CHAPTER 17
OTHER PROFESSIONAL SERVICES
Type of Services
In general, the engagement services provided by a practitioner may be grouped into two broad
categories: assurance and non-assurance.
Non-assurance Engagements
Non-assurance services do not require the practitioner to convey a level of assurance to the users
of the report. Hence, the practitioner does not need to be independent of the client. The most
common engagements are compilation and agreed-upon procedures engagements.
Compilation Engagement
The Philippine Standard on Related Services 4410 is applied to engagements to compile
historical financial information. This engagement involves providing assistance to management
in the preparation and presentation of financial information without obtaining any assurance on
that information, and providing a report thereon.
Responsibilities of management
Management retains responsibility for the financial information and the basis on which it is
prepared and presented. That responsibility includes application by management of the judgment
required for the preparation and presentation of the financial information, including the selection
and application of appropriate accounting policies and, where needed, developing reasonable
accounting estimates.
Audit procedures
The practitioner shall obtain an understanding of the following matters sufficient to be able to
perform the compilation engagement:
a. The entity’s business and operations, including the entity’s accounting system and
accounting records
b. The applicable financial reporting framework, including its application in the entity’s
industry
The practitioner shall compile the financial information using the records, documents,
explanations and other information, including significant judgments, provided by management.
Significant judgments, for which the practitioner has provided assistance in the course of
compiling the financial information, shall be discussed with management, or those charged with
governance.
If the practitioner is unable to complete the engagement because management has failed to
provide records, documents, explanations or other information, including significant judgments,
as requested, the practitioner shall withdraw from the engagement and inform management and
those charged with governance of the reasons for withdrawing.
Since a compilation engagement is not an assurance engagement, there is no requirement to:
a. Verify the accuracy or completeness of the information provided by management
b. Gather evidence to express an audit opinion or a review conclusion on the preparation of the
financial information
If the practitioner becomes aware that the records, documents, explanations or other information,
including significant judgments, provided by management are incomplete, inaccurate or
otherwise unsatisfactory, the practitioner shall bring that to the attention of management and
request the additional or corrected information.
Management shall be asked to make amendments when the practitioner becomes aware that:
a. The compiled financial information does not adequately refer to or describe the applicable
financial reporting framework
b. Amendments to the compiled financial information are required for the financial information
not to be materially misstated
c. The compiled financial information is otherwise misleading
If management declines, or does not permit the practitioner to make the proposed amendments to
the compiled financial information, the practitioner shall withdraw from the engagement and
inform management and those charged with governance of the reasons for withdrawing
Prior to completion of the compilation engagement, the practitioner shall read the compiled
financial information in light of the practitioner’s understanding of the entity’s business and
operations, and of the applicable financial reporting framework.
Value of report to users
Although the practitioner does not apply auditing expertise in the execution of the procedures
and does not contain any opinion, the compilation report’s benefit to users lies in the fact that the
practitioner exercises professional expertise in accounting and financial reporting and
compliance with professional standards. Also, the practitioner exercise professional judgment in
conducting the engagement.
Agreed-upon Procedures Engagement
The Philippine Standard on Related Services 4400 is applied to engagements to perform
agreed-upon procedures regarding financial information. This engagement may involve the
auditor in performing certain procedures concerning:
a. 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)
b. A financial statement (for example, a balance sheet)
c. A complete set of financial statements.
Objective
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.
As the auditor simply provides a report of the factual findings of agreed-upon procedures, no
assurance is expressed. Instead, 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.
For example, an entity may engage an auditor to conduct an investigation on the entity’s
accounts payable. The report of the factual findings of the auditor includes a summary of the
procedures and the findings.
Below are some of the contents of the report on the example above:
The procedures were performed solely to assist you in evaluating the validity of the accounts
payable and are summarized as follows:
1. We obtained and checked the addition of the trial balance of accounts payable as at June
30, 2015 prepared by ABC Company, and we compared the total to the balance in the
related general ledger account.
2. We obtained suppliers’ statements or requested suppliers to confirm balances owing at June
30, 2015.
We report our findings below:
(a) With respect to item 1 we found the addition to be correct and the total amount to be in
agreement.
(b) With respect to item 2 we found there were suppliers’ statements for all such suppliers.
It shall assurance.be observed that, unlike in audits, the auditor is stating facts in the report,
instead of opinion or assurance.
Use of report
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.
For this reason, the auditor should ensure with representatives of the entity and, ordinarily, other
specified parties who will receive copies of the report of factual findings, that there is a clear
understanding regarding the agreed procedures and the conditions of the engagement, including
the following:
a. Nature of the engagement including the fact that the procedures performed will not constitute
an audit or a review and that accordingly no assurance will be expressed
b. Stated purpose for the engagement
c. Identification of the financial information to which the agreed-upon procedures will be
applied
d. Nature, timing and extent of the specific procedures to be applied
e. Anticipated form of the report of factual findings
f. Limitations on distribution of the report
Assurance Engagements
Based on the level of assurance conveyed, assurance engagements can either be an audit
engagement or a review engagement. Audit, as an assurance engagement has been discussed in
the earlier chapters.
Review Engagement
Purpose and definition
The objective of a review engagement is to enable a practitioner 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 practitioner’s attention that causes the practitioner to believe that the financial
statements are not prepared, in all material respects, in accordance with the applicable financial
reporting framework (negative assurance).
Assurance provided
The practitioner can only provide a negative form of assurance in a review engagement. It is a
moderate or limited level of assurance because the procedures performed by the auditor are only
to a limited extent.
In an audit, the auditor uses professional judgment in performing a combination of procedures to
gather sufficient appropriate evidence and provide a high level of assurance. In a review, the
practitioner obtains evidence primarily through inquiry and analytical procedures. However,
the practitioner should apply the same materiality considerations as would be applied if an audit
opinion on the financial statements were being given.
To make relevant inquiries and to assess the responses obtained, the practitioner needs to possess
an understanding of the business including consideration of the entity’s organization, accounting
systems, operating characteristics and the nature of its assets, liabilities, revenues and expenses.
Many of the audit procedures, particularly tests of controls and tests of details, are not normally
performed in reviews. In short, a review is substantially less in scope than an audit. Notably, the
following procedures are normally omitted in a review:
a. Understanding of the entity’s system of internal control
b. Test of accounting records
c. Assessment of fraud risks
Conclusions and reporting
A report on a review engagement may contain the following:
“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.”
Use of review reports
Although the level of assurance conveyed by the independent practitioner in a review
engagement is limited, a review report still provides a degree of “comfort” to users that the
practitioner is not aware of material misstatements that will cause modifications to the report.
As such, especially for smaller entities or assurance engagements with limited or specific group
of users, review engagements have become the closest alternative to audit.
Table at the end of this page summarizes the difference between audit and review.
Audit of Financial Statements Prepared Under a Special Purpose Framework
For various purposes, financial statements may be prepared in accordance with a special purpose
framework. A special purpose framework is a financial reporting framework designed to meet
the financial information needs of a specific users.
For example, to measure the degree of compliance, financial statements may be prepared in
accordance with the provisions of a contract, such as bond indenture, a loan agreement or a
project grant. Other examples of a special purpose framework are the following:
a. A tax basis of accounting for a set of financial statements that accompany an entity’s tax
return
b. The cash receipts and disbursements basis of accounting for cash flow information that an
entity may be requested to prepare for creditors
c. The financial reporting provisions established by a regulator to meet the requirements of that
regulator
In accepting audit of financial statements prepared in accordance with a special purpose
framework, the auditor shall obtain an understanding of:
a. The purpose for which the financial statements are prepared
b. The intended users of the report
c. The steps taken by management to determine that the framework is acceptable in the
circumstances
In reporting on special purpose financial statements, the auditor shall include a description of the
purpose for which the financial statements are prepared, the intended users, or refer to a note in
the special purpose financial statements that contains that information.
In addition, an Emphasis of Matter paragraph shall be added to alert users:
a. Of the basis of preparing the financial statements
b. That the financial statements may not be suitable for another purpose
c. If necessary, that the auditor’s report is intended solely for the specific users identified
The following illustrates the above requirement:
Without modifying our opinion, we draw attention to Note 1 to the financial statements, which
describes the basis of accounting. The financial statements are prepared to assist ABC Company
to comply with the financial reporting provisions of the contract referred to above. As a result,
the financial statements may not be suitable for another purpose. Our report is intended solely
for ABC Company and DEF Company and should not be distributed to or used by parties other
than ABC Company or DEF Company.
Audits of Single Financial Statements and Specific Components
Regardless of whether the auditor is also engaged to audit the entity’s complete set of financial
statements, the auditor may accept an engagement to audit:
a. A single financial statement (e.g. statement of cash flows only)
b. A specific element of a financial statement (e.g. financial instruments only)
Reporting and conclusions
If the auditor undertakes an engagement to report on a single financial statement or on a specific
element of a financial statement in conjunction with an engagement to audit the entity’s complete
set of financial statements, the auditor shall express a separate opinion for each engagement.
If the audited single financial statement or specific element is published together with the entity’s
audited complete set of financial statements, the auditor shall obtain assurance that the reports
are sufficiently differentiated.
If management does not differentiate the reports, the auditor shall not issue the auditor’s report
containing the opinion on the single financial statement or on the specific element of a financial
statement until satisfied with the differentiation.
If the auditor is not also engaged to audit the entity’s complete set of financial statements, the
auditor shall determine whether the audit of a single financial statement or of a specific element
of those financial statements is practicable.
Modifications to the reports
A modified report is one that contains either a modified opinion or an Emphasis of Matter or
Other Matter paragraph, or both.
If the report on an entity’s complete set of financial statements is modified, depending on its
effects, the auditor may deem it appropriate to also modify the report on the single financial
statement or on the specific element of a financial statement.
When the modification on the entity’s complete set of financial statements does not relate to the
audited single financial statement or specific element, the auditor may still deem it appropriate to
refer to the modification in an Other Matter paragraph in an auditor’s report on the financial
statement or on the element because the auditor judges it to be relevant to the users’
understanding of the audited financial statement or the audited element or the related auditor’s
report.
If the complete set of financial statements contains an adverse or disclaimer of opinion, the
auditor’s report on a single financial statement or a specific element that forms part of those
financial statements:
a. Is not permitted to contain an unmodified opinion, if the reports on the single financial
statement or the specific element and the complete set of financial statements are published
together.
This prohibition is based on the reason that such unmodified opinion would contradict the
adverse opinion or disclaimer of opinion on the entity’s complete set of financial statements
as a whole.
b. Is permitted to contain an unmodified opinion, if the report on the specific element is
published separately.
This reporting is only allowed if law or regulation does not prohibit the auditor and the
specific element does not constitute a major portion of the entity’s complete set of financial
statements.
c. Is not permitted to contain an unmodified opinion, whether the reports on the single financial
statement and the complete set of financial statements are published together or separately.
This prohibition is based on the reason that single financial statement is deemed to constitute
a major portion of the financial statements.
In summary, observe the following table:
(A) (B) (C) (D)
Audit of Opinion Audit of Opinion Presentation of (A) & Allowed?
(B)
Specific Separate Yes
Adverse Unmodified
Complete element Together No
or
FSs Separate No
Disclaimer Single FS Unmodified
Together No
Reports on Summary Financial Statements
The auditor may be asked to report on summary financial statements containing less detail than
the complete financial statements from which they were derived. As a rule, the auditor shall
accept such engagement only when the same auditor has been engaged to audit the entire
financial statements.
In addition, the auditor shall obtain the agreement of management that it acknowledges and
understands its responsibility to make the audited financial statements available to the intended
users of the summary financial statements without undue difficulty.
Nature of procedures
The auditor shall perform the following procedures, and any other procedures that the auditor
may consider necessary, as the basis for the auditor’s opinion on the summary financial
statements:
1. Evaluate whether the summary financial statements adequately disclose their summarized
nature, the applied criteria and identify the audited financial statements
2. When summary financial statements are not accompanied by the audited financial statements,
evaluate whether they describe clearly:
a. From whom or where the audited financial statements are available, or
b. The law or regulation that specifies that the audited financial statements need not be
made available to the intended users of the summary financial statements and establishes
the criteria for the preparation of the summary financial statements
3. Compare the summary financial statements with the related information in the audited
financial statements to determine whether the summary financial statements agree with or
can be recalculated from the related information in the audited financial statements
4. Evaluate whether the summary financial statements are prepared in accordance with the
applied criteria
5. Evaluate, in view of the purpose of the summary financial statements, whether the summary
financial statements contain the information necessary, and are at an appropriate level of
aggregation, so as not to be misleading in the circumstances
6. Evaluate whether the audited financial statements are available to the intended users of the
summary financial statements without undue difficulty, unless law or regulation provides that
they need not be made available and establishes the criteria for the preparation of the
summary financial statements
Opinion
To express an unmodified opinion on the summary financial statements, the auditor shall use one
of the following phrases:
a. The summary financial statements are consistent, in all material respects, with the audited
financial statements, in accordance with [the applied criteria]
b. The summary financial statements are a fair summary of the audited financial statements, in
accordance with [the applied criteria]
Modifications to the audited financial statements
When the auditor’s report on the audited financial statements is modified, but the auditor is
satisfied that the summary financial statements are consistent, in all material respects, with or are
a fair summary of the audited financial statements, in accordance with the applied criteria, the
auditor’s report on the summary financial statements shall:
a. State that the auditor’s report on the audited financial statements contains the identified
modification
b. Describe the basis for the modification and its effects on the summary financial statements
When the auditor’s report on the audited financial statements contains an adverse opinion or a
disclaimer of opinion, the auditor’s report on the summary financial statements shall:
a. State that the auditor’s report on the audited financial statements contains an adverse opinion
or disclaimer of opinion
b. Describe the basis for that adverse opinion or disclaimer of opinion
c. State that, as a result of the adverse opinion or disclaimer of opinion, it is inappropriate to
express an opinion on the summary financial statements
Modifications to the summary financial statements
If the summary financial statements are not consistent, in all material respects, with or are not a
fair summary of the audited financial statements, in accordance with the applied criteria, and
management does not agree to make the necessary changes, the auditor shall express an adverse
opinion on the summary financial statements.
Date of the report
The auditor’s report on the summary financial statements may be dated on the same date or
later than the date of the auditor’s report on the audited financial statements. In such cases, the
auditor’s report on the summary financial statements shall state that the summary financial
statements and audited financial statements do not reflect the effects of events that occurred
subsequent to the date of the auditor’s report on the audited financial statements that may require
adjustment of, or disclosure in, the audited financial statements.
Subsequent events
Furthermore, the auditor may become aware of facts that existed at the date of the auditor’s
report on the audited financial statements, but of which the auditor previously was unaware. In
such cases, the auditor shall not issue the auditor’s report on the summary financial statements
until the auditor’s consideration of such facts in relation to the audited financial statements has
been completed.
Users of the report
If the addressee of the summary financial statements is not the same as the addressee of the
auditor’s report on the audited financial statements, the auditor shall evaluate the appropriateness
of using a different addressee.
When distribution or use of the auditor’s report on the audited financial statements is restricted,
or the auditor’s report on the audited financial statements alerts readers that the audited financial
statements are prepared in accordance with a special purpose framework, the auditor shall
include a similar restriction or alert in the auditor’s report on the summary financial statements.
Assurance Engagements Other Than Audits or Reviews of Historical Financial
Information
