Speaker 1: G'day everyone, we are the group D of April 103 class and in this video we are going to present ourselves as internal auditors for Lenbong Manufacturing Corporation wherein we are going to report to the senior management the audit plan that we have created. G'day to you ma'am and sir, the last time that we were here together is when we have finally selected the auditors for our annual operational audit and we were tasked to create an audit plan and now we're back again to present finally the 2021 audit plan for Lenbong Manufacturing Corporation.

Speaker 2: As we review the financial statement of Lenbong Manufacturing Corporation, we have come up with an initial audit finding with regards to its sales growth which is one of the operating measures. Sales growth is an important determiner of the company's financial performance. Specifically, we have reviewed its compound annual growth rate and we found out that the company only has a constant growth rate of 8% over the past 3 years. With this initial finding, we aim to identify the cause of this constant growth rate and to propose recommendations on how the company will boost its sales such as giving importance in developing quality products, improved marketing, and even maximizing its production efforts.

Speaker 3: Asset utilization is a very important element in total financial performance. In relation to this, the Day Sales Outstanding, Day Sales in Inventory, and Operating Cash Cycle computation are used in measuring asset utilization of the Lenbong Manufacturing Corporation. Throughout the cooperative years, the Day Sales Outstanding has a constant result of 73 days. So, it takes 73 days for the company to collect receivables from their customers. With regards to the Day Sales in Inventory, it has also a constant result of 146 days. This means that it takes 146 days for the corporation to convert its inventory into sales. Adding the result of the Day Sales Outstanding and Day Sales Inventory shows the Operating Cash Cycle result of 219 days. This indicate that it takes 219 days for the business to convert its inventory into cash. Based on the findings, there are no changes with regards to the days. However, these areas of asset utilization can be improved by shortening the days required by the company to collect receivables and convert inventory to sales and cash. In order to achieve this, the audit team's proposed recommendations include ensuring timely billing of the corporation through lightning-fast invoicing and fast payment incentives like keeping a credit card on file or shortening net terms for payments. Another is to speed up the conversion of inventory into sales or by reducing the value of inventory held. Lastly is improving the cash flow management and supplier lead time.

Speaker 4: Capital Structure and Liquidity Capital structure measures are indicators of the firm's source of capital, creditworthiness, ability to service existing debt, and ability to raise additional financing if needed. Liquidity measures examine the ability of the firm to convert assets to cash to satisfy short-term obligations. In connection, Current Ratio, Quick Ratio, and Debt-to-Equity Ratio are used to measure the capital structure and liquidity of Lenbang Manufacturing Corporations. From year 2019 to 2022, the Current Ratio and Quick Ratio of the corporations are increasing. This means that the current assets are available to satisfy the short-term obligations of the manufacturing corporations and there are more assets that can be quickly converted into cash. With regards to their Debt-to-Equity Ratio, it is a lower percent from 2019 to 2022. By this, Lenbang Manufacturing Corporation maintained a healthy Debt-to-Equity Ratio. The money they generated by stockholders is more than enough to pay off their debt. My recommendations are the following. Lenbang Manufacturing Corporation shall reduce the collection period of accounts receivable because it has a positive impact on a company's Quick Ratio and Current Ratio. And also, they should pay short-term liabilities quickly. Current liabilities are in the denominator of the Quick Ratio and Current Ratio and keeping it low will put the manufacturing corporation in a better position. In order to improve the Debt-to-Equity Ratio, the corporation should improve inventory management and also restructure their debt.

Speaker 1: In addition to the measures that were mentioned by the team, we have also developed a way to measure and evaluate the cash flows. As a measurement for cash effectiveness, we have measured the operating cash flow relative to the income generated. So, the cash effectiveness ratio is actually a good indicator of the relationship between the cash flow and the reported income. So, from the information that we have received for the Lenbang Manufacturing Corporation, if I am going to compute for the cash effectiveness ratio, it will be at 55%. And on 2021, it will be at 59%. So, as you can see, there is a 4% increase. And what this means is that the company is actually doing better in managing the receivables, the inventories, and as well as the capital investment. But as you can see right here, if we are going to reiterate the cash and the receivable, if we are going to compare them, there is still a big difference. So, maybe the company could do better in the collection efforts.

Speaker 2: From the findings we have presented, we have come up with this 2021 audit plan for Lenbang Manufacturing Corporation.

Speaker 3: Executive Summary This report provides the objectives, audit criteria, scope, participating roles, and summary of activities of the Operational Audit of Lenbang Manufacturing Corporation covering the years 2019 to 2021. Conducted by the internal audit team of the company. The audit team was chosen as the internal auditors after an open and competitive selection to conduct the audit. The quality cost-based selection process was approved by the LBMC Board on February 24, 2022. The audit covered the appraisal of performance, which involves measurement of productivity, measurement of profitability, performance of job, and appraisal of cost. The audit team reported to the LBMC Board for the duration of the audit, which commenced on May 6, 2022. As identified by the internal auditors, the audit was conducted according to the following areas, product efficiency, internal policies and procedures, and review of accounts.

Speaker 4: The overall objective is to assess all levels of management of Lenbang Manufacturing Corporation in the effective discharge of their responsibilities by furnishing them with objective analysis, appraisals, recommendations, and pertinent comments concerning the activities reviewed. Specifically, the objectives of the audit includes production, internal controls and procedures, inventory, fixed assets, accounts receivable, and accounts payable. The team objective with regards to production is to ensure that production lines are effective, efficient, operate economically and safely, and deliver with high quality. Product lines do not become obsolete prematurely, production lines operate consistently, and the production process has a good safety record.

Speaker 2: The team's objective with regards to the internal controls and procedures is to guarantee that first, controls are in place to ensure that processes flow smoothly and operations are free from disruptions. Second, controls are in place to ensure that assets are deployed for their proper purposes and are not vulnerable to misuse or theft. Third, internal controls prevent and detect fraud and other unlawful acts. Now we go to inventory. The team's objective with regards to the inventory is to verify that first, all inventory values and quantities are accurate in inventory accounts. Second, inventory is safe from damage and theft. Third, inventory quantities are sufficient to meet operating needs. And lastly, all income from inventory disposals and scrap sales is maximized and fully accounted for. Now we go to fixed assets. The team's objective with regards to fixed assets is to ensure that first, assets are reflected correctly and accurately in accounting records. Second, capital expenses are justified and approved. Third, fixed assets are recorded under existence and condition verified regularly. Fourth, depreciation is calculated and posted in accordance with company policy and prevailing accounting standards and regulations. Fifth, assets are appropriately protected from loss and damage. And lastly, asset disposals and write-offs are valid, authorized, correctly accounted for on the accounting records.

Speaker 1: As the internal auditor who is assigned in accounts receivable, our team's objective is to ensure that all amounts due to the company undergo collection efforts. And of course, transactions are posted in time and they should be accurately recorded. And of course, credit should be granted based on the buyer's risk profile.

Speaker 3: The team's objective with regards to the accounts payable of the corporation is to verify and make sure that the following conditions are met. First, is that the payments are only made to valid and approved vendors. Second, payments are for goods and services received in acceptable condition. Third, payments are correct and reflected accurately in the accounting records. Fourth, positive working relationships are maintained with key suppliers. And lastly, financial statements reflect all liabilities outstanding and paid.

Speaker 2: In the course of this audit, we will be using the following audit tools. First, check sheet. This will be used to monitor the accomplishment of the audit process. Second, eight areas of waste. This is to assess the proper utilization of the company's resources such as their inventories. We also have scatter diagram, tact time, Gantt chart which will be utilized to present the summary of audit activities. And lastly, the flow chart in order to obtain a greater understanding of the business processes.

Speaker 4: The scope of the engagement is to conduct an audit assessment of the operation processes of Lenbong Manufacturing Corporation. Our scope for this engagement are as follows. First, review of manufacturing operations within Lenbong Manufacturing Corporation. Second, review material handling procedure at Lenbong Manufacturing Corporation. Third, review of material movement within the facility. Fourth, review of metrics and KPI for the operations department. Fifth, review of operational procedure or SLA or manuals. Sixth, provide recommendations for Lenbong Manufacturing Corporation. And lastly, provide recommendations for all of the above mentioned areas.

Speaker 3: The key participants of the audit include the senior management, lead auditor, internal auditors, employees, suppliers or creditors, and customers. For the senior management, it has the responsibility of selecting the audit team, developing appropriate audit programs, allocating and directing staffing resources to execute audit plans on time, producing final audit reports for internal and regulatory agency review, and executing thorough follow-up audits on previously identified issues. The lead auditor has the responsibility of developing and managing the company's internal audit program and supervising audit team members. It also has the responsibility of reporting the audit team's findings to top management. The internal auditors have the duty to conduct a complete, detailed, and objective internal audits, while the employees need to cooperate with internal auditors in the course of the audit process and for taking appropriate actions to correct nonconformities found during the audit. The suppliers or creditors are responsible for the confirmation of account balances and information of changes. And lastly, the role of the customer is to show supporting documentation with regards to revenue transactions and cash payments.

Speaker 1: For the summary of activities, we have prepared a Gantt chart for that. And as you can see, the plan phase is almost done. All we need is just approval for this audit plan so we could go on to the next step. But as a recap, last February 18th, we have selected our competent auditors and we have screened them, of course, with the participation of the senior management. And then on March 3rd, we have defined our audit plans, the procedures, the scope, and the objectives. And we have discussed that through our team, the lead auditor, and also the internal auditors.

Speaker 2: On March 5, 2022, the activity would be reference documents and the responsible on this activity are both the lead auditor and the internal auditors. The duration of that activity will be two days. On March 7 of the same year, the identification of administrative and infrastructure support will commence. The key person responsible in this activity will also be the lead auditors and the internal auditors. After two days, that would be March 9, 2022, the collection of information will start and the lead auditor and the internal auditors will still be responsible for that activity.

Speaker 4: On March 14, 2022, the activity would be audit evidence. The responsible persons of that activity are lead auditor, internal auditors, supplier or creditors, and customers. One month and four days after, which is April 18, 2022, the activity is to evaluate against criteria. The responsible persons of that activity are lead auditor and internal auditors. One week after, which is April 25, 2022, the activity would be audit findings. The responsible persons are lead auditor and internal auditors. On May 2, 2022, the activity would be review findings. And the responsible persons are lead auditor and internal auditors.

Speaker 3: On May 6, 2022, the senior management, lead auditor, and internal auditors will start the presentation of the audit report having a conclusion and actionable information. Next, on May 9, 2022, Steel, the senior management, lead auditor, and the internal auditors will conduct a follow-up to answer the questions or concerns of the board. Lastly, on May 13, a post-audit follow-up will be performed by them. So, that's all for our audit plan for the Limebone Manufacturing Corporation. Thank you for listening and have a nice day. END