HARER & JONES

Certified Public Accountants

Big City, USA

DATE

Mr. James R. Wiggins

President and Chairman of the Board

Lone Star Western Apparel Co.

3810 Longhorn Drive, Big City, USA

Dear Mr. Wiggins:

You have requested that we render professional services for your company, Lone Star Western
Apparel Co., specifically the audit of the company’s statement of financial position as at December
31, 19X2, and the statement of comprehensive income and statement of changes in equity and
statement of cash flows for the year then ended and a summary of significant accounting policies
and other explanatory notes. We are pleased to confirm our acceptance and our understanding of
this engagement through this letter. Our audit will be made with the objective of expressing an
opinion on the financial statements. In addition, tax planning, tax return preparation, and
consultation in the electronic data processing (EDP) area will also be conducted with professional
competence and due care.

We will conduct our audit in accordance with Philippine Standards on Auditing (PSAs). The said
standards require the auditor to plan and perform the audit to obtain reasonable assurance that the
financial statements are free from material misstatements and are fairly presented. An audit
involves performing procedures to obtain audit evidence about the amounts and disclosures in the
financial statements. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the financial statements, 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 statement.

Because of the inherent limitations of an audit, together with the inherent limitations of accounting
and internal control systems, there is an unavoidable risk that some material misstatements may
remain undetected, even though the audit is properly planned and performed in accordance with
PSAs.

In making of our risk assessments, internal control relevant to the entity’s preparation of the
financial statements in order to design audit procedures that are appropriate in the circumstances
is considered, but not for the purpose of expressing an opinion on the effectiveness of the entity’s
internal control. However, we will send you a letter concerning any significant deficiencies and
insufficiencies we have identified in the internal control system relevant to the audit of the financial
statements.

The management of your company have the responsibility of preparation and fair presentation of
the financial statements including adequate disclosure in accordance with generally accepted
accounting principles (GAAP) and Philippine Financial Reporting Standards (PFRS). This
includes the design, implementation, and maintenance of adequate accounting records and internal
controls, the selection and application of accounting policies, and the safeguarding of the assets of
the company. It is also the management’s responsibility to provide us access to all information that
is relevant to the preparation of the financial statements, other additional information that we may
request for the purpose of the audit and unrestricted access within the entity from whom we
determine it necessary to obtain audit evidences.

As part of our audit process, we will request from the management a written confirmation
concerning the representation made to us in connection with the audit.

We look forward to full cooperation from your staff during our audit.
As promised, we have set out below a description of the services that our firm will provide to your
company together with a suggested fee proposal.

Our firm will provide the following services:

 Audit of the Financial Statements (Statement of Financial Position, Statement of

Comprehensive Income, Statement of Changes in Equity, Statement of Cash Flows and
notes, comprising a summary of significant accounting policies and other explanatory
notes)

 Tax Planning

 Tax Return Preparation

 Electronic Data Processing (EDP) Consultation

Our fees for this engagement will be based on the firm’s regular billing rate. It is expected to range
between $10,000 and $15,000 plus out-of-pocket cost. This estimate only covers the audit-related
fees, additional services for tax planning, return preparation and EDP consulting would be on a
separate rate, though similar fee arrangement.

The form and content of our report may need to be amended in the light of our audit findings.

If you agree with the terms of the engagement, please sign and return a copy of this letter for
permanent files. A separate letter will also be mailed detailing the schedules and other information.

Yours truly,

NAME

Contact Partner

HARER & JONES, CPAs

Acknowledged on behalf of Lone Star Western Apparel Co. by:

MR. JAMES R. WIGGINS

President and Chairman of the Board

DATE