Luận văn project’s name auditing accounts receivable in the process of auditing financial statement at thang long t d k auditing and valuation limited company

A significant bulk of the paper is dedicated to the process of anditing accounts receivable from customers in general, and the process of auditing accounts receivable from customers for

AUDITING FINANCIAL STATEMENT AT THANG LONG T.D.K

AUDITING AND VALUATION LIMITED COMPANY SUPFRVISOR: MA NGO TRI TRUNG

ABSTRACT

In this paper, we study the process of auditing accounts receivable from customers

at Thang Long - 1.D.K Company ‘Ihe objective of this research is to focus on Thang Long - T.D.K Company and a specific case of BeeaHIN Vietnam Co., Tid A

significant bulk of the paper is dedicated to the process of anditing accounts

receivable from customers in general, and the process of auditing accounts

receivable from customers for a specific customer in particular performed by Thang

Long ~ T.D.K Auditing and Valuation Co., Ltd in addition, interviewees and

researcher recognized the advantages of auditing customer reccivables from

customers at Thang Long —-TD.K Auditing and Valuation Co., Ltd as follows:

young, dynantic, enthusiastic and highly qualified statts, audit records are stored scientifically, as well as quality control is always focused In addition to the above

advantages, the author found some remaining limitations in the audit process at

‘Thang Long — 1.19.K Auditing and Valuation Co., Lid on human resources is limited before the workload in the market Anditing programs have nol been

designed and built specifically for each specific type of business, a3 well as the implementation of tests of detailed procedures sul largely depends on the auditor's judgment

LETTER OF DECLARATION

Lhereby declare that the graduation proiect: “ Auditing accounts receivable in the

process of auditing financial statement at Thang Tong - T.D.K Auditing and Valuation Limited Company ™ is the result of uy owa research and has never been

published in any work of other During the implemetation process of this project, 1

have serivusly (uken reseurch elbies; all findings of this projects are results of my

own research and surveys; all references in this project are cleatly cited according to regulations

I bear full responsibity for the fidelity of the number and data and other contents

ACKNOWLEDGEMENT

EL would like to express the special gratitude to Tnternalional School of Vietaarm

‘National University for supporting re all the time Especially, I want to show my

thank fullness to my teacher as well as his guide, Mr Xgo Tri Trung MA., who gave

me the golden opportunity and inspiration to do this wonderful project Thanks to his patien( guidance, enthusiastic encouragement, useful critiques, excellent advice and considerable assistance, | was given strengthoncd motivation in keeping my progress on schedule and broaden the horizon about anditing knowledge

Additionally, I would like to send my sincere thanks to Thang Long - T.D.K Company that facilitated me to experience and lear Tam so grateful for having a

chance to meet lots of professional people who also give advices, guidance and comments for my Lhesis

Table of Notations and Abbreviations

Error! Bookmark not defined

1 Overview of Financial stateraent audit

2 Overview of the ARC

3 Allowance for doubtful accounts s

4 Objectives of cuditing debt receivable from customers

6 Process of auditing ARC ín audidng financial statements

IL METHODOLOGY FRAMEWORK Error! Baotumark nat defined.0

Error! Bookmark not defined.0

Error! Baokmark not dened.2

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1 Introduction of ‘Thang Long -'1.D.& Company .2Birror! Bookmark not defined

2, Detailed audit program applied to auditing ARC at Thang Long - T.D.K Company 2Brrori B

3 Actual application of auditing process of ARC for BeeaKIN Vietnam Co., Ltd at

Thang Long - T.Ð.K Company

4, Comments on the process of auditing ARC at Thang Long - T.D.K Company

4.1 Advantages of auditing ARC at ‘Thang Long - T K Company

4.2 Some limitutivas in auditing ARC at Thaeg Long - T.D.K Company

V, CONCLUSION

REFERENCES

LIST OF TABLES

Tuble 2.1; Audit target table uf ARC

Table 2.2: The relatienship between audit risk and the mumber af audit evidence to

be collected

Table 2.3; Detailed inspection procedures for ARC in auditing financial statemenis

Table 41: Detailed audit program applied ta audiiing ARC at TOK

Table 4.2: The accounting policies applied consistently with the previous year

table 4.3: Customer accourts receivable turnover

Table 4.4: Analysis of valatility of accotmis receivable from customers

Table 4.5: Summary iabie af ARC

Table 4.6; Sumaary table of reciprocal accounts

Toble 4.7: The debt age analpsis

Table 4,8: Summary table of confirmation letter

Table 4.9: The receipt of maney received by the closing dare

Table 4.19: Money transfer documents

Table 4.11: Summary table of had debts

Table 4.12: The conversion of foreign currency exchange rates at the end of the

“fiscal year.

PART I: INFRODUCTIOX

1 RESEARCH NECESSITY

In the context of a transition to a market economy, implementing the policy

of diversifying forms of ownership, economic sectors are expanded and increasingly

play an important role in thẻ econumie development process of the country, the financial information of enterprises is used not only for reporling purposes lo state management agencies for inspection and approval bat also for investors and

business managers to exploit and use for economic decisions

Meeting the above requirements, audit activities come into being and become

an indispensable and important part of the life of economic activities Auditing increases the credibility of financial information, contributing to healthy economic

relations Based on the audit results, audited financial report users have accurate and

objective information, which can properly assess the financial situation as well as

the performance of the business lu addition to the main objective of giving opinions on financial statements, auditors, through (he audil process, it is possible to

make recommendations to help coterpriscs complete the control system, improve

efficiency in financial management in particular a3 well as business operations in general

In particular, auditing financial statements is a typical type of audit, in the information on the financial statements, the accounts receivable is of importance as

it affects the key indicators on the financial statemems Accounts receivable is

frequently the largest asset that a company has, so auditors tend to spend a considerable amount of time gaining assurance that the amount of the stated asset is

reasonable Therefore, auditing accounts receivable is an important part of the financial statement audit process Recognizing the importance of auditing accounts

receivable in the auditing process of financial statements, I decided Lo study the

“Audiling

topi

ounls receivable in the process of auditing financial statement at

Thang Long - T.D.K Company”

2, RESEARCH PURPOSE

To systematize the theoretical basis for the auditing process of ARC in the

auditing process of financial statement

Find our about Thang Long - T.D.K Company, study the auditing process of ARC at TK and apply this process to a real customer,

Draw practical experience for yourself about the process of auditing ARC in

the auditing process of financial statemems audited by Thang Long - T.DK

Company

3 RESEARCH OBJECTIVE AND SCOPE

The objective of this thesis is to focus on Thang Long - P.L.K Company and

a specific case of BeeaHN Vietnam Co., Ltd, researcher requested to mecl the auditor trom Thang Long - T.D.K Company and enquire ahout how Thang Long -

TDK Company performa auditing ARC for BeeaHN Vietnam Co Ltd,

specifically:

Scope of content: Due to limited time, the topic does not study the entire

accounls receivable audit process, only focuses on auditing ARC in the financial

statement for a specific case of manufaciuring company al Thang Long - T-D.K

Company

4, RESEARCH QUESTION

In order to have more understanding about the process of auditing ARC al Thang

Long - T.D.K Company, the following research questions were used as a ground basis for designing the interview questions and as an underlying research objective

throughout the research

1.Has the company designed a general ARC audit process for all types of businesses

or has it built specific ARC audit process for each typical business type? How is the

process of auditing ARC perforned ar Thang Long - T.D.K Company?

2 What difficulties has the company been having in the process of auditing ARC?

The specific interview questions outline and how they were analyzed will be included in the Methadolugy section

5 FACILITIES AND DIFFICULTIES OF THE RESEARCHING

we

PROCESS

In the process of implementing the thesis, the problem of selecting a practical, reasonable and feasible topic in student’s capacity was a first challenging task 1

encountered as il plays a key role in determining the success of a research, The next

difficulty is the search for materials as well as self-research skills Online resources

are becoming more and more diverse and plentiful, but difficult to verify ia terms of

precision, which is an essential for research In addition, finding legitimate, trustworthy, and scholarly sources, related to research topics, sometimes quite

cxpensive for students In particular, finding the appropriate with in-depth

knowledge interviewees for the research was one of the challenges to reach the

feasibility in studied results Last but not least, assigning the works to ensure the completion of work on schedule was a problem that Í encountered in the process of

ial slalement The remaining parl of the paper

is broadiy divided into four parts (sections 2 to 5} Section 2 provides theoretical

basis for audiling ARC in the process of auditing financial statements Section 3

describes the methodological framework applied for the purpose of answering those

research questions The semi-structured interview method was used in this research

through two forms, which are the direct communications and indircet inlerviews via e-mail and survey This is also where the interview questions were designed and the

method of its analysis are included Section 4, which constitutes the major part of

this paper, presents the Findings and Diseussions that results from the semi-

structured interviews to clarity how ‘thang Long - ‘1.D.K Company performs the

audit of ARC at a specific case of BeeaHN Vietnam Co., Ltd, outstanding

advantages as well as limitations in the process of auditing ARC at Thang Long -

T.DEK Company Finally, section 5 concludes the research and recommendations to

improve ARC audil process at Thang Long - T.D-K Company.

PART EI: LITERECTURE REVIEW

1 Overview ot financial statement audit:

A financial statement audit is the examination of an entity's financial statements and

accompanying disclosures by an independent auditor, The result of this examination

is a report by the auditor, attesting to the fairness of presentation of the financial

statements and related disclosures, The auditor's report must accompany the

financial statements when they are issued to the intended recipients (Steven Bragg, 2019), The purpose of a financial statement audit is to add credibility to the reported

financial posilion and performance of a business (Steven Bragg, 209) Audits have

become increasingly common as the complexity of the two primary accounting

frameworks, Generally Accepted Accounting Principles and International Financial

Reporting Standards, have increased, and because there have been an ongoing series

of disclosures of fraudulent reporting by major companies (Steven Bragg, 2019)

2, Overview of the ARC:

ARC primacily represents loans to customers which are included in accrued interest and accounts receivable on the Consolidated Balance Sheets

(csimarket.com, 2019) ARC ars amounts owed by customers for goods and services a company allowed the customer ta purchase on credit

(investinganswers.com, 2019)

Companies record accounts receivable as assets on their balance sheets siace there is

a legal cbligation for the customer to pay the debt Furthermore, accounts receivable are current assets, meaning the account balance is due from the debtor in one year or less If a

company has receivables, this means it has made a sale on credit hut has yet to collect the

raoney from the purchaser (Will Keaton, 2019)

Accounts receivable is an important factor in a company’s working capital If

it's too high, the company may be Jax in colecti

ig what's awed Loo it and may soon

be struggling to find the cash to pay the bills; if it’s too Low, the company may be

unwisely harming customer relationships or not offering competitive payment

terms In general, accounts receivable leciels correspond to changes in sales levels

(investinganswers.com, 2019)

Users of financial statements often rely on the relationship between assets and liabilifies to assess the solvency of the business Therefore, this is the object to

use inflated procedure compared to reality to increase the solvency of the business

Tn addition, ARC are closely related to business results, so there is always the

possibility that enterprises will record additionally to increase their profit and revenue,

In addition, ARC also have indirect relationship with some accounts such as

corporate income tax when it is the basia for setting up doubtful debts provisians,

thus affecting financial expenses and VAT output

‘The provision for doubttul debts is the estimated amount of bad debt that will

arise from accounts receivable that have been jssued but not yet collected 11 is

identical to the allowance for doubtful accounts (accountingtools.com, 2018) The provision for doubtful debts are difficult to increase the cost of enterprises in the

provisioning period, thus reducing the profit of the reporting period

Most of the proceeds of the business are related to ARC, so fraud is easily

generated from these amoumls

3 Allowance for doubtful accounts:

Allowance for doubtful accounts, also called the allowence for uncollectible accounts, is a contra asset account that records an estimate of the accounts receivable that will not be collected In other words, it’s an account

used to discount the accounts receivable account and kecp track of the customers who will probably not pay their current balances (myaccountingcourse.com,

2019)

The allowance for doublful accounts represents management's best estimate

of the amount of accounts receivable that will not be paid by customers {accountingtools.com, 2018),

4, Objectives of auditing ARC:

Due to its extremely important nature and role, ARC are always items that many

people are interested in and auditing this iter is an important part in financial statement audit

Table 2.1: Audit target table of ARC

5, Frand and errors that may occur for bad debts

Receivables from custumers ure important items on financial statements and

are also items with many frauds aad errors Here are some common mistakes for

this iter:

- There are no specific, or not updated, credit policies with the same

customer but follow many subjects

~ No end-of-term reconciliation for large receivables, ar unspecified ectors

~ Recognition of revere and receivables not in the accounting period,

recognition of victual receivables as well as creation of new customers in the system

are not fully teviewed

- Receivables are not clear objects, do net accurately monitor short-term and long-term receivables

- No provision has been made for the accounts receivable which are overdue

or have no recovery abilily

- No revaluation of foreign currency receivables at the end of the period has

been conducted

6 Process of auditing ARC in auditing financial statements,

As part of the financial statement audit process, the audit of ARC contains many high potential risks, requiring the design and application of audit procedures

so that the risk of detection is lowest, to ensure the cffectiveness and effectiveness

of each audit, as well as to gather sufficient evidence to serve as an evidence for audilors' opinions oa the truthfulness and reasonableness of the item in particular and general financial statements The audit is usually conducted according tw the

usual process, including three stages: preparing audits, performing audits and

ending audits

+ Stage of auditing preparation:

‘The phase of receivables from customers audit preparation consists of two main

steps: gencral audit planning and audit progran design, including the following steps:

General audit planning

During this period, auditors and auditing companies must perform the

following major steps

Diagram 1.3: ‘The main work steps in the audit preparation stage

The audit process begins when an auditor and an auditing company receive a

customer On the basis of identifying the customers to serve, auditors will conduct

the necessary work to prepare for the audit plan ineluding: assessing the ability of new customers to accept and reception customers of existing customers, identify the

audit rcasoms of the customer company, select audit staff, preliminary agreement

with customers and sign an audit contract

Evaluate existing customers

acceplability and continuation of new customers lo assess, consider whether

to accept or continue a customer to increase the risk for auditing activities of

auditors or negatively affect the repulation and image of the auditing company,

auditors must collect and select raultiple sources of infurmation ftom the involved Parties in the business Por cxisting customers, auditors ‘need to update new

information about customers, consider what additional risks the current year may

cause auditors and auditing companies to stop providing good services? For new customers, auditors need Lo consider the reasons for selecting customers’ audits

determine the abilit ty to accept audits, assess the qualily contro! system and the

integcity of the buard of directors, contact with the previous auditor to collect information about management's integrity, disagreements between the two sides,

other important issues and why the change of auditors Through that information,

the auditor will synthesize and consider accepting an audit contract

Get the audit reason of customer company based on the situation of

production and business activities, the ability of the company through direct

Interviews with customer management, or based on the experience of previous audits (for existing customers) to make rational decision in signing am audit contract

and designing appropriate audit methods At the saine time, the audilor must gather more information during ihe audit process to understand more about the reasons for

the audit of the customer, Through this work step, the audiling company needs to

estimate the complexity of the audit, thereby facilitating the selection of slaif to

perform the andit at the next stages

Select the audit staff in the process of selocting staff, auditing companies

need to consider three main issues:

Selecting auditors with knowledge and experience in the business lines of customers, avoid changing auditors in audits for a customer for many years, and the

audit team has people wha are able (o supervise employees who are not experienced

in the profession

On the other hand, in many cases, it is necessary to have a policy of circulating auditors among customers to avoid a trail test or an influence on objectivity and independence

Preliminary agreememt with customers and signed an audit cuntract aller the customer and the audiling company have agreed to select, exchange and agree on some issues such as the purpose and scope of the audit, ihe provision of necessary documents On that basis, both parties will expedite the signing of an audit

contract This is the last step in the audit preparation phase that the auditing coimpany must perform According to Auditing Standard No 210: "An audit contract must be made and signed officially before conducting the audit to protect the interests of customers aud the auditing coumpany" That is the official agreement between the customer and the Auditing Company about the implementation of the

audit and other services, At the same time, the audit contract will be a legal basis for

auditors to take the next steps of the audit, ensuring an audit is curried out

Step 2: Collect basic information

Afier signing the contract, the auditor learns about the business and business activities of the customer such as: general knowledge about the economy, understanding of the field of operation, technology transmission line, structure organizing, reviewing the results of the previous andit and general audit records, to monitor the company's policies, the nature of the data as well as their Muetuatins in

financial statements, dirccl ubservalion of production and business activities of

customers to understand the business and production process, initial judgments on manzgement style, organizational structure and organization of information systems

in units ., learn about accounting system, ICS for ARC and parties related to planning audit procedures appropriate to the operational characteristics of

customers, helping auditors identify high risk areas to take appropriate auditing measures and implement analysis procedures to determine the amount of work to be

đong

For ARC, information collection is usually conducted through:

Auditors can determine the importance of receivables from customers by finding out the business lines of customers For enterprises with accounts receivable structure accounting for a lange proportion of total assets, auditors need to pay attention to the honest, complete and reasonable reflection of customer receivables,

Auditors can contact the predecessor auditors (for existing customers) or review the previous year audit records (for existing customers) to collect basic

information about the level of error of enterprises last ycar with ARC.

Auditors need to understand changes in ARC, changes of regular customers,

or new customers, i1 previous years

Auditors need Lo identify related parties with enterprises This is an important step to collect information, which is lu collect ihe relationship between the board of directors, the chief accountant with customers, supplicrs, banks, credit units, etc

Through interviews and Assessing the relationship can give initial comments about

potential risks that may occur with the accounts reecivable accounts of enterprises

Finally, auditor needs to collect accounting documents and data provided by the chief

surdani GỀ customers such as: BS, sales log, cash register, account book

131, to conduct preliminary analysis

Step 3: Gather information about customers! legal obligations

Collected information helps auditors understand the aspects of the business operations of customers and information on {egal obligativns helps audivors capture

the legal processes that affect the business activities include:

+ Business registration liconsc and establishment license to collect

information about customers' business areas

+ Charter of the company to grasp information about organizational structure,

‘functions, duties of departments, procedures for issuing shares and bonds

* Financial statements, anditing reports, inspection reports or inspection

reperis in fhe ciwrent year or im previous years, understanding customers’

development trends, becoming more aware of the operational status of units and

expected inspection direction

» Gathering minutes of shareholders’ meeting, board of directors, and Board

of Directors holding important information such as dividend announcement,

consolidation, dissolution of affiliated units, approval of sale and purchase

+ Collecting contracts and other important commitments: helping auditors to understand their main business activities

Step 4: Perform analysis procedures

Definition: According to Vietnam Auditing Standard No 520, analytical

procedures are understood as the evaluation of financial information by analyzing

‘the reasonable relationship hetween financial and non-financiai data The analytical procedure also includes an investigation, when necessary, of changes or relationships identified as inconsistent with other relevant information or with

significant differences with values expected

The analytical procedure is used at this stage lo collect information about important changes in accounting or business operations of customers that have just

taken place since the last audit and alse help auditing The members detect the problems and the ability of continuous operation of customers ‘The analytical

procedures usexl by auditors when auditing the ARC include two basic types:

horizonral analysis and vertical analysis

Ulorizontal analysis (trend analysiy): is the analysis hased on comparing the

values of the same indicatur on the financial statements Specifically, for the ARC, the auditors conduct a comparison of the data of customer receivables of this period with the previous period, thereby, the auditors can sce the abnormal Ductuations of items and identify issues of concern, compare the criteria of the client company with the overall industry target, and compare the actual customer receivables with

the estimated or estimated numbers of auditor

Vertical analysis (rate analysis): is the analysis based on comparing the

correlation ratios of different indicators and items on the financial statements, the

In the

ratio of quick solvency and solvency Current, rate of capital structure,

process of auditing customer debt items, anditors often use some of the following rates;

Current payment ratio = Short-term assets / Short-term liabilities

In particular, short-term agsets include ARC The analysis of rates will help

auditors discover some issues related to customer receivables Significant increase

or decrease of these rates will indicate issues of completeness and existence of this item Besides, the rates are also affected by changes in some other assets (short-term

cash and assets).

When auditing the ARC, auditors need io pay attention to the ratio of bad debts or overdue debts or irrecoverable debts on the total revenue, the percentage of

Tetutned goods ur deductions Trade discount, payment discount In addition, the auditor is also interested in the target turnover Lumnover time:

Receivables Turnover = Net Revenue / Average balance of receivables

‘The accounts receivable turnover cvefficient shows the relationship between net revenue and customer receivables Tt reflects the rule al which accounts are collected from customers into cash The higher the wenover of receivables, lhe

faster the recovery of receivables is However, if the rotation is too high, it also

means a short-term payment and may attect the volume of product consumption

The application af analytical procedures not only helps auditor realize the volatile situation and the key nuuure of the item but also estimates the amount of

work ta be dene later

Step 5: Evaluate the materiality and audit risk of ARC:

Evatuate materiatitp:

Materiality is the threshold above which missing ot incorrect information in

financial statements is considcred to have an impact on the decision making of users Materiality is sometimes construed in terms of net impact on reported profits,

or the percentage or dollar change in a specific line item in the Snancial statements Step 1: Select criteria to estimate materiality:

Hased on the characteristics of the production and business activities of the customers, the auditors will select the target (revenue, equity, total assets, expenses)

to estimate the initial materiality level for the entire financial statements Indicators for evaluating according to financial principles (financial situation, operating

results, cash flow), characleristics and industries of units and units, as well as farms

of investment and ownership

Step 2: Determine the overall materiality:

Auditors will rely on the evaluation of the customer's ICS and their judgment to

select the ratio used to estimate a certain material level in accordance with each

criterion However, that rate must be within the scope of regulation:

- Profit before tax: 5% -L0%)

- Revenue: 0.5% « 3%;

» Owner's equity: 1% -5%3

- Total assets: 1% -2%,

Step 3: Deterniine performance materiality:

Performance materiality is as the amount(s) set by auditors at below overall materiality fo reduce to an appropriately iow level the probability that the aggregate

of uncotrected and undetected misstatements exceeds overall materiality Jt sets a numerical level which helps guide auditors to do enough work (but, importantly, not too much) to support their audit opinion It recognises that if auditors simply applied the overall materiality throughout the planning and fieldwork stages they would be taking an undue risk that maierial missiatements were not detected by their audil work It is determined by the formula:

Performance Materiality = Overall Materiality x ratio used to estimate Performance Materiality (60% -75%)

Step 4: Determine identified misstatements:

Auditors will determine the level of omission and cafculated according to the formula: Identified Misstatements ~ Performance Materiality = rate used to

estintate Identified Misstatements d (04%),

Avsessment of andit risks:

According to the definition of IGA 25 intemational auditing principles:

"Auditing risks are the risks that auditors may have when making unwarranted

remarks about financial information and that is material mistatement” Based on the materiality of allocating for the ARC, the auditor will design the audit procedures

and build an auditing program suitable for this item, auditor needs ta assess the following types of risks:

Inherent risk (£8): Inherent risk is the probability of loss based on the nature

of an organization's business, without any changes to the existing environment The

concept can be applied to the financial statements of an organization, where

inherent risk is considered to be the risk of misstatement due to existing

transactional errors or fraud The misstatement may be present in the financial

statements or in the accompanying disclosures This risk may be assessed by outside auditors as part of their audit of the financial statements af a business

Control risk (CR): Control risk is the probability that financial statements are

materially misstated, due to failures in the system of controls used by a business When there are significant control tailures, a husiness is more likely to experience

undocumented asset losses, which mean that its financial statements may reveal a

profit when there is actually a loss The auditor assesses the control risk for the

account receivable from customers through understanding the customer's ICS for this item on the control environment, the level of the accountant, the estublishment

and implementation of general salcs processes, lhe regulation of reconciliation of debt balances at the end of the period

Detection risk (OR): Detection risk is the possibility that an auditor Will not

locate 4 material misstaternent in a client's financial statements via audit procedures This is particularly likely when there are several misstatements that are individually immaterial, hut which are material! when aggregated The outcome is that an auditor

would conclude that there is no materiel misstatement of the financial statements

when such an error acinatly exists, which would then lead to the issuance of an

erroneously favorable audit opinion

The desired andit risk level is determined during the andit planning phase

according fo the following model:

DAR = IR * CR * DR

In which: DAR: Auditing risk

TR: Potential risks CR: Control risk DR: Risk of detection

Depending an the level of trust of external users with the financial Statements, as well as the ability of customers to face financial difficulties aller the audit report is announced as bigh or low, the auditor will assess the risk of audits for the ¢ntire financial statements and for cuslomers' accounts receivable is low or high

According to IAS International Auditing Standard No 320, materiality and

risk have an opposite relationship, meaning that the higher the risk level, the lower the audit risk and vice versa On the basis of considering this relationship, auditors will determine the content, schedule and scope of audit procedures appropriately

Therefore, audilors necd to deeply understand this relationship to collect high-value

auditing evidence, reducing detection risks tc acceptable levels In fact, materiality deierminalion and audit risk is a complicated procedure that requires the

qualifications and expericnee of the auditor's judgment

Table 2.2: The relationship between audit risk and the number of audit

Step 6: Research and evaluation of ICSs

Researching and evaluating the ICS of customers for ARC is a very important work step that auditors need to perform when conducting audits of this item uot only lo determine the property sffect of the ICS but also serves as a basis

for determining the scope of implementing basic tests on the balance and operations

of the unit If the ICS for this item is effective, the control risk is assessed at a low

level, dhe number of audit evidence collecied will decrease and vice versa AL Ihal

time, auditors will focus on aad control tests and reduce basic tests

or the assessment of the ICS of ARC, the auditors perform the following

synebronizalion of accounting bouks, dhe numbering before the documents, .),

identify specific control processes, assess disadvantages of ICSs This risk can be

assessed by high, medium and low auditors

Emplemcnt control procedures to collect audit evidence about the existence of ICSs to reduce basic rests on balances and operations of ARC

Auditors set up an assessment of ICSs including: audit objectives, infonmation describing the situation of customer receivables, the nature and

importance of corresponding risks, design principles and operating procedures to

control and evaluate the ICS Auditors can rely on a number of criteria such as: The

existence and continuous operation of the process of agreed procedures for auditing into documents, effective operational contral procedures, numbers Is it correct, the documens are approved according to regulations,

After evaluating the existence and effectiveness of the ICS, the auditor will

conduct a general audit plan and audit program design

*È Stage of audit performance

Step 1: Collect valid audit evidence

- Perform control tests

Control testing is an audit to collect audit evidence about the design of the

suilubility and effective operation of the accounting system and the ICS The impfementation of this work helps auditors have initial assessment of the reliability

of the ICS, the compliance with regimes, accounting standards ay well as the provisions of the Accounting Law of customers for ARC so that the hasic tests

can be identified Here are sore common control tests for ARC:

+ Auditors select a sample of transactions related to receivables in the reference periad on original documemts

* Select the forms of invoices to be compared to the accounting books This

rocednte is to check the completeness and accuracy of receivables

* Choose a comparison sample between the relevant documents: documents related to each other such as vouchers of goods circulation with invoices (delivery

notes with invoices, liquidation records with invoices, invoices with receipts .)

Perform analytical procedures for the account receivable from, customers:

During the audit phase, the analytical procedure is applied for the purpase of

considering the reasonableness of the balance of receivables between the current

fiscal year and the previcus years, between the data of the application taste with the number of the whole industry Analysis procedures include:

Horizontal analysis (trend analysis}: is the consideration of the volatility of receivables between this period and the previous period ta sce the volatility of accounts receivable in accordance with the current business situation of unit not

Vertical analysis (rate analysis): is an analysis based on the comparison of changes in the proportion of each part in the overall seale Some rates are used in

analyzing receivables:

Calculating the gross profit ratio on the revenue of the customer company and comparing this ratio wilh the data of the previous year or industry shows the fluctuation of receivables This fluctuation can be attributed to the business

operation of the unit, changes in the price policy, or from errors in accounting data

Receivables tumover = Not revenue / average receivables

The average receivables = [Begining receivables + ending of receivables] /2

Auditors use this ratio compared to industry figures or previous year data to

understand the business activities of the unit as well as predict possible errors that occur when analyzing ratc fluctuations such as: Changes in the selling-resisting,

policy of the unit: easing or narrowing the selling-resisling policy, the selling-off

time, the possibility of outstanding debts to be collected from customers, thus assessing the making of bad receivable reserves reasonable, duplicate records or

omissions of customer receivables

Table 2.3: Detailed inspection procedures for ARC in anditing financial

statements

Test of detail ””””” ‘Auditing objectives

balance of ARC and provision for

doubtful debts with the balance ai the

end of the previous year

| Check the BS of detailed debt analysis

j tor

|- Check the total number on the table

| and compare it with the details book

| and ledger ofthe ARC,

- Reconcile the balance details of the

table with the details book of related

customers pledged and mortgaged

: from customers are properly classified

of accounts reeciyables from customers |

Step 2: Review and bundle the findings in the audit

After conducting a detailed inspection procedure, obtaining audit evidence

about the item to be collected from customers, the auditor will review the work document, assess whether the evidence collected is complete, and appropriate to form an audit opinion or not Thereby, the auditor also assesses whether the

financial slalements of the unit are seriously flawed, For the differences and

material mistatement, the auditor will make the adjustment accounting As for smalt

differences, the auditor will make a summary of these differences for evaluation Lf critical, then cautinue to make adjustments

+ End of audil phase:

After completing the audit phase of accounts receivables of customers, the

auditors perform the synthesis and evaluation of the collected evidence to review and make an audit conclusion about this item Evaluate the adequacy and appropriateness of the audit evidence oblained to make conclusions on the accounts receivable of the auditor

Auditors conduct synthesize and evaluate errors detected during the auditing

process and at the same time, auditors shall make: adjustment entries (if any) to this item

With this final stage, the auditor proceeds to make recommendations that raise the limitations that exist for the ICS and the accomnting of accounts receivable

as well as advice how to hundle it in accordance with the current regulations

PART HI METHODOLOGICAL FRAMEWORK

1, Research Methods

This section of the papor discusses the research methods used and justifies

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the suitability of the inethads ta the research objective Qualitative research methods were used in this research focuses on obtaining multiple forms of data,

such as intervicws, emails and documents The qualitative research methods allow

for in-depth and further probing and questioning of respondents based on their responses, whore the interviewer/resarcher also tries to understand their motivation and feelings Refering (a Vietnamese Accounting Standards, Auditing Standards

to serve as a basis for the rationablc as well as the actual research process of the audit process receivables from customers at the company Research auditing records

of previous yeurs lo grasp the process of auditing ARC at Thang Long - T.DK Company The interviewees are practitioners working in Anditing Department 1 at Thang Long - T.D.K Company All interviews were conducted within 2 months

consistently across all 2 interviewees Interview resulis were collected, transcribed,

and analyzed once completed Opinions of ail interviewees were studied in-depth and conclusions were drawn It is believed that semi-structured interview combined with a number of additional documents of information as well as information via email will provide valuable insight to understand the qualitative nature of research

topics Although these methods of collecting information have their own benefits

and limitations Face-to-face interview offers an advantage over self-completion

methods, such as surveys, heeanse the respondent is more Wkely to give their full

attention and the interviewer can deduce the quality of each response Indirect

interviews through Email will take a Jong time to wait, but the accuracy and the results are uot different because the information received by the individual interviewed and kept stricily confidential,

2 Interviews Design aud Analysis:

{n an attempt to make each interviewee feel as comfortable as possible, he interviewees were sent a short questionnaize of the topic and the main objective of the research prior to the real interview The questions were designed with

considerable flexibility allowed and asked participants with the purpose of exploring the points of view of the interviewees to a large cxtent However, a broad

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siuclure of questionnaire was still in place The folowing main 3 topics were

l Giscussed, however, not necessarily in the given order:

1 The first question clarifies that the company has designed a general ARC audit

process for all types of businesses or has built specific ARC audit process for each typical business type How is the process of auditing ARC performed at Thang Long - T.D.K Company?

2 With the second question, interviewees were asked about what kind of test of detailed procedures are often applied in the auditing ARC at Thang Long - T.D.K

Company

3 Materiality determination and evaluation of audit risk was then discussed Auditors were asked about criteria and used rate in estimating overall materialily

and peclormance malerialily

4 In case of applying the audit process of ARC at a specific company BeealIN

Vietnam Co., Ltd, the auditors were asked about the business activitics, unusual events as well as issues related to audit objectives

3 Last but not least, che remaining limitations in the auditing process in general and

the ARC audit in particular are exploited from auditors at Thang Long - T.D.K Company Since then, the auditors were asked about the recommendations to

improve these problems

3 Methodology limitations:

Due to the limitations in research scope, available time and resources,

Research methods have not been used optimally for the purpose of this research

Qualilative research methods were used in this research focuses on obtaining toultiple forms of data, such as interviews, emails and documents conducted among auditors who have high level of credibility and experience in accounting and

auditing ficld, For the topic which requires high practicality, using these methods

might not fully ascertain the depth of the problem, as well as might not cover all the aspects of it, and the analysts may face the risk of missing crucial parts of information, observing and being directly involved in an andit of customer

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receivables is csscntial and useful for research In addition, due to the limitation of

participants, the research has not yet exploited all outstanding issues in the process

of auditing ARC in the financial satement as well as the lack of diversity of

recommendations to improve these issues

4, Interviewee’s Profiles

The researched sample consists of two interviewees who are experts in professional

accounting and auditing Interviewee 1 is the Elead of Financial Auditing

Department | at Thang Long - 1.D.K Company He worked with diverse types of Victhamese companies, foreign companies, joint ventures, among others, so he is

well-inormed about environmental business I was honored to have an opportunity

to hold a conversation with him at Thang Long - T.D.K Company, so that he could

openly express his perspective about ARC audit process at Thang Long - TD.K Company Thus, the interview brought important knowledge and experience

insights for this research Interviewee 2 is auditor ftom Thang Long - TDK

Company as well Having good command in providing auditing services for many

type of businesses in Vietnam, the interviewee’s perception of accounting and

auditing was in-depth and comprehensive.He shared apenly about the research-

related information

PART IV: FINDINGS AND DISCUSSIONS

1, Introduction of Thang Long - T.D.K Company:

T.D.K was granted a Business Registration License by Hanoi Department of

Planning and Investment at: 0104779158 on June 29, 2010

The company incorporated by two businesses is:

Thang Long Auditing and Consulting Limitcd Company was established in

2003 under License number 0103002379

T.D.K Software Auditing and Service Limited Company was established in

2002 under license No 4102008644

Thang Long - TDK Auditing and Valuation Limited company is one of the 7 largest auditing firms in Vietnam with a large number of auditors, appraisers,

technicians with more than 13 years of expericnce in audiling, parlicipaling in

auditing services, valuing many businesses and many projects of all economic

sectors Their customers varies in all economic sectors andmany different areas across the country With the dedication to customers, and the accumulated expertise

in the field, they always believe in their ability to meet the requirements and

expectations of the quatity of services provided

Employees’ standard level is their property All iheir employees acquired

University Degree and above University Degree in majors ; economy, finance,

audit, law, construction, irrigation, information technology trained in Vietnam and

overseas with 189 employees, including 23 auditors, 7 National Appraisers which

are trained again with advanced courses annually and update financial accouting,

auditing, tax, system,

The company has a Headquarter in Hanoi, 7 agencies in Ho Chi Minh City,

Da Nang, Lang Son, Hanoi, Hai Phong and many representative offices in Ba Vi,

Hung Yen, Hai Duong, Quang Nam, Queng Binh, Cao Bang, Ha Tish, Hanoi, Vinh

Phuc, Thai Binh, Lang Son, Ha Dong, Son La, Quang Ngai, Lai Chan, Hoa Binh,

Tuyen Quang, Thanh Hoa, Phu Tho, Ca Mau, Bac Niah ‘The Company was and is

providing above services for thousands of customers of many kinds of business in

all areas and parts of Vietnam

The company is one of eight members of VACPA participating in

researching and developing independent uuditing law No 67/201 VQH12; is one of

6 members of the VACPA involved in the development and revision of Vietaar

Auditing Standard No 1000 issued in 2015 and the construction of a sample audit

dossier applied for inspection Maths settlement report of completed projects in

2016

Tn the field of training, T.D.K is one of the few auditing companies licensed

by the Hanoi Department of Education ard Training,

Currently, Thang Long - f.Ð.K Company has designed a detailed audit

program for all items on the financial statements However, for cach customer,

based on the information and documents collected, the auditor will make a more detailed audit plan for each item with specific steps

In the audit program of Thang Long - T.D.K Company for ARC in particular

and other items on the financial statements in general, clearly defined objectives and

tasks to be performed to audit the item (the analysis procedures, basic testing,

sample size selection applicable to each item), Each item on the financial

Statements is evaluated for risk, thereby giving appropriate solutions to detect and prevent potential risks in the financial statements

2 Detailed audit program applied to auditing ARC at Thang Long - TAK

Content: AUDIT PROGRAM OF SHORT

TERM/ LONG TERM ARC

Ensure ali short-tetm / long-term accounts receivable are available; owned by

the enterprise, recorded fully accurately, in the right accounting perind and at

appropriate value, presented in ihe financial statements in accordance with the framework for making and presenting the applied Gnancial sustements

Risk of material mistake accounts: