Escalante - Final Requirement - Audit Report - ACP314 (1409)

INDEPENDENT AUDITOR'S REPORT

To the Shareholders of WE NEVER KNOW Incorporated

Report on the Audit of the Financial Statements

Qualified Opinion
We have audited the financial statements of WE NEVER KNOW Incorporated, which comprise the statement of
financial position as at December 31,2017,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 Qualified Opinion section of our
report, the accompanying consolidated financial statements present fairly the financial position of WE NEVER
KNOW Incorporated as at December 31,2017,and financial performance and its cash flows for the year then ended in
accordance with Philippine Financial Reporting Standards(PFRSs).
Basis for Qualified Opinion

In the statement of financial condition, the Company's inventories are listed at 7,274,900. In defiance of PFRSs,
management has declared the inventory using the LIFO approach. According to the company's records, management
should have reported the inventory' value at the lowest of cost and net realizable value. An immaterial adjustment
relating to inventory was found, and the company has refused to adjust the financial statements to reflect this
immaterial item. There is a substantial doubt about the company’s ability to continue as a going concern for a
reasonable period of time.
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 had losses and adverse key
financial ratios 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 changed its method of accounting for the cost of inventories from FIFO to LIFO. The auditors had
concluded that this is a material departure from the Philippines Financial Reporting Standards.
• Because we have been engaged to audit after the year end, we, auditors, have not attended the physical
inventory count. As we gather further evidences, we discovered that the accounting records were not
sufficiently reliable to enable us to become satisfied as to the year-end inventory balances.
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.
Patricia Ann C. Escalante

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 30,2018

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INDEPENDENT AUDITOR'S REPORT

To the Shareholders of WE NEVER KNOW Incorporated

Report on the Audit of the Financial Statements

Basis for Qualified Opinion

Material uncertainty related to going concern

Key Audit Matters

Patricia Ann C. Escalante

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