Republic of the Philippines

COMMISSION ON AUDIT
Commonwealth Avenue, Quezon City

INDEPENDENT AUDITORS REPORT

The Board of Trustees
Philippine Childrens Medical Center
Quezon Avenue, Quezon City
We have audited the accompanying financial statements of the Philippine
Childrens Medical Center, which comprise the balance sheet as at December 31,
2010, and the statement of income and expenses, statement of changes in equity and
cash flow statement for the year then ended, and a summary of significant accounting
policies and other explanatory information.
Managements Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these
financial statements in accordance with State accounting principles, 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.
Auditors Responsibility
Our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit in accordance with International Standards on
Auditing. 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 procedures to obtain audit evidence about the
amounts and disclosures in the financial statements. The procedures selected depend
on the auditors judgment, including the assessment of the risks of material
misstatement of the financial statements, whether due to fraud or error. In making those
risk assessments, the auditor considers internal control relevant to the entitys
preparation and fair presentation of the financial statements in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entitys internal control. 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.
We believe that the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our qualified audit opinion.

Basis for Qualified Opinion

As discussed in Comments and Observations Nos. 1 to 7, the (a) absence of a
reliable aging schedule resulted in the inaccurate computation of the bad debts expense,
thereby, understating the Allowance for Doubtful Accounts and overstating the Retained
Earnings by approximately P7.12 million; (b) non-capitalization of the expenses incurred
for land improvements, renovation of hospital building and repairs/replacements of major
parts of equipment for the CYs 2007-2010 aggregating P5.09 million, and the nonderecognition in the books of the cost of the replaced parts misstated the Property,
Plant and Equipment (PPE), related Accumulated Depreciation and Retained Earnings
account balances as at year-end; (c) non-recognition of the acquisition costs of small
tangible assets costing below P10,000 either as PPE or inventory; the erroneous
recording of the payments made relative thereto, and the non-recording of related
income from donations, understated the PPE or Inventory, Accounts Payable and
Retained Earnings by P3.34 million, P2.77 million, and P0.57 million, respectively;
(d) non-liquidation of cash advances within the prescribed period and the slow
processing of liquidation reports by the Finance Division overstated the account
balances of Cash - P1.99 million, Due from Officers and Employees - P0.12 million,
Accounts Payable - P0.68million, Other Payables - P0.77 million and Retained Earnings
- P0.66million; (e) improper valuation of inventories and non-maintenance of accurate
inventory records and updated stock cards cast doubt on the reliability and propriety of
the income centers recorded balances of Inventory on Hand - P3.81 million and Cost of
Sales - P57.88 million; (f) Accounts Payable balance of P62.65 million was of doubtful
validity due to the existence of creditors accounts with abnormal debit balances
aggregating P10.84 million; and (g) accounting practices adopted in recording the
patients charges supported by PCSO guarantee letters misstated the Patients
Receivable from GOCC/NGA - P14.96 million, Due to Other Funds-Assistance for
Indigent Patients-PCSO Guarantee Letter - P13.20 million, Retained Earnings - P1.05
million and other affected account balances - P0.71 million.
Qualified Opinion
In our opinion, except for the effects of the matters described in the Basis for
Qualified Opinion paragraph, the financial statements present fairly, in all material
respects, the financial position of the Philippine Childrens Medical Center as at
December 31, 2010, and its financial performance and its cash flows for the year then
ended in accordance with State accounting principles.

May 20, 2011