MY CPA, DISGUSTING, DISTRUSTING; Chapter 2- CPA Engagement Letter

MY CPA, DISGUSTING, DISTRUSTING
Chapter 2 – CPA Engagement Letter
By Emelino T Maestro, Father of Tax Accounting, Tax Guru
December 31, 2013, #cpadisgusting, #cpadistrusting,#cpaengagementletter, #ETM, #emelinomaestro

HAPPY NEW YEAR!!!!! Ignorance is the most expensive lifestyle.

May the Almighty God grant you the strength and courage to change your lifestyle.

On December 30, 2013, ETM had already discussed to you the real source of your tax problem that is being so predictable from year to year. Accordingly, he advised you to stop at once all the hiring of incompetent CPA who usually showered you with words and phrases that he alone promotes and understands.

Today, ETM will explain to you the commonly used CPA Engagement Letter and its Yolanda-type effect to you and your family.

All CPAs, just like ETM, were taught in schools/colleges/universities to be good in managerial accounting and/or financial accounting.

Due to lack of competent lecturers and professors in taxation, the tax accounting subjects have been knowingly ignored. The teaching of which is consciously abandoned. (Please click this link to register for Tax Accounting for Retailer, Wholesaler, Dealer, etc - GenSan City “https://www.facebook.com/events/502673169845983/” Also, please click this link to register for Tax Accounting for Retailer, Wholesaler, Dealer, etc - Davao City “https://www.facebook.com/events/1375765729347105/”)

The movers of financial accounting are too many in the Securities and Exchange Commission and mostly came from big CPA firms whose business interest is in rendering an opinion on the clients’ supplied financial statements. These movers who may also in the payroll of accounting cartels have created without regards to the existing body of laws the so-called PRO-FORMA AUDIT ENGAGEMENT LETTER (http://demo.sec.gov.ph/circulars/cy,2002/sec-memo-5,s2002,annexa.htm).

Before you would sign any CPA Engagement Letter, let ETM warn you about its pitfalls by way of analyzing its context and content, segment by segment. Let the learning begin……

ADDRESSEE
The usual addressee of a CPA Engagement Letter is as follows, viz;

“The Board of Directors
EMELINO T MAESTRO
Unit 419, Corporate 101, Mother Ignacia, Quezon City”

Why is it addressed to your Board of Directors? To answer it, ETM wants you to know that the Philippine legal system does not allow any corporate official and employee to represent his employer, the corporation, without authority from its Board of Directors. Having this in mind, your CPA/auditor needs the power and authority of your Board of Directors to be vested on his shoulders so that he can act as if he is the Board of Directors. What would happen if he would be acting like a Board of Directors? This means that he would have control over your employees and confidential information and has the power and authority to do whatever is beneficial, not to you, but to himself.

OPENING STATEMENT
The first statement of a CPA Engagement Letter is quite intriguing, viz;

“You have requested that we audit the balance sheet of EMELINO T MAESTRO as of 2021, 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.”

First, it is you who are so eager and persistent in getting his services. Thus, you got out of your usual way and went to his office personally and REQUESTED that he examines NOT YOUR BOOKS OF ACCOUNTS but your balance sheet and its related statements. Meaning, you would solely prepare and print these financial statements for without them, he cannot start his examination thereto.

Irritating as it is, the laws of the State considered your CPA/auditor whose Oath of Office says that he would uphold the constitution and without mental reservation and purpose of evasion obey the laws of the State (Republic of the Philippines). The law which is the National Internal Revenue Code or Tax Code (NIRC) states that your CPA/auditor MUST EXAMINE books of accounts and therefrom must prepare, sign and issue certified financial statements (Section 232, NIRC). To examine financial statements is unacceptable and contrary to the laws of the State. Don’t request but ask him to examine your books of accounts.

Furthermore, you would be paying him to EXPRESS AN OPINON ON YOUR SUPPLIED FINANCIAL STATEMENTS. Again, the law requires him NOT YOU to prepare, sign and issue CERTIFIED (not opinionated) FINANCIAL STATEMENTS. Don’t just pay for an opinion. Seek a competent CPA/auditor who shall CERTIFY your financial statements.

SECOND STATEMENT
Like spoonful of salt being knowingly sprinkled and pressed on your wounds, this statement may have the same effect to your character and competence, viz;

“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.”

You won’t hire your CPA/auditor if the laws of the State would not require you to hire him. Yes, the NIRC mandated all of you to engage a CPA/auditor whose duties are as follows, (1) to ascertain your compliance with the laws of the State, and (2) to prepare, issue and sign financial statements.The NIRC is a substantive law that was consciously designed and developed by you and me, through the Philippine Congress. It is our law that makes us civilized Filipino. Standards whether they belong to Philippine Financial Reporting Standards (formerly known, Generally Accepted Accounting Principles) or Philippine Standards on Auditing (formerly known, Generally Accepted Auditing Standards) would not exempt your from complying with the laws of the State. Neither, these standards would be a valid justification in violating the laws of the State. By using these standards for CPA which is not developed and designed to be used by taxpayers thus they are not standards for taxpayers, BIR revenue officers who are in charged to examine your tax returns and financial statements would be so elated to know that you are so incompetent and ignorant for not knowing what to prepare, sign and submit to their office. BEWARE OF THE LURKING VULTURES.

THIRD STATEMENT
Another slap-on-your-face statement is this, viz;

“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.”

His audit is yet to start but he is already advertising and emphasizing to you NOT ONLY that your internal control is weak BUT ALSO material misstatements from your financial statements may remain undiscovered…. @!#%#%%$#%%^)(*& This can only mean ONE THING….. “He is not competent to handle the requirement of the laws and thus, removing himself from criminal and civil liabilities that his financial statements and other reports might bring to you and most importantly, to himself.” …… Please be advised that the laws of the State (Section 257, NIRC) require all CPAs who are engaged in the examination of books of accounting and preparation of financial statements and annual income tax returns to substantially ascertain that the income, exemptions and deductions are properly reflected in the said financial statements and returns. This cannot be delegated to you for the law is already delegated this duty to your CPA/auditor (delegatus non delegare).

FOURTH STATEMENT
This destructive statement may be seen also thereof, viz;

“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.”

Take this down. You are not hiring your CPA/auditor to look for any weakness in your accounting or internal control system. He is being hired to do two things, (1) examine your books of accounts, and (2) prepare and issue certified (not opinionated) financial statements. NOTHING MORE AND NOTHING LESS. These are his obligations to the State and to you.

FIFTH STATEMENT
This statement is really disgusting, viz;

“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.”

Again, your CPA/auditor duties are to ascertain that you complied with the laws of the State and make immediate and important recommendations to rectify any mistake or misrepresentation that you unintentionally committed. To require you to prepare, sign and issue a MANAGEMENT REPRESENTATION a.k.a. STATEMENT OF MANAGEMENT’S RESPONSIBILITY FOR THE AUDITED FINANCIAL STATEMENTS is to confirm that he is not responsible to his CPA outputs. Thus, any mistake, misrepresentation and miscalculation that he made during his audit shall be for your account. Thus, you shall be held CRIMINALLY AND CIVILLY LIABLE FOR SUCH.

SIXTH STATEMENT
The sixth statements may be a little bit confusing, viz;

“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 Philippine Standards on Auditing, 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.”

Instead of complying with the laws of the State that is to report the correct payment of taxes, your CPA/auditor who represented himself as a SEC-accredited auditor has a different agenda that is to satisfy the requirements of SEC. ETM question is this, ‘If his opinionated financial statements are not in accordance with the NIRC/Tax Code, how could they be in accordance with the SEC-regulations.” As the BIR Commissioner and Secretary of Finance affirmed and confirmed, the financial statements required by SEC are total irrelevant and immaterial to the requirements of the substantive law. And, in case of disparity, the substantive law that is NIRC/Tax Code shall prevail over the SEC-administrative regulations. DON’T VIOLATE THE LAW.

FINAL STATEMENT
Finally, the last and parting statements of his CPA Engagement Letter may look like this, viz;

“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 2021 year 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.”

First, if you signed this type of CPA Engagement Letter, you already signed your disease-causing certificate because not only you enter into a contract for the rendering of a service that is contrary to the laws of the State and not relevant to your needs and obligations to the State but also you expose yourself and company into messy tax troubles. Nothwithstanding, that you surrendered all your staff and personnel under his disposition and control which would really hamper your regular operations.

Finally, spending too much money just to get an opinion of nobody is too much to bear. Please be reminded that the Philippine Supreme Court said that the standards and principles including the works of a CPA cannot and will not be the basis/foundation in making an enforceable decision. So, what really is the relevance of the standards and principles including the output of your CPA/auditor to your life and businesses?

Don’t waste your money for the CPA services that would place your life, liberty and livelihood in jeopardy and peril.

You are invited to a workshop on “How to draft/prepare a CPA Engagement Letter” so that you shall get the right services for a very reasonable price from any CPA in the Philippines.

For reservation, please call Katax ETM at 0998 979 3922, 0922 801 0922, 439 3918, 921 6107 or email him at kataxpayer@gmail.com….

TAX ACCOUNTING COURSE FOR
a. VAT REGISTERED TAXPAYERS
b. NON-VAT REGISTERED TAXPAYERS
shall start in the first week of February 2014, please register early to get the most out of your investment.