MINISTRY OF FINANCE ACADEMY OF FINANCE FACULTY OF ACCOUNTING DAO LAN HUONG GRADUATION THESIS IMPROVING THE PROCESS OF COLLECTING AUDIT EVIDENCE IN THE AUDIT OF FINANCIAL STAEMENTS PERFORMED BY NAM VIE[.]
GENERAL OVERVIEW OF FINANCIAL STATEMENTS
1.1.1 Overview of Financial Statements due to the impact of COVID 19
Financial statements are essential financial reports that present an entity’s financial position, business performance, and cash flows through structured tables, aiding decision-making for stakeholders They not only provide valuable financial insights but also build confidence among users of the company’s financial information In the context of the ongoing global COVID-19 pandemic, which presents ongoing challenges for businesses across various industries, special attention is required in the preparation, presentation, and approval of financial statements to ensure accuracy and compliance.
The COVID-19 pandemic has significantly impacted the collection and evaluation of audit evidence through financial statement analysis Due to the crisis, some accounting estimates, such as provisions for doubtful receivables and asset depreciation, may no longer be relevant because of changing market conditions Supply chain disruptions threaten inventory valuation, especially for seasonal and perishable goods prone to spoilage and obsolescence Real estate businesses face declining property values amid economic downturns Additionally, the assumption of going concern in financial statements is challenged, as many enterprises risk dissolution or operational cessation, necessitating alternative bases like liquidation or actual exercisable prices, thereby altering audit evidence collection and evaluation techniques.
1.1.2 Concept and classification of audit evidence
According to Auditing Standard 500 (ISA 500), audit evidence encompasses all documents and information collected by auditors to support their audit opinion This evidence includes documents such as vouchers, accounting books, financial statements, and other relevant data, serving as both witness and physical information for verifying a company's financial statements Audit evidence is fundamental not only for forming conclusions but also for building confidence among users of financial statements Due to its diverse nature, auditors must understand the various types of audit evidence to ensure accurate assessment and a reliable audit process.
Effective audit involves understanding various types of evidence, each with differing levels of reliability To streamline the assessment and application of audit evidence, it is essential to classify evidence based on its source and relevance to the financial statements This classification helps auditors evaluate the sufficiency and reliability of the evidence collected during the audit process.
(1) Audit evidence is self-exploited and discovered by auditors by:
- Actual asset inventory: inventory, fixed asset inventory, fund inventory
- Calculation Re-calculate the spreadsheets of the enterprise's calculation tables: the data and documents recalculated by the auditors confirmed by the enterprise or related people are reasonable
- Observe the operation of the internal control system complete set: the information and documents recorded by the auditor through the observation of the enterprise's internal control system
This type of evidence is highly reliable because it is obtained directly by the auditor However, during inspections, evidence may be temporary, requiring auditors to secretly observe internal control activities to ensure validity For even greater reliability, inventory counts should be based on physical property examinations conducted periodically, acknowledging that results may vary over time.
Audit evidence issued by external entities, such as sales invoices, purchase invoices, fixed asset handover minutes, and bank statements, enhances the credibility of an audit due to its independent origin However, this type of evidence remains susceptible to manipulation, including potential erasure, addition, or modification, which can affect its reliability in assessing the company's control activities Ensuring the integrity of external evidence is essential for maintaining effective audit quality.
Audit evidence includes documents issued by the enterprise and circulated externally, such as payment authorizations and sales invoices These third-party sources are highly persuasive proof due to their independent nature; however, it is essential to verify the independence of the supplier from the business to ensure the credibility of the evidence.
(4) Audit evidence for the enterprise issues and circulates to the internal departments of the entity and the information that the enterprise provides to the auditors
Internal enterprise documents are vital for day-to-day operations and include payment slips, material delivery notes, sales invoices, time sheets, salary payment records, general ledgers, product inspection reports, stock release notes, warehouse receipts, and other circulation records These documents streamline internal communication, ensure accurate record-keeping, and support financial and inventory management Properly managing and controlling enterprise documents enhances operational efficiency and compliance.
- The accounting books and accounting reports of the enterprise are made.
- Information (speech, notes, ) of managers, professional staff or explanations of related people in the unit to the auditors
This type of evidence provides a substantial amount of information and is highly regarded due to its availability and accessibility within the organization Since it originates from within the enterprise, its reliability depends on the effectiveness of the company's internal control system However, the recovery rate of this evidence is generally low, highlighting potential limitations in its sourcing.
- Classification of audit evidence by type of evidence
Reliability is primarily determined by the type of evidence presented, with documentary and visual evidence considered more dependable than speech recordings According to established principles, evidence in the form of documents and images tends to offer higher credibility, making them crucial for assessing reliability Evidence classification by type includes various forms such as written documents, photographs, videos, and spoken testimony, each impacting the overall assessment of evidential strength.
Physical evidence, obtained through an auditor's inspection or tangible asset inventory, includes assets such as inventory, fixed assets, cash, and securities This type of evidence encompasses inventory records, cash fund inventories, securities, and asset inventory minutes, providing comprehensive documentation Because physical evidence is acquired through direct inspection, it offers the highest level of reliability in verifying the existence and accuracy of assets.
Documentary evidence is the information collected by auditors through documents and records related to the audited entity, including accounting and business records, reports, and managerial explanations It also encompasses external documents provided by third parties such as tax authorities, customs, suppliers, and customers, which support financial statement accuracy Additionally, auditors perform recalculations—such as verifying invoice prices, asset depreciation, and cost allocations—to confirm data accuracy While documentary evidence strengthens the credibility of audit findings, its reliability hinges on the effectiveness of the client's internal controls, making it less dependable than physical evidence.
Evidence obtained from words primarily comes from interviews, serving as a valuable but often less convincing form of proof The effectiveness of this type of evidence relies heavily on the interviewer's deep understanding of the subject matter, ensuring accurate and meaningful insights are captured during the process.
- In addition, there is a way to classify audit evidence according to persuasiveness
Audit evidence plays a crucial role in forming reliable opinions on the truthfulness of financial statements, requiring auditors to thoroughly evaluate its credibility The persuasiveness of evidence directly influences the scope and tone of the auditor's opinion expressed in the audit report Therefore, auditors must carefully assess the reliability of audit evidence, as it determines the degree of confidence in their conclusions Evidence is classified based on its quality and source, which impacts the overall effectiveness of the audit process.
Fully convincing evidence, obtained through self-inventory, evaluation, and observation by auditors, is considered to be objective, accurate, and complete This type of evidence provides a strong foundation for auditors to form an unqualified opinion, ensuring the reliability of financial statements and enhancing audit quality.
PROCESS OF COLLECTION BY AUDIT EVIDENCE IN AUDIT
Audit planning is a crucial initial stage in the audit process, establishing the legal and procedural framework necessary for a successful audit According to ISA-300, audit planning involves developing a comprehensive strategy and approach, including estimated timelines and audit content, to ensure the audit is conducted efficiently and within schedule The planning process typically comprises two phases: pre-planning and detailed planning, both essential for effective audit execution.
➤ Pre-planning phase: a Evaluation of audit acceptability
A robust quality control system for auditors involves establishing clear policies and procedures to evaluate whether to accept new clients or continue working with existing ones, minimizing the risk of onboarding clients lacking integrity When assessing a client, auditors must consider factors such as independence, the firm's ability to provide effective service, and the client's corporate governance practices Additionally, identifying the client's audit rationale is essential to ensure alignment with professional standards and to maintain audit quality.
Understanding the client's audit rationale involves identifying the users of the financial statements and their intended use, which is essential for planning an effective audit The auditor can determine this by directly interviewing the client's management for new clients or relying on previous audit experience for established clients Throughout the audit process, the auditor gathers additional information to deepen their understanding of the client's audit rationale Additionally, selecting a qualified audit team is crucial to ensure a thorough and professional audit process.
The quality of an audit largely depends on the competence and training of the audit staff, as they are responsible for executing each audit It is essential that audits are conducted by individuals who have received proper training and possess the necessary expertise Additionally, selecting audit team members requires a commitment to maintaining independence from the client, ensuring that no personal or economic interests compromise their objectivity and integrity Upholding independence and professional honesty is critical to performing accurate and reliable financial statement audits.
Once an audit firm decides to accept a client, the final step in the audit preparation phase is securing an audit engagement An audit engagement is a formal agreement between the firm and the client, outlining the scope of audit services and related procedures This engagement letter ensures clear communication, defining roles and responsibilities for both parties before commencing the audit process.
During the evidence-gathering stage, auditors focus on reviewing and analyzing the entity's formation and operational documentation to obtain relevant information They may also conduct interviews with management to gather supplementary insights crucial for assessing contractual risks and making informed decisions about proceeding with the audit engagement Effective documentation review and management interviews are essential components of this process, ensuring a comprehensive understanding of the company's financial and operational controls.
The following is a summary of the content and accompanying evidence collection techniques: a Gathering background information
During this stage, the auditor thoroughly reviews the client's industry, business operations, accounting system, internal controls, and related parties to assess risks and develop an effective audit plan Additionally, the auditor gathers comprehensive information about the client's legal obligations to ensure compliance and identify potential legal risks.
Auditors enhance their understanding of a business by conducting thorough document research and interviews, focusing on key legal documents such as establishment licenses, company charters, and significant contracts They review financial statements, audit reports, inspection or test reports from the current and previous years, and minutes from shareholder, board of directors, and committee meetings to assess the company's legal and financial standing Additionally, initial analytical procedures are performed to identify potential risks, ensure compliance, and support accurate audit conclusions.
After obtaining the client's background and legal obligations, auditors perform analytical procedures on the collected information to identify key audit areas These procedures help in planning the nature, timing, and extent of further audit tests necessary to gather sufficient audit evidence Additionally, auditors assess materiality and risk to ensure a focused and effective audit process.
During the planning stage, the auditor evaluates materiality to estimate acceptable misstatements, determine the scope of the audit, and assess their impact on financial statements This process guides the nature, timing, and extent of audit procedures, ensuring effective detection of misstatements The auditor must consider both expected and actual materiality, as well as the risk of material misstatement for the entire financial statement and individual items Understanding internal controls and assessing control risk are essential components in designing risk-based audit procedures and developing comprehensive audit programs.
The auditor must have a sufficient understanding of the client's initial internal controls to plan the audit and develop an effective audit approach.
When evaluating an internal control system, it is essential to consider key factors such as the control environment, risk assessment process, control activities, information and communication systems, and monitoring activities A strong understanding of internal control enables auditors to accurately assess control risk, which, when combined with inherent risk assessments, helps identify the risk of material misstatement.
From the risk of material misstatement, the auditor must estimate detection risk in order to predict the audit method, time, and audit schedule. f Compilation of the audit plan
After completing all preparatory steps, the Auditor summarizes key issues to address before the audit begins, serving as an essential communication tool that facilitates effective collaboration between the Board of Directors and the audit team.
During the audit process, auditors follow a predefined plan while remaining flexible to make necessary adjustments, ensuring thorough and effective execution They utilize specialized audit techniques tailored to the specific audit object to gather credible audit evidence This proactive approach allows auditors to assess the accuracy and fairness of financial statements, providing an informed opinion based on sufficient and reliable evidence.
The audit method at this stage depends on the preliminary assessment of internal controls made during audit planning If the auditor relies on the internal control system, the client must reassess its effectiveness, and the auditor adjusts substantive tests accordingly Conversely, if the auditor does not depend on internal controls, they immediately perform substantive tests on assets, liabilities, capital sources, and income statement items to ensure audit accuracy.
The specific contents of this phase are as follows:
The team leader plays a crucial role in the audit process, overseeing key responsibilities such as communicating with clients to schedule inventory of fixed assets, organizing record-keeping, and planning audit activities They also analyze records, coordinate team member tasks, and conduct examinations to ensure comprehensive and accurate audit outcomes Effective leadership by the team leader is essential for a smooth and efficient audit process, emphasizing the importance of clear communication, meticulous record management, and thorough evaluation of team performance.
CONCLUSION
Chapter 1 provides a comprehensive overview of the fundamental theoretical issues related to the techniques of collecting and evaluating audit evidence in financial statement audits, emphasizing their importance in ensuring audit quality It contextualizes the audit process within the COVID-19 pandemic, highlighting how the pandemic has impacted financial statements and the audit environment The chapter systematically clarifies the technical aspects involved in gathering and assessing audit evidence, including detailed descriptions of the processes involved These foundational insights serve as a basis for analyzing how COVID-19 has affected audit evidence collection and evaluation practices at Vietnamese auditing firms Based on this analysis, the chapter suggests targeted solutions to enhance audit techniques, ensuring more effective collection and evaluation of evidence amid the challenges posed by COVID-19.
HISTORY OF FOUNDATION AND DEVELOPMENT OF NAM
Nam Viet Auditing and Financial Consulting Services Company Limited (AASCN) is a reputable firm registered under Business Registration Certificate No 4102053725, issued by the Ho Chi Minh City Department of Planning and Investment Established on September 11, 2007, and licensed by the Ministry of Finance, AASCN has a proven track record in providing professional auditing and financial consulting services in Ho Chi Minh City.
AASCN is a reputable legal and professional auditing firm specializing in comprehensive auditing and accounting services, tax consulting, financial and management consulting With extensive experience, AASCN caters to all types of businesses across Vietnam, delivering tailored solutions to meet diverse financial needs.
AASCN has been approved by the State Securities Commission to perform audits for issuers, listed companies, and securities trading organizations since 2008, following annual decisions from the Securities Commission In August 2008, AASCN established its Hanoi branch to expand operations into the North and Central regions of Vietnam Since 2017, AASCN has been recognized as a qualified auditing firm capable of conducting audits for entities with public interest, reflecting its ongoing commitment to maintaining high standards in the industry.
Nam Viet Auditor has established itself as one of the top 10 auditing firms with the highest revenue from public interest entities, earning trust as a reliable partner for many leading businesses The firm serves prominent clients, including top-capitalization companies listed on the stock market such as Hanoi Beer Alcohol Beverage Joint Stock Corporation (BHN) and Binh Minh Plastic Joint Stock Company (BMP), demonstrating its strong presence in the industry and commitment to quality auditing services.
AASCN is always dedicated to working in the best interests of its customers by ensuring the highest quality and reliability of specialized services and information Their primary goal is to support partners in making informed management decisions through accurate financial management and optimal resource utilization.
AASCN upholds core principles of independence, honesty, objectivity, and confidentiality in all activities, strictly adhering to Vietnamese regulations and Vietnamese Auditing Standards Additionally, Nam Viet Audit emphasizes compliance with internationally recognized standards on auditing to ensure quality and integrity Prioritizing the legitimate interests of clients remains a fundamental focus, guiding all their professional practices.
AASCN prides itself on delivering quality services grounded in the practical experience of its skilled staff The company has a team of over 60 professionals, including auditors with university and postgraduate qualifications in Finance, Banking, Accounting, and Auditing, both domestically and internationally Many team members have extensive industry experience and seniority, having previously worked at leading auditing and consulting firms in Vietnam Additionally, 27 auditors hold valid practice certificates recognized by the Ministry of Finance, and 9 qualified property valuers are certified to perform valuations With this highly qualified and experienced team, AASCN is confident in its ability to meet client requirements and deliver exceptional service.
AASCN leverages practical experience, close customer relationships, and dedicated service to understand the unique challenges faced by businesses operating in Vietnam With their proficiency in handling specialized operations, they assist clients in solving complex problems that few other service organizations can address.
Nam Viet Audit is highly regarded for its service quality, with hundreds of clients across diverse sectors, including foreign-invested enterprises, state-owned enterprises, joint-stock companies, and administrative or non-business units Many clients choose to renew their audit contracts with AASCN annually, reflecting strong client loyalty and satisfaction Additionally, AASCN's client base continues to grow each year as new enterprises sign audit contracts for the first time, demonstrating the firm’s increasing reputation and influence in the auditing industry despite its relatively recent establishment.
The Northern branch of AASCN was officially established following a decision by the Board of Directors of Nam Viet Finance, Accounting, and Auditing Service Company Limited It commenced operations on August 2, 2018, in accordance with the business registration certificate issued by the company The branch is licensed by the Hanoi Department of Planning and Investment, ensuring compliance with local regulations and standards.
Address: LK07-TT2, 96B Nguyen Huy Tuong, Thanh Xuan, Hanoi
AASCN Northern branch is an affiliated unit of AASCN, dependent accounting, having sub-financial statements own seal, operating according to the motto and common goals of Nam Viet audit.
AASCN North Branch was established as a separate entity from AASCN Hanoi Branch, with the majority of staff remaining based at the original location The branch is staffed by 25 licensed auditors and 9 licensed property valuers, demonstrating its strong expertise in auditing and valuation services This strategic separation allows AASCN North to expand its operational capacity while maintaining the high standards associated with the parent organization.
The AASCN North Branch boasts a high ratio of certified auditors, with 8 certified professionals out of 17 employees, setting it apart from many industry counterparts Additionally, other team members actively pursue ongoing education, improve their qualifications, and participate in the Ministry of Finance’s competitions to earn practicing auditor certificates Despite its recent establishment and small scale, the branch consistently earns customer confidence through its qualified and committed auditing team.
The clients of Nam Viet Auditor's Northern branch are highly diverse in terms of size, industry, and organizational type, similar to the head office and Hanoi branch Key clients include major corporations such as Hanoi Beer Alcohol Beverage Corporation (Habeco), Alphanam Group, and Vietnam Petroleum Corporation.
Table 2.1 Business performance of Nam Viet Auditing and Financial Consulting Services Co., Ltd - Northern Branch from 2016 to 2018 (Source: Transparency report of the company in 2016, 2017, 2018)
2.1.2 Operational characteristics of AASCN Northern Branch Auditing Company a Auditing field
Provide audit services in the following areas:
- Auditing of annual financial statements for all types of businesses.
- Audit of completed project settlement reports.
- Auditing financial statements of projects funded by international organizations.
AASCN Northern branch specializes in providing comprehensive financial statement audit services, which are the core strength that enhances Nam Viet Audit's brand reputation The firm's auditing services are growing both in volume and quality, driven by continuous improvements in staff expertise Despite being a newly established branch, they have already signed over 100 audit contracts with a diverse range of clients, including government-related entities, joint ventures, foreign-invested companies, and domestic private sector enterprises Additionally, AASCN offers specialized financial statement audit services for projects financed or loaned by international organizations, showcasing its versatility and commitment to high-quality auditing standards.
The AASCN audit scope extends beyond year-end financial statements to include the review and audit of interim financial reports at various points during the fiscal year Typically, audits and reviews are conducted for periods such as the first six or nine months, aligning with the enterprise’s specific needs This comprehensive approach ensures timely and accurate financial insights throughout the year.