ANNEX “A”

PRO-FORMA AUDIT ENGAGEMENT LETTER 

To the Board of Directors

Company name

Address

You have requested that we audit the balance sheet of (name of company) as of (fiscal year end), and the related statements of income, cash flows and changes in stockholders’ equity for the year then ending.  We are pleased to confirm our acceptance and our understanding of this engagement by means of this letter.  Our audit will be made with the objective of our expressing an opinion on the financial statements.

We will conduct our audit in accordance with Philippine Standards on Auditing.  Those Standards require that we plan and perform the audit and to obtain reasonable assurance that the financial statements are free of material misstatements.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation.

Because of the test nature and other inherent limitations of an audit, together with the inherent limitations of any accounting internal control system, there is an unavoidable risk that even some material misstatements may remain undiscovered.

In addition to our report on the financial statements, we expect to provide you with a separate letter concerning any material weaknesses in accounting and internal control systems which come to our knowledge.

We remind you that the responsibility for the preparation of financial statements including adequate disclosure is that of the management of the company.  This includes the maintenance of adequate accounting records and internal controls, the selection and application of accounting policies, and the safeguarding of the assets of the company.  As part of our audit process, we will request from management written confirmation concerning representations made to us in connection with the audit.

However, as part of our responsibility as an accredited external auditor of the Securities and Exchange Commission, we shall report to the Commission any of the following cases which may have been discovered based on generally accepted auditing standards, if the company fails to disclose the same to the Commission under its current reports: 

1. Any material findings involving fraud or error which will reduce the consolidated total assets of the company by five percent (5%).

2. Losses or potential losses the aggregate of which amounts to at least ten percent (10%) of the consolidated total assets of the company;

3. Any finding to the effect that the consolidated assets of the company, on a going concern basis are no longer adequate to cover the total claims of creditors.

We look forward to full cooperation with your staff and we trust that they will make available to us whatever records, documentation and other information are requested in connection with our audit.  Our fees, which will be billed as work progresses, are based on the time required by the individuals assigned to the engagement plus out-of-pocket expenses.  Individual hourly rates vary according to the degree of responsibility involved and the experience and skill required.

This letter will be effective for ______ years unless it is terminated, amended or superseded.

Please sign and return the attached copy of this letter to indicate that it is in accordance with your understanding of the arrangements for our audit of your financial statements.