EXIT CONFERENCE

MEETING MINUTES
Meeting Date: March 14, 2016
Meeting Location: University of San Carlos-DC
Recorded By: Janellaine Paares, Secretary

March 14, 2016

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CALL TO ORDER
An Exit Conference meeting of Duraplex Hardware Manufacturing Inc. was held on
March 14, 2016 at Suite 346 Dingman Building of the University of San Carlos-DC. It
began at 11:05 am and was presided by the CEO, Evangel Eloise Sison with Janellaine
Paares as secretary.
ATTENDEES

NAME

TITLE

ORGANIZATION

PRESENT

Evangel Eloise Sison

CEO

Duraplex Hardware
Manufacturing Inc.

Yes

Vianca Amores

Auditor

Cavalida, Saito and Co.,

Auditing Firm

Yes

Maaku Saito

Auditor

Cavalida, Saito and Co.,

Auditing Firm

Yes

Marcia P. Butastas

Accounts Recievable clerk;

Accounts Payable clerk

Duraplex Hardware
Manufacturing Inc.

Yes

Raymond Gapas

Inventory clerk

Duraplex Hardware
Manufacturing Inc.

Yes

Mel Ebo

Inventory clerk

Duraplex Hardware
Manufacturing Inc.

Yes

Duraplex Hardware
Manufacturing Inc.

Yes

Janellaine Paares

Secretary; Warehouse
personnel

MEETING LOCATION
Building:
USC-DC, Dingman Building
Conference Room:
3F Suite GR 346
March 14, 2016

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MEETING START
Meeting Schedule Start: 11:00 am
Meeting Actual Start:
11:10 am
Meeting Scribe:
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-of
procedures that were employed by the company, we found out that such
are inefective 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 because
the 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 inefective cut-of 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 yearend, inventory balance per book shall be reconciled with the inventory
on-hand and any diference shall be accounted for properly. Thus, it is
very 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-of 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 addressed
to 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-of
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 it
because 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 the
company.
Mr. Saito: By doing such, it does not only overstate inventories, it also
overstates the companys net income which could then afect, 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 work
because 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 my
knowledge can take me. Im very sorry Ms. Paares for having ofended
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 afect 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 the
subsidiary 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-of 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-of 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'm
never 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.
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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 balance
amount 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 Actual End: 12:10 pm
Meeting Schedule End: 12:00 nn

POST MEETING ACTION ITEMS

Action
March 14, 2016

Assigned To

Deadline
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Investigation on the fraudulent

acts of Ms. Butastas, the AR
clerk, so that proper sanction
shall be taken.

Human Resource Deparment

As soon as possible

NEXT MEETING
Time: 8:00am-10am
Date: March 21, 2016
Venue: 3F Suite 354, University of San Jose Recoletos

March 14, 2016

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