According to Vietnam’s Securities Law, financial statements of listed companies on stock market have to be audited annually by independent auditors in order to enhance honesty, rationali
Trang 1NATIONAL ECONOMIC UNIVERSITY
‐‐‐‐‐‐‐‐*‐‐‐‐‐‐‐‐
Nguyen thi my
Thesis topic: Improving the audit of financial
statements of listed firms
in the Vietnam Stock Market
Major in Accounting (Accounting, Auditing and Analysis)
Code: 62.34.30.01
HA NOI, NAM 2012
Trang 2RESEARCH IS FINALIZED AT NATIONAL ECONOMIC UNIVERSITY
1 Prof Dr Nguyen Quang Quynh
2 Dr Nguyen Thi Phuong Hoa
STATE AUDIT OFFICE OF VIETNAM
NATIONAL ECONOMICS UNIVERSITY
FINANCI AL OF ACADEMY The thesis is protected and mark at the Council of the Stateat
Trang 3INTRODUCTION
1 The Urgency of the Topic:
Nowadays, many companies choose to expand the capital market through the Stock Exchange (stock market) which is a channel to attract capital potentially and effectively with the participation of both domestic and foreign investors Among the information provided on the stock market, accounting information is offered in the forms of financial statements (FS) which supply information and particularly play an important role: they have a great influence on the relationship between supply and demand of securities, are the motivation for the investors’ decision to buy or sell on the market after analyzing published financial statements One of the factors contributing to investors’ trust in published information of listed companies is financial auditing activities of these companies According to Vietnam’s Securities Law, financial statements of listed companies on stock market have to be audited annually by independent auditors in order to enhance honesty, rationality and legitimacy of public information of the organizations listed on the stock market
The stock market is still at the starting point and there are a lot of complicated changes: The rise in the number of listed companies has resulted in the diversification, abundance and complexities of commodity on the stock market In addition, listed companies also have to face the fact that the attraction and expansion
of capital markets is now very difficult because of both objective and subjective reasons This circumstance, along with the trend of world economic integration in general and audit in particular requires to specify arguments for auditing financial statements the listed companies and improve the quality of audit operation Recognizing the urgency mentioned above, the author confidently went into a
research thesis with the topic "Improving the audit of financial statements of listed
firms in the Vietnam Stock Market"
2 The Research Objectives:
This research specified the general theory of the stock market, activities of the listed companies on the stock market It researched and developed the theory of the financial audit for listed companies from other countries and the similar international experience that maybe applied to Vietnam On that basis, the thesis analyzed the current status of the financial audit of listed companies on the stock market, assessed the achievements, the existence and the cause of the limitations
in the audit of the financial statements from companies listed on Vietnam’s stock
Trang 4market From the theoretical and practical study, the authors pointed out the solutions and recommendations to improve financial audit of listed companies on the stock market
3 The Object and Scope of the Study:
In terms of the object researched, the thesis topic focused on researching financial auditing theory of the companies, and then deeply going into the audit of the financial statements of listed companies on the stock market
The scope of research topics focuses on the financial auditing operations of the joint stock companies listed on the stock market conducted by the independent auditing company
4 Research Methodology
On the basis of the methodology of dialectical materialism, the thread applied the common methods such as acquisition of information, synthesis, analysis, statistics, thereby making the basic case of audited financial statements from listed companies
on the stock market More specifically, on the basis of the accumulated knowledge in combination with the reference materials at home country and abroad in this field, the author analyzed and synthesized to complete general theory of auditing the financial statements of the listed companies on the stock market In practical study, topical application of specific methods are used such as do surveys, aggregate and analyze the situation of the audited financial statements of the companies listed on the
Vietnam’s stock market
5 The Structure of the Thesis
Besides the Introduction and Conclusion, the thesis consists of three chapters:
Chapter I: General Theory of the audit the financial statements of companies listed on the stock market;
Chapter II: Current situations of audit the financial statements of companies listed on the Vietnamese stock market;
Chapter III: The direction and complete solution for audit the financial statements of companies listed on the stock market in Vietnam
Trang 5CHAPTER I:
GENERAL THEORY OF THE AUDIT OF FINANCIAL STATEMENTS OF
THE COMPANIES LISTED ON THE STOCK MARKET 1.1 Stock market and those companies listed on the stock market with the management:
1.1.1 Overview about the stock exchanges:
Securities market plays an important role in capital market to raise the funds from each social saving capital to large capital long-term financing for enterprises, investment projects, economic organizations and the State to develop the production, strengthen the economy The stock market is the place that securities are issued and exchanged
1.1.2 The Company listed on the stock market:
Listed companies are issuers of securities on the stock market
Thus, the characteristics of the listed companies’ impact on the audit are reviewed on
a number of main aspects:
Firstly, listed companies are joint stock companies
Secondly, listed companies may issue securities under the two types of stocks and bonds to the public; the number of Shareholders in listed companies are quite complex and change from time to time, it is therefore difficult to control and manage; Thirdly, the capital raise of listed companies may be conducted under a variety of forms and highly effective: through bank loans and the stock market;
Fourthly, to the publicized information in general and financial information in particular from listed companies, it must comply with strict regulations on the financial and accounting regulations of the stock market;
Fifthly, when the securities listed on the stock market, the number and qualifications
of people interested in the financial information of the Listed companies are quite large and complicated;
Sixthly, the listed companies' operations will be managed closely from many legal systems that inside and outside the company;
Finally, business characteristics of the listed companies are complex and diverse Listed companies can participate in a variety of business activities (groups, corporations) lead to high risks in business and management
Trang 61.2 General theory of the audit of financial statements of companies listed on the stock market
1.2.1 The common features of the audit of financial statements of companies listed on the stock market
1.2.1.1 Overviews of the audit of financial statements:
“The audit of financial statements is to verify and express opinions on the financial statements of the unit by qualified auditors who have adequate expertise to follow the effective legal system."
1.2.1.2 Audit objects in the audit of financial statements of listed firms in the stock
market:
Financial statements of the listed companies must still meet the basic requirements of normal financial statements businesses about compliance guidelines, on how to establish, on the basis of forms, the type of report, about the time of filing the report
In addition, the operation characteristics of the listed companies lead to the specific characteristics of the financial statements of the listed companies:
First, the number and qualifications of those who are interested in information on the financial statements of the listed companies are diverse and complex;
Second, the complexity of preparing and presenting the financial statements of the listed companies with many industries and business areas;
Third, due to the number of shareholders of the listed companies which are large and continuously variable Therefore, the professional track and report of the details of equity according to the specific object on the accounting books are very difficult;
Fourth, a number of financial indicators appear only on the accounting books and financial statements of joint stock companies in general and Listed companies in particular;
Fifth, the Listed companies with many shareholders and constantly changing, it will affect the operation of the company (for example, when changing strategic shareholder or shareholders), and at the same time the distribution of profits therefore meets complicated;
Sixth, those listed companies always exist in many complex financial relationships, then to track and identify the stakeholders or to consolidate financial statements is very difficult;
Trang 7Seventh, the number and qualifications who are interested in information on the financial statements of the listed companies
The characteristics of the financial statements of the listed companies in the stock market above greatly impact on the audit of financial statements of listed firms in the stock market Specifically:
First, affect the planning of the audit;
Second, impact the auditing operation;
Third, affect the synthesis and report of audits (audit statement);
Fourth, influence to the responsibility of the auditors;
Fifth, the auditors have to conduct and review the semi-annual or quarter financial statements of those companies listed on the security exchange
The Approach method to the audit of financial statements of listed firms in the stock
market
1.2.1.3 for the companies listed on the stock market:
The audit approach to audit financial statements of the listed companies is risk-based approach (business risk of listed companies) and system-based approach (internal control system of listed companies)
1.2.1.4 The object of the audit of financial statements for the listed companies:
The overall objective of auditing the financial statements of the listed companies is to express a confirming opinion to the preparation and presentation of the financial statements of those listed companies on the basis of standards, the current or accepted accounting regime, the provisions of the Securities Commission and the relevant compliance with the true and fair view in all aspects of the information reflected on the financial statements
1.2.2 The process of auditing financial statements of companies listed on the
stock market:
• Step 1: The preparation stage of audits:
First: Prepare the audit plan
Second: Collect baseline information
Third: Crawl legal obligations
Fourth: Perform analytical procedures
Fifth: Assess significance and audit risk
Trang 8Sixth: Find out and evaluate internal control system
• Step 2: The period of performing audit
First: Implement the control experiment
Second: Perform analytical procedures
Third: Check the balance and the number of the incurred items in detail
• Step 3: The end of audit period
1.2.3 Auditing a number of features in the audit of financial statements of listed
companies:
First, audit the owner’s equity and funds
Second, audit the profits sharing
Third, audit the consolidated financial statements
The selection of the audit comes from the complexity and risk seriousness of the need for information of those interested to the content of the financial statements of the listed companies
1.3 International experience in the audit of financial statements of companies listed on the stock market:
About regulations for listed companies on the stock market
Requirements for financial statements of the listed companies on the stock market Approach to the audit of the financial statements of the listed companies on the stock market
Procedures of the audit of the financial statements of the listed companies on the stock market
Regarding the selection of auditing companies for the audit of the financial statements of the listed companies on the stock market
Trang 9Chart 1.3: The process of auditing the financial statements - The World Experience [50, page 62]
1 The risk assessment and the evaluation of potential customers
Acceptance
to the customer
Seeking completed and giving commitment to audit
2 Implementation of the overall analysis of the company, strategy,
environment
3 The risk assessment of client companies
4 Evaluation for control systems and related processes to identify
risks
9 Forming opinions, assessing the job quality and announcing
reviews for customers and users
8 Designing direct tests of the balance to reduce the risk of omitted
significant influence information
7 Risk assessment on the existence of the ability to ignore critical
information
6 Checking the operation of the control system in places that control systems reduce the ability to ignore critical information
5 Performing analytical procedures to determine the ability of the
account balance within the limits defined
Small account balance or non-risk on
possibility of omitted key information
The account balance level of risk on possibility of omitted significant influence information
Trang 10Lesson learned for the audit of financial statements of the listed companies on the stock market in Vietnam
First, establish the Quality Supervision Committee for Audit to audit of financial statements companies for listed companies
Second, construct the cross-checking mechanism between the auditing firms when auditing listed companies With quality control mechanism from the auditing companies (self-test, self-control) and external auditing companies (Supervision Committee, professional associations and other auditing firms);
Third, improve the legal basis for audit of financial statements of the listed companies
Fourth, thoroughly apply the approach to audit of financial statements of the listed companies in the direction of risk
Fifth, complete the financial statements of the listed companies
Trang 11CHAPTER 2 CURRENT SITUATIONS OF AUDITING THE FINANCIAL STATEMENTS
OF COMPANIES LISTED ON THE VIETNAMESE STOCK MARKET
NOWADAYS 2.1 The Characteristics of the Vietnam’s securities market and the companies listed on the Vietnam’s Stock market in relationship with the audit of financial statements:
2.1.1 The overview of Vietnam’s Securities market:
2.1.2 The companies listed on the Vietnam’s Stock market:
The foundation, development and specific requirements of the stock market and listed companies on this market have formed the characteristics when audit financial statements of the listed companies on the stock market The confusion of the correlations in the operation of the listed companies, the sensitive nature of the capital mobilization of the listed companies and especially the essential information’s transparency of listed companies are urgently required by investors and other interested groups of people
Due to the regulations on Vietnamese Stock Market, the vital conditions for the progress of being listed on Stock Exchange, Securities Trading Centers are stipulated
in details under the provisions of the Securities Act of 2006 and Decree No 14/2007/ND-CP, signed by the Prime Minister dated 19/1/2007 detailing the implementation of a number of articles of the Law on Securities
2.2 The situation of auditing the financial statements of companies listed on the Vietnam’s stock market:
2.2.1 General traits of the audited financial statements of companies listed on the stock market in Vietnam:
2.2.1.1 Comprehensive of the organization situation of current auditing financial statements in Vietnam:
Auditing financial statements is sector characterized by independent audit when independent audit are auditing organizations launched firstly at the beginning stage in Vietnam The advancement of the independent audit will be shown in Table 2.3
2.2.1.2 Characteristics of financial statements of listed companies compared to the audit of financial statements of companies listed on the Vietnamese stock market:
About the characteristics of financial statements of listed companies:
Trang 12Basically, the financial statements of those companies listed on Vietnamese stock market still have the same features as ones in the world However, based on the actual operation of the listed companies on the stock market, the financial statements of the listed companies have the specific following characteristics:
Firstly, there are 4 parts of financial statements: balance sheet, income statement, cash flow and notes of financial statements (report of the increase or decrease of equity is just a part of the notes to the financial statements, not separated as an independent report in financial statements);
Secondly, the content of establishment and presentation of financial statements in accordance with the State of Vietnam (Accounting Law, Accounting Standards and other legal documents of Vietnam);
Thirdly, the financial statements of the listed companies in Vietnamese stock market must meet the requirements specified by the State Securities Commission of Vietnam
2.2.1.3 The legal basis for the audit of financial statements of companies listed on the stock market Vietnam:
Figure 2.1: Summary of the direct legal basis for the activities of auditing the financial statements of the listed companies in Vietnam
The legal basis for
the auditing objects
The legal basis for the audited objects
The legal basis for the audit entity
Constitution of 1992 Constitution of 1992 Constitution of 1992
- The decrees and
circular guiding to the
accounting regime
‐ Decree No. 14/2007/ND‐
CP stipulates a number of articles of the Law on Securities
‐ Circular 09/2010/TT‐BTC guidance to publish information on the stock market
‐ International Standards on Auditing
‐ Standard on Auditing System of Vietnam
‐ Decision 89/2007/QD‐BTC
Trang 13To have the reliable data for a specific description on the audit situation of the
financial statements of the listed companies on the stock market and then give an
evaluation of the audited financial statements of listed companies, authors conducted
a review of audit records and participate in auditing the financial statements of the
listed companies in some auditing firms such as AASC, A&C – Hanoi branch,
Deloitte Vietnam, AASCN – Hanoi branch,… In particular, on the basis of the study,
by classified according to appropriate criteria, author proceeded to send the
questionnaires to the audited object and audit entity (listed companies and auditing
firms) For a survey to auditing firms, the author sent to the Director, the Head and
members that directly audit the financial statements of the listed companies
For a survey to listed companies, author sent to the Chief Accountant (or Chief
Financial Officer) or Supervisory Board or Board of Director In addition to direct
interviews, the authors sent questionnaires to 75 objects in auditing firms and 60
listed companies The results are shown in Table 2.4:
Table 2.4: Results from sent questionnaires
Total surveys were sent and interviewed
Total surveys collected back
%
market