You are on page 1of 94

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.

ASSURANCE 1
AKNOWLEDGMENT

In performing our audit case study, we had to take the help and guidelines of
some respected personsof Saint Paul School of Professional Studies who deserve our
greatest gratitude for the completion of this audit working paperand for giving us a good
guideline for assessing our outputall throughout numerous consultations, namely:
Sir Erwin Vincent G. Alcala, CPA, MIB Maam Marilou E. Malquisto
Sir Kenneth Bryan Tegio Sir Albert S. Malquisto Jr.
Sir Virgil Kit Abanilla Sir Jerome C. Chavez
Sir Jason Chan Maam Dissa S. Resula
Sir Kenneth Sajorda Sir Gerald Resula
Maam Grace Oraller

We would also like to thankthe following students for sharing their insights and
skills whichmay have been directly and indirectly guided us in completing this report,
namely:

Aileen Sabela Rick Gabrielle Gaviola


Jerome Macaraig Yenala Eireen Christianne Pajares
Carl Nathan Aguinalde Jerwin Bethoven Del Pilar

The audit team would also like to extend our deepest gratitude to Basio’s
Residence in Brgy. 110 Utap, Tacloban City,through Tita Riza A. Basio and Ms. Reggie
Urmeneta for the warm hospitality and accommodation.

Also to our dearest merciful and compassionate instructor Maam Rosanna


Romanca, CPA, who guided us during the course of our audit and for her unwavering
support throughout the whole journey.

Finally, we praise and glorify, our Lord God Almighty for the strength, dedication,
blessings and an overwhelming divine intervention to pursue this audit working paper.

-The Authors

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 2
INDEPENDENT AUDITOR’S REPORT

To the Shareholders of MaramingPera Corporation

Report on the Audit of the Financial Statements

Opinion

We have audited the financial statements of MaramingPera Corporation, which comprise the
statements of financial positions as at December 31, 2016 and the statements of financial
performance for the year ended December 31, 2016

In our opinion, the accompanying financial statements present fairly, in all material respects, the
financial position of the company as at December 31, 2016 and its financial performance for the
eyar ended December 31,2016 in accordance with Philippine Financial Reporting Standards
(PFRSs).

Basis for Opinion

We conducted our audit in accordance with Philippine Standards on Auditing (PSAs). Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for
the Audit of the Financial Statements section of our report. We are independent of the Company
in accordance with the Code of Ethics for Professional Accountants in the Philippines (Code of
Ethics) together with the ethical requirements that are relevant to our audit of the financial
statements in the Philippines, and we have fulfilled our ethical responsibilities in accordance with
these requirements and the Code of Ethics. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matter

Key audit matters are to those matters that, in our professional judgment, were of most
significance in our audit of the financial statements of the current period. These matters were
addressed in the context of our audit of the financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these matters.

 After a thorough examination of the client’s bank accounts, it has been noted that an
amount of 150,000,000 has been floating from one bank to another from November
2016 to January 2017.
 One of the firm’s audit staff has submitted a working paper showing a material difference
between the balance per book and the balance per audit of the Creditable Withholding
Taxes Account.

Emphasis of Matter

We draw attention to these matters on the financial statements provided by the client but our
opinion is not modified in respect of this.

 On February 3,2017 one of the major customers of the client has filed a bankruptcy due
to its inability to recover after a wild fire destroyed their power plants in Ilocos Norte.
 On March 8, 2017, a litigation against the client regarding the Patent Infringement
Lawsuitwas decided by the RTC in favor of the opposing party. The firm proposed an
adjusting journal entry amounting to 30,000,000 to correct the recorded amount of

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 3
Provision for Litigation Expense but the management refused on the ground that they
will still be filing an appeal to Court of Appeals. On this matter, the firm proposed a new
adjusting journal entry amounting to 25,000,000 since the entity’s legal counsel believed
that it is highly probable that the Court of Appeals will rule in favor of the claimant and
that the entity will be required to pay damages an estimated amount in the range
between 20,000,000 and 30,000,000.
 The client has a pending case in the Court of Tax Appeals in relation with the assessment
sent by the BIR last May 2016. The amount in the assessment is 80,000,000. The BIR
contracted with the MaramingPera Corporation to enter into a compromise agreement
paying a total judicial compromise amount of 32,000,000. CTA approved the compromise
agreement in its tax deficiency case on February 15, 2017
Responsibilities of Management and Those Charged with Governance for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements
in accordance with PFRSs, 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.

In preparing the financial statements, management is responsible for assessing the company’s
ability to continue as a going concern, disclosing as applicable, matters related to going concern
and using the going concern basis of accounting unless management either intends to liquidate
the company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the company’s financial reporting
process.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a
whole are free from material misstatements, whether due to fraud or error, and to issue an
auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but
is not a guarantee that an audit conducted in accordance with PSAs will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with PSAs, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:

 Identify and assess the risks of material misstatement of the financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those
risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for
our opinion. The risk of not detecting a material misstatement resulting from fraud is
higher than for one resulting from error, as fraud may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of internal control.
 Obtain an understanding of internal control relevant to the audit and 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 company’s internal control.
 Evaluate the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by management.

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 4
 Conclude on the appropriateness of management’s use of the going concern basis of
accounting and, based in the audit evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast significant doubt on the company’s
ability to continue as a going concern. If we conclude that a material uncertainty exists,
we are required to draw attention in our auditor’s report to the related disclosures in the
financial statements or, if such disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained up to the date of our auditor’s
report. However, future events or conditions may cause the company to cease to
continue as a going concern.
 Evaluate the overall presentation, structure and content of the financial statements,
including the disclosures, and whether the financial statements represent the underlying
transactions and events in a manner that achieves fair presentation.
We communicate with those charged with governance regarding, among other matters, the
planned scope and timing of the audit and significant audit findings, including any significant
deficiencies in internal control that we identify during our audit.

Report on Other Legal and Regulatory Requirements

Our audits were conducted for the purpose of forming an opinion on the basic financial
statements taken as a whole. The supplementary information for the year ended December 31,
2016 required by the Bureau of Internal Revenue is presented for purposes of additional analysis
and is not a required part of the basic financial statements prepared in accordance with PFRS.
Such supplementary information is the responsibility of management. The supplementary
information has been subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.

BERNARD ACE N. ROMANO, CPA


Partner-in-Charge, LABAN NG MGA ASTIG Co.
CPA Cert. No. 0098765
PTR No. 0023456, issued on January 6, 2015, Makati City
SEC A.N. (individual) as general auditors 0668-AR-3, Category A; effective until March 1, 2020
SEC A.N. (firm) as general auditors 0009-FR-4, Category A; effective July 15, 2018
TIN 123-456-789
BIR A.N. 08-000745-47-2016, issued on February 15, 2015; effective until February 14, 2019
BOA/PRC Reg. No. 0142, effective until September 30, 2020

Campetic Palo, Leyte, Philippines

April 10, 2017

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 5
INTRODUCTION
MaramingPera Corporation, a domestic corporation, is an industry that engages in trading of
vehicles. It operates through the following segments: automotive operations, segment designs,
assembles and sells passenger cars, minivans, trucks and related vehicle parts and accessories.

Ever since its founding in 1988 at Campetic Palo, MaramingPera has sought to contribute to a
more prosperous society through the manufacture of automobiles, operating its business with a
focus on sales of vehicle.

MaramingPera Corporation is one of the largest automobile industry and is known for durability,
performance and incredible value for money. The company’s very early adoption of landmark
technologies helped it stand apart from other leading brands and sustain in the market.

For nearly 30 years of existence, the corporation now is a parent of 10 subsidiaries with
diversified industry all of which are established in the Philippines:

1. BALAY-BALAY Corporation – a company engaged in the business of trading real estate


properties with an ownership interest of 75%

2. MATITIG-AHAN Corporation – a company engaged in the selling of tools, parts of


machines, electric devices and other hardware materials with an ownership of 75%

3. MAHUMOK-HUMOK Corporation – an industry engaged in software programming with an


ownership interest of 75%

4. ROSSENCE Corporation – an industry engaged in trading of books with an ownership


interest of 75%

5. MASAKIT Corporation – a company engaged in selling of medicines, vaccines and other


medical products with an ownership interest of 75%

6. MARASA Corporation – an industry engaged in the trading of food products with an


ownership interest of 75%

7. BROOM-BROOM Corporation – an industry engaged in trading of automobiles with an


ownership interest of 75%

8. APLIAN Corporation – an industry engaged in trading of appliances with an ownership


interest of 75%

9. Furfix Corporation – an industry engaged in trading of Furniture and Fixtures with an


ownership interest of 75%

10. Legend Corporation – an industry engaged in trading of mobile devices with an ownership
interest of 75%

MaramingPeraCorporation is governed by the Board of Directors composed of independent


directors, executive directors and non-executive directors. The board established three major
committees to assist them in good corporate governance:

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 6
a. Audit Committee
- A committee with a duty to assist the board in the performance of its oversight
responsibility for the financial reporting process, system of internal control, audit
process, and monitoring of compliance with applicable laws, rules and regulations.
b. Nomination Committee
- A committee with a duty to review and evaluate the qualification of all persons
nominated for a given position.
c. Remuneration Committee
- A committee with a duty to establish a formal and transparent procedure for
developing a policy on remuneration of directors and officers.

On the 8th day of November 2013, the company has caused its business to losealmost250 Million
Pesos due to the impact of Super Typhoon Yolanda. The company took advantage of the
fortuitous event to recover the loss resulting to a perceived opportunity to commit fraud. Due to
the declaration by the national government of under state of calamities and the damage
suffered by the entire Region VIII, the authorities neglected to examine the financial reports
issued by the Maraming Pera Corporation which caused to strengthen the concealment of fraud.
As the operation of the business continues on the succeeding years, this evil act was neglected.
Hence, the MaramingPeraCorporation continues the malice acts in their reports since the
authorities are paying attention more on the recovery of the state and less attention on the
thorough examination regarding the fairness of the financial reports. Due to carelessness, this
led the company to commit more frauds.

BIDA Firm, was the last auditor of MaramingPera Corporation but was about to end the contract
already. However, due to the misstatements discovered by them, and to protect the reputation
of the firm,they did not renew the contract with the company to totally terminate their relation.
Hence, the MaramingPeraCorporation asked Laban ng mgaAstig Firm to be the next auditor of
the company and willing to pay 100 million for the proposed engagement.

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 7
GLOBAL VISION
To be the most successful and respected car company in the world.

CORPORATE MISSION
To attract and attain customers with high-valued products and services and the most satisfying
ownership experience in the world.

CORPORATE BOARD OF DIRECTORS AND SHAREHOLDERS

Dr. NEIL D. GLORIA, DBA, MiB


Chief Executive Officer

JEROME C. CHAVEZ, CMA Dr. MARILOU E. MALQUISTO, PhD Dr. ALBERT S. MALQUISTO Jr, PhD
Chief Financial Officer Executive Director Chief Operating Officer

Atty. MA. DISSA S. RESULA Atty. MELVIN Y. MARAYA Prof. GERALD R. RESULA, CMA
Director Non-Executive Director Outside Director

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 8
ALBERT B. BACLEA-AN, CPA Dr. ARLEEN A. ROCABO, PhD Dr. KENNETH O. SAJORDA, PhD, MiB
Corporate Treasurer Corporate Secretary Corporate Controller

ROSBEN O. MURILLO Atty. GERMA D. COSEP, PhD Atty. JOSE P. AGUINALDE, CMA
Shareholder Shareholder Shareholder

JASON D. BAUTISTA, CPA MA. FRETCYL C. BERINGUEL, CPA REYNALDO C. MONTECINA Jr., CPA
Shareholder Shareholder Shareholder

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 9
MARAMING PERA Corporation and its Subsidiaries
CONSOLIDATED STATEMENTS OF FINANCIAL POSTITION

ASSETS 2015 2016


Current Assets:
Cash and Cash Equivalents 185,745,600.00 210,597,600.00
Trade Receivables 220,241,250.00 243,434,450.00
Inventory 150,840,700.00 165,710,000.00
Office Supplies 15,303,500.00 14,942,700.00
Prepaid Expenses 98,300,700.00 93,946,900.00
Total Current Assets 670,431,750.00 728,631,650.00

Non-Current Assets:
Investments Acoount - Equity Method 213,402,900.00 200,256,950.00
Property, Plant and Equipment 471,579,400.00 523,029,750.00
Intangible Assets 222,274,100.00 210,459,500.00
Deferred Tax Assets 245,241,250.00 233,434,450.00
Total Non-Current Assets 1,152,497,650.00 1,167,180,650.00

TOTAL ASSET 1,822,929,400.00 1,895,812,300.00

LIABILITIES 2015 2016


Current Liabilities:
Trade and Non-Trade Payables 208,373,500.00 231,502,800.00
Accrued Expenses 160,469,400.00 165,998,700.00
Income Taxes Payable 4,587,200.00 4,550,700.00
Total Current Liabilities 373,430,100.00 402,052,200.00

Non-Current Liabilities:
Notes Payable 364,438,300.00 358,943,100.00
Provisions 202,712,450.00 206,558,000.00
Deferred Tax Liabilities 179,169,750.00 171,296,400.00
Total Non-Current Liabilities 746,320,500.00 736,797,500.00

TOTAL LIABILITIES 1,119,750,600.00 1,138,849,700.00

SHAREHOLDER's EQUITY 2015 2016


Common Stock 8,606,700.00 8,606,700.00
Capital Surplus 17,111,800.00 17,111,800.00
Treasury Stock (2,617,800.00) (2,618,900.00)
Retained Earnings 619,431,100.00 671,289,400.00
Other Components of Equity 33,611,500.00 35,140,600.00
Equity Attributable to Parent 676,143,300.00 729,529,600.00
Non-Contolling Interests 27,035,500.00 27,433,000.00

TOTAL SHAREHOLDER's EQUITY 703,178,800.00 756,962,600.00

TOTAL LIABILITY and EQUITY 1,822,929,400.00 1,895,812,300.00

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 10
MARAMING PERA Corporation and its Subsidiaries
CONSOLIDATED STATEMENTS OF FINANCIAL PERORMANCE

2015 2016
Sales Revenue 1,460,115,100.00 1,399,920,000.00
Cost of Sales (1,133,239,900.00) (1,096,584,800.00)
Gross Profit 326,875,200.00 303,335,200.00

Operating Expenses:
Selling, General and Administrative (276,537,600.00) (232,764,100.00)
Operating Income 50,337,600.00 70,571,100.00

ADD: Other Income


Investment Income - Equity 12,500,000.00 10,500,000.00
Method
Interest Income 2,846,800.00 2,238,900.00

LESS: Other Expenses


Other Expenses, Net (424,900.00) (343,600.00)
Earnings Before Interest and Taxes 65,259,500.00 82,966,400.00

Finance Costs:
Interest Expense (1,814,600.00) (1,247,100.00)
Earnings Before Taxes 63,444,900.00 81,719,300.00

Tax Liability:
Income Tax Expense (22,909,200.00) (20,759,200.00)
Net Income/(Loss) 40,535,700.00 60,960,100.00

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 11
THE AUDIT PROCESS
PRE – ENGAGEMENT ACTIVITIES
Prior to accepting the engagement with MaramingPera, Corp., our audit team conducted a series
of assessments whether to accept or reject the engagement. The following were the
considerations:

1. Integrity of a client’s management and governance personnel.

i. The firm considers the client’s honesty and truthfulness. The client must have never
revealed confidences, or impugned the integrity of others or their businesses.
ii. The client must be well served in maintaining control in internal and external transactions
and maintain and look upon their members on performing all professional responsibilities
with the highest sense of integrity.
iii. The client must not have any conflicts of interest or confidentiality issues and must be
checked if there are any lawsuits pending among the owners of the business by inquiry of
other third parties such as bankers and legal counsel.

2. Competence and Capabilities.

Profitability of the company gives us a built-in indicator of competence, also their ability to
navigate capital markets, vision, deep understanding of the company’s specialty, ability to
delegate, sales and financial skills and adaptability.

3. Meeting the ethical requirements.

The firm must comply with the policies and procedures designed to provide reasonable
assurance relevant to ethical requirements such as integrity, objectivity and independence.

In considering whether the firm has the capabilities, competence, time and resources to
undertake a new engagement, the following are the matters the firm considers:

 Our firm personnel have knowledge of relevant industries or subject matters, and
experience with relevant regulatory or reporting requirements.
 Our firm has the ability to gain the necessary skills and knowledge effectively.
 Our experts are available, if needed.
 Our firm is able to complete the engagement within the reporting deadline.
 Our firm is already established as one of the bests in the industry.

PRELIMINARY MEETING
A preliminary meeting was arranged by the audit team with the client to discuss the acceptance
of the audit arrangement. Discussions were made and some information were disclosed such as
the pending litigation that the client have before the acceptance of the audit. The pending
litigation was filed before on the Court of Appeals between the client and the BIR regarding
which was due to the tax deficiency.

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 12
A. CORROBORATING INFORMATION AND EVIDENCES

The audit team gathered several subsequent evidences that might affect the booming performance of
Maraming Pera Corporation as to their independent opinions in assessing risks.

Left: Pres. Romanca, as the cover of the Metropolitan Magazine.


Right: Dr. Neil D. Gloria, CEO of MAraming Pera Corp. and Bernard Ace Romano, CPA as the person of the year
for Times Magazine for being the most influential businessman and accountant of the year.

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 13
ENGAGEMENT LETTER
Laban ng mga Astig Co.
654 Gen. Santos Avenue, Campetic Rd.
Palo, Leyte 6501
Philippines

Phone: (639) 266093466


Fax: (955) 968 212
www.labanngmgaastigco.com.ph

BOA/PRC Reg. No. 04983


September 29, 2015,
valid until September 30, 2018
SEC Accreditation No. 0329-FR-4 (Category A)
July 14, 2015, valid until July 15, 2018
October 1, 2016

MARAMING PERA Corporation


Tacloban City, Leyte

To the Board of Directors;

Gentlemen:

Your company have requested that we audit the financial statement of Maraming Pera Corporation for
the year 2016.We are pleased to confirm our understanding of the services we are to provide you with
under this engagement.

We will audit the Company's balance sheet and the related statements of income, retained earnings,
andcash flows for the year then ended, for the purpose of expressing an opinion on them. The financial
statements are the responsibility of the company management. Our responsibility is to express an
opinion on the financial statements based on our audit.

We will conduct our audit in accordance with generally accepted auditing standards established by the
Philippine Auditing Standards Board. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audit will provide a reasonable basis for our opinion.

Although the audit is designed to provide reasonable assurance of detecting errors and irregularities that
are material to the financial statements, it is not designed and cannot be relied upon to disclose all fraud,
defalcations, or other irregularities. However, we will inform you of any material errors, and all
irregularities or illegal acts, unless they are clearly inconsequential, that come to our attention.

We remind that the responsibility for the preparation of financial statements including adequate
disclosure is that of the management of the company. This includes the maintenance of adequate
accounting records and internal controls, the selection and application of accounting policies, and the
safeguarding of the assets of the company. As part of our audit process, we will request from
management written confirmation concerning representation made to us in connection with the audit.

Our fees will be billed as work progresses and are based on the amount of time required plus out-of-
pocket expenses. Invoices are payable upon presentation. We will notify you immediately of any
circumstances we encounter that could significantly affect our initial estimate of total fees. Our standard
hourly rates vary according to the degree of responsibility involved andthe experience and skill level of
the personnel assigned to your engagement.

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 14
We appreciate the opportunity to be of service to you, and believe this letter accurately summarizes the
significant terms of our engagement. If these comments and arrangements meets with your approval,
please sign below and return the agreement to us.

We look forward to a pleasant association and the opportunity to provide the services included in this
engagement. If you have any questions, please let us know.

This letter will be effective for future years unless it is terminated, amended, or superseded.

Please sign and return the attached copy of this letter to indicate that it is in accordance with
your understanding of our arrangements for our audit of the financial statements.

Yours faithfully,

BERNARD ACE N. ROMANO, CPA


Partner-In-Charge
CPA Cert. No. 0098765
PTR No. 0023456, issued on January 6, 2015, Makati City
SEC A.N. (individual) as general auditors 0668-AR-3, Category A; effective until March 1, 2020
SEC A.N. (firm) as general auditors 0009-FR-4, Category A; effective July 15, 2018
TIN 123-456-789
BIR A.N. 08-000745-47-2016, issued on February 15, 2015; effective until February 14, 2019
BOA/PRC Reg. No. 0142, effective until September 30, 2020

We agree to the terms of this letter;

Dr. NEIL D. GLORIA, DBA, MiB


Chief Financial Officer, MARAMING PERA CORPORATION

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 15
AUDIT PLANNING

Planning an audit involves establishing the overall audit strategy for the engagement and
developing an audit plan, in order to reduce audit risk to an acceptable low level. Planning
involves the engagement partner and other key members of the engagement team to benefit
from their experience and insight and to enhance the effectiveness and efficiency of the
planning process. The objective of our team is to perform the following:

 To ensure appropriate attention is given to all areas of the audit.


 To pick potential problems during audit such as weaknesses in the internal control
system and may have material effects on the financial statements.
 To ensure proper coordination and allocation of financial resources during the audit by
assigning highly and experienced staff to high risk and most important areas.
 To assess the effectiveness and the efficiency of the planning process.

 Industry, regulatory, and other external factors, including financial reporting framework;
 The level of competition
 The nature of the relationships with suppliers and customers
 The level of technology used in the industry

 Nature of the entity, including entity’s selection and application of accounting policies
 Legal structure of the company (and group where relevant)
 The ownership and governance structure
 The main sources of finance used by the company
 Accounting policies applied are consistent with the applicable financial reporting
framework

 Objectives and strategies and the related business risks that may result in a material
misstatement of the financial statements;
 To maximize market share
 The strategy to achieve this could be to launch a new brand or product

 Measurement and review of the entity’s performance;


 Competitor analysis
 Trends
 Period-on-period financial performance
 Key performance indicator
 Use of forecast, budgets, and variance analysis
 Employees performance measures and incentives compensation policies
 Key and operating statistics

 Internal Control
 The control environment
 The entity’s risk assessment procedures, information systems, control activities
 The monitoring of controls

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 16
PROGRAM DESIGN
The roles and responsibilities of the management and other third parties are clearly
outlined and conveyed.In decision making it is vital and necessary to collect and analyse
significant, appropriate and timely information.The automobiles are inspected and entered into
the inventory stores department and are monitored by the superintendent.

AUDIT OBJECTIVES
The objectives of the audit were:
 To assess whether the processes are in place to enable efficient and effective controls
over processing automobile orders, invoicing and collection of fees.
 To determine if automobiles are appropriately allocated according to established rules.
 To provide assurance that automobiles processes are in compliance with applicable
legislation, policies, and orders.

MATERIALITY ASSESSMENT
OVERALL MATERIALITY Materiality Level
BASE 2015 95% 90%
Balance Sheet Total Asset 1,822,929,400 1,731,782,930 1,640,636,460

Income Statement Earnings Before Tax 63,444,900 60,272,655 57,100,410

High Risk Moderate Low Risk


ASSET PERFORMANCE MATERIALITY
90% 95% 98%
High Risk 2015 Threshold Allowance Materiality 2016 Results
Level
Cash and Cash 185,745,600 167,171,040 5,000,000 172,171,040 210,597,600 Material
Equivalents
Trade 220,241,250 198,217,125 5,000,000 203,217,125 243,434,450 Material
Receivables
Inventory 150,840,700 135,756,630 5,000,000 140,756,630 165,710,000 Material

Moderate Risk 2015 Threshold Allowance


Materiality 2016 Results
Level
Office Supplies 15,303,500 14,538,325 10,000,000 24,538,325 14,942,700 Immaterial
Prepaid Expenses 98,300,700 93,385,665 10,000,000 103,385,665 93,946,900 Immaterial
Investment - 213,402,900 202,732,755 10,000,000 212,732,755 200,256,950 Immaterial
Equity Method
Property, Plant 471,579,400 448,000,430 10,000,000 458,000,430 523,029,750 Material
and Equipment

Low Risk 2015 Threshold Allowance


Materiality 2016 Results
Level
Intangible Assets 222,274,100 217,828,618 15,000,000 232,828,618 210,459,500 Immaterial
Deferred Tax 245,241,250 240,336,425 15,000,000 255,336,425 233,434,450 Immaterial
Assets

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 17
BASE 2015 65%
LIABILITY PERFORMANCE MATERIALITY
Total Asset 1,822,929,400.00 1,184,904,110.00
Accounts 2015 Materiality Level 2016 Results
Trade and Non-Trade 208,373,500.00 220,497,864.94 231,502,800.00 Material
Payables
Accrued Expenses 160,469,400.00 169,806,429.74 165,998,700.00 Immaterial
Income Taxes Payable 4,587,200.00 4,854,109.60 4,550,700.00 Immaterial
Notes Payable 364,438,300.00 385,643,409.80 358,943,100.00 Immaterial
Provisions 202,712,450.00 214,507,422.59 206,558,000.00 Immaterial
Deferred Tax Liabilities 179,169,750.00 189,594,873.33 171,296,400.00 Immaterial
TOTAL 1,119,750,600.00 1,184,904,110.00

BASE 2015 50%


EQUITY PERFORMANCE MATERIALITY
Total Asset 1,822,929,400 911,464,700
EQUITY ACCOUNTS 2015 Materiality Level 2016 Results
Common Stock 8,606,700.00 11,073,607.81 8,606,700.00 Immaterial
Capital Surplus 17,111,800.00 22,016,494.38 17,111,800.00 Immaterial
Treasury Stock 2,617,800.00 3,368,130.70 2,618,900.00 Immaterial
Retained Earnings 619,431,100.00 796,976,433.19 671,289,400.00 Immaterial
Other Components of Equity 33,611,500.00 43,245,444.71 35,140,600.00 Immaterial
Non-Contolling Interests 27,035,500.00 34,784,589.21 27,433,000.00 Immaterial
Total 708,414,400.00 911,464,700.00

Income Expense
INCOME & EXPENSE PERFORMANCE MATERIALITY
95% 95%
Income Accounts 2015 Materiality Level 2016 Results
Sales Revenue 1,460,115,100.00 1,387,109,345.00 1,399,920,000.00 Material
Investment Income - 12,500,000.00 11,875,000.00 10,500,000.00 Immaterial
Equity Method
Interest Income 2,846,800.00 2,704,460.00 2,238,900.00 Immaterial

Expense Accounts 2015 Materiality Level 2016 Results


Cost of Sales 1,133,239,900.00 1,076,577,905.00 1,096,584,800.00 Material
Selling, General and 276,537,600.00 262,710,720.00 232,764,100.00 Immaterial
Administrative
Other Expenses, Net 424,900.00 403,655.00 343,600.00 Immaterial
Interest Expense 1,814,600.00 1,723,870.00 1,247,100.00 Immaterial
Income Tax Expense 22,909,200.00 21,763,740.00 20,759,200.00 Immaterial

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 18
RISK ASSESSMENT

Cash Flow Purchase Sales Payroll Fixed Assets


System System System System Cycle
High Moderate Moderate Moderate Moderate
Inherent
Risk Expects many Expects some Expects some Expects some Expects some
misstatements misstatements misstatements Misstatements misstatements

High Moderate Moderate Moderate Moderate


ControlRisk
(not effective ) (less effective) (less effective) (less effective) (less effective)
(Effectiveness
of Controls)
Acceptable Low Low Low Low Low
Audit Risk (Willingness) (Willingness) (Willingness) (Willingness) (willingness)
DetectionRisk
Low Medium Medium Medium Medium
(Extent
(High (Moderate (Moderate (Moderate (Moderate
ofSubstantive
Level) Level) Level) Level) Level)
Testing)

Preliminary Assessment of Risks

1. Cash Flow System


The auditor gives no reliance on the internal control of cash due to indication of
ineffective on particular assertion, setting, therefore, the control risk at a maximum level.
Hence, no test of controls needs to be performed but to rely primarily on extensive
substantive testing.
2. Purchase System
The auditor gives only moderate reliance on the internal control of purchase
system. In this regard, the auditor performs tests of control to determine the
effectiveness of the policies or procedures that are likely to prevent or detect and correct
material misstatement relevant to financial statement assertions.
3. Sales System
The auditor gives only moderate reliance on the internal control of sales system.
In this regard, the auditor performs tests of control to determine the effectiveness of the
policies or procedures that are likely to prevent or detect and correct material
misstatement relevant to financial statement assertions.
4. Payroll System
The auditor gives only moderate reliance on the internal control of payroll
system. In this regard, the auditor performs tests of control to determine the
effectiveness of the policies or procedures that are likely to prevent or detect and correct
material misstatement relevant to financial statement assertions.
5. Fixed Asset Cycle System
The auditor gives only moderate reliance on the internal control of purchase
system. In this regard, the auditor performs tests of control to determine the
effectiveness of the policies or procedures that are likely to prevent or detect and correct
material misstatement relevant to financial statement assertions.
L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 19
AUDIT RISK ASSESSMENT
Audit Risk refers to the risk that the auditor gives an inappropriate audit opinion on the financial
statements. Because of the inherent limitations of the audit, the auditor can not totally eliminate
the audit risk.

Inherent Risk is the susceptibility of an account balance or class of transactions to a material


misstatement assuming that there were no related internal controls. This concept recognizes
that some account balances, by nature, are more susceptible to misstatement than others.

Control Risk is the risk that a material misstatement that could occur in an account balance or
class of transactions will not be prevented or detected and corrected on a timely basis by
accounting and internal control systems.

Detection Risk is the risk that an auditor’s substantive procedure will not detect a material
misstatement.

AUDIT RISK MODEL

AUDIT RISK = INHERENT RISK x CONTROL RISK x DETECTON RISK

After a thorough examination of MaramingPera Corporation business environment,


management integrity, management characteristics, operating characteristics, industry
characteristics, susceptibility of the account to theft, complexity of calculations related to
account, the complexity underlying transactions, and the design, implementation and operating
effectiveness of the internal control, Laban ng mgaAstig Firm decided based on professional
judgment and audit experience to set the audit risk at 10%. Below is the computation of the
detection risk:
𝐴𝑢𝑑𝑖𝑡𝑅𝑖𝑠𝑘
𝐷𝑒𝑡𝑒𝑐𝑡𝑖𝑜𝑛𝑅𝑖𝑠𝑘 =
𝐼𝑛ℎ𝑒𝑟𝑒𝑛𝑡𝑅𝑖𝑠𝑘𝑥𝐶𝑜𝑛𝑡𝑟𝑜𝑙𝑅𝑖𝑠𝑘

10%
𝐷𝑒𝑡𝑒𝑐𝑡𝑖𝑜𝑛𝑅𝑖𝑠𝑘 =
50% 𝑥 50%

𝐷𝑒𝑡𝑒𝑐𝑡𝑖𝑜𝑛𝑅𝑖𝑠𝑘 = 40%

Hence, the audit team will design the audit to have a 90% assurance or confidence level that the
financial statements are free from material misstatements.

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 20
ANALYTICAL PROCEDURES IN PLANNING PHASE

Analytical Procedures
ASSET Vertical Analysis Horizontal Analysis
Current Assets: 2015 2016 2015-2016
Cash and Cash Equivalents 10.19% 11.11% 13.38%
Trade Receivables 12.08% 12.84% 10.53%
Inventory 8.27% 8.74% 9.86%
Office Supplies 0.84% 0.79% -2.36%
Prepaid Expenses 5.39% 4.96% -4.43%
Total Current Assets 36.78% 38.43% 8.68%

Non-Current Assets:
Investments Account - Equity Method 11.71% 10.56% -6.16%
Property, Plant and Equipment 25.87% 27.59% 10.91%
Intangible Assets 12.19% 11.10% -5.32%
Deferred Tax Assets 13.45% 12.31% -4.81%
Total Non-Current Assets 63.22% 61.57% 1.27%

TOTAL ASSET 100.00% 100.00% 4.00%

Analytical Procedures
LIABILITIES Vertical Analysis Horizontal Analysis
Current Liabilities: 2015 2016 2015-2016
Trade and Non-Trade Payables 11.43% 12.21% 11.10%
Accrued Expenses 8.80% 8.76% 3.45%
Income Taxes Payable 0.25% 0.24% -0.80%
Total Current Liabilities 20.49% 21.21% 7.66%

Non-Current Liabilities:
Notes Payable 19.99% 18.93% -1.51%
Provisions 11.12% 10.90% 1.90%
Deferred Tax Liabilities 9.83% 9.04% -4.39%
Total Non-Current Liabilities 40.94% 38.86% -1.28%

TOTAL LIABILITIES 61.43% 60.07% 1.71%

Analytical Procedures
Vertical Analysis Horizontal Analysis
EQUITY 2015 2016 2015-2016
Common Stock 0.47% 0.45% 0.00%
Capital Surplus 0.94% 0.90% 0.00%
Treasury Stock -0.14% -0.14% 0.04%
Retained Earnings 33.98% 35.41% 8.37%
Other Components of Equity 1.84% 1.85% 4.55%
Equity Attributable to Parents 37.09% 38.48% 7.90%
Non-Controlling Interests 1.48% 1.45% 1.47%

TOTAL EQUITY 38.57% 39.93% 7.65%

TOTAL LIABILITY and SHE 100.00% 100.00% 4.00%

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 21
Analytical Procedures
Vertical Analysis Horizontal Analysis
2015 2016 2015-2016
Sales Revenue 100.00% 100.00% -4.12%
Cost of Sales -77.61% -78.33% -3.23%
Gross Profit 22.39% 21.67% -7.20%

Operating Expenses:
Selling, General and Administrative -18.94% -16.63% -15.83%
Operating Income 3.45% 5.04% 40.20%

ADD: Other Income


Investment Income - Equity Method 0.86% 0.75% -16.00%
Interest Income 0.19% 0.16% -21.35%

LESS: Other Expenses


Other Expenses, Net -0.03% -0.02% -19.13%
Earnings Before Interest and Taxes (EBIT) 4.47% 5.93% 27.13%

Finance Costs:
Interest Expense -0.12% -0.09% -31.27%
Earnings Before Taxes (EBT) 4.35% 5.84% 28.80%

Tax Liability:
Income Tax Expense -1.57% -1.48% -9.38%
Net Income/(Loss) 2.78% 4.35% 50.39%

Preliminary Assessment using Analytical Procedure

The audit team conducted an analytical procedure in the planning stage to enhance the
understanding of the client’s business and identify areas that may represent specific risks.

The method used by the auditor in making an analytical procedure is by using vertical analysis
and horizontal analysis to draw attention to those accounts in the financial statements that are
likely to be misstated.

Based on the findings, the expected accounts that are potentially misstated are:
Accounts Percentage Change
 Cash and Cash Equivalent 13.38%
 Trade Receivables 10.53%
 Inventory 9.86%
 Property Plant and Equipment 10.91%
 Trade and Non-Payables 11.10%

The primary reason is that, only these accounts have positive percentage changes for above 10%
compare to the other accounts with negative percentages. Meaning, these accounts have
increased from 2016 to 2017 for at least 10%. Hence, there is a possibility that the
abovementioned accounts are overstated.
Because the trade Receivables, Inventory and Trade Payables are affected, there is also a
possibility that the Sales Account and Cost of Sales are potentially misstate since they are related
accounts.

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 22
CONSIDERATION OF INTERNAL CONTROL

CONTROL ACTIVITIES

IMPLEMENTED
AUDIT PROCEDURES AUDIT REMARKS
INTERNAL CONTROL

 Receiving and  Verify physical  We identified


SEGREGATION OF warehouse function assets and that there were
DUTIES should be inventory. proper
separated from segregation of
production the vital functions
function. of the
corporation.
PROPER  All transactions and  Inspect, examine  Proper
AUTHORIZATION OF activities should be and verify all designation of
TRANSACTION carried out and source their
RECORDS approved by documents, responsibility
employees acting reports or files and obligation
within their range that occurred are and
of knowledge and properly authorization
proper span of authorized by an were kept by
control. accredited different
personnel. departments.

SUFFICIENT  Letter of  Inspection,  The documents


DOCUMENTS AND disbursement of examining and that were
RECORDS goods authorized verifying all the inspected,
by an accredited letters, sales examined and
personnel, use to receipts, reports verified were
report that the and other properly
goods are delivered pertinent authorized and
to the customers documents to the approved by an
by the warehouse day-to-day accredited
department. transactions that personnel.
occurred to the
entity.
PHYSICAL CONTROL  Goods received  Mark invoices  Check payment to
OVER ASSETS AND from suppliers “Paid” with the suppliers if
RECORDS should be inspect, check number properly approved
check and compare when checks are and authorized by
it with the copy of issued. the accounting
the purchase order. department.

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 23
RISK ASSESSMENT

IMPLEMENTED INTERNAL
AUDIT PROCEDURES AUDIT REMARKS
CONTROL
 We appoint information  We strive to raise  Using the auditors’
security managers and awareness about judgment, assess risk
information security information security among appropriately and make
administrators at each their staff by holding clear links between risk
department. workplace meeting and assessments and the
. conducting self-checks procedures they perform,
regarding their information the audit stands a chance
security practices. of uncovering material
misstatements by focusing
on the right areas.

MONITORING

IMPLEMENTED INTERNAL AUDIT PROCEDURES AUDIT REMARKS


COTROL
 Management and  Regular management and  The system of internal
supervisory involves in supervisory activities such control should be
assessing the design and as preparation of periodically reviewed by
operation of controls on timeliness and accuracy of management. By
a timely basis and taking bank reconciliation.. performing a periodic
necessary corrective assessment, management
actions. assures that internal control
activities have not become
obsolete or lost due to
turnover or other factors.

CONTROL ENVIRONMENT

IMPLEMENTED INTERNAL AUDIT PROCEDURES AUDIT REMARKS


COTROL

 Established ethical standards  Promote strengthen  Environmental activities


that discourage employees environmental initiative framework under way
from engaging in dishonest, led regional according to plans in each
unethical, or illegal acts that headquarters and region
should materially affect the distributors
financial statements.

INFORMATION AND COMMUNICATION SYSYTEM

IMPLEMENTED INTERNAL AUDIT PROCEDURES AUDIT REMARKS


COTROL
 Measure the value of  Establishes control over  The system provides
transaction in a manner client input and calculates reasonable assurance
that permits recording key processing result, that the monetary value
their proper monetary such as ending balance of was properly recoded in
value in the financial a control account. the financial
statements. statements.

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 24
CASH DISBURSEMENTS and CASH RECEIPTS FLOWCHART

NOTE:The audit team set the control risk with regards to internal control of cash at a maximum
level because there is an indication that the internal control is not effective. Hence, no test of
control is needed to be performed and the auditor will rely primarily on the substantive tests.

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 25
PURCHASE SYSTEM FLOWCHART

PURCHASE SYSTEM TEST OF CONTROL

ASSERTIONS SPECIFIC CONTROL COMMON CONTROL & TEST OF CONTROLS


PROCEDURES
All recorded purchases  Raw materials received  Select a sample of order
are bona fide are monitored, inspected entries in purchase journal,
Occurrence transactions, in that and compared to the trace back to vouchers and
they relate to the purchase order before inspect for existence of
specified raw materials acceptance. supporting document
ordered which have including receiving report,
been authorized and ensuring agreement of
received. details, indication of
approval.
Completeness Purchases are  Procedures to ensure  Check the review of account
disclosed and classified appropriate account coding on purchase
in accordance with coding on purchases documents, and appropriate
disclosure policies. documents authorization.
Accuracy and Inventory quantities  Comparison of physical  Review and tests physical
Valuation have been accurately inventory counts with stock take procedures.
determined. amounts in the Review reconciliation and
accounting inventory inspect for sign off by senior
records. personnel.

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 26
ATTRIBUTE SAMPLING FOR INVENTORY

Type of Sampling: Statistical Sampling

Sample Selection Method: Random Sampling

Audit Objective:To prove the existence, rights, accuracy and realizable value of items in a
company’s inventory

Audit Procedures Description

Inquiry Evidence obtained by clients personnel or management

Inspection Examine business documents for approval signatures, stamps,


review check marks, which indicate that controls have been
performed
Observation Observe a business process in action, and in particular the control
elements of the process
Re-performance Initiate a new transaction, to see which controls are used by the
client and the effectiveness of those controls
Re-calculation Involves checking additions and computations

Population Size Sample Size Amount of Deviations found (Sample)

30,000 invoices 1,000 invoices 15

Factors Rate CONTROL RISK ASSESSMENT


Tolerable Misstatement 5%
Formula:
Expected Misstatement 3%
Allowance of Sampling 1% Allowance of Sampling Risk
Risk +Actual Misstatement Rate
*Actual Misstatement 1.5% Maximum Deviation Rate < Tolerable Misstatement
Rate Therefore:1% + 1.5% = 2.5% < 5%

𝐴𝑚𝑜𝑢𝑛𝑡𝑜𝑓𝐷𝑒𝑣𝑖𝑎𝑡𝑖𝑜𝑛𝑠𝑓𝑜𝑢𝑛𝑑𝑜𝑛𝑡ℎ𝑒𝑠𝑎𝑚𝑝𝑙𝑒
𝐴𝑐𝑡𝑢𝑎𝑙𝑀𝑖𝑠𝑠𝑡𝑎𝑡𝑒𝑚𝑒𝑛𝑡 =
𝑆𝑎𝑚𝑝𝑙𝑒𝑠𝑖𝑧𝑒
= 15 / 1,000
= 1.5%
Through this sampling test, the audit team decided to set the tolerable deviation rate
based on our professional judgment to 5% and we are expecting to have a deviation rate of 3%.
Based on our actual testing, the actual deviation rate resulted to 1.5% which represents the 15
deviations from the 1000 sample documents where some of the calculations of inventory are not
valid and is not accurate for the specific inventory periods. With these, we arrived our maximum
deviation rate by adding the allowance of sampling risk 1% and the actual deviation rate of 1.5%
totaling to 2.5% maximum deviation rate.

The conclusion equates to saying that the Inventory System Internal Control is reliable. In
the beginning of testing of account balances, we can tell that this internal control is reliable to
limit the testing of the Inventory System Account.

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 27
Conclusion:

The control risk is assessed to be BELOW MAXIMUM based on sufficient and appropriate
audit evidence obtained in performing test of control as to operating effectiveness of inventory
system..

SALES SYSTEM FLOWCHART

SALES SYSTEM TEST OF CONTROL


ASSERTIONS SPECIFIC CONTROL COMMON CONTROL TEST OF CONTROL
POLICIES AND
PROCEDURES

Existence and Sales transaction that Mailed monthly Keep track of their
Occurrence are recorded for customer statements. account through
vehicles shipped to monthly customer
customers in good statement, examine
faith. customer credit.

.
Completeness Recurring sales of Shipping documents Independently verified
vehicles shipped are are pre-numbered and the sequence of sale
billed and recorded in accounted for on invoice.
the accounting records periodic basis.
accurately.
Occurrence Recorded cash receipts Cash receipts matched Select sample of entries
are for collection of to specific sales in cash receipts journal
receivables resulting invoices in posting to and review evidence
from sales to accounts receivable that matched specific
customers of the entity master file. sales invoices.

Accuracy, Classification Cash receipts are Have a daily remittance Review the
and Evaluations recorded at the right report that is reconciliations
amounts. reconciled to the
control listing of
remittance advices.

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 28
ATTRIBUTE SAMPLING FOR SALES
Type of Sampling:Statistical Sampling
Sample Selection Method:Random Sampling
Audit Objective:To determine if sales are fairly presented in the context of the financial
statements as a whole

Audit Procedures Description


Observation Looking at a process or procedure being performed by others so that
evidence about the actual performance is obtained
Inspection Examination of documents or records, whether internal or external
to provide evidence of reliability
Inquiry Providing appropriate information to the auditor from
knowledgeable persons within or outside the entity
Recalculation Checking the mathematical accuracy of documents or records that
can be used to verify the accuracy of the recording transactions
Re-performance Repeating the activity performed by the client to determine whether
proper results were obtained

Amount Of Deviations Found


Population Size Sample Size
(Sample)
40,000 1,500 30

Factors considered in determining sample size:

Factors Rate CONTROL RISK ASSESSMENT


Tolerable Misstatement 5%
Formula:
Expected Misstatement 3%
Allowance of Sampling 1% Allowance of Sampling Risk
Risk + Actual Misstatement Rate
*Actual Misstatement 2% Maximum Deviation Rate < Tolerable Misstatement
Rate Therefore: 1% + 2% = 3% < 5%

𝐴𝑚𝑜𝑢𝑛𝑡𝑜𝑓𝐷𝑒𝑣𝑖𝑎𝑡𝑖𝑜𝑛𝑠𝑓𝑜𝑢𝑛𝑑𝑜𝑛𝑡ℎ𝑒𝑠𝑎𝑚𝑝𝑙𝑒
𝐴𝑐𝑡𝑢𝑎𝑙𝑀𝑖𝑠𝑠𝑡𝑎𝑡𝑒𝑚𝑒𝑛𝑡 =
𝑆𝑎𝑚𝑝𝑙𝑒𝑠𝑖𝑧𝑒
= 30 / 1,500
=2%
Through this sampling test, the audit team decided to set the tolerable deviation rate
based on our professional judgment to 5% and we are expecting to have a deviation rate of 3%.
Based on our actual testing, the actual deviation rate resulted to 2% which represents the 30
deviations from the 1500 sample documents where some of the sales calculations are not valid
and is not accurate for the specific sales periods. With these, we arrived our maximum deviation
rate by adding the allowance of sampling risk 1% and the actual deviation rate of 2% totaling to
3% maximum deviation rate.
The conclusion equates to saying that the Sales System Internal Control is reliable. In the
beginning of testing of account balances, we can tell that this internal control is reliable to limit
the testing of the Sales System Account.

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 29
Conclusion:

The control risk is assessed to be BELOW MAXIMUM based on sufficient and appropriate
audit evidence obtained in performing test of control as to operating effectiveness of sales
system.

PAYROLL SYSTEM FLOWCHART

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 30
PAYROLL SYSTEM TEST OF CONTROL

COMMON CONTROL
ASSERTION SPECIFIC
PROCEDURES AND TEST OF CONTROLS
SATISFIED CONTROL
POLICIES
General payroll Training Insure the proper training of
processing departmental payroll staff
Timely appointment Prompt payment of employees
and payment through timely preparation and
processing submission of complete, authorized
Occurrence and
appointment and payroll documents
Completeness
Separation of duties Separate the duties of preparing
personnel forms, entering payroll
transactions, approving payroll
entries, and distributing payroll
checks
Payroll Automated Consider installing a computerize
calculation timekeeping systems . time clock.
Computation,
Hours worked Always have a supervisor approve
Classification,
verification . hours worked by employees, to
Accuracy and
prevent employees from charging
Valuation
more time than they actually
worked.
Completeness, Time card Review and approval Complete time cards for hourly
Occurrence and processing of time cards. employees and have employee sign
Accuracy and
Valuation
Verification of System security Insure only appropriate and
payroll authorized employees are given
update or inquiry access to payroll
Occurrence and system panels for viewing or
Accuracy updating payroll data.
Testing for terminated Select a sample of the client’s
employees terminated employees and trace
them back to the payroll register.
Amounts are Proper recording of Journal entries for amounts due to,
Classification, correctly entries and related or on behalf of, employees, payroll
Presentation and recorded in adjustments disbursements, and related
Cut-off the journal adjustments should be prepared
andposted in each accounting period.
the general
ledger
Presentation, Overtime/com Approval of overtime Give prior approval before
Classification and pensation time employees work overtime
Understandability earning

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 31
ATTRIBUTE SAMPLING FOR PAYROLL SYSTEM
Type of Sampling: Statistical Sampling

Sample Selection Method: Random Sampling

Audit Objective: To provide reasonable assurance that the payroll calculation in every pay period
is valid.

AUDIT PROCEDURES DESCRIPTION


Inquiry Evidence obtained from inside and outside the entity.
Inspection Inspection of documents and records provide varying
degrees of reliability, depending on the nature and source
of the documents.
Observation Observation of the application of a client or entity’s policy
or procedure provides assurance of the procedure at a
given point in time, but not necessarily of its performance
at other times during the year.
Re-performance Techniques may be performed manually or through the
use of computer-assisted audit techniques.
Re-calculation Computation or recalculation provides a high level of
assurance regarding arithmetical accuracy.

Population Size Sample Size Amount of Deviations Found (Sample)

10,000 500 5

CONTROL RISK ASSESSMENT


Factors Rate
Allowance of Sampling Risk + Actual Deviation
Tolerable Deviation Rate = Maximum Deviation Rate < Tolerable
5% Deviation Rate
Rate
1% + 1% = 2%< 5%
Expected Deviation
3% CONCLUSION:The control risk is assessed to be
Rate
BELOW MAXIMUM based on sufficient and
Allowance of appropriate audit evidence obtained in
1%
Sampling Risk performing test of controls as to operating
Actual Deviation Rate 1%
effectiveness of payroll system.
Through this sampling test, the audit team decided to set the Tolerable Deviation rate
based on our professional judgment to 5% and we are expecting to have a deviation rate of 3%.
Based on our actual testing, the actual deviation rate resulted to 1% which represents the 5
deviations found from the 500 sample documents where some of the payroll calculations are not
valid and is not accurate for the specific pay period. With these, we arrived our maximum
deviation rate by adding the Allowance of sampling risk of 1% and the actual deviation rate of 1%
totaling to 2% maximum deviation rate.
The conclusion equates to saying that the Payroll System Internal Control is reliable. In
the beginning of testing of account balances, we can tell that this internal control is reliable to
limit the testing of the payroll system account.

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 32
Conclusion:

The control risk is assessed to be BELOW MAXIMUM based on sufficient and appropriate
audit evidence obtained in performing test of control as to operating effectiveness of payroll
system

FIXED ASSET CYCLE

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 33
FIXED ASSET TEST OF CONTROL
Specific Control Common Control Policies Test of Controls Assertion Satisfied
and Procedures

Acquisition of fixed Based on the Conceptual Random physical Existence


asset have been Framework for Financial verification of fixed
included in the Reporting, fixed asset is asset.
accounting system to be recognized if and
only if it is probable that
future economic
benefits associated with
the asset will flow to the
entity and the cost of
the asset to the entity
can be measured
reliably.

Acquisition of fixed Assets received are sent Inspect a number of Cut-off


assets are recorded in to the accounts assets received
the right period department reports for evidence
of when this was
received by the
accounts department
Fixed assets quantities Standard cost reviewed Review and test the Valuation
have been accurately by the management entity’s procedure of
determined developing standard
cost

All non-current assets Capital assets must be Review non-current Completeness


are correctly recorded written up in the non- asset records for
current asset register regularity of
performance and
reviews by the senior
personnel and that all
discrepancies are
followed up and
resolved timely
Depreciation of fixed All depreciation charges Recalculation of Accuracy
asset are accurately calculated depreciation expenses
and recorded in the
appropriate period.

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 34
ATTRIBUTE SAMPLING FOR PROPERTY, PLANT, AND EQUIPMENT
Type of Sampling: Statistical Sampling
Samples Selection Method: Random Sampling
Audit Objectives: To obtain sufficient appropriate audit evidence.

AUDIT DESCRIPTION
PROCEDURES
Inquiry Evidence obtained from inside and outside the entity.
Inspect documents and records provides varying degrees of
Inspection reliability, depending on the nature and source of the documents.
Observe the application of a client’s or entity’s policy or procedure
Observation provides assurance of that procedure at a given point in time, but
not necessarily of its performance at other times during the year.
Techniques may be performed manually or through the use of
Re-performance computer-assisted audit techniques.
Computation or recalculation provides a high level of assurance
Re-calculation regarding arithmetical accuracy.

Population Size Sample Size Amounts of Deviation


Found (Sample)
20,000 2,000 30

Factors Rate CONTROL RISK ASSESSMENT


Tolerable Misstatement 5%
Formula:
Expected Misstatement 3%
Allowance of Sampling 1% Allowance of Sampling Risk
Risk + Actual Misstatement Rate
*Actual Misstatement 1.5% Maximum Deviation Rate < Tolerable Misstatement
Rate Therefore: 1.5% + 1% = 2.5% < 5%

𝐴𝑚𝑜𝑢𝑛𝑡𝑜𝑓𝐷𝑒𝑣𝑖𝑎𝑡𝑖𝑜𝑛𝑠𝑓𝑜𝑢𝑛𝑑𝑜𝑛𝑡ℎ𝑒𝑠𝑎𝑚𝑝𝑙𝑒
𝐴𝑐𝑡𝑢𝑎𝑙𝑀𝑖𝑠𝑠𝑡𝑎𝑡𝑒𝑚𝑒𝑛𝑡 =
𝑆𝑎𝑚𝑝𝑙𝑒𝑠𝑖𝑧𝑒
= 30 / 2,000
=1.5%
Through this sampling test, the audit team decided to set the tolerable deviation rate
based on our professional judgement to 5% and we are expecting to have a deviation rate of
3%. Based on our actual testing, the actual deviation rate resulted to 1.5% which represents the
30 deviation from the 2000 sample documents where some of the PPE calculations are not valid
and is not accurate for the specific PPE periods. With these, we arrived our maximum deviation
rate by adding the allowance of sampling risk 1% and the actual deviation rate of 1.5% totalling
to 2.5% maximum deviation rate.

The conclusion shows that the PPE system Internal Control is reliable. In the beginning
of testing of accounts balances, we can tell that this internal control is reliable to limit the testing
of the PPE System Account.

CONCLUSION:

CONTROL RISK assessed at below maximum. Less Substantive is required. The


degree of reliance on the controls is supported by the pieces of evidence gathered.

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 35
SUBSTANTIVE TESTING

AUDIT OF CASH
Audit Objectives

1. To determine whether the cash on the statement of financial position is held by the
entity
2. To determine whether all cash owned by the entity is included o the statement of
financial position
3. To determine whether the cash is measured at realizable value and allocated properly on
the statement of financial position
4. To determine whether the entity has legal right to use on all the cash on the statement of
financial position
5. To determine whether the cash is properly classified, described and disclosed in the
financial statement in accordance with GAAP

Audit Procedures

1. Sending confirmation to banks or financial institutions


2. Conducting cash counts
3. Obtaining and testing bank reconciliation and preparing proof of cash
4. Obtaining Interbank Transfer Schedule and Tracing Bank Transfers
5. Checking the appropriate valuation of cash
6. Performing analytical procedures to assess the reasonableness of reported cash.

Audit Findings
Adjustments
Account Balance Per Ledge Audited Balance
DEBIT CREDIT
Cash on Hand 350,000.00 350,000.00
Cash in Bank - TBH 100,000,000.00 75,000,000.00 25,000,000.00
Cash in Bank - FYI 100,000,000.00 75,000,000.00 25,000,000.00
Cash Fund 247,600.00 247,600.00
Cash Equivalent 10,000,000.00 10,000,000.00
Total 210,597,600.00 150,000,000.00 60,597,600.00

After a thorough examination of the client's bank accounts, an irregularity was created by a cash
transfer between bank accounts and it was found that an amount of 150,000,000 has been
floating from one bank to another since November 2016 to January 2017 and this results to an
overstatement of cash balance due to kiting.

Corroborating Evidence

1. Cash Count Sheets


2. Cutoff Schedules
3. Bank Confirmations
4. Interbank Transfer Schedules
5. 2-Month Bank Reconciliation (Proof of Cash)

Conclusions
Therefore, the cash in bank accounts are materially misstated.

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 36
Evidence 1: Cash Count Schedules

CASH COUNT SHEET

MaramingPera Corporation December 31, 2016 January 10, 2017


Client Date Audit Date

Cash on Hand Bernard Ace N. Romano 9:00 A.M.


Account Name Counted By Time

Denominations Quantity Amount Total


Bills:
1,000 100 100,000
500 200 100,000
200 300 60,000
100 400 40,000
50 500 25,000
20 600 12,000 337,000

Coins:
10 500 5,000
5 1,000 5,000
1 3,000 3,000 13,000

Checks None - -
Vouchers None - -
Others None - -

Total 350,000

Above listed cash items in the amount of 350,000.00 were returned to me after count by a
representative of Laban ng mgaAstig Firm. All cash and cash items for which I am accountable to,
have been presented for inspection and count.

January 10, 2017 BERNARD ACE N. ROMANO, CPA CASSIE O. HU


Date Auditor Custodian

Audit Findings:

The audit team conducted a cash count schedule on January 10, 2017 to test the existence,
valuation and allocation, rights and obligations of the cash on hand account. Based on the
findings, the balance per book and the balance per audit arrived at the same amount of 350,000.
Hence, the cash on hand account is reasonably presented and free from material misstatements.

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 37
Evidence 2: Cash Count Schedules

CASH COUNT SHEET

MaramingPera Corporation December 31, 2016 January 12, 2017


Client Date Audit Date

Petty Cash Fund Bernard Ace N. Romano 9:00 A.M.


Account Name Counted By Time

Denominations Quantity Amount Total


Bills:
1,000 10 10,000
500 10 5,000
200 15 3,000
100 15 1,500
50 20 1,000
20 20 400 20,900

Coins:
10 100 1,000
5 100 500
1 200 200 1,700

Checks:
Officer’s Check 5,000 5 25,000
Checks for PTC 20,000 10 200,000 225,000

Vouchers None - -
Others: None - -

Total 247,600

Above listed cash items in the amount of 247,600.00 were returned to me after count by a
representative of Laban ng mgaAstig Firm. All cash and cash items for which I am accountable to,
have been presented for inspection and count.

January 12, 2017 BERNARD ACE N. ROMANO, CPA PETTIE C. CANNY


Date Auditor Custodian

Audit Findings:

The audit team conducted a cash count schedule on January 12, 2017 to test the existence,
valuation and allocation, rights and obligations of the Petty Cash Fund Account. Based on the
findings, the balance per book and the balance per audit arrived at the same amount of 247,600.
Hence, the petty cash fund account is reasonably presented and free from material
misstatements.

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 38
Evidence 3: Cutoff Schedule

CUTOFF SCHEDULE

MaramingPera Corporation December 31, 2016 January 25, 2017


Client Date Audit Date

Cash Equivalents Bernard Ace N. Romano 9:00 A.M.


Account Name Counted By Time

Investment Amount Term Date Acquired Maturity Date Cash Equivalent


Time Deposit 500,000.00 3-month 1-Nov-16 1-Feb-17 Yes
Time Deposit 500,000.00 3-month 1-Nov-16 1-Feb-17 Yes
Time Deposit 750,000.00 6-month 1-Dec-16 1-Mar-17 Yes
Time Deposit 750,000.00 6-month 1-Dec-16 1-Mar-17 Yes
Commercial Paper 250,000.00 3-month 15-Dec-16 15-Mar-17 Yes
Commercial Paper 450,000.00 3-month 15-Dec-16 15-Mar-17 Yes
Commercial Paper 450,000.00 3-month 15-Dec-16 15-Mar-17 Yes
Commercial Paper 350,000.00 3-month 15-Dec-16 15-Mar-17 Yes
Commercial Paper 500,000.00 6-month 15-Nov-16 15-Feb-17 Yes
Commercial Paper 500,000.00 6-month 15-Nov-16 15-Feb-17 Yes
Commercial Paper 500,000.00 6-month 15-Nov-16 15-Feb-17 Yes
Treasury Bill 1,000,000.00 1-year 15-Oct-16 15-Jan-17 Yes
Treasury Bill 1,500,000.00 2-year 15-Oct-16 15-Jan-17 Yes
Treasury Bill 2,000,000.00 3-year 15-Oct-16 15-Jan-17 Yes
TOTAL 10,000,000.00

Above listed cash items in the amount of 10,000,000.00 were returned to me after count by a
representative of Laban ng mgaAstig Firm. All cash and cash items for which I am accountable to,
have been presented for inspection and count.

January 15, 2017 BERNARD ACE N. ROMANO,CPA CANE U. EDWIN


Date Auditor Custodian

Audit Findings:

The audit team conducted a lapsing schedule on January 15, 2017 to test the existence,
valuation and allocation, rights and obligations of the cash equivalent account. Based on the
findings, the balance per book and the balance per audit arrived at the same amount of
10,000,000. Hence, the cash equivalent account is reasonably presented and free from material
misstatements.

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 39
Evidence 4: Bank Confirmation

BANK CONFIRMATION
(TBH Checking Account)

Attn. Tan Brandon Hu, Senior Manager


TBH Bank of Tacloban
Real St., San Jose, Tacloban City

TBH Bank, Inc

We have provided to our auditors the following information as of the close of business on
December 31, 2016, regarding our deposit balances. Please confirm the accuracy of the
information, noting any exceptions to the information provided. If the balances have been left
blank, please complete this form by furnishing the balance in the appropriate space below.
Although we do not request nor expect you to conduct a comprehensive, detailed search of your
records, if, during the process of completing this confirmation, additional information about
other deposit and loan accounts we may have with you comes to your attention, please include
such information below. Please use the enclosed envelope to return the original directly to our
auditors, Laban ng mgaAstig Firm.

At the close of business on the date listed above, our records indicated the following deposit
balances:

Account Name Account No. Type of Account Interest Rate Balance


General Account 12345678 TBH Checking Account None 100 000 000

JEROME C. CHAVEZ, CMA January 15, 2017


Customer’s Authorized Signature Date

----------------------------------To be filled by the bank’s authorized personnel ---------------------------

The information presented above by the customer is in agreement with our records. Although
we have not conducted a comprehensive, detailed search of our records, no other deposit or
loan accounts have come to our attention.

TERRENCE BILL V. ROMEO, Financial Director January 15, 2017


Financial Institution Authorized Signature Date

Please return this form directly to our auditors:

Laban ng mgaAstig Firm.


P.O. Box 14344, 6500 Tacloban City

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 40
BANK CONFIRMATION
(FYI Checking Account)

Attn. Fey Yannie II, Senior Manager


FYI Bank of Palo
Campetic Palo, Leyte

FYI Bank, Inc.

We have provided to our auditors the following information as of the close of business on
December 31, 2016, regarding our deposit balances. Please confirm the accuracy of the
information, noting any exceptions to the information provided. If the balances have been left
blank, please complete this form by furnishing the balance in the appropriate space below.
Although we do not request nor expect you to conduct a comprehensive, detailed search of your
records, if, during the process of completing this confirmation, additional information about
other deposit and loan accounts we may have with you comes to your attention, please include
such information below. Please use the enclosed envelope to return the original directly to our
auditors, Laban ng mgaAstig Firm.

At the close of business on the date listed above, our records indicated the following deposit
balances:

Account Name Account No. Type of Account Interest Rate Balance


General Account 87654321 FYI Checking Account None 100 000 000

JEROME C. CHAVEZ, CMA January 15, 2017


Customer’s Authorized Signature Date

-----------------------------------To be filled by the bank’s authorized personnel --------------------------

The information presented above by the customer is in agreement with our records. Although
we have not conducted a comprehensive, detailed search of our records, no other deposit or
loan accounts have come to our attention.

JOHN T. MANZANO, Financial Director January 15, 2017


Financial Institution Authorized Signature Date

Please return this form directly to our auditors:

Laban ng mgaAstig Firm.


P.O. Box 14344, 6000 Campetic Palo

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 41
Audit Findings:

The audit team sent a bank confirmation letter on January 15, 2017 to confirm the existence,
valuation and allocation, rights and obligations and presentation and disclosure of the cash in
bank account. The cash in bank presented was confirmed by the bank institutions.

MaramingPera Corporation provided the following information from the Cash - TBH Checking
Account No. 123456789

Balance per Book, November 30 85,000,000


Cash Receipts for December 185,000,000
Cash Disbursement for December 174,000,000
Balance per Book, December 31 96,000,000

Details of the cash records revealed the following list of the company's receipts and
disbursements for the month of December:

Receipts Disbursements
OR No. Amount Check No. Amount
300 75,000,000.00
99 301
100 5,000,000.00 302 2,000,000.00
101 8,000,000.00 303 5,000,000.00
102 4,000,000.00 304 4,000,000.00
103 20,000,000.00 305 20,000,000.00
104 7,000,000.00 306 6,000,000.00
105 4,000,000.00 307 4,000,000.00
106 5,000,000.00 308 5,000,000.00
107 8,000,000.00 309 3,000,000.00
108 40,000,000.00 310 40,000,000.00
109 311
110 312
111 5,000,000.00 313 4,000,000.00
112 4,000,000.00 314 6,000,000.00
315 75,000,000.00 315
Total 185,000,000.00 174,000,000.00

The audit team proceeded by obtaining also a copy of the bank statement for the month of
December for purposes of reconciling the balance per book and balance per bank.

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 42
Bank Statement
TBH Checking Acount No. 12345678
31-Dec-16

Date Particulars Debit Credit Balance


30-Nov Balance 88,000,000.00
Check no. 300 75,000,000.00 75,000,000.00 88,000,000.00
Check no. 301 3,000,000.00 3,000,000.00 88,000,000.00
Check no. 302 88,000,000.00
Check no. 303 5,000,000.00 8,000,000.00 91,000,000.00
Check no. 304 4,000,000.00 4,000,000.00 91,000,000.00
Check no. 305 20,000,000.00 20,000,000.00 91,000,000.00
Check no. 306 6,000,000.00 7,000,000.00 92,000,000.00
Check no. 307 4,000,000.00 4,000,000.00 92,000,000.00
Check no. 308 5,000,000.00 5,000,000.00 92,000,000.00
Check no. 309 3,000,000.00 8,000,000.00 97,000,000.00
Check no. 310 40,000,000.00 40,000,000.00 97,000,000.00
Check no. 311 5,000,000.00 6,000,000.00 98,000,000.00
Check no. 312 3,000,000.00 6,000,000.00 101,000,000.00
Check no. 313 101,000,000.00
Check no. 314 101,000,000.00
31-Dec Check no. 315 101,000,000.00
Total 173,000,000.00 186,000,000.00

Audit Findings

The audit team obtain the details of the cash records regarding the company's receipts and
disbursements for the month of December as well as the bank statement to check the existence,
completeness, valuation and allocation and rights and obligations of the cash in bank accounts.

The audit team reconcile both records and found out the reconciling items that there was
Deposits in Transit, Outstanding Checks, Credit Memos and Debit Memos.

In this regard, the audit team make their own 2-Month Bank Reconciliation also known as Proof
of Cash to check the correctness in reconciling both records during the month of November and
December.

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 43
Reconciling Items Amount
Deposits in Transit:
 OR No. 99 – November 3 000 000
 OR No. 111 – December 5 000 000
 OR No. 112 – December 4 000 000
Outstanding Checks:
 Check No. 301 – November 3 000 000
 Check No. 313 – December 4 000 000
 Check No. 314 – December 6 000 000
Credit Memos:
 OR No. 100 – November 5 000 000
 OR No. 109 – December 6 000 000
 OR No. 110 – December 6 000 000
Debit Memos:
 Check No. 302 – November 2 000 000
 Check No. 311 – December 5 000 000
 Check No. 312 – December 3 000 000

Evidence 5: Bank Reconciliation

2-MONTH BANK RECONCILIATION


(PROOF OF CASH)

Balance Per Book:


Reconciling Items 30-Nov Receipts Disbursements 31-Dec
Balance per Book 85,000,000.00 185,000,000.00 174,000,000.00 96,000,000.00
Credit Memo
30-Nov 5,000,000.00 (5,000,000.00)
31-Dec 12,000,000.00 12,000,000.00
Debit Memo
30-Nov (2,000,000.00) (2,000,000.00)
31-Dec 8,000,000.00 (8,000,000.00)
Adjusted Balance 88,000,000.00 192,000,000.00 180,000,000.00 100,000,000.00

Balance Per Bank:


Reconciling Items 30-Nov Receipts Disbursements 31-Dec
Balance per Bank 88,000,000.00 186,000,000.00 173,000,000.00 101,000,000.00
Deposits in Transit
30-Nov 3,000,000.00 (3,000,000.00)
31-Dec 9,000,000.00 9,000,000.00
Outstanding Checks
30-Nov (3,000,000.00) (3,000,000.00)
31-Dec 10,000,000.00 (10,000,000.00)
Adjusted Balance 88,000,000.00 192,000,000.00 180,000,000.00 100,000,000.00

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 44
Computation of Deposits in Transit:

Deposits in Transit – Beginning 3 000 000


Add: Cash Deposited during December:
Book Debits 185 000 000
Less: November CM (5 000 000) 180 000 000
Total 183 000 000

Less: Deposits Acknowledge by Bank in December


Bank Credits 186 000 000
Less: December CM (12 000 000) 174 000 000
Deposits in Transit – Ending 9 000 000

Computation of Outstanding Checks:

Outstanding Checks – Beginning 3 000 000


Add: Checks Drawn during December
Book Credits 174 000 000
Less: November DM (2 000 000) 172 000 000
Total 175 000 000

Less: Checks Paid by Bank during December


Bank Debits 173 000 000
Less: December DM (8 000 000) 165 000 000
Outstanding Checks – Ending 10 000 000

Evidence 6: Interbank Transfer Schedule

INTERBANK TRANSFER SCHEDULE


November 2016 to January 2017

DETAILS TBH Disbursing Account FYI Receiving Account

Date Check no. Transfer No. Amount Recorded in Books Paid by TBH Bank Recorded in Book Received by FYI Bank
1-Nov 205 1 20,000,000.00 1-Nov 1-Nov 1-Nov 1-Nov
15-Nov 210 2 40,000,000.00 15-Nov 16-Nov 15-Nov 16-Nov
30-Nov 300 3 75,000,000.00 1-Dec 1-Dec 30-Nov 1-Dec

2-Dec 305 4 20,000,000.00 2-Dec 4-Dec 2-Dec 6-Dec


15-Dec 310 5 40,000,000.00 15-Dec 16-Dec 15-Dec 16-Dec
31-Dec 315 6 75,000,000.00 2-Jan 2-Jan 31-Dec 2-Jan

1-Jan 405 7 20,000,000.00 1-Jan 2-Jan 1-Jan 2-Jan


15-Jan 410 8 40,000,000.00 15-Jan 17-Jan 15-Jan 17-Jan
31-Jan 415 9 75,000,000.00 1-Feb 1-Feb 31-Jan 1-Feb

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 45
DETAILS FYI Disbursing Account TBH Receiving Account
Date Check No. Transfer No. Amount Recorded in Books Paid by Bank Recorded in Book Received by bank
1-Nov 205 1 20,000,000.00 1-Nov 1-Nov 1-Nov 1-Nov
15-Nov 210 2 40,000,000.00 15-Nov 16-Nov 15-Nov 16-Nov
30-Nov 300 3 75,000,000.00 1-Dec 1-Dec 30-Nov 1-Dec

2-Dec 305 4 20,000,000.00 2-Dec 6-Dec 2-Dec 4-Dec


15-Dec 310 5 40,000,000.00 15-Dec 16-Dec 15-Dec 16-Dec
31-Dec 315 6 75,000,000.00 2-Jan 2-Jan 31-Dec 2-Jan

1-Jan 405 7 20,000,000.00 1-Jan 2-Jan 1-Jan 2-Jan


15-Jan 410 8 40,000,000.00 15-Jan 17-Jan 15-Jan 17-Jan
31-Jan 415 9 75,000,000.00 1-Feb 1-Feb 31-Jan 1-Feb

Audit Findings:

Through the support of interbank transfer schedule conducted by the auditor, it was found out
that there were75 000 000amounts of cash in bank coming from TBH Bank Account and another
75 000 000 coming from FYI Bank Account have been floating from November to January and
this results to an overstatement of cash in the amount of 150 000 000.

Summary of Audit Procedures Classified per Assertion

Assertion Category Primary Audit Procedures


Existence  Sending confirmation to banks or financial institutions
 Surprise cash count
 Obtaining and testing bank reconciliation and
preparing proof of cash
 Obtaining bank cutoff statement and tracing bank
transfers
Completeness  Obtaining and testing bank reconciliation and
preparing proof of cash
 Obtaining bank cutoff statement and tracing bank
transfers
Valuation an Allocation  Sending confirmation to banks or financial institutions
 Surprise cash count
 Obtaining and testing bank reconciliation and
preparing proof of cash
 Checking the appropriate valuation of cash
Rights and Obligations  Sending confirmation to banks or financial institutions
 Surprise cash count
 Obtaining and testing bank reconciliation and
preparing proof of cash
 Obtaining bank cutoff statement and tracing bank
transfers
Presentation and Disclosure  Sending confirmation to banks or financial institutions
 Checking the appropriate valuation of cash

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 46
AUDIT OF RECEIVABLES
Variable Sampling of TRADE RECEIVABLE
Type of Sampling: Statistical Sampling
Sample Selection Method: Random Sampling
Based on: Positive Confirmation Letter
Audit Objectives:
1. To determine whether trade receivable exists as of the balance sheet date.
2. To determine whether Trade receivable includes all amounts owed by customers at the
reporting date.
3. To determine whether Trade receivable are owed to the entity and not pledged and
subjected to other outside claims.
4. To determine whether entity has recorded items in correct amounts, accounts and time
periods.
Audit Procedures:
1. Obtained an aged trial balance of trade receivable and traced the total to the general
ledger control account
2. Performed confirmation of receivables on a sample of year end trade receivable.
3. Reviewed bank confirmation and debts agreements for liens.
Total Amount of
Audit
Number of Sample Size Misstatemen
Trade Receivable Procedure
Accounts Sample Size t found
Balances
(Population (In terms of (Positive
(Sample Size )
Size) Value Confirmation)
Less Than 250,000 500 90 15,200,000 45 650,000
250,000 to 500,000 90 20 8,800,000 10 500,000
500,001 to 1,000,000 40 10 10,500,000 5 230,000
1,000,001 to 1,500,000 30 5 26,700,000 3 None
10(100%
1,500,001 and Above 10 20, 500, 000 5 150,000
examination)
Total 670 125 61,200,000 68 1,530,000

Factors Rate Amount Projected Misstatement:


Tolerable Misstatement 5% 10,160,865.25 Formula:
Expected Misstatement 3% 𝑃𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛 𝑆𝑖𝑧𝑒
× 𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝑀𝑖𝑠𝑠𝑡𝑎𝑡𝑒𝑚𝑒𝑛𝑡
Allowance of Sampling 𝑆𝑎𝑚𝑝𝑙𝑒 𝑆𝑖𝑧𝑒
1% - Therefore:
Risk
*Actual Misstatement 670
2.5% 8,200,800.00 × 1,530,000 = 𝟖, 𝟐𝟎𝟎, 𝟖𝟎𝟎
Rate 125
Actual Misstatement Rate:
Amount of Misstatement / Sample Size (In terms of Amount) = 2.5%
Projected Misstatement is less than Tolerable Misstatement
8,200,800.00<10,160,856.25
Conclusion:
Therefore, Trade Receivable is free from material misstatements and reasonably presented.

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 47
Evidence: POSTIVE RECEIVABLE CONFIRMATION
January 10, 2017
Dear Sir,

Please confirm directly to our auditors


LABAN NG MGA ASTIG FIRM
P.O Box 12322, 6501 Campetic, Palo Leyte
The correctness of the balance of your accounts payable to us as shown below and on the
enclosed statement at Dec 31, 2017. Further use in connection with the examination of our
accounts. If the amount is correct, please sign this letter in the space provided below. If not
correct, please list on the remarks portion full details of the difference.
A return envelope is enclosed for your reply. No postage stamps are required.
PLEASE NOTE THE DATE as of which we request confirmation. Transactions with us or
payments to us between that date and the date you received this letter are not to be
considered.

Thank you for your cooperation.

Please fax an advance copy of your Very truly yours,


reply at 143-37562. Attention of
Mr. Bernard Ace Romano,
Partner-In-Charge JUAN B. MANLANGIT
Controller, Comp

THIS IS NOT A REQUEST FOR PAYMENT, BUT MERELY


FOR CONFIRMATION OF YOUR ACCOUNT.
-------------------------------------------------------------------------------------------------------------------------------
THE FOLLOWING BALANCE DUE FROM US IS CORRECT:

Due to: ABCD Company As of: January 10, 2017


Amount: P550,000.00
Remarks: None

JESUSA B. DONAYRE
Manager, Accounts Payable Department

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 48
AUDIT OF INVENTORY and COST OF SALES

Acceptable Sampling Risk 15%


Tolerable Misstatement 8%
Expected Misstatement 4%
Actual Misstatement 0%
Allowance for Sampling Risk 2%
Upper Precision Limit 2%

Audit Objectives:

1. To determine the existence of the account that all inventories reported on the balance
sheet are held by the entity and transactions have really occurred and pertain to the
entity.
2. To determine whether the inventory account is correctly valuated and allocated that
inventories are carried at the lower of cost or net realizable value.
3. To determine the completeness of the record of the account and transaction, that all
inventories owned by the entity at the reporting date are included on the balance sheet
and all cost of sales is included in the income statement.
4. Purchases (cost of sales) have been recorded in the proper accounting period.

5. To determine the authenticity of the title or ownership of the inventory reported on the
balance sheet.
6. To determine whether the inventories are properly classified, described and disclosed in
the financial statements in accordance with the standard.

Audit Procedures:

1. Observing inventory count and performing test counts.


2. Checking appropriate valuation in accordance with accounting policies.
3. Trace the account from the source document to client's record.
4. Performing lower of cost or net realizable value test.
5. Performing purchases and inventory cut-off.
6. Reconciling inventory summary sheet with general ledger.
7. Perform analytical procedures.

Corroborating Evidence:

1. Inventory Countsheet
2. Cut-off Schedule
3. Tracing

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 49
EVIDENCE 1.1.1: INVENTORY Count Sheet (Warehouse)
SHEET NO: 1-A PERIOD: April-June
PERFORMED BY:Coriza Joyce G. Atibula, CPA REVIEWED BY:Bernard Ace N. Romano, CPA

INVENTORY COUNT SHEET (Warehouse)


Date Type of Inventory Purchase Price Balance (units) Total Amount
Truck ₱100,000.00 7 ₱700,000.00
Motorcycle ₱20,000.00 26 ₱520,000.00
Apr-10 Bus ₱125,000.00 5 ₱625,000.00
Car ₱75,000.00 20 ₱1,500,000.00
Van ₱90,000.00 16 ₱1,440,000.00
Truck ₱100,000.00 10 ₱1,000,000.00
Motorcycle ₱20,000.00 33 ₱660,000.00
Apr-20 Bus ₱125,000.00 6 ₱750,000.00
Car ₱75,000.00 23 ₱1,725,000.00
Van ₱90,000.00 20 ₱1,800,000.00
Truck ₱100,000.00 11 ₱1,100,000.00
Motorcycle ₱20,000.00 30 ₱600,000.00
Apr-30 Bus ₱125,000.00 5 ₱625,000.00
Car ₱75,000.00 20 ₱1,500,000.00
Van ₱90,000.00 13 ₱1,170,000.00
Truck ₱100,000.00 5 ₱500,000.00
Motorcycle ₱20,000.00 30 ₱600,000.00
May-10 Bus ₱125,000.00 5 ₱625,000.00
Car ₱75,000.00 23 ₱1,725,000.00
Van ₱90,000.00 16 ₱1,440,000.00
Truck ₱100,000.00 10 ₱1,000,000.00
Motorcycle ₱20,000.00 26 ₱520,000.00
May-20 Bus ₱125,000.00 5 ₱625,000.00
Car ₱75,000.00 23 ₱1,725,000.00
Van ₱90,000.00 13 ₱1,170,000.00
Truck ₱100,000.00 6 ₱600,000.00
Motorcycle ₱20,000.00 29 ₱580,000.00
May-31 Bus ₱125,000.00 5 ₱625,000.00
Car ₱75,000.00 17 ₱1,275,000.00
Van ₱90,000.00 15 ₱1,350,000.00
Truck ₱100,000.00 8 ₱800,000.00
Motorcycle ₱20,000.00 28 ₱560,000.00
Jun-10 Bus ₱125,000.00 5 ₱625,000.00
Car ₱75,000.00 21 ₱1,575,000.00
Van ₱90,000.00 17 ₱1,530,000.00
Truck ₱100,000.00 7 ₱700,000.00
Motorcycle ₱20,000.00 31 ₱620,000.00
Jun-20 Bus ₱125,000.00 8 ₱1,000,000.00
Car ₱75,000.00 24 ₱1,800,000.00
Van ₱90,000.00 14 ₱1,260,000.00
Truck ₱100,000.00 10 ₱1,000,000.00
Motorcycle ₱20,000.00 31 ₱620,000.00
Jun-30 Bus ₱125,000.00 8 ₱1,000,000.00
Car ₱75,000.00 20 ₱1,500,000.00
Van ₱90,000.00 18 ₱1,620,000.00

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 50
EVIDENCE 1.1.2: INVENTORY Count Sheet (Warehouse)
SHEET NO: 1-B PERIOD: October-December
PERFORMED BY:Coriza Joyce G. Atibula, CPA Reviewed by: Bernard Ace N. Romano, CPA

INVENTORY COUNT SHEET (Warehouse)


Date Type of Inventory Purchase Price Balance (units) Total Amount
Truck ₱100,000.00 10 ₱1,000,000.00
Motorcycle ₱20,000.00 30 ₱600,000.00
Oct-10 Bus ₱125,000.00 8 ₱1,000,000.00
Car ₱75,000.00 22 ₱1,650,000.00
Van ₱90,000.00 17 ₱1,530,000.00
Truck ₱100,000.00 8 ₱800,000.00
Motorcycle ₱20,000.00 26 ₱520,000.00
Oct-20 Bus ₱125,000.00 5 ₱625,000.00
Car ₱75,000.00 23 ₱1,725,000.00
Van ₱90,000.00 13 ₱1,170,000.00
Truck ₱100,000.00 8 ₱800,000.00
Motorcycle ₱20,000.00 28 ₱560,000.00
Oct-31 Bus ₱125,000.00 5 ₱625,000.00
Car ₱75,000.00 23 ₱1,725,000.00
Van ₱90,000.00 15 ₱1,350,000.00
Truck ₱100,000.00 7 ₱700,000.00
Motorcycle ₱20,000.00 24 ₱480,000.00
Nov-10 Bus ₱125,000.00 6 ₱750,000.00
Car ₱75,000.00 20 ₱1,500,000.00
Van ₱90,000.00 17 ₱1,530,000.00
Truck ₱100,000.00 10 ₱1,000,000.00
Motorcycle ₱20,000.00 30 ₱600,000.00
Nov-20 Bus ₱125,000.00 8 ₱1,000,000.00
Car ₱75,000.00 20 ₱1,500,000.00
Van ₱90,000.00 19 ₱1,710,000.00
Truck ₱100,000.00 9 ₱900,000.00
Motorcycle ₱20,000.00 32 ₱640,000.00
Nov-30 Bus ₱125,000.00 8 ₱1,000,000.00
Car ₱75,000.00 21 ₱1,575,000.00
Van ₱90,000.00 18 ₱1,620,000.00
Truck ₱100,000.00 7 ₱700,000.00
Motorcycle ₱20,000.00 32 ₱640,000.00
Dec-10 Bus ₱125,000.00 5 ₱625,000.00
Car ₱75,000.00 25 ₱1,875,000.00
Van ₱90,000.00 19 ₱1,710,000.00
Truck ₱100,000.00 7 ₱700,000.00
Motorcycle ₱20,000.00 30 ₱600,000.00
Dec-20 Bus ₱125,000.00 7 ₱875,000.00
Car ₱75,000.00 24 ₱1,800,000.00
Van ₱90,000.00 20 ₱1,800,000.00
Truck ₱100,000.00 10 ₱1,000,000.00
Motorcycle ₱20,000.00 31 ₱620,000.00
Dec-31 Bus ₱125,000.00 8 ₱1,000,000.00
Car ₱75,000.00 23 ₱1,725,000.00
Van ₱90,000.00 17 ₱1,530,000.00

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 51
EVIDENCE 1.2.1: Inventory Count Sheet (Store)
SHEET NO: 1-A PERIOD: April-June
PERFORMED BY:Coriza Joyce G. Atibula, CPA REVIEWED BY:Bernard Ace N. Romano, CPA
INVENTORY COUNT SHEET (Store)
Type of Purchase Sold COS Balance Balance
Date
Inventory Price (units) (amount) (units) Amount
Truck ₱100,000.00 3 ₱300,000.00 5 ₱500,000.00
Motorcycle ₱20,000.00 5 ₱100,000.00 14 ₱280,000.00
Apr-10 Bus ₱125,000.00 2 ₱250,000.00 3 ₱375,000.00
Car ₱75,000.00 8 ₱600,000.00 10 ₱750,000.00
Van ₱90,000.00 5 ₱450,000.00 9 ₱810,000.00
Truck ₱100,000.00 - - 5 ₱500,000.00
Motorcycle ₱20,000.00 6 ₱120,000.00 17 ₱340,000.00
Apr-20 Bus ₱125,000.00 - - 4 ₱500,000.00
Car ₱75,000.00 10 ₱750,000.00 12 ₱900,000.00
Van ₱90,000.00 - - 10 ₱900,000.00
Truck ₱100,000.00 2 ₱200,000.00 5 ₱500,000.00
Motorcycle ₱20,000.00 4 ₱80,000.00 15 ₱300,000.00
Apr-30 Bus ₱125,000.00 2 ₱250,000.00 3 ₱375,000.00
Car ₱75,000.00 - - 10 ₱750,000.00
Van ₱90,000.00 8 ₱720,000.00 7 ₱630,000.00
Truck ₱100,000.00 1 ₱100,000.00 5 ₱500,000.00
Motorcycle ₱20,000.00 2 ₱40,000.00 15 ₱300,000.00
May-10 Bus ₱125,000.00 - - 3 ₱375,000.00
Car ₱75,000.00 5 ₱375,000.00 12 ₱900,000.00
Van ₱90,000.00 1 ₱90,000.00 9 ₱810,000.00
Truck ₱100,000.00 5 ₱500,000.00 5 ₱500,000.00
Motorcycle ₱20,000.00 8 ₱160,000.00 14 ₱280,000.00
May-20 Bus ₱125,000.00 4 ₱500,000.00 5 ₱625,000.00
Car ₱75,000.00 - - 12 ₱900,000.00
Van ₱90,000.00 - - 7 ₱630,000.00
Truck ₱100,000.00 - - 6 ₱600,000.00
Motorcycle ₱20,000.00 10 ₱200,000.00 15 ₱300,000.00
May-31 Bus ₱125,000.00 - - 5 ₱625,000.00
Car ₱75,000.00 - - 9 ₱675,000.00
Van ₱90,000.00 5 ₱450,000.00 8 ₱720,000.00
Truck ₱100,000.00 - - 7 ₱700,000.00
Motorcycle ₱20,000.00 5 ₱100,000.00 15 ₱300,000.00
Jun-10 Bus ₱125,000.00 1 ₱125,000.00 5 ₱625,000.00
Car ₱75,000.00 9 ₱675,000.00 11 ₱825,000.00
Van ₱90,000.00 - - 9 ₱810,000.00
Truck ₱100,000.00 3 ₱300,000.00 7 ₱700,000.00
Motorcycle ₱20,000.00 - - 16 ₱320,000.00
Jun-20 Bus ₱125,000.00 3 ₱375,000.00 5 ₱625,000.00
Car ₱75,000.00 2 ₱150,000.00 12 ₱900,000.00
Van ₱90,000.00 3 ₱270,000.00 8 ₱720,000.00
Truck ₱100,000.00 - - 5 ₱500,000.00
Motorcycle ₱20,000.00 - - 17 ₱340,000.00
Jun-30 Bus ₱125,000.00 - - 4 ₱500,000.00
Car ₱75,000.00 - - 11 ₱825,000.00
Van ₱90,000.00 7 ₱630,000.00 9 ₱810,000.00

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 52
EVIDENCE 1.2.2: Inventory Count Sheet (Store)
SHEET NO: 1-B PERIOD: October-December
PERFORMED BY:Coriza Joyce G. Atibula, CPA REVIEWED BY:Bernard Ace N. Romano, CPA
INVENTORY COUNT SHEET (Store)
Type of Purchase Sold Balance Balance
Date COS (amount)
Inventory Price (units) (units) (amount)
Truck ₱100,000.00 2 ₱200,000.00 5 ₱500,000.00
Motorcycle ₱20,000.00 6 ₱120,000.00 15 ₱300,000.00
Oct-10 Bus ₱125,000.00 3 ₱375,000.00 4 ₱500,000.00
Car ₱75,000.00 12 ₱900,000.00 11 ₱825,000.00
Van ₱90,000.00 - - 8 ₱720,000.00
Truck ₱100,000.00 1 ₱100,000.00 4 ₱400,000.00
Motorcycle ₱20,000.00 12 ₱240,000.00 14 ₱280,000.00
Oct-20 Bus ₱125,000.00 5 ₱625,000.00 5 ₱625,000.00
Car ₱75,000.00 - - 12 ₱900,000.00
Van ₱90,000.00 9 ₱810,000.00 7 ₱630,000.00
Truck ₱100,000.00 - - 5 ₱500,000.00
Motorcycle ₱20,000.00 5 ₱100,000.00 15 ₱300,000.00
Oct-31 Bus ₱125,000.00 - - 5 ₱625,000.00
Car ₱75,000.00 5 ₱375,000.00 12 ₱900,000.00
Van ₱90,000.00 - - 9 ₱810,000.00
Truck ₱100,000.00 3 ₱300,000.00 7 ₱700,000.00
Motorcycle ₱20,000.00 - - 13 ₱260,000.00
Nov-10 Bus ₱125,000.00 1 ₱125,000.00 6 ₱750,000.00
Car ₱75,000.00 3 ₱225,000.00 10 ₱750,000.00
Van ₱90,000.00 12 ₱1,080,000.00 8 ₱720,000.00
Truck ₱100,000.00 4 ₱400,000.00 5 ₱500,000.00
Motorcycle ₱20,000.00 - - 16 ₱320,000.00
Nov-20 Bus ₱125,000.00 2 ₱250,000.00 4 ₱500,000.00
Car ₱75,000.00 - - 11 ₱825,000.00
Van ₱90,000.00 3 ₱270,000.00 10 ₱900,000.00
Truck ₱100,000.00 - - 5 ₱500,000.00
Motorcycle ₱20,000.00 10 ₱200,000.00 14 ₱280,000.00
Nov-30 Bus ₱125,000.00 3 ₱375,000.00 5 ₱625,000.00
Car ₱75,000.00 6 ₱450,000.00 11 ₱825,000.00
Van ₱90,000.00 7 ₱630,000.00 10 ₱900,000.00
Truck ₱100,000.00 2 ₱200,000.00 6 ₱600,000.00
Motorcycle ₱20,000.00 5 ₱100,000.00 18 ₱360,000.00
Dec-10 Bus ₱125,000.00 - - 5 ₱625,000.00
Car ₱75,000.00 - - 13 ₱975,000.00
Van ₱90,000.00 - - 10 ₱900,000.00
Truck ₱100,000.00 3 ₱300,000.00 5 ₱500,000.00
Motorcycle ₱20,000.00 - - 15 ₱300,000.00
Dec-20 Bus ₱125,000.00 5 ₱625,000.00 6 ₱750,000.00
Car ₱75,000.00 2 ₱150,000.00 13 ₱975,000.00
Van ₱90,000.00 5 ₱450,000.00 10 ₱900,000.00
Truck ₱100,000.00 - - 5 ₱500,000.00
Motorcycle ₱20,000.00 8 ₱160,000.00 17 ₱340,000.00
Dec-31 Bus ₱125,000.00 - - 4 ₱500,000.00
Car ₱75,000.00 10 ₱750,000.00 13 ₱975,000.00
Van ₱90,000.00 - - 8 ₱720,000.00

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 53
EVIDENCE 1.3.1: RECONCILING INVENTORY COUNT TO THE LEDGER (2ND QUARTER)

WAREHOUSE + STORE (Second Quarter)


Is inventory
Inventory Count Stock Cards
count sheet
Date Type of Inventory Purchase Price Sheet Balance Balance
reconciles with
(units) (units)
stock card?
Truck ₱100,000.00 12 12 Yes
Motorcycle ₱20,000.00 40 40 Yes
Apr-10 Bus ₱125,000.00 8 8 Yes
Car ₱75,000.00 30 30 Yes
Van ₱90,000.00 25 25 Yes
Truck ₱100,000.00 15 15 Yes
Motorcycle ₱20,000.00 50 50 Yes
Apr-20 Bus ₱125,000.00 10 10 Yes
Car ₱75,000.00 35 35 Yes
Van ₱90,000.00 30 30 Yes
Truck ₱100,000.00 16 16 Yes
Motorcycle ₱20,000.00 45 45 Yes
Apr-30 Bus ₱125,000.00 8 8 Yes
Car ₱75,000.00 30 30 Yes
Van ₱90,000.00 20 20 Yes
Truck ₱100,000.00 10 10 Yes
Motorcycle ₱20,000.00 45 45 Yes
May-10 Bus ₱125,000.00 8 8 Yes
Car ₱75,000.00 35 35 Yes
Van ₱90,000.00 25 25 Yes
Truck ₱100,000.00 15 15 Yes
Motorcycle ₱20,000.00 40 40 Yes
May-20 Bus ₱125,000.00 10 10 Yes
Car ₱75,000.00 35 35 Yes
Van ₱90,000.00 20 20 Yes
Truck ₱100,000.00 12 12 Yes
Motorcycle ₱20,000.00 44 44 Yes
May-31 Bus ₱125,000.00 10 10 Yes
Car ₱75,000.00 26 26 Yes
Van ₱90,000.00 23 23 Yes
Truck ₱100,000.00 15 15 Yes
Motorcycle ₱20,000.00 43 43 Yes
Jun-10 Bus ₱125,000.00 10 10 Yes
Car ₱75,000.00 32 32 Yes
Van ₱90,000.00 26 26 Yes
Truck ₱100,000.00 14 14 Yes
Motorcycle ₱20,000.00 47 47 Yes
Jun-20 Bus ₱125,000.00 13 13 Yes
Car ₱75,000.00 36 36 Yes
Van ₱90,000.00 22 22 Yes
Truck ₱100,000.00 15 15 Yes
Motorcycle ₱20,000.00 48 48 Yes
Jun-30 Bus ₱125,000.00 12 12 Yes
Car ₱75,000.00 31 31 Yes
Van ₱90,000.00 27 27 Yes

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 54
EVIDENCE 1.3.2: RECONCILING INVENTORY COUNT TO THE LEDGER (4TH QUARTER)

WAREHOUSE + STORE (Fourth Quarter)


Is inventory
Inventory
Stock Cards count sheet
Date Type of Inventory Purchase Price Count Sheet
Balance (units) reconciles with
Balance (units)
stock card?
Truck ₱100,000.00 15 15 Yes
Motorcycle ₱20,000.00 45 45 Yes
Oct-10 Bus ₱125,000.00 12 12 Yes
Car ₱75,000.00 33 33 Yes
Van ₱90,000.00 25 25 Yes
Truck ₱100,000.00 12 12 Yes
Motorcycle ₱20,000.00 40 40 Yes
Oct-20 Bus ₱125,000.00 10 10 Yes
Car ₱75,000.00 35 35 Yes
Van ₱90,000.00 20 20 Yes
Truck ₱100,000.00 13 13 Yes
Motorcycle ₱20,000.00 43 43 Yes
Oct-31 Bus ₱125,000.00 10 10 Yes
Car ₱75,000.00 35 35 Yes
Van ₱90,000.00 24 24 Yes
Truck ₱100,000.00 14 14 Yes
Motorcycle ₱20,000.00 37 37 Yes
Nov-10 Bus ₱125,000.00 12 12 Yes
Car ₱75,000.00 30 30 Yes
Van ₱90,000.00 25 25 Yes
Truck ₱100,000.00 15 15 Yes
Motorcycle ₱20,000.00 46 46 Yes
Nov-20 Bus ₱125,000.00 12 12 Yes
Car ₱75,000.00 31 31 Yes
Van ₱90,000.00 29 29 Yes
Truck ₱100,000.00 14 14 Yes
Motorcycle ₱20,000.00 46 46 Yes
Nov-30 Bus ₱125,000.00 13 13 Yes
Car ₱75,000.00 32 32 Yes
Van ₱90,000.00 28 28 Yes
Truck ₱100,000.00 13 13 Yes
Motorcycle ₱20,000.00 50 50 Yes
Dec-10 Bus ₱125,000.00 10 10 Yes
Car ₱75,000.00 38 38 Yes
Van ₱90,000.00 29 29 Yes
Truck ₱100,000.00 12 12 Yes
Motorcycle ₱20,000.00 45 45 Yes
Dec-20 Bus ₱125,000.00 13 13 Yes
Car ₱75,000.00 37 37 Yes
Van ₱90,000.00 30 30 Yes
Truck ₱100,000.00 15 15 Yes
Motorcycle ₱20,000.00 48 48 Yes
Dec-31 Bus ₱125,000.00 12 12 Yes
Car ₱75,000.00 36 36 Yes
Van ₱90,000.00 25 25 Yes

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 55
NOTE: *The client's stock cards represent its general ledger of the inventory based on the
proper documents provided by the client's management to the audit team.
*Inventory and Cost of Sales accounts reconcile with the client's amount recorded on the
financial statements.
*Sample is based on the 2nd and 4th quarter of the year on every 10th, 20th and last day
of the month. (Random Sytematic Sampling)

EVIDENCE 2: CUT-OFF SCHEDULE (SAMPLING EXAMINATION)


CLIENT:MARAMING PERA CORPORATION
PERIOD END:December 31, 2016

Purchase (Inventory) Cut-off


Purchase
recorded in
Invoice Number Purchase Order Quantity Description Date Received TM*
the proper
period?
Goods in before and at December 31
125622-M 1226130 20 Motorcycle 12/31/2016 X Yes
113342-C 1226128 10 Car 12/31/2016 X Yes
102331-T 1226124 5 Truck 12/28/2016 X Yes
100549-V 1226123 5 Van 12/26/2016 X Yes
112896-B 1226120 3 Bus 12/25/2016 X Yes
Goods in after December 31
125623-M 1226135 10 Motorcycle 3/1/2017 X Yes
113353-C 1226133 5 Car 4/1/2017 X Yes
100560-V 1226129 3 Van 4/1/2017 X Yes
102337-T 1226130 3 Truck 5/1/2017 X Yes
*Traced to goods receipts and commercial invoice.
Based on the FIVE (5) days transactions BEFORE and AFTER December 31,2016

EVIDENCE 3: TRACING (SAMPLE EXAMINATION)

TRACING
Is the transaction
SOURCE DOCUMENTS AMOUNT ACCOUNTING DATA
recorded?
Invoice 126200 ₱2,000,000.00 Journal Entry 267 Yes
Invoice 126201 ₱500,000.00 Journal Entry 285 Yes
Invoice 126202 ₱700,000.00 Journal Entry 301 Yes
Invoice 126203 ₱1,500,000.00 Journal Entry 305 Yes
Invoice 126204 ₱1,000,000.00 Journal Entry 309 Yes
Based on the invoice 126200 to 126204 which the auditor doubted based on the presentation of
invoices.

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 56
ANALYTICAL PROCEDURE
Beginning Inventory ₱150,840,700.00
Purchases ₱550,000,000.00
Cost of Sales ₱535,130,700.00
Ending Inventory ₱165,710,000.00*

NOTE: Purchases are supported by proper documents provided by the client's management to
the audit team.
*Ending inventory reconciles with the client's recorded amount presented in the balance
sheet.
PAS 2 Inventories generally prescribes lower of cost or net realizable value (LCNRV) which
client uses as the method of valuation of inventory and has been reasonably applied in practice
based on the results of the sample tested. In performing the LCNRV test, fair market value is
greater than the cost of inventory.

CONCLUSION:
INVENTORY and COST OF SALES accounts are REASONABLY PRESENTED.

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 57
AUDIT OF FIXED ASSETS

AUDIT OBJECTIVES

1. To determine whether property, plant, and equipment exists.


2. To verify whether the proper amounts of depreciation expense is allocated.
3. To determine whether the use of acceptable methods are consistently applied.
AUDIT PROCEDURES
1. Conducted physical inspections if there is actual PPE recorded in the books.
2. Obtained and recalculated the accumulated depreciation. Depreciation method used by
the client was then tested to ascertain its appropriateness and consistency. Depreciation
was then recalculated by preparing schedules of each property, plant, and equipment
account with consideration of current and previous years. The computed depreciation
amounts were then reconciled to the general ledger and differences were noted.
Proposed adjustments were recommended as to correct the depreciation recorded for
both the previous and current years.
3. Inspection of records and documents (tracing).
4. Receipts that verifies ownership by the corporation was requested and reviewed to
determine the acquisition cost and date in order to ensure that the PPE is truly owned by
the company.
5. Disclosures, transactions and events was checked to determine if they were clearly
described, and are relevant and understandable in the context of the requirements of the
applicable financial reporting framework.

ANALYTICAL PROCEDURES

AUDIT OBJECTIVE AUDIT PROCEDURE COMMENTS

Compare prior year balances


Misstatement in PPE and No exceptions noted.
in PPE with current year
Depreciation
Compute the ratio of
Misstatement in Depreciation depreciation charge to the
No significant differences
expense and accumulated related PPE account and
noted.
depreciation compare with prior years.

Compare repairs and No exceptions noted. No


Expensing amounts that
maintenance expense with significant difference from
should be capitalized
previous years. previous period.

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 58
ITEMS POPULATION SAMPLE AUDIT MISSTATEMENTS
SIZE SIZE PROCEDURES FOUND
VEHICLE 300 100 100 None

MACHINERY 500 50 50 None

LAND 100 50 50 None

FURNITURE AND 1000 200 200 None


FIXTURE

BUILDING 100 50 50 None

EQUIPMENT 2000 500 500 None


TOTAL 4000 950 950 None

AUDIT PROCEDURE: Our audit team conducted physical inspections whether actual property,
plant, and equipment are existing.

ITEMS POPULATION SAMPLE AUDIT MISSTATEMENTSFOUND


SIZE SIZE PROCEDURES
VEHICLE 300 100 100 None

MACHINERY 500 50 50 None

LAND 100 50 50 None

FURNITURE AND 1000 200 200 None


FIXTURE

BUILDING 100 50 50 None

EQUIPMENT 2000 500 500 None


TOTAL 4000 950 950 None

AUDIT PROCEDURE:Our audit team examined the title of deeds and receipts.

*All property, plant, and equipment are existing.


*All property, plant, and equipment has legal rights and are owned by the entity.

Conclusion:PROPERTY, PLANT, AND EQUIPMENT is FREE FROM MATERIAL MISSTATEMENTS and


REASONABLY PRESENTED.

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 59
Evidence: LAPSING SCHEDULE

BUILDING

Description Date Acquired Cost Salvage Value Useful Life MethodAnnual Depreciation Accumulated CV Beginning CV Ending
Farnsworth Palo 4/2/2017 ₱ 10,072,500.00 ₱ 250,000.00 15 SL ₱ 600,264.00 ₱ 600,264.00 ₱ 10,072,500.00 ₱ 9,472,236.00
Brooklyn Burauen 07/18/2015 ₱ 11,250,000.00 ₱ 375,000.00 10 SL ₱ 1,087,500.00 ₱ 2,628,125.00 ₱ 9,709,375.00 ₱ 8,621,875.00
Scranton Tacloban 10/21/2015 ₱ 8,150,160.00 ₱ 195,000.00 12 SL ₱ 1,325,860.00 ₱ 1,325,860.00 ₱ 8,328,000.00 ₱ 7,784,667.00
Innwood Basey 08/13/2016 ₱ 9,558,000.00 ₱ 228,500.00 15 SL ₱ 621,967.00 ₱ 259,153.00 ₱ 8,936,033.00 ₱ 8,314,066.00
East Harlem Abuyog 04/25/2017 ₱ 8,328,000.00 ₱ 178,000.00 10 SL ₱ 543,333.00 ₱ 543,333.00 ₱ 6,824,300.00 ₱ 6,161,370.00
TOTAL DEPRECIATION ₱ 5,356,735.00 ₱ 43,870,208.00 ₱ 40,354,214.00
*All building is depreciated by the straight line method of depreciation.
*The computed depreciation amounts are arrived by the number of months the building item is depreciated from its date acquired.
Items acquired from the start to the middle of the month are depreciated as being acquired at the start, while items acquired
from the middle to the end of the month are depreciated as being acquired at the end of the month or at the beginning of the next month.
*The total misstatement is material compared to the tolerable misstatement. Therefore, it needs for adjustment for building.

VEHICLE

Delivery Truck Date Acquired Cost Salvage Value Useful Life MethodAnnual DepreciationAccumulated CV Beginning CV Ending
5 Lamborghini 03/15/2015 ₱ 6,607,747.90 ₱ 1,200,000.00 10 SL ₱ 540,774.79 ₱ 1,532,196.00 ₱ 5,616,327.00 ₱ 5,075,552.00
2 Bugatti 8/8/2016 ₱ 3,032,988.00 ₱ 800,000.00 15 SL ₱ 148,866.00 ₱ 210,894.00 ₱ 2,970,960.00 ₱ 2,822,094.00
1 La Ferrari 1/7/2016 ₱ 745,981.00 ₱ 240,500.00 5 SL ₱ 101,096.00 ₱ 151,644.00 ₱ 695,433.00 ₱ 594,337.00
3 Jeep Wrangler 04/23/2017 ₱ 2,430,988.00 ₱ 945,250.00 10 SL ₱ 99,049.00 ₱ 99,049.00 ₱ 2,430,988.00 ₱ 2,331,939.00
6 Bentley Mulsanne 10/9/2015 ₱ 1,405,446.00 ₱ 248,000.00 15 SL ₱ 77,163.00 ₱ 180,047.00 ₱ 1,302,562.00 ₱ 1,225,399.00
TOTAL DEPRECIATION ₱ 966,948.79 ₱ 2,173,830.00 ₱ 13,016,270.00
*All vehicles are depreciated by the straight line method of depreciation.
*The computed depreciation amounts are arrived by the number of months the vehicle item is depreciated from its date acquired.
Items acquired from the start to the middle of the month are depreciated as being acquired at the start, while items acquired
from the middle to the end of the month are depreciated as being acquired at the end of the month or at the beginning of the next month.
*The total misstatement is material compared to the tolerable misstatement. Therefore, it needs for adjustment for vehicles.
MACHINERY

Items Date Acquired Cost Salvage Value Useful Life Method Annual Depreciation Accumulated CV Beginning CV Ending
5 Engine Machining Station 06/16/2016 ₱ 1,077,270.00 ₱ 250,000.00 10 SL ₱ 41,364.00 ₱ 41,364.00 ₱ 1,077,270.00 ₱ 1,035,906.00
10 Overhead Conveyor 12/25/2016 ₱ 3,562,500.00 ₱ 562,500.00 12 SL ₱ - - ₱ 3,562,500.00 ₱ 3,562,500.00
6 Jig Welder 05/18/2016 ₱ 3,507,750.00 ₱ 507,600.00 8 SL ₱ 218,761.00 ₱ 218,761.00 ₱ 3,507,750.00 ₱ 3,288,989.00
8 CNC Machine 2/3/2015 ₱ 3,914,000.00 ₱ 642,000.00 10 SL ₱ 272,667.00 ₱ 599,867.00 ₱ 3,641,333.00 ₱ 3,314,133.00
10 Welding Robot 8/11/2016 ₱ 10,000,000.00 ₱ 3,500,000.00 15 SL ₱ 72,222.00 ₱ 72,222.00 ₱ 10,000,000.00 ₱ 9,927,778.00
8 Painting Robot 6/2/2016 ₱ 10,080,000.00 ₱ 3,402,000.00 15 SL ₱ 445,200.00 ₱ 445,200.00 ₱ 10,080,000.00 ₱ 9,634,800.00
TOTAL DEPRECIATION ₱ 1,050,214.00 ₱ 1,377,414.00 ₱ 31,868,853.00 ₱ 30,764,106.00
*All machinery is depreciated by the straight line method of depreciation.
*The computed depreciation amounts are arrived by the number of months the machinery item is depreciated from its date acquired.
Items acquired from the start to the middle of the month are depreciated as being acquired at the start, while items acquired
from the middle to the end of the month are depreciated as being acquired at the end of the month or at the beginning of the next month.
*The total misstatement is immaterial compared to the tolerable misstatement. Therefore, there is no need for adjustment for machinery.

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 60
LAND
Description Date Acquired Sq. M. Salvage Value Cost CV Beginning CV Ending
Farnsworth Palo, Leyte 4/2/2017 2000 ₱ 2,250.00 ₱ 4,500,000.00 ₱ 4,500,000.00 ₱ 4,500,000.00
Brooklyn Burauen, Leyte 07/18/2015 1000 ₱ 2,000.00 ₱ 2,000,000.00 ₱ 2,000,000.00 ₱ 2,000,000.00
Scranton Tacloban, Leyte 10/21/2015 750 ₱ 2,600.00 ₱ 1,950,000.00 ₱ 1,950,000.00 ₱ 1,950,000.00
Innwood Basey, Samar 08/13/2016 700 ₱ 2,500.00 ₱ 1,750,000.00 ₱ 1,750,000.00 ₱ 1,750,000.00
East Harlem Abuyog, Leyte 04/25/2017 800 ₱ 2,500.00 ₱ 2,000,000.00 ₱ 2,000,000.00 ₱ 2,000,000.00
TOTAL ACQUISITION ₱ 12,200,000.00 ₱ 12,200,000.00 ₱ 12,200,000.00

*There were no material misstatements found through the audit process.


FURNITURES AND FIXTURES

Item Date Acquired Cost Salvage Value Useful Life Method Annual Depreciation Accumulated CV Beginning CV Ending
15 Ford Folding Computer Desks 2/3/2017 ₱ 750,000.00 ₱130,000.00 6 SL ₱ 94,722.22 ₱ 94,722.22 ₱ 750,000.00 ₱ 655,278.00
15 Ironwood Office Tables 4/4/2017 ₱ 120,000.00 ₱ 37,500.00 10 SL ₱ 8,250.00 ₱ 8,250.00 ₱ 120,000.00 ₱ 111,750.00
15 Swivel Chairs 3/2/2016 ₱ 30,000.00 ₱ 450.00 6 SL ₱ 4,925.00 ₱ 9,440.00 ₱ 25,485.00 ₱ 20,560.00
6 Narra Office Shelves 10/2/2016 ₱ 31,500.00 ₱ 3,900.00 10 SL ₱ 2,760.00 ₱ 5,290.00 ₱ 28,970.00 ₱ 26,210.00
4 SECRUI Security Alarm System 2/12/2017 ₱ 35,600.00 ₱ 12,480.00 6 SL ₱ 3,853.00 ₱ 3,853.00 ₱ 35,600.00 ₱ 31,747.00
8 HIKVISION CCTV System 9/3/2016 ₱ 100,000.00 ₱ 7,920.00 7 SL ₱ 13,154.00 ₱ 24,116.00 ₱ 89,038.00 ₱ 75,884.00
TOTAL ₱ 127,664.22 ₱ 145,671.22 ₱ 1,049,093.00 ₱ 921,429.00

*All Furniture and Fixtures are depreciated by the straight-line method depreciation.
* The computed depreciation amounts are arrived by the number of months the equipment item is depreciated from its date acquired.
Items acquired from the start to the middle of the month are depreciated as being acquired at the start of the month, while items acquired
from the middle to the end of the month are depreciated as being acquired at the end of the month or at the beginning of the next month.

EQUIPMENT

ITEM Date acquired Cost Salvage Value Useful Life Method Annual Depreciation Accumulated CV Beginning CV Ending
(3) BROTHER Fax Machine 11/1/2016 ₱ 18,000.00 ₱ 6,330.00 10 SLD ₱ 1,167.00 ₱ 2,334.00 ₱ 16,833.00 ₱ 14,499.00
(5) HP Copier Machine 6/5/2017 ₱ 75,000.00 ₱ 20,750.00 10 SLD ₱ 5,425.00 ₱ 5,425.00 ₱ 75,000.00 ₱ 69,575.00
(10) EPSON Workforce Printer 2/9/2016 ₱ 660,000.00 ₱ 111,500.00 9 SLD ₱ 60,944.44 ₱ 121,888.88 ₱ 599,055.56 ₱ 538,111.12
(1) IRITECH Eye Scanner 3/4/2017 ₱ 89,950.00 ₱ 12,230.00 7 SLD ₱ 11,102.86 ₱ 11,102.86 ₱ 89,950.00 ₱ 78,847.14
(1) EPSON Projector 5/2/2017 ₱ 132,100.00 ₱ 27,000.00 10 SLD ₱ 10,510.00 ₱ 10,510.00 ₱ 132,100.00 ₱ 121,590.00
(10) APPLE Laptops 12/8/2016 ₱ 650,000.00 ₱ 25,000.00 8 SLD ₱ 78,125.00 ₱ 156,250.00 ₱ 571,875.00 ₱ 493,750.00
TOTAL ₱ 167,274.30 ₱ 307,510.74 ₱ 1,484,813.56 ₱ 1,316,372.26

* All Equipment is depreciated by the straight-line method of depreciation.


* The computed depreciation amounts are arrived by the number of months the equipment item is depreciated from its date acquired.
Items acquired from the start to the middle of the month are depreciated as being acquired at the start of the month, while items acquired
from the middle to the end of the month are depreciated as being acquired at the end of the month or at the beginning of the next month.
*The total misstatement is immaterial compared to the tolerable misstatement. Therefore, there is no need for adjustment for equipment.

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 61
Evidence: SOURCE DOCUMENTS

LAMBORGHINI CORPORATION C BUGATTI CORPORATION C


Timesquare, Makati City 327-7888 Holland, Tarlac City 327-5647
VAT Registered Tin: 201-277-095-325 VAT Registered Tin: 201-277-095-325
MIN: 18072510154088834 MIN: 18072510154088834
OFFICIAL RECEIPT OFFICIAL RECEIPT
Date: March 15, 2015, 10:00AM OR # 0001826 Date: August 8, 2016, 8:42AM OR # 0001926

Buyer Information: Buyer Information:


Maraming Pera Corporation Maraming Pera Corporation
Palo, Leyte 523-0081 Palo, Leyte 523-0081

Car Information: Car Information:


Truck Model: Lamborghini Truck Truck Model: Bugatti Truck
TOTAL: Php 6,607,747.90 TOTAL: Php 3,032,988.00
Cash 6,608,000.00 Cash 3,033,000.00
Change 252.10 Change 12.00

Item Purchased: (5) Item Purchased: (2)


VAT SALE: 5,899,774.91 VAT SALE: 2,708,025.00
12% VAT: 707,972.99 12% VAT: 324,963.00
Total Amount Payable: Php 6,607,747.90 Total Amount Payable: Php 3,032,988.00

Exist Software Lab Inc. 0502 Orient Square Bldg F Ortigas Pasig City 1605 Exist Software Lab Inc. 0502 Orient Square Bldg F Ortigas Pasig City 1605
VAT REG TIN: 43A2I32729912016080541 VAT REG TIN: 43A2I32729912016080541
Date Issued: 08/04/2014 Until 08/04/2019 Date Issued: 08/04/2014 Until 08/04/2019
THIS INVOICE SHALL BE VALID FOR FIVE (5) YEARS FROM THE DATE OF THE THIS INVOICE SHALL BE VALID FOR FIVE (5) YEARS FROM THE DATE OF THE
PERMIT TO USE PERMIT TO USE

INDUSTRUS CORPORATION C UTILIKO CORPORATION C


South Seaport Corner, Makati City 523-7888 Cambridge St., Sampalok City 327-7211
VAT Registered Tin: 201-277-095-325 VAT Registered Tin: 201-277-095-325
MIN: 18072510154088834 MIN: 18072510154088834
OFFICIAL RECEIPT OFFICIAL RECEIPT
Date: June 16, 2016, 10:00AM OR # 0001820 Date: December 25, 2016, 9:00AM OR # 0001825

Buyer Information: Buyer Information:


Maraming Pera Corporation Maraming Pera Corporation
Palo, Leyte 523-0081 Palo, Leyte 523-0081

Machine Information: Machine Information:


Model: Engine Machining Station Model: Overhead Conveyor
TOTAL: Php 1,077,270.00 TOTAL: Php 3,562,500.00
Cash 1,078,000.00 Cash 3,563,00.00
Change 730.00 Change 500.00

Item Purchased: (5) Item Purchased: (10)


VAT SALE: 961,848.21 VAT SALE: 3,180,803.57
12% VAT: 115,421.79 12% VAT: 381,696.43
Total Amount Payable: Php 1,077,270.00 Total Amount Payable: Php 3,562,500

Exist Software Lab Inc. 0502 Orient Square Bldg F Ortigas Pasig City 1605 Exist Software Lab Inc. 0502 Orient Square Bldg F Ortigas Pasig City 1605
VAT REG TIN: 43A2I32729912016080541 VAT REG TIN: 43A2I32729912016080541
Date Issued: 08/04/2014 Until 08/04/2019 Date Issued: 08/04/2014 Until 08/04/2019
THIS INVOICE SHALL BE VALID FOR FIVE (5) YEARS FROM THE DATE OF THE THIS INVOICE SHALL BE VALID FOR FIVE (5) YEARS FROM THE DATE OF THE
PERMIT TO USE PERMIT TO USE

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 62
AUDIT OF TRADE PAYABLES
AUDIT OBJECTIVES:
1. To determine whether liabilities (e.g. payables) exist.
2. To determine whether existing accounts payable are included in the accounts payable
list.
3. To determine whether the payables represent valid and legal claims of third parties from
the client.
4. To determine whether payables are recorded at their proper amounts.
5. To determine whether payables are presented and disclosed according to PAS or PFRS.

AUDIT PROCEDURES:
1. Vouched selected amounts from trade accounts payable listing and accruals listing to
supporting documentation.
2. Obtained selected suppliers statements and reconcile this to the relevant suppliers'
accounts.
3. Performed out-of period liability tests also called search for unrecorded accounts
payable.
4. Inspection the supporting documents such as purchase orders, check, check vouchers.
5. The correctness of liabilities depends upon the correctness of purchases. Hence, the
auditor should compare the percentage of gross profits to purchase with that of the
previous years to verify the correctness of purchases.
6. Evaluating proper financial statement presentation and adequacy.

AUDIT PROCEDURE: Our Audit team inspected the supporting check, cash voucher, and purchase
order. We searched for the unrecorded payables through examinations of paid or unrecovered
invoices, and unmatched purchase order and trace to related journal to determine if it was
properly recorded.

SAMPLE SIZE MISSTATEMENTS


POPULATION SAMPLE AUDIT MISSTATEMENTS
ITEMS (in terms of FOUND
SIZE SIZE PROCEDURES FOUND
value) (in terms of value)
Less than
300 100 5,000,000 100 None None
250,000
250,001
to 250 80 20,400,000 75 5 1,275,000
500,000
500,001
to 200 60 33,000,000 60 None None
1,000,000
1,000,001
100 50 50,500,000 48 2 2,020,000
and above
Total 850 290 108,900,000 283 7 3,295,000

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 63
Factors Rate Amount Projected Misstatement:
Tolerable Misstatement 5% 10,160,865.25 Formula:
Expected Misstatement 3% 𝑃𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛 𝑆𝑖𝑧𝑒
× 𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝑀𝑖𝑠𝑠𝑡𝑎𝑡𝑒𝑚𝑒𝑛𝑡
Allowance of Sampling 𝑆𝑎𝑚𝑝𝑙𝑒 𝑆𝑖𝑧𝑒
1% - Therefore:
Risk
*Actual Misstatement 850
3% 9,657,758.62 × 3,295,000 = 𝟗, 𝟔𝟓𝟕, 𝟕𝟓𝟖. 𝟔𝟐
Rate 290
*Projected Misstatement is less than tolerable misstatement.
P9, 657,758.62<P10, 160,856.25

AUDIT PROCEDURE: Our audit team confirmed liabilities to creditor.

SAMPLE MISSTATEMENTS
POPULATION SAMPLE SIZE AUDIT MISSTATEMENTS FOUND
ITEMS
SIZE SIZE (in terms of PROCEDURES FOUND (in terms of
value) value)
Less than
300 50 2,500,000 45 5 250,000
250,000
250,001 to
250 60 15,600,000 60 None None
500,000
500,001 to
200 70 39,200,000 70 None None
1,000,000
1,000,001
100 80 88,000,000 80 None None
and above
Total 850 260 145,300,000 255 5 250,000

Factors Rate Amount Projected Misstatement:


Tolerable Misstatement 5% 10,160,865.25 Formula:
Expected Misstatement 3% 𝑃𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛 𝑆𝑖𝑧𝑒
× 𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝑀𝑖𝑠𝑠𝑡𝑎𝑡𝑒𝑚𝑒𝑛𝑡
Allowance of Sampling 𝑆𝑎𝑚𝑝𝑙𝑒 𝑆𝑖𝑧𝑒
1% - Therefore:
Risk
*Actual Misstatement 850
0.17% P817,307.69 × 250,000 = 𝟖𝟏𝟕, 𝟑𝟎𝟕. 𝟔𝟗
Rate 260

*Projected Misstatement is less than tolerable misstatement.


P817,307.69<P10, 160,856.25

Conclusion:

TRADE PAYABLES account is REASONABLY PRESENTED.

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 64
AUDIT OF NON-TRADE PAYABLES
AUDIT OBJECTIVES

1. To determine the existence of the correct other accounts payables.


2. To identify if there are unrecorded liabilities.
3. To inspect the supporting documents such as purchase orders,check,cash vouchers.
AUDIT PROCEDURES

1. Attained a copy from client a list of other accounts payable.


2. Inspected the supporting documents such as purchase orders,check,checkvouchers.
3. Searched the unrecorded payables through examinations of unpaid or unrecorded
invoices,unmatched purchase orders.
4. Traced to related journal to determine if it was properly recorded.
5. Recorded any material misstatements.

AUDIT PROCEDURE: Our Audit team inspected the supporting check, cash voucher, and purchase
order. We searched for the unrecorded payables through examinations of paid or unrecovered
invoices, and unmatched purchase order and trace to related journal to determine if it was
properly recorded.

SAMPLE MISSTATEMENTS
POPULATION SAMPLE SIZE AUDIT MISSTATEMENTS FOUND
ITEMS
SIZE SIZE (in terms of PROCEDURES FOUND (in terms of
value) value)
Less than 300 100 5,000,000 100 None None
250,000
250,001 250 80 20,400,000 75 5 1,275,000
to
500,000
500,001 200 60 33,000,000 60 None None
to
1,000,000
1,000,001 100 50 50,500,000 48 2 2,020,000
and
above
Total 850 290 108,900,000 283 7 3,295,000

Factors Rate Amount Projected Misstatement:


Tolerable Misstatement 5% 10,160,865.25 Formula:
Expected Misstatement 3% 𝑃𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛 𝑆𝑖𝑧𝑒
× 𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝑀𝑖𝑠𝑠𝑡𝑎𝑡𝑒𝑚𝑒𝑛𝑡
Allowance of Sampling 𝑆𝑎𝑚𝑝𝑙𝑒 𝑆𝑖𝑧𝑒
1% - Therefore:
Risk
*Actual Misstatement 850
3% 9,657,758.62 × 3,295,000 = 𝟗, 𝟔𝟓𝟕, 𝟕𝟓𝟖. 𝟔𝟐
Rate 290
*Projected Misstatement is less than tolerable misstatement.
P9, 657,758.62<P10, 160,856.25

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 65
AUDIT PROCEDURE: Our audit team confirmed liabilities to creditor.

SAMPLE MISSTATEMENTS
POPULATION SAMPLE SIZE AUDIT MISSTATEMENTS FOUND
ITEMS
SIZE SIZE (in terms of PROCEDURES FOUND (in terms of
value) value)
Less than
300 50 2,500,000 45 5 250,000
250,000
250,001
to 250 60 15,600,000 60 None None
500,000
500,001
to 200 70 39,200,000 70 None None
1,000,000
1,000,001
and 100 80 88,000,000 80 None None
above
Total 850 260 145,300,000 255 5 250,000

Factors Rate Amount Projected Misstatement:


Tolerable Misstatement 5% 10,160,865.25 Formula:
Expected Misstatement 3% 𝑃𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛 𝑆𝑖𝑧𝑒
× 𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝑀𝑖𝑠𝑠𝑡𝑎𝑡𝑒𝑚𝑒𝑛𝑡
Allowance of Sampling 𝑆𝑎𝑚𝑝𝑙𝑒 𝑆𝑖𝑧𝑒
1% - Therefore:
Risk
*Actual Misstatement 850
0.17% 817,307.69 × 250,000 = 𝟖𝟏𝟕, 𝟑𝟎𝟕. 𝟔𝟗
Rate 260
*Projected Misstatement is less than tolerable misstatement.
P817,307.69 <P10, 160,856.25

Conclusion:

NON-TRADE PAYABLES account is REASONABLY PRESENTED.

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 66
AUDIT OF SALES
Variable Sampling of SALES

Type of Sampling: Statistical Sampling

Sample Selection Method: Random Sampling

Based on: Sales Cut-off Schedule

Audit Objectives:

1. To determine whether sales have really occurred and pertain to the entity.
2. To review whether all sales are included in the statement of comprehensive income.
3. To examine whether sales have been recorded in the proper accounting period.
4. To evaluate whether sales are accurately recorded in the income statement.
5. To determine whether sales are properly classified.
Audit Procedures:

1. Conduct confirmation of receivable


2. Performing sales cut off
3. Recalculation of recorded amounts

Amount of
Total Number of Sample Size
Sales Sample Misstatement
Accounts (In terms of
Balances Size found
(Population Size) Value
(Sample Size )
Less Than 1,000,000 700 100 15,200,000 1,050,000
1,000,001 to 5,000,000 70 50 9,500,000 None
5,000,001 to 10,000,000 150 20 10,250,000 120,000
10,000,001 to 15,000,000 70 10 21,700,000 None
15,000,001 and Above 50 30 5, 500, 000 450,000
Total 1,040 210 62,150,000 1,864,500

Factors Rate Amount Projected Misstatement:


Tolerable Misstatement 5% 10,160,865.25 Formula:
Expected Misstatement 3% 𝑃𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛 𝑆𝑖𝑧𝑒
× 𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝑀𝑖𝑠𝑠𝑡𝑎𝑡𝑒𝑚𝑒𝑛𝑡
Allowance of Sampling 𝑆𝑎𝑚𝑝𝑙𝑒 𝑆𝑖𝑧𝑒
1% -
Risk Therefore:
*Actual Misstatement 1,040
3% 9,233,714.29 × 1,864,500 = 𝟗, 𝟐𝟑𝟑, 𝟕𝟏𝟒. 𝟐𝟗
Rate 210
Actual Misstatement Rate:

Amount of Misstatement / Sample Size (In terms of Amount) = 3%

Projected Misstatement is less than Tolerable Misstatement

9,233,714.29 < 10,160,856.25

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 67
Evidence: Sales Cut-off Schedule

SALES CUT-OFF

Client: MaramingPera Corp. Reference: SALES.0123


Period end: December 31, 2017

Customer Invoice Number Date in AR Ledger Delivery Date Sale recorded in


the proper
period?
Transactions recorded before December 31
Dolce MP2015 12/29/2017 12/28/2017 YES
Incorporated
Green Enterprises MP2016 12/29/2017 01/05/2018 NO
Positive Corp. MP2017 12/29/2017 12/28/2017 YES
PKT Company MP2018 12/29/2017 12/28/2017 YES
Bibo Company MP2019 12/30/2017 12/29/2017 YES

Transactions recorded after December 31


Plastic Company MP2020 01/05/2018 01/03/2018 YES
Wawi Company MP2021 01/07/2018 12/29/2017 NO

CONCLUSION:

Sales account is reasonably presented.

Sales were properly classified and disclosed in the financial statements.

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 68
COMPLETING THE AUDIT

The objective of the standard is to prescribe:

a. When an entity should adjust its financial statements for events after the reporting
period; and
b. The disclosures that an entity should give about the date when the financial statements
were authorized for issue and about events after the reporting period.
The standard also requires that an entity should not prepare its financial statements on a going
concern basis if events after the reporting period indicate that the going concern assumption is
not appropriate.

PAS 10, paragraph 3 provides that the events after the reporting period are those events,
favorable and unfavorable, that occur between the end of the reporting period and the date
when the financial statements are authorized for issue.

Events after the reporting period are also known as subsequent events and such events may
require either adjustment or disclosure.

Subsequent events are those events or transactions that occur subsequent to the balance sheet
date that may affect the financial statements and the auditor’s report.

Two types of events can be identified:

a. Adjusting Events after the reporting period are those that provide evidence of conditions
that exist at the end of reporting period; and

b. Non-adjusting Events after reporting period are those that are indicative of conditions
that arise after the end of reporting period.

EVENTS THAT REQUIRE DISCLOSURES

Related Party Disclosures

PAS 24, paragraph 12, requires disclosure of related party relationships where control exists
irrespective of whether there have been transactions between the related parties.

In other words, relationships between parents and subsidiaries shall be disclosed regardless of
whether there have been transactions between those related parties.

As a minimum, an entity shall disclose the name of the entity’s parent and if different, the
ultimate controlling party.

MaramingPera Corporation is a parent of 10 subsidiaries. The operation of the corporationas


well as its subsidiaries is diversified.

The following are the subsidiaries of the parent with corresponding controlling interest:

1. BALAY-BALAY Corporation – a company engaged in the business of trading real estate


properties with an ownership interest of 75%

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 69
2. MATITIG-AHAN Corporation – a company engaged in the selling of tools, parts of
machines, electric devices and other hardware materials with an ownership of 75%
3. MAHUMOK-HUMOK Corporation – an industry engaged in software programming with an
ownership interest of 75%
4. STUDIOUS Corporation – an industry engaged in trading of books with an ownership
interest of 75%
5. MASAKIT Corporation – a company engaged in selling of medicines, vaccines and other
medical products with an ownership interest of 75%
6. MARASA Corporation – an industry engaged in the trading of food products with an
ownership interest of 75%
7. BROOM-BROOM Corporation – an industry engaged in trading of automobiles with an
ownership interest of 75%
8. APLIAN Corporation – an industry engaged in trading of appliances with an ownership
interest of 75%
9. FURFIX Corporation – an industry engaged in trading of Furnitures and Fixtures with an
ownership interest of 75%
10. LEGEND Corporation – an industry engaged in trading of mobile devices with an
ownership interest of 75%

CASE 1

On February 3, 2017 one of the major customers of the client has filed a bankruptcy due to its
inability to recover after a wild fire destroyed their power plants in Ilocos Norte.

WILDFIRE ISSUE

BISAN ANO Corporation hosts a wind power farm in Ilocos Norte. The corporation supplies
mechanical power to the area that can be used for specific tasks (such as grinding grain or
pumping water) or a generator can convert this mechanical power into electricity to power
homes, businesses, schools and the like.

MaramingPera Corporation supplies maintenance trucks to BISAN ANO Corporation and expects
to collect 50,000,000 every year for payment.

On January 6, 2017, a wildfire incident happened in the area of the wind power farm that is
deemed to be caused by a short circuit coming from the wind turbine. Two mechanics and
twenty tourists were burned and died from the said fire. Since then, BISAN ANO Corporation
have gone through a lot of misfortunes including the farm to be completely damaged.

BISAN ANO Corporation now filed bankruptcy on February 3, 2017.

MaramingPera Corporation filed claims for the uncollected accounts receivable from BISAN ANO
Corporation.

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 70
Conclusion

The power plants in Ilocos Norte destroyed by wildfire on January 6, 2017 is a non-adjusting
event requiring disclosure only since it happened after the measurement date on December 31,
2016. Hence, no adjustments are necessary to reflect in its financial statements but to disclose
only the matters on notes to financial statements provided by the client.

PAS 10, paragraph 3.B, provides that those that are indicative of conditions that arose after the
reporting period are non-adjusting events after the reporting period.

PAS 10, paragraph 10 also states that an entity shall not adjust the amounts recognized in its
financial statements to reflect non-adjusting events after the reporting period.

PAS 10, paragraph 21 further provides that if non-adjusting events after the reporting period are
material, non-disclosure could influence the economic decisions that users make on the basis of
the financial statements.

Accordingly, the entity shall disclose the following for each material category of non-adjusting
event after the reporting period:

a. The nature of the event; and


b. An estimate of its financial effect, or a statement that such an estimate cannot be made.

EVENTS THAT REQUIRE ADJUSTMENTS

CASE 2

On March 8, 2017, a litigation against the client was decided by the RTC in favor of the opposing
party. The firm proposed an adjusting journal entry amounting to 30,000,000 to correct the
recorded amount of provision for litigation expense, but the management refused on the ground
that they will still be filing an appeal to the Court of Appeals (CA)

Patent Infringement Lawsuit

MaramingPera Corporation has several contingent liabilities on December 31, 2016. Among of
them, the entity is the defendant in a patent infringement lawsuit. The auditor obtained brief
description regarding on that matter because the court is expected to rule the case in late March
2017 and there is no indication that the claimant will settle out of court.

Patent Infringement Lawsuit:

In May 2016, MaramingPera Corporation became involved in litigation. On March 8, 2017, a


litigation against the client was decided by the Regional Trial Court in favor of the opposing party
and the court assessed a judgment for 30,000,000 against MaramingPeraCoporation.

Laban ng mgaAstig firm proposed an adjusting journal entry amounting to 30,000,000 to correct
the recorded amount of provision for litigation expense, but the management refused on the
ground that they will still be filling an appeal to the Court of Appeals.

MaramingPera Corporation is appealing the amount of the judgment. The entity’s legal counsel
believed that it is highly probable that the Court of Appeals will rule in favor of the claimant and

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 71
that the entity will be required to pay damages an estimated amount in the range between
20,000,000 and 30,000,000.

The possible outcomes are equally likely as any other in each point in that range.

Hence, the firm proposed a new adjusting journal entry amounting to 25,000,000 computed as
follows:

Upper Limit 30,000,000


Lower Limit 20,000,000
Midpoint 25,000,000

Proposed Adjustment:

Retained Earnings (Litigation Expense) 25,000,000


Provision for Litigation 25,000,000

Recognition of Provision

PAS 37, paragraph 14, provides that a provision shall be recognized as a liability in the financial
statements under the following conditions:

a. The entity has a present obligation, legal or constructive, as a result of past event.
b. It is probable that an outflow of resources embodying economic benefits would be
required to settle the obligation.
c. The amount of the obligation can be measured reliably.

Measurement of Provision

PAS 37 paragraph 36 states that the amount recognized as a provision shall be the best estimate
of the expenditure required to settle the present obligation at the end of the reporting period.

PAS 37 paragraph 37 further states that the best estimate of the expenditure required to settle
the present obligation is the amount that the entity would rationally pay to settle the obligation
at the end of the reporting period or transfer it to a third party at that time.

PAS 37 paragraph 39 also provides that uncertainties surrounding the amount to be recognized
as a provision are dealt with by various means according to the circumstances.

Where the provision being measured involves a large population of items, the obligation is
estimated by weighting all possible outcomes by their associated probabilities. The name for this
statistical method of estimation is “expected value”.

Where there is a continuous range of possible outcomes, and each point in that range is as likely
as any other, the mid-point of the range is used.

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 72
CASE 3

After a thorough examination of the client’s bank accounts, it has been noted that an amount of
150,000,000 has been floating from one bank to another from November 2016 to January 2017.

Fraudulent Action through Kiting

Conclusion

The overstatement of cash balance of 150,000,000 that has been floating from one bank to
another from November 2016 to January 2017 is an adjusting event since it occurred on and
before the measurement date on December 31, 2016. Hence, it requires an adjustment to
correct the recorded amount of cash in bank balance on the financial statements provided by
the client and to recognize items that were not previously recognized.

PAS 10, paragraph 3.A states that those that provide evidence of conditions that existed at the
end of the reporting period are adjusting events after the reporting period.

PAS 10, paragraph 8 further provides that the entity shall adjust the amounts recognized in its
financial statements to reflect adjusting events after the reporting period.

Proposed Adjustment:

Retained Earnings 150,000,000


Cash in bank 150,000,000

CASE 4

The client has a pending case in the CTA in relation with the assessment sent by the BIR last May
2016. The amount in the assessment is 80,000,000.

Tax Assessment Issue

Upon the issuance of Letter of Authority (LA) by the Commissioner of Internal Revenue (CIR), the
Bureau of Internal Revenue (BIR) authorized officers named in the Letter of Authority conducted
a tax audit to examine and scrutinize the books and records of the MaramingPera Corporation to
ascertain the correctness of the tax declared and paid by the entity.

After a thorough review and evaluation within 120 days, it was determined that there exists
sufficient basis to assess MaramingPera Corporation for tax deficiency. Based on their findings,
there was 80,000,000 tax deficiency due to delinquent accounts resulting from a jeopardy
assessment.

MaraminingPera Corporation received on May 1, 2016 a Preliminary Assessment Notice (PAN)


for the proposed assessment from the BIR, stating that the entity had 15 days from its receipt to
respond. After 15 days, the entity failed to respond in which case a Formal Letter of Demand
(FLD) and Final Assessment Notice (FAN) had been issued against the entity calling for payment
of the tax deficiency of 80,000,000.

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 73
Atty. Princess KT, the legal counsel of MaramingPera Corporation, protested administratively
against the aforesaid FLD and FAN on June 1, 2016 and filed a request for reinvestigation to the
CIR. All relevant supporting documents were submitted on July 1, 2016.

However, the protest was denied by the CIR and issued a letter of denial on December 1, 2016.

On December 15, 2016, the Princess KT, filed motion for reconsideration but the same request
was denied by the CIR.

After the receipt of the said decision, Atty. Princess KT elevated the appeal to the Court of Tax
Appeals Division on December 26, 2016.

Hence, MaramingPeraCoporation has a pending case as of December 31,2016 in the CTA Division
in relation with the assessment sent by the BIR last May 2016. The amount in the assessment is
80,000,000.

However, while the case is pending, on January 20, 2017, the BIR offer a compromise agreement
with MaramingPera Corporation to bring an end to a tax dispute on trial and avoid escalating the
case since a reasonable doubt as to the validity of the claim against the entity exists.

MaramingPera Corporation accepted the offer in settlement of the original claim to avoid long
and expensive court litigation.

The BIR has accepted a total judicial compromise amount of 32,000,000 which is equivalent to
40% of the basic assessed tax of 80,000,000 as a full satisfaction of the entity’s tax liability,
including any deficiency interest, surcharges and other penalties.

CTA approved the compromise agreement in its tax deficiency case on February 1, 2017.

“After careful scrutiny of the documents submitted by the parties in support of the judicial
compromise, the court finds the same in order and in compliance with established laws, rules
and regulations. Hence, the court approves the same,” the CTA said.

Conclusion:

The tax assessment issue is an adjusting event that requires adjustments to reflect in its financial
statements provided by the client.

Since the amount of tax assessment is virtually certain that an outflow from the entity’s
resources embodying economic benefits will be incurred within 12 months after the reporting
period, such assessment shall be accrued as a liability on December 31, 2016.

Proposed Adjustment:

Retained Earnings (Litigation Expense for Tax Assessment) 32,000,000


Accrued Liability for Tax Assessment 32,000,000

SECTION 204 of the Tax Code

Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes – The
Commissioner may compromise the payment of any internal revenue tax, when:

a. A reasonable doubt as to the validity of the claim against the taxpayer exists; or

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 74
b. The financial position of the taxpayer demonstrates a clear inability to pay the assessed
tax.
The compromise settlement of any tax liability shall be subject to the following minimum
amounts:

a. For cases of financial incapacity, a minimum compromise rate equivalent to 10% of the
basic assessed tax; and
b. For other cases, a minimum compromise rate equivalent to 40% of the basic assessed
tax.

Revenue Regulations No. 30-2002

SECTION 2: CASES WHICH MAY BE COMPROMISED – The following cases may, upon taxpayer’s
compliance with the basis set forth under section 3 of these regulations, be the subject matter of
compromise settlement:

a. Delinquent Accounts;
b. Cases under administrative protest after issuance of the Final Assessment Notice to the
taxpayer which are still pending.
c. Civil tax cases being disputed before the courts;
d. Collection cases filed in courts;
e. Criminal violations, other than those already filed in court or those involving criminal tax
fraud.

SECTION 3: BASIS FOR ACCEPTANCE OF COMPROMISE SETTLEMENT – The commissioner may


compromise the payment of any internal revenue tax on the following grounds:

1. Doubtful validity of the assessment – the offer to compromise a delinquent account or


disputed assessment under these Regulations on the ground of reasonable doubt as to
the validity of the assessment may be accepted when it is shown that the delinquent
account or disputed assessment is one resulting from a jeopardy assessment
Jeopardy Assessment

Shall refer to a tax assessment which was assessed without the benefit of complete or partial
audit by an authorized revenue officer who has reason to believe that the assessment and
collection of a deficiency tax will be jeopardized by delay because of the taxpayer’s failure to
comply with the audit and investigation requirements to present his books of accounts and/or
pertinent records, or to substantiate all or any of the deductions, exemptions, or credits claimed
in his return.

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 75
CASE 5

One of the Firm’s audit staff has submitted a working paper showing a material difference
between the balance per book and the balance per audit of the Creditable Withholding Tax
(CWT)

ErroneousRecording on Creditable Withholding Tax

MaramingPera Corporation, a withholding agent,withheld tax from income payments to


individuals arising from an employer-employee relationship.

The entity filed a creditable withholding tax on compensation income on a quarterly basis. The
following were the quarterly payments recorded in the books of the client:

Period Recorded Creditable Withholding Tax

1st Quarter 250,000


2nd Quarter 250,000
3rd Quarter 250,000
4th Quarter 250,000
Total 1,000,000

One of the Laban ng mgaAstig Firm’s audit staff has submitted a working paper showing a
material difference in the Creditable Withholding Tax presentation between the balance per
book in the amount of 1,000,000and the balance per audit in the amount of 1,500,000.

The audit team, therefore, conducted a further audit investigation to examine the
reasonableness of the recorded amount and to identify the primary cause of such difference.

After a thorough examination of the books of the client concerning the filing of creditable
withholding taxes, it was found out that the material difference was only due to human error of
the record keeper of the client in recording the amounts in their books.

However,the client filed and paid the correct amount of CWT to the BIR. Hence, no tax
consequences were imposed by the BIR.

Based on the audit findings, the correct amount that should be recorded were as follows:

Period Audited Creditable Withholding Tax


1st Quarter 375,000
2nd Quarter 375,000
3rd Quarter 375,000
4th Quarter 375,000
Total 1,500,000

Hence, we proposed an adjustment regarding on this matter because of material difference that
could affect the decision of the users of the financial statements and concerning the tax
consequences.

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 76
Proposed Adjustment:

Quarter Balance per Book Adjustment Balance per Audit


1st 250,000 125,000 375,000
2nd 250,000 125,000 375,000
3rd 250,000 125,000 375,000
4th 250,000 125,000 375,000
Total 1,000,000 500,000 1,500,000

Retained Earnings 500,000


Creditable Withholding Tax Payable 500,000

Corroborating Evidence: Recalculation

Graduated Tax Rate

OVER BUT NOT OVER THE TAX SHALL PLUS


BE
- 10,000 0 5%
10,000 30,000 500 10% in excess of 10,000
30,000 70,000 2,500 15% in excess of 30,000
70,000 140,000 8,500 20% in excess of 70,000
140,000 250,000 22,500 25% in excess of 140,000
250,000 500,000 50,000 30% in excess of 250,000
500,000 - 125,000 32% in excess of 500,000

Creditable Withholding Tax on Compensation Payments

Balance per Book

The client provided the auditor regarding its calculations on creditable withholding tax as
follows:

Annual Compensation Payments 4,796,875


Over 500,000
Excess 4,296,875
Tax Rat x 32%
Partial Tax 1,375,000
Plus 125,000
Annual CTW 1,500,000

Unaudited Quarterly Creditable Withholding Taxes

Annual CWT 1,500,000


÷4
Quarterly Remittance 375,000

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 77
Balance per Audit

The auditor then performed a recalculation procedure to test the correctness of the
computation based on BIR rulings on creditable withholding taxes calculations on compensation
payments:

Annual Compensation Payments 4,796,875


Over 500,000
Excess 4,296,875
Tax Rat x 32%
Partial Tax 1,375,000
Plus 125,000
Annual CTW 1,500,000

Audited Quarterly Creditable Withholding Taxes


Annual CWT 1,500,000
÷4
Quarterly Remittance 375,000

Fortunately, it was found out that the client calculated the CWT correctly and the reason for the
material difference was only due to errors in recording the correct amount in the books of the
client.

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 78
Evidence: PAYROLL DISTRIBUTION REPORT

Employee Basic Salary Pag-IBIG Philhealth SSS 13th


Gil Albert 225,030.36 1,200.00 2,700.00 6,000.00 18,752.53
Jul Boston 177,429.72 1,200.00 2,100.00 6,000.00 14,785.81
Frank Brenan 173,680.56 1,200.00 2,100.00 5,799.60 14,473.38
Ryan Bolton 248,238.48 1,200.00 3,600.00 6,000.00 20,686.54
Paul Beaver 188,171.76 1,200.00 2,400.00 6,000.00 15,680.98
Sevel Beaver 200,000.16 1,200.00 2,550.00 6,000.00 16,666.68
Raul Brent 196,785.48 1,200.00 2,400.00 6,000.00 16,398.79
Jeff Birth 246,083.88 1,200.00 4,500.00 6,000.00 20,506.99
John Conner 242,791.92 1,200.00 4,200.00 6,000.00 20,232.66
Michelle Colin 223,931.40 1,200.00 3,150.00 6,000.00 18,660.95
Nino Creg 83,825.04 1,200.00 900.00 2,799.60 6,985.42
Precious Digger 223,258.44 1,200.00 3,300.00 6,000.00 18,604.87
Jan Dustion 209,353.68 1,200.00 2,550.00 6,000.00 17,446.14
Alex Dell 190,971.60 1,200.00 2,850.00 6,000.00 15,914.30
Marge Des 148,615.20 1,200.00 2,850.00 6,000.00 12,384.60
Riz Early 121,052.64 1,200.00 1,500.00 3,999.60 10,087.72
Fran Fern 176,292.24 1,200.00 2,100.00 5,799.60 14,691.02
Carl Fernandez 189,168.48 1,200.00 3,900.00 6,000.00 15,764.04
Karry Hill 207,861.60 1,200.00 2,550.00 6,000.00 17,321.80
Elmer Gurtz 249,853.80 1,200.00 4,350.00 6,000.00 20,821.15
Jay Grill 199,906.80 1,200.00 2,400.00 6,000.00 16,658.90
Alam Lim 202,724.16 1,200.00 2,400.00 6,000.00 16,893.68
Eduard Lester 201,390.12 1,200.00 2,400.00 6,000.00 16,782.51
Balt Lu 216,887.64 1,200.00 2,700.00 6,000.00 18,073.97
Nino Littkle 134,720.16 1,200.00 1,650.00 4,400.40 11,226.68
Ellie Lost 166,773.48 1,200.00 1,950.00 5,600.40 13,897.79
Ron Marshall 939,050.04 1,200.00 4,500.00 6,000.00 78,254.17
Marvin Meer 911,538.36 1,200.00 4,500.00 6,000.00 75,961.53
Marcos Now 196,061.52 1,200.00 2,400.00 6,000.00 16,338.46
Trish Newman 78,766.20 1,200.00 900.00 2,600.40 6,563.85
Seth Osburn 169,591.68 1,200.00 2,100.00 5,600.40 14,132.64
Linda Potter 129,710.40 1,200.00 2,250.00 6,000.00 10,809.20
Trissy Prior 154,273.92 1,200.00 2,250.00 6,000.00 12,856.16
Allan Pung 189,554.76 1,200.00 2,250.00 6,000.00 15,796.23
Liz Queen 250,264.08 1,200.00 1,500.00 6,000.00 20,855.34
Anne Reyes 184,817.40 1,200.00 3,450.00 6,000.00 15,401.45
John Rey 231,184.80 1,200.00 2,850.00 6,000.00 19,265.40
Mars Sanchez 94,831.32 1,200.00 1,050.00 3,200.40 7,902.61
Riizze Stanz 257,183.28 1,200.00 4,500.00 6,000.00 21,431.94
Cill Sull 594,171.48 1,200.00 4,500.00 6,000.00 49,514.29
Prince Score 177,250.20 1,200.00 2,100.00 6,000.00 14,770.85
Den True 281,656.92 1,200.00 3,450.00 6,000.00 23,471.41
Elmer Tan 271,759.44 1,200.00 3,300.00 6,000.00 22,646.62
Marty Trool 185,995.08 1,200.00 2,550.00 6,000.00 15,499.59
Paul Uviii 191,073.00 1,200.00 2,250.00 6,000.00 15,922.75
Sheena Veel 155,767.92 1,200.00 2,100.00 6,000.00 12,980.66
Em Watson 125,383.80 1,200.00 1,500.00 4,200.00 10,448.65
Alex Watson 149,949.24 1,200.00 1,800.00 5,000.40 12,495.77
Totals 10,964,633.64 57,600.00 128,100.00 271,000.80 913,719.47

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 79
Evidence: PAYROLL DISTRIBUTION REPORT (Continuation)

Overtime Pay Other Benefits Gross Salary Total Deductions Taxable Salary Tax Due
10,000.00 253,782.89 89,900.00 163,882.89 28,470.72
9,000.00 201,215.53 89,300.00 111,915.53 16,883.11
12,000.00 200,153.94 89,099.60 111,054.34 16,710.87
5,000.00 273,925.02 90,800.00 183,125.02 33,281.26
10,000.00 213,852.74 89,600.00 124,252.74 19,350.55
12,000.00 228,666.84 89,750.00 138,916.84 22,283.37
5,000.00 218,184.27 89,600.00 128,584.27 20,216.85
8,000.00 274,590.87 91,700.00 182,890.87 33,222.72
10,000.00 273,024.58 91,400.00 181,624.58 32,906.15
12,000.00 254,592.35 90,350.00 164,242.35 28,560.59
5,000.00 95,810.46 84,899.60 10,910.86 591.09
10,000.00 251,863.31 90,500.00 161,363.31 27,840.83
9,000.00 235,799.82 89,750.00 146,049.82 24,012.46
7,000.00 213,885.90 90,050.00 123,835.90 19,267.18
5,000.00 165,999.80 90,050.00 75,949.80 9,689.96
10,000.00 141,140.36 86,699.60 54,440.76 6,166.11
12,000.00 202,983.26 89,099.60 113,883.66 17,276.73
5,000.00 209,932.52 91,100.00 118,832.52 18,266.50
5,000.00 230,183.40 89,750.00 140,433.40 22,608.35
9,000.00 279,674.95 91,550.00 188,124.95 34,531.24
7,000.00 223,565.70 89,600.00 133,965.70 21,293.14
7,000.00 226,617.84 89,600.00 137,017.84 21,903.57
3,000.00 221,172.63 89,600.00 131,572.63 20,814.53
500 10,000.00 245,461.61 189,900.00 55,561.61 6,334.24
12,000.00 157,946.84 87,250.40 70,696.44 8,639.29
5,000.00 185,671.27 88,750.40 96,920.87 13,884.17
1000 10,000.00 1,028,304.21 116,700.00 911,604.21 256,713.35
500 12,000.00 999,999.89 141,700.00 858,299.89 239,655.96
5,000.00 217,399.98 89,600.00 127,799.98 20,060.00
6,000.00 91,330.05 84,700.40 6,629.65 331.48
9,000.00 192,724.32 88,900.40 103,823.92 15,264.78
10,000.00 150,519.60 89,450.00 61,069.60 11,210.44
12,000.00 179,130.08 89,450.00 89,680.08 12,436.02
5,000.00 210,350.99 89,450.00 120,900.99 18,680.20
500 7,000.00 278,619.42 138,700.00 139,919.42 22,483.88
6,000.00 206,218.85 90,650.00 115,568.85 17,613.77
1000 12,000.00 263,450.20 115,050.00 148,400.20 24,600.05
5,000.00 107,733.93 85,450.40 22,283.53 1,728.35
9,000.00 287,615.22 91,700.00 195,915.22 36,478.79
500 10,000.00 654,185.77 116,700.00 537,485.77 136,995.45
3,000.00 195,021.05 89,300.00 105,721.05 15,644.21
7,000.00 312,128.33 90,650.00 221,478.33 42,869.58
500 10,000.00 304,906.06 115,500.00 189,406.06 34,851.52
5,000.00 206,494.67 89,750.00 116,744.67 17,848.93
5,000.00 211,995.75 89,450.00 122,545.75 19,009.15
9,000.00 177,748.58 89,300.00 88,448.58 12,189.72
8,000.00 143,832.45 86,900.00 56,932.45 6,539.87
12,000.00 174,445.01 88,000.40 86,444.61 11,788.92
4,500.00 391,000.00 12,273,853.11 4,596,700.80 7,677,152.31 1,500,000.00

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 80
Employee Gross Pay Pag-IBIG Philhealth SSS Taxable Pay
Gil Albert 18,752.53 100.00 225.00 500.00 17,927.53
Jul Boston 14,785.81 100.00 175.00 500.00 14,010.81
Frank Brenan 14,473.38 100.00 175.00 483.30 13,715.08
Ryan Bolton 20,686.54 100.00 300.00 500.00 19,786.54
Paul Beaver 15,680.98 100.00 200.00 500.00 14,880.98
Sevel Beaver 16,666.68 100.00 212.50 500.00 15,854.18
Raul Brent 16,398.79 100.00 200.00 500.00 15,598.79
Jeff Birth 20,506.99 100.00 375.00 500.00 19,531.99
John Conner 20,232.66 100.00 350.00 500.00 19,282.66
Michelle Colin 18,660.95 100.00 262.50 500.00 17,798.45
Nino Creg 6,985.42 100.00 75.00 233.30 6,577.12
Precious Digger 18,604.87 100.00 275.00 500.00 17,729.87
Jan Dustion 17,446.14 100.00 212.50 500.00 16,633.64
Alex Dell 15,914.30 100.00 237.50 500.00 15,076.80
Marge Des 12,384.60 100.00 237.50 500.00 11,547.10
Riz Early 10,087.72 100.00 125.00 333.30 9,529.42
Fran Fern 14,691.02 100.00 175.00 483.30 13,932.72
Carl Fernandez 15,764.04 100.00 325.00 500.00 14,839.04
Karry Hill 17,321.80 100.00 212.50 500.00 16,509.30
Elmer Gurtz 20,821.15 100.00 362.50 500.00 19,858.65
Jay Grill 16,658.90 100.00 200.00 500.00 15,858.90
Alam Lim 16,893.68 100.00 200.00 500.00 16,093.68
Eduard Lester 16,782.51 100.00 200.00 500.00 15,982.51
Balt Lu 18,073.97 100.00 225.00 500.00 17,248.97
Nino Littkle 11,226.68 100.00 137.50 366.70 10,622.48
Ellie Lost 13,897.79 100.00 162.50 466.70 13,168.59
Ron Marshall 78,254.17 100.00 375.00 500.00 77,279.17
Marvin Meer 75,961.53 100.00 375.00 500.00 74,986.53
Marcos Now 16,338.46 100.00 200.00 500.00 15,538.46
Trish Newman 6,563.85 100.00 75.00 216.70 6,172.15
Seth Osburn 14,132.64 100.00 175.00 466.70 13,390.94
Linda Potter 10,809.20 100.00 187.50 500.00 10,021.70
Trissy Prior 12,856.16 100.00 187.50 500.00 12,068.66
Allan Pung 15,796.23 100.00 187.50 500.00 15,008.73
Liz Queen 20,855.34 100.00 125.00 500.00 20,130.34
Anne Reyes 15,401.45 100.00 287.50 500.00 14,513.95
John Rey 19,265.40 100.00 237.50 500.00 18,427.90
Mars Sanchez 7,902.61 100.00 87.50 266.70 7,448.41
Riizze Stanz 21,431.94 100.00 375.00 500.00 20,456.94
Cill Sull 49,514.29 100.00 375.00 500.00 48,539.29
Prince Score 14,770.85 100.00 175.00 500.00 13,995.85
Den True 23,471.41 100.00 287.50 500.00 22,583.91
Elmer Tan 22,646.62 100.00 275.00 500.00 21,771.62
Marty Trool 15,499.59 100.00 212.50 500.00 14,687.09
Paul Uviii 15,922.75 100.00 187.50 500.00 15,135.25
Sheena Veel 12,980.66 100.00 175.00 500.00 12,205.66
Em Watson 10,448.65 100.00 125.00 350.00 9,873.65
Alex Watson 12,495.77 100.00 150.00 416.70 11,829.07
Totals 913,719.47 4,800.00 10,675.00 22,583.40 875,661.07

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 81
MANAGEMENT REPRESENTAION LETTER

To LABAN NG MGA ASTIG Company;

April 1, 2017

We are writing at your request to confirm our understanding that your audits was for the
purpose of expressing an opinion on the consolidated financial statements (hereinafter referred
to as “financial statements”) of MARAMINGPERA Corporation.

We acknowledge our responsibility for the fair presentation of the financial statements in
accordance with Philippine Financial Reporting Standards.

We confirm that, to the best of our knowledge and belief, having made such inquiries as we
considered necessary for the purpose of appropriately informing ourselves:

GENERAL:

1. We have fulfilled our responsibilities, as set out in the terms of the audit engagement letter
dated October 1, 2016 for:
A. The preparation and fair presentation of the financial statements and believe that
these financial statements have been prepared and presented fairly in accordance
with the relevant Financial Reporting Standards

B. Providing you with all relevant information, such as all financial records and related
data and complete minutes of meetings, or summaries of actions of recent
meetings for which minutes have not yet been prepared, of shareholders, board of
directors and committees of the board of directors that may affect the financial
statements, and access to such relevant information

C. Such internal control as management determined is necessary to enable the


preparation of financial statements that are free from material misstatement,
whether due to fraud or error

D. Ensuring that all transactions have been recorded in the accounting records and are
reflected in the financial statements

INTERNAL CONTROL OVER FINANCIAL REPORTING:

2. We have communicated to you all deficiencies in the design and implementation or


maintenance of internal control over financial reporting of which management is aware.

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 82
FRAUD & NON-COMPLIANCE WITH LAWS AND REGULATIONS:

3. We have disclosed to you:


A. The results of our assessment of the risk that the financial statements may be
materially misstated as a result of fraud

B. All information in relation to fraud or suspected fraud that we are aware of and that
affects the Entity and involves: management, employees who have significant roles in
internal control, or others, where the fraud could have a material effect on the financial
statements

C. All information in relation to allegations of fraud, or suspected fraud, affecting the


Entity’s financial statements, communicated by employees, former employees,
analysts, regulators, or others

D. All known instances of non-compliance or suspected non-compliance with laws and


regulations, including all aspects of contractual agreements, whose effects should be
considered when preparing financial statements

E. All known actual or possible litigation and claims whose effects should be considered
when preparing the financial statements

COMMITMENTS & CONTINGENCIES:

4. There are no:


A. Other liabilities that are required to be recognized and no other contingent assets or
contingent liabilities that are required to be disclosed in the financial statements in
accordance with the relevant Financial Reporting Standards, including liabilities or
contingent liabilities arising from illegal acts or possible illegal acts, or possible
violations of human rights legislation

B. Other environmental matters that may have an impact on the financial statements

C. Guarantees, whether written or oral, under which the Entity is contingently liable.

SUBSEQUENT EVENTS:

5. All events subsequent to the date of the financial statements and for which the relevant
financial reporting framework requires adjustment or disclosure in the financial
statements have been adjusted or disclosed.

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 83
RELATED PARTIES:

6. We have disclosed to you the identity of the Entity’s related parties and all the related
party relationships and transactions of which we are aware and all related party
relationships and transactions have been appropriately accounted for and disclosed in
accordance with the relevant financial reporting framework.

ESTIMATES:

7. Measurement methods and significant assumptions used by us in making accounting


estimates, including those measured at fair value, are reasonable.

Yours very truly,

JEROME C. CHAVEZ, CMA


Chief Financial Officer, MARAMING PERA Corp

DR. NEIL D. GLORIA, DBA, MiB


Chief Executive Officer, MARAMING PERA Corp

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 84
WRAP-UP PROCEDURES

Analytical Procedures in Completing Phase

ASSETS Vertical Analysis


Current Assets: Unaudited Balance Audited Balance
Cash and Cash Equivalents 11% 3%
Trade Receivables 13% 14%
Inventory 9% 9%
Office Supplies 1% 1%
Prepaid Expenses 5% 5%
Total Current Assets 38% 33%

Non-Current Assets:
Investments Account - Equity Method 11% 11%
Property, Plant and Equipment 28% 30%
Intangible Assets 11% 12%
Deferred Tax Assets 12% 13%
Total Non-Current Assets 62% 67%

TOTAL ASSET 100% 100%

LIABILITIES Vertical Analysis


Current Liabilities: Unaudited Balance Audited Balance
Trade and Non-Trade Payables 12% 13%
Accrued Expenses 9% 11%
Income Taxes Payable 0% 0%
Total Current Liabilities 21% 25%

Non-Current Liabilities:
Notes Payable 19% 21%
Provisions 11% 13%
Deferred Tax Liabilities 9% 10%
Total Non-Current Liabilities 39% 44%

TOTAL LIABILITIES 60% 69%

SHAREHOLDER's EQUITY Vertical Analysis


Unaudited Balance Audited Balance
Common Stock 0% 0%
Capital Surplus 1% 1%
Treasury Stock 0% 0%
Retained Earnings 35% 27%
Other Components of Equity 2% 2%
Equity Attributable to Parent 38% 30%
Non-Controlling Interests 1% 2%

TOTAL SHAREHOLDER's EQUITY 40% 31%

TOTAL LIABILITY and EQUITY 100% 100%

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 85
The auditor applies final analytical procedures to form an overall conclusion as to whether the
financial statements taken as a whole are consistent with the auditor’s knowledge of business
and to assess the validity of the conclusions reached and evaluating the overall financial
statements presentation.

The auditor used vertical analysis in conducting the final analytical procedures.

The following are the accounts that were audited:

Accounts Unaudited Audited Difference

 Cash and Cash Equivalents 11% 3% 8%


 Trade Receivables 13% 14% 1%
 Inventory 9% 9% 0%
 Property, Plant and Equipment 28% 30% 2%
 Trade and Non-Trade Payables 12% 13% 1%
 Accrued Expenses 9% 11% 2%
 Provisions 11% 13% 2%

Based on the results, all most all of the accounts that were audited have difference in
percentage between the unaudited balance and the audited balance.

The reason for these differences may be due to certain adjustments on misstatement that were
discovered during the course of the audit.

All of the accounts above have difference in percentages in the range of 1% - 2% only with the
exception of cash. May be because the adjustments of these accounts are not material enough
to affect the financial statements taken as a whole.

However, with regards to cash account balance, it has a difference of 8%. One factor that it
results to this material difference is because the client concealed the 150,000,000 misstatement
through kiting that has been floating from one bank to another since November 2016 and the
amount was substantial to affect the financial statement taken as a whole.

Hence, the overall review confirms the conclusions reached with respect to the fairness of the
financial statements.

Control Over Cash

Cash can be easily removed, concealed and transported. It is usually difficult to identity. It has
immediate purchasing power. For these reasons, it is easily susceptible to theft or
misappropriate.

Adequate controls and safeguards must be instituted to ensure that cash collections are actually
received by the company and deposited in its bank account, that cash payments are proper, that
disbursements are made only for goods and services actually received, and that cash
transactions are promptly and accurately recorded.

Below are some basic controls that should normally be instituted.

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 86
Control of Cash Receipts
1. Official receipts should be mailed directly or issued to persons making payment. Cash
sales should be supported by invoices, sales tickets and other cash sales proofs. All
supporting documents must be pre-numbered and placed under proper control.
2. The mail should be opened by a person other than the cashier or the accounts receivable
bookkeeper so that cash cannot be removed and the record of cash received falsified
without collusion.
3. Each day’s receipt should be deposited in a bank intact and without delay on the
following day. Prompt deposit safeguards against theft and prevents the accumulation of
large sums in the hands of the cashier. Delay or failure to deposit cash in a bank
encourages misuse of funds. Depositing funds intact facilitates the checking of deposits
against cash received.
4. Cashier should not have access to accounts receivable subsidiary ledgers, customer’s
statements or sales invoices so that he will not have and opportunity to alter or suppress
them in order to conceal irregularities.
5. Cash receipts should be journalized and posted soon after receipt to established
immediate accountability.
Control of Cash Disbursements
1. All disbursements should be made by check, except small ones to be made out of petty
cash. When disbursements are made by check, the review and signatures of responsible
officials is necessary before disbursement can be made.
2. Checks should be counter-signed so that fraud cannot be committed by one signatory
without collusion. Persons signing checks should not be responsible for recording
transactions or for keeping cash.
3. Vouchers and other supporting documents should be marked “paid” or otherwise
“cancelled” at the time of payment to prevent resubmission of the same voucher for
payment.
4. Bank reconciliations should be prepared monthly to enable prompt detection of
irregularities. Reconciliations should be prepared by persons not having anything to do
with the recording or handling of cash or the signing of checks to insure independent
check on these activities.
5. Cash disbursements should be journalized and posted soon after payment to established
immediate accountability.

RESPONSIBILITY IN RELATION TO FRAUD


a. Those charge with Governance
- To ensure the integrity of an entity’s accounting and financial reporting systems and
that appropriate controls are in place.
- To prevent and detect fraud and error.
b. Management
- Fair presentation of the financial statements in accordance with the applicable
financial reporting standards
- To prevent and detect fraud and error
- To establish a control environment and to implement internal control policies and
procedures designed to ensure, among others, the detection and prevention of fraud
and error.
- To ensure that the entity’s operations are conducted in accordance with laws and
regulations.
c. Auditor
- To design the audit to provide reasonable assurance of detecting material
misstatements in the financial statements, whether caused by error or fraud.

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 87
Audited Consolidated Statement of Financial Position
ASSETS Unaudited Balance Adjustments Audited Balance
Current Assets:
Cash and Cash Equivalents 210,597,600.00 (150,000,000.00) 60,597,600.00
Trade Receivables 243,434,450.00 243,434,450.00
Inventory 165,710,000.00 165,710,000.00
Office Supplies 14,942,700.00 14,942,700.00
Prepaid Expenses 93,946,900.00 93,946,900.00
Total Current Assets 728,631,650.00 578,631,650.00

Non-Current Assets:
Investments Acoount - Equity
200,256,950.00 200,256,950.00
Method
Property, Plant and Equipment 523,029,750.00 523,029,750.00
Intangible Assets 210,459,500.00 210,459,500.00
Deferred Tax Assets 233,434,450.00 233,434,450.00
Total Non-Current Assets 1,167,180,650.00 1,167,180,650.00

TOTAL ASSET 1,895,812,300.00 1,745,812,300.00

LIABILITIES
Current Liabilities:
Trade and Non-Trade Payables 231,502,800.00 500,000.00 232,002,800.00
Accrued Expenses 165,998,700.00 32,000,000.00 197,998,700.00
Income Taxes Payable 4,550,700.00 4,550,700.00
Total Current Liabilities 402,052,200.00 434,552,200.00

Non-Current Liabilities:
Notes Payable 358,943,100.00 358,943,100.00
Provisions 206,558,000.00 25,000,000.00 231,558,000.00
Deferred Tax Liabilities 171,296,400.00 171,296,400.00
Total Non-Current Liabilities 736,797,500.00 761,797,500.00

TOTAL LIABILITIES 1,138,849,700.00 1,196,349,700.00

SHAREHOLDER's EQUITY
Common Stock 8,606,700.00 8,606,700.00
Capital Surplus 17,111,800.00 17,111,800.00
Treasury Stock (2,618,900.00) (2,618,900.00)
Retained Earnings 671,289,400.00 (207,500,000.00) 463,789,400.00
Other Components of Equity 35,140,600.00 35,140,600.00
Equity Attributable to Parent 729,529,600.00 522,029,600.00
Non-Contolling Interests 27,433,000.00 27,433,000.00

TOTAL SHAREHOLDER's EQUITY 756,962,600.00 549,462,600.00

TOTAL LIABILITY and EQUITY 1,895,812,300.00 1,745,812,300.00

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 88
THE AUDIT TEAM

Phone: (639) 266093466 BOA/PRC Reg. No. 04983


Fax: (955) 968 212 September 29, 2015,
www.labanngmgaastigco.com.ph valid until September 30, 2018
facebook.com/labanngmgaastigco SEC Accreditation No. 0329-FR-4
(Category A)
July 14, 2015,
valid until July 15, 2018
654 Gen. Santos Avenue, Campetic Rd.
BERNARD ACE ROMANO, CPA Palo, Leyte 6501
Partner-in-Charge Philippines

MAURICE ACOSTA, CPA MARY JOY ANORA, CPA CORIZA JOYCE ATIBULA, CPA
Associates Associates Associates

BIANCA BALLON, CPA RINZZI GABRIELLE BASIO, CPA JOHN FRANCIS BATUCAN, CPA
Associates Associates Associates

CHERRY CERVANTES, CPA ALLYSSA CLAIRE ESPERAS, CPA CHELSIE ANNE EVARDONE, CPA
Associates Associates Associates

YANCY ANNE OCIER, CPA IRENE BEATRIZ UMACOB, CPA


Associates Associates

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 89
LABAN NG MGA ASTIG COMPANY

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 90
SPECIAL THANKS:

BASIO’S RESIDENCE

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 91
PHOTO OPS:

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 92
BLOOPERS:

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 93
Copyright © 2019 By LABAN NG MGA ASTIG Co.

All rights reserved. No parts of this book may be


reproduced or used in any manner without written
permission of the copyright owner except for the use of
quotations in a book review.

Phone: (639) 266093466 BOA/PRC Reg. No. 04983


Fax: (955) 968 212 September 29, 2015,
www.labanngmgaastigco.com.ph valid until September 30, 2018
facebook.com/labanngmgaastigco SEC Accreditation No. 0329-FR-4
(Category A)
July 14, 2015,
valid until July 15, 2018
654 Gen. Santos Avenue, Campetic Rd.
Palo, Leyte 6501
Philippines

L A B A N N G M G A A S T I G C o. |CREATIVITY.PERSONALITY.ASSURANCE 94