STEELFRAME PHILIPPINES INC.

Inventory Count
Narrative Report

Location
Barangay Pio Cruz Cosa, Calumpit, Bulacan
Date
December 9-18, 2015

Inventory Count Teams

Name Position Department

(Antonio Yee) Edwin Agapito* Plant Manager
Noemer Gatmaitan (Accounting Supervisor) MMD Accounting Department
Supervisor*
Mimie Caylao Accounting Staff Accounting Department
Sofia Pangilionan Accounting Staff Accounting Department
Marlene De Jesus Accounting Staff Accounting Department
 Before the actual counting of inventories, the management of Steelframe Philippines Inc.
conducted a briefing for the inventory count teams. This was headed by Mr. Antonio Yee, the Plant
Manager, and Mr. Nomer Gatmaitan, Accounting Supervisor.

There were three count teams tasked to reckon the inventories in the Main Warehouse and
Warehouse Annex. The first count team was assigned to count the Raw Materials (A & B). Ms. Mimie M.
Caylao and Mr. Nomer Gatmaitan from the Accounting Department served as recorders, while Mr. Jojie
Manalaysay and Mark Franco from Materials Department served as counters. The second team was
assigned to count the Finished Goods Inventories (A & B) where Ms. Sofia Pangilinan from the
Accounting Department served as recorder, while Mr. Rey De Guzman from Materials Department
served as counter. The last team was assigned to count the supplies in the Hardware located inside the
Warehouse Annex. Ms. Marlene De Jesus from the Accounting Department served as recorder, with Mr.
Wilmer Nolasco from the Materials Department who served as counter. Class A pertained to materials
and finished goods that were of prime quality, while Class B pertained to downgraded materials and
finished goods inventories.

A written inventory count instructions was issued to the auditors. Count sheets were also
provided by the client. There were three copies of inventory count sheets: original copy for Accounting
Department, duplicate for the store, and triplicate for Materials Department. Cutoff documents were
also provided by the client. There was no freeze order by the management.

The count teams started the inventory count at 7 oclock in the morning of December 9, 2015.
The first count team started the count at the Main Warehouse where they counted the Raw Materials.
The Raw Materials of the company primarily consisted of slitted coils and mother coils. The slitted coils
were counted by attaching inventory tags. These tags showed the information like the tag number, coil
number, date, location, specification and quantity, signatures of the recorder, counter and auditor, and
remarks. Mother coils were also counted by attaching tags with the same aforementioned information.
These coils were, however, weighed to the satisfaction of the auditors because these materials were
considered material in amount. It is to be noted that certain mother coils located at the Main
Warehouse were not owned by SFPI. Nevertheless, the count team still counted, weighed and tagged
these inventories but with explicit indication on their tags that they are owned by another company, i.e.
PMPI. According to the client, these mother coils were delivered to them for production. PMPI is a
related party of SFPI.

After counting the materials in the Main Warehouse, the count team proceeded with the
materials located ate the Warehouse Annex. These materials consisted of slitted coils only. The same
procedures were observed for these coils.

The Quality Control Officer from the Production Department was also present during the count.
He was tasked to identify inventories which should be downgraded to Class B. The coils that were
rusting were inspected and then reclassified by the Quality Control Officer. He then prepared a report to
be submitted to the management for approval. The Plant Manager approves the reclassification of
inventories but according to him, the approval is only academic because it is the Quality Control Officer
who has the technical knowledge to identify downgraded inventories.

The Quality Control Officer was also responsible for the calibration of the weighing machines
used in the warehouses. According to the Quality Control Officer, these machines were annually
calibrated.

The second team began the counting of finished goods in the second week of the count. The
finished goods were all located at the Warehouse Annex. These inventories were counted and then
tagged with information showing the tag number, job order number, specification and quantity,
signatures of the recorder, counter and auditor, and remarks. The Quality Control Officer was also
present in case there were inventories that need to be reclassified. The counting of finished goods
inventories does not involve re-weighing of finished goods. The inventories were simply measured by
the quantity of goods produced.

The third count team simultaneously counted the supplies in the Hardware while the counting
of raw materials and finished goods were on-going. Supplies included hard hats, greases, screws, gloves,
spare parts, light bulbs, etc. These inventories were also tagged showing the tag number, specifications,
quantity, signature of the recorder, counter and auditor, and remarks.

The auditors were able to observe the counting of inventories until December 18, 2015.