MINISTRY OF EDUCATION AND TRAININGTHUONGMAI UNIVERSITY TMU --- DAO NGOC HA THE EVALUATION OF INTERNAL CONTROL IN AUDITING FINANCIAL STATEMENTS OF CONSTRUCTION ENTERPRISES BY VIETNAM'S IN
Trang 1MINISTRY OF EDUCATION AND TRAINING
THUONGMAI UNIVERSITY (TMU) -
DAO NGOC HA
THE EVALUATION OF INTERNAL CONTROL IN AUDITING FINANCIAL STATEMENTS OF CONSTRUCTION ENTERPRISES BY VIETNAM'S INDEPENDENT AUDITING COMPANIES
Code : 9.34.03.01
SUMMARY OF DOCTORAL THESIS IN ECONOMICS
Hanoi, 2022
Trang 2THE THESIS IS COMPLETED AT
THUONGMAI UNIVERSITY
Instructor
1 Assoc Prof Tran Thi Hong Mai
2 Assoc Prof Nguyen Phu Giang
At hour day month year
The thesis can be found at:
Vietnam National Library
Thuongmai University Library
Trang 31 The necessity of the subject
The globalization of the world economy, thedevelopment of financial markets, and the force of internationalinvestors have transcended the borders of countries, which hasincreased the need for ensuring the reliability of the information
on financial statements The external audit has gradually played
a significant role in the market economy The audit of financialstatements is a tool to protect the economy's stability through anaudit opinion To improve the audit quality of financialstatements, the assessment of internal control also has a change
in approach based on risk-based evaluations This requires theauditors to understand the entity's characteristics and properlyassess the client's internal control
In Vietnam, the construction industry has shownsignificant changes in recent years and is expected to continue
to grow continuously based on capital mobilization fromstakeholders in the economy To ensure the quality ofinformation to serve the requirements of the related subjects, it
is required that the auditing firms need to improve further thequality of auditing the financial statements of enterprises When
it comes to construction enterprises, it is extremely difficult andrisky to directly inspect each object and operation to detectmistakes due to the enormous workload, while the level ofviolations and very subtle error concealment Therefore, it isnecessary to predict errors to localize the audit scope anddetermine the audit focus Evaluation of internal control in theconstruction enterprises audit is critical The auditor canadequately assess the risks at the construction enterprises as abasis for determining the suitable content, scope, and auditmethods However, until now, the assessment of internal control
in auditing financial statements in Vietnam does not havedetailed instructions for specific types of units, includingconstruction enterprises, which leads to difficulties in
Trang 4Implementation and inconsistency among external auditingfirms Stemming from the necessity of both theory and practice,
I choose the topic of " The evaluation of internal control in auditing financial statements of construction enterprises by Vietnam's independent auditing companies" for my doctoral
(2) Research on factors affecting the effectiveness ofinternal control assessment in auditing financial statements
By the summary of published studies, the author foundsome gaps in the research:
Firstly: There have been no works in Vietnam to studythe evaluation of internal control in financial statementsconstruction enterprises audited by Vietnam's independentauditing companies
Secondly: Published studies have not focused onexamining the importance of constituent elements inconsidering the effectiveness of construction enterprises' design,and there are no specialized studies Dig deep into constructionenterprises to determine which business cycles are essential tofocus In addition, the authors have not studied risk-basedapproaches to assessing internal control
Thirdly: In Vietnam, there has not been any research onthe factors affecting the effectiveness of internal controlassessment in auditing for the construction enterprises byexternal auditing firms in Vietnam
3 Research objective
General objectives: Improve the assessment of internal
control in the audit of financial statements of construction
Trang 5enterprises based on scientific evaluation criteria Taking intoaccount internal and external factors that affect theeffectiveness of internal control assessment in auditing financialstatements of independent Vietnamese auditors furtherimproves the quality of the audit of financial statements.
Detail objectives: Systematize the theory of assessment
of internal control in the audit of financial statements
Researching the current status and determining thefactors, and quantifying the influence of each element on theeffectiveness of internal control assessment in auditing financialstatements of construction enterprises of independentVietnamese auditing companies;
Proposing solutions to improve the assessment of internalcontrol in the audit of financial statements of constructionenterprises at independent auditing companies in Vietnam
4 Research question
There are four questions to be solved in the thesis,included:
Question 1: How does the evaluation of internal control
effects financial statement auditing?
Question 2: Which criteria can the auditors use to
evaluate internal control in terms of financial statementauditing?
Question 3: How is the evaluation of internal control in
construction enterprises' financial statement auditing byVietnamese independent auditing companies processed? Whichfactors will the effectiveness of the assessment?
Question 4: What should Vietnamese Auditing
companies do to complete the evaluation of constructionenterprise's internal control in financial statement auditing
5 Research methodology
The thesis research theory is combined with an actualsurvey to analyze, compare, synthesize, and make statistics A
Trang 6combination of qualitative and quantitative research at the sametime methods is used to meet the topic's objectives better.The research process is carried out through the followingsteps: Identify the research problem; Review of related studies;Identify research gaps and approaches; Systematize the theory
of evaluation of internal control in the audit of financialstatements; Survey on the status of internal control assessment
in auditing financial statements of building and erectioncompanies of audit firms; Proposing solutions
6 Research object and research scope
* Research object: The thesis focuses on evaluatinginternal control in construction enterprises' financial statements
of audit firms in Vietnam
* Research scope: The thesis uses survey results in 48audit firms in Vietnam, from 2015 to 2020
7 New contributions of the thesis
Academic and theoretical contributions: The thesissystematizes, analyzes, and contributes to supplementing andclarifying the theory of internal control and assessment ofinternal control in the audit of financial statements ofindependent auditors according to the following scientificevaluation criteria At the same time, the thesis hassystematized the factors affecting the effectiveness of internalcontrol assessment in auditing financial statements ofindependent auditors
New research discovery and suggestions: Thethesis has presented and analyzed the current status of internalcontrol assessment in the audit of financial statements ofconstruction enterprises by independent auditors through thequalitative method At the same time, by quantitativemethodology with a large number of reliable samples, the thesishas identified and ranked the factors affecting the effectiveness
Trang 7of internal control assessment in auditing financial statements
of construction enterprises by independent Vietnamese auditingcompanies From the scientific and reliable research results, thethesis has proposed highly feasible solutions for auditing firmsand auditors in understanding and evaluating internal control inauditing financial statements of enterprises associated with thedetailed reviews criteria, including: Understand the operatingenvironment and risks of construction enterprises; Evaluatinginternal control from an enterprise-wide perspective;Understanding internal control according to the primarybusiness cycle; Documenting of internal controls; Preliminaryassessment of control risk; Design and Implementation ofcontrolled tests; The reassessment of control risk Since then, itwill help Vietnamese auditing companies improve the quality ofauditing financial statements in general and evaluate theinternal control of construction enterprises in particular
8 Thesis structure
In addition to the introduction, Conclusion, list ofresearch works, list of references, and appendices, the thesis isstructured into 04 chapters
Trang 8CHAPTER 1: THEORETICAL BASIS OF THE EVALUATION OF INTERNAL CONTROL IN FINANCIAL STATEMENT AUDIT BY INDEPENDENT
AUDITORS 1.1 Overview of internal control assessment in the enterprise
1.1.1 Definition and components of internal control
1.1.1.1 Definition
According to the PhD student, based on the synthesis ofmany opinions on internal control, Internal control can beunderstood as an effective tool for managers to reduce potentialrisks in the operation process Property safeguard, minimizedamage or loss due to diminishing or fraud; Ensure thereasonableness of the data collected, recorded, and presented bythe accountant in the financial statements
1.1.1.2 Components of the internal control
When considering the components of internal control,although there are different views, the researcher believes thatinternal control is considered as the most appropriate andeffective one must be composed of 5 main componentsmentioned by COSO
1.1.2 Objectives of internal control
Setting up internal control, business managers often aim
at primary goals such as: Controlling and managing productionand business effectively; Protect assets and information fromabuse and misuse; Preventing and detecting mistakes in theproduction and business process; Complete and accurateaccounting records of economic transactions; Prepare timelyand valid financial statements and comply with legalrequirements
1.2 Evaluation of internal control in financial statements auditing
1.2.1 The meaning of the evaluation of internal control in financial statements auditing
Trang 9The knowledge of internal control will help the auditorassess the internal control's weaknesses, thereby determiningthe appropriate workload and audit methods.
1.2.2 Criteria of evaluating the effectiveness of internal control in financial statements auditing
The overall evaluation of the effectiveness of internalcontrol in auditing financial statements at audit firms should bebased on a combination for assessing the design and operation
of internal control
1.2.2.1 Evaluation criteria of the design of internal control
The criteria for evaluating the design of internal control
in the audit of financial statements include: (1) Conformity; (2)Coverage level; (3) Power of control, and (4) Timely
1.2.2.2 Evaluation criteria of internal control operation
The criteria for evaluating the design of internal control
in the audit of financial statements include 1) Availability ofresources; (2) Compliance; (3) Remaining risk
1.2.3 The contents of the evaluation of internal control in financial statements auditing
1.2.3.1 Understanding risks and internal control of client units
(*) Understanding the operating environment andbusiness risks
(1) Operational environment and external factorsaffecting the business; (2) Characteristics of the enterprise; (3)Applicable accounting policies; (4) Business objectives,strategies, and risks and (5) HR issues:
The auditor identifies risks that may arise from thecollected information, including the Business environment fromthreats and the internal enterprise risks
(*) Understanding internal control according to keybusiness cycles The auditor only needs to understand thebusiness cycles that are considered necessary that could lead tomaterial misstatements in the financial statements
Trang 10(*) Evaluation of internal control from an enterprise-wideperspective.
Understanding the design of enterprise-wide internalcontrol is done through understanding and evaluating the fivecomponents of internal control according to COSO
1.2.3.2 Documentation of understanding the internal control
The audit record on the understanding of internal controlincludes a basic description of the five components of internalcontrol, a description of the primary business cycles, and thesources of information that help the auditor obtain theknowledge Records are usually made and completed in theform of a narrative sheet, a question sheet, or a flowchart
1.2.3.3 Preliminary evaluation of control risks
The auditor will make a preliminary evaluation of theimpact on control risks on the assertions in the financialstatements according to the following contents:
(1) Research on information collected throughunderstanding internal control; (2) Identification of potentialdeviations and key control procedures; (3) Preliminaryevaluation of control risks
1.2.3.4 Design and Implementation of the tests of controls
When designing the tests of controls, the auditor lists outcontrol objectives, identifies key controls, and the frequency ofthose key controls
When performing the tests of controls, the auditor selectssamples to test and collects evidence The results of the tests ofcontrols only indicate the design and operation of the internalcontrol, not the accuracy of the figures in the financialstatements
1.2.3.5 Re-evaluation of control risks
After finishing the controls tests, the auditor mustreevaluate the control risks Auditors must consider both thequantity and quality of evidence to conclude the effectiveness
of internal control When defects in controls are found, the
Trang 11auditor must evaluate if the detected misstatements indicate thatthe controls are not operating effectively A materialmisstatement detected by the auditor is a clear indication of theexistence of a serious deficiency in internal control.
Criteria to evaluate the effectiveness of internal controlinclude Available resources; Compliance and Backlog risk(remaining) The evaluation, if there is a combination of allthree criteria, will lead to an appropriate perception of theeffectiveness of internal control
1.2.3.6 The evaluation of internal control results using
If it is determined that internal control is operatingeffectively, the auditor will maintain the original plan forsubstantive tests Conversely, when the control risk is morecomplicated than expected, the auditor needs to increase thebaseline tests or expand the scope of Implementation
1.3 Theoretical basis
The researcher has researched the fundamental theoriesthat greatly influence the research of the topic, including Thetheory of delegation; Uncertainty theory of organizations; Thetheory of social psychology of organizations With each theory,the thesis generalizes the characteristics and determines theinfluence on the research content
1.4 Research model
The thesis identifies five groups of factors that affect theeffectiveness of evaluation of internal control during the auditprocess of external auditors, including (1) Training factors; (2)Elements belonging to the auditor; (3) Elements of the auditfirm; (4) Characteristics of audited companies; (5) Legalenvironment
Chapter 1 summary
In this chapter, the thesis has synthesized, systematized,and clarified theories of internal control, including concepts,constituent elements of internal control basis for establishing
Trang 12and operating internal control, criteria for evaluating internalcontrol in terms of design and operation The work is related tothe evaluation of internal control in the audit of financialstatements, and at the same time, the thesis also systematizesthe factors that affect the effectiveness of the assessment ofinternal control in the audit of financial statements.
Trang 13CHAPTER 2: RESEARCH DESIGN
2.2 Qualitative research
2.2.1 Data sources and data collection methods
* Secondary data collection: Books, journals, theses,scientific topics, a system of auditors' working papers related tointernal control assessment; audit firm's records, documents,etc
* Primary data collection: The primary information iscollected through surveying 48 Vietnamese auditing firms andexpert consulting
2.2.2 Survey subjects in qualitative research
Directors of auditing firms, experienced auditors,researchers, and lecturers in the field of auditing at colleges
2.2.3 Qualitative data analysis process and methods
2.2.3.1 Qualitative data analysis process
The research process begins with primary and secondarydata collection through literature review and expert interviewswith semi-structured and in-depth interviews to explore thescale of variables in the research hypothesis
2.2.3.2 Qualitative data analysis method
The thesis uses traditional research methods such assystematization, statistical, analytical, and comparativemethods
2.3 Quantitative research
2.3.1 Research model
Trang 14Research model on factors that affect the effectiveness ofthe evaluation of internal control in auditing financialstatements of construction enterprises by Vietnam's independentauditing companies with independent variables includingTraining (DT), factors belonging to the auditor (KTV),Elements belonging to the audit firm (DTKT); Characteristics
of the audited company (DTKH) and Legal environment(MTPL)
Research hypotheses that need to be verified
Hypothesis 1: The training factors related to theevaluation of internal control influence the effectiveness of theassessment of internal control in auditing the building anderection firm financial statements
Hypothesis 2: The factors related to KTV influence theeffectiveness of the evaluation of internal control in auditing thebuilding and erection firm financial statements
Hypothesis 3: The characteristics of the auditing firminfluence the effectiveness of the evaluation of internal control
in auditing the building and erection firm financial statements.Hypothesis 4: The characteristics of constructionenterprises influence the effectiveness of the evaluation ofinternal control in auditing the building and erection firmfinancial statements
Hypothesis 5: The legal environment influences theeffectiveness of the evaluation of internal control in auditing thebuilding and erection firm financial statements
2.3.2 Quantitative research data source
The data source for the quantitative research of the topic
is collected from the auditors at Vietnamese auditing companiesand experts in the field of auditing from the professionalassociation of accountants and auditors
2.3.3 Survey subjects and survey samples in quantitative research
2.3.3.1 Survey subjects
Trang 15The main survey subjects of the research are subjectsrelated to external auditing firms in Vietnam, including externalauditors, directors of auditing companies, and other subjects.
2.3.3.2 Survey sample size
The sample size of the research model is taken according
to the Gorsuch viewpoint (1983)
2.3.4 Quantitative data processing methods and procedures
2.3.4.1 Process
The process includes: (1) Define and clarify the researchproblem; (2) Research related theories and evaluation models;(3) Establish research model; (4) Develop scales andquestionnaires for research; (5) In-depth interviews withexperts; (6) Trial survey; (7) Investigate and collect researchdata; (8) Data analysis; (9) Presentation of research results; (10)Conclusions and recommendations
2.3.4.2 Quantitative data processing methods
To process data on SPSS software, the thesis proceeds toencode the attributes of each element and implement thefollowing contents: Descriptive statistics; Check the reliability
of the scale; Exploratory factor analysis and regression analysis
Chapter 2 Summary
In this chapter, the thesis has presented the contents related to the research method The research process is carried out through two stages: qualitative and quantitative research
Trang 16CHAPTER 3: THE STATUS OF THE INTERNAL CONTROL EVALUATION IN AUDITING FINANCIAL STATEMENTS OF CONSTRUCTION ENTERPRISES IMPLEMENTED BY VIETNAM INDEPENDENT AUDIT COMPANIES
3.1 Overview of independent audit in Vietnam
3.1.1 Establishing and development
After nearly 30 years, from 2 audit firms and 15 staffsonly in 1991, there have been 198 audit firms with certificates
of eligibility for audit service business with about 13,000 staffs
by 2020, and 2208 auditors were granted audit practiceregistration certificates
3.1.2 Legal regulations on external audit
Up to the present time, the system of legal documents onVietnam's external audit is relatively completed, creating a legalcorridor for the auditing activities It is possible to generalizethe legal system in the field of external audit, including externalaudit law, a system of auditing standards, decrees, and guidingcirculars
3.2 Some characteristics of construction enterprises that affect the evaluation of internal control in financial statements audit.
3.2.1 Characteristic of construction enterprises management system
Some characteristics affecting the evaluation of internalcontrol include organization of management apparatus ofconstruction enterprises, organization of management ofconstruction teams and responsibilities of site management unit
of construction enterprises,
3.2.2 Production organization of construction enterprises
3.2.2.1 Construction preparation phase
The characteristics affecting the evaluation of internalcontrol include accurate estimation and the time gap between