14 IMPROVING THE AUDIT PROCESS AND AUDIT METHOD OF ACCOUNT PAYABLE TO SUPPLIERS

MINISTRY OF FINANCE ACADEMY OF FINANCE  NGUYEN QUOC HUNG GRADUATION THESIS MENTOR: Assoc Prof PhD Nguyen Trong Co Assoc Prof Ph.D Chuc Anh Tu IMPROVING THE AUDIT PROCESS AND AUDIT METHOD OF ACCOUNT PAYABLE TO SUPPLIERS IN FINANCIAL STATEMENTS AUDIT PERFORMED BY HA THANH AUDIT COMPANY LIMITED Major: Auditing Code: 18CL73403010155 HA NOI – 2022 MINISTRY OF FINANCE ACADEMY OF FINANCE  NGUYEN QUOC HUNG GRADUATION THESIS MENTOR: Assoc Prof PhD Nguyen Trong Co Assoc Prof Ph.D Chuc Anh Tu IMPROVING THE AUDIT PROCESS AND AUDIT METHOD OF ACCOUNT PAYABLE TO SUPPLIERS IN FINANCIAL STATEMENTS AUDIT PERFORMED BY HA THANH AUDIT COMPANY LIMITED Major: Auditing Code: 18CL73403010155 HA NOI – 2022 GUARANTEE I hereby declare that this is my own research work The data and results stated in the final thesis of this course are collected and quoted by me, absolutely not copied from any documents Author NGUYEN QUOC HUNG TABLE OF CONTENT COVER…………………………………………………………………………… ABBREVIATION LIST OF TABLE…………………………………………………………………v LIST OF ABBREVIATION BOD Board of Directors Co., Ltd Company Limited LIST OF TABLES INTRODUCTION 1.The urgent of the topic In the 4.0 industrial revolution, information of companies is not only served for the management of State agencies and internal users but also taken advantage of by other external users especially investors of joint-stock companies Therefore, obviously publicing financial statements and information are becoming more and more compulsory This increases a chance for audit services in general and external audit in particular to improve skyrocketing With a view to giving independent audit opinion of auditors about the faithfulness and appropriateness of material aspects of information represented in financial statements, external audit is taking an important part in completing and improving the audit process and audit method Among accouting sections in financial statement, account payable to suppliers is one of the most important section as it impacts directly on the liquidity and going concern of the company In reality, some companies record and manage that section wrongly or tend to hide the information to misrepresent the financial statement so auditing that section is significantly material in auditing financial statement Ha Thanh Audit Company Limited is not an elderly founded company so improving the audit process and audit method of audit especially account payable to suppliers is the considerably material which BOD should puts it to the top Due to the fact that company is not founded long ago and is not a big firm so audit process and audit method of Ha Thanh Audit Company Limited stil has a few weaknesses That may afffect company’ reputation and distract the attraction to potential clients With some reasons above and with the help of lecturers Assoc Prof PhD Nguyen Trong Co, Assoc Prof PhD Chuc Anh Tu and detailed from Ha Thanh Audit Company Limited , I choose the topic of my graduation thesis: “Improving the audit process and audit method of account payable to suppliers in Financial Statements Audit performed by Ha Thanh Audit Company Limited” 2 Research of objective First, systematize the main arguments and clarify the audit process and audit method of account payable to suppliers in the audit of financial statements performed by independent auditors Second, survey on the current state of the audit of account payable to suppliers in audit of financial statements performed by Ha Thanh Audit Company Limited Finally, assessing the current state of the audit process and audit method of account payable to suppliers in audit of financial statements performed by Ha Thanh Audit Company Limited, and suggesting some improvements 3 Research subjects and scope of research 3.1 Research subjects Sample process and method and implementation practice of the account payable to suppliers in the audit of financial statement performed by Ha Thanh Audit Company Limited 3.2 Research scope The scope of the study is the process and method of auditing account payable to suppliers in audit of financial statements performed by Ha Thanh Audit Company Limited Collected data are documents, audit records of account payable to suppliers in 2021 and ago 4 Research Methodology 4.1 Collect data Data is collected from information sources outside the company such as research projects, theses, reports, articles, etc related to the process and method of auditing account payable to suppliers in audit of financial statements performed by Ha Thanh Audit Company Limited Legal documents, charters and standards related to the audit of account payable to suppliers in financial statements audit of Vietnam Data collected from reports, documents and papers circulating in the company related to the audit of account payable to suppliers in Financial Statements Audit has been previously performed by Ha Thanh Audit Company Limited Data related to the topic from previous audits, comments, assessments, conclusions and audit reports on account payable to suppliers Other tables, procedures and regulations 4.2 Data prcocessing Analyze and process information based on obtained knowledge from the collected documents and data in order to create my own conclusions about the process and method of auditing account payable to suppliers in audit of financial statements performed by Ha Thanh Audit Company Limited After that, offer suggestions and recommendations for improving the Company's account payable to suppliers auditing procedure 5 The structure of the thesis The structure of the thesis: Introduction Chapter 1: Basic theories on the process and method of auditing account payable to suppliers in Financial Statements Audit performed by an independent auditing company Chapter 2: Acctual status of the process and method of auditing account payable to suppliers system in Financial Statement Audit performed by Ha Thanh Audit Company Limited Chapter 3: Improvements to process and method of auditing account payable to suppliers in Financial Statements Audit performed by Ha Thanh Audit Company Limited CHAPTER 1: BASIC THEORIES ON THE PROCESS AND METHOD OF AUDITING ACCOUNT PAYABLE TO SUPPLIERS IN FINANCIAL STATEMENTS AUDIT PERFORMED BY AN INDEPENDENT AUDITING COMPANY 1.1 Overviews of account payable to suppliers in financial statement 1.1.1 The legal definition and role of account payable to suppliers Account payable to suppliers or so called “Trade payables” is a part of Liabilities which is according to Circular_200_2014_TT-BTC: Article 50 Accounting rules for liabilities 1 Liabilities of an enterprise must be kept records in details according to payment schedule, creditor, type of currency and other factors according to requirements of the enterprise 2 Liabilities shall be classified into trade payables, intra-company payables and other payables according to following rules: a) Trade payables include commercial amounts payable arisen from purchase of goods, services or asset and the seller is independent with the buyer, including amounts payables between parent company and subsidiaries, joint ventures or associates) Amounts payable include amounts payable when importing through the trustee (in the import trust transaction); b) Intra-company payables include amounts payable between parent company and dependent accounting subsidiaries having no legal status; c) Other payables include non-commercial amounts payable, or amounts payable relating to trading in goods or services: - Payables relating to financial expenses, such as: interests payable, dividends payable and profits payable, financial investment expenses payable; - Payables paid by another party; payables which the trustor receives from relevant entities to pay for import-export trust transactions; - Non-commercial payables, such as: borrowings payable, fines payable, compensation payable, assets in surplus awaiting resolution, payables related to social insurance, health insurance, unemployment insurance, or union funds, etc 3 When preparing a financial statement, the amounts payable shall be classified into long-term payables or short-term payables according to their remaining terms 4 If it is evident that there is an unavoidable loss, an amount payable shall be recorded according to cautious rules 5 When preparing the financial statement, these amounts payable meeting definition of accounts derived from foreign currencies (refer to account 413 – Exchange rate differences) for re-valuation at the ending of accounting period So account payable to suppliers (Trade payables) is the account which “include commercial amounts payable arisen from purchase of goods, services or asset and the seller is independent with the buyer, including amounts payables between parent company and subsidiaries, joint ventures or associates) Amounts payable include amounts payable when importing through the trustee (in the import trust transaction)” Account payable to suppliers is the present obligation of the company occurred from transactions and events in the past which company has to pay for using its sources Account payble to suppliers determines the present obligation of the company when it received an asset, participated in a commitment or occurred a legal obligation • Must be suitable with the characteristics of each audit firm and have a positive effect on improving the quality of audit services of • • the companies Must be clear, easy to understand, easy to check and control Must be economical, efficient and practical 3.3.2 Requirements for completing the audit process and audit method of account payable to suppliers • Solutions to improve the audit process and audit method of account payable to suppliers (Trade payables) should be in line with the requirements and management level of the current Ha Thanh Audit Company Limited and take into account developments in the economic trend Solutions to complete the audit process and audit method must be consistent • with the business characteristics of Ha Thanh Audit Company Limited Complete solutions for the audit process and audit method of account • payable to suppliers (Trade payables) need to be easy to understand, easy to implement and easy to implement at Ha Thanh Audit Company Limited 3.4 Assessing the actual status of the audit of account payable to suppliers in the Financial Statement Audit at Ha Thanh Audit Company Limited Ha Thanh Audit Company Limited operates with the slogan: “ Maintaining the independence, honesty, information secrecy, objectivity, guaranteeing audit work to operate effectively, bringging customer satisfaction is our company’ motto of serving services, which makes us more competitive than other competitors” In reality, this committment becomes “firneedle” for the performance of all managers and staff of the company Therefore, the Board of Directors of the company always strictly adheres to regulations related to professional activities, as well as regulations on auditing standards, especially standards on professional ethics From the above slogans and goals, the Company has set out future development orientations: continuing to perfect and standardize professional processes and methods in auditing financial statement and capital construction In addition, Ha Thanh Co., LTD also enhances learning experience and professional skills for all staff and audit assistants of the company 3.4.1 Advantages Through the method of researching, mastering and without delay experiencing the constant asset audit process and method of Ha Thanh Audit Company Limited, finished for the duration of the internship on the unit In general, the agency has constructed and advanced a totally strict, flexible, current audit application, appropriate for an excellent better efficiency, extraordinarily dependable and accurate This program is evolved through the company in its personal and specific manner with the Ha Thanh Audit Company Limited’ sample audit program and is implemented according with the company's policies and requirements effectively, flexibly and compliantly in step with the policies issued through government More specifically, account payable to suppliers (Trade payable) audit program was built and achieve some advantages as follow: The audit process and method of Ha Thanh Audit Company Limited normally and therefore the audit process and audit method of account payable to suppliers (Trade payable) specifically is intended fully, effectively, scientifically and flexibly to precisely meet the demands and tasks of the company Almost every stage of the audit process and method of various audit items is appropriate for several client groups A well audit program helps auditors have a deep and thorough understanding of every specific step and process From there, the auditors will perform the audit process of all items in general and the audited items of account payable to suppliers (Trade payables) in particular, the auditors can easily access and collect the required data and evidences at an equivalent time They also facilitate the quality control method of the audit process and method like the elements concerning the audit process and method The account payable to suppliers (Trade payables) audit process and method is constructed in accordance with the sample audit program and complies with current auditing standards publicized by Viet Nam (1) Planning stage In addition to corporations trying to the services of the corporate Ha Thanh Audit Company Limited also sends a letter introducing the company' capabilities to potential customers Through the company' capability introduction letter, it offers customers the foremost complete and correct read of the company' capacity and potential At constant time, it introduces the audit items, programs, working experience, skilled team, history of firm or audits performed within the past Capability recommendation letters facilitate potential customers understand the company additionally as its name and dealing capacity Thereby attracting new customers and transferral profits to the company After receiving the audit request, Ha Thanh Audit Company Limited’s members will come to perform exchanges and discussions with customers These are skilled auditors with excessive expert qualifications which have been showed via preceding audits Since then, the audit risk assessment capacity is usually assured with excessive accuracy Thereby enhancing the general excellent of the audit The personnel of the audit team is additionally centered by Ha Thanh Audit Company Limited Supported by risk assessment, actual conditions and working atmosphere of clients, the company can choose appropriate auditors The audit team leader could be a certified auditor with audit professional for the item being audited The remaining members of the audit team like auditors and audit assistants are also selected in accordance with the individual' qualifications, capability and experience Besides, members of the audit team are also examined for skilled ethics in accordance with the company' laws and regulations There also has a member of the management team concerned within the initiation and shutting stages of the audit conjointly contributes to the advance of audit quality Auditors do not rely too much on client’ internal control system They gather evidences directly from reviewing related parties, observing the work performance or indirectly from third parties (2) Audit implementation The audit procedures were performed clearly and carefully under strict control Selecting sample audit evidence and procedures for account payable to suppliers (Trade payable) is done in a flexibility and intelligent way to make it more effectively Three types of audit procedures, preliminary analysis and detailed examination are used together to help and bonus for each others By comparing and contrasting related components, auditors always maintain the effectiveness of the audit Therefore, the audit process and audit method is not duplicaped which reduce working time and necessary sources There are professional auditors who can use audit technique in an accurate and efficient way thanks to the guideline of the sample audit program In condition that some audit procedures cannot be performed to obtain enough reliable evidence, auditors may consider using other additional audit procedures Therefore, auditors can absorb reliable evidences as the support for the assessment Professional auditors have to supervise, support and check the work of junior auditors and audit assistants as it is regulation, which can help the audit process and audit method to be done perfectly Using modern technologies is also required to store evidences and documents They must be stored in correct client’s file so that it can make that quality control process to be done accurately and precisely (3) Audit finalization After done stage 2, the audit team leader, a member of Board of directors (if the client is judged high risk or is public interest company, another member of the board has to cross-review the documents) will check and consider to release the draft report This guarantees that final audit report will be most accurate and reliable of quality 3.4.2 Weaknesses Collecting information about client before accepting audit performance has not been done strictly especially for small company This is one of the most significantly important to make sure that Ha Thanh Audit Company Limited can accept the audit for clients The assessment of materiality and the determination of audit risks mainly still depends on the qualifications, experience and judgment of the auditors Using sampling method that just focused on large amount transactions Therefore, sometimes it may ignore transactions that are considered less important but it may cause errors which affect materiality Audit method is not built and used carefully and clearly so sometimes it can not be used or can not support the audit process effectively 3.4.3 Explanation Ha Thanh Audit Company Limited is a newly-established audit company with small size so it does not have enough sources to build a perfect organization system like big audit firm Therefore, it does not have quality control department and building well-done audit method sample is not concentrate properly In addition, they do not have enough sources and attraction to make strict recruitment test and cannot meet the demand of audit market and high-quality auditors Company has not played its full role, assisting the Ministry of Finance in drafting and promulgating accounting and auditing standards as well as monitoring the professional quality and professional ethics of auditors Specific sample audit program has been built for a small group of enterprises as it is difficult for auditors to follow when audit other client Company do not build audit program which is suitable for each customer The evaluation and selection of audit invitations has not seen thoroughly, the audit time may be not enough, the number of existing contracts and human resources has not been balanced, creating overwhelming pressure for the auditors About the new junior auditors, they do not have enough experience in analyzing the information on the financial statements to design appropriate audit procedures and save time Auditing time is limited, customers always urge the company and want to be advance, which makes a burden on audit team, so many procedures are ommited or performed as a formality Some clients do not appreciate audit enough so that they do not respect and have enough supports the auditors, sometimes show negative behaviors, which make it difficult for audit team to gather evidences and make them spend too much time to perform audit 3.5 Solution to complete the audit system of account payable to suppliers in Financial Statement Audit performed by Ha Thanh Audit Company Limited 3.5.1 At planning stage Auditors have to conduct necessary procedures to gather infomation about customer such as information on business activities, business atmosphere and legal obligations of the client For customers audited before, before beginning the audit, the auditor has to collect above information, particularly the legal obligations of the enterprise at this time, to confirm that all information of customers is updated This helps them to accurately assess the potential risks of the audit, therefore, designing an applicable audit Auditors should review more about internal control system, especially related to account payable to suppliers (Trade payables) Audit method should be done to evaluate the internal control system especially of account payable to suppliers (Trade payables) That make auditors to absorb a more accurate look of the client’ internal control system, therefore, judge correctly about the strength and weaknesses and control risk assessment Besides, procedures such as retest, interview, observation should be done in addition to gather more necessary evidences to increase the reliability when evaluating the internal control system 3.5.2 At audit implementation stage Completing sampling method According to VSA 530 “Audit Sampling”, audit sampling is “the application of audit procedures on a number of elements less than 100% of the total number of elements of an audit population such that all units sampled sample has an opportunity to be selected in order to provide the auditor with a reasonable basis on which to draw a conclusion about the population as a whole Through the actual audit process, the sampling is mainly performed by the auditors according to intuitive professional judgments based on the rule of large numbers or unusual fluctuations.” As this selection method is based on the size of the client and only consider large amount (can be expanded if necessary) so it may increase a risk that some small-scale misstatement can raise Therefore, a wider scale of sampling method should be done to reduce risk 3.5.3 At audit finalization stage To avoid that client may disagree and confuse with the working papers of the auditors, working papers have to be done at the end of the audit period Besides, a record keeping process is needed to store and preserve audit records to prevent them from losing or be damaged 3.6 Condition for conducting the solutions Employees should be give chances for studying and participating in training course such as course for gaining some certificates: CPA Viet Nam, ACCA, ICAEW,… to absorb more professinal skills and knowledges This makes the quality of the audit team of the company increase significantly Besides it is considerably necessary to build and complete specific audit method, hire more qualified employees to increase the quality of audit team and help the company to have more long-term contracts from customers About customers, they should appreciate more about the importance of audit especially company on stock exchange to help auditors save time and sources for the audit to be effectively performed Currently, Viet Nam are trying to complete and improve financial regulations and accounting and auditing standards to meet the demands of the world and catch up with powerful countries As a result, company and staff should keep their knowledge about financial in general and audit in particular Accounting and auditing organizations and associations in Vietnam should promote their supporting role to the Ministry of Finance in drafting and promulgating accounting and auditing standards Conclusion of Chapter 3 Contents in Chapter 3 covers the need, principles and requirements for completing the audit process and audit method for account payable to suppliers (Trade payables) At the same time, chapter 3 also provides solutions to improve the process and method of auditing account payable to suppliers (Trade payables) and the conditions to be able to apply it to Ha Thanh Audit Company Limited These solutions can be implemented and applied in practice to complete the audit process and audit method of account payable to suppliers (Trade payables) CONCLUSION Ha Thanh Audit Company Limited is an enterprise operating in the field of audit financial statement and capital construction For the independent audit industry in general, Ha Thanh Audit Company Limited in particular, in the current market economy, the services provided by the company need to be more competitive There are some challenges that the company has to face, especially in today's growing audit market In addition, in the context that the economy is gradually recovering at a remarkable speed after the crisis caused by the Covid-19 pandemic, there are more opportunities for companies to develop and diversify their customers with endless new possibilities With a staff of experience, dynamic, creative, always responsive, updated with the latest changes in the field of accounting and auditing, Ha Thanh Audit Company Limited is increasing significantly over time Through my internship at Ha Thanh Audit Company Limited, I learned about the company's financial statement audit process and method in general, the process and method of auditing account payable to suppliers (Trade payable) in particular At the same time, I have completed my thesis with the stated purpose of systematizing the theory of the audit process and audit method of account payable to suppliers (Trade payable) in Financial Statements Audit and analyzing the current status of the audit process and audit method of account payable to suppliers (Trade payables) in Financial Statement Audit performed by Ha Thanh Audit Company Limited at the client unit as well as providing some solutions to improve the process and method of auditing account payable to suppliers (Trade payables) in Ha Thanh Audit Company Limited Once again, I would like to thank Assoc Prof PhD Nguyen Trong Co and Assoc Prof PhD Chuc Anh Tu enthusiastically guided me to complete my graduation thesis I would also like to express my deep gratitude to the Board of Directors of Ha Thanh Audit Company Limited for creating maximum conditions for my internship at your company LIST OF REFERENCES AND APPENDIXS Assoc Dr Nguyen Trong Co, Assoc Dr Thinh Van Vinh (co-editor) (2017), “Giáo trình Kiểm toán căn bản”, Finance Publishing House MSc Dau Ngoc Chau (editor), Dr Nguyen Viet Loi (co-editor) (2011), “Giáo trình Kiểm toán Báo cáo tài chính”, Financial Publishing House System of Vietnamese auditing standards System of Vietnamese accounting standards Auditing Program of Ha Thanh Audit Company Limited System of working papers, audit records of Ha Thanh Audit Company Limited Law on Independent Audit No 67/2011/QH12 Refer to the dissertations of previous thesis Circular 200/2014/TT-BTC ... of account payable to suppliers The audit of the closing balance is conducted based on the audit of the opening balance and the audit results of the increase and decrease of account payable to. .. truly and right period b, The basis of account payable to suppliers audit In order to be able to conduct an audit and to be able to give opinion about account payable to suppliers (Trade payables)... an independent audit firm auditing the account payable to suppliers 1.2.1 General about account payable to suppliers auditing 1.2.1.1 The important of account payable to suppliers auditing in financial