University of San Carlos

INDUSTRY ANALYSIS

________________________________

In Partial Fulfilment of the Requirements for the Course

MSA 212

Advanced Auditing Theory and Practice

_________________________________

Presented by:

NICE MORALES

MA. KRISTINE CABAERO

February 9, 2017

TABLE OF CONTENTS
Executive Summary .........................................
..........

Overview of the
Industry ...............................................

Players Selected for Review ...................................

.........

Analysis of Business and Audit

Risks .....................................

Audit Plan .................................................

.........

Substantive Audit Program ....................................

........

Audit Firm .................................................

.........
EXECUTIVE SUMMARY

Manufacturing industry refers to those industries which involve in the

manufacturing and processing of items and indulge in either creation of
new commodities or in value addition. Manufacturing is the process of
converting raw materials and/or parts into finished goods that can be sold
in wholesale or retail markets or exported for sale in other countries. It
covers a wide range of industries, from food and beverages to
pharmaceuticals, iron and steel to textiles, as well as lumber, tobacco,
automobiles, aerospace, and petrochemicals.

We have selected three (3) Players in Food Manufacturing Industry. First is

Miesto International Foods Corporation, second, Philbest Canning
Corporation and third is JAKA Food Processing Corporation (JFPC).

The audit for a manufacturer is nearly identical to the audit of any other
business enterprise, except for the additional procedures around the
company's inventory balances. Auditors are required to obtain reasonable
assurance that a company's financial statements are free of material
misstatement, whether caused by error or fraud.
Our audit approach is designed to allow us to execute a good quality and
efficient audit. Our approach will include a mixture of key controls
reliance, substantive analytics, and detailed testing. Our understanding of
the client also drives our assessment of materiality and the identification
of audit risks.
The audit of the client in year-end will be completed by a team composed
of senior personnel from our Office who are involved in the planning,
coordination, and direction of the audit and staff members who perform
detailed procedures during our on-site visits. Partner-in-Charge is
consulted by the audit team on sensitive, complex, and/or difficult issues.
CM LLP aspires to improve the financial outlooks of our clients. We are
committed to our clients and have vested interest in their success. We are
well known for our responsiveness and expertise. Our strength is our
people, whose skill and integrity keep us on the top. We are committed to
support each member of our firm and our clients, with respect and trust.

OVERVIEW OF THE INDUSTRY

Manufacturing industry refers to those industries which involve in the

manufacturing and processing of items and indulge in either creation of
new commodities or in value addition. The manufacturing industry
accounts for a significant share of the industrial sector in developed
countries. The final products can either serve as a finished good for sale to
customers or as intermediate goods used in the production process.

Manufacturing is the process of converting raw materials and/or parts into

finished goods that can be sold in wholesale or retail markets or exported
for sale in other countries. It covers a wide range of industries, from food
and beverages to pharmaceuticals, iron and steel to textiles, as well as
lumber, tobacco, automobiles, aerospace, and petrochemicals.

Manufacturing consists of two categories: durable and nondurable goods.

Durable goods, such as cars, airplanes, and large household appliances,
may be used for a long time. Nondurable goods, such as food, cosmetics,
and clothing, are consumed more rapidly.
PLAYERS SELECTED FOR REVIEW

We have selected three (3) Players in Food Manufacturing Industry first is

Miesto International Foods Corporation which is known to be a top
manufacturer and exporter of ice pops, jellies and drinks. Second,
Philbest Canning Corporation which is the manufacturing plant is
located at General Santos City, they are one of the fastest growing and
probably now the largest Filipino-owned conglomerate manufacturer of
canned tuna in Southern Mindanao, Philippines. And third one is JAKA
Food Processing Corporation (JFPC) and its primary business is toll
manufacturing of processed meats for institutional clients like food service
operators and other food manufacturing companies in the Philippines.

On the next paragraph shows each of the Companys profile/background

and also shows their accounting process which used for determining
industrys Audit Substantive Programs.
Miesto International Foods Corporation

Miesto International Foods Corporation are known today as the Philippines

top manufacturer and exporter of ice pops, jellies and drinks. Since their
inception in 1987, they have been committed to fulfilling their vision and
mission to satisfy customers all around the world with top quality products
and fast and efficient service, all at reasonable prices. They have gained
the trust and confidence of clients in various parts of the world through
the years:

Countries exported to: United States, Canada, United Kingdom, Ireland,

Germany, Spain, the Netherlands, Australia, New Zealand, Singapore,
China, Hong Kong, Japan, South Korea, Russia, the Caribbeans, and the
Middle East.
Their lines of ice pops, jellies and chill drinks are packed in food grade
plastic materials molded into a fascinating variety of fun shapes, with
fanciful flavors that never fail to delight taste buds all around the world.

The company is capable of creating private labels. Brands like Vimto,

Slush Puppie, Bobbys, TNT, Thorzt, and Tango have been made especially
for their request.

If you want to create your own uniquely shaped product, they have
experience in making molds through our suppliers.

If you want your own packaging design, they know suppliers who are able
to do that. If you want to match the taste of an existing product from the
market, they have lab team to assist you.

Mission
Creating delightful experiences for people, homes, and
communities.
Values
We believe in the values of teamwork, leadership, commitment,
creativity, and integrity
Vision
We are a global market player with an empowered team admired for
excellence and innovation.
Tagline
Delighting taste buds around the world
Products

a. Jellies
b. Icepops/Chilled Products
 Document No.:
Payables and Revision No. :
Accounting process Page No. : Page 10 of 60
Plant No. : LILOAN

1.0 PURPOSE

To establish proper procedure for accounts payable, payment processing, ascertain the
accuracy and completeness of each transaction and obtain timely recording at the books.

2.0 SCOPE
This procedure encompasses issuance of disbursement vouchers, recording
of payables, payment thru TT, MC.
3.0 RESPONSIBILITIES AND AUTHORITIES
3.1 Purchasing forwards the necessary documents needed that originates
payables
3.2 Finance responsible for the recording of the transactions, issues
disbursement voucher, monitors the payable and manages the companys
funds
3.4 Admin Manager - check, review and approve financial related activities
3.5 Top Management review and signs the check issued

3.7 Messenger - responsible for the sending in and out of documents as deem necessary
within and outside the company premises.

4.0 DEFINITION OF TERMS

4.1 Purchase Order (PO) a document issued to place an order to
supplier
4.2 Receiving Report (RR) a document that provides information that
purchases have been received
4.3 Sales Invoice (SI) a bill from the supplier for all the purchases
received
4.4 Disbursement Voucher (DV) a document issued when there are
payments to be made
4.5 Payable Voucher (PV) a document that provides information that
transaction has been recognized as payables
4.6 Check Management Report (CMR) list of all disbursement
vouchers issued which includes the date, check number, payee and
the amount
4.7 Telegraphic Transfer Application Form (TTAF) an application form
used for payment importations
4.8 Managers Check Application Form (MCAF) - an application form
used for having a managers check
4.9 Managers Check (MC) - a check used to pay accountabilities that
are good as cash
4.10 Petty cash voucher (PCV) issued when there are minor expenses
that do not exceed1,000 pesos
4.11 Payroll Summary (PS) a summary that contains the number of
days work and the net salary of each employees
5.0 PROCEDURE

Person( Involve Referen

Description/Guidelines s) d ce/Form
No. Flow Chart
/Controls Respon Functio (s)
sible ns Used

Payment to Suppliers thru issuance of vouchers, managers check and telegraphic transfer

Does the
Start
payment are for local
creditors?
Local Creditors?

If YES, proceed Finance Finance

A
01 to 2

If NO, proceed
to 32-41

2. Does the
transaction is
With credit terms? with credit
B terms?

02 If YES, Proceed Finance Finance

to 2-7
If NO, Proceed
to 9

3. Receives
Purchase Order,
Receiving
Report and PO,RR,
03 Finance Finance
Sales Invoice SI
Receive PO, from the
RR, SI Purchasing
Department
4. Match the
purchase order,
Match receiving report
PO,RR,SI
and the sales
invoice, if the PO,RR,
04 Finance Finance
quantity SI
ordered,
received and
billed is
accurate
Journalize 5. Journalize the
and create transactions and PO,RR,
Finance Finance
payable
create payable SI
voucher
05 voucher
 6. Forward to the
Admin Manager
Forward to
the entries
the
Administrative
made and PO,RR,
06 payable voucher Finance Finance
Manager SI
together with
the supporting
documents for
approval
Admin
Review 7. Review and sign
07 and Sign the payable Manage Admin PV
voucher r

8. Keep the
Keep the
document documents and
s and prepare aging of
prepares PO,RR,
08 aging of payables to Finance Finance
SI
AP
monitor future
payments, then
proceed to 10
9. Receives a copy
B
of purchase
Receive order from the
PO/CAF Purchasing
Finance PO/CAF
Department or a Finance
cash advance
09 form from the
Requestor

10. Does payment

DV? processing is
C thru
Disbursement
Finance
Voucher? Finance
10 If YES, proceed to
11-18

If NO, proceed to 19

11. Prepares 2
Prepare 2
copies of copies of
DV Disbursement
voucher thru Finance Finance DV
11
Exact Globe
System and
sign as preparer
12 12. Generate the Finance Finance CMR
Generate Check
CMR Management
Report thru
Exact Globe
System,
attached to DV
and other
 supporting
documents
13. Fill up a check
Fill up a for its
Check corresponding
payee and the
amount to be Finance Finance Check

13 paid based on
the
disbursement
voucher
14. Forward the
Forward to
disbursement
the Admin
Manager voucher DV,
together with PO,RR,
14 the check and Finance Finance
SI,CMR,
other Check
documents to
the Admin
Manager
15. Approve and Admin
Approve and sign the DV and
Sign the the Check Manage Admin DV,CMR
DV/CMR Management r
15
report

16. Forward to the Messen

16 authorized Admin DV,CMR
Forward to ger
Authorized
signatories
signatories
Top Top
Sign the
17 Check 17. Sign the Check Manage Manage Check
ment ment

18. Keep and

schedule the DV,
Keep and check for PO,RR,
18 schedule the Finance Finance
SI,CMR,
Check for release to its
Check
release
intended payee

19. Does the

C
Exceeds 1,000? amount be paid
exceeds 1,000?
D

If YES, proceed
19
to 20

If NO, proceed
to 42

20. Prepare 3
Prepare 3
copies of
copies of
MCAF Manager's Finance Finance MCAF
20 Check
Application
Form
 21. Create entries
Create to set-up the MCAF,
entries Finance Finance
21 CAF
and print issuance and
print
22. Forward to the
Admin Manager
Forward to
the MC form
Admin MCAF,
22 Manager together with Finance Finance
the Cash CAF
Advance form
and the entry
made
23. Check the
Check and details and
sign the MC affixed initial Admin
signature at the MCAF,
Manage Admin
23 MC form near CAF
the name of the r
Top
Management
Forward to 24. Forward to the
Authorized Authorized MCAF,C
24 signatories signatories Messen Admin
AF
ger

25. Sign the

Sign the Manager's
25 MCAF Top
Check Top
application form Manage MCAF
Manage ment
ment

Receive and
26. Receives the
input the MC from the
forwarding date Messenger and
26 input the Finance Finance MCAF
forwarding date
at the MC
application form
27. Forward the MC
Forward to application form
27 the Finance Finance MCAF
to the
Messenger
Messenger

Receive and
28. Receive and
Messen
forward the forward to the Admin MC
28 MC to the bank the MC for ger
bank verification
29. Receive the
Receive the Manager's MCAF,M
Check with a Finance Finance
29 MC C
copy of the
verified MC form
30. Log the MC for
30 NO.31 Log the its monitoring Finance Finance MC
MC
 31. Release the MC
to the requestor
Release
31 and let him/her Finance Finance MC
the MC
sign at the
logbook
monitoring
Keep the
32. Keep the
docs, wait supporting
for proof of documents, wait
32 payment until proof of Finance Finance MC
and file payment has
been received
and file
33. Prepare 3
A Prepare 3 copies of
copies of TT Telegraphic
Transfer TT,PO/S
Finance Finance
33 application form I
based on the
PO/Invoice
receive
34. Create entries
Create to set-up the
entries and
print payment and TT,PO/S
34 Finance Finance
I
print and
forward to
Admin Manager
35. Check and Admin
Check and initially sign the TT,PO/S
sign the TT form Manage Admin
TT I
35 r

36. Forward to the

Forward to Authorized Messen
Authorized Admin TT
36 signatories ger
signatories

37. Sign the form Top Top

Sign the
37 TT form Manage Manage TT
ment ment

38. Fax the TT form

Fax the to the bank and
38 TT confirm with the Finance Finance TT
bank if TT has
been receive
39. Produce 1 copy
Produce a of TT and
copy of TT
attached to the Finance Finance TT
39
supporting
document
 40. Forward to the
Forward to Messenger the
NO.41 the 3 copies of TT
40 Messenger
Finance Finance TT
to be forwarded
to the bank for
processing
41. Receive 1 copy
of the verified
Receive verified
TT, attached to
TT and attached
41 it to related Finance Finance TT
supporting docs
and file supporting
documents and
file
42. Issue a petty
Issue cash voucher
D PCV for the amount
42 and Finance Finance PCV
forward
to be paid and
to forward to the
Admin Admin Manager

Review, 43. Review, check

check and sign the Admin
and Petty cash
43 sign the Manage Admin PCV
voucher
PCV
r

Releas 44. Release the

e the amount
amount requested to the
44 request payee and let Finance Finance PCV
ed
him sign at the
petty cash
voucher
45. Compile all the
Compile all original copies
the of sales invoice
documents and official
45 for external receipts for Finance Finance
reporting external
reporting every
month and
forward to C&C
Department
Payroll processing

46. Receive a
Receive a summary of the
46 summary for number of days Finance HRD
the number of work for each
days work employees from
HRD
47. Prepares payroll
Prepares summary based
payroll on the summary
NO.48
47 summary forwarded by Finance Finance PS
the HRD

48. Print the

Print the
summary and
48 summery Finance Finance
and proceed proceed to 11 to
to 11 to 18 18

Payment processing for Shipping Department

49. Receives 1 copy

of original Sales
Invoice, Packing
Receives copy List, Bill of
of Sales Lading and
49 Invoice, Finance Finance
Certificate of
Packing List, BL
and COA
Analysis from
the shipping
department

50. Check the

Check the details and
details and
50 schedule of
schedule when Finance Finance
payments the payment is
to be made

51. Payment
processing was
Payment thru?
processing was
thru?
51.1 Disbursement
voucher?
Proceed to 11
51.2 Managers
51 DV? NO. 11 Check?
Proceed to 20
51.3 Petty cash
MC? NO. 20 voucher?
Proceed to 33
ENDDD
PCV? NO.33
Philbest Canning Corporation

Philbest Canning Corporation is one of the 50 business units under the RD

Corporation, which in turn is becoming the fastest growing and probably
now the largest Filipino-owned conglomerate in Southern Mindanao,
Philippines. Presently, it has the capacity to process an average of 140
metric tons per day of Tuna raw materials that is converted into high
quality tuna products for its customers worldwide. Situated in a 2.5
hectares of land General Santos City, the Company is looked up by the
community as a major source of employment, growth and development.

Cannery

The cannery complex is composed of the cannery itself, a power plant, a

boiler area, a contact plate freezer facility, a wastewater treatment
facility, microbiology and chemical laboratories and a warehouse with
labeling lines.

Philbest Canning Corporation prides itself of their meticulous production

process. Their efficiency and strict quality control ensures that the
customers always get world-class tuna products.
Staf

Philbests 2,618 workers from a merry mix of personalities coming from a

diverse cultural backgrounds and work experiences. Their skillful and
capable workforce showcases their expertise with the use of modern
machines/technology.

The true strength of Philbest lies within its employees, whose diversity
and dedication thrusts the company to a world class level that it now
enjoys.

Vision

As a team of dynamic Filipino professionals, we commit to be responsible

stewards in the pursuit of our vision to make Philbest Canning Corporation
the best and biggest processor of tuna products in Asia.

Food Safety / Quality Policy

Philbest Canning Corporation upholds its commitment to produce and

deliver safe with quality guaranteed tuna products and services that
would continually enhance the satisfaction of its various customers and
interested parties worldwide.

Motivated towards the goal of system improvement, we essentially

maintain highly competent and God-centered workforce to ensure
effective planning, communication, implementation, maintenance, and
enhancement of Philbests quality processes from the identification to full
compliance of customer, statutory and regulatory requirements, quality
resources procurement, design and development, and product realization
processes at a very competitive cost.

Environmental Policy

The Philbest Canning Corporation, commits to abide, at all times, all

government mandated environmental policies and standards. They
commit to adhere to the in-house waste management program to
maintain, at the same standard level, the quality of its affluent water, the
quality of fuel gas emission and minimize solid waste, through
improvement and cost effective Plant Waste Management.

Their Executives, Officers and Staff, are characterized by its corporate

value of VIGOR (Versatility, Integrity, God-Centeredness, Openness &
Optimism and Respect & Responsibility) in performing their respective
functions. We are interdependent with the other operational units of the
company and work in synergy with them in order to be more effective in
the attainment of our Companys commitment on environmental policies.

Products

They customized product and packaging to suit the needs of their

customers. They can develop a tuna product according to customers
application needs from product-to-packaging development. To suit the
business requirements, they can also tailor the product for their.
 PR and PO, RR,
Payment Invoice and Voucher
Open AP File Check Register
Identify Request Match payment Supplier
Due date, Accounts request with the
amount due Due P.O., RR, Invoice Payment
and Voucher Detail

Check
Check # and Check Copy Prepare Cash Check
payment date Update Cashier
AP Subsidiary Ledger Disbursement
AP
Ledger
Letter of
Authority

Confirmation
Bank
Check
Copy
Close Voucher File

Journal
AP Voucher
Summary

Post to
Approved General JV
Journal Ledger Posting
Voucher Detail

Journal Voucher File General Ledger

Data Flow Diagram of Cash Disbursement System
 Accounts
Receivable
Data

Journal Voucher
Approved File

Data Cash JV
Receipts

JV Posting
Record in Details General Ledger
Data
Capture special
Transaction journals

Data
Data Accounts
Payable
AJE and TB, FS,
Unadjusted Prepare Prepare Trial
Prepare
Prepare Closing Entries Balance, Financial
Closing Entries
TB Adjusting
Unadjusted Statements and Summary
Entries and Closing Trial
Trial Balance Balance Reports
Closing
Entries

Summary
Reports
Cash
Data Disbursement Reviewed
Management Summary Review
BOD Prepare
Reports Reports
Management Summary
Reports Reports

Data Flow Diagram of General Ledger and Financial Reporting System

 Accounts Payable Data Processing Cash Disbursement

Open AP File
Payment Check/LOA
Request
Check/LOA

Prepare Transaction Transaction

Listing Listing
Check/LOA

Identify Accounts Due and prepare Payment Request Check/LOA

File
Check/LOA
Payment Approval of Checks
Request
Terminal

Check/LOA

Reconcile PR with PO, Invoice, RR and Voucher

Finance or
PR Check Journal Bank
PO Register Voucher
RR
Invoice
Voucher Supplier
Closed
Update AP File
Master File

General
Ledger

File

Document Flowchart of Cash Disbursement System

 Bank Cashier Cash Receipts Accounts Data Processing Controllers
Receivable Office

Customer Customer Check Cash Blotter

A B
Remittance
Remittance List
Remittance List
List Remittance
Data Entry
Check Check Advice Bank
Program
Remittance
Advice Letter of
Receipts Authority CR Journal Deposit
Terminal Slip
Cash Trans.File Voucher
Record

A Ledger
AR
AR
Prepare Letter of Authority
Update Master File
Deposit Slip Update Run
Terminal
Deposit GL
Slip Accounts
LOA
Reconcile check with RA and prepare remittance list and cash blotter B
Reconcile deposit slip with cash receipts

CR
Cash Blotter
Cash blotter Journal
Letter of Authority
Remittance List
Check
Remittance List
Remittance List Remittance
Remittance List Remittance
List Advice
Management
Reports
Bank

Check BOD
File
Remittance File
Advice

Document Flowchart of Cash Receipts Procedure

 Data Processing Financial Reporting Group General Ledger Department

Prepare Prepare
Capture Unadjusted TB Summary
Transaction Reports

Transaction Unadjusted Summary

Reports
Data TB

Accounts
Receivable Prepare AJE
GL and Closing
Entries
Master Review

Cash
Receipts Adjusted TB
Update Summary
General Reports
Ledger

Accounts Financial
Payable Statements
JV Trans.
File

Post Closing
Prepare Management Reports
Cash
Disbursement TB File

Management
Reports

BOD

Document Flowchart of General Ledger and Financial Reporting System

Human Resources/ Payroll Data Processing Cash Disbursement
Section

Rank and File Managers and AMS Labor Payment Slip

Supervisors Hours
Fund Transfer Check
Time
Cards Payroll
Register

Attendance Employee
Time Update
Cards
Monitoring Terminal Employee
Payroll File
Sheet
File

Labor Payroll
Hours Register Compare check with payroll register, sign check and payment slip and send to bank or finance department

Payment Slip

Fund Transfer
Sort by Prepare Payroll Register,
Check
Payroll
employee JV Record, funds transfer
check, payment slip post Register
number to check register Finance
Dept.

File
Labor Check Payment Slip
Hours Register Fund Transfer
Checks Bank
Payroll
Register
Voucher
File General
Ledger
Update GL

Document Flowchart of Payroll System

Department Engineering Purchasing Receiving Data Processing Accounts Payable
Department

Receiving PO
JO Purchase
Order Order Order report RR
Slip MRS
Slip

Terminal

Report
Prepare Receiving RR
File
Prepare Cash Disbursement Voucher
Prepare Comparative Quotations

Prepare MRS and JO

RR
Comparative Open Invoice
RR PO File
Quotations Closed RR
RR Out Open
PO PO
JO
Closed
MRS PO File
PO
Prepare
File

PO
PO
PO
Supplier
PO
File
Purchase
Order

File

Document Flowchart of Purchases System

Operations Time Cards
Employees
Hours, rate,
withholdings Employee (Payroll)
Prepare
Records
Payroll
General Ledger
Rank and
Time Cards
File
Employees Payroll JV Posting
Disbursement
Register Detail
Voucher
Prepare Update
AP GL

Voucher and Amount, due Approved

Attendance payroll register date, check # JV
Managers
Monitoring Sheet
and
Supervisors Voucher Register JV File
Voucher
packet check
copy
Payment
Slip Prepare
Cashier Prepare
Cash
Payment Journal Voucher
Disbursement
Slip

Payroll Amount,
Check date
Bank Check Register

Data Flow Diagram of Payroll System

 MRS and
Order Slip Prepare Canvassing of
Prepare Materials JO
Department Order
prices and
Marketing Computer Department
Requisitions Slip prepare Storeroom Delivery
Slip and Job Order comparative
Department Accounting Department quotations

Company Delivery
File Copy
Receipt Comparative
Quotation Delivery Receipt
Quotation Purchase
Sheet KeystrokePurchase Weight Slip
Order Prepare Order
Open/Closed Supplier Stock
Purchase
PO File Stock Release
Customer Sales Order Order
File Release

Purchase
Customer Order
Order
Purchase Edit run Invoice
Invoice
Order Purchase
AP File Edited Sales DetailDetail
Purchase Purchase Pick Goods and send to delivery
Reconcile Goods and Documents sign delivery receipt
Order Files
Copy
Set up Journal
Sales Order
Accounts Amt. Due, Due
Prepare Delivery
Inventory Payable date Stock AP Subsidiary Receipt
Release Ledger
File Direct Access
Customer Copy
Receiving Update
Stock Release Delivery
Delivery Receipt
Receipt
Report Receiving Report PO, RR,
Storeroom
Weight Slip Receive JV Weight Slip File Copy
GL File Invoice
File Copy Goods Sales Open AP File Stock
Journal
Release
Delivery Receipt

Management
Customer Carrier
BOD Receiving
Reports
Post
Order Approved JV
Report to GL JV File File

Customer Commercial
Invoice
File Receiving JV Posting General Ledger
Report
Records

Data Flow Diagram of Purchases System

 Quotation Customer
Sheet Order
Customer Customer Ledger
Company Total Card
Amount
Due
Fish bulletin/
contract Receive
Weight Order
Slip
Update
Weight slip and
Delivery receipt AR AR
Records Summary
Journal Voucher
Sales order
File
and weight Sales
Stock slip Order Approved
Release Journal
Post to Voucher
Sales Journal
Voucher General
Bill Ledger
Customer
JV Posting

Verified JV General Ledger

Stock Records
Deliver Release Pick
Goods Goods Weight
Slip Update
Inventory
Records
Stock Sales
Records Journal

Delivery Receipt
Inventory
Subsidiary Ledger
Document Flowchart
Sales (commercial) Invoice of Sales Order System
Data Flow Diagram of Sales Order System
JAKA Food Processing Corporation (JFPC)

JAKA Food Processing Corporation (JFPC) is known as a maker of high-

quality processed meats. Its primary business is toll manufacturing of
processed meats for institutional clients like food service operators and
other food manufacturing companies in the Philippines.

JFPCs goal is to provide good service and quality products to its

customers. It considers its customers as business partners who have the
same goal as JFPC, which is end-user satisfaction.

JFPC is the flagship venture of the JAKA Group of companies in the meat
processing industry.

JAKA Food Processing Corporation (JFPC) has the capability of developing

and producing products that satisfy their clients target market, through
their well-rounded management and technical team that are experts in
the science of meat processing.

Their range of products includes sausages/hotdogs, hams, bacon, pizza

toppings, canned meat like corned beef and luncheon meat as well as
bottled cooked food.
HISTORY

With the acquisition of a meat processing plant in 1995, the JAKA Group
was able to enter the food manufacturing industry, supplying processed
meat to top fast food chains in the country. The newly acquired company
was renamed JAKA Food Processing Corporation (JFPC).

JFPC had its own brands of processed meats being retailed in

supermarkets and wet markets, but it focused more on toll manufacturing,
gaining success in this industry. Major clients stayed on with JFPC, and the
list of satisfied customers grew year after year, making JFPC one of the
biggest toll manufacturers of processed meats.

MISSION
Their mission is to produce processed meat products for the various
players in the countrys foodservice and food manufacturing industries
keeping in mind that quality, reliability and food safety should be given
topmost consideration in their line of business.

VISION

They intend to be the countrys biggest and most efficient toll processor of
processed meat products, capable of producing products not only for local
customers but also for the world market.

PRODUCTS
JAKA Food Processing Corps (JFPC) technical team can work with clients to
create processed meat products that suits the clients standards, taste
and budget.
JFPC is in a position to create other meat lines according to specifications.

Here is a list of the products that JFPC can produce:

Hotdogs Comes in Regular, Jumbo, Footlong or Cocktail sizes.

JFPC can produce hotdogs for any type of budget.

Dry Sausages Comes in Pepperoni, Dry Salami or Chorizo Filipino

variety.

Bacon JFPC produced a wide range bacon to choose from, such as

honeycured and country-style.

Hams and Cold Cuts Comes in the following varieties:

Restructured Cooked Hams, Whole Muscle Ham, Spiced Ham, and
Cooked Salami.

Meat Specialties Features the following products: Frozen Corned

Beef (packed in boilable bags for easy heating), Longganisa,
Hamonado, Burgers, Beer Sausages, and bottled cooked food.

Pizza Toppings Comes in the following varieties: Bacon Bits,

Shredded Ham, Beef Toppings, and Italian Sausages.
 Canned Meat Ranging from Corned Beef to Vienna Sausages, and
Luncheon Meat. JFPC also produces canned Filipino viands like
Mechado and Lechon Paksiw.

Sauces A variety of frozen meat sauces for pasta and pizza.

JAKA Foods Processing Corporations (JFPC) current product list also

includes: Delimondo, upscale specialties of gourmet food and deli meats;
and Country Fair Hotdogs: a budget-conscious product line.

Flowchart of Work Flow Document

1. In the Inventory Control Department, Inventory Status Reports are created

based on raw materials and finished goods. The report is forwarded to the
 Production Control Department. The Production Control Department also
receives the Factor Availability Report, which states how much capacity is
available (machinery, time and labor availability) or how much it could
produce, from the Production Department.

2. Based on these reports, the Production Control Department generates

three documents: Production Order, Materials Requisition, and Production
Schedule. The Production Order contains three copies, of which copy 1 is
sent to the Cost Accounting Department, copy 2 is sent to the Production
Department, copy 3 is filed numerically within the Production Control
Department. The production order is the formal document that authorizes
production to begin.

3. The Material Requisition contains 4 copies, of which copies 1, 2 and 3 are

sent to the Inventory Control Department and copy 4 is filed numerically
within the Production Control Department. Materials requisitions are used
to issue material from the warehouse into production.

4. In the Inventory Control Department, copy 1 of the Material Requisition is

sent to the Cost Accounting Department (for the posting of material cost
to WIP), copy 2 is forwarded to the Production Department (with the direct
and indirect materials), and copy 3 is filed numerically within the
Department.

5. The Production Schedule contains 2 copies, of which copy 1 is sent to the

Production Department and copy 2 is filed by date within the Production
Control Department.

6. In the Inventory control department, a Journal Voucher is prepared based

on the Material Requisition and is sent to the General Ledger where the
materials placed in production are recorded. Work in Process shows a
 debit for direct materials, Manufacturing Overhead is debited for material
overhead, and Inventory Control credits raw materials inventory.

7. Production may now begin. In the Production Department Job Time Cards
are forwarded to the Cost Accounting Department. In Cost Accounting, the
job time cards are used to debit the work in process account for direct
labor and manufacturing overhead for indirect labor. The credit account
would be to Wages/Salaries Payable.

8. As production proceeds, the Production Status report is forwarded from the

Production Department to the Production Control Department.

9. When production is completed, Copy 2 of the Materials Requisition is

attached to the completed Production Order and forwarded to the
Inventory Control Department.

10.The Inventory Control Department then forwards the completed Production

Order to the Cost Accounting Department after posting it to the inventory
records (debit finished goods).

11.In the cost accounting department, copy 1 of the Production Order from
Production Control is posted to the WIP records (indicating the beginning
of a new production order, job or run). This balance would reflect the
budgeted amounts of direct materials, direct labor, and manufacturing
overhead costs that the production control department is expecting to
incur during production. All three of these accounts would be a credit
entry with the balancing debit entry going to the Work in Process account.

12.Copy 1 of the Material Requisition from the Inventory Control Department

is also posted to the WIP records (adding direct material costs with a debit
to WIP and credit to raw materials).
13.The Cost Accounting department calculates the conversion costs (all costs
incurred in the production process excluding direct materials--direct labor,
manufacturing overhead, and indirect materials) and forwards this
information to the general ledger via a journal voucher. Direct labor,
manufacturing overhead, and indirect materials would be credited and the
WIP account would be debited for the total amount.

14.Completed production information is forwarded to the general ledger via a

journal voucher and posted to the general ledger as cost of goods
manufactured.

15.The completed production cost report is submitted by the cost accounting

department to management.
ANALYSIS OF BUSINESS AND AUDIT RISK

The audit for a manufacturer is nearly identical to the audit of any other
business enterprise, except for the additional procedures around the
company's inventory balances. Auditors are required to obtain reasonable
assurance that a company's financial statements are free of material
misstatement, whether caused by error or fraud. As such, auditors design
specific procedures to test inventory balances for manufacturers.
Understanding some of the more common procedures can help you
prepare for your audit.

Inventory Observation

Generally accepted auditing standards require auditors to physically

observe the company's inventory count procedures and make their own
independent tests of the physical count of inventory. This requirement is
in response to the multitude of accounting frauds that have been
perpetuated through falsification of inventory records. Often, when the
auditor tests the inventory count, she will use a technique called "floor-to-
sheet" and "sheet-to-floor." Floor-to-sheet is when the auditor selects
items from the inventory warehouse and makes sure that they are
included on the count sheet. This demonstrates that the count sheet is
complete. Then, the auditor selects items from the count sheet and
ensures that they are in the warehouse, which tests for the existence of
inventory.

Price Testing
The inventory balance on the company's financial statements is a function
of the quantity of inventory on hand and the value of the inventory. While
the inventory observation tests the quantity, price testing tests the cost of
the inventory. Generally accepted accounting standards require that
inventory is held in the financial statements at the lower of cost or market
price. Price testing is the verification of the cost that the company paid for
the materials, labor and overhead that goes into the production of
inventory. To perform price testing, the auditor will select items from the
company's inventory on a test basis and verify, through the analysis of
original documentation, such as invoices and time cards, that the
inventory's cost is carried in the company's financial records accurately.

Control Testing

Often, the auditor will test the internal controls around the inventory cycle
when auditing a manufacturer. The extent of control testing depends on
the materiality of the inventory balance, the extent that the auditor
wishes to rely on controls to reduce audit testing and other risk factors
involving the cycle. However, auditing standards require that auditors at
least obtain a general understanding of the internal controls related to the
inventory accounting system and use this knowledge to plan and perform
the audit.

Inventory Reserve Testing

For companies that hold inventory that may spoil or become obsolete,
inventory reserve testing can be an important part of the manufacturer's
audit. Because of the lower of cost or market assumption that generally
accepted accounting principles prescribe, testing must be conducted to
ensure that the market value of inventory does not exceed the cost
verified during price testing. Auditors will likely assess the risk of obsolete
inventory during the testing of internal controls. In addition, spoiled food
or dusty boxes during an inventory count observation may cause auditors
to pursue testing in this area more aggressively.
CM LLP

(Clients Name)
REPORT TO THE BOARD OF DIRECTORS

ANNUAL AUDIT PLAN

FOR THE YEAR ENDING 31 December

2018
To the members of the Board of (Clients Name):

We are pleased to present a summary description of our plan for the

annual audit of the financial statements of (Clients Name) for the year
ending 31 December 2017.

This report is intended for the use of the Board and provides information
on our audit mandate and objectives, our responsibilities as auditor in
relation to the responsibilities of the Board and management, the
significant audit areas identified and our plans to address them, a
description of information we intend to report to you at the conclusion of
the audit, and other relevant matters.

We look forward to working with the members of the Board and are
available for consultation at any time. During your upcoming meeting, we
will be pleased to discuss any matters of interest and provide any
additional information relating to the audit that you may require.
Yours sincerely,

Partner-in-Charge

Sgd.

17 August 2017

SCOPE OF OUR AUDIT

Our audit objectives

Our primary responsibility is to form and express an opinion on the

financial statements based on an audit. The financial statements are
prepared by management.

An audit of the financial statements does not relieve management of their

responsibilities. We will conduct our audit in accordance with Philippine
Standards on Auditing (PSA). Those standards require that we comply with
ethical requirements and plan and perform the audit to obtain reasonable,
but not absolute assurance, on whether the financial statements are free
of material misstatement, including those misstatements caused by fraud
or error.
The objectives of the annual audit are to provide an independent opinion
on whether:

The financial statements present fairly, in all material respects, the

financial position of the (Clients Name) as at 31 December 2017,
and its financial performance, its cash flows and the comparison of
budget and actual amounts for the year then ended in accordance
with Generally Accepted Accounting Principles (GAAP); and

The accounting standards have been applied on a basis consistent

with that of the preceding year.

TERMS OF THE ENGAGEMENT

As required by our professional standards, we periodically obtain a written

confirmation from management outlining our common understanding of,
and our agreement on, the terms of the engagement for this audit. Our
most recent engagement letter is included in Appendix A. We will be
pleased to discuss matters of interest relating to the terms of the
engagement that you may require.

Our deliverables

At the conclusion of the audit, we will provide the following reports:

Independent Auditors Report. A standard auditors report is

included in Appendix B for your reference.

Report to the Board of Directors Audit Results. These reports are

prepared to assist the members of the Board of Directors in their
review of the financial statements. The reports provide disclosures
required by professional standards and other information we
 believe will be useful to the members of the Board of Directors in
their work.

OUR AUDIT APPROACH

Overview

Our audit is conducted in accordance with Philippine Standards on

Auditing. Our audit approach is designed to allow us to execute a good
quality and efficient audit. We do this by:

a. Gaining an understanding of the (Clients Name) and its environment

by focusing on new developments and key business issues affecting
the Centre, as well as managements monitoring of controls and
business processes;
b. Identifying significant audit risks, sharing our perspectives, obtaining
feedback, and ensuring our audit is tailored to these risks;
c. Using well-reasoned professional judgment, especially in areas that
are subjective or that require estimates;
d. Leveraging reliance where possible on the (Clients Name) internal
controls; and
e. To the extent we consider it practicable, relying on the work of the
Office of Internal Audit of (Clients Name) internal auditor.

Our approach will include a mixture of key controls reliance, substantive

analytics, and detailed testing. Our understanding of the (Clients Name)
also drives our assessment of materiality and the identification of audit
risks.

Throughout the audit, we will scale our work based on the size of an
account balance, its complexity, and its impact on the financial
statements. As a result, we will always discuss key issues with you.

Materiality
Materiality represents our judgment on the degree of significance of a
misstatement(s) that could influence the decision of a knowledgeable user
relying on the financial statements. In determining materiality, both

quantitative and qualitative factors are considered.

We would like to make you aware, however, that the quantitative measure
of materiality is not the only factor we consider in evaluating
misstatements. Relatively small misstatements may have material effect
on the financial statements because of qualitative considerations. For
example, turning operating losses into operating income, or that increase
compensation could be considered material, even though they might be
less than our quantitative measure of materiality.

We will update you at year-end on our final determination of materiality.

Fraud and error

When planning and conducting the audit, we consider the possibility that
fraud or error, if sufficiently material, may affect our opinion on the
financial statements. Accordingly, we maintain an attitude of professional
skepticism throughout the audit, recognizing the possibility that a material
misstatement due to fraud could exist.

In order to fulfill our responsibilities related to fraud, we plan to perform

the following procedures:

Inquire of management, internal auditor, and others related to

knowledge of fraud or suspected fraud, the fraud risk
assessment process, and how fraud risks are addressed.
Consider whether fraud risk factors exist as part of our client
acceptance and continuance procedures.
Analytical procedures, primarily over inventory and considering
unusual or unexpected relationships identified in performing
analytical procedures in planning the audit.
Incorporate an element of unpredictability in the selection of the
nature, timing, and extent of audit procedures to be performed
annually.
Perform additional required procedures to address the risk of
managements override of controls, including:
examining journal entries and other adjustments for evidence
of possible material misstatement due to fraud;
reviewing accounting estimates for biases that could result in
material misstatement due to fraud (including a retrospective
review of significant prior years estimates); and
Evaluating the business rationale of significant unusual
transactions.

If, at any point throughout the audit, we become aware of suspected fraud
involving management, employees who have significant roles in internal
controls, and other cases where fraud results in a material misstatement
in the financial statements, we will advise you on a timely basis. We will
discuss with you the nature, timing, and extent of the audit procedures
necessary to complete the audit. We will also communicate any other
matters related to fraud that are, in our judgment, relevant to your
responsibilities.

Reliance on internal control

We have assessed the overall control environment and the control

activities relevant to the audit of the (Client's Name).

Our professional standards require us to communicate in writing any

significant deficiencies in internal control to management and those
charged with governance on a timely basis. This includes deficiencies that
may have been previously communicated, yet remain unresolved.

Independence

CM LLP Code of Values and Philippine Code of Ethics for Professional

Accountants require us to maintain independence from the (Client's
Name). The latter requires that we communicate with you regarding all
relationships between the (Client's Name) and us that, in our professional
judgment, may reasonably be thought to bear on our independence.

In determining which relationships to report, we consider relevant rules

and related interpretations prescribed by applicable legislation, covering
such matters as:

Holding a financial interest, either directly or indirectly,

in the (Client's Name);
Holding a position, either directly or indirectly, that gives
the right or responsibility to exert significant influence over the
financial or accounting policies of the (Client's Name);
Personal or business relationships of immediate family,
close relatives, senior officials, or retired senior officials, either
directly or indirectly, with the (Client's Name); and
Over familiarity with the (Client's Name) due to a long-
standing relationship.
To provide further assurance, our quality management system requires us
to ensure safeguards are applied to eliminate identified threats to
independence, or reduce them to an acceptable level to ensure that we
complied with relevant ethical requirements regarding independence. Our
audit staff is required to annually declare any personal relationships that
could be perceived as placing them in a conflict of interest position. We
also have policies designed to ensure that auditors do not remain on the
same audit for excessive periods of time.

At this time, we are not aware of any relationships between the (Client's
Name) and our audit staff that, in our professional judgment, may
reasonably be thought to bear on our independence.

AUDIT MANAGEMENT

Audit team

The audit of the (Client's Name) 2017 year-end will be completed by a

team composed of senior personnel from our Office who are involved in
the planning, coordination, and direction of the audit and staff members
who perform detailed procedures during our on-site visits. Partner-in-
Charge is consulted by the audit team on sensitive, complex, and/or
difficult issues.

The Audit Partner-in-Charge is responsible for audit quality and ensures

that audits are carried out in compliance with CM LLP policies, professional
standards, and the Philippine Auditing Standards.

Staff involved in this years audit includes:

(Staffs Name) Associate Auditor

(Staffs Name) Senior Auditor

(Staffs Name) Audit Manager

 (Staffs Name) Partner-in-Charge

Audit timetable

After consulting with management, we have established the following

timetable that highlights the timing of the audits major activities.

Audit hours and costs

Fees, including travel costs, for the 2017 financial statements audit have
been set at P1, 250,000.00 (One Million Two Hundred Fifty Pesos). We are
pleased to note that this is a decrease of 5% over the fees incurred for the
2016 financial statement audit. These fees are calculated on the basis of
the time we anticipate spending on the audit of the (Client's Name), and
on the levels of skill and responsibilities involved. The various components
of the fees were discussed with management of the (Client's Name) in
determining the most economical alternatives and an agreement was
reached that estimates for the various travel components are the lower of
the best rates available to the (Client's Name) or the CM LLP.

Appendix AEngagement letter

27 August 2017

Director
(Client's Name)
(Clients Address)

Dear Madam/ Sir:

The purpose of this letter is to confirm our understanding of the terms of the
audit engagement with your organization.

The CM LLP is the External Auditor of the (Client's Name). We will audit the
financial statements of the (Client's Name) as at December 31, 2017 and for
the year then ending, prepared in accordance with Generally Accepted
Accounting Principles.
Our audit is designed to issue a report indicating whether, in our opinion:
(a) The financial statements are presented fairly, in all material respects, in
accordance with the Philippine Accounting Standards; and
(b) The accounting policies have been applied on a basis consistent with
that of the preceding year.
We also have an obligation to call attention to any other matter falling within
the scope of the audit for the report that, in our opinion, should be brought
to the attention of the Board of Director.

The form and content of this auditors report will be in accordance with
Philippine Standards on Auditing. There may be circumstances where our
auditors report will differ from the expected form and content. This will be
communicated to those charged with governance in the Report to the Board -
Audit Results at the end of the audit.

Partner-in-Charge
Sgd.

CM LLP
Big Firm Capability. Small Firm
Personality.
WHO WE ARE

CM LLP aspires to improve the financial outlooks of our clients. We are

committed to our clients and have vested interest in their success. We are
well known for our responsiveness and expertise. Our strength is our
people, whose skill and integrity keep us on the top. We are committed to
support each member of our firm and our clients, with respect and trust.

We offer professional accounting services in single point of contact, with a

team of experienced and diverse professionals. Our edge is that we are
service driven and strive to be a one-stop shop for our clients accounting,
tax consultancy and business advisory requirements. We continuously
position ourselves in the community as being both adaptive and flexible.

OUR VISION

To deliver top-of-the-line and value added professional services driving

success to our clients.

OUR VALUES

Excellence
Integrity
Professionalism

MISSION

CM LLP is committed in providing professional and comprehensive

accounting services to our clients, using a balance of practicality and
innovation. The firm staffs its engagements who reflect the values of our
profession and our Firm, ensuring the best possible service to every client.
OUR KEY MANAGEMENT TEAM

Nice graduated with academic distinction from

University of San Carlos, where she obtained a
Bachelor of Science degree in Accountancy. She also
completed the Management Acceleration Program of
INSEAD Singapore. She placed 5th in the CPA Board
Examinations. She is also a Certified Internal Auditor
Nice J. Morales (CIA) and a member of PICPA.
Managing Partner

Kristine is a lawyer. She is experienced in

international tax inbound and outbound
investments. She has advised local clients on various
tax (national and local) issues, including: tax
implications of proposed transactions; structuring of
cross-border transactions for tax efficiency and cost
Ma. Kristine Cabaero
minimization; contract review and interpretation;
Partner corporate restructuring; application and
interpretation of tax treaty provisions; corporate tax
planning; and family wealth planning and local
taxation. She has represented clients in tax
assessments and claims for refund in the Bureau of
Internal Revenue, and has prepared position papers
on tax-related industry issues and on various pending
tax bills.
She is the Chairman of the Taxes and Tariffs
Committee of the American Chamber of Commerce of
the Philippines. She is a member of the Integrated

OUR SERVICES
Clients receive practical advice on business issues tailored to meet their
objectives from experienced accountants and business advisers. The firm
has adequate resources to advice on most financial matters.

Clients can be assured that the advice received takes into account the
clients customs in addition to applicable laws and regulations, thus
ensuring the success of their business.

Assurance
Building trust and confidence through transparency and
consistency

We adapt our audit services to fit your unique needs. We give public good
confidence derived from auditing with reasonable assurance that financial
statements and disclosures are free from material misstatement. Clients
users benefit from auditing of companies and organizations through
attestations that lend credibility to the information disseminated by
corporations and reduces the informational asymmetries that might
otherwise exist between the users and issuers of financial statements.

Taxation
One Business, one Taxation practice

Taxation affects all businesses. Developing effective tax strategies that

encompass the whole entity is essential, with the impact of an approach
of particular transactions considered in relation to its effect on the overall
tax position of the entity and objectives of management. It is also a fact of
life that the tax legislation is becoming ever more complex.

The Firm has comprehensive knowledge and experience to assist clients

deal with all the different aspects of taxation. The Firm aims to minimize
taxation therefore maximizing wealth, while ensuring compliance with
relevant legislation.

Advisory
We help drive your business performance

As companies continue to seek growth in developed and rapid markets,

challenges clearly remain.
With the change in the global economy and as laws continue to make
business more and more complex, the role of the accountant is changing
to a more trusted advisor role meaning that, accountants are becoming
the 'go to' people for holistic business advice.
We can provide financial advisory to business and high net worth
individuals who require specialized advice on capital formation, cash flow
and wealth management.

Corporate Governance

As standards of corporate behavior come under increasing scrutiny,

senior managers need to take into account the rules, regulations
and best practice concerning Corporate Governance. Our specialists
provide practical advice in this important area.

Risk Management

Expert advise on risk management, review of not only financial risks

but other areas including operations, resources and reputation that
can have a dramatic impact on the continuing success of an entity.

Business valuations

These may be required for a variety of reasons. The Firm has

 experts with strong track records in establishing and valuing
companies and other business structure. Where required, our
reports are used as support in litigation or negotiations with tax
authorities.

CONTACT US:

2nd Floor, Insular Life Cebu Business Centre

Mindanao Avenue corner Biliran Road
Cebu Business Park, Cebu City
Tel.: (032) 254-2474
Fax: (032) 254-2313
E-mail: cm.admin@cm.ph