Auditing ensures the accuracy and reliability of financial statements, fostering trust among stakeholders. This guide details the audit process in five phases: Plan Audits, Conduct Audits, Identify Discrepancies, Implement Corrections, and Ensure Compliance. Tailored for students, it provides practical steps, examples, and visuals to illustrate each phase.
Trang 1A Comprehensive Resource for Auditing Students
Designed for Classroom Instruction
May 17, 2025
Trang 2Index
Trang 31 Introduction
1
Auditing verifies the accuracy of financial statements, ensuring stakeholder confidence This guide outlines the audit process in five phases: Plan Audits, Conduct Audits, Identify Dis-crepancies, Implement Corrections, and Ensure Compliance Designed for students, it includes detailed explanations, examples, and visuals
The guide uses VinCafe Ltd., a fictional coffee manufacturer in k Lk, to illustrate auditing
in-ventory (coffee beans) and fixed assets (roasting machines) These examples align with common audit areas, enabling students to apply concepts practically
1.1 Objectives
• Understand the five audit phases comprehensively
• Apply auditing techniques to real-world scenarios
• Recognize compliances role in financial integrity
1.2 Audit Process Flowchart
Plan Audits Conduct Audits DiscrepanciesIdentify Implement
Corrections
Ensure Com-pliance
1.3 Regulatory Context
Audits adhere to International Standards on Auditing (ISA) and International Financial Re-porting Standards (IFRS), ensuring global consistency Understanding these frameworks is crucial for students
2 Plan Audits
1
Planning establishes the audits foundation, defining objectives, assessing risks, and allocating resources to meet ISA requirements
2.1 Steps in Audit Planning
1 Understand the Client: Study the clients industry, operations, and financial processes.
2 Assess Risks: Identify misstatement risks (e.g., inventory valuation errors).
3 Develop an Audit Plan: Outline scope, timeline, and procedures like sampling.
4 Assign Resources: Allocate auditors based on expertise.
5 Communicate with Management: Align expectations with the client.
2.2 Audit Techniques
• Risk Assessment Models: Use tools like the COSO framework to prioritize risks.
• Sampling Plans: Apply statistical sampling for efficient testing.
Trang 42.3 Example: Planning VinCafe Ltd.s Audit
VinCafe Ltd is audited for its 2024 financial statements, focusing on inventory and fixed assets
• Client Understanding: VinCafe
sources beans locally, storing them in
k Lk warehouses
• Risk Assessment: Inventory faces risks
from price volatility and spoilage
• Audit Plan: Physical counts and
valua-tion tests are scheduled for January 2025
• Resources: Two senior auditors and three juniors are assigned
• Communication: The CFO confirms
access to records
Table 1: Audit Plan Timeline for VinCafe Ltd
Task Deadline
Client meeting Jan 5, 2025 Risk assessment Jan 10, 2025 Inventory count Jan 15, 2025 Draft report Jan 20, 2025
2.4 Practical Tips
• Focus on high-risk areas like inventory
• Document decisions for transparency
• Engage clients early to streamline planning
3 Conduct Audits
1
Conducting the audit involves executing procedures, gathering evidence, and testing records to ensure reliable findings
3.1 Steps in Conducting Audits
1 Test Controls: Evaluate internal controls (e.g., authorization processes).
2 Perform Substantive Tests: Verify balances via sampling and vouching.
3 Observe Assets: Count inventory and inspect fixed assets.
4 Document Findings: Record evidence in working papers.
5 Communicate Progress: Update management on issues.
3.2 Audit Techniques
• Control Testing: Use walkthroughs to assess control effectiveness.
• Substantive Procedures: Apply analytical procedures to detect anomalies.
3.3 Example: Auditing VinCafe Ltd.
The team conducts fieldwork at VinCafes facilities
Trang 5• Controls: Inventory receipts lack
con-sistent authorization
• Substantive Tests: 50 transactions are
sampled; one lacks documentation
• Observation: 10,000 kg of beans are
counted, with 500 kg damaged
• Documentation: Findings, including photos, are logged
• Communication: The warehouse
man-ager is informed
Count Inventory Verify 10,000 kg Note 500 kg
Damaged
3.4 Practical Tips
• Use statistical sampling for representative evidence
• Cross-check data with multiple sources
• Maintain organized working papers
4 Identify Discrepancies
1
Identifying discrepancies detects errors, fraud, or misstatements, ensuring financial statement accuracy
4.1 Steps in Identifying Discrepancies
1 Compare Records: Match records to evidence (e.g., invoices).
2 Analyze Variances: Investigate differences.
3 Investigate Anomalies: Trace unusual transactions.
4 Assess Materiality: Evaluate financial impact.
5 Report Findings: Document issues for management.
4.2 Audit Techniques
• Variance Analysis: Use ratio analysis to spot trends.
• Fraud Detection: Apply Benfords Law to identify unusual patterns.
4.3 Example: Discrepancies at VinCafe Ltd.
The team uncovers a deliberate fraud
• Comparison: Ledger shows 10,500 kg,
count shows 10,000 kg
• Variance: The 500 kg (50 million VND)
is material
• Anomaly: A manager forged receipts to
hide spoilage, confirmed via supplier
in-terviews
• Materiality: The error exceeds 5% of
inventory value
• Reporting: A detailed memo, including
evidence, is sent to the CFO
Compare Ledger Find 500 kg Error Detect Fraud
Trang 6Table 2: Discrepancy Analysis for VinCafe Ltd.
Item Ledger (kg) Physical Count (kg)
4.4 Practical Tips
• Exercise professional skepticism
• Trace anomalies thoroughly
• Quantify impacts for reporting
5 Implement Corrections
1
Implementing corrections addresses discrepancies, ensuring accurate financial reporting
5.1 Steps in Implementing Corrections
1 Propose Adjustments: Recommend journal entries.
2 Strengthen Controls: Suggest improvements.
3 Obtain Approval: Secure management agreement.
4 Record Adjustments: Update records.
5 Verify Corrections: Re-test balances.
5.2 Audit Techniques
• Journal Entry Design: Ensure entries align with IFRS.
• Control Enhancements: Implement segregation of duties.
5.3 Example: Correcting VinCafes Issues
The team addresses inventory and fixed asset errors
• Adjustments: Reduce inventory by 50
million VND; correct a 20 million VND
depreciation overstatement
• Controls: Mandate receipt approvals
and depreciation reviews
• Approval: The CFO approves.
• Recording: Adjustments are posted.
• Verification: Samples are re-tested.
Table 3: Journal Entries for VinCafe Ltd
Dr Cost of Goods Sold 50,000,000
Dr Accumulated Depreciation 20,000,000
Trang 7Cr Depreciation Expense 20,000,000
Propose Entry Record Adjustment Verify Correction
5.4 Practical Tips
• Ensure IFRS compliance
• Document approvals
• Re-test thoroughly
6 Ensure Compliance
1
Ensuring compliance verifies adherence to ISA and IFRS, enhancing financial credibility
6.1 Steps in Ensuring Compliance
1 Review Standards: Confirm ISA/IFRS compliance.
2 Assess Disclosures: Verify financial statement notes.
3 Perform Final Tests: Conduct additional checks.
4 Issue Audit Opinion: Report fairness.
5 Monitor Compliance: Recommend ongoing practices.
6.2 Audit Techniques
• Disclosure Checklists: Use templates to ensure completeness.
• Final Reviews: Apply peer reviews for accuracy.
6.3 Example: Compliance for VinCafe Ltd.
The team finalizes VinCafes audit
• Standards: Statements comply with
ISA
• Disclosures: Inventory and
deprecia-tion methods are disclosed
• Tests: Fixed asset valuations are
veri-fied
• Opinion: An unqualified opinion is
is-sued
• Compliance: Annual control reviews are suggested
Review ISA Final Tests Issue Opinion
6.4 Practical Tips
• Monitor ISA updates
• Ensure complete disclosures
• Communicate findings clearly
Trang 87 Case Study: Hanoi Retail Co.
1
Hanoi Retail Co., a clothing retailer, is audited for its 2024 financial statements, focusing on cash and receivables
7.1 Audit Plan
• Risks: Cash theft and uncollectible receivables.
• Procedures: Bank reconciliations and aging analysis.
• Timeline: February 2025.
7.2 Findings
• Discrepancy: 30 million VND cash shortage due to unauthorized withdrawals.
• Correction: Adjust cash and implement dual authorization.
• Compliance: Verify receivables disclosures.
Table 4: Cash Discrepancy for Hanoi Retail Co
Item Ledger (VND) Actual (VND)
Cash 200,000,000 170,000,000
8 Best Practices
1
Effective auditing requires adherence to best practices, ensuring efficiency and reliability
8.1 Key Recommendations
• Continuous Learning: Stay updated on ISA and IFRS changes.
• Technology Use: Leverage audit software like ACL for efficiency.
• Client Engagement: Foster open communication to resolve issues.
8.2 Example Application
VinCafe Ltd adopted audit software, reducing testing time by 20%, and implemented quarterly ISA training for staff
9 Glossary 1
• Materiality: Significance of errors affecting decisions.
• Substantive Test: Verification of balances/transactions.
• Internal Control: Processes for reliable reporting.
Trang 9• Audit Opinion: Conclusion on statement fairness.
• Fraud: Intentional misstatement.
10 Student Exercises
1
1 Plan an audit for a manufacturer, identifying three inventory risks
2 Propose a journal entry for a 100 million VND inventory overstatement
3 Draft a disclosure note for Hanoi Retails cash controls
4 Analyze a ledger with a 50 million VND receivable error
5 Recommend two ISA compliance checks