Real Estate Industry - covers many aspects of the property such as * One of their jobs is to represent either party

epresent either party and help them achieve the

development, leasing, appraisal, marketing, and management of commercial, purchase or sale with the best possible team.
residential, agricultural, and industrial properties.
4. Real Estate Lending
Nature and Background of Specialized Industry Lenders include banks, private lenders, credit unions, and government
institutions. They play a huge role in the real estate industry since all properties
Construction - comprises of building, alteration, and/or repair. and developments use debts to finance their business.
Ex: residential construction, commercial construction, bridge erection,
roadway paving, excavations, demolitions, and large-scale painting jobs. 5. Property Management
Play a role in helping real estate owners rent out the units in their buildings.
Residential construction - refers to the building or renovation dwellings. The Some of their jobs include collecting rent, fixing deficiencies, performing
vast majority of residential construction jobs are small renovations, such as repairs, showing units, and managing the tenants. They charge a fee which is
addition of a room or renovation of a bathroom or kitchen. a percentage of the rent to property owners.

Commercial construction - includes apartments, office and retail buildings, 6. Professional services
hotels, schools, public buildings, industrial and manufacturing buildings, There are a variety of real estate professionals who work in the industry and
highways and bridges, sewers, pipelines, power lines, power plants, and other help make it function. The most common examples (other than the ones listed
civil engineering projects. above) are accountants, lawyers, interior designers, stagers, general
contractors, construction workers, and tradespeople.
Real estate - is any real property consisting of land and improvements such
as fixtures (i.e., access door, lighting, awnings, etc.), buildings, roads, Overview, Updates, Statistics of the Specialized Industry in the Philippines
structures, and even utility systems.
• The construction sector → one of the important industries that the
Four Types of Real Estate government has been focusing on since 2016.
1. Residential - This includes both new construction and resale. • 100 infrastructure flagship projects have been prepared by the public sector
• Single-family homes → A common category of residential real as of February 17, 2020, enforced by the DPWH and DOTr.
estate. • One of the big tickets is the Metro Manila Subway Project, which would be
• Other residential real estate’s include condominiums, co-ops, managed by the DOTr, which would cost around 357 billion Philippine pesos.
townhouses, triple-deckers, high-value homes, duplexes, • The" Build Build Build" program → intent to propel the country in achieving
quadplexes, vacation, and multi-generational homes. more developed and connected life among Filipinos, have so far increased
the number of licenses for building contractors in the Philippines.
2. Commercial - included in this type of real estate are strip malls, • In 2018, 4.8 thousand permits were issued for general engineering
shopping centers, educational and medical buildings, hotels, and contractors, around 3,000 for general building, nearly 2,000 for trade
offices. contractors, and around 1,000 for specialty contractors, respectively.
• Apartments, although used for residences, are often considered • For non-residential building permits alone, there were approximately 24.4
commercial since they are owned to produce income. thousand permit issuances in 2018 compared to only 17.9 thousand licenses
in 2016.
3. Industrial - This kind of real estate includes manufacturing buildings • Within the private sector, the motivation to construct buildings is driven not
and property, including warehouses. only by the "Build build build" program but also by the income potential in
• There can be various uses for industrial buildings such as research, the real estate business.
production, distribution, and storage of goods. Buildings where • Different business sectors occupy a large amount of office space in the country,
goods are distributed → considered as commercial real estate. especially in the NCR for their operations.
• POGO → occupied about 738 thousand square meters of office space
4. Land - can either mean vacant land, ranches, or working farms. • Businesses engaged in IT → occupied around 573 thousand square meters.
Subcategories of this kind of real estate include undeveloped, early • Other companies → occupied only 379 thousand square meters.
development or reuse, subdivisions, and site assembly. • The Philippines real estate market has been penetrated with high investments
arising from the presence of both, domestic and international players, in the
How the Real Industry Works (DeSaBroRe2Pro) market.
• The Philippines real estate market is expected to post revenues of USD XX
1. Development billion by 2020 due to the increasing urbanization and expansion in the real
Real estate development -→ the process of purchasing raw land, rezoning, estate construction projects.
renovation and construction of buildings, as well as sale or lease of finished
• The demand is expected to rise due to growth in the number of multinational
products to end-users.
companies and a number of BPO’s.
* Real estate developers end profit by adding value to the land such as
creating buildings or improvements or rezoning and taking a risk in financing a
Drivers
project.
A growth in the number of multinational companies and BPO’s → increase
urbanization and expansion in the real estate construction projects.
2. Sales and Marketing More number of Filipinos are moving to urban areas and are adopting better ways of living
Firms that focus primarily on sales and marketing work with developers to sell and the difference between the rich and the poor is on the decline leading to growth in the
buildings and units that they create. middle-class population that can afford to buy properties.
* Commissions are earned by these firms for creating all marketing material A large chunk of the population works in the large number of BPO’s and MNCs,
and using sales agents to sell completed units. Sales and marketing firms focus which are expected to rise, → leading to an increase in the demand for
more on new units. commercial spaces.

3. Brokerage Restraints and Challenges

A brokerage → a firm with a team of real estate agents or realtors as It is necessary to solve the problem of housing backlog in the market. Major
employees. The real estate agents help in facilitating a transaction between challenge the government faces is to boost the infrastructure spending and
buyers and sellers of property. provide more incentives to the real estate developers so that they shift their
focus towards socialized housing. The fear of property bubble has been around 2. Rent Deferrals:
for some time now and has limited the growth of the market. • ITB – If tenants received rent deferrals → merely impact the timing of cash
collection from the tenant and not impact when revenue is recognized by the
Opportunities entity.
Investing in real estate is considered as one of the best investments. • GAAP – There are generally two options regarding COVID-related rent
* The size and scale of the real estate market → make it an attractive and deferrals. Account for the deferral as if there are no changes to the lease
lucrative market for many investors. contract, but merely a delay in cash receipts; account for such deferral as an
Investing directly in real estate involves purchasing residential or commercial offset to revenue during the deferral months.
properties to generate income or for resale at a future time.
3. Tenant-Related Assets:
Audit Considerations • Accounts Receivable – Perform a thorough evaluation of the collectability of
1. Plan ahead for discussions with auditors regarding: accounts receivable. Under ITB, once all collection efforts are exhausted, write
• The current status and forecast of operations. off any uncollectible accounts receivable directly to operations. An allowance
• Status of ongoing negotiations with tenants or lenders (e.g., loss of for doubtful accounts is not permitted. For GAAP, record an allowance for
tenants, lease modifications, COVID-related relief received or doubtful accounts against any receivable that may not be collectible.
provided, debt modifications or refinances).
• Audit timing → consider and anticipate any delays or inefficiencies • Tenant Improvements – For ITB and GAAP, identify tenant improvements
due to the current work-from-home environment. relating to tenants who have vacated and terminated their lease agreement
• Status of any legal or regulatory issues, including communications during the year.
with an attorney regarding potential or pending legal matters. - Can these assets provide any future economic benefit?
• Subsequent events, such as tenant vacancies, which may require - Is the carrying amount of these assets recoverable over their
adjustments to financial statements or related disclosures. remaining useful life?
• Delays in adopting applicable accounting standard updates. - Are these assets tenant specific?
• Changes to deadlines, including SEC filings, and the impact of the - Should the carrying amount of these assets be written off?
amended definition of accelerated filers.
• Deferred Leasing Costs – For ITB and GAAP, identify deferred leasing costs
2. Review major transactions and changes to internal controls and processes: related to tenants who have vacated and terminated their lease agreement
• Update internal control narratives for any changes during the during the year. Write off the remaining unamortized costs.
current year, such as any changes as a result of working from home
or key staff turnover. 4. Deferred Financing Costs:
• Provide detailed explanations, along with all supporting executed If the entity entered into a transaction to extinguish or modify its debt,
legal documents, for transactions that have occurred during the management should perform an analysis to determine the treatment of both
year, such as executed lease amendments or a loan-closing binder. any existing and/or new financing costs. The basis of accounting for which the
entity is reporting on may contain nuances that dictate the treatment of
3. Prepare for changes in audit requests: financing costs.
• Anticipate new requests, such as virtual meetings with property
managers, or cash flow projections. • Extinguishment – Generally, write off the carrying amount of existing
• Use the auditor’s secure site, to view and upload documents. deferred financing costs as of the date of extinguishment. New costs incurred
Management should verify that all necessary personnel can access are capitalized and amortized over the term of the new loan.
the site during planning discussions with the auditors.
• Discuss and walkthrough processes and procedures remotely. • Modification – Generally, amortize over the term of the modified loan the
• Determine if remote access to general ledger systems exists within carrying amount of existing deferred financing costs as of the date of
the system. modification. Expense any new cost in the period of the modification.
However, under GAAP, capitalize new costs incurred and paid directly to the
Going Concern Considerations lender.
While going concern is always an audit consideration, consider the pandemic
and, at a minimum → discuss with the audit team. 5. Asset Impairment:
An entity’s ability to continue as a going concern may be impacted by a variety For entities reporting under GAAP, perform an impairment analysis of assets if
of adverse conditions: management determines a “triggering event” has occurred. Management
- loss of a major tenant should determine if any such triggering events have occurred and, if one has,
- negative operating cash flows determine if the carrying amounts of any assets are not recoverable over
- non-compliance with loan terms and covenants their remaining useful lives. This is not a consideration under the ITB.

Technical Accounting Considerations Best Practices

There are considerations for entities reporting on either the income tax basis There are several things to keep an eye on in any year that will facilitate a
(“ITB”) of accounting or generally accepted accounting principles (“GAAP”). successful audit season.
1. Management’s responsibilities:
1. Rent Concessions: • Review financial statements, whether prepared by management or
• ITB – If tenants received rent concessions → they would directly offset an external party.
revenue and the corresponding account receivable. • Design, implement and maintain internal controls relevant to the
• GAAP – The Financial Accounting Standards Board (“FASB”) – allowed for preparation and fair presentation of financial statements.
certain instances of rent relief to tenants due to COVID-19 as if such relief was • Prepare and review a complete financial reporting package of
already included in the original lease agreement. Thus, the entity may schedules and relevant documents that will be provided to the
recognize the rent concession in the current period as opposed to accounting auditors.
for it as a lease modification. 2. Designate an audit point person from your team.
3. Verify the listing of accounts to be confirmed, including cash, debt and
investment accounts. Sign all paper confirmations or give electronic
authorization prior to year-end, if possible.
 4. If the business has hard-to-value investments, prepare detailed supporting • In this highly competitive market both information and physical products
schedules and documentation. This should include a comprehensive write-up must move with efficient speed and at lower cost, paired with improved
of the valuation methodology. service.
5. Discuss with your auditors if there are schedules or documentation you can • Successful supply chain management and logistics → often the difference
provide in advance for possible interim testing. between surviving and flourishing in the current marketplace.
• Upon improving the supply chain will see immediate benefits in terms of
In a year where nothing has been ordinary in the real estate industry, spending lower costs and optimized delivery
time discussing business activities and planning with your auditors could help
make the year-end audit process as efficient as possible. Nature and Background of Specialized Industry
• The logistics industry is much broader than the transportation industry.
Main Industry Issues Transportation → focuses on the movement of goods from one place to the
• Distressed assets, in particular residential and commercial other,
properties are in need of restructuring.
• Logistics industry → implies a broader spectrum and refers to the whole
• PFRS, legal and other regulatory compliance
‘flow’ management. This includes not only the transportation and delivery
• Careful planning can optimize the tax position for real estate
of goods but also the storage, handling, inventory, packaging, and various
projects.
other aspects.
• Cost control and strong project management are essential to
maximize potential returns on real estate projects.
MAIN DIFFERENCES BETWEEN THE LOGISTICS INDUSTRY AND THE
• Measures to optimize cash flow can reduce the impact of the global
TRANSPORTATION INDUSTRY
economic downturn.
• A strong focus on quality and compliance maximizes financing and
Transportation is a function within the logistics industry operations. It is
sale opportunities.
focused purely on the definition and deployment of transportation modes,
such as sea, road and air. It is also important to differentiate between logistics
PFRS 15 Revenue from Contracts with Customers Considerations
and the supply chain.
• How are different goods and services within a contract identified?
Supply chain → refers to the entire value chain from the suppliers to the end
• Should contract costs be capitalized?
customer, including after sales services and reverse logistics (recycling).
• Should Revenue be Recognized Over Time or at a Point in Time?
• Should revenue be adjusted for the effects of the time value of
Types of transportation are as follows:
money?
1. Truck Freight Road Transportation
• What is the impact if a contract is modified?
2. Ship Marine Transportation
• When should variable or uncertain revenues be recognized?
3. Train Rail Transportation
• Differences of PAS 11 Construction Contracts and PFRS 15.
4. Plane Air Transportation
• See PIC Q&A 2018-12 for more details.
5. Intermodal Transportation

Republic Act (RA) 6552 – The Realty Installment Buyer Act, more commonly
Logistics → requires planning, whilst transportation is the mode to execute
known as the Maceda Law,
the planning when freighting goods from point A to B. They are not the same
- provides remedies should the buyer default from payment based
thing, but transportation is just simply a part of logistics. When it comes to
on the payment schedule initially agreed with the developer.
the logistics industry, logistics executives must make further decisions beyond
- Under this law, in the event of buyer’s default, the buyer should be
the mode of transportation to include:
given grace period and refund of 50% to 90% of what has been
• Packaging
paid (provided that the buyer has paid installments for at least 2
• Containerization
years).
• Documentation
- Also, under the Act, notice of cancellation and then the refund
• Insurance
(twin requirements) should be completed before cancellation of
• Storage
the contract to sell can be carried out. Some legal opinions will say
• Importing and Exporting Regulations
that without such cancellation, the contract between buyer and
• Freight Damage Claims
developer remains valid.
• Working and collaborating with other executives within the supply
- With these provisions on cancellation (cancellation right of the
chain
developer), there is a chance that the real estate companies can
• Managing vendors and partners
sustain its legal right to payment.
• Responsible for risk mitigation
- The discussion in the new revenue standard explains that,
notwithstanding that an entity may choose to waive its right to
THREE MAIN DIRECTIONS CORRESPOND WITH THE THREE LOGISTICAL
payment in similar contracts, an entity would continue to have a
PROCESSES
right to payment to date, if in the contract with the customer, its
Inbound Logistics → refers to the movement of goods between businesses and
right to payment for performance to date remains enforceable.
their suppliers to cut the definition short.
Outbound Logistics → pertains to the flow of goods between companies and
AUDITING LOGISTICS AND TRANSPORTATION INDUSTRY
the end-user/consumer.
• Transportation → defined as the movement of people, animals, and goods Reverse Logistics → means that products’ movement from the end
from one location to another. user/consumer back to the manufacturer or reverse supply chain.
• Transport is crucial as it enables trade and communication between one
another, which ultimately establishes civilizations. Today's global logistics manager would be familiar with the role of each of the
• Logistics industry → defined as the science of obtaining, producing, and following:
distributing material and products to the correct place and in the correct • Foreign freight forwarders – handlers of a myriad of foreign freight services:
quantities. In a military sense, its meaning also includes the movement of rate quotes, vessel chartering, booking of vessel space, handling of
personnel. documentation and cargo insurance, tracing and expediting, arranging inland
• Logistics includes the process of P-I-C: Planning, Implementing, and transportation, and providing translation services.
Controlling procedures for the efficient and effective transportation and
storage of goods.
• Export management companies – suppliers of expertise to those wishing to Warehouse Market
sell products overseas but lacking the necessary resources. • Second biggest chunk for the Logistics Market is the Warehouse Market.
• Export trading companies – locaters of overseas buyers. They also handle • With its strategic location, right on the edge of Pacific Ocean, the Philippines
export documentation, transportation, and the meeting of foreign government → one of the most convenient docking locations for supply routes as it
requirements. essentially connects many export and import markets of different countries
• Customs house brokers – overseers of the movement of goods through across the globe.
customs. They also ensure that accompanying documents are complete and • Largest contributors for Warehouse Market are Industrial and Retail
accurate. warehousing and E-Commerce companies.
• Ship brokers – sales representatives for ship owners and purchasing
representatives for the shipper. Opportunities for the Logistics and Warehousing Industry
• Ship agents – local representative of the ship operator that handles the ship's • There has also been a notable increase in consumer spending because of a
arrival, berthing, clearance, loading and unloading. rising middle class, growing outsourcing industry, and OFW remittances.
• Export packers – suppliers of export packaging services. • Due to the growing popularity of the e-commerce market which allows for
• Port authorities – owner and operator of the port. They provide wharf, dock, geographical ease; eliminates travel time and cost; is available 24/7; and
and other terminal facilities at port locations. allows for feedback from customers.
• Expansion of both local and international manufacturing companies in Metro
Overview, Updates, Statistics of the Specialized Industry in the Philippines Manila’s outskirts like Cavite, Laguna, Batangas, Bulacan and Pampanga where
vast sizes of land are still available and offered at reasonable prices.
• The Philippines freight and logistics market is expected to grow at a CAGR of
around 8.2% during the forecasted period. The Impact of COVID-19 on the Logistics and Warehousing Industry
• Flights and cargos are mostly cancelled or delayed, countries on Lockdown
Key Market Trends (or in Quarantine) delay all shipments, unemployment has spiked rapidly, and
“Build, Build, Build Program” – Government Initiative some shipping companies have suffered Force Majeure.
• The World Economic Forum ranks the Philippines 96th of 141 countries for
the quality of its infrastructure. Audit Considerations
• To improve the transport infrastructure, the government set up a long-term Industry Challenges:
scheme to spend 9 trillion pesos ($177bn) on new infrastructure called “Build, • COVID 19 pandemic such as flight declines and cancellations, travel
Build, Build” program. bans, maritime fallout
• Moreover, as an initiative of the government to improve the transportation • Maximizing revenues
system in the country, there will be an implementation of the “Public Utility • Meeting international financial reporting standards requirements
Vehicle Modernization Program (PUVMP).” • Managing tax risks
• 2.2 billion Philippine pesos has been allocated for the transport • Managing fraud
modernization plan, which will be used to provide subsidy to drivers and • Mergers and acquisitions as facilitator of industry restructuring
operators who will be buying electric jeepneys, as well as address the training • Opportunities in the emerging markets such as automation and
for drivers. blockchain
• Financing transport infrastructure and public private partnerships
Booming Express Delivery Market in Philippines build operate-transfer or leasing agreements.
• With expanding reach of Internet, the e-commerce industry in Philippines • Regulatory compliance and framework such as inefficient Custom
has been on a growth spurt. Clearance Processes and manual processes.
• About 71% (76 million) of the country’s population are internet users, and • Traffic congestions particularly in Metro Manila.
70% of those internet users are Online shoppers.
• With the booming e-commerce sector, the need for efficient goods delivery Key Audit Procedures:
is increasing. • Audit procedures systematically analyze certain elements or records of a
• As a result, the Express Delivery market is also booming along with e- business to ensure that quality, safety, and legal standards are consistently
commerce in the region. Express delivery which comprises of services for upheld.
documents, mails, parcels and couriers at a premium price for faster delivery
times has gained significant popularity amongst the Filipino population. 1. Revenue Recognition Principles
2. Payroll Audits
Competitive Landscape • Transportation companies can employ a range of non-salaried employees,
• The competition in the Philippines freight and logistics market is highly such as truck drivers → who are paid a set rate per mile driven or employees
fragmented with presence of many local and international logistics service paid on an hourly basis + overtime.
providers. • Payroll audits can be especially beneficial for companies that pay hourly or
• The Philippines’ ranking has leaped 11 notches higher than in 2016 because on a piece-rate scale, to ensure that all employees have been paid fairly and
of the government’s efforts to simplify government transactions with the accurately for the work they performed.
enactment of the Ease of Doing Business Law and improve the quality of public • Payroll audits in the transportation industry involve systematically analyzing
infrastructures. mileage records and hourly time sheets against payment records, looking for
• LRG studies show that the Philippine Logistics Market is a thriving industry discrepancies between earnings and actual payments.
forecasted to have 8.2% to 8.8% growth rate for the period 2018 - 2024 and • If a payroll audit finds major discrepancies → it can reveal potential errors
projected to be a Php 970 billion to Php 1Trillion market by 2023. or fraud in the accounting system.

Freight Forwarding 3. Safety Policy Audits

• 21.1% of the transporting storage and establishments are freight forwarding • Safety is of paramount importance in the transportation industry, for legal as
companies. well as practical reasons.
• Composed of the biggest chunk of transporting service in the country, this is • It can be beneficial to audit a transportation company's safety policies and
largely dominated by road freight forwarding. procedures, including vehicle inspection procedures, disaster response plans
• Freight forwarding is seen to grow further with the Government’s “Build and incident report policies, to ensure that safety plans and procedures
Build Build” (BBB) Program. remain relevant and effective over time.
• Safety audits analyze all documentation related to policies and procedures, • On August 14, 1969, Republic Act 6038 created the National Electrification
as well as combing through previously filed incident reports to ensure that Administration (NEA) and laid the groundwork for accelerated electrification in
policies and procedures are actually being carried out. the countryside. The law provided a framework for rural electrification
• A safety audit can compare safety plans to actual accidents and identified through not-for-profit cooperatives as a business model and loans and
hazards to determine how effective a safety policy truly is in practice. technical assistance from the NEA.
• In 1972, then President Ferdinand Marcos imposed Martial Law and shortly
4. Physical Equipment Audits thereafter, the Marcos administration seized the assets of Meralco. After
• As service providers, transportation companies rely on their equipment to almost 1.5 decades of government dominance in the electric power industry,
generate income and drive profitability. in 1986, the administration of then president Corazon Aquino reverted
• Thus, it can be beneficial to conduct physical audits of productive equipment Meralco to private ownership. The administration then decided not to operate
• Physical audits not only ensure that all equipment on the books is present the Bataan Nuclear Power Plant “for reasons of safety and economy” (EO 55 s.
and accounted for, but they can also audit the safety, repair and usage records 1986).
of each piece of equipment to prevent damage to over-used equipment. • In 1987, Aquino issued Executive Order 215 reversing the policy of granting
• Audits can identify vehicles and equipment that may need to be replaced generation monopoly to NPC and entertained proposals from independent
or taken out of use for repair. It also considers PPE impairment power producers (IPPs) for build operate-transfer (BOT) and build-own-operate
(BOO) arrangements for new generating capacity.
5. Legal Compliance Audits • EO 215 s. 1987 amended PD 40 to specifically allow the private sector to
• Transportation companies operate in a highly regulated industry. generate electricity and categorically state that "the generation of electricity,
• As such, compliance audits → can be an important activity to perform at unlike the transmission and distribution of electricity, is not a natural
least once per year. monopoly and can be undertaken by more than one entity."
• Legal compliance audits can ensure that safety policies, equipment • The first BOT contract for a power plant was then signed in 1989 by the NPC
standards, accounting records and financial reporting remain in line with state and Hopewell Energy Management, Ltd. to facilitate the privatization process,
and federal mandates. the EPIRA provided for the creation of the Power Sector Assets and Liabilities
• Compliance audits can ensure that all vehicles maintain current emissions Management Corporation (PSALM) to take over all existing generation assets
tests, for example, and that accounting records comply with GAAP. and liabilities of the NPC. PSALM was also tasked to use the revenue
generated to pay the outstanding debt of the NPC.
AUDITING POWER, WATER, AND TELECOMMUNICATIONS INDUSTRY • Furthermore, Executive Order No. 215 series of 1987, which allows private
sector to generate electricity, classifies four types of generating plants:
Power Industry – covers the generation, transmission, distribution and sale of 1. co-generation units or the simultaneous generation of both
power to the general public and industry. electricity and heat from the same fuel,
Water Industry – provides drinking water and wastewater services (including 2. electric generating plants intending to sell their production to the
sewage treatment) to residential, commercial, and industrial sectors of the grids,
economy. Typically, public utilities operate water supply networks. 3. electric generating plants intended primarily for the internal use of
Telecommunication Sector – made up of companies that make communication the owner, and
possible on a global scale, whether it is through the phone or the Internet, 4. electric generating plants outside the NPC grids.
through airwaves or cables, through wires or wirelessly. • The latest EPIRA status report released by DOE, which covers Nov. 2014 to
Apr. 2015 period, highlights the privatization of the remaining generation
• Utilities and telecommunications are essential services that play a vital role assets, particularly the Power Barges (PBs) 101-104 as well as the transfer of
in economic and social development. contract to an Independent Power Producer Administrator (IPPA) of Unified
• Quality utilities → a prerequisite for effective poverty eradication. Leyte Geothermal Power Plant (ULGPP) for the Bulk Energy. As of June 2015,
• In particular, digital technology that integrates transmission, switching, the privatization level of NPC generating facilities has reached 89.7%,
processing, and retrieval of information provides opportunities to merge following the successful bid of Naga Power Plant Complex in March 2014.
various service modes into an integrated whole. • Another entity established by the EPIRA is the Energy Regulatory
• This digitalization, merging the communications and computation functions, Commission (ERC) → to promote competition, encourage market
has been made possible by dramatic advances in device and material development, and enforce regulations in the newly restructured market.
technology, including integrated circuits and optical fibers. Why? because, contrary to PD 40, power generation was not considered a
• As the role of digital processing increases, systems and services become more public utility operation, as stated in Section 6 of RA 9136 otherwise known as
intelligent and laborsaving on the one hand, and more software-intensive on EPIRA Act of 2001. → This made the generation sector of the industry
the other. These industries are highly interdependent, highly regulated, and competitive and opens to other players in the market.
any risk imposed on its continuance will not only mean a threat to its own and • Under the EPIRA, any person or entity engaged in generation and supply
related industries, but a peril to the whole economy as well. shall not be required to apply for a national franchise → provided that it
secures a certificate of compliance from the ERC.
Nature, Background, and Overview of Specialized Industry
PHASES OF THE POWER INDUSTRY’S SUPPLY CHAIN
Power Industry 1. Power Generation - Power generation in the Philippines is not considered
• The electric power industry started in the Philippines as a private sector-led as a public utility operation → meaning interested parties do not need to
industry in 1890 and remained so until the late 1960s secure a congressional franchise to operate a power generation company.
• The government pursued rural electrification through the cooperative • However, power generation is regulated by the Energy Regulatory
business model starting in 1969 Commission (ERC) → who must issue a certificate of compliance to interested
• The monopoly of generation by the National Power Corporation (NPC) parties to ensure that the standards set forth in the Electric Power Industry
started in 1973 Reform Act of 2001 (EPIRA) are followed.
• And then the re-entry of private sector in the generation sector through • The ERC → also responsible for determining any power abuse or anti-
independent owner producers (IPPs) started in 1987. competitive behavior.
• Prior to the 2001 restructuring under the Electric Power Industry Reform Act
(“EPIRA”), the electric power industry had a vertically integrated generation
and transmission sector through the NPC and wholesale power purchases
from the IPPs were predominantly through the NPC. Distribution utilities were
local monopolies in their respective service areas.
Allocation of electricity production can be seen in the table below: a. Electric Cooperatives – are entities owned by the member-consumers
Coal 41% within the vicinity covered by the said entity. These are controlled by a Board
RE 29%
Oil-based 17%
of Directors elected by member-consumers and their management and
Hydro 15% operations supervised by the National Electrification Administration.
Natural gas 13%
Geothermal 7%
Solar 4%
b. Private Distribution Utilities – are electric distribution companies that are
Wind 2% owned by private entities.
Biomass 1%

• The Manila Electric Company (MERALCO) → the largest electric distribution

TYPES OF SOURCES OF ENERGY utility in the Philippines. As compared to its neighboring countries, Philippines
a. Conventional sources – coal, gas, oil, hydropower, and nuclear power; and has higher electricity costs due to:
b. Non-conventional sources – solar, wind, biogas (from organic wastes), and 1. Lack of Subsidies; and
bagasse (byproduct of sugarcane). 2. High Intrinsic Cost of Supply and Transmission due to:
a. Dependence on expensive imported fossil fuel for generating
2. Power Transmission – this is a common carrier business. It is regulated by electricity and no tax or tariff relief given for fuel imports
the ERC → who has rate making powers and the final say in the valuation of used for power generation;
transmission assets. b. Relatively low generating capacity of the Philippines. The
• Pursuant to the EPIRA and the Transmission Development Plan (TDP), current supply of electricity is forecasted to be overtaken by
maintenance and operations of the nationwide transmission system was the demand of the country;
subjected to competitive public bidding conducted by PSALM. The NGCP was c. Relatively small and fragmented grid size result into
the highest bidder → assumed control of the national transmission system transmission losses, no economies of scale, and inefficient
from the National Transmission Corporation, whom assumed the same operations; and
function from the now defunct National Power Corporation. d. As an archipelago, there are geographic challenges of
• The National Grid Corporation of the Philippines (NGCP) → the transmission. The Philippines relies on submarine cables to
transmission system operator for three grids constituting the Philippine grid interconnect the islands.
and as a franchise holder, it is in charge of operating, maintaining, and
developing the country's state-owned power grid. The Philippine transmission c. Municipality Unit – dare entities that are owned by the local government.
system is composed of three grids, the Luzon Grid, Visayas Grid, and The local government officials, who are elected by the end-users within the
Mindanao Grid, which most bulk generation sites are found far from the load municipality, regulates, controls, and manages the utilities.
centers, necessitating use of long-distance transmission lines.
• Functions: WATER UTILITY INDUSTRY
✓ Operations and Maintenance – NGCP's task is to ensure that the • The main components of water resources management in the Philippines are
country's transmission assets are in optimal condition to convey vested in the mandates of the various government agencies that undertake
safe, quality, and reliable electricity. most of the water resources programs and projects in the country.
✓ System Operations – NGCP acts as System Operator that balances • Under this setting, the National Water Resources Board (NWRB) was created
the supply and demand of power to maintain the quality of in 1974 as the authoritative national organization → to coordinate and
electricity that flows through the grid. integrate all activities in water resources development and management. Its
✓ Planning and Engineering – NGCP ensures that the grid is prepared main objective is → to achieve scientific and orderly development and
whenever new plants come online and when the demand for power management of all the water resources of the Philippines consistent with the
in a certain area increases by anticipating these scenarios and principles of optimum usage, conservation and protection to meet present and
constructing new facilities. future needs.
• Fragmentation among water-related agencies is evident in three areas of
3. Power distribution - The circulation of electricity to end-users is a controlled concern (WEP)
common carrier business requiring a national franchise. 1. Water supply and distribution
•The power to grant national franchises → exclusively vested to the Congress. 2. Economic and resource regulation, and
• A distribution utility has the task: 3. Planning and policy formulation.
✓ to provide distribution services and connections to its system for
any end-user within its franchise area, as there are different AGENCIES IN WATER SUPPLY AND DISTRIBUTION
distribution utilities available for different areas. • Metropolitan Waterworks and Sewerage Services (MWSS
✓ Required to provide open and non-discriminatory access to its • Local Water Utilities Administration (LWUA)
distribution system to all users. • Departments of Interior and Local Government (DILG)
• Retail rates charged by distribution utilities → subject to regulation of the • Public Works and Highway (DPWH) and local governments
ERC under the principle of full recovery → distribution utilities subdivide their
retail rate into 2distinct categories: pass through charges and wheeling The water infrastructure provided is classified into 3 levels:
charges. 1. Level I – Stand-alone water points (e.g. handpump – s, shallow wells,
✓ Pass through charge → follows the principle of full economic rainwater collectors) serving an average of 15 households within a 250-meter
recovery where a distribution utility may pass on all the charges it distance;
incurred in the distribution of power such as the price of the 2. Level II – Piped water with a communal water point (e.g. borewell, spring
power, transmission charge, systems loss charge, etc. to its system) serving an average of 46 households within a 25-meter distance;
customers. 3. Level III – Piped water supply with a private water point (e.g. house
connection) based on daily water demand of more than 100 liters per person.
✓ Wheeling charge → an additional premium charged to the
customer akin to a mark-up on the cost of power acquired by the
Service providers for this sector
distribution utility. The wheeling charge follows the principle of
1. Local Government Units
reasonable return on base
2. Water Districts
3. Large-scale private operators
4. Small-scale independent providers
Common water sources and water treatment plants for this industry Telecommunications Industry
1. Water Sources • According to Statista, the following are the fastest internet providers as of
a. Angat Dam June 2020. Despite this, PLDT and Globe Telecom, remained at the top spot
b. Ipo Dam with a 2020 CAPEX that is above $ 1 billion. Meanwhile, a new ISP, Dito plans
c. La Mesa Dam aims to spend $5 billion on the rollout of its services in the next 5 years. All
2. Water Treatment Plants – Raw water undergoes several treatment players are price sensitive and do have a bias of purchasing equipment from
processes before it passes the standards for potable water. Conventional China.
water treatment consists of the following processes: coagulation/flocculation,
sedimentation, filtration and disinfection/chlorination. KEY MARKET TRENDS
a. Balara treatment plant 1. The Impact of COVID-19 on the Power, Water, and Telecommunications
b. East La Mesa treatment plant Industry
c. Cardona treatment plant • With the prevalent economic impact of the pandemic, the power industry is
expected to have a decline in energy demand, coal utilization in the spot
TELECOMMUNICATIONS INDUSTRY market, collection efficiencies of Electric Cooperatives, and delays in
renewable energy projects.
The industry was deregulated in 1995 when President Fidel Ramos signed
Republic Act 7925 (The Public Telecommunications Policy Act of the 2. Alternative Sources of Energy
Philippines). This law opened the sector to more private players and improved • The conventional thermal power segment held a significant market share in
the provision of telecom services are better and fairer rates. The industry was 2018, and it is likely to dominate the market in the forecast period.
deregulated in 1995 → leading to the creation of many telecommunication • The Philippines government has planned to phase out its coal usage by 2040
service providers for mobile, fixed-line, Internet and other services. and focus more on energy production from natural gas and renewable. This,
in turn, is expected to create several opportunities for the power generation
Some of the regulatory frameworks relative to this industry are listed below: EPC companies in the near future.
• Republic Act No. 3846, An act providing for the regulation of radio stations • The upcoming and ongoing projects of power plants are likely to drive the
and radio communications in the Philippine Islands, and for other purposes. power EPC generation market in the Philippines, during the forecast period.
• Republic Act No. 6849, An act providing for the installation, operation and
maintenance of public telephones in each and every municipality in the 3. Internet of Things (IoT) - connects previously ‘mute’ objects to the internet,
Philippines, appropriating funds therefor and for other purposes. empowers consumers to be in control of the utilities they use. It also allows
• Republic Act No. 7925, An act to promote and govern the development of consumers to monitor and manage the amount of the earth’s resources they
Philippine telecommunications and the delivery of public telecommunications use.
services. a. Forging Partnerships – to offer subscribers convenience and to
• Republic Act No. 10844, An act creating the Department of Information and secure new revenue streams mobile operators have forged
Communications Technology (DICT), defining its powers and functions innovative partnerships.
appropriating funds thereof, and for other purposes. • Smart metering based on M2M (Machine to Machine)
technology is effectively distributing and managing the
• Despite several telecommunication service providers, the Philippines electricity supply, i.e. Kuryente Load, a prepaid electricity
telecommunications industry has long been dominated by legacy players service by MERALCO.
Philippine Long-Distance Telephone Company (PLDT) and Globe Telecom. • It strengthens the proposition for both companies and allows
As disruptive as this industry can get, its key players are striving to catch up both organizations to maximize the IoT potential.
with each of the industries market segments’ new technologies.
1. Mobile Market with 126 million subscribers as of 2016; b. Mediation – Mobile operators use robust mediation solutions to
2. Broadband Market manage and monitor multiple devices that are online 24/7/365.
a. Wi-Max With the advent of IoT, utility companies will similarly have
b. Wi-Fi intelligent smart meters and multiple “always connected” devices.
3. Fixed Line Market Telecoms mediation solutions can effectively integrate and manage
a. Fixed Line Voice these devices for utility companies for smarter billing.
b. Fixed Line Data Market
4. International Long-Distance Market 4. New business models - Some companies in the mobile industry have
5. Hybrids launched Mobile Virtual Network Operators (MVNOs). That is when a
company sells mobile phone services by making use of another telco’s existing
Updates & Statistics of the Specialized Industry in the Philippines network infrastructure.

Power Industry 5. Seamless online billing – Mobile operators have deployed real-time Online
• As of 2021, the cost of electricity produced for coal amount to PHP Charging Systems (OCS) to make it easy for subscribers to pay their bills.
4.18/KWh. The cost is primarily comprised of fuel and capital recovery costs. Prepaid vouchers can be purchased over the counter and credit can be added
The effect of variable and O&M costs are low. almost instantaneously. Utility companies should look to introduce such
• Based on ERC rate cases that were found, geothermal energy → was found schemes that can add energy or water credit. The technology available in
to have the lowest cost of electricity per KWh at PHP4.07/KWh. telecoms can be adapted to match specific serial numbers to smart meters for
seamless ‘topping up’.
Water Utility Industry
The leading companies on this industry are ranked below in terms of revenue 6. Integrated water systems – In October 2011, a bill (commonly referred to as
and size: “the Angara bill” after its proponent) was filed with Congress, that sought to
1. Ayala adopt the integrated water resources management (IWRM) approach to
2. Maynilad Water water supply management by dividing the country into provincial water
3. Manila Water resource zones, within which all water utilities would be synergized and
4. Balibago Waterworks System integrated.
5. Subic Water
7. Mobile banking – Internet banking allowed customers to accomplish
transactions through computers and the Internet. It was at this point that
banks started to veer away from their traditional bricks and mortar operations,
integrating both online and offline operations into their physical presence.

AUDIT CONSIDERATIONS
Industry Challenges:
• COVID 19 pandemic such as decline in energy demand, coal
utilization in the spot market, collection efficiencies of Electric
Cooperatives, and delays in renewable energy projects.
• Increasing public concerns on increasing rates and billings
• New power generation technologies, aging infrastructure b. For water industry, the water billing components:
• Impact of climate change and shifting dynamics a. Basic charge - this covers the cost of operating, maintaining, improving and
• Managing regulatory risks expanding the distribution network, as well as the facilities responsible for
• Managing fraud bringing potable water to the end-user. The Basic Charge is based on the latest
• Uncontrollable risks such as shortage of natural gas approved tariff schedule.
• Land acquisitions b. Foreign Currency Different Adjustment (FCDA) - this is a percentage of the
• Tariffs – as of June 2020, power tariffs in the Philippines are among basic charge which accounts for fluctuations of the Philippine Peso against
the highest in Asia. other countries' currencies subject to periodic review and adjustment. 0.18%
• Disclosures on industry and regulatory framework changes: of the Basic Charge.
o On September 11, 2020, President Duterte signed into law c. Environmental Charge - this is for the mitigation of environmental impacts
Republic Act No. 11494, the Bayanihan to Recover as One Act in the course of water and wastewater operation. It is 20% of the Basic Charge
(“Bayanihan 2”) which serves as the government’s second applicable to all customers.
coronavirus pandemic relief measure. DOE directed power d. Sewer Charge
sector entities to observe the grace period and staggered • 0% of the Basic Charge - added for Residential and Semi-Business
payment for unpaid bills provided under the Bayanihan 2. customers with a sewer line connection.
o DOE directed all distribution utilities to implement a non- • 30% of Basic Charge - charged for Commercial and Industrial
disconnection policy due to non-payment of bills for all customers.
electricity consumer whose consumption levels are within the e. Maintenance Service Charge - this covers the maintenance of the water
lifeline rate set by the ERC. The policy shall apply to all unpaid meter. The charge changes depending on the size of the water meter. The
regular bills and installment payments relative to various minimum charge → 1.50 Philippine pesos for a 13mm-sized meter.
advisories of DOE and ERC. f. Other charges such as VAT, prior billings, etc.
• Non-Revenue Water (NRW) → defined as the difference between
the amount of water put into the distribution system and the c. Tax Incentives;
amount of water billed to consumers. It is usually used as an d. Carbon credit-related income - Carbon credit, also known as emission
indicator for water utility performance. permit, allows the holder to emit a specified amount of greenhouse gases.
• High NRW = Low-Quality Water Utility • One carbon credit = one ton of carbon dioxide.
High levels of nonrevenue water usually indicate low-quality water • The revenue from carbon credits → calculated by the amount of carbon
utility. It has 3 components: emission that would have been emitted had fossil fuel or other polluting
o Physical losses, which consist of leakage from the system power generator been used to produce the same MW of power.
caused by poor operations and maintenance, the lack of • One of the methods to calculate the carbon reduction emission:
active leakage control, and poor quality of underground generation-weighted average emission factor of all facilities generating RE
assets. x
o Commercial losses, caused by under-registration of water amount of electricity generated by the company’s wind power plant
meters, errors in data handling, and theft. • Revenue from the sale of carbon credits → can be recognized on an
o Unbilled authorized consumption, which includes water used accrual basis when verification and certification processes have been
by a specific utility for operational purposes (e.g. firefighting completed.
and specific consumer groups). • The important criteria of PAS 18: Revenue, should have been met,
• More than 30 different agencies in the Philippines have some role namely:
in water resources and water supply and sanitation, but there is ✓ that the economic benefits associated with the transaction will
currently no single department or body with overall responsibility flow to the company and such economic benefits can be
for sector policy and coordination estimated reliably.
• For telco companies, inability to contain and reduce costs poses a • Since diverse accounting practices are applied, management’s judgment
risk with revenues from legacy services remaining either static or plays a crucial role in determining the appropriate treatment of assets,
falling and the revenue potential of new services uncertain, many revenue and expenses of wind power companies.
operators need to cut costs.
• Both a challenge and an opportunity, risk on disruption of 2. Property, Plant, and Equipment
blockchain technology can be counted as one of the industry • PPE usually comprise the biggest asset account on the balance sheet of
challenges as well. Interest in the technology continues to grow, most plant owners and project developers, since most aspects of the wind
resulting from its potential to overhaul business models while power industry are capital intensive.
improving processes such as roaming and identity management. • Depreciation of wind turbines and sale of electricity during the
commissioning period are also important areas to consider. If any of the
Key Audit Procedures: wind turbines is individually capable of generating power, depreciation
1. Revenue Recognition Principles and Test of Reasonableness should start even if other wind turbines are still under construction.
a. For power industry, distribution retail rate components, as proper billing is
the key aspect in distribution. 3. Cost-recovery - the operation ratio (O) of a certain water service provider
→ reflects its cost recovery situation, where O → the operation cost, C → the
total annual cost, and R → the annual revenue.
• An operation ratio under 1 → means that revenues cover the costs of iii. Cost Handling Plant
operation and maintenance. iv. Demineralization Plant
• In a study last 2004, only 5 out of 45 had an operating ratio of more than 1 v. Hydrogen-generating Plant
→ reflecting a poor operation ratio among the majority of the participating vi. Fuel Oil Handling Plant
utilities. vii. Ash Handling Plant
Formula: O = C / R viii. Maintenance Costs
ix. Instrumentation Control
4. Safety Auditing through workplace inspections, employee safety c. Inventory costing method and wastage
perception surveys, and work/behavioral observations d. Insurance;
a. Safety Management Audits - goes beyond regulatory compliance e. High debt-equity ratio as a risk factor.
and assesses the safety programs the organization has in place to
sustain or improve the current level of performance. AUDITING NOT-FOR-PROFIT ENTITIES AND HOSPITALS
- assesses more than the mere existence of safety policies and
programs. The audit examines the quality and effectiveness of the • Not-for-profit organizations – are types of entities that do not earn profits
activities to provide a thorough evaluation of the state of safety for its owners.
management in the company. - All of the money earned by or donated to a not-for-profit
organization is used in pursuing the organization's objectives and
5. Operational Audits keeping it running.
a. Generation Phase - play a vital role in building healthy communities by providing
i. Installed capacity and capacity utilization critical services that contribute to economic stability and mobility.
ii. Plant load factor
iii. Planned outage • Healthcare System – consists of all organizations, people and actions whose
iv. Forced outage primary interest is to promote, restore, or maintain health.
v. Reserve outage - It includes efforts to influence determinants of health as well as
vi. Loss due to backing down due grid failure, shortage of more direct health improving activities which encompasses the
raw materials or reduced demand from consumers pyramid of publicly owned facilities that deliver personal services.
vii. Plant availability - The goal of a healthcare system, such as a hospital → to improve
viii. Calorific value of fuel amount of heat released with the health and health equity through ways that are responsive,
burning of coal financially fair, and best or most efficient use of available resources,
ix. Station heat rate + achieving intermediate goals = greater access to and coverage
x. Power quantity reconciliation for effective health interventions and making sure that provider
xi. Fuel supply agreement quality and safety are not compromised.
xii. Man-power deployment
xiii. Stacking loss • Many realized the growing importance of NPOs and healthcare – now more
b. Transmission than ever, improving the health of a nation’s citizens can directly result in
i. Operational performance economic growth, as there will be more people able to conduct effective
ii. Voltage management activities in the workforce.
iii. Transmission losses
iv. Tariff determination Nature, Background, and Overview of Specialized Industry
v. Grid management
vi. Material management The Philippine healthcare delivery system is composed of the following
c. Distribution tranches:
i. Aggregate technical and commercial losses • Public - a largely financed through tax-based system with a decentralized
ii. Transformer and its installed capacity management system at national and local level, providing for social health
iii. Repairs and maintenance of distribution transformer insurance of the general public.
iv. Power factor (ratio between real power to do the actual a. National: Department of Health (DOH) - Specialty, retained and
work and the apparent power supplied by circuit) and regional hospitals, medical centers, DOH representatives.
capacitor bank (develops the power factor by regulating b. Local: Local Government Units (LGUs) - Provincial and district
the current flow. hospitals, regional health units, barangay health stations.
v. Tariff fixation
• Private - a largely market oriented fragmented system of profit and non-
6. Regulatory Compliance Audits profit providers where fees are paid at the point of service.
a. Assess the applicable safety regulations, as well as the more a. Profit: Commercial, market-oriented, and includes private
significant national safety standards and codes that apply to the practitioners, private clinics and laboratories
operations. b. Non-profit: Non-commercial, service-oriented, and pr composed of
b. Assess the level of compliance of the operations to the safety socio-civic groups, religious organizations, or foundations
regulations, standards and codes.
c. Include field verification samplings of operating centers. The WHO health systems framework proposes 6 BUILDING BLOCKS that, when
d. Acknowledge the organization’s activities that meet the regulatory taken together,
requirements. (a) gives a picture of the state of health care system in a country, and
e. Identify non-compliance issues that need to be addressed. (b) help achieve the intended goals and outcomes.
f. Assist in a due diligence defense in case of a serious accident.

7. Other considerations:
a. Fuel accounting;
b. Cost Centers
i. Boiler
ii. Turbine & GeneratorWx`x
• DOH → serves as the representation of leadership & governance in this • Access to medicine and technology, the country has a supply-driven
industry. distribution scheme through:
- It is mandated by the law to provide national policy direction and ✓ drugstores - 80.1%
develop national plans, technical standards and guidelines of ✓ hospitals - 9.7%
health. ✓ other distributors - 10.2%
- It also provides technical assistance, capacity building, and ✓ government agencies - 0.3%
advisory services for disease prevention and control, as well as • There is a tax regulation on strong pharmaceutical/nutraceutical companies’
supplies medicines and vaccines to its scope. lobbying influence and market-orientation is strong.
- As the lead agency for the Philippine health care (EO 119), its Generics Act of 1988 → in force but compliance to it still needs to push further.
mission is to ensure accessibility and quality of health care to Note: Health information and research is no exception to the areas for
improve quality of life of all Filipinos, especially the poor, aiming development in the healthcare industry.
to produce better health outcomes, more responsive health • Service delivery → the most visible function of any health system of which
systems, and more equitable healthcare financing. the ultimate aim is to maintain equity in health outcomes.
• In the public sector, as this is financed through taxes, budgeting →
• In the Philippines, LGUs → responsible for providing basic services performed at the local and national level. In that case, service should be free
(including health services) to its subjects as per Republic Act 7160 (Local for the citizens at the point of care.
Government Code of 1991). • In the private sector, there are both profit and non-profit providers. It is
• The delivery and management of health services will come from DOH to market-driven and there are OOP schemes, insurance/HMO element, and may
locally elected provincial, city, and municipal governments. This includes 4 be funded externally or through grants.
essential health system functions:
1. Service provision;
2. Resource generation;
3. Financing; and
4. Stewardship.
These services are classified into:
(1) clinical services for in-patients
(2) ancillary services

• Healthcare financing → also plays a pivotal role in the success of the

healthcare industry. • For a technologically-enhanced healthcare system, IBM provides the above
- It encompasses effective allocation of finite financial resources to operations map for healthcare institutions, as applicable.
different types of public and personal health services and pooling
financial resources across population groups and sharing financial Updates & Statistics of the Specialized Industry in the Philippines
risks.
The goal of this area is to: • As of December 2019, there are around:
1. Raise adequate funds for health to ensure that people get to use 843 private hospitals + 429 public hospitals = 1,272 hospitals nationwide.
needed services; and • Among these figures, there are 13 known specialty hospitals in NCR as listed
2. Make people who use health services are shielded from financial below.
catastrophe or impoverishment associated with having to pay for 1. Government specialty hospitals
them. a. Dr Jose Fabella Memorial Hospital
b. Lung Center of the Philippines
• The main fund sources for this industry → the government, social health c. National Center for Mental Health
insurance, private sources (OOP, HMOs, life insurances, etc.), and grants. d. National Children’s Hospital
• There is a very high proportion of out of-pocket (“OOP”) spending - 57.6% e. National Kidney and Transplant Institute
OOP. f. Philippine Children’s Medical Center
• There are known geographic disparity in the availability of public health g. Philippine Heart Center
workers: h. Research Institute for Tropical Medicine
(1) Doctors to the Barrios (DTTB); i. San Lazaro Hospital
(2) Nurses Deployment Program (NDP); and
(3) Rural Health Midwife Placement Program (RHMPP). 2. Private specialty hospitals
• Currently, the workforce is hospital-centric. Employees: a. Quezon Institute
✓ Midwives – 91% (public) b. St Christiana Hospital
✓ nurses – 61% (private sector) c. Urology Center of the Philippines
✓ medical technologists – 53% (public sector) d. VT Maternity Hospital
✓ doctors – 50% (both sectors)
• Only 30% of the entire healthcare workforce → in the public sector causing • As of 2012, these institutions are dominantly funded through private sources
a market-oriented brain drain phenomenon at P325.5 billion.
• While newly licensed nurses → unable to find employment and there is • According to World Bank, 4.6% of the Philippine GDP → attributable to
underproduction in other medical professions healthcare industry, but global average is at 10.2%.
• In 2020, the household final consumption expenditure for health in the • On health insurances: Corruption allegations on the Philippine Health
Philippines → 548 billion Philippine pesos, increased overall and was highest Insurance Corporation, which has been helping finance COVID-19 testing and
in 2020. treatment in the country, has been rocked with allegations of fund
• The majority of funding for universal healthcare → comes from the DOH and mismanagement and overpricing.
PhilHealth budgets • Accounting for donations, grands, and subsidies
- The PCSO announced US$9,000,000 in funding to 87 government
Key Market Trends hospitals to support procurement of medical devices, equipment
• The impact of COVID-19 on demand and information dissemination and supplies to combat COVID-19. These funds are part of a larger
- An important part of the pandemic response was the adoption of US$60 million package, the bulk of which goes to PhilHealth (the
technology solutions, facilitating access to care and knowledge national healthcare system) and to cover hospital costs for COVID-
sharing. 19 patients.
- DOST developed an app that provides information on Covid-19- • Both a challenge and an opportunity, risk on disruption of blockchain
related research and services, including efforts to secure and technology can be counted as one of the industry challenges as well. Existing
distribute test kits, personal protective equipment and DOH Information Gathering Systems → allegedly computerized but are still
disinfectants. highly reliant on outdated paper and pen systems in the frontlines.
- WeTrace → was created by a DOST funded start-up and is used for
patient mapping, case reporting and location tracking. The Key Audit Procedures:
government of Cebu has made it mandatory in the province. 1. Healthcare Financing
a. Secure/determine/inquire about the "rate structure of fees" and
• Telemedicine/Remote consultations expenses, plus its sharing scheme with Medical Professionals,
- number of medical companies and individual doctors have offered resident or consultant (non-resident), including specialists.
their services online or through phone calls. b. Ascertain/inquire about the "discount policy" for in-house/out-
patients and how it affects the billing and settlement.
• Health Insurances and Government Subsidies c. Review concessionaire agreements and sharing schemes.
- The Bayanihan to Heal as One Act, also known as Republic Act No. d. Procedures for SSS/Phil health claims/deductions, application of
11469, has provided critical support to healthcare workers (HCWs) credit card payments and utilization of medical insurance/HMOs.
valiantly containing the spread of the coronavirus pandemic, in the
forms of urgently needed equipment and hazard pay, as well as 2. Medical PPE, Products, and Technologies
additional colleagues to bolster their ranks. a. Establish or check internal controls on procurement / purchasing
- The DOH reported that it has delivered checks to the families of of assets, medicines, importation of sophisticated (state-of-the-
healthcare workers and those who contracted a severe form of the art) medical equipment, storage of inventory items and its
disease. Said law grants public and private healthcare workers who issuances, policy on clothing & provisions and consumables.
contract severe COVID-19 infection while in the line of duty to a b. Procedures on the [year-end] observance of inventory count.
P100,000 compensation, and one million pesos (P1,000,000) to
the family of any health worker who may die while fighting the 3. Information and Research - Determine sources of funds for the purpose
COVID-19 pandemic. assessing the efficacy of a particular medication
4. Leadership and Governance - secure Minutes or excerpts on financial
• Internet of Things (IoT) and Blockchain on Healthcare Information transactions relating to PPE, Investments, and financial powers (signing
Management Systems authority and limits).
- One of the major problems that a national health system face is the 5. Service Delivery
lack of a unified clinical data management. There is not the a. VAT & EWT impact on medical professionals concerning
appropriate technological and administrative infrastructure for a professional fees, room rentals (for clinics) and segregation / set-up
unified patient medical history, prescriptions, laboratory tests or entries in billings and settlements, sale of medicines both to
therapeutic plan. inpatients administration and out-patient purchases.
- The integration and implementation of a blockchain network as a b. For proper orientation, visit the hospital client and observe how
complementary technology to the existing information systems is each section operates. Observe procedures.
proposed by several studies, so reliable and effective information c. There is always a document-trigger point before the procedure is
management could be provided by a healthcare organization or the performed.
national healthcare system.
6. Operational audits, safety & compliance audits, and other considerations.
Audit Considerations
Industry Challenges:
• Impact of COVID 19 pandemic on healthcare workforce
- High turnover healthcare workforce → have adverse effect in the
delivery of services, where the ratio of nurses to patients are low
such that nurses experience “burned out”
- High cost of training, mentoring and coaching new and experienced
personnel in terms of monetary and time spent;
- Creating work environment where employees are encouraged to
pursue goals is more important than providing competitive pay is
a challenge.
• Leadership and governance - Prevalent inherent risks that we include in our
objectives (or assertions) are:
- prevention of lost revenues,
- to protect against fraudulent claims in the billing activities,
- to guard against reimbursements deficiencies on documentations
and,
- to check frequencies or opportunities for reimbursables.
 • The financial support and aid from the foreign countries such as Australia,
Canada, US and others have been aiding the Philippines government in
restructuring the education system in the country.
• The increasing investments by the government and other local and foreign
agencies for the provision of universal access to quality education at all levels
to the Filipinos are likely to boost the total number of enrollments and
establishments in the education industry in Philippines.
• The K-12 education market → largest contributor to the overall revenues of
the Philippines education industry.
• The higher education market → second largest contributor to the revenues
of the Philippines education industry.
Status:
- The market share of the higher education market in Philippines
declined in 2013. Reason: due to the inclining tuition fees for the
private and public higher education institutions.
- The technical-vocational training segment accounted for a share
declined marginally in 2013. Reason: no or low fees charged by the
AUDITING ACADEMIC INSTITUTIONS
public technical-vocational training institutions in Philippines.
- Philippines private tutoring market has contributed a share
• Educational Services → widely considered a counter-cyclical industry.
decreased slightly in 2013. Reason: The trend of homeschooling in
Typically, when the economy is doing poorly and unemployment is rising, more
Philippines can be attributed for the decline in the market share.
working adults, as their career prospects start to dim, decide to upgrade their
education → leads to higher enrollment and increased profit at the schools. • The test preparation market → 5th largest market in the Philippines
education industry.
• Traditional undergraduate education → generally non-cyclical.
- The Philippines test preparation market has been dominated by the
• Culinary arts schools → can be labeled as moderately cyclical.
private players who compete with each other through review fees
and other flexibility options in timings and scheduling classes
Nature and Background of Specialized Industry
• The teacher education market has also been growing rapidly and is expected
• The Educational Services sector comprises establishments that provide
to maintain its growth momentum in the future years.
instruction and training in a wide variety of subjects. This instruction and
• The Philippines e-learning segment has been expanding rapidly and includes
training is provided by specialized establishments, such as schools, colleges,
online-learning and training, software development and e-content
universities, and training centers. These establishments may be privately
development.
owned and operated for profit or not for profit, or they may be publicly owned
and operated. • The Philippines has 1,963 institutions of higher education. As of 2019,
student enrollment was 1.5 million for private and 1.6 million for public
• Educational services are usually delivered by teachers or instructors that
institutions.
explain, tell, demonstrate, supervise, and direct learning.
- Instruction → is imparted in diverse settings, such as educational • Through the Quality Tertiary Education Act, public university tuition is FREE.
• Most Filipino students studying abroad are from the local private education
institutions, the workplace, or the home, and through diverse
network. This network is composed of 18,350 schools.
means, such as correspondence, television, the Internet, or other
• The Coordinating Council of Private Educational Associations (COCOPEA) →
electronic and distance-learning methods.
the umbrella organization of all private schools in the Philippines.
- Training → provided by these establishments may include the use
• The U.S. Embassy in the Philippines and CHED signed a Joint Statement on
of simulators and simulation methods.
- Higher Education Cooperation in 2019 to increase collaboration in institutional
The education industry → can be described as the collection of organizations linkages, capacity building, and developing government/industry/academic
ties. The joint statement recognizes the growing market, the possible
and businesses that provide products and services aimed at enhancing the
quality of education in society. economic rebound after the pandemic, and the transition to a K-12 system to
→ plays an increasingly important role in supporting public education by allow more middle-class students to have the option of studying abroad.
meeting the demand for products and services.
SUB-SECTORS
The industry is defined by four main categories:
1. Schools/ Service Providers: Providing Elementary and Secondary • Community college programs and boarding schools: Continues to be a niche
market. Most Filipino families prefer direct university entry.
Education, Alternative/Special Education Services, Education
• Higher education (undergraduate and graduate): According to the IIE Open
Management Organizations, Charter Schools, Virtual Schools, and
Doors Report, there were 3,295 Filipino students enrolled in the United States.
Proprietary Schools.
The states with the highest number of Filipino students → California, New
2. Supplemental Education Service Providers: Providing Higher
York, Texas, Massachusetts, Maryland, Illinois, Hawaii, Florida, Pennsylvania,
Education, Vocational Education, Learning Centers, Tutoring
and New Jersey.
Services and Assessment Services.
• Online programs and education technology: The educational model shift has
3. Educational Products & Services Sector: Production and supply of
experienced challenges, primarily due to the lagging Philippine Internet
educational material and products including Educational Products,
connectivity. For many years, the Philippines’ Internet speed ranked lower
Publishing, and Supplemental Products.
4. Education Support Services Sector: Providing support and ancillary than Syria and was the slowest in Asia.
services to the education industry including Education Consultants, Cellular coverage → spotty at best due to a long-lasting duopoly between two
major players that has not encouraged investment in the sector.
Education Information and Research, Education Investment
Services, Education Policy Specialists, and Technology Services. • Research and development: Opportunities lie in academic programs relevant
to the government priority disciplines of science, maritime, medicine, health,
engineering and technology, agriculture, teacher education, hospitality, and
Overview, Updates, Statistics of the Specialized Industry in the Philippines
architecture and town planning.
• Professional training services: The majority of the Philippine workforce is
• Philippines’ education industry has showcased a significant growth in the
aged 25 54 years – old. There are more than 500,000 Philippine small- and
past decade owing to the adoption of the enhanced basic education model.
medium-sized enterprises (SMEs) seeking training to advance their business
operations.
DIGITAL MARKETING STRATEGIES o Address funding and quality inequalities through
• Filipino students are fascinated by education events promoted via social improved financing mechanisms and focused
media. As a social media capital of the world, Filipinos actively use social media interventions for schools serving disadvantaged groups.
platforms for a whopping 10 hours per day, seven days per week. Accounting
• The industry’s primary sources of income are – Fees, Subscriptions,
Audit Considerations Donations, Grants, etc.
The key findings of the report are as follows: • A group of persons known as ‘Trustee’ or ‘Governing Body’ or ‘Executive
Committee’ or ‘Board of Management’ organise and manage it.
Teachers • Secretary → person whom day-to-day routine activities are entrusted
• The availability of teachers in schools has improved as a result of recent • Since there are many chances of fraud and embezzlement of the fund of the
teacher hiring efforts. However, there are signs of growing inefficiency in Institutions, it becomes essential that the accounts of Institutions should be
teacher deployment → because of weaknesses in teacher allocation systems. drawn properly.
- Teacher absenteeism rates in elementary and high schools are • Generally, accounts of an educational institution are maintained under cash
generally low compared to other countries. However, they tend to basis of accounting and not under Mercantile-basis of accounting.
be high in highly urbanized cities. • Collection of tuition fees, admission fees, fines, session charges and special
- There have been big improvements in the hiring process but fees — laboratory fees, library fees, sports fees etc. — should be separately
significant delays still exist. recorded in Collection Register.
- Teacher performance on content knowledge assessments is poor • Students’ Ledger must be maintained where all these collections should be
and professional development systems are inadequate. credited to the respective students. Students’ Ledger should also include free
studentship, concessions and writing-off irrecoverable fees which are to be
School infrastructure sanctioned by higher authority or Managing Committee etc.
• The availability of key facilities has improved but classroom deficits still • Periodical reconciliation should also be made between the fees collected,
remain. fees outstanding at the beginning and at the end of the period, fees written off
• Public infrastructure improvement systems suffer from many problems with fees that should have been collected.
which result in poor quality and incomplete classrooms and water and
sanitation facilities. Audit Trends
• Integrated Strategic Planning and Monitoring
School funding and management • Turnaround Strategies (District, School, Support Services)
• Schools have only limited discretionary funding to implement their own • Business Intelligence Systems
school improvement plans. • National Assessments and Examinations
- While most discretionary funding is provided by the national • Data Quality Audits
government, a significant portion fails to reach schools. • Organizational Structure Design (Amalgamation/Rationalization)
- Schools face difficulties in using public funds because of • Post Provisioning
burdensome management and reporting requirements. • Business Process Re-engineering
- Transparency and accountability for fund use is relatively weak at
the school level. AUDITING ELECTRONIC COMMERCE (E-COMMERCE) INDUSTRY
- School level accountability through School Governing Councils is
generally weak. • Sales through e-commerce have quickly accelerated in 2020 because of the
- Parental awareness of the existence of School Governing Councils long lockdown periods in the Philippines.
is limited. • According to apparel and footwear e-commerce platform, Zalora, over 9/10
- However, parents are more aware and participate more actively in of Filipino internet users searched for goods and services to purchase during
Parent Teacher Associations (PTA) the lockdown period that began in March 2020.
• Even before the pandemic, e-commerce was rapidly expanding in the
Local government funding Philippines, mostly drive by online marketplaces. However, in comparison to
• Local government funding to basic education is relatively low, declining and other countries, the Philippines is still lagging in terms of e commerce
unequal. expansions.
• Poor record-keeping and reporting make it difficult to assess the distribution
and effectiveness of local government funding for education. Nature and Background of Specialized Industry
• Ecommerce (or electronic commerce) → the buying and selling of goods (or
Equity services) on the internet.
• Significant differences in levels of education spending and the quality of the
learning environment exist across regions and provinces. TYPES OF E-COMMERCE
- Even though urban schools tend to serve wealthier populations, 1. Business to Consumer (B2C) – the most popular e-commerce model.
they tend to perform poorly compared to rural schools. Business to consumer means that the sale is taking place between a business
- Schools serving poorer communities tend to be more resource- and a consumer, like when you buy a rug from an online retailer.
constrained than wealthier schools. 2. Business to Business (B2B) – refers to a business selling a good or service
- Detailed policy suggestions are provided in the main report for each to another business, like a manufacturer and wholesaler, or a wholesaler and
of the topics covered. Common policy suggestions include: a retailer. Manufacturers also sell directly to retailers via B2B ecommerce.
o Increase public spending on education. 3. Direct to Consumer (D2C) –the newest model of ecommerce. D2C means
o Improve allocation of education inputs through better that a brand is selling directly to their end customer without going through a
planning. retailer, distributor, or wholesaler. Subscriptions are a popular D2C item.
o Give schools greater authority in planning and resource 4. Consumer to Consumer (C2C) – refers to the sale of a good or service to
management decisions and simplify reporting another consumer. Consumer to consumer sales take place on platforms like
requirements. eBay, Etsy, Fivver, etc.
o Improve transparency of fund allocation and resource 5. Consumer to Business (C2B) – when an individual sells their services or
use across the system. products to a business organization. C2B encompasses influencers offering
o Strengthen the role of School Governing Councils and exposure, photographers, consultants, freelance writers, etc.
Parent Teacher Associations.
Here are some examples of types of e-commerce: • Hence, online stores in the Philippines provide cash on delivery payment
1. Retail – The sale of products directly to a consumer without an intermediary. options or payment centers
2. Drop shipping – The sale of products that are manufactured and shipped to • The BSP also launched PESONet → a new electronic funds transfer service
consumers via a third party. that enables customers of participating banks, e-money issuers, or mobile
3. Digital products – Downloadable items like templates, courses, e-books, money operators to transfer funds in Philippine Peso currency to another
software, or media that must be purchased for use. customer of other participating banks, e-money issuers or mobile money
4. Wholesale – Products sold in bulk. Wholesale products are usually sold to a operators in the Philippines.
retailer, who then sells the products to consumers. • Security concerns: Those who have credit cards are wary of transacting
5. Services – These are skills like coaching, writing, influencer marketing, etc., online, given the numerous incidents of hacking and weak cybersecurity efforts
that are purchased and paid for online. that still plague the country.
6. Subscription – a popular D2C model, subscription services are the recurring
purchases of products or services on a regular basis. eCommerce Intellectual Property Rights
7. Crowdfunding – allows sellers to raise startup capital bring their product to • The Philippines has passed adequate legislation to promote eCommerce, the
the market. Once enough consumers have purchased the item, it is then eCommerce Law, Cybercrime, and Data Privacy Laws. However, enforcement
created and shipped. agencies like the DOJ and PNP and the local courts are not yet adept at
handling cases involving electronic transactions.
BENEFITS OF E-COMMERCE • The National Privacy Commission (NPC) is tasked with implementing the
1. Convenience - 24-hour sales, quick delivery, and easy returns Data Privacy Law, and they have had significant achievement through
2. Personalization and customer experience - allow customers to personalize Philippine-based companies designating “Data Privacy Officers” or DPOs. The
the products offered and make suggestions NPC is also leading the Philippines to be compliant with international privacy
3. Global marketplace - easily shop e-commerce sites companies are no longer agreements such as the European General Data Protection Regulation (GDPR)
restricted by geography or physical barriers. and APEC Cross Border Privacy Rules (CBPR).
4. Minimized expenses - digital sellers can launch online stores with minimal
startup and operating costs. Popular eCommerce Sites:
• www.b2bpricenow.com –This site is a trading portal that provides up to the
DISADVANTAGES OF E-COMMERCE minute price update on market information for agriculture, consumer goods,
• Limited customer service and industrial manufactures.
• Lack of instant gratification • https://e-order.asiarx.com/ – Caters primarily to the pharmaceutical and
• Inability to touch products medical supply industry. AsiaRx takes control of the entire procurement
process from finding the product to availability check, to order status
14 Ecommerce Trends Leading the Way verification.
1. Augmented Reality enhances the reality of online shopping. • http://philippines.tradekey.com – A B2B marketplace connecting Filipino
2. There will be a growing volume of voice search. exporters with overseas buyers. It connects traders with global wholesalers,
3. AI helps shops learn about shoppers. buyers, importers and exporters, manufacturers, and distributors in over 240
4. On-site personalization uses those insights to create individualized countries.
experiences. • www.philippinecompanies.com – A Philippine business directory with
5. Big data plays a big part in creating personalized experiences. 413,282 registered companies. This website builds its database from publicly
6. Chatbots improve the shopping experience. accessible directories such as Business Registrations from various
7. Mobile shopping is still on the move. municipalities.
8. More ways to pay. • http://philippines.tradeford.com – provides global importers with
9. Headless and API-driven ecommerce allow continued innovation. information on products, exporters, suppliers, manufacturers, and
10. Customers respond to video. wholesalers.
11. Subscriptions keep customers coming back. • https://www.kenresearch.com – Global industry research and information
12. Sustainability is becoming more important. service company. Provides industry intelligence, equity research reports and
13. Businesses should optimize digital strategy for conversion. business consulting services covering several sectors.
14. B2B is growing...and changing. • https://www.carousell.ph/ - Global online marketplace open in 45 countries
in world used for buying and selling of goods and services.
Overview, Updates, Statistics of the Specialized Industry in the Philippines
Online Payment
Current Market Trends • The increase in online shopping and access to online bank transactions is
• Filipinos are prolific users of social media. increasing payment in the Philippines. Vendors are turning to online payment
Estimates this year show that there are 76 million active social media users as a convenient buying method. However, the security concerns over platforms
from the Philippines. and a cash-based society’s culture limits its effectiveness.
75 million – Facebook
12 million – Twitter Mobile eCommerce
4 million - LinkedIn users. • Data from Globe Telecom and the Philippine Long-Distance Telephone
Company shows that there are 163.7 million mobile subscribers in the
• Infrastructure gap: Need for further improvement in internet speed. Philippines.
- Logistics and distribution → pose significant challenges in product • Most Filipinos access the internet through their mobile phones, providing
delivery. cost-effective and consistent access. Philippine and international businesses
- A lack of cold chain storage limits food products that can be sell products and services through mobile that has direct access to online
transported for long distances. consumers. The Philippines is the fastest growing app market in Southeast Asia.
- Traffic and an inefficient delivery network also make delivery
extremely unreliable in many areas. Digital Marketing
• Low Broadband Penetration: Many Filipinos access the web from mobile, • The proliferation of social media and online platforms directly contributed to
home, internet cafés and their workplace. the growth of digital marketing. Traditional marketing companies emerged
• Low digital payment penetration: BSP in a 2018 report shows that an with new marketing techniques that include social media. Businesses are
estimated 66% of Filipinos do not use banks, and about 8% use credit cards.
continuing to transition to digital marketing to reach an even broader market • Audit risk assessment for e-commerce requires a paradigm shift in the way
for potential customers, and this is becoming a reliable and growing trend. auditors consider client entities and the way auditors plan audit procedures to
reduce audit risk to an acceptable level.
Social Media • When transactions are initiated by unknown parties on the internet → there
• The Philippines is recognized as one of the top countries for internet users are risks relating to the authenticity and integrity of trading partners and e-
worldwide in terms of time spent on social media; 4 hours on mobile and 5.2 commerce transactions.
hours on desktop and tablet. • Usually, management will identify e-commerce business risks, and address
those risks with appropriate security and control measures. In contrast, the
CHALLENGES OF ECOMMERCE IN THE PHILIPPINES auditor will consider e-commerce business risks only in so far as they affect
audit risk → relates to the risk that the entity's financial report is materially
Cash-based payment methods dominate, for now misstated.
• One of the reasons behind the relatively slow uptake of eCommerce in the • Although these issues may remain unresolved, many entities are continuing
country in the past few years is the continued dominance of cash-based to develop e-commerce on a 'risk-reward' basis. As a result, the e-commerce
transactions. market is growing rapidly, particularly the use of e-commerce on a business-
• According to the Philippines’ central bank, cash accounted for 99% of all to-business (B2B) basis to shorten supply lines and reduce costs. Such growth,
local transactions as of January 2018. In addition, the country has been slow without due attention to the risks in an electronic trading environment,
to adopt eWallets, with only 1.3% of Filipinos owning electronic money impacts on both business risk and audit risk.
accounts based on BSP’s 2017 Financial Inclusion Survey.
• Meanwhile, merely 1.9 per cent of Filipinos over the age of 15 have a credit E-commerce business risks include those arising from:
card. 68 per cent of Filipinos with savings keep them at home instead of at a • the identity and nature of relationships with e-commerce trading partners;
bank in 2019. • the integrity of transactions;
• electronic processing of transactions;
Logistics concerns due to unique geography • systems' reliability;
• Logistics naturally presents a challenge you will have to prepare for when • privacy issues;
serving customers in this country. • return of goods and product warranties;
• Consumers living in the sprawling capital of Metro Manila enjoy access to • taxation and regulatory issues
huge shopping malls, flagship brick and mortar stores, and even same-day
online delivery from large marketplaces like Lazada and Shopee. Audit guidance relating to e-commerce → only one part of a much larger
project, requiring continuous research into the potential audit and assurance
Growing pains with Internet connectivity implications associated with advancements in technology. For example:
• The Philippines has one of the slowest and most expensive Internet • The audit profession will face further challenges with the internet
connections in Southeast Asia. enablement of business reporting using XBRL (Extensible Business
• Coupled with high mobile phone and social media usage, this means online Reporting Language) (visit www.xbrl.org for further information), or
merchants must pay attention to mobile optimization, particularly when it another business reporting language.
comes to the sizes of their product images, this ensures that consumers can • The migration of business from the document orientation of today's
easily load on a smartphone on a 3G data connection. paper environment to the electronic environment of the future →
• In fact, PayPal’s research shows that 87% of Filipino merchants sell products will prompt further change in the business reporting information
on social media. Facebook also drives traffic and engagement on Lazada, supply chain, and issues for audit consideration.
Shopee, and Zalora. • As e-commerce continues to evolve, websites may become
platforms to create new markets and develop products. For
Changing eCommerce perceptions example, facilities such as 'chat rooms' or e-commerce auctions on
• A universal challenge for any online merchant is gaining buyers’ trust. For their websites, may be used as platforms to reach new markets.
eCommerce, this means using a combination of strategies, ranging from Each of these 'new' developments carries risks, which may not be
prompt delivery to accurate product descriptions. identified in their early stages. Therefore, as the auditor
• According to a MoneyMax survey, many Filipinos are reluctant to get credit reconsiders the impact of e-commerce in each new reporting
cards because they fear it will lead to overspending and debt. Considering the period + the audit profession must remain aware of the potential
challenges in Philippine eCommerce, online merchants can also build trust by impact of evolving internet technology and emerging standards of
offering alternative payment options to credit cards. This may be in the form industry practice on audit procedures.
of cash-delivery and local e-wallets.
Key Risks Areas in E- Commerce Industry
AUDIT CONSIDERATIONS • Supply Chain Management
• E-commerce, or e-business, via the internet is now bringing fundamental • Sales and Marketing Strategy
changes to the way business is conducted. The continued evolution of • Vendor Management
technology, the economics of the internet, and the growth of e-commerce are • Information Technology
significantly affecting the traditional business environment. Ecommerce is • Claim, Return, and Refund
changing the competitive market and making international trading viable for a • Revenue Assurance
much larger number of businesses.
• However, during these changes in the business environment, the auditor's
responsibility → to provide an opinion on the financial report has remained
unchanged. Although communication and transactions over networks and
through computers are not new features of the business environment, the
increasing use of the internet for e-commerce introduces new variables of
risk and control requiring audit consideration.
• E-commerce is not clearly defined or constrained but comes with 'open
boundaries' in terms of scope. The auditor requires appropriate skills to
understand how an entity's e-commerce strategy addresses the business
risks that arise.