Professional Documents
Culture Documents
Client Name:
Reporting Date:
Subject:
The purposes of the audit plan are, first, to contribute to the effectiveness of the audit and, second, to
contribute to the audit efficiency. This memorandum should be completed and approved as part of initial
audit planning. In completing this document, there may be occasions when matters already documented
in other work papers are relevant. There is no need to re-write such material if a specific reference can
be made.
This memorandum is structured so that planning documentation common to all engagements is
presented. All items should be read and considered on every engagement. When a section is not
applicable, indicate "N/A" with a brief explanation why it is not applicable.
The planning memorandum is divided into three sections:
1. Administration and job set up;
2. Risk assessment; and
3. Approach
The Understanding the Business of the Entity should be used as the starting point for engagement planning.
Engagement Objective:
To understand the business, its processes, and the implementation and the effectiveness of
its internal control
To identify areas with high risks and enhance the effectiveness and efficiency of operations,
to ascertain if the company has complied with leagal requirements, to verify the fairness of
financial statements assertions and to give reccommendations regarding the deficiencies
discovered.
Timing of the review (including submission of draft report and anticipated date of closing
meeting).
Management in attendance
Nikkolai Justin Manalili
Regasajo, Reymart
The need for Information Technology (IT) auditor or other specialist assistance
Whether independent reviewer is needed (e.g., because client is designated for Close
Monitoring)
Role
Engagement Partner
Manager
Manager
Augusto, Evith B.
Staff
Bolanio, Adrian
Staff
Staff
Comendador, Iris R.
Staff
Litorja, Trina L.
Staff
Regasajo, Reymart M.
Staff
Date
Planning
Opening Conference
Fieldwork
Exit Conference
Management Response
N/A
Report Draft
March 3, 2014
March 5, 2013
Sanitary Permit
Fire Safety Permit and Certification
Mayors Permit
BIR Certificate of Registration
DTI Certificate of Business Name Registration
And they are also complying with the 3% monthly income tax paid to the Bureau of Internal Revenue.
The engagement team followed the Philippine Standards on Auditing.
2. Prior Audits
a. Previous Audit History
Prior audit date:
N/A
Review previous reports, management responses, exceptions noted last audit period, pre-audit file
comments, etc. List items that require follow-up or special attention during the current audit (eg.
recommendations not implemented).
Matters for Follow-Up
N/A
3. Extent of Change
Document any significant current events, issues and considerations and how such conditions will impact
the overall audit approach (restructuring, new products, changes in operations, management, changes in
compliance requirements and other regulations, environment, etc.). Consider management's position on
operational change as well as other prior events and issues which have carry over impact on the current
audit engagement.
Documentation:
They innovate and conform to the latest trends, so from only having notebook holders/organisers
they now offer 5 different types of products.
The remaining partners do the works of the inactive partners.
One person holds two positions: General manager and Operations manager.
Scope of audit
Other issues
Documentation:
The company has not adapted any changes in their accounting policies.
5. Risk of Fraud
Consider whether there is a high risk of fraud, including:
Documentation:
There is a medium risk of fraud because their internal controls are effective in such a way that every
transaction may be traced back to their inventory records and even to the ORs. If number of units
sold is understated, it could be traced back to the inventory records which show the number of
finished products during the period and how many of it were distributed in order to be sold. If
inventory account shows deficiency, the number of units recorded would be traced back to the
number of meters of cloth shown on the official receipt. This will show if the inventory records are
correct since a certain a meter of cloth yields a specificnumber of items to be produced (e.g 1 meter
of poly canvass yields 3 pieces of notebook organizers).
There is a risk of self-review considering that the general manager hold multiple duties. The general
manager/operations manager can sell the products, record the sale in his individual sales journal,
keep the money, review the records, and make the financial statements.
There is risk in the documentation of product discounts. There is a possibility that the seller will
record the sales from multiple customers as one order to avail the product discount. By not
appropriately disclosing the sale, he might take the full payment from the customers and only record
the discounted amount.
6. Other Factors
Consider the impact of other factors, e.g. reliance on work of internal auditors.
Documentation:
N/A
Audit Response
Customized orders may not be adequately Propose a revised approach regarding the
customization of products and a list of
satisfied which can lower sales
III. APPROACH
Once determined, the detailed work to be performed should be documented in the standard work
program format. In determining the approach to the audit, the following issues should be considered:
Where the engagement involves detailed transaction testing, a statistically based sampling approach
should generally be used. The justification for the sampling method and parameters selected should
be documented in the appropriate sampling approach memo.
Documentation:
The engagement team will test the companys internal control since the assessed level of control risk is
low. Substantive procedures will also be applied but not for the totality of the work.
Specific areas to be reviewed:
The sampling method to be used is random sampling for inspection of accounting records and verifying
the authenticity of sales transactions.
Documentation:
At the financial statement level, all budgeted amounts are compared with the actual amounts
incurred during the period.
Ratios
Gross Profit Ratio
Projected
Actual
75%
36%
29%
15%
Return on Sales
29%
15%
Return on Assets/Investment
30%
11%
30%
11%
The company has a strong internal control but it is inherently risky, thus there is a medium level of
risk assessed.
Test of control should be applied to areas considered to be risky. One of these areas is the proper
authorization of transactions specifically the withdrawal of cash and inventory count with
reconciliation of records. Anyone can withdraw cash from the bank if the signatures of the general
manager and financial manager are present. This process should be tested in order to trace
deficiencies regarding the authenticity of the said signatures. Inventory count and reconciliation of
items recorded should also be given appropriate attention to discover misappropriated amounts, if
there are, or errors regarding the recording of such amounts.
E. Client Assistance
Describe below the nature of any significant assistance that may be provided by client's staff and the
effect on the audit work to be performed. Attach request list if applicable.
Personal interview
Prepared by:
Algarme, Ma. Isabela
Augusto, Evith
Bolanio, Adrian
Cad, Loriel Aiko Marie
Comendador, Iris
dela Cruz, Charry
Litorja, Trina
Regasajo, Reymart
Audit Engagement Team
Date
Reviewed by:
Approved by:
10
March 1, 2014
Date