engagements.
B. A statement that management is responsible for the financial statements.
C. A statement that the accountant has not audited or reviewed the statements.
D. A statement that the accountant does not express an opinion but provides only negative
assurance on the statements.

8. Negative assurance may be expressed when an accountant is requested to report agreed- upon
procedures to specified
Elements of a Accounts of a
Financial Statement Financial Statement
A. Yes Yes
B. Yes No
C. No No
D. No Yes

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9. An accountant may accept an engagement to apply agreed-upon procedures that are not
sufficient to express an opinion on one or more specified accounts or items of a financial
statement provided that
A. The accountant's report does not enumerate the procedures performed.
B. The financial statements are prepared in accordance with a comprehensive basis of
accounting other than generally accepted accounting principles.
C. Distribution of the accountant's report is restricted.
D. The accountant is also the entity's continuing auditor.

10. Given one or more hypothetical assumptions, a responsible party may prepare, to the best of
its knowledge and belief, an entity's expected financial position, results of operations, and cash
flows. Such prospective financial statements are known as
A. Pro forma financial statements C. Partial presentations
B. Financial projections D. Financial forecasts

11. A financial forecast consists of prospective financial statements that present an entity's
expected financial position, results of operations, and cash flows. A forecast
A. Is based on the most conservative estimates.
B. Present estimates given one or more hypothetical assumptions.
C. Unlike a projection, may contain a range.
D. Is based on assumptions reflecting conditions expected to exist and courses of action
expected to be taken.

12. When an accountant examines prospective financial statements, the accountant's report
should include a separate paragraph that
A. Contains an opinion as to whether the prospective financial statements are properly
prepared on the basis of the assumptions and are presented in accordance with generally
accepted accounting principles in the Philippines.
B. Provides an explanation of the differences between an examination and an audit.
C. States that the accountant is responsible for events and circumstances up to 1 year after
the report's date.
D. Disclaims an opinion on whether the assumptions provide a reasonable basis for the
prospective financial statements.

13. A prospective financial information prepared on the basis of assumptions as to future events
which management expects to take place and the actions management expects to take as of the
date the information-is prepared (best-estimate assumptions) is known as
A. Forecast C. Projection
B. Hypothetical financial information D. Best-estimate projection

14. The following statements relate to the examination of prospective financial information. Which
is false?
A. The auditor should express an opinion as to whether the results shown in the prospective
financial information will be achieved.
B. Before accepting an engagement to examine prospective financial information, the auditor
should consider the intended use of the information.
C. The auditor should not accept, or should withdraw from, an engagement to examine
prospective financial information when the assumptions-are clearly unrealistic.
D. When in the auditor's judgment an appropriate level of satisfaction has been obtained, the
auditor is not precluded from expressing positive assurance regarding the assumptions.

15. Which of the following is prospective financial information for general use upon which an
accountant may appropriately report?
A. Financial projection C. Pro forma financial statement
B. Partial presentation D. Financial forecast