THE NEW AUDITORS REPORT

RELEVANT AUDITOR REPORTING STANDARDS

Independent Auditors Reporting is currently
guided by the following standards:
- Philippine Standard on Auditing (PSA)
700 -The Independent Auditors Report
on a Complete Set of General Purpose
Financial Statements
- PSA 705 Modifications to the Opinion
in the Independent Auditors Report
- PSA 706 Emphasis of Matter
Paragraphs
and
Other
Matter
Paragraphs in the Independent
Auditors Report
- PSA 240 The Auditors Responsibility
to Consider Fraud in an Audit of
Financial Statements
- PSA 570 Going Concern
The Auditors Report contains the following:
- Title
- Addressee
- Introductory Paragraph
- Management Responsibility for the
Financial Statements
- Auditors Responsibility
- Basis for Modified Opinion (if
applicable)
- Auditors Opinion
- Emphasis of Matter (if applicable)
- Other Reporting Responsibilities (if
applicable)
- Signature of the Auditor
- Date of the Auditors Report
- Auditors Address
THE NEW AND REVISED AUDITOR REPORTING
STANDARDS
Released in January 2015
Effective for audits of financial statements for
periods ending on or after 15 December 2016

*Overarching Standard for Auditor Reporting

ISA 700 (Revised)
- New Key Audit Matters Section ISA 701
- Modifications of Auditors Opinion ISA
705 (Revised)
- Enhanced Auditor Reporting Related to
Going Concern ISA 570 (Revised)
- New Other Information Section ISA 720
(Revised)
*Revisions to ISAs 260 and 706 as a result of ISA
701and related conforming amendments to
ISAs 210, 220, 230, 510, 540, 600, 710
Status of adoption in the Philippines
- Adoption of these standards as
Philippine Standards on Auditing (PSA)
is in process
- Most likely to be adopted and with the
same effectivity -2016
THE NEW AUDITORS REPORT
Why the Change?
Foundation for the future of global auditor
reporting
and
improved
auditor
communications
Essential to the continued relevance of the
audit profession globally
- Audit opinion is valued, but could be
more informative
- Users want more relevant and decisionuseful information about the entity and
the financial statement audit.
The auditors report is the key deliverable
communicating the results of the audit process.
Investors and other financial statement users
have asked for a more informative auditors
reportin particular for auditors to provide
more relevant information to users.
Research, public consultations, and stakeholder
outreach, including global roundtables, indicate
that enhanced auditor reporting is critical to

influencing the perceived value of the financial

statement audit.
-IAASB
What are the Benefits?
Enhanced communication between auditors
and investors, as well as those charged with
corporate governance
Increased user confidence in audit reports and
financial statements
Increased transparency, audit quality, and
enhanced information value
Increased attention by management and
financial statement preparers to disclosures
referencing the auditor's report
Renewed auditor focus on matters to be
reported that could result in an increase in
professional skepticism
Enhanced financial reporting in the public
interest
What are the changes?
For All Entities must contain the following:
Title and addressee
Auditors Opinion
Basis for Opinion
Going Concern
Responsibilities for the Financial Statements
(FS)
Auditors Responsibilities for the Audit of the
FS
Other Reporting Responsibilities and Report
on Other Information (if applicable)
Name of the Engagement Partner (not new in
the Philippines)
Signature of the Auditor
Auditors Address
Date of the Auditors Report
For Listed Entities must include also the
following:
Key Audit Matters (KAM)

Report on Other Information

The Opinion
Changes include the following:
Opinion required to be presented first, unless
law or regulation may prescribe alternate
presentation
For unmodified opinion, either of these
phrases can be used:
(i) present fairly, in all material respects
(ii) give a true and fair view of (Note: based
on existing PSA, this is not applicable in the
Philippines)
INDEPENDENT AUDITORS REPORT
To the Shareholders of ABC Company
Report on the Audit of the Consolidated
Financial Statements
Opinion
We have audited the consolidated financial
statements of ABC Company and its subsidiaries
(the Group), which comprise the consolidated
statements of financial position as at December
31, 20X1 and 20X0, and the consolidated
statements
of
comprehensive
income,
consolidated statements of changes in equity
and consolidated statements of cash flows for
the years then ended, and notes to the
consolidated financial statements, including a
summary of significant accounting policies.
In our opinion, the accompanying consolidated
financial statements present fairly, in all
material respects, the consolidated financial
position of the Group as at December 31, 20X1
and 20X0, and its consolidated financial
performance and its consolidated cash flows for
the years then ended in accordance with

International Financial Reporting Standards

(IFRSs).

evidence we have obtained is sufficient and

appropriate to provide a basis for our opinion.

The Basis for Opinion

Going Concern
Report in accordance with ISA 570 (Revised)
Auditors report to focus more on Going
Concern
Explicit descriptions of managements and the
auditors responsibilities in relation to Going
Concern (refer to relevant sections in the
Auditors Report)
Separate Going Concern section required
when material uncertainty exists, with a
heading Material Uncertainty Related to Going
Concern

Inclusion of a Basis for Opinion

A new section and it follows the Opinion
Must provide the following:
- Statement that the audit was
conducted in accordance with ISA
- Reference to the section of the
auditors report that describes the
auditors responsibilities under the ISAs
- Statement that the audit evidence
obtained is sufficient and appropriate
to provide a basis for the auditors
opinion.
- Affirmative statement about the
auditors independence and fulfillment
of relevant ethical responsibilities, with
(i) Disclosure of the sources of
relevant ethical requirements;
(ii) Jurisdiction of origin; or
(iii)
Reference
to
the
International Ethics Standards Board for
Accountants Code of Ethics for
Professional Accountants (IESBA Code)
Basis for Opinion
We conducted our audits in accordance with
International Standards on Auditing (ISAs). Our
responsibilities under those standards are
further
described
in
the
Auditors
Responsibilities for the Audit of the Consolidated
Financial Statements section of our report. We
are independent of the Group in accordance
with the International Ethics Standards Board
for Accountants Code of Ethics for Professional
Accountants (IESBA Code), and we have fulfilled
our other ethical responsibilities in accordance
with the IESBA Code. We believe that the audit

Material Uncertainty Related to Going Concern

We draw attention to Note 6 in the financial
statements, which indicate that the Company
incurred a net loss of ZZZ during the year ended
December 31, 20X1 and, as of that date, the
Companys current liabilities exceeded its total
assets by YYY. As stated in Note 6, these events
or conditions, along with other matters as set
forth in Note 6, indicate that a material
uncertainty exists that may cast significant
doubt on the Companys ability to continue as a
going concern. Our opinion is not modified in
respect of this matter.
The Management Responsibilities and Those
Charged with Governance
Identification of Those Charged with
Governance (TCWG) within the Management
Responsibilities Section
Describe managements responsibility for
- Preparing the FS in accordance with
applicable accounting framework, and
internal controls

Assessing the entitys ability to continue

as a going concern (GC) and whether
the use GC is appropriate and related
matters are disclosed.
Identify those responsible for the oversight of
the financial reporting process, if different from
management.
Identification of Those Charged with
Governance
within
the
Management
Responsibilities Section
Responsibilities of Management and Those
Charged with Governance for the Consolidated
Financial Statements
Management is responsible for the preparation
and fair presentation of the consolidated
financial statements in accordance with IFRSs,
and for such internal control as management
determines is necessary to enable the
preparation
of
consolidated
financial
statements that are free from material
misstatement, whether due to fraud or error.
In preparing the consolidated financial
statements, management is responsible for
assessing the Groups ability to continue as a
going concern, disclosing, as applicable, matters
related to going concern and using the going
concern basis of accounting unless management
either intends to liquidate the Group or to cease
operations, or has no realistic alternative but to
do so.
Those charged with governance are responsible
for overseeing the Groups financial reporting
process.

Auditors Responsibilities for the Audit of the

Financial Statements
Expanded description of the Auditors
Responsibilities, including key features of the
audit
State objectives of the auditor:
(i) Obtain reasonable assurance about whether
the financial statements as a whole are free
from material misstatement, whether due to
fraud or error; and
(ii) Issue an auditors report that includes the
auditors opinion.
State level of assurance and that an audit
under ISA may not always detect a material
misstatement when it exist;
State that misstatement may arise from fraud
or error,
- Description why they considered
material; or
- Provide a definition or description of
materiality in accordance with the
applicable
financial
reporting
framework
*The additional information in the subsequent
slides to be presented under this section can
be included:
(i) Within the body of the auditors report;
(ii) Within an appendix to the auditors report,
in which case the auditors report shall include a
reference to the location of the appendix;
(iii) By a specific reference within the auditors
report to the location of such a description on a
website of an appropriate authority, where law,
regulation or national auditing standards
expressly permit the auditor to do so.
Additional statements:
(i) Exercise of professional judgment and
professional skepticism throughout the audit;
(ii) Describe an audit by stating that the
auditors responsibilities;

Identify and assess the risks of material

misstatement; design and perform
audit procedures responsive to those
risks; and obtain evidence obtain audit
evidence that is sufficient and
appropriate to provide a basis for the
auditors opinion;
Obtain an understanding of internal
control relevant to the audit
Evaluate the appropriateness of
accounting policies used and the
reasonableness of accounting estimates
and related disclosures made by
management.
Conclude on the appropriateness of
managements use of the going concern
basis of accounting
Evaluate the overall presentation,
structure and content of the financial
statements, including the disclosures

Additional statements for GROUP AUDIT:

(i) The auditors responsibilities are to obtain
sufficient appropriate audit evidence regarding
the financial information of the entities or
business activities within the group to express
an opinion on the group financial statements;
(ii) The auditor is responsible for the direction,
supervision and performance of the group
audit; and
(iii) The auditor remains solely responsible for
the auditors opinion
Other statements:
(i) State that the auditor communicates with
TCWG regarding, among other matters, the
planned scope and timing of the audit and
significant audit findings,
(ii) For listed entities, state that the auditor
provides those charged with governance with a
statement that the auditor has complied with
relevant ethical requirements regarding

independence and communicate with them all

relationships and other matters that may
reasonably be thought to bear on the auditors
independence
(iii) For listed entities and any other entities for
which key audit matters are communicated in
accordance with ISA 701, state that, from the
matters communicated with TCWG, the auditor
determines those matters that were of
most significance in the audit of the financial
statements of the current period
and are therefore the key audit matters.
Auditors Responsibilities for the Audit of the
Consolidated Financial Statements
Our objectives are to obtain reasonable
assurance about whether the consolidated
financial statements as a whole are free from
material misstatement, whether due to fraud or
error, and to issue an auditors report that
includes our opinion. Reasonable assurance is a
high level of assurance, but is not a guarantee
that an audit conducted in accordance with ISAs
will always detect a material misstatement
when it exists. Misstatements can arise from
fraud or error and are considered material if,
individually or in the aggregate, they could
reasonably be expected to influence the
economic decisions of users taken on the basis
of these consolidated financial statements.
As part of an audit in accordance with ISAs, we
exercise professional judgment and maintain
professional skepticism throughout the audit.
We also:
- Identify and assess the risks of material
misstatement of the consolidated
financial statements, whether due to
fraud or error, design and perform audit
procedures responsive to those risks,
and obtain audit evidence that is
sufficient and appropriate to provide a

basis for our opinion. The risk of not

detecting a material misstatement
resulting from fraud is higher than for
one resulting from error, as fraud may
involve collusion, forgery, intentional
omissions, misrepresentations, or the
override of internal control.
Obtain an understanding of internal
control relevant to the audit in order to
design audit procedures that are
appropriate in the circumstances, but
not for the purpose of expressing an
opinion on the effectiveness of the
Groups internal control.
Evaluate the appropriateness of
accounting policies used and the
reasonableness of accounting estimates
and related disclosures made by
management.
Conclude on the appropriateness of
managements use of the going concern
basis of accounting and, based on the
audit evidence obtained, whether a
material uncertainty exists related to
events or conditions that may cast
significant doubt on the Groups ability
to continue as a going concern. If we
conclude that a material uncertainty
exists, we are required to draw
attention in our auditors report to the
related disclosures in the consolidated
financial statements or, if such
disclosures are inadequate, to modify
our opinion. Our conclusions are based
on the audit evidence obtained up to
the date of our auditors report.
However, future events or conditions
may cause the Group to cease to
continue as a going concern.
Evaluate the overall presentation,
structure and content of the
consolidated financial statements,

including the disclosures, and whether

the consolidated financial statements
represent the underlying transactions
and events in a manner that achieves
fair presentation.
- Obtain sufficient appropriate audit
evidence regarding the financial
information of the entities or business
activities within the Group to express an
opinion on the consolidated financial
statements. We are responsible for the
direction, supervision and performance
of the group audit. We remain solely
responsible for our audit opinion.
We communicate with those charged with
governance regarding, among other matters,
the planned scope and timing of the audit and
significant audit findings, including any
significant deficiencies in internal control that
we identify during our audit.
We also provide those charged with governance
with a statement that we have complied with
relevant ethical requirements regarding
independence, and to communicate with them
all relationships and other matters that may
reasonably be thought to bear on our
independence, and where applicable, related
safeguards.
From the matters communicated with those
charged with governance, we determine those
matters that were of most significance in the
audit of the consolidated financial statements of
the current period and are therefore the key
audit matters. We describe these matters in our
auditors report unless law or regulation
precludes public disclosure about the matter or
when, in extremely rare circumstances, we
determine that a matter should not be
communicated in our report because the
adverse consequences of doing so would
reasonably be expected to outweigh the public
interest benefits of such communication.

The Other Reporting Responsibilities

A section on Other Reporting Responsibilities
The form and content of this section of the
auditors report would vary depending on the
nature of the auditors other reporting
responsibilities prescribed by local law,
regulation, or national auditing standards.
If applicable, titled as Report on Other Legal
and Regulatory Requirements or otherwise as
appropriate to the content of the section.
Should clearly differentiate the other
reporting responsibilities from the reporting
that is required by the ISAs.
The Engagement Partner, Signature and Report
Date
The Name of Engagement Partner and
Signature
Name of the Engagement Partner to be
included for audits of listed entities.
In rare circumstances, disclosure is reasonably
expected to lead to a significant personal
security threat
For intention not to include the name, the
auditor to discuss this intention with TCWG to
inform the auditors assessment of the
likelihood and severity of a significant personal
security threat.
Report on Other
Requirements

Legal

and

Regulatory

[The form and content of this section of the

auditors report would vary depending on the
nature of the auditors other reporting
responsibilities prescribed by local law,
regulation, or national auditing standards..]
The engagement partner on the audit resulting
in this independent auditors report is [name].
[Signature in the name of the audit firm, the

personal name of the auditor, or both, as

appropriate for the particular jurisdiction]
[Auditor Address]
[Date]
The Key Audit Matters (KAM)
KAM are defined as those matters that, in the
auditors professional judgment, were of most
significance in the audit of the financial
statements of the current period
KAM are selected from matters communicated
with those charged with the governance
(TCWG)
Law or regulation may require KAM for audits
of entities other than listed entities (i.e., public
entities)
Auditors may voluntary, or at the request of
management or TWCG, communicate KAM in
the auditors report for entities other than
listed.
The purpose of Key Audit Matters (KAM)
Enhance the communicative value of the
auditors report by providing greater
transparency about the audit that was
performed
Provide intended users of the financial
statements with additional information about
those matters that, in the auditors professional
judgment, were of most significance in the audit
of the financial statements of the current
period.
Provide intended users a basis to further
engage with management and those charged
with governance

The Decision-Making Framework for KAM

Matters that were communicated with

those charged with governance
- Matters that required significant
auditor attention
- Matters of most significance in the
audit
Always consider:
- Higher assessed risks and significant
risks
- Areas of significant management
judgment and estimation uncertainty
- Significant transactions or events
Matters that required significant auditors
attention Matters of most significant in the
audit
KAM is determined by the auditors
consideration of the
Nature and extent of communication with
TCWG
Importance to intended users understanding
of the FS
Nature and extent of audit effort needed to
address
Nature of the underlying accounting policy, its
complexity or subjectivity
Nature and materiality, quantitatively or
qualitatively, or corrected and accumulated
uncorrected misstatements due to fraud or
error (if any)
Severity of any control deficiencies identified
relevant to the matter (ifany)

Nature and severity of difficulties in applying

audit procedures, evaluating the results of
those procedures, and obtaining relevant and
reliable evidence

Whats included in the description of KAM in

the Auditors Report?
- Why the matter was considered to be a
KAM
- How the matter was addressed in the
audit
- Reference to the related disclosure(s), if
any
- The description of how the matter was
addressed in the audit may include
o Aspects of the auditors
response or approach
o Brief
overview
of
the
procedures performed
o Indication of the outcome of
the auditors procedures
o Key observations with respect
to the matters
Considerations in describing KAM
- KAM should be clear, concise,
understandable entity-specific and
avoid standardized or overly technical
language
- Description of a KAM should not
o Imply that the matter has not
been appropriately resolved by
the auditor in forming the
opinion of the financial
statements
o Contain or imply discrete
opinion on the separate
elements of the financial
statements
(a
piecemeal
opinion)

Are KAM always communicated in the auditors

report?
Auditor is required to include KAM unless:
- Law or regulation precludes disclosure
- In extreme rare circumstances, the
auditor determines that it should not be
communicated
o Adverse
consequences
of
communicating the KAM would
reasonably be expected to
outweigh the public interest
benefits of such communication
KAM is prohibited for a disclaimer of opinion,
but required for qualified or adverse opinion
In certain limited circumstances, there may be
no KAM to be communicated
- Still include a KAM section and mention
that there is no KAM
Common Examples of KAM
Goodwill
- Valuation of Financial Instruments
- Effects of New Accounting Standards
- Valuation of Defined Benefit Pension
Assets and Liabilities
- Revenue Recognition
- Going Concern Assessment
- Disposal of a Component
- Restructuring
Provision
and
Organizational Changes
Relationship of Emphasis of Matter (EOM) and
Other Matter (OM) Paragraphs and Modified
Opinions
- Concepts of EOM and OM paragraphs
are retained
- EOM and OM paragraphs cannot be
used as a substitute for communicating
a matter determined to be a KAM
- New requirement to use the term
Emphasis of Matter in the heading in

the auditors report when an EOM

paragraph is included
Matters that give rise to a modified
opinion are, by their nature, KAM

What are the Documentation Requirements?

- In accordance with ISA 230, ISA 701
requires the auditor to document the
professional judgments made about
o Why a matter that required
significant auditors attention is
or is not a KAM
o If there are no KAM, the
rationale why
o Why a matter determined to be
a KAM is not communicated
- No requirement to document the
rationale
for
why
matters
communicated to TCWG were not
matters that required significant
auditor attention.
Illustrative Report
Must include the following:
- Why the matter was considered to be a
KAM
- How the matter was addressed in the
audit
- Reference to the related disclosure(s), if
any
Note: Order of presentation is matter of
professional judgment and can be organized as
follows:
- In order of relative importance; or
- May correspond to the manner in which
matters are disclosed in the FS

Illustrative KAM -Why

considered to be a KAM

the

matter

was

Goodwill
Under IFRSs, the Group is required to annually
test the amount of goodwill for impairment.
This annual impairment test was significant to
our audit because the balance of XX as of
December 31, 20X1 is material to the financial
statements.
In addition, managements assessment process
is complex and highly judgmental and is based
on assumptions, specifically [describe certain
assumptions], which are affected by expected
future market or economic conditions,
particularly those in [name of country or
geographic area].
Illustrative KAM -How
addressed in the audit

the

matter

was

Goodwill
Our audit procedures included, among others,
using a valuation expert to assist us in
evaluating the assumptions and methodologies
used by the Group, in particular those relating
to the forecasted revenue growth and profit
margins for [name of business line]. We also
focused on the adequacy of the Groups
disclosures about those assumptions to which
the outcome of the impairment test is most
sensitive, that is, those that have the most
significant effect on the determination of the
recoverable amount of goodwill.
Illustrative KAM
Reference to the related disclosure
Goodwill
The Companys disclosures about goodwill are
included in Note 3, which specifically explains
that small changes in the key assumptions used

could give rise to an impairment of the goodwill

balance in the future.
Illustrative KAM -Why
considered to be a KAM

the

matter

was

Revenue Recognition
The amount of revenue and profit recognized in
the year on the sale of [name of product] and
aftermarket services is dependent on the
appropriate assessment of whether or not each
long-term aftermarket contract for services is
linked to or separate from the contract for sale
of [name of product]. As the commercial
arrangements can be complex, significant
judgment is applied in selecting the accounting
basis in each case. In our view, revenue
recognition is significant to our audit as the
Group might inappropriately account for sales
of [name of product] and long-term service
agreements as a single arrangement for
accounting purposes and this would usually lead
to revenue and profit being recognized too early
because the margin in the long-term service
agreement is usually higher than the margin in
the [name of product] sale agreement.
Illustrative KAM -How
addressed in the audit

the

matter

was

Revenue Recognition
Our audit procedures to address the risk of
material misstatement relating to revenue
recognition, which was considered to be a
significant risk, included:
- Testing of controls, assisted by our own
IT specialists, including, among others,
those over: input of individual
advertising campaigns terms and
pricing; comparison of those terms and
pricing data against the related
overarching contracts with advertising

agencies; and linkage to viewer data;

and
Detailed analysis of revenue and the
timing of its recognition based on
expectations derived from our industry
knowledge and external market data,
following up variances from our
expectations.

The Other Information

These are Information other than the
Financial Statements and Auditors Report
thereon (i.e. the management report and
chairmans statement)
Management is responsible for the other
information
Our opinion on the FS does not cover the
other information and we do not express any
form of assurance conclusion thereon.
We read and consider whether the other
information is materially inconsistent with the
FS or our knowledge obtained in the audit and if
there is material misstatement on this
information, we are required to report that fact
Illustrative #1-Other information is obtained
prior to the date of the auditor's report
Management is responsible for the other
information. The other information comprises
the [information included in the X report but
does not include the financial statements and
our auditors report thereon.]
Our opinion on the financial statements does
not cover the other information and we do not
express any form of assurance conclusion
thereon.
In connection with our audit of the financial
statements, our responsibility is to read the
other information and, in doing so, consider
whether the other information is materially

inconsistent with the financial statements or our

knowledge obtained in the audit or otherwise
appears to be materially misstated. If, based on
the work we have performed, we conclude that
there is a material misstatement of this other
information, we are required to report that fact.
We have nothing to report in this regard.
Illustrative #1-No other information prior to the
date of the auditors report
Management is responsible for the other
information. The other information comprises
the [information included in the X report, but
does not include the financial statements and
our auditors report thereon]. The X report is
expected to be made available to us after the
date of this auditor's report.
Our opinion on the financial statements does
not cover the other information and we will not
express any form of assurance conclusion
thereon.
In connection with our audit of the financial
statements, our responsibility is to read the
other information identified above when it
becomes available and, in doing so, consider
whether the other information is materially
inconsistent with the financial statements or our
knowledge obtained in the audit, or otherwise
appears to be materially misstated.
[When we read the X report, if we conclude that
there is a material misstatement therein, we are
required to communicate the matter to those
charged with governance and [describe actions
applicable in the