Auditing And Assurance Standards Council
Auditing and Assurance Standards CouncilPhilippine Standard on Auditing (PSA) 700 (Revised)THE INDEPENDENT AUDITOR’S REPORTON A COMPLETE SET OF GENERAL PURPOSEFINANCIAL STATEMENTSConforming AmendmentsPSA 200, Objective and General Principles Governing an Audit ofFinancial StatementsPSA 210, Terms of Audit EngagementsPSA 560, Subsequent EventsPSA 701, Modifications to the Independent Auditor’s ReportPSA 800, The Independent Auditor’s Report on Special Purpose AuditEngagements
2PSA 700 (Revised)With Conforming AmendmentsTHE INDEPENDENT AUDITOR’S REPORT ON A COMPLETE SETOF GENERAL PURPOSE FINANCIAL STATEMENTSCONTENTSPagesPSA 700 (Revised), “The Independent Auditor’s Report on a CompleteSet of General Purpose Financial Statements”1Conforming AmendmentsPSA 200, “Objective and General Principles Governing anAudit of Financial Statements”25PSA 210, “Terms of Audit Engagements”44PSA 701, “Modifications to the Independent Auditor’s Report”56PSA 560, “Subsequent Events”66PSA 800, “The Independent Auditor’s Report on Special PurposeAudit Engagements”74Approval by the Auditing and Assurance Standards Council (AASC) Formerly Auditing Standards and Practices Council (ASPC).84
-1PSA 700 (Revised)PHILIPPINE STANDARD ON AUDITING 700 (REVISED)THE INDEPENDENT AUDITOR’S REPORT ON A COMPLETE SET OFGENERAL PURPOSE FINANCIAL STATEMENTS1(Effective for auditor’s reports dated on or after December 31, 2006)*CONTENTSParagraphsIntroduction .1-3The Auditor’s Report on Financial Statements . 4-15Elements of the Auditor’s Report in an Audit Conducted in Accordancewith PSAs .16-57Auditor’s Report . 58-60Auditor’s Report for Audits Conducted in Accordance with Both ISAsandPSAs.61-66Unaudited Supplementary Information Presented with AuditedFinancial Statements . 67-71Effective Date . 72-73Acknowledgment . 74-75Philippine Standard on Auditing (PSA) 700 (Revised), “The Independent Auditor’sReport on a Complete Set of General Purpose Financial Statements” should be read in thecontext of the “Preface to the Philippine Standards on Quality Control, Auditing,Assurance and Related Services,” which sets out the application and authority of PSAs.1This PSA is applicable for auditor’s reports on financial statements described in paragraph 1 of the PSA.* PSA 700 (Revised) gave rise to conforming amendments to PSA 200, “Objective and General Principles Governingan Audit of Financial Statements,” PSA 210, “Terms of Audit Engagements,” PSA 560, Subsequent Events,” PSA701, “Modifications to the Independent Auditor’s Report,” and PSA 800, “The Independent Auditor’s Report onSpecial Purpose Audit Engagements.”PSA 700, “The Auditor’s Reports on Financial Statements,” approved by the Auditing Standards and PracticesCouncil in 2002 will be withdrawn in December 31, 2006 when PSA 700 (Revised) becomes effective.
-2PSA 700 (Revised)The Independent Auditor’s Report on a Complete Set ofGeneral Purpose Financial StatementsIntroduction1.The purpose of this Philippine Standard on Auditing (PSA) is to establish standardsand provide guidance on the independent auditor’s report issued as a result of anaudit of a complete set of general purpose financial statements prepared inaccordance with a financial reporting framework that is designed to achieve fairpresentation. It also provides guidance on the matters the auditor considers informing an opinion on those financial statements. As described in PSA 200,“Objective and General Principles Governing an Audit of Financial Statements,”“general purpose financial statements” are financial statements prepared inaccordance with a financial reporting framework that is designed to meet thecommon information needs of a wide range of users.2.This PSA addresses circumstances when the auditor is able to express anunqualified opinion and no modification to the auditor’s report is necessary. PSA701, “Modifications to the Independent Auditor’s Report” establishes standards andprovides guidance on the modifications to this report for an emphasis of matter, aqualified opinion, a disclaimer of opinion, or an adverse opinion.3.PSA 800, “The Independent Auditor’s Report on Special Purpose AuditEngagements” establishes standards and provides guidance on the form and contentof the auditor’s report issued as a result of an audit of:(a)A complete set of financial statements prepared in accordance with anothercomprehensive basis of accounting;(b)A component of a complete set of general purpose or special purpose financialstatements, such as a single financial statement, specified accounts, elementsof accounts, or items in a financial statement;(c)Compliance with contractual agreements; and(d)Summarized financial statements.The Auditor’s Report on Financial Statements4.The auditor’s report should contain a clear expression of the auditor’s opinionon the financial statements.
-3PSA 700 (Revised)5.As stated in PSA 200, the objective of an audit of financial statements is to enablethe auditor to express an opinion whether the financial statements are prepared, inall material respects, in accordance with the applicable financial reportingframework.6.Unless required by law or regulation to use different wording, the auditor’s opinionon a complete set2 of general purpose financial statements prepared in accordancewith a financial reporting framework that is designed to achieve fair presentation(for purposes of this PSA referred to as “financial statements”) states whether thefinancial statements are presented fairly, in all material respects, in accordance withthe applicable financial reporting framework.7.In certain cases, law or regulation relating to the audit of financial statements mayprescribe wording for the auditor’s opinion that is different from the phrasesdescribed in paragraph 6. Although the auditor may be obliged to use theprescribed wording, the auditor’s responsibilities as described in this PSA forforming the opinion remain the same.8.When wording prescribed by law or regulation differs significantly from the phrasesin paragraph 6, the auditor carefully considers whether there may be a risk thatusers might misunderstand the assurance obtained in an audit of financialstatements. For example, the wording might convey to readers that the auditor isattesting to the accuracy of the financial statement amounts rather than expressingan opinion on whether the financial statements are presented fairly, in all materialrespects. In such circumstances, the auditor considers whether the risk ofmisunderstanding can be mitigated through appropriate explanation in the auditor’sreport (see PSA 701).2As explained in paragraph 35 of PSA 200, “Objective and General Principles Governing an audit ofFinancial Statements,” the financial reporting framework determines what constitutes a complete set offinancial statements. A complete set of financial statements under Philippine Financial ReportingStandards (PFRSs) comprises a balance sheet, an income statement, a statement of changes in equity, acash flow statement and a summary of significant accounting policies and other explanatory notes.
-4PSA 700 (Revised)Applicable Financial Reporting Framework9.The auditor’s judgment regarding whether the financial statements are presentedfairly, in all material respects, is made in the context of the applicable financialreporting framework. As discussed in PSA 210, “Terms of Audit Engagements,”without an acceptable financial reporting framework, the auditor does not havesuitable criteria for evaluating the entity’s financial statements. PSA 200 describesthe auditor’s responsibility to determine whether the financial reporting frameworkadopted by management in preparing the financial statements is acceptable.10. In the case of financial statements that are within the scope of this PSA, applicationof a financial reporting framework determined to be acceptable for general purposefinancial statements will, except in the extremely rare circumstances discussed inparagraph 15, result in financial statements that achieve fair presentation. Althoughthe financial reporting framework may not specify how to account for or disclose alltransactions or events, it ordinarily embodies sufficient broad principles that canserve as a basis for developing and applying accounting policies that are consistentwith the concepts underlying the requirements of the framework. Thus, thefinancial reporting framework provides a context for the auditor’s evaluation of thefair presentation of the financial statements, including whether the financialstatements have been prepared and presented in accordance with the specificrequirements of the applicable financial reporting framework for particular classesof transactions, account balances and disclosures.Forming an Opinion on the Financial Statements11. The auditor should evaluate the conclusions drawn from the audit evidenceobtained as the basis for forming an opinion on the financial statements.12. When forming an opinion on the financial statements, the auditor evaluateswhether, based on the audit evidence obtained, there is reasonable assurance aboutwhether the financial statements taken as a whole are free from materialmisstatement. This involves concluding whether sufficient appropriate auditevidence has been obtained to reduce to an acceptably low level the risks ofmaterial misstatement of the financial statements3 and evaluating the effects ofuncorrected misstatements identified.43See PSA 330, “The Auditor’s Procedures in Response to Assessed Risks.”4See PSA 320, “Audit Materiality.”
-5PSA 700 (Revised)13. Forming an opinion as to whether the financial statements are presented fairly, in allmaterial respects, in accordance with the applicable financial reporting frameworkinvolves evaluating whether the financial statements have been prepared andpresented in accordance with the specific requirements of the applicable financialreporting framework for particular classes of transactions, account balances anddisclosures. This evaluation includes considering whether, in the context of theapplicable financial reporting framework:(a)The accounting policies selected and applied are consistent with the financialreporting framework and are appropriate in the circumstances;(b)The accounting estimates made by management are reasonable in thecircumstances;(c)The information presented in the financial statements, including accountingpolicies, is relevant, reliable, comparable and understandable; and(d)The financial statements provide sufficient disclosures to enable users tounderstand the effect of material transactions and events on the informationconveyed in the financial statements, for example, in the case of financialstatements prepared in accordance with Philippine Financial ReportingStandards (PFRSs), the entity’s financial position, financial performance andcash flows.14. Forming an opinion as to whether the financial statements are presented fairly, in allmaterial respects, in accordance with the applicable financial reporting frameworkalso involves evaluating the fair presentation of the financial statements. Theauditor considers whether the financial statements, after any adjustments made bymanagement as a result of the audit process, are consistent with the auditor’sunderstanding of the entity and its environment. The auditor considers the overallpresentation, structure and content of the financial statements. The auditor alsoconsiders whether the financial statements, including the note disclosures, faithfullyrepresent the underlying transactions and events in a manner that presents fairly, inall material respects, the information conveyed in the financial statements in thecontext of the financial reporting framework. Analytical procedures performed ator near the end of the audit help to corroborate conclusions formed during the auditand assist in arriving at the overall conclusion as to the fair presentation of thefinancial statements.
-6PSA 700 (Revised)Extremely Rare Circumstances when Applying the Financial Reporting FrameworkResults in Misleading Financial Statements15. As discussed in PSA 210, the auditor considers the acceptability of the financialreporting framework when considering accepting the engagement. Application of afinancial reporting framework determined to be acceptable for general purposefinancial statements will ordinarily result in financial statements that achieve fairpresentation. In extremely rare circumstances, however, application of a specificrequirement in a framework that has been determined to be acceptable for generalpurpose financial statements may result in financial statements that are misleadingin the particular circumstances of the entity.5 If the auditor encounterscircumstances that lead the auditor to conclude that compliance with a specificrequirement results in financial statements that are misleading, the auditor considersthe need to modify the auditor’s report. The modifications, if any, that areappropriate to the auditor’s report will depend on how management addresses thematter in the financial statements and how the financial reporting framework dealswith these rare circumstances (see PSA 701).Elements of the Auditor’s Report in an Audit Conducted in Accordancewith Philippine Standards on Auditing616. Consistency in the auditor’s report, when the audit has been conducted inaccordance with the PSAs, promotes credibility in the global marketplace bymaking more readily identifiable those audits that have been conducted inaccordance with globally recognized standards. It also helps to promote the reader’sunderstanding and to identify unusual circumstances when they occur.5Philippine Accounting Standard 1, “Presentation of Financial Statements,” acknowledges thoseextremely rare circumstances and provide guidance on the disclosures required.6Paragraphs 61-66 address the auditor’s report when the audit has been conducted in accordance with bothISAs and PSAs.
-7PSA 700 (Revised)17. Paragraphs 18-60 set out the requirements relating to the following elements of theauditor’s report when the audit has been conducted in accordance with the PSAs:(a)Title;(b)Addressee;(c)Introductory paragraph;(d)Management’s responsibility for the financial statements;(e)Auditor’s responsibility;(f)Auditor’s opinion;(g)Other reporting responsibilities;(h)Auditor’s signature;(i)Date of the auditor’s report; and(j)Auditor’s address.Title18. The auditor’s report should have a title that clearly indicates that it is thereport of an independent auditor.19. A title indicating the report is the report of an independent auditor, for example,“Independent Auditor’s Report,” affirms that the auditor has met all of the relevantethical requirements regarding independence and, therefore, distinguishes theindependent auditor’s report from reports issued by others.Addressee20. The auditor’s report should be addressed as required by the circumstances ofthe engagement.
-8PSA 700 (Revised)21. Ordinarily, the auditor’s report on general purpose financial statements is addressedto those for whom the report is prepared, often either to the shareholders or to thosecharged with governance of the entity whose financial statements are being audited.Introductory Paragraph22. The introductory paragraph in the auditor’s report should identify the entitywhose financial statements have been audited and should state that thefinancial statements have been audited. The introductory paragraph shouldalso:(a)Identify the title of each of the financial statements that comprise thecomplete set of financial statements;(b)Refer to the summary of significant accounting policies and otherexplanatory notes; and(c)Specify the date and period covered by the financial statements.23. This requirement is ordinarily met by stating that the auditor has audited theaccompanying financial statements of the entity, which comprise [state the titles ofthe complete set of financial statements required by the applicable financialreporting framework, specifying the date and period covered by those financialstatements] and referring to the summary of significant accounting policies andother explanatory notes. In addition, when the auditor is aware that the financialstatements will be included in a document that contains other information, such asan annual report, the auditor may consider, if the form of presentation allows,identifying the page numbers on which the financial statements are presented. Thishelps readers to identify the financial statements to which the auditor’s reportrelates.24. The auditor’s opinion covers the complete set of financial statements as defined bythe applicable financial reporting framework. In the case of financial statementsprepared in accordance with IFRS, as well as financial statements prepared inaccordance with PFRS, this includes: a balance sheet, an income statement, astatement of changes in equity, a cash flow statement, and a summary of significantaccounting policies and other explanatory notes.
-9PSA 700 (Revised)25. In some circumstances, the entity may be required by law or regulation orstandards, or may voluntarily choose, to present together with the financialstatements supplementary information that is not required by the financial reportingframework. For example, supplementary information might be presented to enhancea user’s understanding of the financial reporting framework or to provide furtherexplanation of specific financial statement items. Such information is normallypresented in either supplementary schedules or as additional notes. The auditor’sopinion may or may not cover the supplementary information and it is thereforeimportant for the auditor to be satisfied that any supplementary information that isnot covered by the auditor’s opinion is clearly differentiated, as discussed inparagraphs 67-71.26. In some circumstances, the supplementary information cannot be clearlydifferentiated from the financial statements because of its nature and how it ispresented. Such supplementary information is covered by the auditor’s opinion.For example, the auditor’s opinion covers notes or supplementary schedules that arecross-referenced from the financial statements. This would also be the case whenthe notes to the financial statements include an explanation of the extent to whichthe financial statements comply with another financial reporting framework.27. Supplementary information that is presented as an integral part of the financialstatements does not need to be specifically referred to in the introductory paragraphof the auditor’s report when the reference to the notes in the description of thecomponents of the financial statements in the introductory paragraph is sufficient.Management’s Responsibility for the Financial Statements28. The auditor’s report should state that management is responsible for thepreparation and the fair presentation of the financial statements in accordancewith the applicable financial reporting framework and that this responsibilityincludes:(a)Designing, implementing and maintaining internal control relevant to thepreparation and fair presentation of financial statements that are freefrom material misstatement, whether due to fraud or error;(b)Selecting and applying appropriate accounting policies; and(c)Making accounting estimates that are reasonable in the circumstances.
- 10 PSA 700 (Revised)29. Financial s
Dec 31, 2006 · Philippine Standard on Auditing (PSA) 700 (Revised), “The Independent Auditor’s Report on a Complete Set of General Purpose Financial Statements” should be read in the context of the “Preface to the Philippine Standards on Quality Control, Auditing, Assurance and Related Services
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