Republic of the Philippines COMMISSION ON AUDIT Commonwealth Avene, Quezon City, Philippines CORPORATE GOVERNMENT SECTOR Cluster 4 Office of the Cluster Director MEMORANDUM To : All Supervising Auditors and Audit Team Leaders This Cluster SUBJECT: Checklist on the Preparation and Review of the Annual Audit Report (AAR) DATE : 08 April 2014 We furnish you a copy of the subject checklist for your guidance in drafting and finalizing AARS. en 'S. PARAS Director IV Copy furnished: Asst. Commissioner Winnie Rose H. Encallado Corporate Government Sector sepa CHAAR ChitRepublic of the Philippines COMMISSION ON AUDIT Corporate Government Sector Cluster 4 — Industrial and Area Development CHECKLIST ON THE PREPARATION AND REVIEW OF THE ANNUAL AUDIT REPORT (To be submitted to the Office of the Cluster Director with the Draft Annual Audit Report) Name of Corporation Supervising Auditor/ Audit Team Leader Period Covered Date Submitted: Particulars Yes [ No | Remarks | Val jated |. Form/Structure/Presentation of Annual Audit Report (AAR) A. Organization/Arrangement/Format 1. Contents of AAR arranged as follows: a. Cover b. Flyleaf (blank page) | c. Executive Summary | (not to exceed 5 pages, use i, ii, iii for pagination, position at the bottom right, Aral 10) d. Table of Contents — (TOC) | | (Check that headings in TOC mirror exactly the section names) | . Flyleaf stating (Highlighted, Arial 20, center on page) — | | PART | — AUDITED FINANCIAL STATEMENTS f. Independent Auditor's Report | | (to start with page no. 1 but page number not to be printed) g. Audited Financial Statements I (to start with the page no. following the last page of the Independent Auditor's Report, position at the bottom right, Arial 10) * Statement of Financial Position «Statement of Profit or Loss or Statement of Comprehensive | Income, as the case may be + Statement of Changes in Equity | * Statement of Cash Flows * Notes to Financial Statements h. Flyleaf stating (Highlighted, Arial 20, center on page) - PART II - AUDIT OBSERVATIONS AND RECOMMENDATIONS i, Audit Observations and Recommendations (Arial 11) = Show title (highlighted) on top left side of the first page of Part I! as AUDIT OBSERVATIONS AND RECOMMENDATIONS + Position page numbers atthe bottom right, Arial 10 j. Flyleaf stating (Highlighted, Arial 20, center on page) - PART Ill — STATUS OF IMPLEMENTATION OF PRIOR | YEAR'S AUDIT RECOMMENDATIONS | k. Status of Implementation of Prior Year's Audit Recommendations (Arial 11) = Show this title (highlighted) on the top left side of the first page of Part Il as STATUS OF IMPLEMENTATION OF PRIOR YEAR'S AUDIT RECOMMENDATIONS + Position page numbers at the bottom right, Arial 10, a1.PraSrituclullzexris) Yes | No | Remarks | Validated I 1. Flyleaf stating (Highlighted, Arial 20) - | PART IV — APPENDICES | m. Appendices (if any) | | | | | | B. Application Software, Page Set-up, Fonts, etc. 1. Paper size for AAR - 8 % by 11 (letter size) 2. Page number — position at the bottom right, Arial 10 3. Margins - left “1 1/4”, right "1", top and bottom “1”, except if with letterhead "1/2" top marg Font type and font size in the text of AAR — Arial 11 ] Software for the AAR text - MS Word Software for the AFS - MS Excel, Arial 11 Presentation of tables in AAR text contents — without borders (Font size, row & column height may be manipulated to fit space) Presentation of the AAR — full block format (all headingsittles, sub-headings and paragraphs to start on the left margin) Noose 2 C. Transmittal/Submission of AARs (Hard and Soft copies) 1. Draft report - 1 copy | - all pages of the report should be clearly marked “Draft” until | the final report is issued | | - The memorandum of the SA submitting the report to the OCD | shail state the audit thrust areas that: + have been audited but no findings have been noted; and | + have not been audited and the reason therefor Final AAR — at least 16 copies Transmittal letter (full block format; see attached sample) - is alletter in not more than three pages transmitting the AAR to the Head of the Agency and Board of Directors/Board of Trustees and shall contain the following + Authority for the audi Coverage of the audit; Independent Auditor's Report on the FS; Summary of the most significant observations and recommendations information that the other observations and recommendations are discussed in detail in Part Il Audit Observations and Recommendations portion of the report; | | + Request for implementation of the audit recommendations; | * Request for the agency, through the Agency Head, to wn accomplish the Agency Action Plan and Status of Implementation (AAPSI) on the audit observations and recommendations (AAPS| form to be attached to the transmittal letter pursuant to COA Memorandum No. 2014- 002 dated March 18, 2014); and * Acknowledgment to Management 4. Copies of the AAR shall be furnished the following President of the Republic of the Philippines Vice President ‘Speaker of the House of Representatives Chairperson ~ Senate Finance Committee | Chairperson — Appropriations Committee | | Secretary of the Department of Budget and Management Governance Commission for Government-Owned or Controlled arePielratalcesualiasris: Yes | No | Remarks | Validated Corporations + Presidential Management Staff, )) Per Memorandum of the | Office of the President Asst. Comm., CGS dated UP Law Center March 27, 2014 relative to the The National Library Joint Memorandum of the Asst | Commissioners of the NGS, | LGS and CGS | Executive Summary (ail caps, Arial 11, position at the left margin) Summarizes the significant results of audit for immediate attention and action of the Head of the Agency and shall contain the following (sub- headings highlighted and the first letters of the words therein capitalized, Arial 11): | 1. Introduction = name of the auditee = audit objective/s | = _ scope of audit | 2. Financial Highlights (in Totals) | - Comparative Financial Position (assets, liabilities, equity, with Increase/Decrease - Results of Operations - profit (loss), personal services, MOOE, financial expenses, net profit (loss) - Cross check all amounts to the financial statements 3. Independent Auditor's Report on the FS 4. Significant Audit Observations and Recommendations other than the bases for the modified opinion that need immediate attention and action by the Head of the Agency 5. Summary of total suspensions, disallowances and charges as of year-end 6. Statement on the quantity/number of prior year’s audit recommendation/s implemented, partially implemented and not implemented in the current year Il, Independent Auditor's Report (IAR) (See sample format and illustrations of the different types of opinion in Annexes A1-10, take particular attention on the highlighted and italicized presentation of sub-headings. Underscoring was used to emphasize the necessary change/s to the parts and/or wordings for each type of opinion but no underlines shall be used in the IAR.) A. Form and Structure (See COA Memorandum No. 2010-029 and 2010- 029A dated November 15, 2010 and January 4, 2011, respectively) 1, Uses stationery with COA letterhead 2. IAR with title (highlighted, all caps, Arial 11, position at the left margin) as follows: “INDEPENDENT AUDITOR'S REPORT" 3. Addressee — the governing board of the agency (highlighted, all caps, Arial 11), followed by agency's name and addressParticulars 4. Includes the following basic parts (for unmodified opinion): a. Introductory paragraph b. Management's Responsibility for the Financial Statements (italics) c. Auditor's Responsibility (Italics) 4. Opinion (Italics) e. Signature portion (position at the left margin), presented as follows: COMMISSION ON AUDIT (highlighted, all caps) (Signature) (Printed Name) (highlighted, all caps) (Position/Designation) f. Date of Independent Auditor's Report — the date when the Auditor is able to reach a conclusion on the fairness of presentation of the FS 5. For modified opinion a. Include a portion for Basis for Qualified Opinion, Adverse Opinion, or Disclaimer of Opinion, as the case maybe, before the Opinion paragraph b. Consider the necessary changes as shown in Annexes A1- 9 6. For reporting responsibilities supplementary to the FS that is, required by law or regulation, a separate section of the auditor's report with sub-heading Report on Other Legal and Regulatory Requirements shall be provided while the auditor's report on the FSS shall be labeled Report on the Financial Statements Affix initial of ATL on the duplicate of the |AR Affix signature of SA on all copies of the IAR Yes | No Remarks Validated /. Audited Financial Statements (AFS) (Give particular attention on the usual highlighted and italic presentation of sub-headings) Present with comparative information of the previous year (current year's figure and its column heading in the AFS highlighted) 1. Check mathematical accuracy of AFS by footing/cross-footing figures in columns/rows of the following: + Statement of Financial Position (SFP) + Statement of Profit or Loss (SPL) or Statement of Comprehensive Income (SCI), as the case maybe + Statement of Changes in Equity (SCE) + Statement of Cash Flows (SCF) + Notes to Financial Statements (NFS) Equity figures in SCE tallies with that in SEP Net profitloss figure in SPL/SCI tallies with that in SCE Cash and cash equivalents figure per SCF tallies with that in SFP | Accounts presented in SFP in the order of liquidity Accounts under MOOE of the SCI and NFS presented in the order of descending account balances, as appropriate, with the | Miscellaneous account as the last item | AronPaaaretelecmusl sane! Yes, 7. Each item on the face of SFP, SPLISCI, SCE and SCF correctly cross-referred to related information in the NFS 8. Numbering of Notes in the NFS follows order of accounts presentation in the SFP, SPL/SCI, SCE and SCF in one column 9. Check overall presentation of comparative AFS Remarks Validated V. Audit Observations and Recommendations | Significant deficiencies, discussed in the portion “Audit Observations and Recommendations”, warranted inclusion in the AAR + Unacted/partially implemented prior year’s recommendations reiterated/included as current year observations, as may be appropriate = This part shall also include: - GOCCs accomplishments vis-a-vis their targets as well as ‘the result of the determination on whether or not their reported accomplishments are in line with their mandate as | outlined in their Corporate Charter (per Memorandum of the | AsCom, CGS dated August 14, 2013); | - compliance with tax laws: = general insurance of all insurable risks of government | agencies with the GSIS pursuant to Republic Act No. 656, as. amended by Presidential Decree No. 245; - status of ND, NS, NC (see Annex B); = gender and development; and - comments pertaining to differently-abled persons and senior | citizens shall also be made, if warranted. * Audit Observations and Recommendations are presented in the order of significance with priority for the reasons for modification of opinion on the financial statements 1. Topic sentence is a one-liner caption of the main audit issue duly quantified, if possible (Highlighted) | 2. Support paragraphs of audit observation & recommendations are written in a brief and concise manner and contain statements of: * condition (what is wrong), criteria (by what standard it is judged), cause (why it happened) and effects _ (on fair presentation of FS, operation/activity etc.) Notice of Suspension, Notice of Disallowance or Notice of Charge issued pertinent to the observation | - condition/deficiency is adequately supported by competent and | relevant audit evidence in the working papers | - condition/deficiency reported is quantified l - cause of condition/deficiency is clearly statedPeannetalaesusiiaaras: Yes | No | Remarks | Validated ~ effect of condition/deficiency is quantified, if possible | - effect of condition/deficiency is traced to the working papers - effect of condition/deficiency is traced to the audit conclusions - audit conclusions proceed logically from results of audit procedures performed - audit conclusions answer the objectives of the audit 2.1. Do not use words like ‘implicit’ ‘clearly’ ‘obvious tirelessly’ failure’ — avoid words expressing an extreme situation whether positive or negative 2.2. Do not use names of suppliers or individuals in reports or tables, such that they can be traced unless extremely necessary Tables = Align all tables to be the width of the paragraph text = Amounts in tables should be right aligned, all texts should be left aligned or centered, as appropriate. = Provide analysis for all tables and graphs presented Figures + The word “million” is used after figures instead of the letter and observe the following for figures in the text of the observation a. Less than P500,000 use the whole amount ex. 455,555 b. P500,000 or more round off as PO.500 million ¢. Write amount as P373.752 million, PO.63 milion, 34.637 million | d. Write percentages as 25.1 per cent . Be consistent in presenting figures + Change all numbers less than 10 (1, two, three,... nine) * Use '0” (right aligned) instead of a dash 9) to words (one, Tenses/Grammar + Past tense is used in introducing the recommendations. followed by the action to be taken by management in present tense (e.g., We recommended that Management analyze the account and adjust, as appropriate.) Quotations + As much as possible, quotations of rules and regulations shall be avoided. If quotations cannot be avoided, quote only pertinent portions of provisions of laws, rules and regulations and present it with both sides short indented and enclosed with quotation marks. = Management's comments shall not be quoted verbatim but shall be summarized. + Carefully check accuracy of necessary quotations and referencesParticulars Remarks Validated 7. Acronyms ‘When using acronyms, spell out in full on the first usage, and if the next occurrence of the abbreviation is a long distance away (3 pages) in the text, then spell it out again * Do not use acronyms without first using the full words 8. Paragraphs + Align all paragraphs * For all lists (a,b,c or bullets), start each item with a Capital letter, separate each item with a semi-colon (;) and use an ‘and’ before the last item = Recommendations a. address real causes of deficiencies | b. are precise and doable c. do not use ‘should’ in recommendations * Management's comments/Auditor’s rejoinder are properly presented in the “Audit Observations and Recommendations” portion VI. Status of Implementation of Pt r Years’ Au Recommendations ‘A. Provide a statement on the quantity/number of prior year's audit recommendations implemented, partially implemented and not implemented in the current year (Note: Count recommendations individually and not on a per observation basis) followed by the Matrix of "Status of Implementation of Prior Year's Audit Recommendations” which contains the following columns - Column 1 is for “Reference” - pertains to the source of the observation. For example, year of the AAR, observation number and page number. Column 2 is for “Observation” - presents all audit observations of previous year. (continuous numbering) Column 3 is for “Recommendation: audit recommendations — presents all prior year's Column 4 is for “Status of Implementation” which shall indicate © management's action either — “fully implemented’, “partially implemented”, ‘not implemented” ‘+ reason for non/partial implementation ‘* covering year of the AAR when the finding was first | raised ‘+ reference to the reiteration of the audit observation in the current year’s AAR, as appropriate