Final Working Paper

Note 1 Cash and Cash Equivalents
AUDIT FINDINGS
EVIDENCE
Check from ABC debtor which is dated 9/30/2016 was

included in the cash and cash equivalents.
ORIGINAL ENTRY
Account Title
Debit
Credit
No corresponding entry made in the books but reflected
in the balanced sheet.
RECOMMENDATION
Check from ABC debtor is considered as postdated check
as it s dated 09/30/2016 and thus should not be part of
cash and cash equivalents.
AUDIT FINDINGS
Post-dated check was included in the cash collection
journal.
ORIGINAL ENTRY
Account Title
Debit
Credit
Cash in Bank
17,000.00
Accounts Receivable
17,000.00
RECOMMENDATION
Note 1: Cash and Cash Equivalents

CORRECT ENTRY
Account Title
Debit
No entry
PFRS/IFRS BASED
PAS 7 Cash Equivalents
EVIDENCE
Supplemental Information 1:1
CORRECT ENTRY
Account Title
Debit
PFRS/IFRS BASED
AUDIT FINDINGS
EVIDENCE
Error in the designated position of Sandrea Ortega stated

in the manager's check. She is the cashier but not
thedirector of the HRMD.
Not applicable
Credit
Credit
No entry
Post-dated checks are recognized as receivable and

should not be part of the cash yet because post-dated
checks are unacceptable by the bank for deposit and
immediate credit right or outright encashment.
ORIGINAL ENTRY
Account Title
Debit
Credit
CORRECT ENTRY
Account Title
Debit
Not applicable
Credit
Not applicable
Not applicable
RECOMMENDATION
PFRS/IFRS BASED
Checks should be reviewed to determine that there is

proper authority.
AUDIT FINDINGS
EVIDENCE
Check from Customer X which is a postdated check.
ORIGINAL ENTRY
Account Title
Debit
Credit
Sales
Cash
No entry made
RECOMMENDATION
The sales must be for the next period because the check
was postdated.
AUDIT FINDINGS
Cashier included In the change fund her own money
which is P72.00.
ORIGINAL ENTRY
Account Title
Debit
Credit
Coins and Change Fund
72.00
Miscellaneous Income
72.00
RECOMMENDATION
CORRECT ENTRY
Account Title
Debit
25,000.00
25,000.00
PFRS/IFRS BASED
EVIDENCE
CORRECT ENTRY
Account Title
Debit
PFRS/IFRS BASED
AUDIT FINDINGS
EVIDENCE
Voucher #17800 Purchase of Office Supplies not

recorded.
Credit
Credit
No entry
Cashier should separate his own money.
ORIGINAL ENTRY
Account Title
Debit
Credit
CORRECT ENTRY
Account Title
Debit
Credit
Office Supplies
5,700.00
Accounts Payable
PFRS/IFRS BASED
No entry made
RECOMMENDATION
When a purchase of supplies are made, it should be
recorded immediately depending on the freight terms.
PAS 2 Inventories
AUDIT FINDINGS
EVIDENCE
Voucher #17890 Water consumed recorded as paid

although there is no voucher and authorization of check.
ORIGINAL ENTRY
Account Title
Debit
Utilities Expense
1,570.00
Cash in Bank
RECOMMENDATION
CORRECT ENTRY
Credit
Account Title
Debit
Utilities Expense
1,570.00
1,570.00
Accounts Payable
PFRS/IFRS BASED
5,700.00
Credit
1,570.00
There should be proper authority in recording paid

expenses and also check if the voucher and check are
approved.
AUDIT FINDINGS
EVIDENCE
Voucher #17895 No receipts were submitted in the

reimbursement of payment of cleaning supplies
purchased by janitress.
ORIGINAL ENTRY
Account Title
Debit
Credit
No entry made
RECOMMENDATION
Reimbursement cannot be made when there is no
evidence such as receipts. Therefore, receipts should be
kept for submission.
CORRECT ENTRY
Account Title
Debit
Supplies Expense
500.00
Accounts Payable
PFRS/IFRS BASED
Credit
500.00
AUDIT FINDINGS
EVIDENCE
Voucher #17911 Salaries paid to the guard.
ORIGINAL ENTRY
Account Title
Debit
Credit
No entry made
RECOMMENDATION
CORRECT ENTRY
Account Title
Debit
Salaries Expense
1,677.00
Cash in Bank
PFRS/IFRS BASED
Credit
1,677.00
Record the unrecorded entries.
AUDIT FINDINGS
EVIDENCE
IOU's ( cash advances to employees) were included in the

cash and cash equivalents.
ORIGINAL ENTRY
Account Title
Debit
Credit
Advances to employee
24,675.00
Cash
24,675.00
RECOMMENDATION
CORRECT ENTRY
Account Title
Debit
Credit
No entry
PFRS/IFRS BASED
IOUs or advances to employee should be part of

receivables and recognized as a current asset.
PAS 39 Financial Instruments- recognition and

measurement
AUDIT FINDINGS
EVIDENCE
Service charges not recorded in the books.
ORIGINAL ENTRY
Account Title
Debit
No entry made
Credit
CORRECT ENTRY
Account Title
Debit
Bank Service Charge
7,000.00
Cash in Bank
Credit
7,000.00
RECOMMENDATION
PFRS/IFRS BASED
Bank service charge should be recorded in the books as

this is a debit memo which decreases the bank balance
so that it would be equal with the book balance.
AUDIT FINDINGS
EVIDENCE
Interest income not recorded in the books
ORIGINAL ENTRY
Account Title
Debit
Credit
No entry made
RECOMMENDATION
CORRECT ENTRY
Account Title
Debit
Cash
5,100.00
Final Withholding Tax
1,275.00
Interest Income
PFRS/IFRS BASED
Credit
6,375.00
Interest income should also be recorded in the books

same treatment as the bank service charge because both
of theses are included in the debit memo.
AUDIT FINDINGS
EVIDENCE
Check# 0219371 Outstanding Check not included in

bank balance.
ORIGINAL ENTRY
Account Title
Debit
Credit
CORRECT ENTRY
Account Title
Debit
Not applicable
Not applicable
RECOMMENDATION
No adjustment required because disclosure only. Only
book reconciling items are adjusted.
PFRS/IFRS BASED
AUDIT FINDINGS

EVIDENCE
Credit
Check# 9401340 was tampered and was accepted by

bank to the extent of P60,000.
ORIGINAL ENTRY
CORRECT ENTRY
Account Title
Debit
Credit
Account Title
Debit
Credit
Accounts Payable
75,000.00
Accounts Payable
60,000.00
Cash
75,000.00
Cash
60,000.00
RECOMMENDATION
PFRS/IFRS BASED
The records must be adjusted to the extent of P60,000.00
only.
AUDIT FINDINGS
Check #2938234 Deposit in transit not included in bank
balance.
ORIGINAL ENTRY
Account Title
Debit
Credit
EVIDENCE
CORRECT ENTRY
Account Title
Debit
Not applicable
Not applicable
RECOMMENDATION
PFRS/IFRS BASED
AUDIT FINDINGS
Check# 1209310 Deposit in transit not included in bank
balance.
ORIGINAL ENTRY
Account Title
Debit
Credit
EVIDENCE
Credit

CORRECT ENTRY
Account Title
Debit
Not applicable
Not applicable
RECOMMENDATION
PFRS/IFRS BASED
Credit

AUDIT FINDINGS
EVIDENCE
Check#9230473 Postdated check.
ORIGINAL ENTRY
Account Title
Debit
Credit
Cash in Bank
18,000.00
Accounts Receivable
18,000.00
RECOMMENDATION
Post-dated checks are recognized as receivable and should
not be part of the cash yet because post-dated checks are
unacceptable by the bank for deposit and immediate credit
right or outright encashment.
AUDIT FINDINGS
Check#0932472 should not be recorded as cash.
ORIGINAL ENTRY
Account Title
Debit
Credit
Cash
5,700.00
Due from cashier
5,700.00
RECOMMENDATION
The personal account of employees must be separated
and not included in the company's account.
CORRECT ENTRY
Account Title
Debit
Credit
No entry
PFRS/IFRS BASED
EVIDENCE
CORRECT ENTRY
Account Title
Debit
No entry
PFRS/IFRS BASED
Credit
IMPLICATION
Cash was overstated and receivable was understated by
P37,895.00.
ADJUSTING ENTRY
Account Title
Debit
Credit
No corresponding entry in the books but P37,895.00 cash
must be excluded in the balance sheet.
SUPPORTING COMPUTATION
IMPLICATION
Cash was overstated while Accounts receivable was
understated by P17,000.00.
ADJUSTING ENTRY
Account Title
Debit
Credit
Accounts Receivable
17,000.00
Cash in Bank
17,000.00
IMPLICATION
Confusion and overlapping of work; Possibility of fraud
ADJUSTING ENTRY
Account Title
Debit
Not applicable
Credit
Not applicable
IMPLICATION
Cash and sales was overstated by P25,000.00
Sales
Cash
ADJUSTING ENTRY
Account Title
Debit
25,000.00
Credit
25,000.00
IMPLICATION
Cash overstated by P72.00.
ADJUSTING ENTRY
Account Title
Debit
Miscellaneous Income
72.00
Coins and Change Fund
Credit
72.00
IMPLICATION
Asset and liability were understated.
ADJUSTING ENTRY
Account Title
Debit
Credit
Office Supplies
5,700.00
Accounts Payable
5,700.00
IMPLICATION
Cash was understated while accounts payable was
understated.
ADJUSTING ENTRY
Account Title
Debit
Cash
1,570.00
Accounts Payable
Credit
1,570.00
IMPLICATION
Lack of reliable audit trail that can be evaluated when
auditing expenses.
ADJUSTING ENTRY
Account Title
Debit
Supplies Expense
500.00
Accounts Payable
Credit
500.00
IMPLICATION
Overstatement of Cash and Overstatement of Income
Account due to the Understatement of the Expense
Account by P1,677.
ADJUSTING ENTRY
Account Title
Debit
Salaries Expense
1,677.00
Cash in Bank
Credit
1,677.00
IMPLICATION
Cash was overstated while currents assets understated.
ADJUSTING ENTRY
Account Title
Debit
Credit
Cash
24,675.00
Accounts Payable
24,675.00
IMPLICATION
Expenses understated while cash was overstated.
Overstated bank balance.
ADJUSTING ENTRY
Account Title
Debit
Credit
Bank Service Charge
7,000.00
Cash in Bank
7,000.00
IMPLICATION
Other income was understated while cash was also
understated.
ADJUSTING ENTRY
Account Title
Debit
Credit
Cash
5,100.00
1,275.00
Interest Income
6,375.00
Cash received
5,100.00
Withholding Tax Rate
____80%
Interest Income
6,375.00
Withholding Tax Rate
____20%
1,275.00
IMPLICATION
Adjusted directly in the bank balance.
ADJUSTING ENTRY
Account Title
Debit
Not applicable
IMPLICATION
Credit
Understated Cash and Accounts Payable by P15,000.

ADJUSTING ENTRY
Account Title
Debit
Credit
Cash
15,000.00
Accounts Payable
15,000.00
IMPLICATION
ADJUSTING ENTRY
Account Title
Debit
Credit
Not applicable
IMPLICATION
ADJUSTING ENTRY
Account Title
Debit
Not applicable
Credit
IMPLICATION
Cash in bank was overstated while Accounts Receivable
was understated by P18,000.
ADJUSTING ENTRY
Account Title
Debit
Credit
Accounts Receivable
18,000.00
Cash in Bank
18,000.00
IMPLICATION
Cash was overstated by P5,700.00.
ADJUSTING ENTRY
Account Title
Debit
Due from Cashier
5,700.00
Cash
Credit
5,700.00
Note 2 Receivables
AUDIT FINDINGS
The AR of DEF is only 85% of its total non-prority
creditors.
ORIGINAL ENTRY
Account Title
Debit
Credit
No entry made
RECOMMENDATION
EVIDENCE
Supplemental Information 1
CORRECT ENTRY
Account Title
Debit
Credit
Allowance for Doubtful Accounts
20,175.00
Accounts Receivable
20,175.00
PFRS/IFRS BASED
15% of the AR should be written off by P 20,175 of which

P15000 is already recorded and an additional doubtful
accounts should be recorded.
AUDIT FINDINGS
No doubtful accounts was provided and recorded in the
books.
ORIGINAL ENTRY
Account Title
Debit
Credit
No entry made
RECOMMENDATION
EVIDENCE
CORRECT ENTRY
Account Title
Debit
Doubtful Accounts Expense
14,175.00
Credit
14,175.00
PFRS/IFRS BASED
When credit is extended, uncollectible accounts should

be anticipated and recorded in the amount estimated y
the credit policy of the company.
AUDIT FINDINGS
EVIDENCE
Unrecorded Unearned Interest Income for Jan 1,2016
Sales
ORIGINAL ENTRY
CORRECT ENTRY
Account Title
Debit
Credit
Account Title
Debit
Credit
500,000.00
500,000.00
Installment Receivable
500,000.00
432,947.67
Sales
Sales
Unearned Interest Income
67,052.33
RECOMMENDATION
PFRS/IFRS BASED
Unearned Interest Income must be recorded in order to

avoid overstatement of Sales.
AUDIT FINDINGS
EVIDENCE
Unrecorded Unearned Interest Income for March 31,2016
Sales.
ORIGINAL ENTRY
CORRECT ENTRY
Account Title
Debit
Credit
Account Title
Debit
Credit
300,000.00
300,000.00
300,000.00
242,050.68
Sales
Sales
57,949.32
RECOMMENDATION
PFRS/IFRS BASED
Unearned Interest Income must be recorded in order to
avoid overstatement of Sales.
AUDIT FINDINGS
No interest income was recorded in the books for January
1, 2016 sales.
ORIGINAL ENTRY
Account Title
Debit
Credit
No entry made
RECOMMENDATION
EVIDENCE
CORRECT ENTRY
Account Title
Debit
Credit
10,823.69
Interest Income
10,823.69
PFRS/IFRS BASED
Interest Income should be recognized when earned.
AUDIT FINDINGS
No interest income was recorded in the books for March
31, 2016 sales.
EVIDENCE
ORIGINAL ENTRY
Account Title
Debit
Credit
No entry made
RECOMMENDATION
CORRECT ENTRY
Account Title
Debit
3,933.32
Interest Income
PFRS/IFRS BASED
Credit
3,933.32
AUDIT FINDINGS
No interest income was recorded in the books for May 29,
2016 sales.
ORIGINAL ENTRY
Account Title
Debit
Credit
No entry made
RECOMMENDATION
EVIDENCE
CORRECT ENTRY
Account Title
Debit
Accrued Interest Receivable
333.33
Interest Income
PFRS/IFRS BASED
Credit
333.33
IMPLICATION
Overstatement of AR.
ADJUSTING ENTRY
Account Title
Debit
Credit
20,175.00
Accounts Receivable
20,175.00
Please refer to the page after this note
IMPLICATION
Understatement of Doubtful Accounts Expense.
ADJUSTING ENTRY
Account Title
Debit
Doubtful Accounts Expense
14,175.00
Credit
14,175.00
IMPLICATION
Overstatement of Sales
ADJUSTING ENTRY
Account Title
Debit
Credit
Sales
67,052.33
67,052.33
IMPLICATION
Overstatement of Sales
ADJUSTING ENTRY
Account Title
Debit
Credit
Sales
57,949.32
57,949.32
IMPLICATION
Income was understated.
ADJUSTING ENTRY
Account Title
Debit
Credit
10,823.69
Interest Income
10,823.69
IMPLICATION
ADJUSTING ENTRY
Account Title
Debit
3,933.32
Interest Income
Credit
3,933.32
IMPLICATION
ADJUSTING ENTRY
Account Title
Debit
Accrued Interest Receivable
333.33
Interest Income
Credit
333.33

Beg. Balance
Doubtful Expense (Squeezed)
Write Offs
End Balance
From DEF
15% write off
Write Offs
Recorded
Additional write-off
Accounts Receivable
From ABC
From XYZ
End Balance
35,000.00
14,175.00
35,175.00 (20175+15000)
14,000.00
234,500.00
0.15
35,175.00
15,000.00
20,175.00
Provision (Percentage on Accounts Receivable)

Amount
% Uncollectible
Uncollectible
120,000.00
0.05
6,000.00
80,000.00
0.10
8,000.00
14,000.00
Intstallment Receivable
Present
Value(PV)
January
March
May
Total Interest Earned
432,947.67
242,050.68
100,000.00
Interest
Number of months Income Earned
Interest Rate(IR)
earned(N)
( PVxIRxN)
0.05
6.00
10,823.69
0.07
3.00
3,933.32
0.04
1.00
333.33
15,090.34
Note 3 Inventories
AUDIT FINDINGS
EVIDENCE
Erroneously recorded in the Supplies and Inventories are

Label and Packaging, Tin Cans, Tetra Packs, and Oil
amounting to P42,000.00.
ORIGINAL ENTRY
Account Title
Debit
Supplies and Other Inventories
CORRECT ENTRY
Account Title
Debit
Credit
42,000.00
Cash
Raw Materials and Inventories

42,000.00
Credit
42,000.00
Cash
42,000.00
RECOMMENDATION
PFRS/IFRS BASED
Inventories are directly attributable to the manufactured

products so it should be included in the Raw Materials
Inventory.
PAS 2 Inventories
IMPLICATION
No effect (Offsetting of the understatement and
overstatement of assets).
ADJUSTING ENTRY
Account Title
Debit
Raw Materials and Inventories
Credit
42,000.00
Supplies and Other Inventories

42,000.00
Note 4 Marketable Securities

AUDIT FINDINGS
EVIDENCE
Malaya purchased 10 000 identical shares from Ayala

Holdings, Inc. for P 15.00 which the bookkepeer was
failed to record.
ORIGINAL ENTRY
Account Title
Debit
Supplemental Information 4: A
CORRECT ENTRY
Account Title
Debit
Credit
Investment in Equity Securities- Ayala

Holdings
No entry made
Credit
150,000.00
Cash
150,000.00
RECOMMENDATION
PFRS/IFRS BASED
All investment in equity securities purchased by the

corporation should be recorded.
PFRS 9, all investments in equity instruments and

contracts on those instruments must be measured at fair
value.
AUDIT FINDINGS
EVIDENCE
Malaya sold 15,000 shares at P 10.00 per share of Ayala

Holdings with a loss of P 7.00 per share which the
bookkepeer was failed to record.
ORIGINAL ENTRY
Account Title
Debit
Credit
No entry made
CORRECT ENTRY
Account Title
Debit
Cash
Loss on Investment
Credit
150,000.00
105,000.00
Investment in Equity SecuritiesAyala Holdings
255,000.00
RECOMMENDATION
PFRS/IFRS BASED
The sale of investment must be properly accounted for.
PFRS 9, paragraph 3.2.12, provides that on a

derecognition pf financial asset, the difference between
the consideration received and the carrying amount of
the financial asset shall be recognized in profit or loss.
AUDIT FINDINGS
EVIDENCE
Ayala declared a cash dividend of P 3.00 per ordinary

share of which the changes in fair value was never
recorded.
ORIGINAL ENTRY
Account Title
Debit
Credit
No entry made
RECOMMENDATION
CORRECT ENTRY
Account Title
Debit
135,000.00
Dividend Receivable
Dividend Income
PFRS/IFRS BASED
Credit
135,000.00
Cash dividend should be recorded because it was already

declared.
PAS 18. paragraph 29, provides that "dividends shall be

recognized as revenue when the shareholder's right to
receive payment is established".
AUDIT FINDINGS
EVIDENCE
The change in fair value was not recorded.
ORIGINAL ENTRY
Account Title
Debit
Credit
No entry made
RECOMMENDATION
Unrealized loss should be recognized due to change in

fair value and must be reflected in the financial
statement.
CORRECT ENTRY
Account Title
Debit
25,000.00
Unrealized Loss - TS
Investment in ES
PFRS/IFRS BASED
Credit
25,000.00
PFRS 9, paragraph 5.7.1, gains and losses on financial

assets measured at fair value shall be presented in profit
or loss.
Unrealized loss should be recognized due to change in

fair value and must be reflected in the financial
statement.
PFRS 9, paragraph 5.7.1, gains and losses on financial

assets measured at fair value shall be presented in profit
or loss.
AUDIT FINDINGS
EVIDENCE
Entry to record the investment in San Miguel Corporation

was not appropriate.
Supplemental Information 4: B
ORIGINAL ENTRY
Account Title
Debit
Investment in Equity Securities- San
Miguel Corporation
Credit
Investment in Equity Securities- San

Miguel Corporation
250,000.00
Ordinary Share Capital

Share Premium- Ordinary
RECOMMENDATION
CORRECT ENTRY
Account Title
Debit
200,000.00
50,000.00
Credit
250,000.00

PFRS/IFRS BASED
40,000.00
210,000.00
Adjust the incorrect entry made.

AUDIT FINDINGS
EVIDENCE
San Miguel Corporation declared a stock dividend of 25%

with a fair value of P 11.00 which was not recorded in the
books.
Supplemental Information 4: B
ORIGINAL ENTRY
Account Title
Debit
Credit
CORRECT ENTRY
Account Title
Debit
Credit
No entry made
Memo Entry: "Received 5,000 shares representing 25%

stock dividend on 20,000 original shares held. Shares
now held, 25,000 shares."
RECOMMENDATION
PFRS/IFRS BASED
Memo Entry must be recorded.
AUDIT FINDINGS
EVIDENCE
The entry recorded for the delaration of cash dividend is

not appropriate since it will understate Dividend Income
and Cash. It will also understate Dividend Receivable and
overstate Investment in Associate.
Supplemental Information 4: C
The entry recorded for the delaration of cash dividend is

not appropriate since it will understate Dividend Income
and Cash. It will also understate Dividend Receivable and
overstate Investment in Associate.
ORIGINAL ENTRY
Account Title
Debit
Dividend Income
Cash
Credit
275,000.00
275,000.00
CORRECT ENTRY
Account Title
Debit
Dividend Receivable
Investment in Associate
Credit
275,000.00
275,000.00
RECOMMENDATION
PFRS/IFRS BASED
FVTOCI - NCA

AUDIT FINDINGS
EVIDENCE
Failed to record cash dividend payment.
ORIGINAL ENTRY
Account Title
Debit
Credit
CORRECT ENTRY
Account Title
Debit
Credit
RECOMMENDATION
293,750.00
Cash
275,000.00
Dividend Receivable
18,750.00
Forex Gain
PFRS/IFRS BASED
Record the unrecorded transaction. The forex gain must

be added to gross income in computation of income tax.
PAS 21 Accounting for effects of changes in foreign

exchange rate.
No entry made
Record the unrecorded transaction. The forex gain must

be added to gross income in computation of income tax.

exchange rate.
AUDIT FINDINGS
EVIDENCE
Failed to record interest income.
ORIGINAL ENTRY
Account Title
Debit
Credit
No entry made
RECOMMENDATION
CORRECT ENTRY
Account Title
Debit
Interest Receivable
2,717.19
220.31
Interest Income
PFRS/IFRS BASED
Credit
2,937.50
Record the unrecorded transaction. The final withholding

tax is added to expenses.
AUDIT FINDINGS
EVIDENCE
Failed to record dividends declared.
ORIGINAL ENTRY
Account Title
Debit
Credit
No entry made
RECOMMENDATION
Record the unrecorded transaction.
AUDIT FINDINGS
Failed to record the increased in foreign exchange value
of the dividends receivable.
ORIGINAL ENTRY
CORRECT ENTRY
Account Title
Debit
Credit
Dividends Receivable
97,562.50
97,562.50
PFRS/IFRS BASED
EVIDENCE
CORRECT ENTRY
Account Title
Debit
Credit
No entry made
RECOMMENDATION
Record the increased in foreign exchange value of the
dividends receivable.
Account Title
Debit
218.75
Forex Gain
PFRS/IFRS BASED
Credit
218.75

exchange rate.
IMPLICATION
The Investment in ES was understated and Cash was
overstated by P 150,000.
ADJUSTING ENTRY
Account Title
Debit
Credit
150,000.00
Cash
150,000.00
10,000 shares x P15.00 = P150,000.00
IMPLICATION
The Cash was understated by P 150,000, Income was
overstated by P 105,000 and Investment in ES was
overstated by P 255,000
ADJUSTING ENTRY
Account Title
Debit
Cash
Loss on Investment
Credit
150,000.00
105,000.00
255,000.00
Book Value of Shares
255,000.00
Cash received (15,000 shares x P10.00 per share)
150,000.00
Loss from Sale
P105,000.00
IMPLICATION
The Dividend Receivablewas Dividend Income was
understated by P 135,000.
ADJUSTING ENTRY
Account Title
Debit
135,000.00
Dividend Receivable
Dividend Income
Beginning number of shares
Shares purchased
Shares sold
Shares outstanding
Cash dividend per share
Credit
135,000.00
50,000.00
10,000.00
____-15,000.00
P45,000.00
_______________3
Dividend Income
P135,000.00
IMPLICATION
The Investment in ES-Ayala Holdings and OCI was
overstated by P 25,000.
ADJUSTING ENTRY
Account Title
Debit
Credit
25,000.00
Unrealized Loss - TS
25,000.00
Investment in ES
(50,000-15,000)
*Trade prices available in Note 16*
Purchased 10,000 shares
35,000
x (P16-P17)
10,000
(35,000.00)
x (P16-P15)
-
Net Unrealized Loss
10,000.00
25,000.00
IMPLICATION
Ordinary Share Capital is understated and the
corresponding Ordinary Share Premium is overstated.
ADJUSTING ENTRY
Account Title
Debit
Credit
160,000.00
160,000.00
Market Value of the shares
Par value of such shares
250,000.00
10,000 x P4
Allocated to share premium
(40,000.00)
210,000.00
IMPLICATION
Number of total shares was understated and the
corresponding value per share was overstated.
ADJUSTING ENTRY
Account Title
Debit
Credit
Memo Entry: "Received 5,000 shares representing 25%

stock dividend on 20,000 original shares held. Shares now
held, 25,000 shares."
IMPLICATION
The entry recorded understated the Dividend Income and
Cash by P 275,000. It also understated the Dividend
Receivable and overstated the Investment in Associate by P
275 ,000.
The entry recorded understated the Dividend Income and

Cash by P 275,000. It also understated the Dividend
Receivable and overstated the Investment in Associate by P
275 ,000.
ADJUSTING ENTRY
Account Title
Debit
275,000.00
Cash
Dividend Income
275,000.00
Dividend Receivable
Credit
275,000.00
275,000.00
100,000 shares x 25% x 0.50 Ringgit per share x P22 per

Ringgit = P275,000.00
IMPLICATION
Cash was understated because dividend receivable was not
yet realized. Foreign exchange was understated as well as
OCI.
ADJUSTING ENTRY
Account Title
Debit
293,750.00
Cash
Dividend Receivable
Forex Gain
(100,000 x 25% x 0.50 Ringgit per share
Credit
275,000.00
18,750.00
x P23.50 per Ringgit)
293,750.00
Foreign Exchange Gain

293,750 - 275,000
18,750.00
IMPLICATION
Interest Income was understated.
ADJUSTING ENTRY
Account Title
Debit
Interest Receivable
2,717.19
220.31
Interest Income
Credit
2,937.50
IMPLICATION
Dividends was understated and Investment in Associate was
overstated.
ADJUSTING ENTRY
Account Title
Debit
Credit
97,562.50
97,562.50
100,000 shares / 2 x 25% x 0.35 Ringgit per share x P22.30
per Ringgit
IMPLICATION
Dividends receivable was understated.
ADJUSTING ENTRY
Account Title
Debit
218.75
Forex Gain
Credit
218.75
100,000 shares / 2 x 25% x 0.35 Ringgit per share x

(P22.35-P22.30)
Note 5 Investment in Properties

AUDIT FINDINGS
EVIDENCE
Aqua-Cultural Farm (Land) used in Business was

included in Investment in Properties and and Idle
Commercial Building classified as "For Sale" was
included in Investment in Properties.
ORIGINAL ENTRY
Account Title
Debit
Investment in Properties
Cash
Credit
1,250,000.00
1,250,000.00
RECOMMENDATION
Aqua-Cultural Farm (Land) used in Business should not

be included in Investment in Properties it should be part
of PPE and Idle Commercial Building classified as "For
Sale" should not be part of Investment in Properties it
should be in the Noncurrent Asset held for sale.
AUDIT FINDINGS
Increase in fair value of Investment Property was not
recorded.
ORIGINAL ENTRY
Account Title
Debit
Credit
No entry made
RECOMMENDATION
Under fair value model, changes in fair value should be
recognized.
Note 5: Investment in Properties

CORRECT ENTRY
Account Title
Debit
Credit
Non-current Asset Held for
475,000.00
Sale
Accumulated Depreciation
25,000.00
Land-PPE
750,000.00
1,250,000.00
Cash
PFRS/IFRS BASED
1.)PAS 40 prescribes the accounting treatment for
investment property. An investment property is not
held: a.) For use in the production or supply of goods or
services or for administrative purposes; b.) For sale in
the ordinary course of the business. 2.)PFRS 5, par.6,
provides that a noncurrent asset or disposal group is
classified as held for sale if the carrying amount will be
recovered principally through a sale transaction rather
than through continuing use.
EVIDENCE
CORRECT ENTRY
Account Title
Debit
Credit
Investment in Property
220,000.00
Gain from change in fair
220,000.00
value
PFRS/IFRS BASED
SUPPORTING COM
PFRS 13, fair value
measurements.
Under fair value model, changes in fair value should be

recognized.
AUDIT FINDINGS
Failure to revalue the aqua-cultural farm (land) used in
business .
ORIGINAL ENTRY
Account Title
Debit
Credit
No entry made
RECOMMENDATION
PFRS 13, fair value

measurements.
Warehouse under Operating Lease agreement
Commercial Land for Lease

Industrial Land for Capital Lease
EVIDENCE
CORRECT ENTRY
Account Title
Debit
Land-PPE
50,000.00
Revaluation Surplus
PFRS/IFRS BASED
Credit
50,000.00
Revalue the aqua-cultural farm (land) used in business .
AUDIT FINDINGS
Impairment of the noncurrent asset held for sale should
be recognized.
ORIGINAL ENTRY
Account Title
Debit
Credit
No entry made
RECOMMENDATION
EVIDENCE
CORRECT ENTRY
Account Title
Debit
Impairment Loss
15,000.00
Sale
PFRS/IFRS BASED
Assets shall not be carried at above their recoverable

amount, that is, the higher of the fair value less cost to
sell or the value in use.
AUDIT FINDINGS
Sales were not properly recorded and loss was not
recorded.
ORIGINAL ENTRY
EVIDENCE
CORRECT ENTRY
Credit
15,000.00
Account Title
Cash
Commission Fees
Investment Property
Debit
Credit
3,000,000.00
250,000.00
3,250,000.00
Account Title
Debit
Cash
Capital Gains Tax
Loss on Sale
Credit
2,802,000.00
198,000.00
57,000.00
3,057,000.00
RECOMMENDATION
PFRS/IFRS BASED
Loss on Sale should be recorded on selling investment

properties and commission fees should not be part of
the investment property sold.
PAS 40 prescribes the accounting treatment for

investment property.
AUDIT FINDINGS
Depreciation was recorded by the bookkepeer in a total
amount of P 75000.
ORIGINAL ENTRY
Account Title
Debit
Credit
Depreciation Expense
75,000.00
75,000.00
RECOMMENDATION
EVIDENCE
CORRECT ENTRY
Account Title
Debit
Credit
No entry made
PFRS/IFRS BASED
No depreciation is recorded for investment property.
PAS 40 prescribes the accounting treatment for

investment property.
AUDIT FINDINGS
EVIDENCE
Understatement of Investment in Property.
Cash Flow Statement
ORIGINAL ENTRY
Account Title
Debit
Credit
No entry made
RECOMMENDATION
Adjust Investment Property in order to avoid
understatement of asset.
CORRECT ENTRY
Account Title
Debit
Credit
250,000.00
Cash in Bank
250,000.00
PFRS/IFRS BASED
IMPLICATION
Investment in Properties was overstated.
ADJUSTING ENTRY
Account Title
Debit
Credit
475,000.00
Sale
25,000.00
Land-PPE
750,000.00
1,250,000.00
IMPLICATION
Understatement of Investment in Property.
ADJUSTING ENTRY
Account Title
Debit
Credit
220,000.00
Gain from change in fair
220,000.00
value
Gain
Cost
Fair Value
nder Operating Lease agreement
nd for Lease
d for Capital Lease
800000
540000
410000
820,000.00
650,000.00
500,000.00
20,000.00
110,000.00
90,000.00
220,000.00
IMPLICATION
Understatement of asset and comprehensive income.
ADJUSTING ENTRY
Account Title
Debit
Land-PPE
50,000.00
Revaluation Surplus
Credit
50,000.00
P800,000.00 (Fair Value of the aqua-cultural land)

P750,000.00 (Cost) = P50,000.00
IMPLICATION
Overstatement of asset and net income.
ADJUSTING ENTRY
Account Title
Debit
Credit
Impairment Loss
15,000.00
15,000.00
Sale
Fair Value
460,000.00
Carrying Amount
-475,000.00
Impairment Loss
(P15,000.00)
IMPLICATION
Income was overstated.
ADJUSTING ENTRY
Account Title
Debit
475,000.00
Capital Gains Tax
25,000.00
Loss on Sale
750,000.00
Cash
Commission Fees
Credit
198,000.00
250,000.00
IMPLICATION
ADJUSTING ENTRY
Account Title
Debit
75,000.00
Credit
75,000.00
IMPLICATION
Understatement of asset.
ADJUSTING ENTRY
Account Title
Debit
Credit
250,000.00
Cash in Bank
250,000.00
Investment in Properties:
Company Warehouse for Lease under Operating Lease Agreement
Commercial Land for Lease
Industrial Land for Capital Appreciation
PPE:
Aqua-Cultural Farm (Land) used in Business
Noncurrent Asset Held for Sale

Idle Commercial Building Classified as "For Sale"
Commercial Land
Idle Residential Land Sold to Buyer X
Total
Capital Gains Tax
Cost
800,000.00
540,000.00
410,000.00
1,750,000.00
Fair Value
820,000.00
650,000.00
500,000.00
1,970,000.00
Cost
750,000.00
Fair Value
800,000.00
Cost
500,000.00
Depreciation Fair Value

25,000.00
460,000.00
1,800,000.00
1,500,000.00
3,300,000.00
6%
198,000.00
Commission Fees 250,000.00

Inv. In Property
193,000.00
57,000.00
Gain from Change in Fair Value

20,000.00
110,000.00
90,000.00
220,000.00
Revaluation Surplus
50,000.00
Impairment Loss
15,000.00
Note 6 Property, Plant and Equipment

AUDIT FINDINGS
EVIDENCE
No input vat recorded for Delivery Trucks.

ORIGINAL ENTRY
Account Title
Debit
1,600,000.00
Delivery Trucks
Accounts Payable
RECOMMENDATION
CORRECT ENTRY
Account Title
Debit
Credit
1,600,000.00
Delivery Trucks
1,600,000.00 Input Vat
192,000.00
1,792,000.00
Accounts Payable
PFRS/IFRS BASED
Credit
Input VAT should be claimed on the purchases of

depreciable capital goods.
Under NIRC Sec.110 (A)(v) Input tax on purchase of

depreciable capital goods; (2b)
AUDIT FINDINGS
EVIDENCE
No input vat recorded for Manufacturing Plant.
ORIGINAL ENTRY
CORRECT ENTRY
Account Title
Debit
Credit
Account Title
Debit
Credit
1,700,000.00
1,700,000.00
Manufacturing Plant
Manufacturing Plant
1,700,000.00 Input Vat
204,000.00
Accounts Payable
1,904,000.00
Accounts Payable
RECOMMENDATION
PFRS/IFRS BASED

AUDIT FINDINGS
EVIDENCE
No input vat recorded for Canning Equipment.
ORIGINAL ENTRY
Account Title
Debit
1,925,000.00
Canning Equipment
Accounts Payable
CORRECT ENTRY
Credit
Account Title
Debit
Credit
1,925,000.00
Canning Equipment
1,925,000.00 Input Vat
231,000.00
1,694,000.00
Accounts Payable
RECOMMENDATION
PFRS/IFRS BASED


AUDIT FINDINGS
Bookkeeper failed to record prior years' depreciation of
Delivery Truck
ORIGINAL ENTRY
Account Title
Debit
Credit
EVIDENCE
CORRECT ENTRY
Account Title
Debit
Credit
400,000.00
Retained Earnings
42,553.19
Accumulated Depreciation442,553.19
Delivery Truck
400,000.00
400,000.00 Delivery Truck
RECOMMENDATION
Retained Earning should be used to adjust unrecorded
depreciation expense.
AUDIT FINDINGS
Manufacturing Plant
ORIGINAL ENTRY
Account Title
Debit
Credit
254,851.48
Accumulated DepreciationDelivery Truck

Revaluation Surplus
PFRS/IFRS BASED
100,000.00
182,553.19
PAS 16 Property, Plant and Equipment
EVIDENCE
CORRECT ENTRY
Account Title
Debit
100,000.00
543,762.38
Retained Earnings
Accumulated DepreciationManufacturing Plant
72,298.29
Credit
643,762.38
100,000.00 Manufacturing
785,354.33
Plant
Revaluation Surplus
PFRS/IFRS BASED
RECOMMENDATION
AUDIT FINDINGS
Canning Equipment
ORIGINAL ENTRY
Account Title
Debit
Credit
493,762.38
PAS 16 Property, plant and equipment
EVIDENCE
CORRECT ENTRY
Account Title
Debit
125,000.00
223,626.37
Retained Earnings
Accumulated DepreciationCanning Equipment
291,591.95
Credit
348, 626.37
125,000.00
125,000.00 Canning
RECOMMENDATION
Equipment
257,483.44

Revaluation Surplus
PFRS/IFRS BASED
PAS 16 Property, plant and equipment
43,857.07
213,626.37
IMPLICATION
Understatement of deductions for VAT Purposes and
Understatement of Liabilities.
ADJUSTING ENTRY
Account Title
Debit
Credit
192,000.00
Input Vat
192,000.00
Accounts Payable
IMPLICATION
ADJUSTING ENTRY
Account Title
Debit
Credit
204,000.00
Input Vat
204,000.00
Accounts Payable
IMPLICATION
ADJUSTING ENTRY
Account Title
Debit
Credit
231,000.00
Input Vat
231,000.00
Accounts Payable
IMPLICATION
Property, plant and equipment was overstated;
depreciation understated.
ADJUSTING ENTRY
Account Title
Debit
Credit
Retained Earnings
31,489.36
31,489.36
237,058.00
Delivery Truck
Revaluation Surplus
65,569.46
171,489.36
IMPLICATION
ADJUSTING ENTRY
Account Title
Debit
Credit
Retained Earnings
543,762.38
543,762.38
785,354.33
Manufacturing Plant
Revaluation Surplus
291,591.95
493,762.38
IMPLICATION
ADJUSTING ENTRY
Account Title
Debit
Credit
Retained Earnings
223,626.37
Canning Equipment
223,626.37
257,483.44

Revaluation Surplus
43,857.07
213,626.37
Acquisition Cost
Less: Salvage Value
Cost
AD
CA/SV/RS
Delivery Trucks
1,600,000.00
40,000.00
1,560,000.00
431,489.36
1,128,510.64
1,797,058.82
497,058.82
1,300,000.00
Acquisition Cost
less: Salvage Value
Cost
AD
CA/SV/RS
Canning Equipment
1,925,000.00
25,000.00
1,900,000.00
2,157,483.44
323626.3736264
367,483.44
1,576,373.63
1,790,000.00
Acquisition Cost
less: Salvage Value
Cost
AD
CA/SV/RS
Manufacturing Plant
1,700,000.00
20,000.00
1,680,000.00
2,465,354.33
623,762.38
915,354.33
1,056,237.62
1,550,000.00
VAT
Delivery Trucks
Manufacturing Plant
Canning Equipment
Acquisition Cost
1,600,000.00
1,800,000.00
1,900,000.00
Useful Life
3.9years= 46.8mos
15 years/ 60mos
13 years/ 60 mos
TOTAL
Cost
Useful life in months
Depreciation/month
Life of the asset in mos.
Accumulated Dep.
237,058.82
65,569.46
171,489.36
Sound Value
Divided by(1128510.64/1560000)
New Cost
Cost
Useful life in months
Depreciation/month
Accumulated Dep.
257,483.44
43,857.07
213,626.37
Sound Value
Divided by(1576373.63/1900000)
New Cost
Cost
Useful Life in Months
Depreciation/month
Accumulated Dep.
785,354.33
291,591.95
493,762.38
Sound Value
Divided By(1056237.38)
New Cost
Total Input VAT

192,000.00
216,000.00
228,000.00
Creditable
Input VAT
per month
4,102.56
3,600.00
3,800.00
P11502.56
1,560,000.00
47
33,191.49
13
431,489.36
1,300,000.00
0.723404256
1,797,058.82
1,900,000.00
182
10439.5604396
31
323626.373626
1,790,000.00
0.8296703297
2,157,483.44
1,680,000.00
202
8,316.83
75
623,762.38
1550000
0.6287128713
2,465,354.33
VAT
Delivery Trucks
Manufacturing Plant
Canning Equipment
Acquisition cost
Useful life
1,600,000.00 3.9years= 46.8mo

1,800,000.00 15 years/ 60mos
1,900,000.00 13 years/ 60 mos
TOTAL
Total Input Vat

192,000.00
216,000.00
228,000.00
Creditable Input
Vat per month
4,102.56
3,600.00
3,800.00
P11502.56
Note 7 Land, Building and Machinery

AUDIT FINDINGS
EVIDENCE
No input vat recorded.

ORIGINAL ENTRY
Account Title
Debit
3,500,000.00
Office Building
Accounts Payable
RECOMMENDATION
CORRECT ENTRY
Account Title
Debit
Credit
3,500,000.00
Office Building
3,500,000.00 Input Vat
420,000.00
3,920,000.00
Accounts Payable
PFRS/IFRS BASED
Credit
Input Vat shall be recognized on acquisition of office

building.
AUDIT FINDINGS
EVIDENCE
No depreciation was recorded.
ORIGINAL ENTRY
Account Title
Debit
Credit
No entry made
CORRECT ENTRY
Account Title
Debit
280,000.00
Accumulated DepreciationOffice Building
RECOMMENDATION
Credit
280,000.00
PFRS/IFRS BASED
Record unrecorded transaction to adjust Net Income.
AUDIT FINDINGS
EVIDENCE
No revaluation of Office Building was recorded.
ORIGINAL ENTRY
Account Title
Debit
No entry made
Credit
CORRECT ENTRY
Account Title
Debit
779,487.18
Office Building
Accumulated Depreciation- Office
Building
Revaluation Surplus
Credit
399,487.18
380,000.00
RECOMMENDATION
PFRS/IFRS BASED
Record unrecorded transaction to adjust asset's balance.
AUDIT FINDINGS
EVIDENCE
No amortization of revaluation surplus.
ORIGINAL ENTRY
Account Title
Debit
Credit
No entry made
RECOMMENDATION
CORRECT ENTRY
Account Title
Debit
Revaluation Surplus
90,416.67
Retained Earnings
PFRS/IFRS BASED
Credit
90,416.67
Record amortization of revaluation surplus.
AUDIT FINDINGS
EVIDENCE
No input vat recorded on the purchase of Land where the
building is located.
ORIGINAL ENTRY
CORRECT ENTRY
Account Title
Debit
Credit
Account Title
Debit
Credit
1,750,000.00
1,750,000.00
Land
Land
1,750,000.00 Input Vat
210,000.00
Accounts Payable
1,960,000.00
Accounts Payable
RECOMMENDATION
PFRS/IFRS BASED
Record input vat on the purchase of Land where the
building is located.
AUDIT FINDINGS
EVIDENCE
Reversal of revaluation loss was not recorded.
ORIGINAL ENTRY
Account Title
Debit
Credit
CORRECT ENTRY
Account Title
Debit
Credit
200,000.00
Land
200,000.00
Revaluation Gain
PFRS/IFRS BASED
No entry made
RECOMMENDATION
The revaluation gain should be recognized in the income
statement.
AUDIT FINDINGS
EVIDENCE
No input vat recorded on the purchase of Land where the
plant is located.
ORIGINAL ENTRY
CORRECT ENTRY
Account Title
Debit
Credit
Account Title
Debit
Credit
1,370,000.00
1,370,000.00
Land
Land
1,370,000.00 Input Vat
164,400.00
Accounts Payable
1,534,400.00
Accounts Payable
RECOMMENDATION
PFRS/IFRS BASED
Input VAT should be recorded for the purchase of land
where building is located.
AUDIT FINDINGS
EVIDENCE
Revaluation loss was not recorded.
ORIGINAL ENTRY
Account Title
Debit
Credit
No entry made
RECOMMENDATION
Record unrecorded transaction to to adjust asset's
balance.
CORRECT ENTRY
Account Title
Debit
Credit
100,000.00
Revaluation Loss
100,000.00
Land
PFRS/IFRS BASED
IMPLICATION
ADJUSTING ENTRY
Account Title
Debit
Credit
420,000.00
Input Vat
420,000.00
Accounts Payable
IMPLICATION
Understatement of Depreciation Expense
ADJUSTING ENTRY
Account Title
Debit
280,000.00
Building
Credit
280,000.00
IMPLICATION
Understatement of Depreciation Expense.
ADJUSTING ENTRY
Account Title
Debit
779,487.18
Office Building
Building
Revaluation Surplus
Credit
399,487.18
380,000.00
IMPLICATION
Understated revaluation surplus.
ADJUSTING ENTRY
Account Title
Debit
Revaluation Surplus
90,416.67
Retained Earnings
Credit
90,416.67
IMPLICATION
ADJUSTING ENTRY
Account Title
Debit
Credit
210,000.00
Input Vat
210,000.00
Accounts Payable
IMPLICATION
Understatement of value of the asset.
ADJUSTING ENTRY
Account Title
Debit
Credit
200,000.00
Land
200,000.00
Revaluation Gain
IMPLICATION
ADJUSTING ENTRY
Account Title
Debit
Credit
164,400.00
Input Vat
164,400.00
Accounts Payable
IMPLICATION
Understatement of value of the asset.
ADJUSTING ENTRY
Account Title
Debit
Credit
100,000.00
Land
100,000.00
Revaluation Gain
Note 8 Other Assets

AUDIT FINDINGS
EVIDENCE
Failed to adjust the prepaid rent expense of delivery van.

Any creditable withholding taxes also ignored.
ORIGINAL ENTRY
Account Title
Debit
Prepaid Rent
Cash in Bank
Credit
420,000.00
120,000.00
CORRECT ENTRY
Account Title
Debit
420,000.00
Prepaid Rent
50,400.00
Input VAT
Withholding Tax Payable
420,000.00
Rent Expense
Prepaid Rent
21,000.00
399,000.00
Cash in Bank
Accounts Payable
50,400.00
Rent Expense
120,000.00
Prepaid Rent
RECOMMENDATION
Credit
420,000.00
420,000.00
PFRS/IFRS BASED
Creditable withholing tax or rent should be recorded

because it affects the deductability of rent.
AUDIT FINDINGS
Cost accountant failed to properly account joint and byproducts.
ORIGINAL ENTRY
Account Title
Debit
Credit
Scrap Materials and Inventories
250,000.00
Sales
EVIDENCE
CORRECT ENTRY
Account Title
Debit
250,000.00
RECOMMENDATION
Reverse such transaction in order to adjust the
appropriate balances.
Credit
250,000.00
Work in Process - Inventory
PFRS/IFRS BASED
250,000.00
Reverse such transaction in order to adjust the

appropriate balances.
AUDIT FINDINGS
Tools and spare parts for prototype testing were included
in the other assets account.
ORIGINAL ENTRY
Account Title
Debit
Credit
Other Assets (Tools and Spare
Parts)
350,000.00
Accounts Payable
RECOMMENDATION
EVIDENCE
CORRECT ENTRY
Account Title
Debit
No entry should made
350,000.000
Record unrecorded transaction to to adjust asset's

balance.
PFRS/IFRS BASED
Credit
IMPLICATION
Understated expenses; overstated prepaid rent.
Understated net income; understated whitholding tax.
ADJUSTING ENTRY
Account Title
Debit
Input VAT
Accounts Payable
50,400.00
21,000.00
29,400.00
Rent Expense
300,000.00
Prepaid Rent
Prepaid rent
420,000.00
Vat rate
12%
Input Vat
50,400.00
Prepaid rent
tax rate
Withholding tax payable
Credit
300,000.00
420,000.00
5%
21,000.00
IMPLICATION
Sales was overstated; Inventory was understated.
ADJUSTING ENTRY
Account Title
Debit
Sales
Credit
250,000.00
In-Process Inventories
Finished Goods Inventories
7,510.00
242,490.00
IMPLICATION
Liability was overstated .
ADJUSTING ENTRY
Account Title
Debit
Accounts Payable
Credit
350,000.00
Other Assets
350,000.00
Note 9 Accounts Payable

AUDIT FINDINGS
EVIDENCE
Interests were ignored by the bookkeeper.

ORIGINAL ENTRY
Account Title
Debit
Credit
No entry made.
RECOMMENDATION
CORRECT ENTRY
Account Title
Debit
204,500.00
Interest Expense
Accrued Interest Payable
PFRS/IFRS/GAAP BASED
Credit
204,500.00
Interest Expense should be recognized when

incurred regardless of whether paid or not.
Based on the Matching Principle under GAAP, revenue

should be recognized when earned and corresponding
expense should be recognized when incurred.
AUDIT FINDINGS
EVIDENCE
Penalty on late payment was not recorded.
ORIGINAL ENTRY
Account Title
Debit
Credit
No entry made.
RECOMMENDATION
Record unrecorded transaction to adjust Net
Income.
CORRECT ENTRY
Account Title
Debit
16,923.96
Other Charges
Accounts Payable
PFRS/IFRS/GAAP BASED
Credit
16,923.96
Based on the Matching Principle under GAAP, revenue

should be recognized when earned and corresponding
expense should be recognized when incurred.
IMPLICATION
Income was overstated.
ADJUSTING ENTRY
Account Title
Debit
204,500.00
Interest Expense
Accrued Interest Payable
Credit
204,500.00
IMPLICATION
Liabilities are understated.
ADJUSTING ENTRY
Account Title
Debit
16,923.96
Other Charges
Accounts Payable
Credit
16,923.96
Note 10 Loans Payable

AUDIT FINDINGS
EVIDENCE
Loans Payable and Interest Expense were not

recorded.
ORIGINAL ENTRY
Account Title
Debit
Credit
No entry made
RECOMMENDATION
CORRECT ENTRY
Account Title
Debit
300,000.00
Loans Payable
Interest Expense
50,000.00
Cash
PFRS/IFRS BASED
Credit
350,000.00
There must be a proper recording of Loans Payable

and Interest Expense.
AUDIT FINDINGS
EVIDENCE
Loans Payable was not recorded.
ORIGINAL ENTRY
Account Title
Debit
Interest Expense
35,000.00
Cash
RECOMMENDATION
CORRECT ENTRY
Account Title
Debit
350,000.00
Loans Payable
35,000.00 Interest Expense
35,000.00
Cash
PFRS/IFRS BASED
Credit
There must be a proper recording of Loans

Payable.
AUDIT FINDINGS
EVIDENCE
The presentation of loans payable into present

value is ignored as well as Discount on Loans
Payable.
Credit
385,000.00
The presentation of loans payable into present

value is ignored as well as Discount on Loans
Payable.
ORIGINAL ENTRY
Account Title
Debit
Cash
Loans Payable
300,000.00
RECOMMENDATION
Credit
CORRECT ENTRY
Account Title
Debit
259,768.60
Cash
40,231.40
300,000.00 Discount on Loans Payable
Loans Payable
PFRS/IFRS BASED
Credit
300,000.00
Loans Payable and Discount on Loans Payable

must be recorded.
AUDIT FINDINGS
EVIDENCE
Loan from RCBC- There was no interest expenses

recorded.
ORIGINAL ENTRY
Account Title
Debit
Credit
No entry made
RECOMMENDATION
Record Interest Expense in order to avoid
overstating the income and discount of loan
payable.
CORRECT ENTRY
Account Title
Debit
8,117.77
Interest Expense
Discount on Loans Payable
PFRS/IFRS BASED
Credit
8,117.77
IMPLICATION
Both the Loans Payable and and Interest Expense are
understated while the Cash was overstated.
ADJUSTING ENTRY
Account Title
Debit
300,000.00
Loans Payable
Interest Expense
50,000.00
Cash
Face amount
Less: Payments
1st year
2nd year
Carrying amount
Credit
350,000.00
1,000,000
300,000
350,000
350,000
IMPLICATION
Loans Payable is understated while the Cash was
overstated.
ADJUSTING ENTRY
Account Title
Debit
350,000.00
Loans Payable
Cash
Credit
350,000.00
IMPLICATION
The liability is overstated and income is overstated as well.
Carrying amount
Face amount
Less: Payments
1st year
2nd year
Carrying amount
1,000,000
300,000
350,000
350,000
The liability is overstated and income is overstated as well.

ADJUSTING ENTRY
Account Title
Debit
40,231.40
Cash
Credit
40,231.40
Please refer to the Amortization Table after this note
IMPLICATION
Understatement of interest expense which overstates the
income and overstatement of discount of loan payable
which overstates the carrying amount of Loan Payable.
ADJUSTING ENTRY
Account Title
Debit
8,117.77
Interest Expense
Credit
8,117.77
Interest expense for the period Nov. 15, 2015 = 12,988.43

Attributable for the year ended June 30, 2016 = 7.5 months
12,988.43 * 7.5/12 = 8,117.77
AMORTIZATION TABLE
Date
November
November
November
November
November
15,
16,
17,
18,
19,
Interest
2016 12,988.43
2017 10,637.85
2018 8,169.74
2019 5,578.23
2020 2,857.14
40,231.40
Payment
60,000.00
60,000.00
60,000.00
60,000.00
60,000.00
300,000.00
Amortization
47,011.57
49,362.15
51,830.26
54,421.77
57,142.86
259,768.60
Carrying Value
259,768.60
212,757.03
163,394.88
111,564.63
57,142.86
0.00
Note 11 Bonds Payable

AUDIT FINDINGS
EVIDENCE
No record of the bonds payable into present value and

bonds issue costs are not accounted. An equity component
of the bonds is recorded as well.
ORIGINAL ENTRY
Account Title
Debit
Cash in bank
Bonds Payable
1,000,000.00
RECOMMENDATION
CORRECT ENTRY
Credit
Account Title
Debit
1,190,000.00
Cash in bank
10,000.00
Discount on Bonds Payable
1,000,000.00
Bonds Payable
Share Premium-CP
PFRS/IFRS BASED
Credit
1,000,000.00
200,000.00
There must be a proper recording of bonds payable into

present value.
AUDIT FINDINGS
EVIDENCE
The company did not record interest expense and did not
amortize the discount on notes payable.
ORIGINAL ENTRY
Account Title
Debit
Credit
CORRECT ENTRY
Account Title
Debit
Interest Expense
50,000.00
Accrued Interst Payable
Credit
50,000.00
No entry made
RECOMMENDATION
There must be a proper recording of interest expense and
amortization of discount on notes payable.
787.00
Interest Expense
Discounts on Bonds Payable
PFRS/IFRS BASED
787.00
AUDIT FINDINGS
EVIDENCE
No record of the bonds payable into present value and

bonds issue costs are not accounted.
ORIGINAL ENTRY
Account Title
Debit
Credit
No entry made
RECOMMENDATION
CORRECT ENTRY
Account Title
Debit
Cash
830,000.00
Discount on B/P
100,000.00
70,000.00
Bond Issue Cost
Bonds Payable
PFRS/IFRS BASED
Credit
1,000,000.00
There must be a proper recording of bonds payable into

present value.
AUDIT FINDINGS
EVIDENCE
The company did not record interest expense and did not
amortize the discount on notes payable.
ORIGINAL ENTRY
Account Title
Debit
Credit
No entry made
RECOMMENDATION
There must be a proper recording of interest expense and
amortization of discount on notes payable.
CORRECT ENTRY
Account Title
Debit
Interest Expense
25,674.50
PFRS/IFRS BASED
Credit
25,674.50
IMPLICATION
Asset is understated and liability is overstated. Also, Equity is
understated.
ADJUSTING ENTRY
Account Title
Debit
190,000.00
Cash in bank
10,000.00
Share Premium-CP
Credit
200,000.00
IMPLICATION
Net income is overstated.
ADJUSTING ENTRY
Account Title
Debit
Interest Expense
50,000.00
Accrued Interst Payable
787.00
Interest Expense
Credit
50,000.00
787.00
IMPLICATION
The bonds payable is overstated.
ADJUSTING ENTRY
Account Title
Debit
Cash
830,000.00
Discount on B/P
100,000.00
70,000.00
Bond Issue Cost
Bonds Payable
Credit
1,000,000.00
IMPLICATION
Net income is overstated.
ADJUSTING ENTRY
Account Title
Debit
Interest Expense
25,674.50
Please refer to the page after this note.
Credit
25,674.50
1. Convertible Bonds-Term Bonds
1. Convertible
Bonds-Term Bonds
Face Value
Premium
on Bonds
Payable
1,000,000.00
300,000.00
Issue Price
Bond Issue Cost
Net Proceeds
1,300,000.00
(110,000.00)
1,190,000.00
Amortizat
Date
1/1/2016
6/30/2016
12/31/2016
6/30/2017
12/31/2017
6/30/2018
12/31/2018
6/30/2019
12/31/2019
6/30/2020
12/31/2020
2. Serial Bonds
Principal Payments
Face Value
Issue Price
Bond Issue Cost
Net Proceeds
1,000,000.00
100,000.00
900,000.00
70,000.00
830,000.00
200,000
200,000
200,000
200,000
200,000
Date
1/1/2016
12/31/2016
12/31/2017
12/31/2018
12/31/2019
12/31/2020
Issue Price of Bonds

Issue Price
w/oTotal
Conversion
Privilege
Share PremiumCoversion Privilege
0.05
Interest Paid
50,000.00
50,000.00
50,000.00
50,000.00
50,000.00
50,000.00
50,000.00
50,000.00
50,000.00
50,000.00
Amortization Schedule
0.051
Interest Expense
1,300,000.00
(1,100,000.00)
Bonds Payable
Issue Price
200,000.00
Premium on B/P
BIC
Discount on B/P
(100,000.00)
110,000
10,000.00
Amortization
Carrying Amount
990,000.00
990,787.00
991,614.37
992,484.19
993,398.63
994,359.98
995,370.65
996,433.16
997,550.18
998,724.51
1,000,000.00
10.26
5.13
50,787.00
50,827.37
50,869.82
50,914.44
50,961.35
51,010.67
51,062.51
51,117.02
51,174.32
51,234.57
787.00
827.37
869.82
914.44
961.35
1,010.67
1,062.51
1,117.02
1,174.32
1,275.49
Interest Payments
Total Payments
17.03%
PV Factor
90,000.00
72,000.00
54,000.00
36,000.00
18,000.00
290,000.00
272,000.00
254,000.00
236,000.00
218,000.00
0.854481757
0.7301390727
0.6238905176
0.5331030655
0.455526844
Present Value
830,000.00
247,799.71
198,597.83
158,468.19
125,812.32
99,304.85
829,982.90
1,000,000.00
(1,100,000.00)
0.1703
Principal Payments
200,000
200,000
200,000
200,000
200,000
Interest Payments
Interest Expense
Amortization
90,000.00
72,000.00
54,000.00
36,000.00
18,000.00
141,349.00
116,033.73
89,472.68
61,453.68
31,728.44
51349.00
44,033.73
35,472.68
25,453.68
13,728.44
Present Value
830,000.00
681,349.00
525,382.73
360,855.41
186,309.09
37.53
Note 12 Sales
AUDIT FINDINGS
EVIDENCE
Sales Discount charge to Other Charges.
ORIGINAL ENTRY
Account Title
Debit
Cash
Other Charges
Sales
1,950,000.00
50,000.00
Credit
CORRECT ENTRY
Account Title
Debit
Cash
Sales Discount
2,000,000.00
Output Vat
Sales
RECOMMENDATION
1,950,000.00
50,000.00
PFRS/IFRS BASED
There must be a proper presentation of discount and Output

VAT must be recorded.
AUDIT FINDINGS
EVIDENCE
No output vat was presented by Malaya which must be

recorded and corrected.
ORIGINAL ENTRY
Account Title
Debit
3,000,000.00
Accounts Receivable
Sales
RECOMMENDATION
CORRECT ENTRY
Credit
Account Title
Debit
3,000,000.00
Accounts Receivable
3,000,000.00
Sales
Output Vat
PFRS/IFRS BASED
Output VAT must be recorded and corrected.
Output VAT must be recorded and corrected.
IMPLICATION
Overstatement of other charges and understatement of sales
discount.
ation 12
RY
Credit
ADJUSTING ENTRY
Account Title
Debit
Sales
125,357.14
Output Vat
Credit
125,357.14
128,571.43
1,871,428.57 Sales Discount
50,000.00
Other Charges
Net Cash Sales
1,950,000.00
Multiplied by
0.60
Domestic sales
1,170,000.00
Divided by
1.12
ED
Multiplied by
Output Vat on Cash sales
50,000.00
1,044,642.86
0.12
125,357.14
IMPLICATION
ation 12
Overstatement of sales and understatement of output vat.
RY
Credit
2,807,142.86
ADJUSTING ENTRY
Account Title
Debit
Sales
Output Vat
192,857.14
192,857.14
192,857.14
ED
Net Credit Sales
Multiplied by
Credit
3,000,000.00
0.60
Export Sales
Divided by
Multiplied by
Output Vat on Credit Sales
1,800,000.00
1.12
1,607,142.86
0.12
192,857.14
Note 13 Cost of Sales

AUDIT FINDINGS
EVIDENCE
Purchases were not recorded.

ORIGINAL ENTRY
Account Title
Debit
Supplemental Information 1:a

Credit
No entry made
RECOMMENDATION
CORRECT ENTRY
Account Title
Debit
70,000.00
Raw Materials Inventories
16,000.00
Freight-in
10,320.00
Input Vat
Accounts Payable
PFRS/IFRS BASED
When a purchase of inventories are made, it should be

recorded immediately depending on the freight terms.
PAS 2 Inventories
AUDIT FINDINGS
EVIDENCE
Loss of Inventory in transit.
Supplemental Information 1:a
ORIGINAL ENTRY
Account Title
Debit
Credit
No entry made
RECOMMENDATION
CORRECT ENTRY
Account Title
Debit
75,000.00
Loss on shipment
Inventory
PFRS/IFRS BASED
Credit
96,320.00
Credit
75,000.00
Loss of Inventory must be recorded in order not

overstate the inventory.
AUDIT FINDINGS
EVIDENCE
Goods on Consignment included in physical count.
Supplemental Information 1:b
ORIGINAL ENTRY
Account Title
Debit
Credit
CORRECT ENTRY
Account Title
Debit
Cost of sales
No entry made
Finished Goods Inventory Canned Tuna
Credit
130,000.00
50,000.00
No entry made
Finished Goods Inventory - Canned
Sardines
80,000.00
RECOMMENDATION
PFRS/IFRS BASED
Consigned inventory should be excluded from Malaya's

ending inventory.
PAS 2 Inventories
AUDIT FINDINGS
EVIDENCE
Purchase of packing & labelling materials.
Supplemental Information 1:c
ORIGINAL ENTRY
Account Title
Debit
Credit
No entry made
RECOMMENDATION
Such inventory should be included at the end of the
fiscal year since the shipping term was FOB Destination
and the goods was already in the receiving area of
Malaya.
CORRECT ENTRY
Account Title
Debit
Inventory
Input Vat
Accounts Payable
Credit
7,500.00
900.00
PFRS/IFRS BASED
8,400.00
IMPLICATION
Purchases were understated.
ADJUSTING ENTRY
Account Title
Debit
70,000.00
Raw Materials Inventories
16,000.00
Freight-in
10,320.00
Input Vat
Accounts Payable
86,000.00
Purchase of materials not recorded
0.12
Multiplied by
10,320.00
Input Vat
Credit
96,320.00
IMPLICATION
Overstated of inventory recorded from above.
ADJUSTING ENTRY
Account Title
Debit
75,000.00
Loss on shipment
Inventory
Credit
75,000.00
IMPLICATION
Ending inventories are overstated.
ADJUSTING ENTRY
Account Title
Debit
Cost of sales
Finished Goods Inventory Canned Tuna
Credit
130,000.00
50,000.00
Finished Goods Inventory - Canned

Sardines
80,000.00
IMPLICATION
Ending inventory was understated; thus Cost of Sales wass
overstated, Net income understated.
ADJUSTING ENTRY
Account Title
Debit
Credit
7,500.00
Raw Materials Inventory
900.00
Input Vat
8,400.00
Accounts Payable
273,156.00
Input Vat
Accounts Payable
Packagin & labels
7,500.00
Multiplied by
0.12
Input Vat
900.00
273,156.00
Note 14 Taxes and Licenses

AUDIT FINDINGS
EVIDENCE
Income tax was erroneously recorded.
Note 14
ORIGINAL ENTRY
CORRECT ENTRY
Account Title
Debit
Credit
Account Title
Debit
18767.673
99,500.00
Income Tax
Income Tax
99,500.00
Cash
Cash
RECOMMENDATION
Credit
18767.673
PFRS/IFRS BASED
Proper recording of income and expenses.
AUDIT FINDINGS
EVIDENCE
Community Tax was not recorded.
Note 14
ORIGINAL ENTRY
Account Title
Debit
Credit
No entry made.
RECOMMENDATION
CORRECT ENTRY
Account Title
Debit
5,458.18
Community Tax
Cash
PFRS/IFRS BASED
AUDIT FINDINGS
EVIDENCE
Real Property Tax was not recorded.
Note 14
Credit
5,458.18
Real Property Tax was not recorded.

ORIGINAL ENTRY
Account Title
Debit
Note 14
Credit
No entry made.
RECOMMENDATION
CORRECT ENTRY
Account Title
Debit
163,760.00
Real Property Tax
Cash
PFRS/IFRS BASED
Credit
163,760.00
IMPLICATION
Overstatement of Income Tax; Understatement of Cash.
ADJUSTING ENTRY
Account Title
Debit
Cash
Income Tax
Credit
80,732.327
80,732.327
See financial statements.
IMPLICATION
Understatement of Community Tax
ADJUSTING ENTRY
Account Title
Debit
5,458.18
Community Tax
Cash
IMPLICATION
Understatement of Real Property Tax.
Credit
5,458.18
Understatement of Real Property Tax.

ADJUSTING ENTRY
Account Title
Debit
163,760.00
Real Property Tax
Cash
Credit
163,760.00
Note 15 Losses
AUDIT FINDINGS
EVIDENCE
The tin cans of the goods that were lost completely due
to fire may be saleable. However, as of the balance
sheet date, the tin cans were still on hand classified as
"for sale"
Note 15:2
ORIGINAL ENTRY
Account Title
Debit
Credit
CORRECT ENTRY
Account Title
Debit
No entry made
Loss on Fire
RECOMMENDATION
Credit
5,000.00
5,000.00
PFRS/IFRS BASED
Record saleable scrap materials in order to avoid

overstating the loss on fire.
AUDIT FINDINGS
EVIDENCE
The insurance recovery which is P25,000.00 were still

available but is not reflected in the books.
Note 15:3
ORIGINAL ENTRY
Account Title
Debit
Credit
No entry made
RECOMMENDATION
There must be a proper accounting of the insurance
recovery.
CORRECT ENTRY
Account Title
Debit
25,000.00
Insurance Receivable
Loss on Fire
PFRS/IFRS BASED
Credit
25,000.00
IMPLICATION
Loss is overstated.
ADJUSTING ENTRY
Account Title
Debit
Credit
5,000.00
Loss on Fire
5,000.00
Reclassification only.
IMPLICATION
Understated insurance receivable.
ADJUSTING ENTRY
Account Title
Debit
25,000.00
Insurance Receivable
Loss on Fire
Reclassification only.
Credit
25,000.00
Note 16 Other Comprehensive Income

AUDIT FINDINGS
EVIDENCE
Failure to recognized the unrealized loss of the 10,000

quoted securities purchased held as "upon maturity."
ORIGINAL ENTRY
Account Title
Debit
Credit

CORRECT ENTRY
Account Title
Debit
100,000.00
Financial Asset at FVTOCI
Cash
Credit
100,000.00
No entry made
RECOMMENDATION
Recognize unrealized loss of securities upon maturity.
11,000.00
Unrealized Loss - OCI
FA at FVTOCI
PFRS/IFRS BASED
11,000.00
IMPLICATION
Overstatement of assets and income.
ADJUSTING ENTRY
Account Title
Debit
100,000.00
Financial Asset at FVTOCI
Cash
11,000.00
Unrealized Loss - OCI
FA at FVTOCI
Credit
100,000.00
11,000.00
10,000 shares x (P8.90-P10.00) = P11,000 Unrealized

Loss
Note 17 Treasury Stocks

AUDIT FINDINGS
ORIGINAL ENTRY
Account Title
Debit
RECOMMENDATION
EVIDENCE
Credit
CORRECT ENTRY
Account Title
Debit
PFRS/IFRS BASED
Credit
IMPLICATION
ADJUSTING ENTRY
Account Title
Debit
Credit
Note 18 Utilities Expense

AUDIT FINDINGS
EVIDENCE
30% of water which remained unpaid was recorded

in the Utilities Expense account and no entry made
on the liability.
ORIGINAL ENTRY
CORRECT ENTRY
Account Title
Debit
Credit
Account Title
Debit
30,000.00
30,000.00
Utilities Expense-Water
Utilities Expense-Water
30,000.00
Cash
Cash
Utilities Payable
RECOMMENDATION
PFRS/IFRS BASED
Credit
21,000.00
9,000.00
Any unpaid expenses should be recorded as a

liability.
AUDIT FINDINGS
EVIDENCE
Error in the amount recorded for

Telecommunications expense.
ORIGINAL ENTRY
Account Title
Debit
Utilities ExpenseTelecommunications
Credit
35,000.00
Cash
Utilities Expense-Telecommunications
13,000.00
Utilities Payable
CORRECT ENTRY
Account Title
Debit
14,705.88
Fringe Benefit Expense
22,000.00
RECOMMENDATION
Any unpaid expenses should be recorded as a
liability.
Credit
13,000.00
Cash
Utilities Payable
PFRS/IFRS BASED
13,000.00
10,000.00
4,705.88
AUDIT FINDINGS
EVIDENCE
Error in the amount recorder for Electricity

consumption.
ORIGINAL ENTRY
Account Title
Debit
Utilities Expense-Electricity
Credit
70,000.00
Cash
CORRECT ENTRY
Account Title
Debit
45,000.00
Fringe Benefits Expense
70,000.00
RECOMMENDATION
Any fringe benefit given to an individual with a

managerial or supervisory position is subject to
fringe benefit tax.
Credit
36,764.71
Cash in Bank
Witholding Tax Payable
PFRS/IFRS BASED
70,000.00
11,764.71
IMPLICATION
Net income overstated due to expenses overstated; Liability was
understated.
ADJUSTING ENTRY
Account Title
Cash
Utilities Payable
Debit
Credit
9,000.00
9,000.00
P30,000 x 30% = P9,000.00 Utilities Payable
IMPLICATION
Net income overstated due to expenses overstated; Liability was
understated.
ADJUSTING ENTRY
Account Title
Debit
14,705.88
Utilities Payable
Credit
12,000.00
Utilities Expense-Telecommunications
22,000.00
4,705.88
Monetary Value of the expenses
Applicable Gross-up rate
Grossed Up Monetary Value (Fringe Benefit Exp)
Applicable tax rate
Fringe Benefit Tax
10,000.00
68%
14,705.88
32%
4,705.88
IMPLICATION
Utilities Expense was overstasted while Fringe Benefit Expense was
understated.
ADJUSTING ENTRY
Account Title
Debit
36,764.71
25,000.00
Credit
11,764.71
Applicable tax rate
Fringe Benefit Tax
25,000.00
68%
36,764.71
32%
11,764.71
Note 19 Supplies Expense

AUDIT FINDINGS
EVIDENCE
Supplies Expenses- Office Supplies were expensed when

purchased.
ORIGINAL ENTRY
Account Title
Debit
CORRECT ENTRY
Credit
Account Title
Debit
Credit
Office Supplies
75,000.00
75,000.00
60,000.00
Cash in Bank
75,000.00
15,000.00
Accounts Payable
Supplies Expense
Cash in Bank
57,500.00
Supplies Expense
Office Supplies
RECOMMENDATION
57,500.00
PFRS/IFRS BASED
Supplies on hand should be recorded as an adjustment.
AUDIT FINDINGS
EVIDENCE
Factory Supplies were included in Supplies Expense

account.
ORIGINAL ENTRY
Account Title
Debit
Credit
Supplies Expense-Factory Supplies 30,000.00

Factory Supplies
CORRECT ENTRY
Account Title
Debit
Factory Supplies
30,000.00
RECOMMENDATION
Factory supplies should be recorded as an asset.
Credit
30,000.00
Supplies Expense-Factory
Supplies
PFRS/IFRS BASED
30,000.00
AUDIT FINDINGS
EVIDENCE
The educational supplies shouldered by Malaya on behalf

of Alvin Nino May, son of Cedrick to Cathy in their unlucky
marriage was recorded as a supplies expense.
ORIGINAL ENTRY
Account Title
Debit
Educational Supplies Expense
Cash in Bank
55,000.00
RECOMMENDATION
CORRECT ENTRY
Credit
Account Title
Debit
55,000.00
25,882.35
55,000.00
Cash in Bank
PFRS/IFRS BASED
Credit
55,000.00
25,882.35
Adjusting entry must be made in order not to understate

the Withholding Tax.
AUDIT FINDINGS
EVIDENCE
The educational supplies shouldered by Malaya on behalf

of Fredrick Colina, in pursuit of his Masters in Social
Sciences majoring in Human Resource Accounting was
recorded as a supplies expense.
ORIGINAL ENTRY
CORRECT ENTRY
Account Title
Debit
Credit
Account Title
Debit
47,000.00
47,000.00
Cash in Bank
47,000.00
Cash in Bank
RECOMMENDATION
PFRS/IFRS BASED
No fringe benefits must be recorded.
AUDIT FINDINGS
EVIDENCE
The educational supplies to Hya Grace, daughter of Virgo

and Jinevieve, both rank-and-file employees of Malaya,
was recorded as a supplies expense.
Credit
47,000.00
The educational supplies to Hya Grace, daughter of Virgo

and Jinevieve, both rank-and-file employees of Malaya,
was recorded as a supplies expense.
ORIGINAL ENTRY
CORRECT ENTRY
Account Title
Debit
Credit
Account Title
Debit
43,000.00
43,000.00
Cash in Bank
43,000.00
Cash in Bank
RECOMMENDATION
PFRS/IFRS BASED
This expense qualifies as a fringe benefit since it is
furnished or granted by an employer in addition to basic
salary to an individual employee. However, it was given
to a rank-and-file employee, it is not subject to fringe
benefit tax.
Credit
43,000.00
IMPLICATION
Office Supplies Expense was overstated and unused
office supplies was understated.
ADJUSTING ENTRY
Account Title
Debit
Credit
Office Supplies
75,000.00
Cash in Bank
15,000.00
Accounts Payable
15,000.00
Supplies Expense
75,000.00
57,500.00
Supplies Expense
57,500.00
Office Supplies
P75,000.00 x 20% = P15,000.00 Accounts Payable
IMPLICATION
Inventory was understated and Supplies Expense was
overstated.
ADJUSTING ENTRY
Account Title
Debit
Factory Supplies
Credit
30,000.00
Supplies Expense-Factory
Supplies
30,000.00
IMPLICATION
Understatement of Withholding Tax
ADJUSTING ENTRY
Account Title
Debit
Credit
25,882.35
25,882.35
Applicable tax rate
55,000.00
68%
80,882.35
32%
25,882.35
Fringe Benefit Tax
IMPLICATION
Non-taxable Fringe Benefits
ADJUSTING ENTRY
Account Title
Debit
No adjusting entry needed
IMPLICATION
No effect
Credit
No effect
ADJUSTING ENTRY
Account Title
Debit
Credit
43,000.00
43,000.00
Note 20 Salaries Expense

AUDIT FINDINGS
No taxes withheld for fringe benefits of managerial and
supervisory position.
ORIGINAL ENTRY
Account Title
Debit
Salaries Expense
Cash in Bank
EVIDENCE
CORRECT ENTRY
Credit
Account Title
Debit
Salaries expense
700,000.00
600,000.00
600,000.00
Accrued Salaries Expense
Cash in Bank
RECOMMENDATION
PFRS/IFRS BASED
Accrued Salaries must be recognized and Salaries Expense

must be recorded.
Credit
36,750.00
103,250.00
560,000.00
IMPLICATION
Understated Salaries Expense and Accrued Salaries Expense.
ADJUSTING ENTRY
Account Title
Debit
Salaries expense
100,000.00
Losses
40,000.00
Accrued Salaries Expense
Credit
36,750.00
103,250.00
Note 21 Other Items

AUDIT FINDINGS
EVIDENCE
Amount of donation improperly recorded.

ORIGINAL ENTRY
Account Title
Debit
200,000.00
Donation Expense
Cash
CORRECT ENTRY
Account Title
Debit
100,000.00
Donation to Charitable Institution
200,000.00
Cash
Credit
RECOMMENDATION
Credit
100,000.00
PFRS/IFRS BASED
Amount of donation must be recorded appropriately.

AUDIT FINDINGS
EVIDENCE
Donation to Alagang Kapatid Foundation was beyond the

reporting period.
ORIGINAL ENTRY
Account Title
Debit
Credit
CORRECT ENTRY
Account Title
Debit
No entry made
No entry should be made
RECOMMENDATION
PFRS/IFRS BASED
Credit
No entry should be made because the donation was already

beyond the reporting period.
AUDIT FINDINGS
EVIDENCE
Donation to Ilog Kinderhome Foundation erroneously recorded.
ORIGINAL ENTRY
Account Title
Debit
Donation Expense
Cash
Inventory
Credit
100,000.00
CORRECT ENTRY
Account Title
Debit
30,000.00
25,000.00
Cash
Inventory
Credit
100,000.00
30,000.00
25,000.00
45,000.00
Gain on Donation
RECOMMENDATION
45,000.00
Retained Earnings
PFRS/IFRS BASED
Adjust inventory account.

AUDIT FINDINGS
EVIDENCE
No entry on donation made to local government.
ORIGINAL ENTRY
Account Title
Debit
Credit
No entry made
RECOMMENDATION
Expense account must be adjusted because the donation must
be recorded.
AUDIT FINDINGS
Donation to Perlas Foundation which was a de facto NGO and
it was not recorded.
ORIGINAL ENTRY
Account Title
Debit
Credit
CORRECT ENTRY
Account Title
Debit
Donation to LGU
40,000.00
Cash
PFRS/IFRS BASED
RECOMMENDATION
Adjust Donation Expense account.
40,000.00
EVIDENCE
CORRECT ENTRY
Account Title
Debit
No entry made
Credit
Credit
656,190.46
Accumulated Depreciation-Office
403,809.54
Vehicle
Office Vehicle
PFRS/IFRS BASED
1,060,000.00
AUDIT FINDINGS
EVIDENCE
Unrecorded depreciation of car for January until June.
ORIGINAL ENTRY
Account Title
Debit
Credit
No entry made
RECOMMENDATION
Expense account must be adjusted because the donation must

be recorded.
CORRECT ENTRY
Account Title
Debit
63,095.24
PFRS/IFRS BASED
Credit
63,095.24
IMPLICATION
Donation Expense overstated; Cash understated.
ADJUSTING ENTRY
Account Title
Debit
100,000.00
Cash
100,000.00
Donation Expense
Credit
200,000.00
IMPLICATION
Not included as donation for the year ended June 30, 2016.
ADJUSTING ENTRY
Account Title
Debit
Credit
No entry should be made

IMPLICATION
Inventory was overstated.
ADJUSTING ENTRY
Account Title
Debit
Gain on Donation
Finished Goods Inventory
100,000.00
45,000.00
25,000.00
Credit
Donation Expense
Sales
100,000.00
70,000.00
IMPLICATION
Expenses understated
ADJUSTING ENTRY
Account Title
Debit
Donation to LGU
40,000.00
Cash
Credit
40,000.00
IMPLICATION
Donation Expense overstated.
ADJUSTING ENTRY
Account Title
Debit
656,190.46
Accumulated Depreciation-Office
403,809.54
Vehicle
Office Vehicle
DE
Multiply
Acc. Depreciation
151,428.57
2
302,857.14
1,060,000.00
403809.54
656,190.46
Credit
1,060,000.00
12619.05
__________8
100952.4
IMPLICATION
Expenses understated; Net income overstated
ADJUSTING ENTRY
Account Title
Debit
63,095.24
Cost
1,010,000.00
Add: Fees
50,000.00
Carrying Cost
1,060,000.00
Divided by Useful Life
7
DE
151,428.57
Divided by Months
12
12,619.05
Multiply
5
63,095.24
Credit
63,095.24

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Note 1 Cash and Cash Equivalents

Check from ABC debtor which is dated 9/30/2016 was

Note 1: Cash and Cash Equivalents

PAS 7 Cash Equivalents

Error in the designated position of Sandrea Ortega stated

Supplemental Information 1:2

Post-dated checks are recognized as receivable and

Checks should be reviewed to determine that there is

PAS 7 Cash Equivalents

Check from Customer X which is a postdated check.

Supplemental Information 1:3

Voucher #17800 Purchase of Office Supplies not

Supplemental Information 1:6

Cashier should separate his own money.

Voucher #17890 Water consumed recorded as paid

Supplemental Information 1:6

There should be proper authority in recording paid

Voucher #17895 No receipts were submitted in the

Supplemental Information 1:6

Voucher #17911 Salaries paid to the guard.

Supplemental Information 1:6

Record the unrecorded entries.

IOU's ( cash advances to employees) were included in the

Supplemental Information 1:7

IOUs or advances to employee should be part of

PAS 39 Financial Instruments- recognition and

Service charges not recorded in the books.

Supplemental Information 1:9

Bank service charge should be recorded in the books as

Interest income not recorded in the books

Supplemental Information 1:9

Interest income should also be recorded in the books

Check# 0219371 Outstanding Check not included in

Supplemental Information 1:11

PAS 7 Cash Equivalents

Check# 9401340 was tampered and was accepted by

Supplemental Information 1:11

Supplemental Information 1:11

No adjustment required because disclosure only. Only

Check#9230473 Postdated check.

Supplemental Information 1:11

Understated Cash and Accounts Payable by P15,000.

15% of the AR should be written off by P 20,175 of which

When credit is extended, uncollectible accounts should

Unearned Interest Income must be recorded in order to

Interest Income should be recognized when earned.

Interest Income should be recognized when earned.

Please refer to the page after this note

Please refer to the page after this note

Allowance for Doubtful Accounts

Provision (Percentage on Accounts Receivable)

Erroneously recorded in the Supplies and Inventories are

Supplemental Information 3:4

Raw Materials and Inventories

Inventories are directly attributable to the manufactured

Supplies and Other Inventories

Note 4 Marketable Securities

Malaya purchased 10 000 identical shares from Ayala

Investment in Equity Securities- Ayala

All investment in equity securities purchased by the

PFRS 9, all investments in equity instruments and

Malaya sold 15,000 shares at P 10.00 per share of Ayala

Investment in Equity SecuritiesAyala Holdings

The sale of investment must be properly accounted for.