Object and Scope - This topic focuses on describing the process of auditing for revenue cycle of XYZ - Giving an assessment of the audit procedures about this revenue cycle of BDO Viet
Reason
As the economy evolves, auditing has become essential for state management agencies, organizations, and businesses, significantly enhancing the reliability of financial statements By actively assessing and inspecting financial information, auditing plays a crucial role in improving business management quality, attracting foreign investment, and fostering favorable conditions for national economic growth.
Auditing financial statements is essential, as they provide crucial information for investors assessing a business's performance To facilitate informed investment decisions, it is imperative that these statements present a true and fair view of the company's financial status.
As Vietnam embraces the 4.0 industrial revolution and the Ministry of Finance prepares to implement IFRS international accounting standards, the auditing sector is becoming increasingly vital in providing precise and conservative audit opinions.
Auditing financial statements is essential, particularly in the revenue cycle, which significantly impacts cash flow and reflects a company's operational efficiency Due to the tendency of enterprises to overstate revenue, a thorough audit is crucial, requiring the auditor's expertise and a systematic approach to optimize resources Recognizing the importance of auditing the revenue cycle, the writer focused on the topic "Audit Procedures for Revenue Cycle" during their internship at BDO Vietnam for XYZ Company.
Through the topic to help readers better understand the audit of revenue cycle in reality as well as realize the risks and errors that may occur in this cycle.
Aims of Study
- Finding out the audit process of revenue cycle of BDO Vietnam Co., Ltd
- Describing the practical application of the audit process for revenue cycle from customers at XYZ Company performed by BDO Vietnam Co., Ltd
- Drawing conclusion, assessments and giving recommendations to improve the process more effectively in the BDO's audit activities.
Object and Scope
- This topic focuses on describing the process of auditing for revenue cycle of XYZ company in the year end December 31 th 2020 of BDO company
- Giving an assessment of the audit procedures about this revenue cycle of BDO Vietnam
The primary goal of auditing the sales and collection cycle is to assess whether the account balances impacted by this cycle are accurately represented in compliance with accounting standards.
Limitation
- Only illustrating a specific client company in a specific industry should not cover comprehensiveness of the report
- The report also cannot avoid certain restrictions, due to time or limitation in research conditions
- Because the confidentiality of the information, customer data is for illustrative purposes only.
Research Methodology
- Collecting the procedures of learning about the internal control system of the auditing company BDO Vietnam, studying some audit working papers provided by the company
- Analysis - synthesis: on the basis of theory and data, analyzing the rules, then synthesizing and drawing comments and recommendations
- Comparing: comparing the item differences over the years and finding out the reasons for this differences
_ Discussing and interviewing the auditors at BDO Vietnam
Layout
Chapter 1: Introduction about BDO Vietnam
Chapter 2: Theoretical basis and Analysizing BDO’s procedures for auditing sale and receivable cycle at XYZ company
Chapter 3: Conclusion and Recommendation of BDO’s procedures for auditing sale and receivable cycle
INTRODUCTION ABOUT BDO VIETNAM
Business Overview
Founded in 1963 in the United Kingdom, BDO adopted its name in 1973, derived from the initials of its three founding European member firms: Binder (UK), Dijker (Netherlands), and Otte (Germany) Today, BDO International has a global presence with over 1,658 offices in 167 countries and employs more than 91,054 partners and staff worldwide.
BDO Vietnam is part of BDO International Limited, the fifth largest global network of professional services firms It offers audit, advisory, and tax services to a diverse range of clients, including established multinational corporations and growth-focused organizations, both public and private.
Foundation and Development
BDO in Vietnam includes 02 entities:
BDO Consulting Vietnam Company Limited, a foreign investment firm, was founded on July 20, 2012, under investment certificate No 411043001989 issued by the People's Committee of Ho Chi Minh City, with its seventh amendment made on June 13, 2019.
BDO Audit Services Company Limited, a foreign investment firm, was founded on December 9, 2012, under investment certificate No 0101333767 issued by the Business Department of the Ha Noi Planning and Investment Office, with its 16th amendment made on December 24, 2015.
English Name: BDO AUDIT SERVICES COMPANY LIMITED
It has two (02) offices at Hanoi and Ho Chi Minh City:
- Ho Chi Minh office: Floor 11, The ADDRESS Building, No 60, Nguyen Dinh Chieu Street, Da Kao Ward, District 1, Ho Chi Minh City, Vietnam Tel: 028 3911 0033 Email: bdo@bdo.vn
- Ha Noi office: 20th Floor, 243A De La Thanh Street, District Dong Da, Ha Noi, Vietnam Tel: 024 37833911 Email: bdo.hn@bdo.vn
This move will effectively expand BDO’s service offering in Vietnam to encompass a full range of audit, advisory and tax services, provided by a team of highly regarded industry professionals.
Business Achievement
For the year ending 30 September 2020, BDO member firms and their exclusive alliances reported a total global fee income of US$ 10.3 billion (€ 9.2 billion), reflecting a year-on-year growth of 7.8% at constant exchange rates, with increases of 7.5% in euro and 6.7% in US dollars.
In October 2018, BDO was announced as the winner of the Network of the Year award at the International Accounting Bulletin (IAB) Awards 2018 BDO won the same award in
Organization Feature
BDO upholds objectivity and independence in addressing clients' business challenges, fostering trust-based relationships Our commitment to delivering consistently exceptional service is defined by five key components that characterize BDO.
BDO anticipate clients’ needs and are forthright in views, in order to ensure the best outcome for clients
BDO are always clear, open & swift in communication
BDO agree to and meet our commitments, meaning that BDO deliver what BDO promise, every day, for every client
BDO are proud to provide the right environment for people to grow and develop – but also the right people to deliver for clients
BDO’s experts focus on creating value: BDO give clients up to date ideas and valuable insights and advice that they can trust
BDO is a global organization built on local relationships.
Services
Company shall provide all professional services to clients based in Vietnam and other different countries within the framework of regulations and professional practice of Vietnam
Details of professional services provided by the Company include:
_ Statutory Audit and other Attestation services
_ Reporting Accountants/ Initial Public Offerings
_ IFRS convergence and US GAAP reporting
_ Special Purpose Audits/ Agreed Upon Procedures
Corporate and Management Advisory services:
Organization Chart of BDO
BDO Vietnam is divided into several divisions with separate functions The basic organizational structure of BDO Vietnam is shown in table 1:
Table 1: Organization chart of BDO
Board of Management runs all business activities of the Company Board of Management shall include Company Partners / Directors / Principals and Advisors
Heads of Department are those in charge of professional business units of the Company.
Job positions and professional level
Below are the following positions and different level in the Firm/Company:
Partner, Director, Senior Manager, Manager, Assistant Manager, Senior Consultant and Consultant
Partner, Director, Senior Manager, Manager, Assistant Manager, Audit Senior and Audit Assistant The hierarchy in audit team is detailed below:
At BDO, team engagement members are evaluated based on company standards, individual capabilities, and contract complexity In the audit field, levels are categorized by employee experience, qualifications, and skills The Audit Assistant (A2) position is typically held by individuals with minimal experience, often recent graduates or those with 1-2 years in the field, and individuals at this level share comparable knowledge, skills, and experience.
In an audit engagement, the engagement team is categorized into two primary levels: management and performance The term "audit team" specifically refers to the group of individuals directly involved in the audit process.
The management structure of an audit contract consists of key roles, including the Engagement Leader (EL), a Board of Directors member responsible for the overall contract, and the Quality Review Partner (QRP), who oversees quality supervision Additionally, the Team Manager (TM) supervises the audit team At the implementation level, the Senior in Charge (SIC) leads the audit team, supported by team members who contribute to the audit process.
Purpose and Value
BDO’s core purpose is helping people thrive, every day It is, fundamentally, why BDO exist as a firm, and it applies as much to clients as it does to employees
BDO brings world-class resources and exceptional service to each and every one of clients
BDO’s core values shape the way the company collaborates, engages with clients, supports colleagues, and contributes to community success These values establish a standard for professional conduct and relationships, enabling BDO to act with integrity and fairness in decision-making They foster deeper client relationships and promote an inclusive, flexible workplace Ultimately, these principles define BDO's identity and guide the firm in addressing the challenges and opportunities within the accounting profession.
THEORETICAL BASIS AND ANALYSIZING BDO’S
Theoretical basis about auditing sales and collection cycle
2.1.1 Definition and nature about sales and collection cycle
The sales and collection cycle encompasses the essential decisions and processes required for transferring ownership of goods and services to customers It initiates with a customer request and concludes with the transformation of a product or service into an account receivable, ultimately resulting in cash flow.
Accounts receivable refers to the total amount owed to a business by its customers for sales made on credit This asset represents the funds that buyers are obligated to pay, highlighting their responsibility to settle these outstanding balances.
In the income statement, sale is the first item as either the gross revenue amount or net revenue so it is so critical to calculate the result business performance
Trade receivables are categorized in the balance sheet under "Short-term assets" in section A and "Long-term assets" in Part B They are reported at net realizable value, with gross receivables and provisions for bad debts displayed as negative figures This structure highlights the sales and collection cycle associated with these assets.
Revenues are often susceptible to manipulation, with common tactics including premature revenue recognition or reporting non-existent sales Companies may engage in fraudulent transactions with related parties, record incomplete sales tied to conditions, or falsely recognize consignment sales as completed Additionally, they might modify contracts to inflate sales figures, postpone acknowledging customer returns to future quarters, or overlook them entirely.
Accounts receivable from customers play a crucial role in a business's operational results, often representing a significant portion of its financials Due to their high value, they are particularly vulnerable to risks such as fraud, including appropriation and embezzlement This sensitivity can lead to the overstatement of accounts receivable, which may be used to obscure important financial information concerning the entity's revenue and profits.
- High declaration of net value of accounts receivable through a lack of provision
- Recognition of sales transactions that are not eligible for recognition in order to increase revenue and receivables
- Do not declare accounts receivable that were mortgaged for loan contracts
- At the end of the period, no reevaluation has been conducted to reverse the provision or make additional deductions
- Difference in subsidiary ledger, general ledgers, and balance sheets due to incorrectly accounting contents, amounts and nature of accounts receivable; accounting for the non- trade receivables to trade receivables…
2.1.3 Objective of auditing sale and collection cycle
The primary goal of auditing the sales and collection cycle is to assess whether the account balances influenced by this cycle are accurately represented in compliance with accounting standards.
According Poimt 10 of VAS 14 – Turnover and other incomes
Sale turnover is recognized when five key conditions are met: first, the enterprise must transfer the majority of risks and benefits of ownership to the buyer; second, it must relinquish control and management rights over the goods; third, the turnover should be determined with relative certainty; fourth, the enterprise must realize or expect economic benefits from the sale; and fifth, the costs associated with the sale transaction must be identifiable.
2.1.5 Components in sale and collection cycle
The types of accounts differ based on the industry and client, with variations in account titles for service industries, retail companies, and insurance firms; however, the fundamental concepts remain consistent across all sectors.
There are five classes of transactions in the sales and collection cycle:
1 Sales (cash and sales on account)
4 Writing-off of uncollectible accounts
5 Estimating of bad debt expense
Assertions of auditing sale and receipts cycle:
Accounts receivable of business exist
Accounts receivable is owned by the business
Completeness (C) All accounts receivable that should have been recorded have been recorded Valuation (V) All accounts receivable, provision of accounts receivable are included in the financial statements at appropriate amounts
Cut-off (CO) Transactions of revenue system have been recorded in the correct accounting period
Accuracy (A) Amount balance on subsidiary ledger is the same on general ledger
The related calculations are numerically correct
All accounts receivable are appropriately aggregated and clearly described, and related disclosures are revelant and understable
2.1.6 Risks and controls in internal control in sale and receipts cycle
According to ISA (UK) 315, internal control is a systematic process established by governance, management, and staff to ensure reasonable assurance in achieving an entity’s objectives This includes the reliability of financial reporting, operational effectiveness and efficiency, and compliance with relevant laws and regulations.
Therefore, the control risk assessment in the internal control system is very necessary
In order to learn and assess the control risk of the revenue cycle and accounts receivable, auditors need to survey the internal control system for the entire sales cycle
The main control procedures for the sales cycle include:
_ Orders may be taken from customers who are not able to pay
_Orders only accepted from customers who have no credit problems
_ Specific authorization to approve sales to new customers or sales that exceed a customer’s credit limit _Stockouts or excess inventory _Perpetual physical counts of inventory _Sale forecasts and activity reports
_Orders may not be recorded properly and therefore not fulfilled and customers might be lost
_Sequential numbering of blank pre-printed order documents and subsequent checking of sequence for completeness
_Picking the wrong items or the wrong quantity
_Reconciliation of picking lists to sales order details
_ Theft of inventory _ Restriction of physical access to inventory _ Documentation of all inventory transfers
_Shipping errors (delay or failure to ship, wrong quantities, wrong items, wrong addresses, duplication)
_ Reconciliation of shipping documents with sales orders, picking lists, and packing slips _Data entry edit controls
_Invoices may be raised in error with resulting customer dissatisfaction
Implementing a pre-numbering system for dispatch records and conducting regular sequence checks are essential for maintaining order accuracy Additionally, configuring systems to automatically input pricing data can streamline operations It's crucial to reconcile shipping documents with sales orders to ensure consistency Care must be taken with invoices, as incorrect cancellations by credit notes can lead to significant financial losses for the business Proper recording of invoiced sales and credit notes is vital for maintaining accurate financial records.
_ Matching of sales invoices within despatch records and sales orders _ Segregation of duties: recording sales, maintaining customers accounts and preparing statements _Matching of cash receipts with invoices
_Retention of customer remittance advices
_ Sales might be recorded in the wrong customer accounts
_Reconciliation of subsidiary accounts to general ledger _Mailing of monthly statements to customers
To mitigate cash theft, it's essential to implement a segregation of duties, ensuring that the individual responsible for handling customer payments does not also manage customer account postings, create or authorize credit memos, or reconcile the bank account Additionally, adopting a prompt and restrictive endorsement policy for all customer checks can enhance security Addressing cash flow issues can be further improved by offering discounts to customers for prompt payments, incentivizing timely transactions and reducing financial strain.
Table 2.1 Risks and controls in internal control 2.1.7 Overview of audit procedures of sales and collection cycle
2.1.7.1 The importance of auditing accounts receivable in financial statement
Auditing accounts receivable is crucial in the evaluation of financial statements, as it forms the foundation for auditors to assess the accuracy and fairness of the reported information This emphasis on accounts receivable stems from its significance as a key component that auditors must scrutinize during the financial audit process.
Accounts receivable is intricately linked to various elements of financial statements, particularly credit sales revenue Auditing this component enables auditors to identify potential fraud related to revenue misrepresentation or incomplete revenue reporting, ultimately enhancing the accuracy of reported revenues for the business year.
Auditing accounts receivable plays a crucial role in identifying rising expenses, as auditors evaluate provisions for bad debts and associated costs This process is essential for determining whether a business is inflating its profits.
To effectively audit accounts receivable, auditors must assess the effectiveness of the enterprise's internal control system within the sales cycle This evaluation helps identify any shortcomings in the internal control system, enabling auditors to provide valuable suggestions and recommendations in their management letter, aimed at enhancing the client's internal control efficiency.
2.1.7.2 General audit procedures of sales and collection cycle
Auditors conduct research on the internal control system of customers through the following steps:
Identify client business risks affecting accounts receivable
Set performance materiality and assess inherent risk for accounts receivable
Assess control risk for sales and collection cycle
Design and perform tests of controls and substantive tests of transaction for sales and collection cycle
Design and perform analytical procedures for accounts balance
Perform tests of details of accounts balance to satisfy balance-related audit objective
General audit process at BDO Vietnam
In auditing firms, the audit process is structured into distinct phases tailored to each company's unique procedures Generally, the audit of financial statements encompasses three primary phases.
Phase I: Plan and design an audit approach
Phase III: Complete an audit and issue an audit report
2.2.1 Plan and design an audit approach
Accept client and perform initial audit planning
At BDO, the audit department management performs an independent assessment of potential clients using a structured questionnaire that adheres to BDO Global regulations before accepting an audit The specific interview questions are tailored based on whether the client is new or an existing customer.
Through questionnaires and direct interviews with customers, the company will carry out a commitment to accept / continue to perform the audit (Acceptance / Continuance -
BDO will evaluate customer needs, work volume, and complexity to assign suitable auditors and audit assistants to the implementation audit team A preliminary agreement will be established regarding the audit-related costs, reporting deadlines, and contract signing, all of which will be documented in the engagement letter.
Understand the client’s business and industry
To effectively understand the business environment, it is essential to gather key documents such as the establishment license, investment certificate, and business registration details These documents provide insights into the type of business, products and services offered, market positioning, and internal factors like ownership and management characteristics Additionally, auditors must collect minutes from Board of Directors meetings, decisions made by the Board, and the company's charter Once gathered, these documents should be continuously stored and updated in the audit documentation to ensure compliance with applicable accounting policies.
Auditors leverage their understanding of a client's business and industry to evaluate client business risk, which is the likelihood of the client not achieving its objectives This risk can stem from various factors, including economic downturns that jeopardize cash flows, advancements in technology that diminish competitive advantages, or a client's inability to implement strategies effectively compared to competitors.
Auditors conduct preliminary analytical procedures to gain insights into a client's business and evaluate associated risks By comparing client ratios against industry benchmarks, they can assess company performance and identify unusual fluctuations in ratios over time or against industry standards These preliminary tests are crucial in pinpointing areas with heightened risks of misstatements, guiding auditors to focus their attention during the audit process.
Set materiality and assess acceptable audit risk and inherent risk
To effectively conduct an audit, the company will establish a materiality level based on the client's internal control system, which will guide the focus of the audit and determine the sample size The auditor will assess acceptable errors at the overall financial statement level to ensure that there are no material misstatements present.
Materiality identified at BDO Vietnam includes:
- Acceptable error threshold (SUM - De Minimis SUM Posting Level)
BDO establishes materiality on the basis of customer performance and risk level on the basis of:
- Profit before tax Global BDO Guidance recommends setting OM at 10%
- Average profit before tax over a continuous operating period of 3-5 years
- Earnings before interest, taxes and amortization (EBITDA)
Global BDO regulations establish that overall materiality is focused on key business outcomes, including profit before tax and total revenue Performance materiality is typically influenced by the auditor's previous adjustments, whether proposed or implemented.
Understand internal control and assess control risk
During the interim period, BDO will assess the customer's internal control system, focusing specifically on the Internal Audit investigation of the revenue cycle and customer receivables recognition This assessment will encompass the internal controls within the sales and collection cycle, examining all procedures related to the sales process and the tracking of customer liabilities The evaluation will cover the entire process, starting from the receipt of customer orders, through payment method review, shipping, invoicing, and sales recording, all the way to the customer payment and subsequent recording of fund increases.
BDO will deploy audit assistants to analyze the internal control systems of each department, subsequently consolidating the findings and uploading them to the company's intranet (Skype) to facilitate subsequent processes The methods employed to assess the internal control systems at the client's organization will ensure a comprehensive understanding of their operations.
- Interviewing the Board of Directors and relevant department staff
BDO will gather and analyze information regarding the internal control systems associated with significant customer transactions to identify potential risks that could result in material misstatements for each assertion This approach enables the company to comprehend and manage potential errors at client organizations Subsequently, BDO will conduct control tests to evaluate the control risks linked to the internal control systems of its customers.
- Exploring major and critical businesses, identifying possible failures and control procedures related to these operations
- Defining the control procedures, the frequency of the procedures and the selection of test controls
- Preparing documents related to learning the internal control of these large operations
To effectively evaluate the internal controls over accounts receivable, the auditor will first outline the key control procedures on an internal control summary sheet Following this, the auditor will perform sampling to conduct a Walk-through test, which involves a physical inspection to verify that the control procedures are being executed as intended.
The auditor utilizes the Walk-through table to evaluate if control procedures are executed as intended If the controls are deemed strong, the auditor can confirm that the internal control system functions correctly and can depend on the effectiveness of these controls to guide the content, timing, and scope of substantive testing, potentially reducing the volume of transaction testing required Subsequently, the auditor assesses the risks of material misstatement for each audit objective, with the outcomes of this risk assessment serving as the foundation for determining the essential tests to be conducted.
Gathering information to assess fraud risks
BDO audit team conducts discussions to share insights from more experienced audit team members
Engaging with specific managers and other company personnel allows employees to share insights with the auditor that may not be readily communicated Additionally, the responses to the auditor's inquiries can often uncover potential indicators of fraud.
Developing overall audit strategy and audit program
The auditor develops an audit plan for the sales cycle and receivables by evaluating the internal control system and assessing the risks of material misstatement This plan includes essential details such as the required tests, sample sizes, time allocation, and the assignment of suitable personnel.
Illustrated audit procedure for sales and collection cycle at XYZ company
2.3.1 General introduction about XYZ company
XYZ Company, a valued client of BDO, benefits from the firm's familiarity with their needs, as customer information is securely maintained in BDO's documentation This established relationship facilitates a streamlined process for customer acceptance reviews, contract signings, audit team selections, and accounting, making these procedures more efficient and straightforward.
XYZ Company, a multinational limited liability shoe manufacturing wholesaler based in Stockholm, Sweden, operates a vast network of 395 offices across over 145 countries The Vietnam branch of XYZ Company boasts a significant charter capital, reinforcing its commitment to the global footwear market.
1,949,500,000 (one billion nine hundred forty-nine million five hundred thousand)
Vietnamese Dong, equivalent to 100,000 (one hundred thousand) US dollars As at
December 31, 2020, the staff size of the company is over 120 people
_Regarding the company's accounting policies related to the sales and collection cycle:
The financial statements are presented in Vietnam Dong, based on the historical cost principles
The Company applies the General Journal accounting form
The Company's accounting period starts on January 1 st and ends on December 31 st 2.3.2 Understand internal control system of XYZ company
Through the procedure of interviewing and observing customer procedures, auditors record information of the sales and collection cycle as follows:
1.1 The customer contacts the Sales department of XYZ company to place an order Clients are classified into different categories: exporter, distributor, corporation, bidding Depending on the type of customer, orders will take different forms
For example, in the case of a distributor, the order is usually a normal contract of sale; in the case of Bidding, the purchase order is usually the Bidding Contract
1.2 The Sales department of XYZ company contacts with other departments for the following information:
1 / Check with the Accounting department: for the customer's credit limit
2 / Check with the Research and Development department: For customer specific requirements and XYZ's ability to meet those requirements
To ensure customer orders can be fulfilled, it's essential to verify inventory levels with the warehouse and confirm production capabilities Once all conditions are satisfied, the Sales department proceeds to provide a quote and finalize the contract with the customer.
Please note that the sales contract has different forms, details are as follows:
- Some customers contract for multiple deliveries, each one confirmed by an order
- Some customers sign a contract for an order
- Some customers win through the bidding process and contracting for the entire project Sales department is in charge of different types of contracts and client supervision
All sales contracts and orders are reviewed by the Sales Manager and signed by General Manager
Information will be included in each sale agreement:
- Type of product to be delivered
- Payment type (deposit, advance, etc.)
- Credit term (usually 30 - 90 days) depending under specific circumstances
>> Control 1: All sales contracts / orders are signed by Deputy General Director - Mr C and CEO - Mr T
1.4 The quantity and quality of each order is overseen by the Manufacturing department to schedule the right production process
2.1 When the production for an order ends, the sales department will issue the delivery order Such orders are stated in SAP system and received by the Accounting department
The accounting department receiving the Delivery Order will check the following information:
- Adjust the quantity and number of sales orders with the information of the order
- Check whether the customer has made a deposit for the order or has made a prepayment to the customer
Once all conditions are satisfied, the Accounting department forwards the Delivery Order Approval Form to the warehouse accountant Subsequently, the Sales Accountant utilizes this form to prepare the necessary documentation.
- Despatch record Sales Accountant compare information (both quantity and price) on the order, Delivery Order Approval Form and Invoice and Delivery Note The invoice is signed by CFO - Mr Q
2.3 The Warehouse department, based on information received from the Sales Accountant, will prepare the appropriate inventory for dispatch Warehouse department will prepare: Despatch and Receive Record
The Delivery Record is signed by the Warehouse Manager, the security team and will accompany the delivery until the customer and truck driver sign the document
>> Control 2: Invoices, orders and delivery notes will be collated (Assertion: A, EO)
>> Control 3: Invoices, delivery notes, shipping documents are signed by authorized person (Assertion: A, EO)
Invoice: Approved by CFO Despatch note: approved by CFO or Deputy CEO Delivery record: approved by Warehouse Manager, customer cargo and truck drivers
3.1 Price is defined for each purchase order / contract and is fixed until final delivery of the purchase order / contract
3.2 The price is determined by the Sales Department and approved by the General Director
The Company does not have a list of fixed selling prices The Company's prices per order will vary depending on the following factors:
The diversity in client and project sizes ensures a streamlined pricing process, as fixed prices are established in the sales contract Consequently, auditors do not need to scrutinize this pricing cycle.
4.1 When a customer places an order in advance
Dr Cash at bank / Cr Advance from customers 4.2 When the invoice is issued by the Warehouse accountant
Dr Accounts receivable/Advance from customers / Cr Revenue
Dr Cost of goods sold / Cr Inventory
5 Tracking the age of accounts receivable and
5.1 The accounting department keeps track of the receivable accounts for each customer
Each customer has different credit terms, from 30 days to 90 days and some customers have to advance or deposit money or make a bank commitment
Account department review the aged of debt to to evaluate provison for doubtful debt
Each morning, the Cash Accountant reviews cash bills from all of XYZ's bank accounts, ensuring accuracy and transparency Subsequently, all bank receipts are emailed to the Chief Accountant, Receivables Accountants, and the Sales Department for their records and further processing.
Sales Department receive such information because they are also involved in the collection process
Account reconciliation -checking information are sent by Cash Accountants and update to the system
Most correspondingly, customers pay according to the invoice However, some distributors prefer a one-time payment
Dr Cash at bank / Cr Accounts receivable
6.1 A credit limit is set for each customer and the company tracks this credit limit manually
6.2 For each revenue transaction, Accounting department will review all supporting documents before approving the order This process does not leave any audit trails
6.3 The ERP system does not notify the customer when the customer exceeds the pre-defined credit limit
At the end of each month, XYZ Company sends accounts receivable confirmations to all customers Any discrepancies identified between the accounting department's records and the client's statements are promptly investigated by Mr S, the staff member responsible for the accounting department.
>> Control 4: Reconciliation of liabilities are sent to customers at the end of each month (Assertion: C, CO)
There are two ways: by cash or via bank
For cash, XYZ company will prepare a Cash receipt signed by the client and the Cashier
Most wholesaler sales were processed through a bank, with nearly all transactions involving credit terms For any unpaid sales, the accountant receives a credit note from the bank and conducts daily checks against the signed invoices and amounts in the subsidiary ledger to reconcile and eliminate the corresponding accounts.
>> Control 5: Credit notes from bank are compared daily with invoices signed by customers
2.3.3 Planning an audit and designing an audit approach
Evaluating the ability to accept the audit agreement
XYZ Company is a traditional customer of BDO, so the auditor only updates more information about the customer to decide whether to continue the audit for XYZ
Company or not Realizing that there is no risk that auditors have to stop providing audit services, BDO agrees to accept customers
Auditing purpose for XYZ Company
The auditor's experience from the previous year guided the assessment of the financial statements for XYZ Company, covering the period from January 1, 2020, to December 31, 2020 The audit's conclusion serves as a critical tool for the Board of Directors in evaluating both the performance of the accounting department and the overall effectiveness of the company.
Assigning work to engagement team members
BDO has selected the members of the audit team mainly from auditors from the previous year because these members have an understanding of XYZ company
Auditing plan XYZ company expects the audit implementation time to be 7 days, from January 13, 2020 to January 20, 2020 and the number of auditors is 5 people
After preparing human resources for the audit, the audit contract is signed between BDO and the client
At BDO, the preliminary analysis procedures focus on two key areas: fraud related to fraudulent financial statements and fraud involving the misappropriation of assets The following table presents a preliminary analysis conducted at XYZ Company.
A Frauds arising from fraudulent financial reporting
XYZ is a listed company and operates in the field of manufacturing and processing shoes, this industry is stable
In 2019, XYZ achieved a net revenue of 170.1 billion dong from sales and services, surpassing the planned target of 161.6 billion dong set by the General Meeting of Shareholders on April 24, 2019, by 8.5 billion dong, which represents an increase of 5.25%.
The company compensates its Sales department based on product sales, incentivizing them to engage with customers to implement Bill & Hold strategies or recognize revenue prematurely, ultimately aiming for higher year-end salaries and bonuses.
Salespeople often face pressure to engage in dishonest practices; however, the effectiveness of internal control systems makes committing fraud challenging By implementing robust controls, organizations can significantly mitigate the risk of fraudulent activities within their sales departments.
The Board of Directors oversees the company's operations, ensuring strict adherence to legal requirements Historically, the company has maintained compliance with securities laws and all relevant regulations, demonstrating a commitment to lawful business practices.
CONCLUSION AND RECOMMENDATION OF BDO’S
Comments
BDO Vietnam is renowned for its auditing and consulting services both locally and internationally A key element of this reputation is the company’s commitment to fostering a positive working environment BDO emphasizes harmony, openness, and creative freedom, while also encouraging healthy competition that strengthens the bonds among its employees.
At BDO, meticulous contract preparation guarantees high-quality agreements that satisfy customers and provide reliable information The company prioritizes employee development by offering extensive training sessions and sponsoring annual courses like ACCA and CPA Additionally, BDO's detailed auditing strategy includes thorough risk identification and analysis, ensuring that human resources are effectively aligned with job requirements and responsibilities.
BDO's audit department utilizes the advanced AURA 6.0 audit system, which is continuously updated to enhance connectivity and efficiency for auditors This innovative system significantly improves work management compared to traditional methods Additionally, BDO employs iCore software, which streamlines the creation of financial statements, ensuring they are produced faster and with greater accuracy.
BDO holds a significant position in Vietnam's auditing and consulting sector, while also expanding its range of services to meet market demands This strategic growth indicates BDO's potential for further development in the future.
BDO Vietnam Auditing Company excels in service quality by delivering not only high-quality audit reports but also demonstrating a professional attitude and competence among its auditors The firm provides users of financial statements with reliable information and offers valuable advice to enhance their accounting practices BDO identifies risks and errors that may arise from less experienced accountants, addressing even minor mistakes to support clients in improving their accounting systems.
Auditing procedures of sale and collection cycle
BDO Vietnam implements a standardized audit program aligned with BDO International's requirements, while also adapting to the Vietnam Association of Auditing Practicing (VSCPA) sample audit process and relevant regulations This ensures that auditors have a comprehensive and detailed framework for conducting audit procedures, particularly for accounts receivable, enhancing the scientific rigor of their approach.
During the cycle audit, auditors engage in reciprocal comparisons with other members possessing relevant information, enhancing their understanding of the enterprise's operations In both the planning and implementation phases, auditors develop various analytical procedures, which provide a comprehensive view of the company's performance during the audit year This approach allows auditors to focus more intently on high-risk areas, ensuring a thorough and effective audit process.
BDO has developed an electronic library on its intranet, enabling auditors to easily and quickly access customer audit data and previous year's working papers This streamlined access not only facilitates the modification and updating of information but also allows qualified auditors to systematically review the performance of junior auditors.
The audit program at BDO is deemed effective, providing strong support for auditors' work Notably, BDO utilizes Information Technology, specifically MUS software, for sample selection in performance audits This integration significantly reduces working time while enhancing the accuracy and integrity of the auditing process, enabling auditors to identify high-risk samples related to accounts receivable in financial statements.
Audit evidence is systematically collected using a scientific approach, with working papers clearly marked for easy reference and review by superiors These audit records, considered corporate assets, should be meticulously archived and managed both in a physical library and on the company intranet Debt-related working papers are organized from a general overview to detailed findings, including conclusions and specific evidence Prior to the audit, auditors must review existing records and previous years' documentation to establish a basis for comparison and identify any outstanding issues.
During the peak season for financial statement preparation, typically from December to March, BDO experiences a significant rise in job demand for auditing services This surge often leads to employee overload, negatively impacting morale, health, and overall performance The challenges extend beyond staff, also affecting management levels within the company.
One of the shortcomings that exist in auditing firms, not just at BDO, is the staff issue
The audit profession faces a significant challenge in maintaining high-quality standards, as employees often work diligently yet receive unsatisfactory remuneration, leading to a rising turnover rate This situation adversely impacts service quality, as new employees may lack the necessary knowledge and experience, unlike their seasoned counterparts who have accumulated valuable insights over time.
The Aura system ensures strict and clear management of customer data, allowing access solely to authorized members with management approval However, once granted access, these members have unrestricted capabilities to process personal data, including the rights to copy and amend records, which poses a risk of potential customer information leakage.
Auditing procedures of sale and collection cycle
The BDO program establishes materiality during the audit planning stage, where auditors assess criteria such as total assets, total revenue, and gross profit before tax, applying a specific percentage without adjustments throughout the audit However, this approach can lead to risks, as auditors may lack a comprehensive understanding of the client's specific risks and nuances at this early stage Relying solely on the auditor's subjective assessment can result in incorrect materiality determinations, causing misjudgments in critical audit areas Consequently, this may lead to inefficient resource allocation, focusing on non-material items while neglecting essential areas that require thorough audit evidence.
Secondly, there exists in the sampling of accounts receivable to send confirmation mail According to the current audit program, auditors rely on the importance to select
Utilizing software for random sample selection enhances objectivity in the auditing process; however, it can hinder auditors from applying their professional judgment to identify balances with abnormal indicators This is particularly concerning in high-risk situations where an accountant may intentionally manipulate data, fully aware of the auditor's sampling methodology.
Recommendation
_ Based on the knowledge from the University of Economics - Law, VNU-HCM, from the auditors and audit assistants in BDO Vietnam Co., Ltd
_ Interviewing employees at BDO Vietnam Limited
3.2.2 Some recommendations for BDO to complete the process of auditing accounts receivable
Materiality established solely during the audit planning stage, without subsequent review and adjustment during the detailed testing procedures, can lead to risks that do not accurately reflect the nature and actual circumstances of errors in specific items.
In conducting material assessments, BDO Vietnam should maintain the initial materiality level during the planning phase However, if new findings arise during the audit procedures that impact the nature and significance of items, or if errors could affect the auditor's opinion, the auditor can discuss necessary adjustments with the manager and audit team Regular reviews and modifications of the materiality level are essential to align it with the actual circumstances encountered during audit cycles.
The current sampling method employed by BDO Vietnam relies solely on objective techniques derived from sampling software, which raises concerns about potential risks This approach may overlook unusual events when the balance does not surpass the established sample selection threshold, highlighting a significant shortcoming in their methodology.
To enhance the sampling process, BDO Vietnam should implement a judgment-based sampling method alongside software-selected samples This approach not only ensures that no critical samples are overlooked but also strengthens auditors' professional judgment and expertise.
In the case of Company X, the auditor utilizes sampling software to select 25 random samples for confirmation of customer receivables During this process, the auditor identifies two additional customers, Company C and Company D, operating in the Cambodian market, where Company X has limited transaction history Exercising professional judgment, the auditor decides to include these two companies in the sample by sending them audit confirmation letters.
The company should categorize customers based on specific groups and industries, creating a tailored audit program that aligns with the size and sector of each client This approach will facilitate auditors in grasping the unique characteristics of customers when assessing new types of businesses.
To enhance the internal control system, the company should integrate a flow chart with the report board, as the business cycle, particularly accounts receivable, involves multiple departments and individuals While this approach may be time-consuming, it significantly boosts efficiency by leveraging the strengths of both methods Although the narrative board is user-friendly, complex customer receivable recognition can lead to an overwhelming amount of information, complicating the review process By incorporating a flow chart, auditors can gain a clearer understanding of the overall process, improving the effectiveness of the internal control system.
The customer receivables audit process currently relies on limited analytical procedures, resulting in superficial indicators that lack meaningful interpretation To enhance audit quality and efficiency, the company should implement more comprehensive analytical methods while minimizing detailed inspections Utilizing a flow chart alongside a narrative report can effectively illustrate the internal control system, as accounts receivable involve multiple departments and individuals Although this approach may require more time, it offers greater efficiency by leveraging the strengths of both methods While narrative reports are user-friendly, complex customer receivables may lead to information overload, making it challenging for viewers Therefore, incorporating flowcharts will provide auditors with a clearer understanding of the processes involved.
To alleviate employee pressure, BDO should consider extending the audit timeline and adding more team members Additionally, enhancing the reward policy will serve as motivation, fostering a culture of enthusiasm and dedication among employees.
1 Nhóm tác giả trường Đại học Kinh tế Tp.HCM (2011), Kiểm toán, NXB Lao động xã hội;
2 Hệ thống chuẩn mực kiểm toán Việt Nam;
Quy trình kiểm toán, từ https://tuonthi.com/acca-f8-quy-trinh-kiem-toan-co-cac- giai-doan-nao/
Thông tin chính thống về công ty TNHH Kiểm toán và Tư vấn BDO Việt Nam: https://www.bdo.global/vietnam/vi/gioi-thieu-bdo-viet-nam
4 BDO GAM (BDO Global Audit Manual)
PHIẾU ĐÁNH GIÁ KHÓA LUẬN TỐT NGHIỆP – GVHD – Đề tài: KIỂM TOÁN Điểm từng phần
Không đạt yêu cầu Cần cải thiện Đạt yêu cầu Xuất sắc Tổng điểm
Chương mở đầu của khóa luận cần được cải thiện để xác định rõ ràng mục tiêu nghiên cứu, đối tượng nghiên cứu và phạm vi nghiên cứu Việc này sẽ giúp tăng tính đầy đủ và mạch lạc cho nội dung, đồng thời cung cấp một cái nhìn tổng quan rõ ràng hơn về hướng đi của nghiên cứu.
Chương mở đầu của khóa luận nêu rõ mục tiêu nghiên cứu, đối tượng và phạm vi nghiên cứu, đồng thời đã tiếp thu và cải thiện đa số ý kiến đóng góp từ Giảng viên Hướng dẫn.
Một số điểm trình bày chưa logic
Chương mở đầu được trình bày một cách rõ ràng và mạch lạc, xác định mục tiêu nghiên cứu, đối tượng và phạm vi nghiên cứu của khóa luận một cách thuyết phục.
Cơ sở lý thuyết không chỉ đơn thuần trình bày các vấn đề lý thuyết cơ bản liên quan đến nghiên cứu mà còn cần có sự tổng hợp và chọn lọc thông tin một cách hợp lý.
Trình bày cơ sở lý thuyết có chọn lọc, phù hợp với đề tài nghiên cứu
Có sự tổng hợp, phân tích phù hợp
Tuy nhiên, một vài điểm chưa có sự kết nối tốt Còn một vài lỗi sai trong nội dung
Trình bày cơ sở lý thuyết có chọn lọc, phù hợp với đề tài nghiên cứu
Bài viết này bao gồm tổng hợp và phân tích các nội dung nghiên cứu, đồng thời so sánh với các thông tin liên quan Các vấn đề được trình bày có sự kết nối rõ ràng, đảm bảo tính logic và mạch lạc Nội dung hầu như không có lỗi sai, thể hiện sự chính xác và chuyên nghiệp trong việc trình bày thông tin.
Bài viết trình bày một cách chi tiết các vấn đề liên quan đến nội dung nghiên cứu, với phân tích sâu sắc và logic Nội dung được tổng hợp, so sánh và phân tích một cách hợp lý, mang tính thuyết phục cao, giúp người đọc dễ dàng nắm bắt thông tin và hiểu rõ hơn về chủ đề nghiên cứu.
Thực tế tại doanh nghiệp Chỉ sao chép giấy làm việc Không có quan sát, diễn giải của người viết
Có trình bày các thủ tục kiểm toán, nhưng không đầy đủ và logic
Chưa có sự liên hệ giữa mục tiêu kiểm toán, các thủ tục thực hiện và kết quả thực hiện các thủ tục
Không có giấy làm việc minh họa
