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COMMISSION ON AUDIT
Commonwealth A venue, Quezon City

MEMORANDUM
TO Assistant Commissioners, Cluster Directors, Regional Directors, Supervising
Auditors, Audit Team Leaders and all Others Concerned

SUBJECT Guidelines on the preparation, consolidation and transmittal of annual/year•

end audit reports, including audit reports on the Unified/Integrated Audit
Approach of Programs. Projects, and Activities (PPAs) jointly/commonly
implemented by various agencies and audited by regular audit teams.

I. RATIONALE

In the pursuit of continuing effort for greater effectiveness and efficiency in performing its
audit functions, the Commission adopted the Unified/Integrated Audit Strategy and is consistently
adopting best practices and international standards, particularly the reporting requirements of
International Standards of Supreme Audit Institutions (ISSAI), in order to deliver more relevant,
cohesive, clear, complete, and timely reports that meet the needs and expectations of as wide a
number of stakeholders as possible.

In light thereof, and after a thorough review and evaluation of the current practices and
procedures in the preparation, consolidation, submission and transmittal of audit reports, the
Commission has found it necessary and appropriate to rationalize the audit report preparation
process and update existing issuances to attain integrated actions for more efficient and effective
delivery of audit service.

II. COVERAGE

This Memorandum shall cover the preparation, consolidation, submission and transmittal of
annual/year-end audit reports on the result of financial, compliance and performance audits of all
national, local and corporate agencies starting CY 2014, including audit reports on the
Unified/Integrated Audit Approach of Programs, Projects, and Activities jointly/commonly
implemented by various agencies and audited by regular audit teams.

The Audit Reports of Special/Fraud Audit Teams shall be excluded from the coverage of this
memorandum.

Ill. DEFINITIONOF TERMS

For the purpose of this Memorandum, the following terms shall mean as follows:

A. AGENCY-

1. For the national government - As a general rule, "Agency" is an agency which is listed
as such in the General Appropriations Act. The Agency may be a department,
bureau, council, state university or college. The regional, branch and field offices are
component

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 units of the national government. In the case of the Department of Education, its
nationalized high schools are component units of the Agency.

2. For government corporations - "Agency" refers to government-owned or controlled

corporations (GOCCs), government financial institutions (GFls), and government
instrumentalities with corporate powers (GICPs)/government corporate entities (GCEs),
including their subsidiaries, and water districts. The regional, branch and field offices
are component units of the corporation.

3. For the local government - "Agency" pertains to the political subdivisions established
under the Constitution of the Philippines such as provinces, cities, municipalities and
barangays; the economic enterprises financed and maintained by the
province/city/municipality; and leagues/federations of local government units and local
elective officials.

B. Unified/Integrated Audit Report (UAR) - an audit report prepared at year-end or upon

completion of PPAs which are jointly/commonly implemented by various agencies and
audited by regular audit teams in accordance with the guidelines prescribed in COA
Memorandum No. 2014-008 dated August 18, 2014. -:.

C. Annual Audit Report (AAR) - a report prepared at year-end on the results of audit on the
accounts and operations of an Agency.

1. For a national government agency with regional offices and field/operating units, the
AAR shall be the consolidated report on the results of audit of the head office, and the
regional/division/district/field offices of such agency.

2. For a government corporation with regional branches and/or field offices, the AAR
shall be the consolidated report on the results of audit of the head office and
regional/branch/field offices, and subsidiaries, if needed/required, of such agency.

3. For a local government unit, the AAR shall be the report on the results of audit of a
province, city, municipality and barangay. The frequency of Audit Reports of Barangays
shall be in accordance with COA Memorandum No. 99-089 dated December 14, 1999 on
Three-Year Period Cyclical Audit of Barangays and Uniform Simplified Format of
Reporting.

4. For the national or corporate agency without regional offices and/or field/operating
units (stand-alone agency), the AAR shall be the report on the results of audit of such
agency.

D. Management Letter (ML) - an audit report on the results of audit of the regional/branch
office, field/operating unit, staff bureau and line office with complete set of books of
accounts; or an audit report on agencies with complete set of books of accounts but no
financial statements submitted as of the deadline set by COA; and league/federation of local
government units and local elective officials.

E. Summary of Audit Observations and Recommendations (SAOR) - a report/matrix that

summarizes the audit observations, recommendations, management comments and
auditor's rejoinder; a year-end audit report on the audit of a regional/field office agency
with incomplete set of books of accounts and national high schools with complete set of
books of accounts; and for auditees with results of audit to be consolidated at

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 regional/accounting center/area/head office, the SAOR shall be the basis/ input for the
consolidation of ML/AAR/UAR.

F. Year-End Audit Report - may be an AAR, ML, SAOR, UAR

G. Audit Observation Memorandum (AOM) - a written notification to the auditee head and
concerned officer/s informing of deficiencies noted in the audit of accounts, operations or
transactions and requiring comments thereto and/or submission of documentary and other
information requirements within a reasonable period.

H. Transmittal Letter - a communication transmitting the UAR/ AAR/SAOR which shall include
the type of opinion rendered on the financial statements (for AAR), a summary of the most
significant audit observations and recommendations, an acknowledgment of the assistance
and support extended by the officials and staff of the Agency to the audit team, and request
for implementation of the recommendations and information on the actions taken within 60
days from receipt of the Report. An Agency Action Plan and Status of Implementation
(AAPSI) form prescribed under COA Memo No. 2014-002 dated March 18, 2014 shall be
attached to the Transmittal Letter of the SAOR for the requested action to be taken by
Management.

I. Independent Auditor's Report (IAR) - is a report of the auditor on the results of the audit of
the financial statements, which includes the modified or unmodified opinion on the fairness
of presentation of the financial statements. Unmodified opinion is rendered when the
auditor has obtained sufficient appropriate evidence to conclude that the financial
statements are presented, in all material respects, in accordance with the applicable
financial reporting framework. Modified opinion is rendered when the auditor concludes,
based on the audit evidence obtained, that the financial statements, in part or as a whole,
are not free from material misstatement or when the auditor is unable to obtain sufficient
appropriate audit evidence to conclude that the financial statements, in part or as a whole,
are free from material misstatement (ISSAI 1700, paragraphs 16 and 17).

J. Statement of Management's Responsibility for the Financial Statements - is a written

statement signed by the Chief Accountant and the Head of the Agency or his duly authorized
representative for the purpose, stating that the preparation of the financial statements is
management's responsibility.

IV. GENERAL GUIDELINES -

A. One AAR shall be prepared for:

1. a department or head office and its branches or component units of:

a. national government agencies listed and provided with separate appropriation in
the GAA; and
b. GOCCs;

2. each Local Government Unit (LGU);

3. each agency with separate appropriation presented in the GAA (stand-alone national
government agency); and

4. each water district and other corporate stand-alone agencies.

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 B. Management Letter (ML) shall be prepared for:

1. Regional/branch office and field/operating unit, staff bureau and line office with
complete set of books of accounts;

2. League/federation of local government units and local elective officials; and

3. Agencies with complete set of books of accounts but no financial statements submitted
as of the deadline set by COA.

C. A Summary of Audit Observations and Recommendations (SAOR) duly supported by

individual AOMs issued with management replies and auditor's rejoinder shall be prepared
before the conduct of exit conference and shall be updated after the exit conference.

D. An exit conference shall be conducted before transmittal of year-end audit reports.

E. All annual year-end audit reports shall be transmitted to the heads of agency/auditee not
later than the deadline set by the Commission.

F. Independent Auditor's Report (IAR) shall cover the financial statements presented for the
year(s) covered by the audit.

G. Topic sentence for audit observations shall briefly state only the major/significant audit
issues.

V. SPECIFICGUIDELINES

A. Audit Instructions

The procedures/requirements under Part IV (Specific Guidelines) of COA Memorandum No.

2014-008 dated August 18, 2014 shall be followed.

B. Preparation of the Audit Observation Memorandum (AOM)

1. The Audit Team Leader (ATL) and Supervising Auditor/Regional Supervising Auditor
(SA/RSA) shall jointly sign the AOMs to be issued to the head of the agency/auditee
and/or concerned officers for deficiencies observed in the course of the audit. The
AOM allows the agency officials/personnel to present their side of the audit
observation, to which the auditor shall also issue a reply.

2. At the end of the audit period, these AOMs, management replies/comments and
auditor's rejoinder/reply are consolidated by the ATL into a SAOR for discussion during
the exit conference with agency officials.

C. Preparation of SAOR

1. The SAOR shall be presented in matrix form with the following columns:
a. Reference (AOM No.);
b. Observations;
c. Recommendations;
d. Management comments; and

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 e. Auditor's rejoinder.

2. The SAOR shall be accompanied by a Status of Implementation of Prior Year's Audit

Recommendations in matrix form adopting the format prescribed under COA
Memorandum No. 2014-002 dated March 18, 2014.

3. The RSA shall transmit the updated/final SAOR to the head of auditee for auditees
without complete set of books and national high schools with complete set of books. It
shall be covered with a Transmittal Letter.

4. For agencies with regional office/area/accounting centers, the RSA/ATL thereof shall
consolidate the SAORs of field offices with the audit observations of the Regional
Office/area/accounting center and prepare the Consolidated SAOR for discussion
during the exit conference, and the ML/updated Consolidated SAOR (for auditee with
incomplete books of accounts) for issuance by the RSA to the head of the regional
office/auditee and submission to the head office SA or RSA of the accounting
center/area where the transactions of the auditee are booked, for consolidation, copy
furnished the Director concerned.

5. In case there is no regional ATL, the SADR/Consolidated SAOR shall be directly

submitted by the RSA to the head office SA or RSA of the accounting center/area where
the transactions of the auditee are booked, for consolidation, copy furnished the
Director concerned.

D. Conduct of Exit Conference

1. A written notification to auditee head for the conduct of exit conference should be
made by the SA/RSAat least one week before the schedule of the exit conference, copy
furnished the Director concerned.

2. The notification for the conduct of Exit Conference shall be supported with a SAOR.

3. Proceedings of the Exit Conference should be properly documented, reviewed by the

ATL and approved by the SA/RSA.

4. The auditee head shall be furnished a copy of the minutes of the Exit Conference within
one week from the date of the Exit Conference, with the advice that unless a correction
is received from management within three days from receipt thereof, minutes will be
deemed well-taken by the audit team.

5. The minutes of the Exit Conference shall form part of the work papers of the audit.

E. Preparation of ML

1. The ML shall contain the following:

a. Date;
b. Addressee;
c. Authority, objective and scope of audit;
d. Audit observations and recommendations including management comments and
audit teams' rejoinder;

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 e. Status of implementation of prior years' unimplemented audit recommendations;
f. Acknowledgement;
g. Signatory; and
h. Appendices
1) Financial Statements, if any; and
2) Schedules to support the audit observations, if any/necessary

2. M Ls shall also be prepared for agencies that submitted their financial statements 30
days or more after due date set by COA. Such non-submission/delayed submission of
financial statements shall be presented as the first audit observation. This non•
submission/delayed submission shall be handled as follows:

a. The delayed or non-submission of financial statements shall be reported by the

RSA/SA to the Cluster/Regional Director, who shall communicate to the Regional
Director of concerned oversight agencies like the Department of the Interior and
Local Government, Department of Budget and Management and the Governance
Commission for GOCCs. In the case of delayed or non-submission of financial
statements of departments/head offices of national government
agencies/corporations, this shall be communicated to the agency head by the
Assistant Commissioner concerned.

b. Upon submission· of the delayed financial statements, the ATL shall verify the
account balances, presentation and disclosures in the said statements, and
completeness of the submission of the documents supporting the same. An AAR
shall then be prepared with the findings and recommendations and the status of
implementation of prior years' unimplemented audit recommendations, as
updated.

c. In case of GOCCs, the audit group shall submit to the Planning, Finance and
Management Sector, this Commission, assessment of additional audit fees that
shall be charged to the auditee for the extra cost of services and incidental
expenses incurred by the Audit Team for updating the report.

F. Preparation of AAR

1. For NGS and CGS, RSAs shall submit to the head office SA copies of the MLsand SAORs,
supported with copies of AOMs issued, management replies/comments and auditor's
rejoinder/reply. The head office SA shall review the MLs and SAORs for validity and
significance and consolidate similar findings, disclosing the amounts of deficiencies
involved for inclusion/consolidation in the AAR to be prepared for the
department/head office, if warranted. The number of areas/branches
(regional/field/operating units) which have the same findings shall also be disclosedin
the discussion.

2. Inclusion/exclusion of audit observations in the AAR depends on the commonality of

the observation with the others and in case of peculiar ones, on the significanceof the
observation such as, it is of public interest and impacts on the audit opinion and/or
budget, among others.

3. The format and contents of the AARshall be structured into the following sections and
shall have the following contents:

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a. Executive Summary

Summarizes the significant results of audit for immediate attention and action of the
Head of the Agency, in as much as possible not more than five pages, which shall
contain the following:

1) Introduction which contains the name of the auditee, audit methodology and
scope of audit

2) Financial Highlights
a) Comparative presentation for the current and previous year's total assets,
liabilities, equity, income and expenses; and

b) Comparative presentation of the appropriation/allotment/obligation for

national and local agencies, budget and actual expenditures for GOCCs, for
the current and previous years, including funds received from and
transferred to other agencies and non-government and people's
organizations.

3) Opinion of the auditor on the fairness of presentation of the financial

statements. If modified, state briefly the bases for the opinion.

4) Summary of Significant Observations and Recommendations other than the

bases for the modified opinion that need immediate attention and action by
the Head of the Agency. The observation shall, at most, contain only the
condition and the cause.

5) Summary of total suspensions, disallowances and charges as of year-end.

6) Statement on the quantity/number of recommendations implemented,

partially implemented and not implemented in the current year for the
unimplemented prior years audit recommendations.

b. Independent Auditor's Report

1) The SA shall render an opinion on the current year's consolidated financial

statements presented in accordance with the comparative information
requirements of the applicable financial reporting framework (PAS 1, paragraph
36, 38, 38A, 388; PPSAS 1, paragraph 53 and Implementation Guidance,
Illustrative Financial Statement Structure). For agencies being audited on
cyclical basis, the ATL shall render an opinion on the current and all previous
years' financial statements covered in the cyclical period (1-3 years) currently
audited, presented comparatively with the financial statements of the
preceding cyclical audit period (1-3 years), except national high schools and
other national government agencies on whose financial statements audit
opinions are not required to be rendered.

2) The IAR shall contain the following:

a) Title which is the "Independent Auditor's Report"

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 b) Addressee - which is the Head of the Agency in case of National and Local
government agencies and Head of Agency and Board of Directors/Board of
Trustees in case of GOCCs and sues

c) Introductory Paragraph which shall :

* Identify the entity whose financial statements have been audited;
* State that the financial statements have been audited;
* Identify the title of each statement that comprises the financial
statements;
* Refer to the summary of significant accounting policies and other
explanatory information; and
* Specify the date or period covered by each financial statement
comprising the financial statements subject to the nature of the
comparative information presented as required by the applicable
financial reporting framework (ISSAI 1710, paragraph 10)

d) Management's Responsibility for the Financial Statements which describes

the responsibilities of those in the organization that are responsible for the
preparation of the financial statements

e) Auditor's Responsibility which states that the responsibility of the auditor is

to express an opinion on the financial statements based on the audit.

f) Basis for Modified Opinion (specify whether qualified, adverse, and

disclaimer) for the current year's financial statements subject to the nature
of the comparative information presented as required by the applicable
financial reporting framework (ISSAI 1710, paragraph 10). In case of cyclical
audit, the previous years' financial statements refer to the two or three•
year period covered by the previous audit.

g) Auditor's Opinion which could be unmodified or modified (qualified,

adverse, and disclaimer)

h) Emphasis of matter or other matters as may be warranted under the

circumstances

i) Signature of the Auditor

j) Date of the Auditor's Report which shall not be earlier than the date on
which the auditor has obtained sufficient appropriate evidence on which to
base the auditor's opinion on the financial statements.

3) If the auditor addresses other reporting responsibilities in the auditor's report

on the financial statements that are in addition to the auditor's responsibility
under the ISAs to report on the financial statements, these other reporting
responsibilities shall be addressed in a separate section in the auditor's report
that shall be sub-titled "Report on Other Legal and Regulatory Requirements,"
or otherwise as appropriate to the content of the section (ISSAI 1700,
paragraph 38, A34-A35).

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 4) If the auditors report contains a separate section on other reporting
responsibilities, the headings, statements and explanations before the
Auditor's signature shall be under the sub-title "Report on the Financial
Statements." The "Report on Other Legal and Regulatory Requirements" shall
follow the "Report on the Financial Statements" (ISSAI 1700, paragraphs 39 and
A36.)

c. Audited Financial Statements with comparative information for the current year
and previous year.

The financial statements prepared in accordance with the applicable financial

reporting framework, to be attached to the audit report shall include the following:

• For Local Government Units, National Government Agencies, and Corporate

Government Agenciesconsiderednon-Government BusinessEnterprisesas may
be determined by the Assistant Commissioner concerned and approved
by the Commission Proper:

In accordance with Philippine Public Sector Accounting Standard (PPSAS) No. 1,

paragraph 21:

1) A Statement of Financial Position;

2) A Statementof Financial Performance;
3) A Statement of Changesin Net Assets/Equity
4) A Cash Flow Statement;
5) When the entity makes publicly available its approved budget, a comparison of
budget and actual amounts either as a separate additional financial statement
or as a budget column in the financial statements; and
6) Notes comprising a summary of significant accounting policies and other
explanatory notes.

• For Government BusinessEnterprises(corporate government agencies as may be

determined by the Assistant Commissioner concerned and approved by the
Commission Proper):

In accordance with Philippine Accounting Standard (PAS) No. 1, paragraph 10:

1) a statement of financial position as at the end of the period;

2) a statement of profit or loss and other comprehensive income for the period;
3) a statement of changes in equity for the period;
4) statement of cash flows for the period;
5) notes, comprising a summary of significant accounting policies and other
explanatory information;
a) comparative information in respect of the preceding period as specified in
PAS 1, paragraphs 38 and 38A; and
6) a statement of financial position as at the beginning of the preceding period
when an entity applies an accounting policy retrospectively or makes a
retrospective restatement of items in its financial statements, or when it
reclassifies items in its financial statements in accordance with paragraphs 40A-
40D. (PAS 1, paragraph 10)

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d. Audit Observations and Recommendations

1) This portion consists of the observations and recommendations of the auditor as

well as the summary of the agency's explanation or reply to the observations,
with the auditor's rejoinder, as necessary. The observations should include only
residual issues not addressed after (a) issuance of the AOM and (b) conduct of
the exit conference.

2) Audit Observations shall adhere to facts and applicable rules in a direct manner
using simple short sentences. It should not be subjective, judgmental, conclusive
and wordy.

3) The audit observations and recommendations shall include the following:

a) caption/topic sentence containing the gist of the main issue duly quantified,
if warranted.

b) details of audit observation benchmark or measure against which

performance is compared or evaluated, such as laws, rules and regulations
and best practice; the situation observed; the source and reasons giving rise
to the condition observed; and the impact and consequences of the
conditions (the materiality of the findings, their impact on the budget,
citizens or users, implications for principles of sound public sector
management, etc.). As much as possible, quote only pertinent portions of
provisions of laws, rules and regulations as well as management comments
or summarizes, without changing substance, if quoting the same would
make the report very long.

c) Notice of suspension, notice of disallowance or notice of charge issued

pertinent to the observation

4) The audit recommendations shall provide constructive and remedial measures

to correct or address the audit observations, clearly setting out what needs to
be done by whom and when.

5) This part of the report shall also include, but not limited to, non-compliance with
tax laws; results of audit on gender and development; PDAF, OAP and other
funds; and status of ND, NS, NC; as well as comments pertaining to senior
citizens and differently-a bled persons, if warranted.

6) The audit observations and recommendations shall be presented in the order of

significance with priority to the reasons for modification of opinion in the
financial statements.

e. Status of Implementation of Prior Years' Unimplemented Audit Recommendations

The status of implementation of prior years' unimplemented audit

recommendations shall contain information on whether or not unimplemented
audit recommendations have been implemented by the agency during the year.
Unimplemented audit recommendations which have not been or partially
implemented by management during the year may be reiterated and presented with

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 updates in the current year's Audit Observations and Recommendations portion of
the AAR depending on their importance, pervasiveness and significance of
amount/effect on the opinion on the financial statements.

f. Appendices which shall pertain to significant findings, if necessary.

G. Preparation of Unified/IntegratedAuditReport

The matrix of consolidated findings/recommendations/comments and rejoinder as

prescribed in part V.3d of COA Memorandum No. 2018-008 dated August 18, 2014 shall be
the basis of the Head Office SA to prepare the UAR.

The format and contents of the UAR shall be structured into the following sections and shall
have the following contents:

a. Part I- Executive Summary

States in brief the audit objective, scope and methodology and summarizes the
significant results of audit for immediate attention and action of the lead and co•
implementing agencies of the Program/Project/Activity (PPA) examined and
evaluated.

b. Part II- Discussionof the PPA

• Introduction which contains, among others, the Program/project name,

objectives and goal, and the name of the lead implementing agency and co•
implementing agencies and their responsibilities
• Financial Highlights which include amount of Fund and Source(s), Utilization
and Balance
• Targets and Accomplishments

c. Part Ill- Audit Observations and Recommendations

(As prescribed in Part F.3.d(3) hereof)

H. Transmittal Letter of the Report

The Transmittal Letter shall consist of not more than three pages. It shall be transmitted to
the Head of the Agency/Auditee in case of National and Local agencies and Head of
Agency/Auditee and Board of Directors/Board of Trustees in case of GOCCs, and shall
contain the following:

1. Authority for the audit;

2. Coverage of the audit;
3. Audit opinion (for AAR);
4. A concise paragraph summarizing the most significant findings and observations and
information that the details and the other findings and observations are discussed in the
Observations and Recommendations portion of the report;
5. Acknowledgement to Management; and
6. Request for implementation of the audit recommendations and action plan for their
implementation.

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I. Review and Transmittal of the AAR/UAR

1. Review and transmittal of the AAR/UAR shall be in accordance with the Matrix of
Supervision for Unified/Integrated Audit Approach under Part V Item 1 of the COA
Memorandum No. 2014-008 dated August 18, 2014.

2. The final audit report shall be transmitted to the following:

Local Chief Executive and Sangguniang
Local Government Units
Panlalawigan/Panlungsod/Bayan
Head of Agency (for component units of LGUs)
National Government
Head of Agency and Board of Regents/Trustees
Agencies
Board of Directors/Trustees and Head of Agency
Government-Owned or
Controlled Corporations

3. The following shall also be furnished with a copy of the AAR/UAR:

3.1 For National Agencies and Government-Owned or Controlled Corporations (GOCCs)

a. President of the Republic of the Philippines
b. Vice-President
c. President of the Senate
d. Speaker of the House of
Representatives e. Chairperson-Senate
Finance Committee
f. Chairperson-Appropriations Committee
g. Secretary of the Department of the Budget and Management
h. Governance Commission for Government-Owned or Controlled Corporations
i. Presidential Management Staff, Office of the President
j. National Library (soft copy)
k. University of the Philippines (UP) Law Center (soft copy)
I. COA Commission Central Library (soft copy)

3.2 For Local Government Units (LGUs)

a. Sangguniang Panlalawigan/Panglungsod/Bayan
b. Local Chief Executive (for AARson Barangaysincluding component units of LGUs)
c. Bureau of Local Government Finance (BLGF)
d. Secretary of Department of the Interior and Local Government (except AARs for
barangays)
e. National Library (soft copy)
f. University of the Philippines (UP) Law Center (soft copy)
g. COA Commission Central Library (soft copy)

J. Action Plan for the Implementation of Audit Recommendations

1. To ensure implementation of audit recommendations in the AAR/UAR, an Action Plan

shall be requested from the auditee in the accordance with COA Memorandum No.
2014-002 dated March 18, 2014, to be accomplished by the concerned personnel of the
auditee and submitted to the audit team for monitoring and validation purposes.

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 2. The Action Plan Monitoring Tool shall be used by the audit team to monitor
implementation of audit recommendations and the same shall form part of the working
papers of the subsequent year's audit and submitted to the Cluster/Regional Director
concerned.

K. EFFECTIVITY
This Memorandum shall begin to take effect for audit reports of 2014.

L. REPEALING CLAUSE
All issuancesof the Commission which are inconsistent herewith are hereby repealed or
amended accordingly.

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