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Audit approach overview
Our audit approach will allow our client's accounting personnel to make the maximum contribution to the audit effort without compromising their ongoing responsibilities
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Annual and short period audit
At P&A Grant Thornton, we provide annual and short period financial statement audit services that go beyond the normal expectations of our clients. We believe strongly that our best work comes from combining outstanding technical expertise, knowledge and ability with exceptional client-focused service. A team-based approach defined by dedication to partner involvement in all engagements—that’s our service commitment locally and globally. An organization’s financial statements are a reference of choice for a variety of users who are required to make decisions. Whether it is a financial institution, a government agency, creditors, shareholders, or potential buyers, every one of your partners requires financial information that accurately reflects the soundness of your organization.
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Review engagement
A review involves limited investigation with a narrower scope than an audit, and is undertaken for the purpose of providing limited assurance that the management’s representations are in accordance with identified financial reporting standards. Our professionals recognize that in order to conduct a quality financial statement review, it is important to look beyond the accounting entries to the underlying activities and operations that give rise to them.
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Other Related Services
We make it a point to keep our clients abreast of the developments and updates relating to the growing complexities in the accounting world. We offer seminars and trainings on audit- and tax-related matters, such as updates on Accounting Standards, new pronouncements and Bureau of Internal Revenue (BIR) issuances, as well as other developments that affect our clients’ businesses. Participants are entitled to credited units for Continuing Professional Education (CPE), which are required by the Board of Accountancy. CPE is indicative of an individual’s genuine concern for his or her continued growth as a professional. Our team can help in achieving that.
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Tax advisory
Assistance during tax audit/contesting an assessment We assist clients in handling audits by the Bureau of Internal Revenue (BIR), Bureau of Customs (BOC) and local government units (LGUs) in a systematic and efficient manner. We help evaluate the validity of assessments, determine the appropriate documents and analyses to be submitted, prepare protests, and represent clients in meetings and discussions with government agencies. With our knowledge of tax laws and audit procedures, we help safeguard the substantive and procedural rights of taxpayers and prevent unwarranted assessments. Tax opinion and studies We conduct tax studies and provide advice to clients on the tax implications of specific transactions based on relevant laws, regulations, court decisions, rulings, and other relevant issuances. We likewise provide recommendations to address or mitigate tax issues arising from said transactions. Application for tax refund/credit We help clients recover taxes that have been erroneously or excessively paid or withheld through applications for refund or tax credit certificates (TCCs). Applications for refunds or TCCs are recommended for companies that have excess income taxes paid or unutilized creditable withholding taxes as reflected in the final income tax return (ITR), excess unutilized VAT input taxes arising from zero-rated transactions or change in VAT status, unutilized advanced VAT, excise taxes paid on petroleum products sold to tax-exempt entities and international carriers, other national or local taxes erroneously or excessively paid, or penalties imposed without authority.
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Tax compliance
Tax review We evaluate clients’ overall level of compliance with existing laws and regulations; caution them on procedures and practices that expose them to potential tax liabilities; quantify tax exposures, risks and penalties; and advise them on proper course of action and alternative tax-efficient policies and procedures. Tax due diligence review is particularly recommended for companies that are contemplating expansion, mergers and consolidation, acquisitions, change in ownership, or public listing. Expatriate tax services We ensure the proper and efficient compliance of expatriates with their Philippine income tax obligations. Our services include registration and application for Taxpayer Identification Number (TIN), preparation and filing of annual Philippine income tax return, and payment of tax due in the proper venue and within the allowed period. As a value-added service, we respond to Correspondence Audits/Inquiries by the BIR regarding information declared in the tax return. If desired by clients, we also conduct arrival or departure briefings and interviews to apprise the expatriate of his Philippine tax liabilities. Upon a company’s request, we can compute, on an annualized basis, the total withholding tax due from its expatriate during the taxable year and prepare tax equalization and reimbursement calculations in accordance with company policies.
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Corporate services
Assistance for incentives availment We help clients evaluate their qualification for incentives under the Board of Investments, the Philippine Economic Zone Authority, the Subic Bay Metropolitan Authority or other special laws. If clients are qualified, we assist them in applying with the concerned government agency for such incentives. Our assistance covers filing of the application and supporting documents, monitoring the progress of the application, meeting/discussion issues, if any, with regulatory authorities, and securing the approval for such incentives. At the clients’ request, we may also assist in ascertaining their compliance with regulatory requirements (to ensure the continued entitlement to incentives), or in justifying the entitlement to such incentives in the event of a challenge by the BIR or other regulatory agencies. Corporate organization and registration For clients that want to do business in the Philippines, we assist in determining the appropriate and tax-efficient operating business or investment vehicle and structure to address the objectives of the investor, as well as related incorporation issues. We help set up the business and register it with concerned government regulatory agencies, such as the Securities and Exchange Commission, the Bureau of Internal Revenue, the Local Government Unit, the Social Security System and the Bangko Sentral ng Pilipinas. We also assist in notifying and/or securing necessary approvals from government regulatory agencies when there are changes in business activities, business status, or tax-type registration.
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Tax education and advocacy
Tax advocacy We actively participate in consultation and public hearings conducted by the Bureau of Internal Revenue on proposed tax rules and regulations, serving as a bridge between our clients and the BIR. Our advocacy work focuses on clarifying the interpretation of laws and regulations, suggesting measures to increasingly ease tax compliance, and protecting taxpayer’s rights. Tax seminars and training We offer seminars and training on tax-related developments and special issues of interest to taxpayers. Upon request, we provide customized in-house tax training – designed jointly by P&A and the client – that directly addresses the specific issues of the client’s industry and the training needs of its personnel.
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Business risk services
Our business risk services cover a wide range of solutions that assist you in identifying, addressing and monitoring risks in your business. Such solutions include external quality assessments of your Internal Audit activities' conformance with standards as well as evaluating its readiness for such an external assessment. We can also take over your IA function altogether or work alongside you to create more value for your organization. On a higher level, our Enterprise Risk Management methodology can help your organization identify vital strategies and action plans that address key business risks, thereby enabling you to achieve your overall objective of value creation for stakeholders.
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Business consulting services
Our business consulting services are aimed at addressing concerns in your operations, processes and systems. Using our extensive knowledge of various industries, we can take a close look at your business processes as we create solutions that can help you mitigate risks to meet your objectives, promote efficiencies, and beef up controls. This can include analyzing your information technology (IT) applications and infrastructure in order to improve IT governance and strategy, strengthen security, and/or assess business risks and controls related to the use of IT.
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Transaction services
Transaction advisory includes all of our services specifically directed at assisting in investment, mergers and acquisitions, and financing transactions between and among businesses, lenders and governments. Such services include, among others, due diligence reviews, project feasibility studies, financial modelling, model audits and valuation. We are one of the few companies accredited by the Philippine Stock Exchange for the conduct of valuation and issuance of fairness opinions. Our consortium with another Grant Thornton office and a Philippine law office is also one of the fourteen (14) members of the panel of transaction advisers of the Public-Private Partnership Center of the Philippines.
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Forensic advisory
Our forensic advisory services include assessing your vulnerability to fraud and identifying fraud risk factors, and recommending practical solutions to eliminate the gaps. We also provide investigative services to detect and quantify fraud and corruption and to trace assets and data that may have been lost in a fraud event.
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Cyber advisory
Our focus is to help you identify and manage the cyber risks you might be facing within your organization. Our team can provide detailed, actionable insight that incorporates industry best practices and standards to strengthen your cybersecurity position and help you make informed decisions.
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ProActive Hotline
Providing support in preventing and detecting fraud by creating a safe and secure whistleblowing system to promote integrity and honesty in the organisation.
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Accounting services
Accounting services Many multinational companies are setting up their accounting offices in the Philippines. These businesses realize that accounting functions can be standardized across companies around the world and handled by an office halfway across the globe for a fraction of the amount needed to maintain an in-house accounting division. At P&A Grant Thornton, we handle accounting services for several companies from a wide range of industries. Our approach is highly flexible. You may opt to outsource all your accounting functions, or pass on to us choice activities, such as
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Staff augmentation services
Staff Augmentation Services It is a familiar enough scenario: A company suddenly has an urgent need for personnel on a short term, project basis to do accounting or accounting-related work. Considering the short-term nature of the work, it becomes very difficult to find interested candidates. Moreover, companies do not need just anybody, but people with sufficient technical accounting skills. P&A Grant Thornton has a pool of skilled accounting specialists who can fill the gap for companies in such situations. We offer Staff Augmentation services where our staff, under the direction and supervision of the company’s officers, perform accounting and accounting-related work. We have a long list of clients that have benefited from our assistance with the following activities: · Migration from one accounting system to another accounting system · Bank reconciliation for several bank accounts that have not been reconciled for years · Data cleansing, such as reconciliation of balances in subsidiary ledgers of receivables and payables with the general ledger balances · Physical counts of inventories and reconciling the results of the physical count with the accounting records · Count of property and equipment; tagging and reconciliation of the count with the accounting records; and properly setting up the property ledgers · Preparation of schedules and documentary supports and requirements during audits by internal and external parties, including government agencies · Preparation of statements of accounts for certain customers · Acting as accounting personnel while regular accounting staff are on leave This is just a sampling of the services we offer, and we can provide more short-term accounting services on short notice. We can adjust the schedules of our people to fit your work hours and we guarantee high-quality service: Our team is made up of technically competent and properly trained people who are prepared to handle your needs.
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Payroll Processing
More and more companies are beginning to realize the benefits of outsourcing their noncore activities, and the first to be outsourced is usually the payroll function. Payroll is easy to carve out from the rest of the business since it is usually independent of the other activities or functions within the Accounting Department. Payroll processing may look simple, but the process can get complicated, especially as a business expands its manpower. A payroll accountant has to make sure that correct taxes as well as loans of their employees are properly deducted, update the tax status of employees (single, married, no. of dependents, etc.) on a regular basis; monitor work activities during the payroll period (overtimes, sick leaves, vacation leaves, etc.); know which income accounts are taxable or not (de minimis, bonuses within the P82,000 limit, etc.); know the rules and regulations and the latest updates of relevant government agencies (BIR, SSS, Pag-IBIG, PhilHealth, etc.); and ensure that payroll processing and payouts are done on time to avoid employee complaints or dissatisfaction. In addition, the payroll accountant has to ensure that contributions to various government agencies are properly posted to the accounts of the employees. In some companies, payroll processing consumes a significant part of management time: The highest finance or HR officer in the company oftentimes handles management or executive payroll. If payroll is outsourced, the executive officer has better use of his or her time than reviewing or processing the payroll. Moreover, there is the issue of confidentiality – some employees may inadvertently gain access to confidential payroll information when data are lying around during the payroll processing period. Another issue that business owners must watch out for with regard to payroll is fraud. Since the processing of payroll is handled by just one or two trusted persons, oversight may be lax and review may not always be conducted thoroughly, thus fraud happens. P&A Grant Thornton can handle your payroll processing needs so that your management team can focus on your core competencies, enabling you to concentrate on what’s really important to your business . Our team of well-experienced and properly trained professionals can handle your payroll requirements whether you have 10 or 10,000 personnel. In addition to the computation of employees’ pay, P&A Grant Thornton can also provide the following functions under our payroll processing services: Maintain bank accounts exclusively for payroll and payroll-related disbursements Prepare schedules of statutory and internal contributions and obligations File and pay statutory contributions and obligations, manually or electronically Annualize employees’ income tax Provide secure online payslips through our ePayroll facility Handle administration of benefits that needs coordination with government agencies
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Our values
Grant Thornton prides itself on being a values-driven organisation and we have more than 38,500 people in over 130 countries who are passionately committed to these values.
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Global culture
Our people tell us that our global culture is one of the biggest attractions of a career with Grant Thornton.
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Learning & development
At Grant Thornton we believe learning and development opportunities allow you to perform at your best every day. And when you are at your best, we are the best at serving our clients
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Global talent mobility
One of the biggest attractions of a career with Grant Thornton is the opportunity to work on cross-border projects all over the world.
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Diversity
Diversity helps us meet the demands of a changing world. We value the fact that our people come from all walks of life and that this diversity of experience and perspective makes our organisation stronger as a result.
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In the community
Many Grant Thornton member firms provide a range of inspirational and generous services to the communities they serve.
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P&A Grant Thornton offers something you can't find anywhere else. This is the opportunity to develop your ideas and thinking while having your efforts recognised from day one. We value the skills and knowledge you bring to Grant Thornton as an experienced professional and look forward to supporting you as you grow you career with our organisation.
Part I – Responsibility for the FS preparation
This is the maiden issue of our column, From Where We Sit, which The Manila Times has graciously permitted us, Partners of P&A Grant Thornton, to write on a weekly basis. We consider this privilege a great honor.
This first issue will cover accounting and will dwell on an ongoing controversy relating to the enforcement of business management’s responsibility in preparing the company’s financial statements (FS) before these are audited by external auditors.
I have written on this subject some years back elsewhere to emphasize that the responsibility for the FS preparation rests solely with the entity’s management, and to help remove the long-held belief that the external auditor is responsible for preparing such FS. The external auditor’s responsibility is to audit the FS prepared by management and accordingly issues his report thereon. The reason for this distinction is clear – if the external auditor prepares the FS himself, then he will be auditing his own work and this condition might lead to material misstatements in the FS.
Over the last few years, this division of responsibility has gained much recognition in the Philippines, but additional work has to be done for this work distinction to gain universal compliance.
Very recently, the Philippine Board of Accountancy (BOA), the entity that regulates the CPA profession, passed a resolution to compel compliance with this division of work and to apply the requirements immediately on practically all FS for 2015, which are now under various stages of completion. This effectivity date was subsequently moved to a later date in response to serious objections.
The solution being provided by BOA is to shift the burden of compliance to the person who prepares the FS who, in this role, is clearly distinguished from management.
To enforce the foregoing solution, the resolution requires the preparer of the FS to submit a “Certificate of Compilation Services” and that such certificate be attached to the audited FS filed with the Securities and Exchange Commission (SEC) and the Bureau of Internal Revenue (BIR). In this certificate, the FS preparer is required primarily to “certify” that, in effect, the FS were prepared in accordance with accounting and auditing standards. The language is vague, but it seems to indicate a level of assurance. Secondarily, the FS preparer is required to express that he was not assisted by the entity’s external auditor in preparing the FS, which is the part that deals directly with what I thought is the primary issue.
In addition, the preparer needs to apply for accreditation with the BOA for doing such work.
I have great respect for the current chairman and members of the BOA. They have shown aggressiveness and activism in the exercise of their responsibilities, which have not been seen for a long time.
However, I believe that the said BOA resolution was unduly rushed and, therefore, might not have been properly conceived. Its promulgation did not follow the usual processes in the formulation of professional requirements. For example, formulation of accounting and auditing standards by the respective standard-setting bodies takes a few years to conclude as a result of providing adequate time for exposure of the draft professional standard, evaluation of comments received and finalization for adoption. Requirements by other regulatory bodies (SEC, BSP and IC) also generally follow a similar, even though shorter, time process. The issue may be urgent, but certainly a period of less than two months for comments and final adoption is too short.
Moreover, it is normal practice that any exposure draft of professional requirements is also circulated to other stakeholders who may be affected by such requirements. The draft BOA resolution was not circulated to business entities, which surely would be affected by such a resolution in terms of time, cost and the accreditation requirements for their CPA personnel. Also, the SEC, which requires in its own rules that companies registered with it must themselves prepare the entity’s FS, appeared not to have been consulted.
Let me move to specifics. It has now been clearly established that the entity’s management is responsible for the preparation of the entity’s FS before these are audited by external auditors. I believe it follows that it is the management’s prerogative to deal with this responsibility in the ways it knows best. It has hired CPAs to do the entity’s finance and accounting functions, which include the preparation of all sorts of accounting information, including the FS. Now, BOA wants these FS preparers to be BOA-accredited. Why? These CPAs are employees who work under the direction of management and are not rendering independent outside professional services.
On the other side of the fence, as a reaction to the BOA resolution, practically all CPAs (there are tens of thousands of them here) would want to be accredited as FS preparers because it is their livelihood. So, in effect, the regulator is placing another qualification level for a CPA to enable him to exercise his profession, but not if we assume that most CPAs would rather just become clerks and would not seek accreditation as an FS preparer. This raises the issue of what the CPA title is if the regulator itself cannot trust the qualified CPAs to prepare the FS without being accredited. Moreover, this additional level of accreditation will necessarily entail much additional time and cost for all those concerned.
Part II – The weight of the FS preparer’s certificate
What about the required certificate to be submitted by the FS preparers? To my mind, the issuance of such certification, just like any similar activity, needs a set of standards and application guidance to be followed to make the expressed assertion in the certificate credible. If such a set of standards and application guidance is not envisioned to be developed, then it implies that the current knowledge and skills of the CPA FS preparer as expressed by his CPA title are sufficient. So what weight does the certificate carry?
As an option, an entity may hire another auditing firm (but not its own external auditors) to prepare the FS. In such a case, the auditing firm and its engagement team are required to follow a whole set of standards that apply to FS compilation (preparation) work (Philippine Standard on Related Services 4410), which is a non-assurance engagement. These standards prescribe what the report must contain and provide several illustrative reports to be sure. Under these circumstances, I believe that it is meaningless to prepare additionally the BOA-prescribed certificate, which indicates some assurance that the PSRS 4410 explicitly avoids. But more than this, I doubt whether a CPA in public practice will sign such a certificate as mandated by BOA. The reporting standards in PSRS4410 clearly prohibit him to do so.
Moreover, BOA in its clarifications indicated that the FS preparer should follow the standards and application guidance provided in PSRS4410. But PSRS4410 was promulgated for CPAs engaged in public practice. Is this standard now being applied to cover CPAs not in public practice? Were the views of the Auditing Standards and Practices Council sought? PSRS 4410 is a complete self-contained document that requires many standards and application guidance to be followed. It now appears that FS preparers who are CPAs not in public practice must follow all these requirements. For example, a CPA FS preparer employed by an entity, if he follows the standards, must submit a letter of engagement to his employer. Would that make sense?
Presently, the SEC requires all companies registered with the SEC to attach to the audited FS filed with the SEC a “Statement of Management’s Responsibility for Financial Statements.” In this statement, among many other things, the entity’s management, which includes the chairman, chief executive officer (CEO) and chief financial officer (CFO), indicates clearly that it is responsible for the preparation and fair presentation of the FS. The BOA subsequently, clarified that it is a separate document and both this statement and the certificate must be prepared as required by the respective regulators. I find this attempt to identify the FS preparer as distinct from management difficult to comprehend.
The certificate is required to be attached to the audited FS when these are filed with the SEC and BIR. This required attachment clearly implies that the final audited FS are exactly the same FS for which the FS preparer issued his certificate. I believe this is practically impossible to happen. External auditors, almost always, make adjustments to the financial statements in terms of numbers, presentation, etc. It will be a lot more so when the division of responsibility for the FS preparation is completely complied with. As the entity’s FS go through the audit process, the final audited FS may be so different from their initial contents and form for which the FS preparer issued his certificate. So what meaning does the certificate convey in relation to the final audited FS? Does the FS preparer carry the same responsibility as the external auditor carries? Is he exposed to the same professional liability risk to which the external auditor is exposed? If the answer is ‘yes’ to both questions, would that be fair?
Those things said, I believe that the BOA resolution was unfortunately not well conceived, and, more importantly, is unnecessary. It is not well conceived primarily because the problem lies on the parts of the external auditor and the entity’s management, while the solution being sought is imposed on another party being differentiated from management. It is unnecessary because the problem will solve itself.
The awareness and acceptance by management of its responsibility for the preparation of the FS before these are audited are accelerating fast and I believe that substantial compliance will be achieved soon. Certainly, the external auditor must do his part by dealing decisively with this issue. Under existing auditing standards, he is required to be vigilant in assessing risks and threats to independence and possible misstatements of FS. Under these standards, he is required to deal with those risks and threats appropriately. The measures available to him include applying suitable appropriate auditing procedures to deal with the risks, mitigating the threats, and withdrawing from the engagement if no solutions are found.
The solution clearly lies with the entity’s management and the external auditor working together to achieve a common objective. There is where the arrow should be pointed.
The author founded Punongbayan & Araullo (P&A) in 1988. Today, P&A Grant Thornton is one of the largest public accounting firms in the Philippines, with 19 partners, over 500 staff members, and four offices around the country.
As published in The Manila Times dated 03 February 2016
If you want to read Part 2 of Preparation of financial statements, please click here.
