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EXECUTIVE SUMMARY

 With 20 years of dedicated service,Duraplex Hardware Manufacturing, Inc. isone of the biggest hardware construction and finishing material manufacturing

company in the Visayas and Mindanao.

 The Company aims to bring “World Class” products at affordable prices so that

more people are able to build their homes at par to world standards.

 Their retail outlet, Cebu Home and Builders Center showroom situated at a

10,000 square meter facility is patterned after the Home Depot stores of UnitedStates of America. It houses thousands of products: from the first nail to

lumber products electrical and decorative lighting to kitchen, bathroom

products, floor and wall tiles to do-it-yourself (DIY) products, home

improvement and furniture pieces all house under one roof.

In summary, the Duraplex Hardware Manufacturing, Inc. aims to bring “World

Class” product at affordable prices so that the Filipino consumer can achieve

housing at par with world standard.

 The audit was conducted from December 2, 2015 through February 26, 2016,

covering the transactions for the year ended December 31, 2015, including

tests and reviews of internal controls and compliance with the company’s

policies and procedures for manufacturing, storing and selling hardware

products. We also reviewed the overall efficiency and effectiveness of the

company’s overall manufacturing operations.

Findings discovered our audit were:

i

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• The company employs a poor physical inventory count procedure. No

proper inventory tagging was observed and identical inventories were not

orderly placed together.

• Inventory cut-off procedures employed are ineffective resulting to

improper accounting of year-end inventories.

• No proper cut-off procedures of recording liabilities are implemented.

• Obsolete inventories were recorded and included in the inventory

account of the company.

• Customer payments have been received and deposited but not applied to

a customer account.

• No allowance was recorded for uncollectible accounts.

 We noted that management had inadequate controls over its treatment of

inventories which could compromise its operations. In addition, the companyhad a weak internal control over its Accounts Receivable record keeping which

 would materially impact its financial position. Nevertheless, aside from the

ones noted above, there are adequate internal controls established in all other

remaining areas of the company.

 Thus, areas for improvement identified during our audit are:

On counting Inventories:

•

 There should be a proper tagging of inventories.• Educate the employees in proper and orderly placing of inventories.

On Inventory and Liability Cut-off procedures:

 

Inventories received near the end of the period should be vouched and reviewed

for proper recording.

On treating obsolete inventories:

 

Properly segregate obsolete items of inventories from the good ones.

 

Reverse the entry of recording obsolete inventories. Record salvage value, if any.

On payment processing:

 

Review reconciliation procedures as the Accounts Receivable general ledger

 balance should equal the subsidiary ledger balance.

ii

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On setting up Allowance for Uncollectible Accounts:

 

 Accounts Receivable department should review the probability of collection of

receivables and age them according to the detailed information from the

subsidiary ledger.

iii