October 15, 2017

Mr. Alfredo Cacho

Chairman
Grace Corporation
12 Ninoy Ave, Parañaque City,
Philippines

Dear Mr. Cacho:

You have requested that we audit the financial statements of Grace Corporation which comprise
the statement of financial position as at December 31, 2017,, and the income statement,
statement of changes in equity and cash-flow statement for the year ended, and a summary of
significant accounting policies and other explanatory information. We are pleased to confirm our
acceptance and our understanding of this audit engagement by means of this letter. Our audit will
be conducted with the objective of our expressing an opinion on the financial statements.

Our Responsibilities

We will conduct our audit in accordance with Philippine Standards on Auditing. Those standards
require that we comply with ethical requirements and plan ad perform the audit to obtain
reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements. The procedures selected depend on the auditor’s
judgment, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. An audit also includes evaluating the appropriateness
of accounting policies used and the reasonableness of accounting estimates made by
management, as well as evaluating the overall presentation of the financial statements.

Because of the inherent limitations of an audit, together with the inherent limitations of internal
control, there is an unavoidable risk that some material misstatements may not be detected, even
though the audit risk is properly planned and performed in accordance with PSAs.

In making our risk assessments, we consider internal control relevant to the entity’s preparation
of the financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
entities internal control. However, we will communicate to you in writing any significant
deficiencies in internal control relevant to the audit of the financial statements that we have
identified during the audit.

Unless unanticipated difficulties are encountered, our report will be substantially in the following
form:
(Form and content of the auditor’s report has not been reproduced.)
The form and content of our report may need to be amended in the light of our audit findings.
Management’s Responsibility

Our audit will be conducted on the basis that management and those charged with governance
acknowledge and understand that they have responsibility:
For the preparation and fair presentation of the financial statements in accordance with
Philippine Financial Reporting Standards;
For such internal control as management determines is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to fraud or error; and
To provide us with:
Access to all information of which you are aware that is relevant to the preparation of the
financial statements such as records, documentation and other matters;
Additional information that we may request from you for the purpose of the audit; and
Unrestricted access to persons within the company from we determine it necessary to obtain
audit evidence.

As part our audit process, we will request from management and, where appropriate, those
charged with governance written confirmation concerning representations made to us in
connection with the audit.

We look forward to full cooperation from your staff during our audit.

Fees

Our fees which are based on the time required by individuals assigned to the engagement will be
Php100, 000 plus out-of-pocket expenses and will be billed as work progresses. Individual
hourly rates vary according to the degree of responsibility involved and the experience and skill
required.

This letter will be effective for future periods unless it is terminated, amended, or superseded.

Please sign and return the attached copy of this letter to indicate that it is in accordance with your
understanding of the arrangements for our audit of the financial statements.

Yours truly, Acknowledged on behalf of Grace Corporation by:

Nick Bateman Graham Wells

Roces Adriano & Salas CPAs Managing Director
(Date)
 Grace Corporation
December 31, 2017

AUDIT PROGRAM FOR TESTS OF CONTROLS: CASH

WP Done
Audit Procedures Ref By Date
1. Obtain or Prepare a Comparative
Summary
 Trace totals to the general
ledger and the previous audit’s
working papers
2. Account for all Bank Accounts
 Ascertain that all bank accounts
are included in the summary;
inquire as to why any account
on the last summary is omitted
from the current audit
summary.
3. Test Mathematical Accuracy of
Bank Reconciliations
4. Trace Book Balances to the
General Ledger
 Trace the book balances on the
entity’s bank reconciliations to
the comparative summary
5. Scan the period-end bank
reconciliations
 Scan the period-end bank
reconciliations for significant
unusual reconciling items and
adjustments made to agree the
reconciliations to the
comparative summary. Obtain
evidence to supporting these
items and adjustments by
inquiry or examination of
supporting documentation.
6. Confirm Cash Balances
 Confirm selected period-end
balances by direct
correspondence with banks.
Consider including all accounts
open during any part of the
period. The confirmation
request should include inquiries
as to the amount of the account
  balance and whether the
accounts bears interest.

7. Test Bank Reconciliations

 Review reconciling items on
the bank reconciliations as
follows:
1. Obtain bank statements and
related supporting
documents (if normally
available) for the period
subsequent to the balance
sheet date
2. Trace outstanding checks
listed on the bank
reconciliations, but not
listed on the bank
statements obtained in (a)
above to the cash
disbursements records for
the period prior to the
balance sheet date.
3. Trace deposits in transit on
the bank reconciliations to
the subsequent bank
statements and the cash
receipts records for the
period prior to the balance
sheet date
4. Trace other reconciling
items to supporting
documentation and entries
in the cash records.
8. Test Completeness of Cash
Transactions
 Determine how the entity
ensures the completeness of
cash transactions. Obtain
evidence that the procedures
operate as prescribes.
9. Test mathematical accuracy of cash
records
 Test mathematical accuracy of
cash receipts and
disbursements records and the
  postings of those records to the
cash control account
10. Examine Bank Statements for
reconciling items
 Determine that paid checks,
deposits and debit and credit
advices appearing on the bank
statements obtained in step 7
above issued on or before the
balance sheet date appear in the
period-end reconciliations.
11. Examine Cash Records for
Reconciling Items
 Examine cash receipts and
disbursements records for a
period before the balance sheet
date to ascertain that all
reconciling items are
appropriately included in the
entity’s bank reconciliations.
12. Test Transfers Between the
Entity’s Bank Accounts
 Determine whether any
transfers of funds between the
entity’s bank accounts have
occurred near the balance sheet
date. Verify that the balance
sheet date. Verify that the
transfers were recorded in the
books in the same accounting
period and that any transfers
not recorded by the bank in the
same accounting period appear
in the appropriate bank
reconciliations
13. Review Restrictions and Related
Disclosures. Inquire of
Management about cash
restrictions
 Inquire the management
whether cash balances are
restricted as to use or are the
property of others. When
balances include the property of
others, determine that the
  related liability has been
recorded. Determine that
appropriate disclosures have
been made
14. Additional Procedures: Count Cash
on Hand
 Where material, establish
physical control over cash on
hand as of the balance sheet
date and count it in the presence
of the custodian(s). Obtain the
signature of the custodian(s)
acknowledging that the funds
were counted in their presence
and returned intact.
 Reconcile balances as
determined in N to control
accounts and trace reconciling
items to supporting
documentation if the count is at
a date other than the period-
end, reconcile activity to the
balance sheet date. Determine
whether there are unreimbursed
expenses that should be
reflected in the accounts.
15. Consider Checks Released After
Period End
 Determine through inquiry
whether any checks drawn
before period-end were
released after period-end.
Consider obtaining the
numbers of the last checks
written for the current financial
period. Consider whether any
reversing entries are necessary

AUDIT PROGRAM FOR TESTS OF CONTROLS: SALES TRANSACTIONS

WP Done
Audit Procedures Ref By Date
1. For a sample of entries in the
sales journal ,
2. Compare data in the sales
journal to approved customer
order, sales order, shipping
document, and copy of sales
invoice for,
a. Customer order number
b. Invoice number
c. Customer name
d. Date
e. Description of goods
f. Quantity
g. Price
h. Invoice amount
i. Terms

3. Determine credit approval.

4. Determine that signature are
on invoices indicating
independent checking for

a. Proper pricing
b. Mathematical accuracy
c. Terms

5. Examine signature evidencing

recheck of account coding.

6. For a sample of shipping

documents, examine signatures
indicating that for goods
shipped, goods are counted,
quantities and descriptions of
the goods shipped are
compared to quantities and
descriptions on sales orders
and shipping documents prior
to shipping, and the
transactions are recorded in the
sales journal.

7. Discuss the procedures

followed with the person
(independent of the
bookkeeper) who mails to
 customers monthly statements
for all trade accounts
receivable and follows up on
any complaints. Review the
client’s correspondence files
reflecting resolution of these
items.

8. Observe the procedures

followed to ensure a proper
cutoff of sales at year-end.

9. Observe that the accounts

receivable subsidiary ledger is
balanced to the general ledger
control account regularly.

10. Examine evidence of

accounting for the sequence of
sales orders, shipping
documents, and sales invoices.

AUDIT PROGRAM FOR TESTS OF CONTROLS: CASH RECEIPTS TRANSACTIONS

WP Done
Audit Procedures Ref By Date
1. Compare remittances or other
details of cash receipts with the
entries in the receipts book.
2. Compare the recorded receipts
with individual deposit as
shown by bank statements.
3. Compare the composition of
authenticated duplicate deposit
slips with the recorded
receipts.
4. Compare the recorded receipts
with an independent record
prepared before receipts are
transmitted to the cashier.
5. Test of cash discounts and
other allowances or credits.
6. Test postings to the general
ledger to the customers’
ledger, and to other subsidiary
ledger.
 7. Review cash receipts for
unusual items.

AUDIT PROGRAM FOR TESTS OF CONTROLS: ACQUISITION TRANSACTIONS

WP Done
Audit Procedures Ref By Date
1. For a sample of purchases,
examine the related purchase
requisition and purchase order.
2. For a sample of purchases,
trace the transaction to the
voucher register and the
perpetual inventory records
maintained in stores.
3. Check vendor invoice for
mathematical accuracy.
4. Trace posting from the
voucher register to the general
ledger.

AUDIT PROGRAM FOR TESTS OF CONTROLS: CASH DISBURSEMENTS

TRANSACTIONS

WP Done
Audit Procedures Reference By Date
1. Prove the arithmetical accuracy of
the cash disbursements record and
trace postings to the general
ledger.
2. Compare paid bank checks with
the cash disbursement records.
3. Account for all checks.
4. Reconcile recorded disbursements
with the bank statement.
5. Examine supporting documents.
6. Review cash disbursements
records for unusual items.

AUDIT PROGRAM FOR TESTS OF CONTROLS: PAYROLL TRANSACTIONS

WP Done
Audit Procedures Ref By Date
1. Review the payroll journal,
general ledger, and payroll
 earning records for large or
unusual amounts.
2. Compare cancelled checks
with payroll journal for name,
amount, and date.
3. Examine cancelled checks for
proper endorsement.
4. Compare cancelled checks
with personnel records.
5. Reconcile the disbursements in
the payroll journal with the
disbursements on the payroll
bank statement.
6. Prove the bank reconciliation.
7. Recompute hours worked from
time cards.
8. Compare pay rates with union
contract, approval by board of
directors, or other source.
9. Recompute gross pay.
10. Check withholding by
reference to tax tables and
authorization forms in
personnel file.
11. Recompute net pay.
12. Compare cancelled check with
payroll journal for amount.
13. Compare classification with
char of accounts or procedure
manual.
14. Review time card for employee
department and job ticket for
job assignment, trace through
to labor distribution.
15. Compare date of recorded
check in the payroll journal
with date on cancelled checks
and time cards.
16. Compare date on check with
date the check cleared the
bank.
17. Test clerical accuracy by
footing the payroll journal and
tracing postings to the general
ledger and the payroll master
file.
 AUDIT PROGRAM FOR TEST OF CONTROLS: INVENTORY

WP Done
Audit Procedures Ref By Date
1. For selected transactions
recorded in the inventory
control account, examine
signed receiving report.
2. Account for a sequence of
receiving reports and
requisitions. Perform records-
to-floor and floor-to-records
tests.
3. Examine invoice for goods
received.
4. Trace allocated costs back to
supporting documents. Verify
mathematical accuracy and
trace postings
5. Check accuracy of accounts on
invoices by referring to chart
of accounts.
 INTERNAL CONTROL QUESTIONNAIRES

SALES
Cycle: Cash Receips/Sales Class of Transactions: Sales
Executing Yes No NA Remarks

1. Is there a designated cash receipt

custodian?

2. Are all receipts recorded on pre-numbered

cash receipts tickets, including those received in
check form?
3. Are receipts received in check and money
order form immediately stamped with a restrictive
endorsement?
4. Are all cash receipts counted by the cashier
and recorded in a cash receipts journal or the
general ledger on a daily basis?
5. Are cash receipt journal entries segregated
by type of revenue and fund account?
6. Are undeposited cash receipts adequately
secured?

7. Does the cashier assume full responsibility

for the cash receipts from the time they are
received until deposited at the bank?
8. Are cash receipts deposited intact on at
least a weekly/monthly basis?

9. Does someone independent of the cashier

deposit the cash receipts?

10. Are cash receipt tickets reconciled to actual

undeposited cash before deposit?
11. Does depositor reconcile cash receipt
tickets to the cash receipts journal or general
ledger before deposit?
12. Does depositor account for all pre-
numbered receipt tickets before deposit?

13. Is the reconciliation documented and

exceptions noted?

14. Does the cashier note the dates, amounts

and persons making the deposits?
15. Are deposits promptly recorded in the bank
account check register and the balance
recalculated?
16. If cash is not deposited on a daily basis, are
the cash receipts deposited on the same day they
are received from the cashier?
17. Does someone independent of the cashier
and depositor reconcile the bank statement credits
with the cash receipts journal?
18. Does the reconciler compare, on a test
basis, the recorded deposits in the cash receipts
journal to the bank statement credits for timeliness
of deposit?

19. Does the reconciler investigate and

document exceptions?

20. Are the prenumbered cash receipt tickets

filed for future review?

21. Are sales on account recorded on a

standard prenumbered form?
22. Are sales on account recorded in the
general ledger or sales journal on a daily basis?
23. Are the cash receipt records filed and
maintained in accordance with the records
management policies and procedures?

DISBURSEMENTS
Cycle: Expenditure Disbursements Class of Transactions: Cash
Executing Yes No NA Remarks
1. Are all disbursements (except for petty cash)
made by checks?

2. Are imprinted and prenumbered checks used?

3. Is a check-protection device used in printing the
check amount?

4. Is a check supported by an approved voucher?

5. Is supporting documentation mutilated after
payment?
6. Are two signatures required on each check?
7. Does last check signermail the check and
remittance advice?
8. Are there prohibitions against issuing checks to
cash bearer?

9. Is the signing of blank checks prohibited?

10. Is a daily summary or checks prepared and
agreed to check issued?
Recording
1. Are accounting personnel prohibited from
signing checks?
2. Are daily summaried of checks compared with
check register totals?

3. Are checks recorded in numerical sequence?

Custody
1. Are ther periodic independent reconciliations of
bank accounts?

PAYROLL
Cycle: Expenditure Class of Transactions: Payroll
Executing Yes No NA Remarks
1. Are hiring authorized by personnel
department?
2. Are names of newly hired and terminated
employees reported in writing to the
payroll department?
3. Are wage rates determined by contract or
approved by personnel director?
4. Are time cards or piecework reports
prepared by the employee approved by his
or her supervisor?
5. Is a time clock or other electromechanical
system used?
6. Is there internal verification of payroll
checks with payroll register

INVENTORY
Cycle: Inventory Classes of transactions:
Yes No NA Remarks
1. Are all investments community approved?
By resolution?
2. Are all investments in the name of the
chapter?
3. Do the investments include negotiable,
secured instruments?
4. Are there formal records or ledgers detailing
the chapter’s investments including certificate
numbers, locations, amounts, maturities and
custodians?
5. Are original documents (e.g., certificates)
properly secured?
6. Are purchases, sales and rollovers approved
and documented?
7. Is the sale of investments adequately
documented and deposited intact in a bank
account?
8. Are investment changes made by authorized
individuals?
9. Are direct cash withdrawals from
investment accounts prohibited?
10. Does someone independent of the custodian
periodically confirm investments?
11. Are investments segregated from other assets in
the general ledger?
12. Is investment income/loss recorded in the
general journal?
13. Is interest income properly accounted for?
14. Has the chapter established policies and
procedures to maintain and monitor investment
accounts?
15. Are investment records filed and maintained in
accordance with the records management policies
and procedures?