266. Improving the audit process of cash and cash equivalent in financial statement audit performed by Ernst & Young Vietnam Limited Company

TABLE OF CONTENTSCOMMITMENT...i LIST OF ABBREVIATIONS...v LIST OF TABLES, FIGURE...vi PROPOSAL...1 CHAPTER 1: THEORETICAL FRAMEWORK IN AUDITING CASH AND CASH EQUIVALENTS IN FINANCIAL STA

I assure that this research is in my possession All the data and resultsused in the thesis are honest and come from the actual situation of theorganization

Thesis author

Nguyen Thu Huyen

TABLE OF CONTENTS

COMMITMENT i

LIST OF ABBREVIATIONS v

LIST OF TABLES, FIGURE vi

PROPOSAL 1

CHAPTER 1: THEORETICAL FRAMEWORK IN AUDITING CASH AND CASH EQUIVALENTS IN FINANCIAL STATEMENT AUDIT 4

1.1 Overview of cash and cash equivalents in financial statement 4

1.1.1 Overview of cash and cash equivalents in financial statement 4

1.1.2 Key requirements for accounting for cash & cash equivalent 5

1.1.3 Internal control over cash and cash equivalents 5

Table 1.1: Internal control over cash payment 5

1.2 Cash & cash equivalents in Financial Statement audit 8

1.2.1 Audit objective in auditing cash and cash equivalent 8

1.2.2 Risk of material misstatement in cash and cash equivalents .9

1.2.3 Source of audit evidence for cash and cash equivalents audit10 1.3 Cash & cash equivalents in financial statement audit 11

1.3.1 Audit planning 11

1.3.2 Audit implementation 16

1.3.3 Audit finalization 20

CHAPTER 2: CASH AND CASH EQUIVALENTS AUDIT IN FINANCIAL STATEMENT AUDIT PERFORMED BY ERNST AND YOUNG VIETNAM 23

2.1 Overview about EY Vietnam Limited Company 23

2.1.1 Introduction 23

2.2 Introduction to financial statement audit performed by EY Vietnam .27

2.2.1 Feature of organizing audit team 27

2.2.2 Feature of organizing audit documentations 28

2.2.3 Financial statement audit process in EY Vietnam 29

2.3 Cash and cash equivalents audit in financial statement audit client AAA performed by EY Vietnam 33

2.3.1 Audit planning 33

2.3.2 Audit implementation 44

2.3.3 Audit finalization 61

2.4 Assessments on audit of cash in financial audits conducted by EY auditing firm 62

2.4.1 Strengths 62

2.4.2 Weakness 64

2.4.3 Reasons for weaknesses 65

CHAPTER 3: SOLUTION FOR IMPROVING CASH AND CASH EQUIVALENTSAUDIT IN FINANCIAL STATEMENT AUDIT IN FINANCIAL STATEMENT AUDIT PERFORMED BY EY VIET NAM .67

3.1 Solution for improving cash and cash equivalents audit in financial statement audit in financial statement audit performed by Ernst & Young Vietnam 67

3.1.1 Audit planning 67

3.2.2 Audit implementation 68

3.2.3 Audit finalization stage 69

3.2 Conditions for improving cash and cash equivalents audit in Financial statement audit performed by EY Vietnam Limited

Company 69

3.2.1 Government 69

3.2.2 Accounting professional association 70

3.2.3 EY Vietnam Limited Company 71

CONCLUSION 74

LIST OF REFERENCE DOCUMENTS 76

LIST OF ABBREVIATIONS

LIST OF TABLES, FIGURE

Table 1.1: Internal control over cash payment 5

Table 1.2 Internal control over cash receipts 7

Table 1.2 : Cash on hand 18

Table 1.3: Cash in bank 19

Table 2.1: Risk assessment 37

Table 2.2 : Guide materiality at Ernst & Young Vietnam 38

Table 2.3: Set materiality for cash and cash equivalents of AAA company 39

Table 2.4: Audit program for cash and cash equivalents 41

Figure 2.1 EYVN structure 23

Figure 2.2 Customer network of Ernst & Young Vietnam 26

Figure 2.3 An Audit team 27

Figure 2.4 The EY Global Audit Methodology (EY GAM) 29

Figure 2.5: Analysis of cash and cash equivalents variances 46

Figure 2.6: Working paper of cash on hand 47

Figure 2.7: Working papers of cash in bank 49

Figure 2.8: Working paper of investor deposit 51

Figure 2.9: XTR File received from client 54

Figure 2.10: Working paper of interest income 57

1 Rationale

Nowadays, economies in the world have been developed rapidly and therelationship between enterprises is more complicated Information plays anessential role in this situation for many people, especially business onesbefore making any important decisions For enterprises, financial information

is used for different reasons therefore, it need to be honesty and faithful.However, it is difficult for people to evaluate information in financialstatements whether it is presented faithfully or not Therefore, distinctiveness

of the financial statement is required auditing in general and auditingorganization conducting audits in particular must operate effectively to meetthe demand of society Moreover, auditing financial statement helpsenterprises improve their performance and it is also a means for thegovernment to administrate the macroeconomy

Financial statement includes variety of crucial items and division.However, cash and cash equivalents are divisions which should beconcentrated because of frauds and errors Cash and cash equivalents arecurrent assets that will have potential risks Besides, this item has an intimaterelationship with business process of each company

With all experiences and knowledge gained during internship period inErnst & Young Vietnam and learning at Academy of Finance, I realized theimportance of auditing cash and cash equivalents, which have directly effect

on people using financial information In conclusion, I decided to write

“Improving the audit process of cash and cash equivalent in financial statement audit performed by Ernst & Young Vietnam Limited Company”.

2 Research Objectives:

- Research general theory relating to Auditing

- Research practical audit cash and cash equivalents performed by Ernst

& Young Viet Nam

- Evaluate and give solutions relating to auditing cash and cashequivalents

Research questions:

- What are key requirements of cash and cash equivanlents in financial

statement audit?

- How cash and cash equivalents audit process is performed by EYVN?

- How effectiveness in the audit of cash and cash equivalents performed

by EYVN?

3 Scope of the research:

Auditing cash and cash equivalents in financial statement from 1stJanuary 2019 to 31st December 2019 performed by Ernst & Young Vietnam

- Comparison method: To compare data and other financial information

in financial statement and others books to ensure accuracy

- Observation method: To observe and learn the audit files stored inErnst & Young Vietnam’s software to get an overview about the client and

evaluation information about customers based on audit files of previousassurance team to know how they identify, collect evidences about fraud anderrors.

5 Structure of the study:

The study includes 3 parts:

Chapter 1: Theoretical framework of auditing cash and cash equivalents

in financial statement audit

Chapter 2: Cash and cash equivalents in financial statement auditperformed by EYVN

Chapter 3: Solutions for improving cash and cash equivalents in FS auditperformed by EYVN

Due to the limit of time and knowledge, this thesis still have somedrawbacks Therefore, I would like to receive feedbacks from teachers,auditors and colleagues to improve the thesis and strengthen the knowledge inthe future

CHAPTER 1: THEORETICAL FRAMEWORK IN AUDITING CASH

AND CASH EQUIVALENTS IN FINANCIAL STATEMENT AUDIT

1.1 Overview of cash and cash equivalents in financial statement

1.1.1 Overview of cash and cash equivalents in financial statement

* Definition of cash and cash equivalents

The IAS 07 – Statement of Cash Flows is defined:

Cash comprises cash on hand and demand deposits

Cash equivalents are short – term, highly liquid investments that arereadily cover amount of cash and which are subject to an insignificant risk ofchanges in value

*Component of cash and cash equivalents

- Cash on hand

- Bank balance

- Demand deposits

- Bank overdrafts

- Short term investment

*Characteristic of cash and cash equivalents

Firstly, they should be highly liquid This means that they should be

easily sold in the market The buyers of these investments should be easilyavailable

Secondly, the investment should be short term They should mature in

less than three months If they mature in more than three months they will beclassified as other investments

Thirdly, they should be convertible to known amounts of cash This

means that their market price should be available and this market price shouldnot be subject to significant fluctuations

Fourly, they should not be too risky There should be very little risk of

changes in their value This means that equity shares cannot be classified ascash equivalents But preferred shares purchased shortly before theredemption date can be classified as cash equivalents

1.1.2 Key requirements for accounting for cash & cash equivalent

*Assess exchange rate difference: Transactions arising in foreign

currencies must be converted into "Vietnamese Dong" for recordingaccounting books At the same time, the currency of those currencies must bemonitored The exchange rate is the average actual buying and selling rate onthe interbank market officially announced by the State Bank of Vietnam

* Cash and cash equivalents are recorded mainly in 3 accounts:

Account 111, Account 112, and Account 113

*Cash and cash equivalents are reconciled regularly: They should be

reconciled regularly everyday, every month with cash book and bankstatement to ensure the accuracy of cash balance

*Cash count at the end of period: At the end of period, cash and cash

equivalents are counted to verify whether the administration of cash funds is

in compliance with regulations and determine whether cash and cashequivalents are secured

1.1.3 Internal control over cash and cash equivalents

*Cash payment

Table 1.1: Internal control over cash payment

Occurance Only valid cash

payments are made.

Completeness All cash payments

that occurred are recorded.

in the ledger.

- Reconciliation of daily payments report to electronic cash payment transfers and cheques issued.

- Supplier statements reconciled to payable accounts regularly.

- Monthly bank reconciliations of bank statements to ledger account.

Cash payments posted to correct payable accounts and to the general ledger.

- Supplier statements reconciled to payable accounts regularly.

- Agreement of monthly cash payments journal to general ledger posting.

- Payable accounts reconciled to general ledger

control account.

Cut-off Cash payments are

recorded in the correct accounting period.

- Reconciliation of electronic funds transfers and cheques issued with postings to cash payments journal and payable accounts.

Presentation

and disclosure

Cash payments are charged to the correct accounts.

- Chart of accounts.

- Independent approval and review of general ledger account assignment.

*Cash receipts

Table 1.2 Internal control over cash receipts

Occurrence All valid cash

receipts are received and deposited.

- Use of cash registers or point-of-sale devices

- Periodic inspections of cash sales procedures

- Restrictive endorsement of cheques immediately

on receipt.

- Mail opened by two staff members

- Immediate preparation of cash book or list of mail receipts.

- Independent check of agreement of cash/cheques

to be deposited at bank with register totals and receipts listing.

- Independent check of agreement of bank deposit slip with daily cash summary.

Completeness All cash receipts are

- Daily remittance report reconciled to control listing of remittance advices.

- Monthly bank statement performed and reviewed independently.

Cash receipts posted

to correct receivables accounts and to the general ledger.

- Daily remittance report reconciled daily with postings to cash receipts journal and customer accounts

- Monthly customer statements sent out.

- Monthly cash receipts journal agreed to general ledger posting.

- Receivables’ ledger reconciled to control account.

Cut-off Cash receipts are

recorded in the correct accounting period.

- Bank reconciliation at period-end.

Presentation and

disclosure

Cash receipts are charged to the correct accounts.

- Chart of accounts.

1.2 Cash & cash equivalents in Financial Statement audit

1.2.1 Audit objective in auditing cash and cash equivalent

* Objective of the audit in financial statement

According to The Vietnamese Auditing Standard No.200 “The overall

objective of auditors and audit enterprises upon conducting audit according

to the Vietnam audit standards.”:

“ The objective of an audit of financial statement is to enable the auditor and the audit firm to express an opinion whether the financial statements ate prepared, in all material respects, in accordance with the prevailing (or accepted) accounting standards and systems, where they comply with the applicable laws and whether they give a true and fair view.”

The objective of auditing financial statements also helps audit firmsdetermine fraud and errors to improve the quality of financial information ofclients

* Audit Objective of cash and cash equivalents in financial statement

Existence: Recorded cash balances exist at the period – end.

Completeness: Recorded cash balances include the effects of all

transactions that have occurred

Valuation: Recorded ccash balances are realisable at the amounts stated

Rights and obligations: The entity has legal title to all cash balances

shown at the period-end

Presentation and disclosures (classification and understandability, occurrence and rights and obligations, accuracy and valuation, completeness): Disclosures relating to cash are adequate and in accordance

with accounting standards and legislation

1.2.2 Risk of material misstatement in cash and cash equivalents

1.2.2.1 Cash on hand:

Existence: Cash is not existed.

Completeness: Material cash balances are omitted

Valuation: Reconciliation differences incorrectly dealt with

Rights and obligations: Cash balances not actually owned by the entity

Presentation and disclosures: Can not identify cash to determine the

propriety of the disbursement

1.2.2.2 Cash in bank:

Existence: Cash in bank is not existed

Completeness: Not all cash transactions are recorded due to error or

fraud (error such as bank reconciliation items or fraud such as cash receivedfrom customers was stolen by employees)

Valuation: Reconciliation differences incorrectly dealt with

Rights and obligations: Bank balances not actually owned by the entity

Presentation and disclosures: Cash in bank is restricted so the restricted

balance is classified properly on the balance sheet However there is norequirements that compensating balance agreements are disclosed properly

1.2.3 Source of audit evidence for cash and cash equivalents audit

In order to carry out audits and make accurate assessments on theindicators related to cash and cash equivalents, the auditor should rely onfollowing information:

*Accounting policies:

- Policies of internal control system on cash and cash equivalents

- Regulation on accounting of cash and cash equivalents

- Internal rules and regulations of the company on responsibilities,procedures for approval

*Source documentation:

- Statement of Financial Position

- Statement of Profit or Loss and Other comprehensive income

- Note to the financial statement

Step 1: Assessing the acceptability of an audit

This is the first stage that auditors need to perform, which is a basicprinciple when starting auditing to ensure the quality of audit

According to The Vietnamese Auditing Standard 300 “To make plan onauditing the financial statements.”, Planning should be developed for eachaudit because “Adequate planning of the audit work helps to ensure thatappropriate attention is devoted to important areas of the audit, that frauds,errors and potential problems are identified and that the work is completedexpeditiously.”

The auditors shall carry out the audit plan as follow:

Assessing the acceptability of an audit: The auditor should evaluate

carefully their clients whether they should accept new customers, or maintainaudit contract with existing customers This step ensure profit for audit firms

as well as maintain reputation of auditors If audit firms accept clients whichhas many fraud and errors, information in financial statement might commitfrauds systematically, therefore, auditors difficulty identify them

Identify auditing reasons of the client company: This activity identifies

the users’ financial statement of the clients and their intended use Theauditors shall choose reasonable method to identify them For new customers,the auditors might directly interview management team For existingcustomers, the auditors might use previous auditing experience to determine

Quality control system consideration: The auditors might assess the risks

of internal control system through the quality of control system as a basis forunderstanding significant misstatements

Step 2: Signing auditing contract and select assurance team

Selection of staff to perform the audit: When selecting staff for an audit

team, attendtion should be paid on: Qualification of professional knowledge,independence in the performance of auditing, experience and understanding

of the business of customers to perform audit

Signing auditing contract: After deciding to accept the audit for the

customer, the final task is to sign the auditing contract This is an agreementbetween the auditors and the client on the performance of the audit and otherrelated services

Step 3: Collection information of client company

After signing auditing contract, auditors start making general audit plan.Auditors shall collect basic information about client company such asbusiness area, business industry, internal control system and other relatedparties to assess risk and encourage them to make accurate audit plan

a) Understanding the business activities of the client company:

Each business industry has different accounting system and specificaccounting principles Therefore, understanding the business activities ofclient company is essential when auditors perform audit with ethicalprinciples of an auditor

Auditors shall collect legal information about client company viainterviewing Board of Directors, collecting business license, Charter of clientcompany, Financial statements, Minutes of shareholders, Contracts,…

Auditors shall identify the time that client company recognizes cash;policies; and accounting estimates and other judgments…

After analyze some criterias such as characteristics of ownership andmanagement, business status of the entity, financial capacity, legalelements…., auditors shall have an overall picture about client company

For Cash item, auditors shall collect information to understand businessindustry of client company as well as factors affecting

b) Reviewing the results of the pre-audit and joint audit files:

Previous audit files help auditors get more information about client such

as structure of company, business industry, likelihood of errors, level ofcontrol over cash and cash equivalents, accounting principles, regulations andstandards Besides, when reviewing pre-audit files, auditors shall reviewaudited Cash because it might help them to identify and understand moreerrors that accountants of client company often have

Step 4: Perform preliminary analysis for cash and cash equivalents

The analytical process used is based on financial information and non –financial information After reconciling data of cash and cash equivalents inbalance sheet, explanations of financial statement, auditors shall consider thesituation of fluctuations and reductions during the year which auditor shouldfocus on

Step 5: Understand the internal control system and control risk assessment for cash and cash equivalents

This is an essential stage that auditors need to perform for an audit (The

Vietnamese standard No 315 – To define and assess risks with major

mistakes through understanding units subject to audit and the environment of units.)

- Research on internal control system of client company: Auditorsshould examine 5 components: control environment, risk assessment, controlactivities, monitoring of controls, information system

- Assess control risk for cash and cash equivalents: is one of thesteps in evaluating the internal control system In planning stage, auditorsshall have to examine the internal control system of Cash to understand.Therefore, auditors may design a reasonable audit program to audit financialstatement of client company

Step 6: Assess materiality and audit risk

a) Assess materiality

The Vietnamese standard No 320 – Audit Materiality is defined

“Materiality is the term used to express the importance of the information in

the financial statement Information which is considered material, means that the lack of information or inaccuracy of information would affect the decisions of the user of the financial statement”

When planning, auditors must determine materiality level acceptable tothe standard for detecting material misstatement as following:

- Initially estimate materiality: is acceptable misstatements in

financial statements The results in initially estimating materiality is oftenbased on professional judgment of auditors so persons performing this shouldhave fully experience and knowledge This estimation also helps auditors todecide the number of evidences collected

- Allocate initial estimation to cash and cash equivalents: The

objective of this stage is to help auditors to determine appropriate number ofevidences for the audit, which minimizes audit expense

b) Assess audit risk:

According to The Vietnamese Auditing Standard No.400 “Risk

assessment and internal control”, “Audit risk means the risk that the auditor

and the audit firm give an inappropriate audit opinion when the financial statements are materially misstated”.

Audit risk has 3 components: inherent risk, control risk and detectionrisk as following:

Inherent risk is “the susceptibility of an account balance or class of

transactions to misstatement that could be material individually or when aggregated with misstatements in other balances or classes, assuming that there were no related internal controls.” In auditing cash and cash

equivalents, inherent risks occur when calculating incorrectly, recordingincorrectly,…

Control risk is the risk that “a misstatement, that could occur in an

account balance or class of transactions and that could be material individually or when aggregated with misstatement in other balances or classes, will not be prevented or detected and corrected on a timely basis by the accounting and internal control systems.” In cash and cash equivalents,

control risks would occur more for client company which has ineffectiveinternal control system

Detection risk is “the risk that misstatement exists in an account balance

or class of transactions that could be material individually or when aggregated with misstatements in other balances or classes that the auditor and the audit firm fail to detect.” Detection risk occurs in cash and cash

equivalents if client company has many frauds and other issues that could not

be understood by auditors

Relationship between types of risk: This relationship is shown by the

following formula:

AR = IR * CR * DR

AR: Audit risk IR: Inherent risk CR: Control risk DR: Detection risk

In audit, there has a strong relationship between materiality and auditrisk If materiality is high, audit risk is low and vice versa

Step 8: Design audit program to cash and cash equivalents

Audit program includes audit procedures and examine in detail to eachitem When auditing, auditors would rely on audit program to performdifferent audit procedures Each audit firm has different audit program.However, to minimize audit expense, the audit firm would have a fixed auditprogram and shall change further for each customers to ensure the quality ofthe audit

Other factors for the audit

Before proceeding the audit, auditors shall send a memo to Board ofDirectors in their audit firm and a letter to their customer to notify auditprogram, including some information: time, address, number and name ofstaffs taking part in the audit and documents that needed to provide by clients

1.3.2 Audit implementation

This is a period when the auditor starts to perform audit proceduresstated in audit program and combine with the auditor’s ability to obtain auditevidences as a basis of conclusion of client company’s financial statements:whether financial statement is true and fair or not

Step 1: Implement test of controls for cash and cash equivalents

a) Assessment of the existence of control policy, regulations on internal control

- Objectives: To assess the adequacy of control regulations and thecompatibility of internal control regulations with respect to cash and cashequivalents.

b) Assessment of the application of internal control regulations

- Objectives: The operation, effectiveness of internal control regulationshave been designed for cash and cash equivalents

c) Assess of the implementation of the principles of organization of internal control activities:

This is an important step Proper implementation of the principle

“Assignment”, “Approvals, Authorizations” will ensure the effectiveness ofcontrol activities Consequently, auditors pay close attention to the properapprovals procedures, the assignment of appointment to the accountant, theclerk, the treasurer to ensure the necessary independence

Step 2: Implement analytical procedures

Analytical procedure is not often used for cash and cash equivalentsbecause it is not stable However, in some cases, the auditor use thisprocedure as following:

- Rational test usually include basic comparisons:

+ Compare the balance of cash and cash equivalents this year with thebalance that the enterprise plans and estimates;

+ Compare the balance of cash and cash equivalents this year withbalance of cash last year to identify the trend

- Trend Analysis: An analysis of the changes over time of the interestincome (which is classified as an item in cash and cash equivalents) and cashdeposit to identify trend and investigate any differences

Step 3: Implement test of details of transactions, account balances and disclosures

a) Implement test of details of cash and cash equivalents

- Objective: To ensure that the assertions are relevant to the existence,completeness, accuracy and presentation

*Cash on hand:

Table 1.2 : Cash on hand

The accuracy of calculation

and recording cash

- Reconcile the amount the cash account (ledger) and the figures in the corresponding reciprocal accounts.

- Reconcile between the balance data and the arising amount on the cashier's book with the figures in the accounting book, compare the figures on the collection Journal, the cash payment Journal book with the cash account ledger.

- Recalculate the aggregate balance, the arising amount on the ledger.

Cash recorded in financial - Reconcile documents with journal relating to cash in and cash

statements and other reports

is reasonable

out.

- Reconcile the balance of Cash in Statement of Financial position and in Cash flow and other accounting books such as petty cash book or Journal relating to cash in and cash out

All transactions relating to

Cash item are recorded

completely

- Sampling a number of periods, listing receipts and payments, then comparing the list of vouchers with the accounting book of cash in that period to determine their completeness.

- In addition, it should be combined with detailed survey of consumption and purchasing process, payment and comparison with related data to see if there are omissions or duplications of collection and payment operations.

Timeliness of recording

transaction relating to cash

- Reconcile the date, month of the collection and payment operation with the date of making the receipt, payment order, and the date of bookkeeping.

- Count cash, then compare with figures on cashier book of cashier and cash accounting book of accountant.

- Compare the date of book entry with the bank with the bank's figures.

Disclose transaction

relating to collect or pay

money

- Review records, purchase and sale contracts, deposit contracts.

- Review the financial statements to ensure the cash is recorded correctly.

*Cash in bank:

Table 1.3: Cash in bank

Cash in bank recorded in

accounting books and financial

statements is reasonable.

Reconcile between bank deposit ledger, general ledger with Debit and Credit notices with bank deposit balance.

All transaction relating to cash

in bank are cut -off

Take some samples of Credit notes, Debit notes of the bank to compare with the date recorded in the related books to see if they are cut-off.

All transactions relating to

cash in bank are recorded

- Examine contracts and the confirmation of bank to ensure the amount recorded.

completely - Choose a series of Credit notes, Debit notes and then compare

them with the bank deposit ledger to check the accuracy of the content.

The valuation of cash in bank

is correct

- Recalculate the amount interest income.

- Reconcile the balance in accounting books with Debit or Credit notes.

- Reconcile with relating accounts such as payable account, cash on hand.

The approvals and

authorization are correct

Take some samples of contracts for example deposit contracts to ensure the authorization and in accordance with regulations.

b) Assessment of results of test of details of cash and cash equivalents

After detailed examination, the auditor shall assess the collected auditingevidences The finding include errors not only in the accounts, but also in thefunctioning of the internal control system, information systems and possiblythe objective of the board of directors, capacity of the team member If afterexamining and determining the difference of auditing, the auditor mustinvestigate the nature and causes and consider the significance of thedifference in financial statement

c) Handling of cash and cash equivalents audit differences

When there is a difference in cash and cash equivalents audit, the auditorshould investigate the nature and causes of the difference whether it isdeliberate or accidental For example, cash and cash equivalents aredifference due to lack of transactions recorded, not yet receiving invocies,…When the auditor discovers material misstatement in a financial statement, animportant weakness in the internal control system, or a deliberate misconduct,immediately to the Board of Directors

1.3.3 Audit finalization

When completing, the auditors have a clear overview of the situation ofCash accounting of the enterprise and perform some steps as following:

- Make a report about issues relating to cash and cash equivalents

- Make a report relating to adjustment (if any)

After that, the auditor prepares a drafted revision, which sets out all theproposed adjustments The management letter will prepared if there is anyissue relating to cash and cash equivalents And the audit team shall have ameeting with their client to discuss, and agrees to the adjustment in financialstatements audited

CONCLUSION CHAPTER 1

Through studying and researching Chapter 1, we can comprehensivelycapture the characteristics of cash and cash equivalents, common risk inauditing cash and cash equivalents, objective and bases of auditing cash andcash equivalents In particular, Chapter 1 of the thesis gives and overview ofthe process of auditing cash and cash equivalents in the financial statementaudit, which generally follows the general audit procedure in the audit offinancial statements of cash and cash equivalents

CHAPTER 2: CASH AND CASH EQUIVALENTS AUDIT IN

FINANCIAL STATEMENT AUDIT PERFORMED BY ERNST AND

YOUNG VIETNAM 2.1 Overview about EY Vietnam Limited Company

2.1.1 Introduction

Ernst & Young Viet Nam is considered as one of the largest professionalservices firm in Viet Nam Locally, Ernst & Young Vietnam are committed todoing their part in building a better working world for their people, for theirclients and for their communities Globally, they are also united by our sharedvalues, which inspire their people worldwide and guide them to do the rightthing, and their commitment to quality, which is embedded in who they areand everything they do

* Organization structure of EY (Vietnam) Limited Company

Figure 2.1 EYVN structure

Partner: is a person who controls and takes responsibilities for the audit

engagement and its performance, and the auditor’s reports issued as well asprepares plans for the company in short – term and long – term

Director: is a person who is on be half for his partner to directly control

and manage the efficiency of audit jobs and report to his partner He alsoencourage his staffs to complete business strategies

All members in the Board of Diretor are responsible for directlyassessing risks, their customers, making decisions and signing contracts aswell as signing the audit reports before issuing

Audit partner

Director

Administrative Department

Accounting IT Administration ResourcesHuman

Service Department

Service Department is an important department which provides

services to its customers and a key department in revenue of the company,including:

 Assurance deparment is divided into 2 lines, which are financialassurance and core assurance Audit teams can work in a team or workseperately depending the nature of each job Members in audit team can sharetheir knowledge and experience to others to improve the efficiency

 Tax department provides services relating to tax which can help itscustomer improve management skills, therefore increasing the financialperformance

 Advisory provides effective solutions for its clients about informationtechnology, and other resources

Next, Adminstrative department is divided into 4 departments:

 Accounting department performs the tasks relating to manage andmonitor financial and accounting situations, record transactions occuring andnotify to the Board of Director if there is any problem about finance

 Information technology provides hardwares and softwares for staffs inthe company They also take responsible for building and managing internalsystems to ensure the security especially protecting customers’ information isthe first and the most important thing for audit company

 Administration department takes responsibility for transfering,providing and storing documents when required; providing stationery andhelp audit teams book cars for their jobs

many aspects of employment and recruite new employees

* Operating activities features of EY Vietnam Limited Company

In EYVN, there are 4 operating activities as following:

Assurance service:

- Provide independent vertification of client’s compliance with

accounting principles

- Help businesses accurately reflect their financial picture - an essential

function as we work to rebuild trust in financial markets

Tax service

- Support clients in meeting tax compliance and advisory needs,

building sustainable tax strategies, helping clients assess, improve and

monitor tax processes, controls and risk management

- Support the design and implementation of total reward strategies to

drive business strategy

- Create positive tax strategies that address the tax risks today’s

businesses face, meet cross-border reporting obligations and deal with transferpricing issues

Advisory for business service

- Assist clients with their operational and strategic challenges, product

development and risk functions

- Help clients respond to new regulation and increased expectations of

risk and internal audit functions

Transaction Advisory services:

- Provide advice to institutions engaging in mid-market transactions in

the financial services sector

- Help clients assess the strategic fit of a business by evaluating potential

synergies, project managing the transaction steps

- Help clients build effective business models to evaluate a new

transaction, a new market opportunity or for other strategic purposes

(Source from EYVN website)

* The diversity of customers in Ernst & Young Vietnam.

Eventhough Ernst & Young Vietnam has only 2 main branchs: Hanoi

and Ho Chi Minh city, the customer network of this entity is developing

rapidly in various fileds such as hotels, banks, manufacturing, insurances,etc

However, customers of Ernst & Young Vietnam can be splited to 2 typesthe same as 2 lines in assurance: core and finance

Figure 2.2 Customer network of Ernst & Young Vietnam

2.2 Introduction to financial statement audit performed by EY Vietnam

2.2.1 Feature of organizing audit team

Figure 2.3 An Audit team

Types of customers

Each audit team includes at least 6 people to audit, manage and controlduring the period They play an important role in the result of each audit job.

A partner: is a person who monitors, manages all activities of audit

team member to ensure that they comply with Vietnamese Accounting andAuditing Standard He also sign the report before it is issued

A manager: takes responsibility to design audit strategies, tasks and

ensure the quality of the job He is a person who directly communicates withhis clients about adjustment in accounting, or other business situation thataffect directly financial statements

A senior: is a person who has at least 2 year working – experience His

responsibility is to assign tasks to his members and lead the team He plays avital part in planning audit process, reseach, review current process andproviding recommendations to enhance company policcies and procedures

Staff: recognizes potential internal control issues and communicate with

assurance team Moreoever, he often performs individual audit workingpapers and prepare audit report And audit staff is a person who has less auditworking experience

Partner Manager Senior Staff 2 Staff 1 Internee

Staff 1 is a person who works under 1 year And staff 2 is a person whoworks at least 1 year.

Internee is a new member of assurance team who takes responsibility

for less risky sections such as auditing cash, assets, ect and under control ofassurance team, especially senior

2.2.2 Feature of organizing audit documentations

Software: Ernst & Young Vietnam designed a software called Canvas

which is used for storing documentation such as working paper, contracts andother information relating to their clients Auditors will upload their workingpaapers and other documents after finishing the audit as following steps:

Firstly, the IT department would create orders to managers to access

Canvas

Secondly, in charge manager will add other members who in an audit

team such as in charge senior, staffs and internee to Canvas And otherauditors who are in different team could not view the documents

When connecting to Canvas, all auditors need to complete thequestionaires relating to the indepence of auditors The auditors onlysucessfully connect to Canvas when they are independent

Thirdly, the auditor click “Task” and different files relating to audited

sections will appear Auditors will upload documents relating to sections theyaudit

Fourthly, before signing out the Canvas, they need to have an electric

signature to confirm

Working paper files are prepared in Excel program rather than papers.

EYVN has a template using for all working papers and auditors have tofollow

2.2.3 Financial statement audit process in EY Vietnam

2.2.3.1 Methodology and means of auditing

Ernst & Young Vietnam implements audit based on The EY GlobalAudit Methodology (EY GAM), which has 4 steps: Planning and riskidentification, Strategy and risk assessment, Execution and Conclusion andreporting

Figure 2.4 The EY Global Audit Methodology (EY GAM)

(Source EYVN website)

a) Phrase 1: Planning and risk identification

Firstly, the procedures need to start the audit process for a recurring or

a new client, like understanding service requirements, determining the projectscope, forming the engagement team, and completing preliminaryengagement activities like considering the results of our clientacceptance/continuance process and evaluating compliance with ethicalrequirements, including independence

Secondly, it involves developing our audit strategy by understanding

the business of the client, determining the need for specialized skills on theteam, understanding the entity-level controls and performing initial riskanalysis

Thirdly, the auditor need to address concepts of planning materiality

(PM), tolerable error (TE) and the Summary of Audit Differences SADnominal amount to identify misstatements to be reported in the Summary ofAudit Differences (SAD) EY consider materiality at two levels:

► At the overall level, as it relates to the financial statements taken as

a whole (PM)

► At the individual account level (TE)

Finally, the last objective of Phase 1 addresses identifying significant

accounts and disclosures and relevant assertions

b) Phrase 2: Strategy and Risk Assessment

Firstly, the first objective of this phrase will cover the team events

within the Strategy and Risk Assessment and Execution phases:

► the Team Planning Event (TPE) and discussion of fraud and errorand

► the Post-Interim Event (PIE)

Secondly, the next objectives will cover a variety of categories as the

engagement team starts understanding and evaluating the classes oftransactions and controls as a foundation of the overall risk assessment andstrategy development

EY identify significant classes of transactions (SCOTs), significantdisclosures processes and related IT applications that affect the relevantassertions of significant accounts/disclosures

Once identifying the SCOTs and significant disclosure processes, EYidentify those IT applications supporting them that are relevant to the audit.

An IT application relevant to the audit is a software program that supportsany of the following:

► SCOTs from initiation, recording, processing, correcting asnecessary and reporting to the financial statements

► Significant disclosure processes by which transactions, events, orconditions required to be disclosed

EY obtain an understanding of the critical path in the significant class

of transactions (SCOT) and the policies and procedures in place thatmanagement uses to ensure that directives are carried out and applied, andconsider the effect IT has on the SCOTs and the significant disclosureprocesses We use our understanding of the critical path and the policies andprocedures to identify what can go wrongs (WCGWs) and, when applicable,relevant controls

Thirdly, objectives includes objectives from both the Strategy and Risk

Assessment phase and the Execution phase, as making combined riskassessments, and then reassess them late

Fourthly, objectives includes designing a variety of tests and

procedures to be performed in the next phase of EY GAM, Execution

Finally, this covers the audit strategy memorandum that concludes this