NCE Understand Estimates SCOTand perform walkthrough

Entity name: Honda Cars Kalookan,Inc. Date of financial statements: December

31, 2016

Significant class of transactions (SCOT):

Name: Estimates
Nature: Routine
Owner: Mary Claire R. Montojo

This form has been designed to support the audit of non-complex entities (NCE) and
is not to be used for entities that do not meet the NCE criteria for use.

When and how to use this form

A.) Requirement for use: This form is optional, but supports meeting GAM requirements.

B.) How to use this form: Complete all relevant check-boxes and text fields.

Purpose
We obtain an understanding of the significant classes of transactions (SCOTs) to identify and
understand the risks of material misstatement at the assertion level (and, when applicable, to
identify and understand what can go wrongs (WCGWs) and the controls over the WCGWs).

Completion of this form addresses the EY Canvas tasks:

Understand SCOTs, identify WCGWs and relevant controls and relate them to relevant
SCOTs and significant disclosure processes
Identify type and frequency of control and select controls to test
Create a task to document understanding of a SCOT or significant disclosure process
Create tests of controls

Form 814GL (7 October 2015) 1

NCE Understand Purchase to Payable SCOTand perform
walkthrough

Our understanding of the critical path (SCOTS 2)

Document below our understanding of the critical path of the SCOT, including the major inputs
and outputs. The critical path includes:
Initiation: the point where the transaction first enters the entitys process and is prepared
and submitted for recording
Recording: the point where the transaction is first recorded in the books and records of
the entity
Processing: any changes, manipulation or transfers of the data in the books and records
of the entity
Reporting: the point where the transaction is reported (i.e., posted) in the general ledger
Document our understanding of how incorrectly processed information is detected and corrected
on a timely basis.
To help determine that we properly consider the effects of computer processing in making our risk
assessments and developing our audit strategy, describe automated aspects of the critical path of
the SCOT, including manual aspects that depend upon computer functionality or IPE. Document
the attributes of the related IT applications in Form 800GL NCE Audit planning template (APT), or
equivalent documentation.
For significant risks, we identify controls relevant to the audit (refer to UTB 4) and document
these in Form 800GL NCE Audit planning template (APT).
Performed by
Automated
Describe the critical path (job title
aspects
only)
A. Allowance for Doubtful Accounts
Aging analysis of Accounts Receivable Credit and Not applicable
Collection
Summarization of aged accounts receivable Credit and Not applicable
Collection
Proposals for provisions Credit and Not applicable
Collection
Approval of the provisions SSC Head Not applicable
Entry of provisions FMAC Not applicable
B. Allowance for inventory obsolescence
Aging analysis of Inventory Cost Not applicable
Accountant
Summarization of Aged Inventory Cost Not applicable
Accountant
Proposals for provisions Cost Not applicable
Accountant
Approval of the provisions SSC Head Not applicable
Entry of provisions FMAC Not applicable
C. Pension
Reference to the prioy year actuarial valuation report FMAC staff Not applicable
Entry of provisions FMAC Head Not applicable

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NCE Understand Purchase to Payable SCOTand perform
walkthrough
Provide any other details that are necessary to understand the initiation, recording, processing, and
reporting of the transactions, including major input and output sources, if not included in the
description above:
Initiation
A. Allowance for doubtful accounts

This account pertains to the balance sheet account that reduces the reported amount of accounts receivable. Its a
reduction to the account that appear immediately below the accounts receivable line item. This deduction is considered
to be a contra asset account.

The allowance for doubtful accounts represent managements best estimate of the amount of accounts receivable that
will not be paid by customers/banks.

Management evaluate the reasonableness of an allowance for doubtful accounts by comparing it to the total amount of
seriously overdue accounts receivable, which are presumably not going to be collected.

Transaction starts from the credit and collection department, staff monitors in excel file the aging of various receivables.

B. Allowance for inventory obsolescence

This account pertains to the contra asset account of inventories of the Company. This is based on the aging analysis of
the Inventory and Cost accountant.

Yearly, the Inventory and Cost accountant summarizes all the vehicle units aged more than 1 year and an assignment of
70,000 per year.

For Parts and accessories, aging analysis is made every 3 years.

C. Pension Expense

Pension expense refer to the Company charges in relation to its liabilities for pension payables to its regular employees.
The amount of this expense varies, depending upon whether the underlying pension is a defined benefit plan or a
defined contribution plan.

Recording to Processing

A. Allowance for doubtful accounts

Staffs in the credit and collection department handles various receivables, they are in charged in monitoring the
outstanding balances to the customers and banks. They ensure that all statement of account were sent to the customers
and bank for their notification of outstanding balances.

Staffs generate the aging report from the system and imported to excel for monitoring. All receivable aged 1 year and
above will be subject for due review by the staff and will summarize for the credit and collection head.

Upon review by the Credit and Collection head, schedules will be proposed to the Finance Head and Higher
management for the approval of the amount.

Entry for the recording of allowance for doubtful account is:

Expense xxx
Allowance for doubtful accounts xxx

B. Allowance for inventory obsolescence

Cost and Inventory accountant summarizes the vehicle unit aged more than 1 year and parts and accessories aged more
than 3 years. This summary is then forwarded to the Finance head for further review and eventually, approval by the
General Manager (Vehicle unit) and Parts department of every branch (Parts and Accessories) and SSC Head.

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NCE Understand Purchase to Payable SCOTand perform
walkthrough

Entry for the recording of allowance for doubtful account is:

Expense xxx
Allowance of obsolescence xxx

This will be booked by the FMAC team leader.

C. Pension expense

The team leader of FMAC booked the pension expense monthly in accordance to the estimate disclosed in the prior year
actuarial valuation report (AVR).

The entry made by the team leader:

Retirement expense xxx

Accrued retirement liability xxx

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NCE Understand Purchase to Payable SCOTand perform
walkthrough
Information produced by the entity:
The preparation of managements supporting documentation is likely to rely on information
produced by the entity (IPE). IPE is integral to our auditing of controls and performing our
substantive audit procedures. The risks related to IPE are defined in the IPE topic and are to be
addressed for IPE used in the execution of this form.

The first three risks are relevant when the IPE includes information that comes from an entitys IT
application. The fourth and fifth risks are relevant when end user computing (EUC) tools (e.g.,
Excel) are used in producing the IPE.

1. Data processed by the IT application from which the IPE is produced is not complete or
accurate
2. Data extracted from the IT application into the IPE is not the intended data or is not
complete
3. Computations or categorizations performed in the creation of the IPE from the IT
application are inaccurate
4. The data output from the IT application to the EUC tool is modified or lost in the transfer
5. Information added or changed (including new computations and categorizations) using the
EUC tool is incomplete, inaccurate or inappropriate
Document how we have addressed the risks related to IPE used in the execution of this form, when
applicable, or cross refer to applicable workpapers. Consider using Form 265GL Information
produced by the entity form.

Document what can go wrongs and controls (SCOTS 4, CONTROLS 2)

When applying a controls reliance strategy for a routine SCOT, we use our understanding of the
critical path and the policies and procedures to identify WCGWs and relevant controls responsive
to the WCGW. Relevant controls can include any procedure that is used and relied on by the entity
to prevent errors from occurring during transaction processing (prevent controls) or to detect and
correct errors that may have occurred in processed transactions on a timely basis (detect
controls). We consider the effect IT has on the SCOTs.
We document WCGWs and relevant controls responsive to the WCGWs in EY Canvas.

Conclusion: Scope & Strategy

We sign-off this form in EY Canvas to evidence the preparation, review and approval of
this form at the Scope & Strategy phase of the audit as well as completion of the
following EY Canvas task at this phase of the audit:

Understand SCOTs, identify WCGWs and relevant controls and relate them to relevant
SCOTs and significant disclosure processes
The following EY Canvas tasks do not require related evidence to be marked complete,
however, we may use this form to help complete these tasks:

Identify type and frequency of control and select controls to test

Create a task to document understanding of a SCOT or significant disclosure process (e.g.,
WT Cash disbursements)

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NCE Understand Purchase to Payable SCOTand perform
walkthrough

Walkthrough and other confirmation procedures (SCOTS 3, CONTROLS 3)

Describe the walkthrough and other procedures performed to confirm our understanding of the
SCOT, addressing the points at which the transactions are initiated, recorded, processed and
ultimately reported in the general ledger (or serve as the basis for disclosures), including both the
manual and automated steps of the process. Use original source documentation and information
technology that the client personnel typically would use in the flow of transactions.
Describe the walkthrough procedures to confirm our understanding of the design of the controls
and that they have been implemented. As we walk through the prescribed procedures and
controls, we ask personnel to describe their understanding of the control activities and
demonstrate how they are performed.
A) Walkthrough and other confirmation procedures
1. Aging analysis (AR)
Transaction selected for
2. Aging analysis (Inventory)
walkthrough:
3. Actuarial Valuation Report

Individual(s) we talked with Mr. Angelito Reyes Date: November 12, 2016
to confirm our Ms. Mary Claire Montojo
understanding: Dorothy Cotoco
Description of the walkthrough procedures performed including our inquiries:
No Movement for the year for Allowance for Obsolescence.

B) Segregation of incompatible duties, authorization and Additional

Yes No
management override of controls observations
a. Was anything noted in our walkthrough procedures that
would indicate there are incompatible duties?
If we answered Yes to the above:
Do the incompatible duties represent a deficiency in the
design of controls that is not sufficiently mitigated by other
management actions or controls that have been identified?
If we answered Yes to the above, provide further
documentation and the related effect on our audit strategy.
b. Was anything noted in our walkthrough procedures that
would indicate there are issues related to authorization?
If we answered Yes to the above:
Do the authorization issues represent a deficiency in the
design of controls that is not sufficiently mitigated by other
management actions or controls that have been identified?
If we answered Yes to the above, provide further
documentation and the related effect on our audit strategy.

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NCE Understand Purchase to Payable SCOTand perform
walkthrough
B) Segregation of incompatible duties, authorization and Additional
Yes No
management override of controls observations
c. Was anything noted in our walkthrough of controls that
indicate the potential for management override of controls or
that such override may have occurred?
If we answered Yes to the above:
Does the potential for management override of controls
represent a deficiency in the design of controls that is not
sufficiently mitigated by other management actions or
controls that have been identified?
If we answered Yes to the above, provide further
documentation and the related effect on our audit strategy.

Additional
C) Conclusion Yes No N/A
observations
Did our walkthrough procedures confirm our
understanding of the routine SCOT?
Did our walkthrough procedures confirm that
the identified WCGWs represent the points
within the routine SCOT where material
misstatements could occur?
Did our walkthrough procedures confirm that
the controls have been properly designed and
implemented?

Design tests of controls (CONTROLS 5)

We design tests of controls for all relevant assertions for which we decide to rely on controls,
provided that those controls reside within routine SCOTs. When designing our tests of controls,
we consider CONTROLS 5 Design tests of controls and use professional judgment to determine
the nature, timing, and extent of our tests of controls.

We document our control procedures in EY Canvas.

Conclusion: Execution

We sign-off this form in EY Canvas to evidence the preparation, review and approval of
this form at the Execution phase of the audit as well as completion of the following EY
Canvas task at this phase of the audit:

Task created by the audit team to document understanding of a SCOT or significant

disclosure process (e.g., WT Cash disbursements)

The following EY Canvas task does not require related evidence to be marked complete,
however, we may use this form to help complete this task:

Task created by the audit team for tests of controls (e.g., TOC CD01)