ACP 314 Answer Key

INDEPENDENT AUDITOR’S REPORT
To the Shareholders of AP-Next-Sem Company
Report on the Audit of the Financial Statements
Adverse Opinion
We have audited the financial statements of AP-Next-Sem Incorporated (“the Company”), which comprise the
statement of financial position as at December 31, 2021, and the statement of comprehensive income, statement
of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements,
including a summary of significant accounting policies.
In our opinion, because of the significance of the matter discussed in the Basis for Adverse Opinion section of
our report, the accompanying financial statements do not present fairly the financial position of the Company as
at December 31, 2021, and its financial performance and its cash flows for the year then ended in accordance
with Philippine Financial Reporting Standards (PFRSs).
Basis for Adverse Opinion

During our audit, we have discovered that the entity failed to disclose the lawsuit in the notes to the financial
statements. The said lawsuit could produce a significant damage award that is material to the financial
statements. Also, nondisclosure was made on long-term lease obligation which is required by the PFRS. In
addition, the intangible assets recorded does not meet the criteria of an asset because they were not able to give
future economic benefit. Lastly, the entity failed to reduce the amount of the note receivable. The reduction is
required for the maker filed a voluntary bankruptcy petition.
We conducted our audit in accordance with Philippine Standards on Auditing (PSAs). Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements
section of our report. We are independent of the Company in accordance with the ethical requirements that are
relevant to our audit of the financial statements in Philippines, and we have fulfilled our other ethical
responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our qualified opinion.
Material uncertainty related to going concern

We draw attention to Note in the financial statements, which indicates that the Company has negative cash
flows during the year ended 31 December. As stated in Note, these events or conditions, along with other
matters as set forth in Note, indicate that a material uncertainty exists that may cast significant doubt on the
Company’s ability to continue as a going concern.
Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of
the financial statements of the current period. These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion
on these matters. In addition to the matter described in the Basis for Qualified Opinion section we have
determined the matters described below to be the key audit matters to be communicated in our report.
 The entity failed to disclose the patent infringement lawsuit filed against the company and long term
lease obligation.
 Intangible assets in the financial position does not qualify as assets for they do not provide sufficient
appropriate audit evidence.
 An actuary was hired to corroborate complex pension calculation concerning accrued pension
liabilities.
 The entity was not able to reduce the balance of the note receivable since the maker already filed a
voluntary bankruptcy petition.
Responsibilities of Management and Those Charged with Governance for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance
with PFRS for SEs, and for such internal control as management determines is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Company’s 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 Company or to cease operations, or has no
realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
Auditor’s Responsibility
Our objectives are to obtain reasonable assurance about whether the 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 PSA 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 financial statements.
As part of an audit in accordance with PSA, we exercise professional judgment and maintain professional
skepticism throughout the audit. We also:
 Identify and assess the risks of material misstatement of the 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 Company’s 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 management’s 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 Company’s 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 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 Company to cease to continue as a going concern.
 Evaluate the overall presentation, structure and content of the financial statements, including the
disclosures, and whether the financial statements represent the underlying transactions and events in a
manner that achieves fair presentation.
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.
Report on the Supplemental Information Required Under Revenue Regulations No. 15-2010 of the
Bureau of Internal Revenue
Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a
whole. The supplementary information on taxes and licenses in Note 13 to the financial statements is presented
for purposes of filing with the Bureau of Internal Revenue and is not a required part of the basic financial
statements. Such information is the responsibility of the management of the Company. The information has
been subjected to the auditing procedures applied in our audits of the basic financial statements and in our
opinion, the information is fairly stated in all material respects in relation to the basic financial statements taken
as a whole.
Kevin Donasco
PRC No. 95255
TIN 205-380-467-000
SEC Accreditation No. – 1523-AR-5 Group D
Valid until June 30, 2024
BIR Accreditation No. – 20-006755-002-2018
Valid until December 31, 2024
Matina, Davao City
March 30, 2022

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INDEPENDENT AUDITOR’S REPORT

To the Shareholders of AP-Next-Sem Company

Report on the Audit of the Financial Statements

Basis for Adverse Opinion

Material uncertainty related to going concern

Key Audit Matters

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