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psalm.gov.ph SEAL/I. Good Governance/1...Philippine Public Sector Accounting Standards (PPSAS 1) because the existence of transferred assets from National Power Corporation (NPC) in

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Page 1: psalm.gov.ph SEAL/I. Good Governance/1...Philippine Public Sector Accounting Standards (PPSAS 1) because the existence of transferred assets from National Power Corporation (NPC) in
Page 2: psalm.gov.ph SEAL/I. Good Governance/1...Philippine Public Sector Accounting Standards (PPSAS 1) because the existence of transferred assets from National Power Corporation (NPC) in
Page 3: psalm.gov.ph SEAL/I. Good Governance/1...Philippine Public Sector Accounting Standards (PPSAS 1) because the existence of transferred assets from National Power Corporation (NPC) in
Page 4: psalm.gov.ph SEAL/I. Good Governance/1...Philippine Public Sector Accounting Standards (PPSAS 1) because the existence of transferred assets from National Power Corporation (NPC) in
Page 5: psalm.gov.ph SEAL/I. Good Governance/1...Philippine Public Sector Accounting Standards (PPSAS 1) because the existence of transferred assets from National Power Corporation (NPC) in

Republic of the PnilrppineS COMMISSION ON AUDIT

Commonwealth Aventie„ f?iretart City, Ph "7 •

INDEPENDENT AUD4TOR'S REPORT

THE BOARD OF DIRECTORS Power Sector Assets and Lie:kiddies

.Managernent Corporation Diliman, Quezon City

Report on the Audit of the Financial Statements

Qualdied Opinion

J* have audited the. financial statements of the Power Sector Assets and Liabilities Management (PSALM) Corporation: which cormkrise of the statements of financial position as of December 31. 2017 and 2016.. and the statements of comprehensive income statements of changes in equity statements of cash flows and statements of mparson of budget and actual amount for the years then ended, and notes to the hriaricia statements including a summary at sigmficant accounting polK:es

In our opinion, except for the possible effects of the matter ctescnhed in the Basis for

Qualtheti ()poon section of our report, the accompanying financial statements present fairly, in all material respects, the financial position of PSALM Corporation as at December 51, 2017 and 2016„ and its financial performance and itc a.ch flows for the years then

ended in accordance with Philippine Public Sector Accounting Standards (PPSA Si

&Isis for Qualibed Opinion

The Property, Plant and Equipment (PPE) in the amount of P3,664 billion and P2 (X)/ billion for CYs 2017 and 2016, respectivety„ with a carrying net book value of P19 0/4 billion and P25 894 tplIton as of December 31, 2017 and December 31, 2016, respectivety, was not fakrly presented as required under the Conceptual F ramewvrk and Philippine Public Sector Accounting Standards (PPSAS 1) because the existence of

transferred assets from National Power Corporation (NPC) in the amount of P2 059 billion was doubtful due toils non inclusion in the Physical Inventory Report, Moreover, several unserviceable properties in the power plants amounting to P 112 billion remained undisposed as of year-end Also, the book balance of the Pf.:-ALM-Acquired Assets in the amount of P48.525 million was not reconciled wth the physical inventory report for CY 2017 and the transmission-related assets owned by National Transmission Corporation (TransCo) amounting to P125 346 million were included rn the PPE account Likewise, aUowance for depreciation was not provided on the assets from Privatized Independent Power Producers (PPs) wilt carrying value of P470 321 miltkon and Other Unity Plants amounting to P17 979 million

b The nter-Agency Receivables consisting of Due from National Government Agencies (\IGAs) account in the aggregate amount of P15 134 billion and P53 709 billion. as of

Page 6: psalm.gov.ph SEAL/I. Good Governance/1...Philippine Public Sector Accounting Standards (PPSAS 1) because the existence of transferred assets from National Power Corporation (NPC) in

December 31, 2017 and 2016, respectively, was not rekabte due to the negative results of confirmation with net discrepancy of P10.033 billion between the records of PSALM Corporation and the other Government Agencies, inclusion of dormant accounts transferred from NPC books in CY 2009 in the amount of P1 1 118 billion, inclusion of the prepayment accounts totaling P190.892 million consisting of various creditable withholding taxes which is not in compliance with COA Circular 2015-010 (Revised Chart of Accounts for Government Owned and Controlled Corporation) and PPSAS 1 and Tax withheld on the &saki:eyed payment to PSALM Corporation officers and employees amounting to P11..026 million was adjusted twice in the books resulting to understatement of inter-Agency Receivables Due from NGAs account

The accuracy and reliability of the accounts Prepayment accounts - BIR Input VAT and BIR - CWT in the amount of P34.444 billion and P37 669 billion, as of December 31, 2017 and December 31, 2016, respectively, were not ascertained due to a significant variance of P13.014 billion between the total amount of Input VAT presented in the VAT Returns or BIR Forms 2550Q and the general ledger account balance for Input VAT account, and the amount reported in the Annual Income Tax Return or BIR Form .1702 and the Creditable Withholding Tax account ledger in the amount of P432,031 million contrary to the Conceptual Framework on General Purpose Financial Statements and PPSAS 1

We conducted our audit in accordance with the International Standards of Supreme Audit institutions (ISSAls). Our responsibilities under those standards are further described in the Auditor's Responsibftes for the Audit of the Financial Statements section of our report We are independent of the PSALM Corporation in accordance with the ethical requirements that are relevant to our audit of the financial statements in the 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 In provide a basis for our qualified opinion

rnichasis of Matter

We draw attention to Note 31 to the Financial Statements which describes the commitments and contingencies relating to the outcome of the various legal and administrative proceedings including litigation and proceedings related to electricity charges and challenges to certain provisions of the EPIRA and the judgment on the back wages claims of the NPC Drivers and Mechanic Association (DAMA) for which NPC and PSALM Corporation were the Respondents Our opinion is not qualified in respect of this matter

We also draw attention to Note 32 (1) which report that NGCP flied a Notice of Arbitration with the Singapore international Arbitration Centre against PSALM Corporation and TransCo for alleged violations of the Concession Agreement No further information can be provided on this proceeding in compliance with the confidentiality requirements Under Republic Act No. 9235(2004) or the Alternative Dispute Resolution Act of 2004.

Responsibtithes of Management and Those Charged with Governance for the Financ Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with PPSAS, and for such internal control as management

Page 7: psalm.gov.ph SEAL/I. Good Governance/1...Philippine Public Sector Accounting Standards (PPSAS 1) because the existence of transferred assets from National Power Corporation (NPC) in

determines is necessary to enable the preparation of ncial statements That are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is response)* for aseessing the PSALM Corporation's ebility to continue as a going come-m, disclosing. as appkable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the PSALM Corporation or to cease operations, or has no realiste alternative but to do so

Those charged with governance are responsible for overseeing the PSALM Corporation financial reporting process

Auditor's Responsibes for the Audit of The Fmanoal Statements

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 auditor's report that includes our opinion Reasonable assurance is a high ieve i of assurance, but is not a guarantee that an audit conducted in accordance with lSSAls will atways detect a malenal misstatement weer) 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 ISSAIs we exercise professional )uegment 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 nsks, and obtain audit evIdeme that is sufficient and appropriate to provide basis for our opinion The risk of not detecting a malenal misstatement resulting from fraud is higher than for one resulting from error, as fraud may invelve coltusion, forgery, ireenecnal omissions, misrepresentations, or the overnde of internal control

• Obtain an understanding of internal control relevant to the audit in order to design audit prccedures mat are appropriate in the circumstances„ but not for tne purpose of expressing an opinion on the effectiveness of the PSALM Corporatien's internal control

Evaluate the appropriateness of accounting pokicie.s used and the reasonableness of accounting estimates and related disclosures made by Management

Conclude on tne 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 PSALM Corporation's ability to continue as a going concern It we conclude that a material uncertainty exmts, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to caradify our erenion Our conclusions ace based on the audit evidence obtained up to the date of our ,auditors report However, future events or conditions may Cause the PSALM Corporation to cease to continue as a going concern

Page 8: psalm.gov.ph SEAL/I. Good Governance/1...Philippine Public Sector Accounting Standards (PPSAS 1) because the existence of transferred assets from National Power Corporation (NPC) in

Evaluate the overall presentation, structure and content of the fine 'al statements, including the disclosunts, and whether the financial statements represent the undertying transactions and events in a manner that achieves fair presentation

We communicate with those charged with governance regarding, among Cater 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

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards

Report on e Supplementary Information Required Under MR Revenue Regulation 15-2010

Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole The supplementary information on taxes, duties and license fees in Note 28 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 infonnation s the responsibility of Nianagement, The information has been subjected to the auditing procedures applied in our audit of the basic financial statements In our opinion, the information is fairly staled, in all material respects, in relation to the basic financial statements taken as a wrote

COMMISSION ON AUDIT

By:

,EV EN MARAN Stdk Auditor V Supervising Auditor

-YULDE

May 25, 2018