NATIONAL ECONOMICS UNIVERSITY EXCELLENT EDUCATIONAL PROGRAM 6T BACHELOR’S THESIS Major Auditing TOPIC AUDITING WAGES AND SALARY DEDUCTIONS IN THE AUDIT PROCESS OF FINANCIAL STATEMENTS CONDUCTED BY VAN[.]
Overview of accounts receivable
This bisexual account features balances on both the debit and credit sides, indicating its dual nature It is characterized primarily as an asset, exhibiting key features such as [insert specific features], which are essential for understanding its functionality in accounting This type of account plays a vital role in accurately representing a company's financial position by accommodating balances on both sides.
The account receivable is a sensitive asset with frauds such as being appropriated or corrupted by employees.
Accounts receivable is an item that is closely related to business results, so it is the object to use tricks to inflate revenues and profits of the unit.
Receivables from customers are reported at their net realizable value, reflecting the amount expected to be collected However, since the provision for bad debts is typically based on managerial estimates, it can introduce potential errors and challenges in verification, impacting the accuracy of financial statements.
The recorded receivables are real at the time of making the report (Existing).
All accounts receivable from customers must be fully recorded (Full).
Debts receivable from customers on the reporting date belong to the unit (Rights and obligations).
Accounts receivable from customers must be recorded in the correct amount on the financial statements and appropriate between the details of accounts receivable and the ledger (Accurate record).
Provisions for bad debts are reasonably calculated so that the net value of accounts receivable is approximate to the net realizable value (Assessment)
Accurate presentation and announcement of debts are essential for effective collection from customers, ensuring that accounts receivable are properly disclosed This includes transparent communication of related issues such as pledges, mortgages, and other security interests, fostering trust and clarity in financial reporting Properly presenting and announcing these details helps facilitate smoother debt recovery processes and maintains compliance with accounting standards.
Goods return to committed Sales discount, sales return importer and allowance
Income from liquidation of Tax
Expenditure for committed Customer pays in advance importer
Differences of rising exchange rate Clearing debt
Figure 1.1 Accounting of accounts receivable
The relationship between accounts receivable and sales-collection cycles
The accounts receivable is an important item, which has a wide range of impacts on many financial statements and has a close relationship with the sales- collection cycle.
Accounts receivable represents the debts owed by customers when selling goods, highlighting each party's responsibilities in the sales process It also indicates the customers' ability to utilize the company's capital When a company makes a sale, both sales revenue and receivables are recorded simultaneously, reflecting the immediate recognition of revenue and outstanding customer obligations This dual recording ensures accurate financial reporting and provides insight into the company's cash flow and credit management.
Sales volume encompasses products, goods, investment real estate for sale, and services provided that are considered consumed Proper accounting involves recording accounts receivable from customers, even if the payments have not yet been collected, ensuring accurate financial reporting and cash flow tracking.
Enterprises engaged in the sale of goods, provision of services, or real estate investments subject to VAT via the deduction method should record sales revenue and service provision based on the selling price without including VAT Accountants accurately reflect these transactions by deducting VAT from the total amount, ensuring compliance with VAT regulations and proper financial reporting This approach allows for correct calculation of VAT payable or deductible, facilitating transparent and compliant accounting practices.
Cr 511 - Sales of goods and service provision (Selling price without VAT).
• For goods, services, investment properties not subject to VAT or subject to VAT by direct method, accountants reflect sales and service provision according to the total payment, record:
Cr 511- Sales revenues (Total payment)
When collecting payments, the account debt reflects the receivable from customers that has been paid, thereby terminating the responsibilities and obligations of both the units and customers associated with that debt At this point, the accountant will record the write-off of the receivable from customers and recognize the corresponding increase in revenue or cash accounts.
The audit of accounts receivable in auditing financial statements
The auditing process consists of 3 stages: Prepare auditing, perform auditing and finish auditing.
Auditing preparation is the first stage in the audit process, including the following work steps:
Preparing for an audit plan
Preparing an audit involves gathering information about customers to help auditors understand their needs, assess risks, and evaluate the organization’s capacity to serve effectively, including considerations such as execution time and audit fees Upon acceptance, auditors sign contracts with customers, ensuring clear agreement on service terms According to paragraph 12 of VSA 220, which governs auditing quality, auditing firms must consider factors like independence, capacity, customer service quality, and the integrity of the Customer's Management Board when maintaining existing clients or evaluating potential ones.
When auditing new customers, auditors must thoroughly identify the underlying reasons for the engagement and gather comprehensive information, including the company's business field and financial status They should increase data collection efforts for clients whose financial reports are widely used, such as publicly listed companies, highly leveraged firms, or joint-stock companies on the stock exchange Additionally, auditors need to source information from bank data, newspapers, specialized publications, and interview previous auditors to gain insights into the client’s financial history Based on this data, auditors conduct preliminary financial analysis, evaluate potential risks, and determine whether to accept the audit engagement, ensuring that the client’s operations comply with legal and ethical standards Auditors must ensure their independence and avoid accepting audits if their impartiality is compromised.
Old customers require annual updates after each audit to reassess their current status, identify new issues, and detect potential conflicts of interest In cases of disputes among customers, disagreements over the scope of auditing, or debates regarding audit procedures, the auditor must suspend the audit process Assigning appropriate staff to perform the audit is a crucial step to ensure thorough and compliant auditing procedures.
Paragraph 12 VSA 220 requires: “Auditing work must be delegated to professional staffs who are trained and have sufficient skills and professional capacity to meet practical requirements.”
When assigning auditors, auditing firms must adhere to established guidelines to ensure objectivity and independence For long-term clients, limiting incentives for changing auditors helps maintain a deep understanding of the client's business and preserves strong, continuous relationships To prevent auditors from becoming overly familiar with clients, firms should implement policies for rotating auditors regularly, reducing the risk of psychological inertia, complacency, or compromised independence Additionally, establishing a preliminary agreement with clients ensures clear communication and mutual understanding throughout the audit process.
When realizing that it is possible to receive an audit, auditors will exchange and negotiate with customers on some issues, such as:
The purpose and scope of an audit include verifying compliance for loan applications, conducting asset valuation, and assessing the company's business development (BD) performance in the previous year These audits provide essential insights to support decision-making and are typically reported to the board of directors.
From there, it is to judge which auditing objectives are easily violated to focus on auditing.
Some services auditors can serve customers, such as suggestions to improve internal control, management consultancy
The problem of customers providing accounting documents and means to serve the audit.
The use of customer employees to save time and audit fees
The issue of examining the balance at the beginning of the year for new customers.
Auditing charge d Signing an contract
The final step in preparing for an audit plan is establishing a formal agreement between the auditing firm and the client, outlining the scope of audit activities and related services This agreement ensures clear communication, sets expectations, and secures mutual understanding, which are essential for a successful audit process Properly documented, it helps both parties align their objectives and provides a foundation for effective cooperation during the audit.
According to VSA No 210, an auditing contract must be formally and officially signed prior to commencing any auditing work to safeguard the interests of both clients and auditing firms The contract signing process must adhere to the regulations outlined in the Ordinance on Economic Contracts issued on September 25, 1989, as well as relevant decrees, ensuring legal compliance and transparency in the auditing engagement.
17 (now the Government) dated January 16, 1990 "
Understanding customers a Contents needed to understand.
Auditors need a wide and deep understanding on many things, including:
General knowing about the economy such as the status of the economy, the rate of inflation, or new policies of the Government
Understanding the environment and operational area of the audited entity is essential, including market conditions, competitive landscape, and the specific characteristics of the business sector It also involves analyzing relevant standards, accounting regulations, and legal provisions that influence their operations, ensuring a comprehensive assessment aligned with SEO best practices.
Understanding the internal factors of the audited entity is essential, including examining ownership characteristics, management structure, overall business situation, and the financial capacity of the unit Additionally, employing effective methods of inquiry ensures a comprehensive assessment of these internal elements, contributing to a more accurate and insightful audit process.
To acquire essential audit knowledge, auditors must gather information by collecting and reviewing organizational documents, conducting site visits and interviews with relevant personnel, and performing preliminary analyses of financial statements.
❖Collect and research documents on the business situation.
To ensure comprehensive understanding of its business, a TV must gather all relevant information that could impact its operations This includes collecting key documents such as the company charter and establishment license, financial statements and audit reports from recent years, minutes of General Meetings of Shareholders, Board of Directors or Members' Council meetings, and audit or inspection reports Additionally, important contracts or commitments, customer rules and policies, and other pertinent documents are essential for a thorough assessment Proper collection and analysis of these documents enable auditors to evaluate the business's financial position accurately and assess the potential impact on financial statements.
To thoroughly understand customer activities, auditors must visit various locations such as factories, warehouses, shops, and offices These site visits enable auditors to access and observe the design and functioning of internal control systems in real conditions By directly inspecting business facilities, layouts, and operational processes, auditors gain valuable insights into the true state of the company’s operations This hands-on approach allows for better visualization of workshop and shop activities, product unloading, and equipment utilization, ultimately leading to a more accurate assessment of the customer’s operational environment.
Observing activities allows auditors to gain a comprehensive understanding of how assets are utilized and safeguarded This process enables a preliminary assessment of internal controls and assists auditors in analyzing potential risk areas Identifying these focus points during observation ensures a more effective and targeted audit process, ultimately enhancing the accuracy and reliability of audit findings.
Interviews are a widely used method throughout the audit process, starting with discussions with client company representatives to understand the unit’s overall situation, internal control systems, business policies, and organizational structure Additionally, auditors engage directly with key officials across departments during the audit to gather insights and assess the effectiveness of internal controls This approach also allows auditors to preliminarily evaluate the capacity and competence of the unit’s staff, enhancing the overall audit thoroughness.
❖Preliminary analysis of financial statements.
Analysis is an important procedure in auditing, fast but very effective, this procedure is used by auditors during the audit process.
During the planning phase, auditors primarily analyze preliminary financial statements to gain a better understanding of the client's financial status and to identify abnormal fluctuations that may signal high-risk areas For instance, a sudden increase in accounts receivable can indicate potential revenue recognition issues, prompting auditors to design targeted audit procedures Additionally, financial statement analysis helps auditors assess whether the company's ability to operate continuously is at risk, determining if further verification procedures are necessary to ensure accuracy and compliance.
Determine the materiality and assess the audit risk a Determine the materiality.
Section 04 VSA 330: "Materiality is a term used to express the importance of information (An accounting data) in the financial statements.
The auditing program of accounts receivable in the audit of ABC Company’s financial statement conducted by T.D.K
2.1.1 Introduction to the audit plan of ABC Company’s financial statement
To effectively audit ABC's financial statements, auditors must understand the company's business operations, internal control systems, and associated risks Before developing the audit plan, T.D.K conducts a thorough analysis of the customer's financial statements to gain a comprehensive overview of their business activities, ensuring an accurate and efficient audit process.
During the audit process, T.D.K will work together, regularly discuss issues that arise to minimize problems in the process.
Based on the understanding of this company, T.D.K will build an auditing program suitable for ABC Company
Upon sending a greeting letter to the customer, Thang Long-TDK conducts an investigation into the reasons for selecting their auditing services, gathering relevant information about the client and their previous audits The company particularly focuses on first-time clients or those switching auditing firms, to understand their motivations Auditors then complete a pre-designed questionnaire to assess the client's needs and background, which helps determine whether to accept the potential partnership.
ABC Company is a longstanding client, enabling us to rely on previous year's audit data while updating any changes for the current year to facilitate the audit decision In 2018, ABC Company maintained stable operations with no significant changes, continuing normal economic activities However, it is important to note any minor updates or developments that may impact the audit process.
- During the year, customers had to write off some debts from customers.
After reviewing, find out the company decided to continue auditing for ABC company.
❖Assign staff to perform auditing.
The selection of auditors is tailored to each customer's business size and type, ensuring an appropriate and efficient audit process Typically, auditing teams consist of four to eight members, led by a skilled audit team leader with comprehensive expertise relevant to the client For longstanding clients, auditors familiar with their operations are prioritized to enhance the speed and efficiency of the audit However, this familiarity may sometimes lead to overlooked errors, highlighting the importance of balanced auditing practices.
Through the process of understanding and reviewing, the company has selected an audit team consisting of 5 members, including:
- Ms Pham Thi Minh – auditors: Reviewing and issuing Report
- Mr Nguyen Tien Thanh - Assistant Public Assistant: Head /
- Mr Vo Van Hung - auditors Assistant: Directly implementing
- Mr Phan Van Tuan - auditors Assistant: directly implementing
- Ms Nguyen Thi Nhan - auditors Assistant: Directly implementing.
To ensure a successful audit, it is essential to organize an initial meeting with customers to define the scope of work and establish a cooperative relationship for efficient execution Since ABC Company is a longstanding client, direct meetings are typically preferred; however, due to 2018 being a leap year with many customers requesting Lunar New Year audits, the company prioritized remote communication methods like phone and email to coordinate efforts This approach allowed the team to maintain effective communication during the work process while meeting the deadline of March 31, 2018, for reporting and cost savings.
Based on discussions with ABC Company, auditors will define the purpose and scope of the audit, primarily to facilitate the presentation of financial reports to the Shareholders Council The process involves exchanging necessary documentation with clients, ensuring all required financial records are prepared and communicated in writing to support an accurate and thorough audit process.
- The two parties agree on the audit fee in the audit contract and the audit time at the company (agreed upon when the customer submits the list of documents)
To initiate audit services, a representative from TDK and a representative from ABC Company will sign a contract outlining key terms, including the scope of services, applicable laws and standards, responsibilities of both parties, audit reporting procedures, and fee structure This agreement ensures clear understanding and alignment on deliverables, compliance requirements, and payment terms for effective collaboration.
After signing the contract, the company will officially become an audit firm of ABC company. a Learn about the operation of ABC company
Auditors need to have knowledge about customers and thereby have orientation and design of auditing program accordingly.
Auditors review essential documents such as the company's business registration, charter, and financial regulations to gain a comprehensive understanding of the organizational structure and compliance standards They analyze key records including appointment decisions for the board of directors, Supervisory Board, and chief accountant, along with reviewing business cycle flowcharts and accounting cycles to evaluate operational processes Additionally, auditors examine the management and accounting apparatus to ensure proper internal controls, and conduct preliminary analyses of financial reports provided by customers to identify potential discrepancies and assess financial health This process is crucial for ensuring accurate, transparent, and compliant financial reporting.
ABC Company, as a longstanding client, provides auditors with reliance on archived audit files from the previous year to understand its financial history Although previous audits offer foundational knowledge about ABC, auditors actively communicated with the company's Board of Directors to obtain updated information on recent changes, ensuring the current-year audit file reflects the most recent and accurate details.
ABC Company demonstrates a stable and effective development process with a flexible organizational structure, leveraging local materials to optimize operations The company utilizes accounting software to meticulously monitor economic activities, maintaining detailed and regularly updated financial records Vouchers are comprehensively collected and accurately distributed among departments, ensuring clear accountability Strict document management practices within each department facilitate efficient record-keeping and ease of audit comparison, reflecting the company's organized approach to financial oversight.
Auditors' preliminary analysis of financial statements revealed that collecting debt from large customers is essential, yet eradicating bad debts remains challenging and risks potential embezzlement by company accountants During an interview with the Board of Directors, questions focused on the company’s financial changes over the year, highlighting the importance of strengthening debt management and internal controls to ensure accurate financial reporting and safeguard assets.
- About personnel: have there been any changes?
- Is there a reorganization of the organizational structure? '
- Are there changes in accounting or new information systems?
After the process of understanding and exchanging with ABC company, auditors concluded:
In 2018, in addition to deleting some irrecoverable debts, the company has not changed much compared to 2017 . b Establishment of materiality and audit risk assessment
The determination of the critical level by the main auditors, this work is supported by the audit tool Include the following steps:
Step 1: Select the criteria used to estimate the key.
As a joint stock company, ABC is required to publicize its financial statements, which increases pressure to deliver dividends to shareholders Consequently, achieving pre-tax profit becomes a primary goal for various stakeholders, emphasizing the company's focus on financial performance and transparency.
So auditors decided to choose pre-tax profit as the target used to estimate the key level.
In 2018, the profit before tax of ABC company is: VND 22,503,006,891.
Step 2: Determining the overall importance level:
- Selecting the rate used to estimate the overall importance:
Auditors preliminary assessment of the internal control system is quite effective, also judging by themselves, auditors choice the ratio: 7%, suitable and within the prescribed range (5% - 10%).
- Determination of overall vital level (MP):
Step 3: Determine the key performance level (PM):
After determining the overall key level, the auditors will continue to determine the key performance level:
Similarly, the ratio is used to estimate the weight Weak performance is 60%. The key performance level is:
Step 4: Establish the level of omission:
The rate used to estimate the omission error is 3% Determination of omitted errors:
Choose this criteria to identify materiality (income before tax)
ABC is a joint stock company so income after tax is most concerned by shareholders So auditors choose this criteria
Rate used to estimate OM
Rate used to estimate PM
Rate used for negligible errors 3% 3% 3% 3% 3%
Auditors choose materiality to apply in auditing:
Before audit After audit After audit
Rate used for negligible errors 28.353.789 27.623.450 34.398.857 -6.775.407
Materiality in 2018 is less than 2017 because the criteria of revenues are decrease.
After conducting interviews with the Board of Directors and performing onsite visits and observations at ABC Company, auditors gain a comprehensive understanding of the company's internal control system They then complete a detailed questionnaire to document their findings, which is stored in the work profile to ensure thorough record-keeping and support audit procedures.
Completing the questionnaire, auditors will rely on his judgment to draw conclusions about the risk of ABC joint stock control as medium.
When auditing debt items owed by customers, auditors assess the overall control risk while paying close attention to provisioning and write-offs during the period It is essential for auditing staff to enhance their review procedures, strengthening defenses and conducting detailed inspections to ensure accurate recognition and valuation of receivables Proper evaluation of these factors helps mitigate risks and improves the reliability of the financial statements.
2.1.2 Develop audit program of ABC Company’s financial statement
Accounts receivable is a critical component that significantly impacts financial statement indicators In 2018, the company experienced a substantial increase in accounts receivable, especially related to debt forgiveness objects Consequently, the audit team leader emphasized the importance of scrutinizing this item To ensure accuracy, the auditor’s assistant selected testing elements using a targeted approach, focusing on specific items due to ABC Company’s status as a longstanding customer with outstanding receivables from previous years, which differ from other objects.
The program of checking accounts receivable from customers includes:
●Checking accounting policies applied consistently with the previous year and in accordance with the framework of preparing and presenting the applied financial statements.
●Prepare a table of analytical data fluctuating over two years, compare with the detailed books and cards.
●Compare the balance with the previous year.
Performing the audit program of accounts receivable
Thang Long Company has limited confidence in the internal control systems of its customers, leading the audit team to place less emphasis on control testing Instead, they focus primarily on testing and verifying details related to accounts receivable, especially since 2018 is a year when customers are audited after Tet, resulting in time constraints Due to these constraints, many procedures outlined in the audit program were overlooked, with the team concentrating only on the most effective procedures to ensure efficiency.
Control testing primarily involves interviewing, observing, and documenting processes to assess the effectiveness of internal controls Auditors then compile their findings into working papers, which are saved in the audit file for review Key testing methods include examining supporting documentation, observing operational procedures, and conducting interviews to gather comprehensive control evidence These procedures help ensure the reliability of financial reporting and compliance with regulations, ultimately strengthening the overall audit process.
- Consider assigning division among departments in the sales cycle: Warehouse section, accounting department, business department and cashier
ABC Company employs a walk-through auditing technique to verify its business processes, ensuring compliance and accuracy For large customers, the company establishes a formal contract, with subsequent exports documented through delivery bills and bills of lading to generate sale invoices In contrast, retail customers are billed based solely on ex-warehousing bills for smaller purchase volumes This systematic approach helps ABC maintain efficient and transparent sales operations across different customer segments.
Ensure that the invoice date matches the shipment date and the date recorded in the accounting records to verify compliance with the company's invoicing procedures and accounting standards This alignment helps confirm that receipt of goods and invoicing processes adhere to organizational regulations and accounting principles Accurate reconciliation of these dates is essential for maintaining correct financial records and ensuring regulatory compliance.
- Considering the process of monitoring and collecting debts: policy of payment discount, sending debt notice letters, sending debt comparison minutes to customers.
ABC Company does not establish provisions for bad debts; debts under VND 100 million are automatically written off by the chief accountant based on accounting documentation, while larger debts exceeding VND 100 million require approval from the Board of Directors For these significant debts, written records of debt write-offs are maintained, categorizing them as irrecoverable, and they are directly expensed in the financial statements Regular analysis procedures are undertaken to review and assess the company's bad debt handling processes, ensuring compliance with regulatory standards and accurate financial reporting.
During the audit process, auditors noted that relying solely on analytical procedures is often impractical due to time constraints, leading to their omission when deadlines are tight Typically, auditors perform analytical procedures to identify unusual transactions or discrepancies, but if insufficient time is available, these procedures are disregarded to prioritize other audit tasks.
- Calculating the number of revolutions to be collected at the end of the period and comparing with the plan and previous years.
The coefficient of turnover must be collected at
(Source: ABC Company financial statement)
This table shows the ability to recover receivables this year faster than the previous year.
- Analyze volatility of this year's balance with the previous year.
Table 2.3 Analysis of volatility of accounts receivable
131 (credit) Buyers pay in advance 0 80,000,000 80,000,000
(Source: Balance change analysis table)
Our auditing tools have implemented procedures to evaluate all indicators and items comprehensively The assistant identifies the relevant index associated with each specific part of the process, ensuring accurate analysis Additionally, detailed testing is performed to verify the effectiveness and reliability of each indicator, supporting thorough and precise assessments.
Detailed testing of customer accounts receivable is a crucial component of the audit process, ensuring the accuracy and validity of financial statements This phase involves thorough examination tasks to verify the existence, correctness, and completeness of receivables Properly conducted, detailed testing helps identify potential discrepancies, prevent fraud, and enhance the overall reliability of financial reports Effective accounts receivable testing is essential for auditors to assess the company's financial health and compliance with accounting standards.
❖ Collect detailed list of accounts receivable from customers and prepaid customers for each customer.
Objective: Check the matching of the balance of accounts receivable
Data source: FS; Detailed book; General book of debt arising; General journal (if any); list of vouchers.
- Collect the list of documents and debt balance book and compare it with the balance sheet and balance sheet, then summarize in the following table:
Table 2.4 Comparison of accounts receivable balance Account 131 Detailed debt Balance sheet Differences
Debt balance at the beginning of the period
Balance at the beginning of the period
Balance at the end of the period
Balance at the end of the period
(Source: Checking the debt details D341)
In case of discrepancies, it is necessary to find out the wrong cause.
When analyzing extraordinary items, review the Debt Summary Table to identify any debts that remained unchanged during the year The Audit Assistant should gather relevant debt contracts to assess the terms and calculations involved Additionally, conducting interviews with debtor accountants provides insight into how debts are tracked and managed Based on this information, consider establishing provisions or recommending debt remission strategies to ensure accurate financial reporting.
(Appendix 1:Nominal ledger of liabilities)
❖ Skim the ledger to identify unusual operations
Data source: Ledger; List of vouchers, Debt summary table, Documents
Work done: The auditor assistant will filter on the manifest table from account
Review the debt summary book thoroughly to identify any unusual activities, such as abnormal transactions, suspicious content, or irregular account usage Focus on filtering by each object to detect customers with large balances or odd customer behaviors This process helps ensure account security and maintains accurate financial records.
❖ Test of details of balance:
Objective: To ensure the existence of accounts receivable at December 31, 2018.
Data sources: Financial statements, detailed books; General book of debt; List; Balance sheet amounts arising.
- Check documents to determine the existence of debts Debt check number: 4 subjects with the largest balance.
Number of liabilities checked for existence: 4 subjects Reach rate: 100%. Conclusion: Accounts receivable at 31/12/2018 are existing.
- Check the balance of difficult receivables from customers, which has been appropriated.
Based on an interview with the Chief Accountant of ABC Company, it was found that the company lacks a formal provision policy for bad debts For overdue accounts exceeding five years without collection, ABC Company attempts debt recovery but ultimately writes off uncollectible debts Bad debts over VND 100 million are reviewed and approved by the Board of Directors, which forms a committee to authorize write-offs and documents the process accordingly For debts below VND 100 million, the Chief Accountant prepares accounting documents signed by the director, and the public accountant records these transactions based on the approved documentation.
In fact, auditors inspection, on the accounting paper, there are debt write-offs for many subjects, totaling more than 123 million, another accounting paper also in
2018 amount of 80 million, but also not have a written record of debt forgiveness, contracts and documents of such debts.
Conclusion: ABC company needs to supplement the minutes of the write-off of bad debts of the Board of Directors, contracts and documents proving the cleared debts.
❖ Collect a record of debt confirmation, send confirmation letters to customers
Objective: To ensure that the receivables from customers are real, owned by ABC company.
Source of data: Balance sheet of arising numbers, detailed books, debt balance sheet, debt confirmation minutes.
Auditors will collect the Statement of Debt Confirmation from the customer unit and evaluate the response rate If at least 80% of debt confirmations are received, the data will be accepted, and the appropriate confirmation letter form will be selected for sending However, if the response rate is below 80%, the replacement procedure will be initiated to ensure accurate debt verification.
Table 2.5 Determining the proportion of subjects who have checked and certified debts.
Confirmation liabilities at the date of 12.31.2018 debit credit debit % credit %
(Source: Collection of debt verification minutes D342)
Due to time constraints and high auditing costs, TDK Company limits its procedures by sending only one confirmation letter, which is sent simultaneously with detailed testing rather than repeated follow-ups When discrepancies occur, such as differences in debt margins, the new audit process involves sending a confirmation letter once, combined with thorough testing to verify balances At ABC Company, despite substantial related-party debt records matching the accounting books, auditors chose to omit the confirmation letter procedure, highlighting the importance of this step in ensuring audit accuracy and completeness.
Objective: To ensure the correctness of accounts receivable from customers. Data source: List of documents, detailed book.
Implementation work: auditors will select the selling operations 5 days ago after December 31, 2018 Reconcile with contracts, invoices, bills of lading and other relevant documents.
Conclusion: Accounts receivable from customers are presented in a timely manner.
❖ Check Payments are paid in advance by clients.
Goal: Make sure your prepaid customers are real Data source: Book of debt, financial statements, list of documents.
Work done: Collect the list of prepaid customers from the debt book, compare the operations that occurred on the list of vouchers and collect relevant documents.
At ABC company, there is only one payer in advance:
Tran Van Hung 80,000,000 According to the voucher No 049A dated
ABC company has shipped to Mr Tran Van Hung on the day of January 15,
2019 with invoices and delivery bills.
Conclusion: The amount of prepaid customers is real.
❖ Check the classification and presentation on financial statements:
Objectives: Ensure the presentation and disclosure in financial statements. Data source: Financial statements, balance sheet arising.
ABC Company reports customer debt receivables under account 131, with the receivable amount recorded on the asset side of the balance sheet The corresponding liability is reflected as an advance from the customer in the liabilities section This accounting treatment ensures accurate financial positioning, adhering to standard accounting principles for receivables and customer advances.
Completing the audit of accounts receivable
Auditors have reviewed the Board of Directors' minutes and conducted interviews with ABC Company's board members, concluding that the company operates a healthy business As of 2018, ABC Company has no unresolved lawsuits or disputes with tax authorities, and there are no outstanding debt liabilities related to third parties.
From that auditors concluded: ABC company has no potential debt.
The auditors have fully and properly implemented the necessary tests to audit the accounts receivable.
Auditors also used various methods of collecting evidence, such as sending confirmation letters, checking balances, analyzing, using documents related to this item to complete the audit…
In general, the audit of accounts receivable item is clear and complete,providing a basis for auditors to conduct audits of ABC’s other sections in their financial statement.
Comment on the audit of accounts receivable in auditing financial statements of
3.1.1.1 The organization of work management and quality control of audit activities is always focused
The company's management apparatus is compact, reasonable, flexible, dynamic so information is transmitted quickly and accurately, work is resolved promptly.
Managers are experienced professionals and effective management and scheduling Know how to use the right people at the right time.
The appointment of audit team members is made directly by the company's directorate and the head of the Financial Auditing Department, ensuring a strategic selection process The director’s close daily contact with employees allows for a clear understanding of each individual's capabilities, facilitating an appropriate division of work This approach ensures that audit team members are assigned tasks aligned with their skills, enabling them to efficiently complete their workload Ultimately, this method promotes a highly effective and successful audit season.
The company prioritizes audit quality, considering quality control activities as their top priority Ensuring high standards involves multiple review stages by audit team members, team leaders, financial auditors, and directors, reinforcing accountability at each level Integrating the responsibilities and benefits of every team member enhances their capacity and ensures strict oversight, reducing audit risks throughout the process Overall, the company's quality control measures are highly effective and rigorous, reflecting a strong commitment to delivering reliable and accurate audit results.
"Quality makes difference", the company is gradually asserting itself in the market.
3.1.1.2 Young, enthusiastic and creative staff
Thang Long-TDK Company boasts a dynamic and youthful team with high professional qualifications and a strong passion for their work Our experienced staff, skilled in various auditing sectors, drives the company's success and sustainable growth Their enthusiasm, creativity, and dedication are key factors contributing to our ongoing achievements and future development.
The company prioritizes employee training to enhance their qualifications and management skills Emphasizing a culture of self-learning, staff consistently update their knowledge in accounting, auditing, and specialized finance to stay current with evolving laws This commitment is especially crucial as our country continues to develop and refine its legal framework, ensuring compliance and maintaining industry standards.
3.1.1.3 Having support tools: Audit tool
The company has developed the Audit Tool, a specialized software designed to streamline financial audits This innovative tool enhances efficiency by assisting auditors with key tasks such as calculating critical financial levels, conducting preliminary financial statement analysis, and dividing workload among team members Additionally, it provides comprehensive features including coefficient analysis summaries, overall financial statement evaluations post-audit, and the preparation of finalized financial statements, ensuring a faster and more accurate auditing process.
The auditing tool significantly reduces the workload for auditors, enabling faster and more efficient work processes This improvement is particularly valuable in the auditing profession, where workload often varies seasonally, making efficiency gains crucial during peak periods.
3.1.1.4 Audit records are stored scientifically
An organized and scientifically stored audit record system enhances efficiency by classifying and presenting data logically Each customer’s records are stored in color-coded files consistent over the years, simplifying access and identification This systematic approach greatly benefits auditors during audits, while also allowing the company's management and other stakeholders to easily monitor audit progress and review results, ensuring transparency and assessing the quality of audit activities.
3.1.1.5 Program of actual close audit
The audit program is developed based on VACPA's sample audit framework and tailored to real-world client experiences, ensuring practical relevance It emphasizes conducting practical tests throughout the audit process, with each test adding meaningful value in practice This approach results in a compact and effective overall audit plan tailored to each company Auditors adapt the program flexibly based on the specific client, adjusting testing methods, audit duration, and costs to optimize effectiveness.
3.1.2.1 The number of employees fluctuated erratically, not enough to meet the workload
The company is experiencing rapid growth with an increasing customer base, but its limited and volatile workforce struggles to keep pace Due to the high-pressure and travel-intensive nature of the industry, some employees are unable to cope with the demanding environment, leading to turnover and absenteeism, particularly among female staff This year has been highly profitable, resulting in a backlog of audit contracts that must be completed after the new year Consequently, the workload for directors, department heads, and staff has significantly increased during the audit season, which not only compromises audit quality but also impacts work control, management, and the health and well-being of employees.
3.1.2.2 Audit records have not fully archived audit evidence
During the audit process, if time constraints prevent immediate documentation, assistants save work results on Excel and send them to the team leader for review However, these results are not stored in official audit records, particularly for old customers In recent years, audit files have been noticeably lacking in working papers, not due to incomplete procedures by auditors but because the documentation is not properly saved in the audit files This practice is inconsistent with the standards outlined in the No 230 Audit Records Document.
3.1.2.3 Utilization of unexploited support tools
While the auditing tool is highly effective and significantly supports audit tasks, many auditors and assistants have yet to fully utilize its functions Despite its capabilities, such as calculating key metrics and conducting preliminary financial statement analyses, these features are often overlooked or underused in practice Enhancing awareness and training on these functionalities can improve overall audit efficiency and accuracy.
3.1.2.4 Chapter Auditing process is designed for all customers
Our company offers a comprehensive audit program suitable for all types of businesses, ensuring consistent and reliable audit processes However, when customizing the program for individual clients, assistants primarily rely on their own experience, which can lead to inconsistencies Due to high workload pressures, many assistants omit the critical phase of designing a tailored audit program and proceed directly to joint audit procedures This approach increases the risk of overlooking errors and hampers effective time and cost control during the audit process.
3.1.2.5 Evaluation of the internal control system of the customer is sketchy
The company evaluates the internal control system of customers mainly through direct interviews with the Board of Directors to assess integrity and the design of their accounting systems However, these assessments are often broad and general, leading auditors to rely heavily on their preliminary judgments during audits Consequently, auditors may choose to fully implement or omit certain procedures based on their experience, which can increase audit duration and potentially cause them to overlook critical items depending on individual judgment and expertise.
Detailed testing is carried out according to auditor's judgment.
Auditors typically perform key procedures on accounts receivable, including reviewing financial records, collecting debt comparison data, and verifying details related to goods and services To reduce audit risks, auditors rely on thorough and detailed audit procedures, especially when dealing with large receivables Consequently, auditing high-value collectors often requires significantly more time due to the complexity and volume of transactions involved.
❖Procedures for confirmation mail are not performed.
The mailing confirmation procedure for accounts receivable is regarded as the most important step in verifying customer balances However, this process is time-consuming, costly, and often yields limited customer feedback, leading many companies, especially those dealing with traditional customers, to avoid it Instead, auditors typically rely on debt verification minutes prepared by customers and their partners, considering a certain threshold as sufficient evidence before conducting a detailed audit Only when significant discrepancies are identified between the accounting records and the verification minutes do auditors issue confirmation letters, which are sent sparingly Relying on the customer’s debt verification records can also enhance the customer’s ability to negotiate with third parties during the audit process.
Suggestions to improve the audit of accounts receivable
3.2.1 Continue to preserve and promote the strengths
- The company should continue to promote the organization of management and quality control of auditing activities Continue to promote training and updating knowledge for employees.
- Maintaining preferential policies with staff, fostering talents and continuing to recruit additional quality employees.
- Make the most of the functionality of the audit tool Besides, updating and modifying this tool to be suitable with new circulars and decrees is necessary.
3.2.2.1 Plan work, schedule appropriate work
Effective allocation of jobs towards scientific and rational methods is essential for optimizing resource utilization The company's most valuable resource is its audit staff, making their proper management a top priority for company managers Ensuring efficient job arrangements for the audit team helps maximize productivity and supports overall organizational success.
Effective workload planning during the audit season is essential, requiring the Board of Directors to negotiate with customers to distribute tasks evenly Coordinating with clients ahead of the audit enables better staff allocation, ensuring the management team can organize resources efficiently Early grouping of audit tasks allows auditors to prepare more effectively and helps management estimate individual workloads accurately By proactively managing contracts and workloads, the Board can implement timely measures to prevent employee overburdening and ensure a smooth audit process.
3.2.2.2 Ensuring the rights, responsibilities and timely attention of the staff
To address the issue of "brain drain," it is essential to develop a strategic plan that divides workload effectively among employees, allowing for timely intervention by the Board of Directors when staff are overloaded Encouraging open communication and fostering a supportive environment where employees share personal challenges creates a culture of mutual assistance Recognizing that individuals handle stress differently, promoting flexible sharing and empathy among staff helps improve overall well-being and retain skilled personnel.
To address the sudden shortage of female employees due to simultaneous childbirth, companies should incorporate clear policies in their recruitment guidelines, encouraging planned family expansion Implementing commitments like requiring female employees to remain unpregnant for at least a year or spacing pregnancies by six months can help mitigate workforce disruptions Additionally, fostering a culture of responsibility by advising employees to plan childbirth around peak work periods, such as avoiding the "audit" season, ensures smoother operations and workforce stability.
Because of this problem, auditing companies now tend to recruit more male employees because the work requires a lot of travel and resolves the above problem.
Implementing proactive planning and thorough auditing processes ensures that companies do not overlook female talent, fostering a more inclusive work environment Encouraging female employees who are passionate about auditing provides them with opportunities for growth and self-expression Emphasizing these practices helps organizations unlock the full potential of their diverse workforce, promoting gender equality and enhancing overall productivity.
3.2.2.3 Complete the archive of audit documents
During business trips, audit teams frequently visit multiple companies, making it inconvenient to copy physical documents onsite, which often prevents sending files via email New auditors require photographs of documents, while assistants typically save working papers electronically To supplement auditing documentation, companies often need to print hard copies, a process that can be completed after the audit season to ensure thorough record-keeping and efficiency.
After many years, the volume of audit records will increase, the company can save audit records in boxes and boxes to save space.
3.2.2.4 Develop an audit program for typical types of businesses
To enhance audit efficiency and reduce audit risks during the audit season, companies should proactively study documentation and leverage practical audit experience to develop tailored audit programs for key customer categories Customizing audit procedures based on the unique characteristics of different business types and lines ensures higher quality operations While it is impractical to design audit programs for every business type, focus should be placed on creating effective protocols for the company's primary customer segments to streamline the audit process and improve overall outcomes.
Implementing effective new staff training is essential for construction, manufacturing, and service companies to ensure long-term success While the initial investment of time and resources may be significant, the training program will yield practical, long-lasting benefits for the organization Proper onboarding enhances employee productivity, reduces errors, and improves overall service quality, ultimately leading to sustained growth and a stronger reputation in the market.
3.2.1.5 Completing the evaluation of the internal control system of customers
Currently, TDK evaluates customers' internal control systems primarily through questionnaires and some direct interviews However, as enterprises increasingly seek global integration, there is a growing need for a more systematic and scientific approach to internal control assessments Implementing a comprehensive evaluation method benefits both auditors and clients by accurately defining the scope of audits, optimizing procedures, and reducing costs Moreover, thorough internal control evaluations reflect the auditors’ professionalism, fostering trust and cooperation in the audit process Therefore, I believe TDK should adopt structured methods to assess internal control systems more effectively.
- Based on previous audit experience in the unit (for old customers)
- Interviewing managers and employees Other (mainly staff of financial accounting department)
- Through the review of documents and books.
Auditors currently rely solely on document reviews to evaluate the effectiveness of control and operation activities, without direct observation of their implementation in practice To improve assessment accuracy, it is essential for auditors to perform "walk-through" tests, observing and tracing the execution of key control procedures in real-world settings This hands-on approach allows auditors to verify whether actual operations align with documented procedures, ensuring a more comprehensive evaluation of internal controls Incorporating direct observation techniques enhances audit reliability and helps identify potential gaps between documented controls and their practical application.
Auditing standards mandate that auditors document their understanding of a company's internal control system to provide evidence of their assessment Companies can enhance their documentation by utilizing a combination of internal control questionnaires along with flowcharts or narrative tables, depending on the complexity of their internal control system For clients with simple internal control systems (KSNB), a narrative table may suffice, ensuring clear and comprehensive documentation of their internal control processes for audit purposes.
3.2.1.1 Add and complete detailed tests
Conducting comprehensive tests during an audit requires time; however, once the company completes control tests following recommended guidelines, subsequent detailed assessments become more efficient, precise, and scientifically structured, ensuring a streamlined and effective audit process.
Mailing confirmation is an important procedure, providing the most reliable evidence of the accounts receivable from customers The company needs to add this procedure:
When estimating the approximate number of items to verify, auditors select samples or perform a full check if the population is small For large differences among subjects, grouping techniques are used to enhance audit efficiency For example, in confirming accounts receivable for ABC company with 21 subjects, only 7 have balances at period-end; of these, 2 balances are below 200 million Consequently, auditors send confirmation letters to 4 objects in Group 1, while implementing alternative procedures for the remaining 3 subjects in Group 2, ensuring a targeted and effective audit process.
If group 2 has many objects, the auditors will conduct sample selection Next auditors will track customer mailing in Table tracking confirmation:
ObjectName Posted Number in the accounting books
Once confirmation is received, auditors will evaluate the overall confirmation message and provide feedback They will then conduct alternative checks for guests who do not receive feedback and customers who have not sent confirmation letters Finally, auditors will calculate the total of non-mail balances, omit the replacement procedure, and compare the result with the implementation key; if the total is below the critical level, the verification is considered successful.
3.2.1.2 Regularly update in time the new Standard System, sample audit program, and other regulations
The company must fully update its regulations to align with the new standards and legal systems 2018 was a volatile year for Vietnam’s legal landscape, especially in accounting and auditing, with many legal documents coming into effect in January, highlighting the importance of staying compliant with recent legal changes.
1, 2018 is the effective time and the force of many important regulations and systems, including the new audit standards system.