Objective and scope the financial audit

1. You have requested that we audit the financial of City Hall Employees Multi-Purpose
Cooperative (CHEMCO) (the Cooperative), which comprise the statement of financial
condition as at December 31, 2017, and the statement of operation, and notes, comprising
a summary of significant accounting policies and other explanatory information. We are
pleased to con firm our acceptance and our understanding of this audit engagement by
means of this letter. Our audit will be conducted with the objective of our expressing an
opinion on the financial statements.
Our responsibilities
2. We will conduct our audit in an accordance with the Philippine Standards on Auditing (PSA).
Those standards require that we comply with ethical requirements and plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free
from material misstatement. An audit involves performing procedure to obtain audit
evidence about the amounts and disclosures in the financial statements. The procedure
selected depend on the authors judgment, whether due to fraud or error. An audit also
includes evaluating the appropriateness of accounting policies used and the reasonableness
of accounting estimates made by management, as well as evaluating the overall
presentation of the financial statements.
3. In making our risk assessments, we consider internal control relevant to the Cooperatives
preparation of the financial statements to design audit procedure that are appropriate in
the circumstances, but not for purpose expressing an opinion on the effectiveness of the
Cooperatives internal control relevant to the audit of the financial statements that we have
identified during the audit.
4. In planning the audit, we will assess the risk that fraud and error may cause the financial
statements to contain material misstatements and inquire from management as to any
fraud or significant error, which has been discovered. We will design our audit procedures
to obtain reasonable, but not absolute, assurance that misstatements arising from fraud
and error, which are material to the financial statements taken are detected. We will
recognize the possibility of non-compliance by the Cooperative with laws and regulations,
which may materially affect the financial statements.

We will plan and perform the audit with an attitude of professional skepticism, recognizing
that conditions and events may be found that indicate that fraud or error may exist or may
lead to questioning whether the Cooperative is complying with laws and regulations.

However, due to the test nature and other inherent limitations of an audit, together with
the inherent limitations of any accounting and internal control system, there is an
unavoidable risk that material misstatements in the financial statements, whether due to
fraud or error, may not be detected even though the audit is properly planned and
 performed in accordance with the PSA. Our audit cannot also be expected to detect non-
compliance with all laws and regulations
5. If we suspect that fraud, error or non-compliance with laws and regulations may exist or
actually exist, we will document and communicate with the Board of directors and senior
management our factual findings as soon as practicable.
6. (series of 2009) Guidelines for the Accreditation of External Auditors we are required to
comply with the reportorial requirements as specifically mentioned / enumerated in Section
6, thereof.
Our services and deliverables
7. After the conclusion of our audit, we will submit to you an audit report in accordance with
the PSA containing opinion as to whether the financial statements, taken as a whole, are
fairly presented based on Financial Reporting Framework (FRW) for cooperative. If during
our work, it appears, for any reason, that will be unable to render an unqualified opinion on
the financial statements, or that our report will require an explanatory paragraph, we will
discuss this with you. It is possible that because of an unexpected circumstance, we may
determine that we cannot render a report or otherwise complete the engagement. If, for
any reason, we are unable to complete the audit or are unable to form or have not formed
an opinion, we may decline to express an opinion or decline to issue a report because of
result the engagement prior to completion.
8. Our audit report will include a separate section subtitled Report on the Supplementary
Information Required Under Revenue Regulations 15-2010 containing our opinion as to
whether the Supplementary information on taxes, duties and license fees in the notes to
the financial statements, taken is a whole, is fairly stated in all material respect in relation to
the basic financial statements taken as whole. The Supplementary information of taxes,
duties and license fees (ONLY FOR TAXES WHERE THE COOPERATIVE ARE NOT EXEMPT) in
the notes to the financial statements is presented for purposes of filing with the BIR and is
not a required part of the basic financial statements. Such information is the responsibility
of management. The information will be subjected to the auditing procedures applied in our
audit of the basic financial statements.
9. We shall also:
(a) Assist the Cooperative in the preparation of its annual income tax return to be filed by
you with the BIR;
(b) Assist the Cooperative in the filing of the audited financial statements with the CDA;
(c) Furnish the Cooperative with a management letter containing our observations and
recommendations for improving the Cooperatives existing internal control structure
and its operations, which come to our attention during the course of the audit. Our
observations may relate to areas worthy of or which necessitate further study, in which
case, an extended analysis may be undertaken by our management advisory service
entity under a separate engagement;
 (d) As part of our services, attend to your Tax queries and make ourselves available meeting
or conferences; and
(e) Provide the Cooperative with our firm publications.
10. The Firm will not perform any management functions, make management decisions, or
perform in a capacity equivalent to that of an employee of our Cooperative.
11. recommendations, but all decisions about connection with the implementation of such
advice and recommendations shall be the responsibility of, and made by, the Cooperative.
About
Connection with the Firms services hereunder specified, the Cooperative shall be entitled to
rely on all its decisions and approval.
12. I relation to tax matters, in case you want us to represent the Cooperative in formal or
informal conference with the tax authorities, should the Cooperatives returns be under
examination, and if the event that certain legal requirements and highly complicated tax
problem arise, we shall refer the Cooperative to our consultants for discussion of their service
under a separate engagement.
13. Any additional services that you may request, and that we agree to provide, will be subject
to separate written arrangements.
14. The Cooperative agrees that any reports issued by the Firm will not be used by, or circulated,
quoted, disclosed, or distributed to, nor will reference to such reports be made to, anyone
who is not an employee of the Cooperative, or a member of its Board of directors.
Your responsibilities
15. Management is responsible for the preparation and fair presentation of the financial
statements in accordance with FRW for Cooperative and for such internal control as
management determines is necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error.
16. The PSA requires us to obtain written representations from management that it recognizes
its responsibility for the fair presentation of the financial statements in accordance with
FRW for Cooperatives and has approved the financial statements. Such standards also
require that we obtain written representations on matter material to the financial
statements when other sufficient, appropriate audit evidence cannot reasonably be
expected to exist. Managements representations also include affirmations that the effects
of any uncorrected misstatements are, both individually and in the aggregate, immaterial to
the statements taken as a whole; the completeness of all minutes of the meetings of the
board of directors and important committees; the availability and completeness of financial
records and related data; all known and actual or possible non-compliance with laws and
regulations, whose effect should be considered when preparing financial statements; and,
to the best of their knowledge and belief, the absence of irregularities involving
management or those employees, who have significant roles in the control structure.
17. The results of our test based on accounting records presented to us for our audit, the
responses to our inquiries and the written representations to us constitute the evidential
 matter we intend to rely upon in forming an opinion on the financial statements. Because of
the importance of managements representations to an effective audit, the Cooperative
hereby release and will indemnify, defend and hold harmless the Firm and its personnel
from any claims, liabilities, cost and expenses resulting from misrepresentations by the
management.
18. Management is responsible for the prevention and detection of fraud and error through the
implementation and continued operation of adequate accounting and internal control
systems. Management is also responsible for ensuring that the Cooperatives operations are
conducted in accordance with laws and regulations. The responsibility for the prevention
and detection of non-compliance rests with management.
19. Management is responsible for the Supplemental Information required under Revenue
Regulations (RR) 15-2010, Amending Certain Provisions of Revenue Regulations No. 21-
2002, as Amended, Implementing Section 6 (H) of the Tax Code of 1997, Authorizing the
Commissioner of Internal Revenue to Prescribe Additional Procedural and /or
Documentary Requirements in Connection with the Preparation and Submission of
Financial Statements Accompanying Income Tax Returns.

RR 15-2010 states that In addition to the disclosures mandated under the PFRS, and such
other standards and/or conventions as may heretofore be adopted, the notes to Financial
Statements shall include information on taxes, duties and license fees paid or accrued
during the taxable year.
Moreover, the cooperative will comply with RR 19-2011 which prescribes the new BIR
forms that need to be used for income tax filing which took effect in calendar Year 2011.
Documents issued with the financial Statements
20. If the intend to publish or otherwise reproduce, in printed from or electronically, the
financial statements together with our report (or otherwise make reference to our Firm) in
a document that contains other information, you agree to provide us with a draft of the
document to read and comment on before it is printed and distributed. Furthermore, you
agree that the terms of this engagement do not encompass, unless otherwise agreed to, an
undertaking by us (1) to consent, by means of separate letter or otherwise, to the inclusion
of our auditors report on the financial statements referred to above in a security offering or
other financing transactions, or (2) to acknowledge reliance on our report by others.
Availability of records
21. You agree that all records, documentation, and information we request in connection with
our work will be made available to us, that all material information will be disclosed to us
and what we will have full cooperation of your personnel.
Assistance by personnel
22. We will utilize reports, schedules and analyses of accounts that are periodically submitted
to the Cooperatives management in order to minimize disruption of the work of your
personnel and save on their time. Should we need, however, additional schedules and
analyses that that are not included in the periodic management reports, we will ask that
your personnel prepare such additional schedules and analyses and complete various
questionnaires. This assistance will serve to facilitate the progress of our work and minimize
costs to you.
Fees
23. In consideration for the foregoing services, we will bill you an annual audit fee of FIFTY
THOUSAND (50, 000) PESOS (exclusive of value-Added Tax (VAT) and out-of-pocket
expenses (OPE) and payable as follows:
P44, 000 - Plus VAT, Payable at a monthly retainer of P4,000 starting
February,2017 (11 months)
6,000 - Plus VAT and OPE, upon submission of the December 31, 2017
audited financial statements.

The above quoted fees are based on the premise of your having the proper competent
accounting personnel, and our receiving of trial balances, reconciliation statements,
supporting schedules and analyses, including communication of all significant accounting
and financial reporting matters, as well as clerical assistance as mutually agreed upon and is
normal and reasonable in the circumstances. If such schedules, records, etc., are not
provided or other unforeseen conditions or events arise, we shall first confer with you any
adjustments of our fee, if necessary, to reflect the additional effort required of us to achieve
our objectives.
24. If, however, during our engagement, we will exceed our budgeted time, we will be the
Cooperative based on the actual time spent by our staff subject to our mutual agreement.
25. This fee range is based on the following assumptions:
(a) Reports, schedules and analyses of accounts that are regularly prepared for use of the
Cooperatives management are generally adequate for audit purposes and shall be
made available to us. We will maximize the use of such management reports so as not
to unduly burden the Cooperatives personnel. However, if additional schedules and
analyses for as and make available documents required for our examinations, as and
when requested.
(b) Subject to prior appointment, Cooperative officers and staff will be available for
meetings and discussion on reasonable business.
26. Actual OPE such as local transportation, report generation and other miscellaneous
expenses incident to the delivery of our services will be billed to you separately at cost at
the conclusion of the audit and / or submission of the audited financial statements, without
the need for supporting receipts other than our billing statement.
 If is understood, however, that meals of our staff while conducting the fieldwork and
overtime will be shouldered by the Cooperative. We assure you that we will perform our
work as expeditiously and economically as possible.
Confidentiality
27. Each party will keep confidential and will not use, except in the performance of services
under this agreement, any technical or business information of the other party or its
affiliates, that such party may obtain from such other party during the term of this
agreement, unless express permission for release of such information is directed or
authorized in writing by such other party.
28. Each partys obligations under this paragraph will not apply, however, to information when,
after, and to the extent that such information (I) is or becomes known to the public through
no fault of such party, (ii) was known to such party or any of its affiliates, (iii) is received by
such party in good faith from the a third party known by such party to be under an
obligation of confidentiality to such other party, (iv) is independently develop by the such
party (v) is ordered to the disclosed by a court of competent jurisdiction or other
administrative, judicial, or ordered quasi-judicial governmental authority, or (vi) is required
to be disclosed pursuant to professional or ethical obligation of confidentiality imposed by
this paragraph shall survive the termination of this agreement and continue indefinitely.
Dispute resolution procedure
29. If any dispute, controversy, or claim arises in connection with the performance or breach of
this agreement (including disputes regarding the validity or enforceability of this
agreement) either party may, upon written notice to the other party, request facilitated
negotiations. Such negotiations shall be assisted by a neutral facilitator acceptable to both
parties and shall require the best effort of the parties to discuss with each other in good
faith their respective positions and, respecting their different interest, to finally resolve such
dispute.
30. Each party may disclose any facts to the other party or to the facilities that it, in good faith,
considers necessary to resolve the dispute. However, all such disclosures will be deemed in
furtherance of settlement efforts and will not be admissible in any subsequent litigation
against the disclosing party. Except as agreed by both parties, the facilitators shall keep
confidential all information disclosed during negotiations. The facilitator shall not act as
witness for either party in any subsequent arbitration between the parties.
31. Such facilitated negotiations shall conclude within sixty (60) days from receipt of the written
notice, unless extended by mutual consent. The parties may also agree at any time to
terminate or waive facilitated negotiations. The costs incurred by each party in such
negotiations will be borne by it; The fees and expenses of the facilitators, if any, shall be
borne equally by the parties.
 In the event that the conflict or controversy cannot be resolved through facilitated
negotiations, any one of the parties may file their claims before the proper Regional Trial
Courts of Cagayan de Oro City to the exclusion of other courts.
Advice
32. The Cooperative acknowledges that the services to be rendered by the Firm involve matters
of professional judgment as to which reasonable persons may disagree. Accordingly, the
Firm will not be liable for any advice given to the Cooperative or its affiliates under this
agreement other than for any advice that involve intentional misconduct or gross
negligence, in which case the Firm will be liable solely to the extent that the Cooperative or
its or their detriment and only to the extent of any fees paid to the Firm in the current
calendar year.
33. Under no circumstances shall either party be liable to the other party for any special,
indirect, or consequential loss or damage, whether or not such loss or damage is caused by
fault or negligence of such party, its employees, agents, or subcontractors or any tier.
Indemnification
34. The Cooperative shall defend, indemnify, and hold the Firm and its affiliates, partners,
principals, employees, agents, successor, and assigns harmless from and against all claims
asserted by a third party (or parties), any related damages, losses, or expenses, including
but not limited to attorneys fees, arising out of or resulting from any and all acts or
omissions of the Cooperative or its affiliates or any acts or omissions by the Firm.
Proprietary information
35. The working papers prepared in conjunction with our work are the properties of the Firm
which constitute confidential and proprietary information and will be retained by us in
accordance with our policies and procedures.
Miscellaneous
36. A facsimile transmitted counterpart to this agreement will be deemed as original for
purposes of entering into this agreement.
37. If any position of this agreement is held to be void, invalid, or otherwise unenforceable in
whole or in part, such sections of the agreement shall be amended to the minimum extent
required by law to make the provision enforceable and the remaining sections of the
agreement shall remain in full force and effect.
38. As a matter of information, we are and have been the external auditors of the following;
Cooperatives registered with the cooperative Development Authority (CDA) that operate in
Mindanao.
First community Cooperative (FICO) Moresco II Employees Multi-purpose
Cooperative
 Oro Integrated cooperative (OIC) Camiguin Telephone Cooperative
Mass- Specc Cooperative Development Memorial Services Cooperative
Center (MASS-SPECC) Federation
DMPI Employees Agrarian Reform CBI Employees Cooperative
Beneficiaries Cooperative (DEARBC)
General Services Cooperative Carcanmadcarlan Agri-Base
Multi-Purpose Cooperative
Mambajao Credit Cooperative MSU-IIT Multi-Purpose Cooperative
(MSU-IIT MPC)
Xavier University Community Credit Cooperative
Sugar Farmers of Bukidnon Multi-Purpose Cooperative

Acknowledgement and acceptance

39. Please confirm, by signing and returning to us the enclosed copy of this engagement letter,
your agreement on half of the cooperative to the terms set out herein. These terms will
remain effective until such time when you terminate our appointment or we give you notice
in writing of its withdrawal, or when this engagement letter is replaced by a new
engagement letter. If the contents are not in accordance with your understanding of the
arrangements made, we shall be pleased to receive your comments and to give you any
further information yours require.

Very truly yours,

The terms of this engagement have been accepted and approved by the Board of directors on
the Cooperatives behalf.

Conforme:

City employees Multi-Purpose Cooperative (CHEMCO)

Signature :
Name : Engr.Armen A. Cuenca
Position : Chairman of the Board
Date : February , 2017

Should you have additional questions, please feel free to call the following:

Gideon A. Leon, CPA, CrFA, CICA
Junie A. Sorilla, CPA
Engagement Partner Direct line : (088) 852 4214
Mobile phone No.:+ (63917) 717
9856
Audit Supervisor Direct line : (08822) 727 431
Mobile phone No.: + (63917)
771 7676