Audit of financial income and financial expense in financial audits conducted by asian auditing company

NATIONAL ECONOMICS UNIVERSITY EXCELLENT EDUCATIONAL PROGRAM BACHELOR’S THESIS Major Auditing Topic AUDIT OF FINANCIAL INCOME AND FINANCIAL EXPENSE IN FINANCIAL AUDITS CONDUCTED BY ASIAN AUDITING COMPA[.]

NATIONAL ECONOMICS UNIVERSITY

EXCELLENT EDUCATIONAL PROGRAM

BACHELOR’S THESIS Major: Auditing

Topic:

AUDIT OF FINANCIAL INCOME AND FINANCIAL EXPENSE IN FINANCIAL AUDITS CONDUCTED BY

ASIAN AUDITING COMPANY

PHAM THI PHUONG THAO

HANOI - 2020

NATIONAL ECONOMICS UNIVERSITY

EXCELLENT EDUCATIONAL PROGRAM

HANOI - 2020

TABLE OF CONTENTS

ACKNOWLEDGEMENTS

STATUTORY DECLARATION

LIST OF ABBREVIATIONS

LIST OF TABLES AND FIGURES

INTRODUCTION 1

CHAPTER 1: CHARACTERISTICS OF AUDIT OF FINANCIAL INCOME AND FINANCIAL EXPENSE IN FINANCIAL AUDITS CONDUCTED BY ASIAN AUDITING COMPANY 4

1.1 Characteristics of financial income and financial expense of clients affecting financial audits 4

1.1.1 Features of financial income and financial expense on financial statements 4

1.1.2 Accounting for financial income and financial expense 6

1.1.3 Common misstatements related to financial income and financial expense 7

1.1.4 Internal controls over financial income and financial expense 8

1.2 Audit objectives of auditing financial income and financial expense in financial audits conducted by Asian Auditing Company 8

1.3 Audit of financial income and financial expense in financial audits process conducted by Asian Auditing Company 10

1.3.1 Planning the audit 10

1.3.2 Implementing the audit 14

1.3.3 Completing the audit 17

CHAPTER 2: PRACTICE OF AUDIT OF FINANCIAL INCOME AND FINANCIAL EXPENSE IN FINANCIAL AUDITS CONDUCTED BY ASIAN AUDITING COMPANY– AT ABC COMPANY LIMITED 20

2.1 Planning the audit 22

2.2 Implementing the audit 38

2.2.1 Performing tests of controls 38

2.2.2 Performing analytical procedures 42

2.2.3 Performing tests of details 49

2.3 Completing the audit 56

CHAPTER 3: ASSESSMENTS AND RECOMMENDATIONS FOR IMPROVING THE AUDIT OF FINANCIAL INCOME AND FINANCIAL EXPENSE IN

FINANCIAL AUDITS CONDUCTED BY ASIAN AUDITING COMPANY 61

3.1 Assessments of the audit of financial income and financial expense in financial audits process conducted by Asian Auditing Company 61

3.1.1 Strengths 61

3.1.2 Weaknesses and causes 63

3.2 Recommendations for improving the audit of financial income and financial expense in financial audits process conducted by Asian Auditing Company 66

3.2.2 Implementing the audit 69

3.2.3 Completing the audit 70

CONCLUSION 71

REFERENCES 72

APPENDIX 73

The process of implementing the graduation thesis is the most important stage in the life of every student Graduation thesis is a premise to equip us with research skills, valuable knowledge before starting a career.

First of all, I would like to express my sincere thanks to the lecturers of School of Accounting and Auditing of National Economics University, who have devotedly taught and equipped me with the necessary knowledge during

my time in the university, it is the basis for me to complete this thesis.

I would like to express my sincerest appreciation to Dr Le Quang Dung for his guidance, assistance, supervision and encouragement from the beginning to the accomplishment of the thesis These are very valuable suggestions not only in the process of doing this thesis but also as a luggage for me in the process of studying and making a career in the future.

And finally, I would also like to express my gratitude with much appreciation to Asian Auditing Company for helping and guiding me during

my internship period.

STATUTORY DECLARATION

I herewith formally declare that I myself have written the submitted Bachelor’s Thesis independently I did not use any outside support except for the quoted literature and other sources mentioned at the end of this paper.

I clearly marked and separately listed all the literature and all other sources which I employed producing this academic work, either literally or in content.

Hanoi, / / 2020

Signature

LIST OF ABBREVIATIONS

VACPA Vietnam Association of Certified Public Accountants

LIST OF TABLES AND FIGURES

Table 2.1: Members of the audit team 21

Table 2.2: Assignment of audit team members 21

Table 2.3: Working papers search about ABC customer base information 23

Table 2.4: Preliminary analysis of business performance of the unit 26

Table 2.5: Evaluation of internal control systems 29

Table 2.6: Determination of materiality 31

Table 2.7: Audit program financial income and financial expenses 34

Table 2.8: Working papers Summary of financial income 40

Table 2.9: Working papers Summary of financial expense 41

Table 2.10: Working papers Analysis of fluctuations Financial Income this year compared to the previous year 43

Table 2.11: Working papers Analysis of fluctuations Financial Expense this year compared to the previous year 44

Table 2.12: Working papers Analysis of monthly fluctuations financial income 46

Table 2.13: Working papers Analysis of monthly fluctuations financial expenses 48

Table 2.14: Working papers Reference with the results of auditing the other parts of financial income 50

Table 2.15: Working papers Reference with the results of auditing 51

the other parts of financial expense 51

Table 2.16: Working papers Tests of Details of Financial Income 53

Table 2.17: Working papers Tests of Details of Financial Expense 54

Table 2.18: Working papers checking the test cut-off of Financial Income 55

Table 2.19: Working papers checking the test cut-off of Financial Expense 56

Table 2.20: Working papers Summary of adjusting entries for Financial Income 57

Table 2.21: Working papers Summary of adjusting entries for Financial Expense 58

Table 2.22: Working papers Summary of figures after auditing Financial Income 59

Table 2.23: Working papers Summary of figures after auditing Financial Expense 60

1 Rationale

Currently, with the rapid development of a market economy, information isimportant for business managers as well as for other subjects such as: companyemployees, organizations for borrowers, managers, suppliers and credit institutions,customers, government, general public In order for information users to make anaccurate decision, the information needs to be truthful and reasonable However, forsome reasons, sometimes the information given is not true and fair Therefore, theindependent auditor was born and acted as an independent third party to giveopinions on the true and fair view of the financial statements of the units andcontribute to complete and improve the efficiency and reduce business risk

In Vietnam, since the economy has transformed from planned economy to amarket economy, our economy has been developing strongly, gradually openingand integrating the economy world Therefore, businesses in Vietnam are alsoconstantly growing in number and size of business As a result, financialinformation becomes more and more important to users and seizes the opportunitythat independent auditing organizations have appeared and developed Activities ofindependent auditing companies contribute to the verification and comment on thedegree of true and fair view on the material aspect of the items in the financialstatements of enterprises to help users to make the right decision

And during my internship at Asian Auditing Company, I realized thatFinancial Income and Financial Expense is an important indicator on the IncomeStatement of customers of Asian Auditing Company because it directly affects theaccounting profit targets before and after tax and other indicators: Undistributedprofits, Corporate income tax payable Besides, based on financial income andfinancial expense, it is possible to analyze the financial situation of the businesseffectively, whether the use of financial leverage and financial investments reallybring the efficiency of the business Therefore, the accuracy of the informationabout financial income and expense is extremely important

Recognizing this importance, I chose the topic "Audit of Financial Income and Financial Expense in financial audits conducted by Asian Auditing Company"

 Proposing recommendations to complete the process of auditing FinancialIncome and Financial Expenses in the audit of Financial Statements at AsianAuditing Company.

3 Subject and Scope of the study

 Subject: Studying theory and assessing the current situation of the process

of auditing Financial Income and Financial Expenses in auditing financialstatements

 Scope: Studying and assessing the practice of the process of auditingFinancial Income and Financial Expenses in auditing financial statements at AsianAuditing Company This is an item in an audit of financial statements, ending upwithout making audit reports The subjects of the audit are independent auditors.Auditing period is fiscal year 2019

5 Research Structure

Besides the introduction and conclusion, the thesis consists of 03 chapters:

Chapter 1: Characteristics of audit of Financial Income and Financial Expense in financial audits conducted by Asian Auditing Company

Chapter 2: Practice of audit of Financial Income and Financial Expense

in financial audits conducted by Asian Auditing Company at ABC Company Limited

Chapter 3: Assessments and recommendations for improving the audit of Financial Income and Financial Expense in financial audits conducted by Asian Auditing Company

CHAPTER 1 CHARACTERISTICS OF AUDIT OF FINANCIAL INCOME AND FINANCIAL EXPENSE IN

FINANCIAL AUDITS CONDUCTED BY ASIAN

AUDITING COMPANY 1.1. Characteristics of financial income and financial expense of clients affecting financial audits

1.1.1. Features of financial income and financial expense on financial statements

 Definition and features of financial income and financial expense

Financial activities must resolve well the economic relationships expressedthrough payments to related units such as banks, other economic units, thisrelationship is specified through financial income and financial expense Whenoperating through these two criteria, the principle of efficiency must be ensured.This principle requires maximizing the use of financial activities but still ensuringthat the production and business process is operated properly and highly effective.But when conducting financial activities in an enterprise, it must be done onthe basis of respecting the law, compliance with the financial principles, obligationstowards the State

According to Vietnamese Accounting Standard No 14 "Turnover and otherincomes" issued and publicized with Decision No 49/2001 / QD / BTC of

December 31, 2001 of the Minister of Finance: "Turnover means the total value of

economic benefits gained by an enterprise in an accounting period, which arise fromthe enterprise's normal production and business operations, contributing toincreasing the owner's capital"

According to Circular No 200/2014/TT-BTC issued on December 22, 2014:

“Financial income is the income generated in financial activities, including: fromactivities of collecting interests, dividends and distributed profits”

Financial income includes the following amounts:

 Interest: Lending interest, interest on bank deposits, interest on deferred

payment, installment payments, interest on investment in bonds, treasury bills,discount of payments;

 Dividends and profits distributed after the investment date;

 Income from activities of investment, purchase and sale of short-term, term securities, capital transfer interests when liquidating capital contributed to jointventures, investments in subsidiaries, and investments other capital investments;

long- Income from other investment activities;

 Interest from exchange rate, including interest from selling foreigncurrencies;

 Other income from financial activities

Financial income is only allowed to be recognized when it satisfies thefollowing two conditions:

 Be able to benefit from the exchange;

 Income is determined reliably

According to Circular No 200/2014/TT-BTC issued on December 22, 2014:

“Expenses are those that reduce the economic benefits, recognized at the time thetransaction arises or when there is a relative certainty that they will arise in thefuture regardless of whether or not money has been spent”

According to Circular No 200/2014/TT-BTC issued on December 22, 2014:

“Financial expenses are expenses incurred in financial activities, including expenses

or losses related to financial investment activities, borrowing costs, capitalcontribution expenses, losses of short-term securities, transfer costs of securitiestransactions Provision for devaluation of securities investment, losses incurredwhen selling foreign currencies, exchange rate losses”

Financial expenses include the following:

 Interest expenses on borrowings, interest on deferred purchase goods,interests on financial assets

 Loss on foreign currency sale

 Discount payment for buyers

 Losses resulting from sale of investments

 Loss of exchange rate arising in the period of business operation

 Loss of exchange rate due to revaluation at the end of the financial year ofmonetary items denominated in foreign currencies of business activities

 Provision for devaluation of securities investments

 Transfer or allocation of exchange rate differences of completedconstruction activities invested in financial expenses

 Other expenses of financial investment activities

Financial expenses are only recognized when the following conditions aresatisfied:

 Reduce economic benefits, which are recognized at the time of arisingtransactions or when there is a certainty that they will arise in the future irrespective

of whether spent or not

 Role of financial income and financial expense

Financial income and financial expense in the income statement affects thefollowing criteria: Net profit from operations, Earnings before tax, Current businessincome tax charge, Net profit after tax

Financial income and expenses affect the balance sheet information: Cash andcash equivalents, Investments in subsidiaries, short-term financial investments,loans and financial liabilities

Influence on the financial statements footnotes: Influence on thesupplementary information for items presented in the income statement

1.1.2. Accounting for financial income and financial expense

Resources used as a basis for auditing items of financial income and financialexpense include documents directly related to the accounting process and otherdocuments related to the audit and proof for accounting transactions arising Toaudit the items of financial income and financial expense, it is necessary to base onthe following sources:

 Internal rules and regulations of the unit related to management andrecording of financial income and financial expense; the internal control regulations

of the unit related to the item financial income and financial expenses

 Financial statements: Balance sheet, Income statement, Cash flowstatement, Notes to financial statements

 Accounting books: General accounting books, details of accounts 515, 635and related accounts

 Vouchers related to financial income and financial expense: Capitalcontribution documents, minutes of meetings of the Board of Directors ondividends, credit note, debit note, bank statements, discount payment voucher

 Other relevant documents: Documents and records related to the capitalcontribution to joint ventures, associates, loan contracts, borrowings, finance leasecontracts

1.1.3. Common misstatements related to financial income and financial expense

In the audit of financial statements in general and the audit of financial income and financial expense in particular, the following risks are often

encountered:

 The enterprise recognizes financial income and financial expense whenthere are insufficient grounds For example: recognition of interest income beforebeing accepted for payment by the borrower, recognition of income from dividendsand shared profits before receiving the dividend decision of the joint venturecompany

 Businesses record incorrectly financial incomes, that is, do not haveborrowers, receive capital contribution to joint ventures, but in fact the unit stillrecognizes these incomes

 Wrong calculation of income - expenses of interests, dividends and sharedprofits, interests of exchange rate differences,

 Not recorded in financial income when the decision on dividend sharing hasbeen made, but has not been paid by the joint venture at the end of the fiscal yearbut in the beginning of the following year; or the income has been recognized toincrease profit during the period when the joint venture company has not made adecision to divide the profits

 Recording lack of financial incomes and financial expenses

 Incorrect figures on financial statements

1.1.4. Internal controls over financial income and financial expense

Internal control activities are an indispensable task of the unit for theproduction and business process in the unit in general and for each item in

particular, including financial income and financial expense Internal controlactivities to ensure the control of financial income and expense incurred properlyrecorded.

In order to achieve the control objectives mentioned above, the unit mustperform specific and generalized control tasks in the following main tasks:

 The unit develops and issues regulations on management in general andinternal control in particular for the control of financial income and expense Theserules can be divided into two categories:

 Regulations on functions, responsibilities, powers and obligations of relatedpersons or departments to handle work related to financial income arising in theperiod such as investment decisions, loans

 Regulations on the order and procedures for internal control through theorder of procedures for performing work, such as the order of accounting,processing and calculating interests, discounted payable interests, exchange ratedifferences paid in the period and exchange rate differences due to revaluation at theend of the period

 The unit organizes the implementation of the above regulations onmanagement and control associated with the tasks: Organizing the assignment,staffing, disseminating the functions, tasks and inspecting the implementationregulations

 In the organization of internal control activities, the following basicprinciples must be observed: the principles of assignment; principles of approvaland authorization

1.2. Audit objectives of auditing financial income and financial expense in financial audits conducted by Asian Auditing Company

In accordance with Vietnamese Standard on Auditing 200: "The objective ofthe financial statement audits is to enable the auditor and the firm to provide anopinion confirming that the financial statements are prepared on the basis of current

or acceptable accounting standards and regulations, comply with relevant laws andreflect truly and fairly on the material aspects

The objective of financial audit also helps the audited unit clearly see theshortcomings and errors to overcome in order to improve the quality of financialinformation of the unit "

The objective of the audit of financial statements is to increase user confidence

in the financial statements, through the auditor's opinion on whether the financialstatements are prepared and presented in material respects, consistent with theapplicable financial reporting framework The general objective of auditing theitems of financial income and financial expenses is also consistent with the generalobjective of auditing the financial statements, which is to collect adequate evidence

on all aspects as a basis for determining the reliability of information related tothese items Also provide relevant information and documents as a basis forreference when auditing other items

Based on the above general goals, we can determine the specific objective forthe auditing of financial income and financial expenses as follows:

 Evaluate the effectiveness of the internal control system for the itemfinancial income and financial expenses through evaluating the design andoperation of internal control regulations related to two items on these aspects exist,are adequate, appropriate, valid and continuous

 Confirm the true and fair of documents and information related to the itemfinancial income and financial expenses and ensure the management assertionsrelated to this item are correct Specifically:

 Occurrence: Check that the incomes and expenses are accounted into the financial income and financial expenses to ensure that there are grounds

 Completeness: Checking the accounting of financial income and financial expense are recorded in the accounting book timely and fully

 Classification: Check whether the accounting and accounting books are in the correct category

 Accuracy and Valuation: Basis of reasonable calculation, calculation resultsare accurate, correct and consistent method

 Presentation and Disclosure: Check whether the presentation and disclosure

of the item of financial income and financial expense is proper or not

1.3. Audit of financial income and financial expense in financial audits process conducted by Asian Auditing Company

According to the documents for interns provided by Asian Auditing Company,

the audit of financial income and financial expense in financial audits have 03stages: Planning the audit, Implementing the audit and Completing the audit.

1.3.1. Planning the audit

The work to be done during this period is:

 Understanding customers and their business environment

 Perform preliminary analysis of financial statements

 Understanding the customer's internal control system for the items offinancial income and financial expense and the control risk assessment

 Assessing materiality and audit risks

 Design audit program

Specific steps are as follows:

1.3.1.1 Find out more information about customers and business environment

Understanding customers and business environment is collecting information

about business lines, operations of the customer unit, understanding the accountingsystem as well as accounting policies for financial income and financial expense.Specific tasks to be performed are as follows:

 Find out the general information that affects the unit's financial income andfinancial expense such as its field of operation, type of business, scale, internalcontrol system, capacity management of the Board in preventing frauds of errors inthe item financial income and financial expense;

 Reviewing the general audit records and the results of previous audits onthis item The audit files of the previous year often contain a lot of informationabout customers, about their business, organizational structure and other operationalcharacteristics and especially about meeting minutes or investment decisions of theBoard of Directors Thereby, the auditor will have information about the financialactivities of the entity that has arisen last year and may arise this year, with an initialassessment of those financial activities

Understanding customers and business environment is the basis for the audit

of the financial income and financial expense

1.3.1.2.Carry out preliminary analytical procedure

During the audit, in order to reduce the detection risks related to the

management assertions of the financial statements, the auditor shall perform ananalytical procedure or tests of details or a combination of both The analyticalprocedure is intended to consider the reasonableness of the fluctuation of the itemfinancial income and financial expense; Support for tests of details

For financial income and financial expense, the preliminary analyticalprocedures used by the auditor include:

 Horizontal analysis: Compare the financial income this period with theprevious period to consider how the fluctuations Compare the financial income andfinancial expenses on the financial statements this period with the income andexpenses according to the auditor's estimates for this period, assess the difference

 Vertical analysis: It is possible to compare financial income with financialexpense

In the event that abnormal fluctuations are detected, the auditor shall performprocedures to gather evidence to find the cause of such abnormal fluctuations

Thus, through the implementation of analytical procedures during the auditplanning stage, the auditor is able to identify the basic content of the auditgenerally In addition, the auditor may apply some trend analysis procedures such ascomparing financial income and expenses between months, between financialincome and expenses to detect a sudden change in a certain period of focus on theprocess of auditing

1.3.1.3. Understanding the customer's internal control system for the item Financial Income and Expenses and assess audit risk

Understanding and evaluating the internal control system aims to determinethe reliability of this system, making initial assessments of control risks on thefinancial income and expenses, from which determine the content, scope, time forbasic surveys need to be conducted

The internal control system is a system of policies and procedures with fourgoals: safeguarding the entity's assets; protect the reliability of the information;ensure the implementation of legal regimes; ensure operational efficiency

The internal control system includes control environment, accounting system,control procedures Auditors should carry out procedures to understand and evaluatethe internal control system in both design and operation aspects As follows:

 In terms of design: Auditors consider the design of regulations on functions,

tasks and powers of divisions and individuals related to the financial income andfinancial expenses of the entity; regulations, order and procedures for internalcontrol, decentralization of implementation.

 In terms of operation: Auditors review, evaluate the existence of operation

of internal control regulations, consider the implementation of internal controlprinciples for the financial income and expense

Through the implementation of the above procedures, the auditor has apreliminary assessment of the internal control system and assessed the control riskfor this item If the auditor assesses that the internal control system of customer isoperating effectively, the risk of control is assessed to be low and vice versa

1.3.1.4 Materiality and audit risk assessment

 Assessing materiality

In this step, the auditor relies on the collected information to evaluate andcomment in order to make an appropriate audit plan

The purpose of determining materiality is to:

+ Estimate the acceptable level of error for reporting purposes

+ Determining the scope of audit to be focused

+ Assess the impact of identifiable and undetermined errors on the financialstatements

The auditor determines the overall materiality level for the entire financialstatement and then proceeds to allocate this estimate to each item on the financialstatements This allocation helps the auditor determine the amount of evidence thatmust be collected for each item at the lowest possible cost while ensuring that theaggregate of errors in the financial statements does not exceed the estimated level ofmateriality The basis for making an allocation is based on the nature of the item,the preliminary analysis of inherent risk and control risk, the auditor's experience,and the cost of the audit for each item

 Assessing audit risk

Depending on the level of trust of external users to the financial statements, aswell as the likelihood that customers will encounter financial difficulties after theaudit report is published as high or low, the auditor will assess the audit risk for theentire financial statement and for the financial income and expenses is low or high

In an audit, materiality and risk are always closely related It is an inverserelationship that means, the greater the materiality, the less the audit risk will be andvice versa Because, the higher the material misstatement, the likelihood of the auditrisk will decrease This relationship has a very important meaning for the auditorwhen planning the audit to determine the content, scope, time (schedule) of theprocedures to be applied.

Audit risk is the risk that the auditor and the auditing company makeinappropriate comments when the audited financial statements still contain materialerrors Audit risk (AR) is composed of 3 factors: Inherent risk (IR), control risk(CR), detection risk (DR) We have the formula for the relationship between types

of risks:

AR = IR x CR x DRInside:

 Inherent risks (IR): In the operation of the unit, there are always fraudulenterrors, through collecting customer business information, understanding the nature

of the item Financial income and expenses, the auditor assesses the inherent risk ofthe financial income and expenses;

 Control risk (CR): Through researching the internal control system of theentity and the internal control system for the financial income and expenses, theauditor assesses the level of control risk for this item;

 Detection risk (DR): The likelihood of a mistake occurring on the item offinancial income and expenses that the auditor does not detect;

The results of assessment the detection risk are the basis for determining theamount of work to be carried out for the audit In the case where the auditor expectsthe detection risk to be low, it means that in this case, the auditor has to performmany audits with large scale and cost, and vice versa

1.3.1.5 Drafting audit program

An audit program is a complete set of instructions for auditors and auditassistants to participate in the audit work and is a means of recording andmonitoring the performance of the audit The audit program provides guidance onthe audit objectives of each section, the content, schedule, and scope of the specificaudit procedures and the estimated time required for each section

When developing an audit program, the auditor shall consider assessments of

inherent risks, control risks, as well as the level of assurance that must be achievedthrough basic testing Auditors need to consider:

 Time to perform control and basic tests;

 Coordination from the client, from the audit assistant in the group and theinvolvement of other auditors or other experts

For auditing the financial income and expenses based on the audit objective ofthe item, after reviewing the risks, the auditor will set up an auditing program whichindicate the audit objectives, the content and scope of the specific audit proceduresand the estimated time for this part Specifically:

 Audit objectives for this item: the auditor needs to clarify, focus on whatissues and to satisfy the management assertions (This is based on the understanding

of the customer system of the auditor as stated above) After determining theobjective of the audit, the auditor will identify the next steps of work to be done

 Content and scope of audit procedures: Depending on the characteristics ofeach enterprise, each audited unit (on business type, size, industry, the proportion offinancial income to financial expense ), the auditor determines the appropriateaudit procedure

 Estimated time for this part: Based on the scale, the amount of audit work to

be performed in the financial income and expenses of customers is more or less,complex or not so the auditor assigns that the number of auditors participating inthis audit is more or less and the estimated time is long or short

The audit of the financial income and financial expenses is similar to theregular audit program, including the following: Documents that customers need toprepare, audit objectives, audit procedures and audit conclusion

1.3.2. Implementing the audit

In this stage, the audit of financial income and financial expense is theimplementation of audit tasks for the items under the program designed at the stage

of audit planning

The process of auditing financial income and financial expense includes thefollowing specific work steps:

 Perform tests of control

 Perform analytical procedures

 Perform tests of details

1.3.2.1 Performing tests of control

Tests of control (examination of internal control system) is the examinationand collection of audit evidence about the proper design and effective operation ofthe internal control and accounting system

The control procedure is only performed after understanding the internalcontrol system with initial assessment that the audit object has an effective internalcontrol system At that time, the control procedure was developed to collect auditevidence about the design and operation of the internal control system

With financial income and financial expenses items, the auditor needs togather sufficient evidence of the effectiveness of the internal control system to beable to identify the basic test

Auditors performing tests of control include:

 Understanding and evaluating control system design: This test aims to have

an opportunity to assess the appropriateness of the design of control steps, controlprocedures for each business cycle or to specific areas in the unit The auditorcollects evidence on the design of the internal control system, which is to collectinformation on the general management regulations, internal control in particularfor the items of financial income and expense

 Review of the operation of internal control regulations: The objective ofthis test is to collect evidence as a basis for evaluating the effectiveness of theinternal control activities for each business cycle or for specific areas of activity inthe unit

 For the items of financial income and financial expense, the procedure thatthe auditor usually uses to gather evidence is to interview the managers to askquestions about the content of the amounts of financial income and expense toverify that they carry out control activities on these items The questions are oftenbrief, clear and go straight to the content of the item Financial Income andExpenses At the end of the interview, it is necessary to summarize the results of thepractical identification with the interviewee's confirmation

 In addition to the method of direct interview with the customer, the auditormay perform the work of an accountant again to confirm the level of performance

of their responsibilities for the assigned work

1.3.2.2 Performing analytical procedures

Analytical procedures are applied throughout an audit Auditors carry out ananalytical procedure to find out any abnormal or unexpected changes in thecustomers' business operations which materially affect the financial statements Theauditor performs analytical procedures to gain the most general understanding of thecontent of financial statements and important changes in financial operations, aswell as obtain reasonable assessments of the expenditure items and reduce theworkload during the audit process and reduce the detection risk

The commonly used analytical procedures:

 Compare financial income and expenses in this period with the previousperiod and between months in the period All fluctuations need to find out thespecific cause whether there is a reasonable or doubtful possibility

 Compare financial income and expenses on the financial statements thisperiod with the auditor's estimate, evaluate the difference

1.3.2.3 Performing tests of details

For the items of financial income and expenses, the auditor shall perform theprocedure of checking professional details without checking the balance

Based on the results of tests of control and analytical procedure, the auditorwill perform tests of details to draw final conclusion about the truthfulness andappropriateness of this item Tests of details are conducted according to thefollowing steps:

a. Define objectives: This objective is to obtain audit evidence to satisfy thefollowing aspects:

 The business is real

 Figures are calculated and reasonable evaluation

 The operations have been copied adequately

 The operations have been properly classified and accounted

 Transactions are recorded on time

 The operations have been fully summarized on the financial statements

b. Perform tests of details on the item financial income and expenses

 For incomes related to the joint venture capital contribution: It is necessary

to check the joint venture contract, the minutes of the board of directors meeting ofthe joint venture company, the link to the division of business results, financialstatements, and other documents related to the joint venture Check whether thefinancial incomes have been calculated income tax at the capital contributor or theinvestee

 For income or interest expenses: need to check contracts, loan contracts,coupons, interest spreadsheets, compare with related contracts, compare withcurrent interest rates, checking the periodicity Auditors estimate the interest,compare with figures on accounts 515, 635, evaluate the difference and find out thecauses

 For income related to securities investment: It is necessary to checkdocuments related to securities trading, securities transfer trading contracts, etc

 For income and expenses due to exchange rate differences: Refer to theresults of the exchange rate accounting section

 For other financial income and expense: check the number and relevantdocuments For example, to check whether the income of interest on deferredpayment is equal to the difference between the deferred and immediate paymentprices, to check whether this allocation is in the right period, to check theregulations on deferred payment

1.3.3. Completing the audit

The final phase of auditing the items financial income and financial expensesincludes the following tasks:

 Evaluation of events arising after accounting period related to financialincome and expenses

 Summary of audit results

auditor have the responsibilities to review all the events occurring after the date ofthe financial statements.

The event occurring after the closing date is an important task as it may affectthe auditor's conclusions There are 2 levels of influence:

 Events that materially affect the financial statements: change the auditor'sconclusions Therefore, the auditor communicates with the board of directors fortimely adjustments If managers do not agree with the auditor's opinion, the auditorshall change his or her conclusions

 Events that do not materially affect the financial statements: do not changethe auditor's conclusions But the auditor requires managers to disclose on thefinancial statements

b. Summary of audit results

After sufficient audit evidence is obtained, the auditor shall summarize theresults of the audit of financial income and expenses Summary of auditing results

of items of financial income and expenses are presented in the form of a summarytable of audit results:

 The tasks performed by auditors include:

 Survey of the internal control of the enterprise on the item Financial Incomeand Expenses

 Analytical procedures were performed

 Perform tests of details

 Conclusion on audit objectives:

The auditor shall state whether or not the goal has been reached There are twopossibilities:

+ Achieving the audit objective: The auditor is satisfied with the results of theinspection, the evaluation of the audited parts because there is sufficient andappropriate evidence on all aspects to draw the conclusion that financial data andinformation have been reflected reasonably or correctly

+ Not achieving the audit objectives: the auditor is not satisfied with the auditresults in any respect, it is necessary to collect additional evidence (Need to specifyaudit limits)

 Request:

+ Proposals for adjusting entries (if any) or explanations which need to besupplemented in the financial statements, clearly stating the reason for theadjustment and the adjusted amount

+ Comments on the shortcomings of the accounting system and the internalcontrol system for the inspected department and suggestions on improvement of theinternal control system of the auditor

 Follow-up issues during the following audit relate to the inspecteddepartment:

+ Whether the adjustment of accounting data according to the auditor'sopinion is promptly reflected in the relevant accounting books or not

+ The entity's solution to outstanding issues that the auditor has stated

+ Are errors found in the preliminary audit addressed and the impact on thefinancial statements at the end of the financial year (if any)

 Opinion of auditor: Stating the auditor's opinion is clear about the true andfair of the item Financial income and expenses

 Opinions of the entity: The auditor needs to discuss with managers aboutthe matters raised in the audit summary

+ If both parties agree on the opinion of the auditor, it is clearly stated in thesummary table of such agreement

+ If the customer unit has a different opinion from the auditor, it is clearlystated in the summary table of other opinion

CHAPTER 2:

PRACTICE OF AUDIT OF FINANCIAL INCOME AND FINANCIAL EXPENSE IN FINANCIAL AUDITS CONDUCTED BY ASIAN AUDITING COMPANY– AT

ABC COMPANY LIMITED

ABC Company Limited is one of the regular customers of Asian AuditingCompany and the auditor of company has many years of auditing experience in theenterprise, so they have a certain understanding of this customer After continuing

to receive the invitation to audit the Financial Statements for the year ended 2019,the auditor has considered the ability to provide services to this customer Thepredecessor auditor said that the auditing of the previous year's financial statementshad no conflict with the management of ABC Company and the auditors found noerrors due to frauds related to senior leaders in the unit

This year, the Deputy Director of the auditing company spoke with the chiefaccountant of the unit and learned that in the last financial year, there was nosignificant change in the business situation and the management apparatus of thecompany Therefore, Asian Auditing Company agree to continue to sign an auditengagement with this customer

Appendix 3: Auditing contracts

After both parties finished signing the audit contract, an audit team was sent

by ASA to audit the December 31, 2019 Financial Statements of ABC CompanyLtd

The time for doing the job is as follows:

 Planning time: from February 21, 2020 to February 26, 2020

 Time for the audit at the customer: from March 18, 2020 to March 21, 2020

 Time of preparation, review and issuance: from March 25, 2020 to March

28, 2020 in which the release of the audit report on March 28, 2020

The audit of the Financial Statements conducted from March 18, 2020 toMarch 21, 2020 received the assignment of the Deputy Director, the audit teamconsists of 05 people: 01 team leader; 01 auditor and 03 audit assistants confirmed

to be independent from ABC customers The specific tasks of each member aredetailed by the team leader before arriving at the ABC client and each member isresponsible for their work and part of the assignment Each member must gathersufficient appropriate evidence to draw his or her conclusions about theperformance of his or her job.

The team leader assigns detailed work as follows:

Table 2.1: Members of the audit team

Board members in charge of the audit Pham Trung A

Table 2.2: Assignment of audit team members

Pham Trung A Responsible for the audit, quality control,

responsible for the release of audit reportsPham Van B Review the quality of the audit after the audit team leader summarizes the audit results

Vu Thi H

Preliminary analysis and review of working papers

of members, summarizing audit results, performing audits related to capital

Nguyen Thi H Auditing inventories, cost of goods sold, sales

revenue, accounts receivable, accounts payablePham Phuong T

Audit of cash and cash equivalents, advances, prepaid expenses, financial incomes and financial expenses, selling expenses

Doan Van T Audit of Fixed Assets, Salaries, Payables, Administration Expenses

According to the contract No 1212/2018 / BCKT.TC-ASA.06, the companyconducted the financial statements of customers in 2019 and relevant documents,books and documents by ABC customers have been provided by the ABC Company

to the audit team

Appendix 1: Extract of financial statements before ABC Auditing in 2019

At Asian Auditing Company, all audits are conducted through 03 stages andthe audit process at ABC customers also proceeds in 03 stages: Planning the audit,Implementing the audit and Completing the audit

2.1. Planning the audit

a Understanding customer and business environment

ABC is one of the important customers and has been audited by AsianAuditing Company for many years, along with the discussion of the Board ofDirectors, chief accountant there are no material changes so the general plan for theaudit is not to collect background information and information about ABCcustomers' legal obligations, but to collect the previous year's audit records,business registration changes, organizational or other changes in the company Atthe same time, the auditor conducted interviews with management about newpolicies applied in 2019 to review the internal control system and conductappropriate tests of details

ABC customer information is summarized by the auditor through thefollowing table:

Table 2.3: Working papers search about ABC customer base information

CÔNG TY TNHH KIỂM TOÁN CHÂU Á

ASISAN AUDITING CO, LTD

Period ended 31/12/2019 Preparer PPT 21/02/2020

Procedure Search about ABC

customer base information

Reviewer PVB 23/02/2020

A SUBJECTIVE

Gather customer base information and the operating environment to identify and understand customer events, transactions, and business practices that significantly affect the financial statements, thereby helping to identify risks of material

misstatement due to fraud or mistake

B GENERAL INFORMATION

1.1 General information

 Company name: ABC Company Ltd

 Date of business registration: February 7, 2014

 Business registration license: 0107719904

 Charter capital of the company: 6,000,000 (Six billion Vietnam dong)

 Address:

 Business:

The business line of the company is cultivation and related service activities

The main activities of the company are to produce beverages made from fruits andvegetables, purchase agricultural materials and supplies

Comments of auditor: The main activities of the company have not changed in

comparison with the previous year The business situation has been more favorable and more positive Auditor rated Inherent risk at medium level

 Relations with State agencies: Fulfilling obligations with the State

 Relations with customers: Rated as good The company's commercial contractsare guaranteed legal and valid The company and the customer have made acommitment to deliver the goods and pay on time, otherwise they will be fined(the company will not be penalized in 2019)

 Internal relations of the company: There is a clear decentralization, goodperformance of obligations to employees, in 2019, there was no disputebetween the company and employees

Comments of auditor: ABC Company fulfills its legal obligations well.

1.2 Ownership, stakeholders, and organizational structure of the business Stakeholders: There are no stakeholders.

Organizational structure of the enterprise:

The organization and management structure of ABC Company includes: Board

of Directors and other departments: Administration Department, Human ResourcesDepartment, Sales Department, Planning Department, Technical Department,Production department

The Board of Directors includes: Director, Deputy Director and ChiefAccountant, responsible for all activities of the company before the Board ofMembers and to ensure all business and operations of the company are alwaysfollow the company's rules and policies and the law

Director is a person with expertise, capacity and reputation with employees in thecompany The Chief Executive Officer of the company's is through a DeputyDirector and department heads Chief accountant is a person with professionalqualifications and experience

Activities of the Board of Directors are evaluated to be effective, with directionthroughout from top to bottom

Comments of auditor: The control environment of the company is assessed as

good Auditor rated Control risk at medium level.

1.3 Understanding of applicable accounting policies

Accounting policy:

The Company applies Vietnamese Accounting Standards and documents guiding

Vietnamese accounting standards Financial statements are prepared and presented

in accordance with the provisions of the standard, issued in accordance withCircular 200/2014 / TT-BTC dated 22/12/2014

Accounting period: from January 1 to December 31 every year

Currency: Vietnam Dong (VND)

Applied accounting format: General journal accounting format on computers

(using accounting software)

Accounting apparatus at ABC Company

The accounting department of the company has 3 employees: 02 of them haveuniversity degree in accounting and 01 person with college degree in accounting

Comments of auditor: The accounting system of ABC Company is considered to

be strong The staff are all qualified, experienced, well-trained people Auditor rated Control risk at medium level.

(Source: Asian Auditing Company documents)

Collect information related to financial income and financial expense ofcustomers

The auditor has obtained documents such as ABC's previous auditedfinancial statements which are kept in ASA's general customer profile The auditorcollects additional documents on the changing of customers during the year, suchas:

 Minutes of shareholders, board of directors in the year or minutes ofirregular meetings

 Important contracts such as: Contracts of capital contribution to jointventures, business cooperation contracts, records of capital contribution

 The certificate of capital contribution, certificate of investment …

b Preliminary analysis of financial income and financial expenses

Table 2.4: Preliminary analysis of business performance of the unit

PRELIMINARY ANALYSIS OF BUSINESS PERFORMANCE

Based on the preliminary analysis in Table 2.4 shows that:

+ In general, the business size of the unit has increased for 2019 compared to2018

Net revenue from sales of merchandises and services rendered increased by21.21% (equivalent to an increase of 110 billion VND).

The unit has increased sales As a result, the profit before tax of thecompany increased by 32.56% corresponding to the increase of 4 billion VND).From that we realize that the cost management of the unit has achieved efficiencyand economy

 Financial income in 2019 compared to 2018 decreased by 1.11%(equivalent to a reduction of 9.8 million VND) The financial income of the unitmainly comes from the interest on the payment of the balance account of the unitopened at the bank Besides, financial expenses in 2019 compared to 2018 increased

by 19.8% (equivalent to an increase of 895 million VND) Mainly arising arepayment discounts and deferred purchases

+ General and administrative expenses of the unit increased 60.17%(equivalent to an increase of 29 billion VND)

c Assessment of internal control system and control risk

An overview of control risk will enable the auditor to identify materially affectthe audit Evaluation of internal control system is an indispensable task in the earlystages of the audit The auditor must have a complete understanding of the internalcontrol system to plan the audit and to determine the time and scope and the extent

of the underlying tests

Auditors conduct interviews with chief accountants of ABC and directorsabout changes in accounting policies and methods for financial income andexpenses in 2019 The auditor uses the initial evaluation questionnaire on controlrisks for financial income and expenses for the chief accountant and the board ofdirectors

The implementation of procedures for evaluating internal control systems isshown in the table below:

Table 2.5: Evaluation of internal control systems

CÔNG TY TNHH KIỂM TOÁN CHÂU Á

ASISAN AUDITING CO, LTD

Ltd Preparer PPT Date 21/02/2020

Period ended 31/12/2019 Reviewer PVB Date 23/02/2020

Questions to learn internal

Notapplicable

Have policies been issued to

manage loan, lending, and

financial investment?



4

Is the financial income and

expense reflected in time or

not?



5

Are financial incomes

monitored and reported on

6

Are there rules and

procedures for recording

incomes and expenses of

investments?



Does the Chief Finance

Officer predict and control

8 Is there an analysis of income and expense report?

Conclusion

The internal control system

for financial income items is:

Medium

(Source: Asian Auditing Company documents)

Conclusion: In 2019, the accounting system of the Company is organizedrelatively scientific and strict The work is clearly assigned to each individual in theaccounting apparatus Management mechanism, control procedures related tofinancial incomes and expenses of the company are relatively strict Accountingpolicies and methods did not change in the internal control system for the itemfinancial income and expenses of ABC customers Thereby, auditor rate thisinternal control system as "medium"

d Determining the materiality level

Based on the materiality performed for the whole audit of financialstatements presented in Table 2.6: Determination of materiality

Accordingly, the materiality level of performance of the item financial incomeand expenses is 352,144,592 VND and the omission of this item is 14,085,904VND

Table 2.6: Determination of materiality

DETERMINATION OF MATERIALITY

CÔNG TY TNHH KIỂM TOÁN CHÂU Á

ASISAN AUDITING CO, LTD

Subject: Materiality – Planning stage Reviewed by: VXB Date: 23/02/2020

DETERMINATION OF MATERIALITY LEVELS IN THE PLANNING STAGE

Materiality is established in the planning stage based on information collected on the activities and figures in the financial statements of the entity

before the audit.

Estimate materiality levels

Total assets 0,5 1,0 40,236,288,641 201,181,443 402,362,886 36,781,483,370 183,907,417 367,814,834 Revenue 0,5 1,0 50,306,798,897 251,533,994 503,067,989 41,503,480,519 207,517,403 415,034,805