Duraplex Meeting Minutes

7/26/2019 Duraplex Meeting Minutes

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EXIT CONFERENCE

MEETING MINUTES

Meeting Date:March 14, 2016

Meeting Location:University of San Carlos-DC

Recorded By: Janellaine Paares, Secretary

March 14, 2016 Page 1 of 12


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CALL TO ORDER

n !"it Conference #eetin$ of D%ra&le" 'ar()are Man%fact%rin$ *nc+ )as hel( onMarch 14, 2016 at S%ite 46 Din$#an %il(in$ of the University of San Carlos-DC+ *t.e$an at 11:0/ a# an( )as &resi(e( .y the C!, !van$el !loise Sison )ith JanellainePaares as secretary+

ATTENDEES

NAME TITLE ORGANIZATION PRESENT

!van$el !loise Sison C! D%ra&le" 'ar()are

Man%fact%rin$ *nc+

es

ianca #ores %(itor Cavali(a, Saito an( Co+,

%(itin$ 3ir#

es

Maa% Saito %(itor Cavali(a, Saito an( Co+,

%(itin$ 3ir#

es

Marcia P+ %tastas

cco%nts 5ecieva.le cler

cco%nts Paya.le cler D%ra&le" 'ar()are

Man%fact%rin$ *nc+

es

5ay#on( 7a&as *nventory cler D%ra&le" 'ar()are

Man%fact%rin$ *nc+

es

Mel !.o *nventory cler D%ra&le" 'ar()are

Man%fact%rin$ *nc+

es

Janellaine Paares

Secretary 8areho%se

&ersonnel D%ra&le" 'ar()are

Man%fact%rin$ *nc+

es

MEETING LOCATION

Buiding: USC-DC, Din$#an %il(in$

Con!erence Roo": 3 S%ite 75 46



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MEETING START

Meeting Sc#edue Start: 11:00 a#

Meeting Actua Start: 11:10 a#

Meeting Scri$e: Janellaine Paares

MAIN REPORTS

1.The auditors presented the first audit findings to Mr. Gapas, the

warehouse personnel of the company.

Mr. Saito:When the audit team visited the companys warehouse to

conduct the observation for the test count of inventory, the following are

observed: first, the company employs a poor physical inventory count

procedure. No proper inventory tagging was observed and identical

inventories were not orderly placed together. These result to difficulties in

performing the inventory count, and worse, a possibility that not all

inventories shall be accounted because of the absence of inventory

tags.

Second, when we procured documents relating to the inventory cut-offprocedures that were employed by the company, we found out that such

are ineffective resulting to improper accounting of year-end inventories.

2.Mr. Gapas, presented his argument regarding the auditors findings.

Mr. Gapas: Sir, regarding your first observationthat the physical

inventory count procedure employed is poor because of the absence of

the inventory tagging, I admit that we are not practicing such becausethe company employs a perpetual inventory system wherein the

inventories are only accounted in the recording process which is handled

by the inventory clerk.

Regarding also your observation regarding identical inventories not

orderly placed together, I admit that such is not observed because



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inventories are placed together based on when they are manufactured

because of the first-in first-out policy of the company. We are not allowed

to placed inventories together, even identical ones because we are

monitoring the date when they are manufactured.

Lastly, regarding your findings about the ineffective cut-off procedures

which would possibly result to improper accounting of inventory, I believe

that such is a matter that would be properly discussed between us and

the inventory clerk who handles the recording of inventories. I think thats

all that I can say sir.

3.The auditors clarified their findings after hearing the explanation of Mr.

Gapas and the latter consequently agreed thereto.

Ms. Amores: Okay, thank you for that Sir. Regarding your explanation

about the absence of inventory tagging, we actually know already that

the company is employing a perpetual inventory system, however,

despite such fact, inventory tagging is still necessary because at year-

end, inventory balance per book shall be reconciled with the inventory

on-hand and any difference shall be accounted for properly. Thus, it isvery necessary that every single inventory shall be counted because

such is the ultimate purpose of inventory tagging.

Mr. Gapas: Thank you for that maam.

Mr. Saito:regarding also your explanation about the placing of identical

inventories, the audit team is not questioning your argument regarding

your date of production, what we are actually concerned of is the

orderliness of the piling. Because when we visited the warehouse to

conduct the observation, there are inventories which are difficult to be

classified because they are not properly and orderly placed.

Mr. Gpas: Okay Sir, noted.



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4.The auditors presented their recommendations to their first audit

findings regarding the counting of inventories and proper arrangement

thereof.

Mr. Saito: So based on this discussion the following is recommended:

There should be a proper tagging of inventories before the physical

count shall be conducted. This procedure will ensure that every

inventory shall be accounted and thus, proper reconciliation between

inventory records and inventory on-hand shall take place.

Review accounts payable cut-off procedures. This will ensure the

proper accounting of year-end inventories. This task will be

accomplished with the help of the inventory clerk.

Educate the employees in proper and orderly placing of inventories.

5.The auditors presented their next audit findings which were addressedto the Accounts payable clerk of Durplex, Marcia Butastas. The finding

was due to the unrecorded liabilities found out by the auditors during the

course of the audit.

Ms. Amores:Now, lets discuss about our next audit finding with

regards to the accounts payable. We would like to address this finding to

Ms. Butastas, the companys A/P clerk.

Ms.Butastas:Sure sir. Im ready. I mean, I was born ready to answer

for any questions you deem important.

Mr. Saito: In the course of our audit, specifically in our inspection of the

purchases and disbursements of the period subsequent to the period

under audit, we have found out that there was no proper cut-off

procedures implemented.

Ms. Amores: Because of this, there were unrecorded liabilities.

Ms. Butastas: Really? That shouldnt happen. I have done my task with

reasonable diligence for it not to contain any error! I was confident

enough that I made no mistake!

CEO: Well, I admire your usually confidently assertive self, Ms.

Butastas, but let us first let the auditor finish. Proceed



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Mr. Saito: As I was saying, there were unrecorded liabilities because

inventories that were received before the balance sheet date were not

recorded until the subsequent period.

Ms. Amores: As a result, the cost for the current period is understated

and the costs in the following period when the liability is actually

recorded will be overstated.

6.Ms. Butastas, the accounts payable clerk explained her side about the

findings presented by the auditors regarding the unrecorded liabilities.

Ms. Butastas: Wait, I can explain! First of all, in case you dont know

me, Im a summa cum laude graduate from the University of San Carlos,

and top 10 in the CPA Board Exam 2014. Its still my second year in this

company, but I believe that I am competent enough to be in this position.

And so, with regards to that unrecorded liabilities, I didnt record itbecause the company didnt receive the suppliers invoice until after the

subsequent period. And as I remember from my Auditing Theory, under

the class of Mrs. Bernardo, the trigger that causes the liability to be

recognized and reported as accounts payable is the receipt of the

suppliers invoice. Thats theory, so I just followed what was taught to

me.

Mr. Saito: Yes, the theory that you said was right, but I think your

teacher forgot that the management, you, should have procedures for

identifying invoices that relate to the audit period, and adjust the liability

account for those inventories received before the year end.

Ms. Amores: Right, you just cant rely on the audit procedures we

undertake for this matter.

7.The auditors presented their recommendations regarding the second

audit findings discovered.

Mr. Saito: Okay, for this matter, I recommend that inventories, especially

those received near the end of the period, be vouched and reviewed for

proper recording. Liabilities and costs should be adjusted accordingly.

Also, you should take note that the actual date when ownership of the

purchased asset is transferred to the company or the actual date the

service is performed should be used to record the liability, not

necessarily the invoice date.



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Ms. Amores: As for the unrecorded liabilities for the period under audit,

we recommend that we make adjustments on this. We think that would

be all.

8.The auditors proceeded to the next audit findings which were

addressed to the inventory clerks of Duraplex, Mr. Ebo and Ms. Paares.

The findings were about the inclusion of obsolete inventories to the

inventory account which consequently overstated the latter and the net

income of the company.

Mr. Saito: Okay! Lets proceed to next finding.

Ms. Amores: We have examined the processes regarding the company

and we came by this finding which we would like to address to the

inventory clerk. In light with this review, we found out that obsolete

inventories were recorded and included in the inventory account of thecompany.

Mr. Saito: By doing such, it does not only overstate inventories, it also

overstates the companys net income which could then affect, of course,

the company and all its stakeholders who are relying on the financial

statements prepared by the company.

CEO: Then perhaps Ms. Paares can explain to us as to why this

problem is present in the company.

9.Ms. Paares and Mr. Ebo presented their explanation on the audit

findings addressed to them.

Ms. Paares: Well, as matter of fact, I have not recorded such obsolete

items as part of inventories. I have been an employee of this company

for almost 5 years now and this is the first time that this problem arose. I

graduated in University of San Carlos with a degree of Accountancy and

by that, I know I am competent enough to know and apply that such

obsolete items shouldnt be part of the Inventory account. So I am

suspecting that somebody manipulated my records and it may be the

new inventory clerk which was only hired a few months ago.

Mr. Ebo: If you were referring to me and I suppose you were, and then

let me speak up. First things first, I am not very good at accounting

matters to start with. I may have graduated with a degree of



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Accountancy but I wasnt able to pass the Board exam and my grades

during my college were very low as you can imagine especially in

Financial Accounting which includes the topic about inventories. As I

was applying for a job, no company would want to hire me knowing that I

lack the competence to be part of their team. So lets get back to the

topic. I thought that what I did was right although I am not so sure with it.

After Ms. Paares prepared the records, I had to look and see her workbecause I was curious enough if she was really doing the right thing.

Then I thought she made a mistake and so I corrected it.

Ms. Paares: How dare you question my competence!!! I have served

this company for a long time now and before you came by, things were

going so well. So you dont have the right to. . . . .UGGGHHH!

CEO: Okay now, let him finish!

Mr. Ebo: Dont get the wrong idea; I was just testing how far myknowledge can take me. Im very sorry Ms. Paares for having offended

you. I know I am foolish not to believe on the work that you have

performed. What concerns me is that we are supposed to work as a

team but you didnt even give a thing to do. It really makes me feel

useless.

CEO: So this is becoming a huge problem now. This has to stop.

Ms. Paares:We need to dump this useless guy over here because he

cant bring any good to our company.

CEO: Keep your calm, Ms. Paares. What I suggest is that we should

educate Mr. Ayala in order for him/her to be useful in the company. You,

both, need to work together to make your jobs much easier than you

think it would.

10. Ms. Amores, to relieve the tension happening between the two

inventory clerks explained that the inclusion of the obsolete inventories

did not affect the performance of the company that much. However, she

clarified that measures should be taken so that the same incident will be

avoided in the future. The recommendations were presented.

Ms. Amores: Thank you Mr. CEO for acting so calm about this matter.

Well, it isnt much of a problem really since the amounts of these

obsolete inventories are not that much that could affect the companys



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performance anyway. However, we will be applying measures so as not

to increase the problem in the near future.

Mr. Saito: We suggest that we reverse the entry of recording those

obsolete items as part of inventory. Another thing is that these

inventories may have a salvage value, although minimal, we should still

record these amounts as part of inventory. I suppose that the warehouse

clerk has physically segregated those items which are obsolete from the

good items. So there is nothing more to improve in such problem.

11. The next audit finding regarding customer payments not applied

to customer accounts were presented by the auditors and addressed to

Ms. Butastas, the AR clerk. Subsequently, Ms. Butastas presented her

explanation on the matter presented to her by the auditors and the

matter was resolved.Ms. Amores:Okay, let's proceed to our next finding. We'd like to

address this finding to Ms. Marcia Butastas, the A/R clerk. We have

found out that payments have been received and deposited but not

applied to a customer account.

Mr. Saito: I believe this could be an internal control weakness. Ms.

Butastas, can you perhaps enlighten us why is this so?

Ms. Butastas: I have been looking into this. The person preparing thesubsidiary ledger for Accounts Receivable was on leave for a few

months. We have entrusted the job to a new comer. Unfortunately, he

had not adjusted the balances for the customers who paid near and after

the cut-off date. We are working on this and we would accept your

recommendations for this matter.

Ms. Amores: Thank you for that, Ms. Butastas. Since youre working on

it, you might as well review your reconciliation procedures as the general

ledger balance should equal the subsidiary ledger balance. As soon as

the general ledger account is updated, make sure the subsidiary register

is updated as well especially on deposits posted after accounts

receivable cut-off date.

Ms. Butastas: Ill surely check on this matter.



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12. The last audit finding was presented regarding the absence of

the provision of doubtful accounts.

Ms. Amores:In addition, upon the course of our audit, we discovered

that no allowance was recorded for uncollectible for Other Accounts.

Mr. Saito: As a consequence, receivables and income are overstated.

13. The company discovered the fraudulent act of Ms. Butastas

regarding the unrecording of allowance for bad debts.

CEO: Say something!

Ms. Butastas: Uhmmm, I'm just not aware that aging is a necessity.

Mr. Saito: Hmm, but if i'm not mistaken you served as an a/r clerk for

2years already . And as presented in our previous working paper, an

aging has always been done except for the past fiscal year. Can you

please explain this to us?

Ms. Butastas:Fine! I lied 5 mins ago about being unaware. Yes, I am

aware that aging receivables is necessary. I am a competent graduate of

USC remember? My brilliant professors from USC taught me this. Of

course, I know that by heart! But youuuuuuuuu!she told me not to age

the A/R because she is pressured with how high the net income should

be. Don't blame me. Blame the CEO. I dont want to practice

insubordination. I'm just following rules! Why am i always wrong?!?! I'mnever right!

14. Because of the tension, Ms. Butastas decided to resign and

walks out from the meeting.

Ms. Amores: Okay, please relax Ms. Butastas. No one is blaming you

for a crime. We were just asking for a response regarding this finding.

CEO: How dare you? I hired you when no one else would. You're fired!!!

Ms. Butastas: You can't fire me because I resign from this no good

company!

15. The auditors presented the recommendations for the last audit

findings.

March 14, 2016 Page 10 of 12


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Mr. Saito: Okay. Lets just calm down and control our emotions. I will

now proceed to our recommendations. The AR department should

review the probability of collection of receivables. After doing so, the

department should age receivables. The detailed information in the

accounts receivable subsidiary ledger is used to prepare a report known

as the aging of accounts receivable. This report directs your attention to

accounts that are slow to pay. It is also useful in determining the balanceamount needed in the account Allowance for Doubtful Accounts. The

aging of accounts receivable report is typically generated by sorting

unpaid sales invoices in the subsidiary ledgerfirst by customer and

then by the date of the sales invoices. If a company sells merchandise

(or provides services) and allows customers to pay 30 days later, this

report will indicate how much of its accounts receivable is past due. It

also reports how far past due the accounts are. And yes, it is necessary

to age the relevant receivables. Thus, we recommend that the client

make an adjustment.

Ms. Amores: I think that would be the end of our recommendations. We

are ready to answer any of your concerns. Anyone?

Mr Saito: None? Okay, thank you so much everyone for your

cooperation. It was a great time working with your company.

16.Ms. Evangel Sison, the CEO concluded the conference.

CEO: Thank you also for your kind firm for helping our company out.

Your audit findings and recommendations would surely make us improve

our company. Everyone, thank you for attending this meeting. I would

expect the revisions of your reports next week, March 21, 2016. Meeting

adjourned.

MEETING END

Meeting Actua End: 12:10

Meeting Sc#edue End: 12:00 nn

POST MEETING ACTION ITEMS

Action A%%igned To Deadine

March 14, 2016 Page 11 of 12


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*nvesti$ation on the fra%(%lentacts of Ms+ %tastas, the 5cler, so that &ro&er sanction

shall .e taen+

'%#an 5eso%rce De&ar#ent s soon as &ossi.le

NE&T MEETING

Ti"e:9:00a#-10a#

Date:March 21, 2016

'enue:3 S%ite /4, University of San Jose 5ecoletos

M h 14 2016 P 12 f 12

Documents

Duraplex Meeting Minutes