266. Improving the audit process of cash and cash equivalent in financial statement audit performed by Ernst & Young Vietnam Limited Company

BỘ TÀI CHÍNH HỌC VIỆN TÀI CHÍNH - - SINH VIÊN: NGUYỄN THU HUYỀN LỚP: CQ54/21CL.02 LUẬN VĂN TỐT NGHIỆP ĐỀ TÀI: Chuyên ngành: Mã số: NGƯỜI HƯỚNG DẪN: Hà Nội - 2020 Academy of Finance Graduation thesis COMMITMENT I assure that this research is in my possession All the data and results used in the thesis are honest and come from the actual situation of the organization Thesis author Nguyen Thu Huyen Student: Nguyễn Thu Huyền Class: CQ54/21CL.02 Academy of Finance Student: Nguyễn Thu Huyền Graduation thesis Class: CQ54/21CL.02 Academy of Finance Graduation thesis TABLE OF CONTENTS COMMITMENT i LIST OF ABBREVIATIONS .v LIST OF TABLES, FIGURE vi PROPOSAL CHAPTER 1: THEORETICAL FRAMEWORK IN AUDITING CASH AND CASH EQUIVALENTS IN FINANCIAL STATEMENT AUDIT 1.1 Overview of cash and cash equivalents in financial statement 1.1.1 Overview of cash and cash equivalents in financial statement 1.1.2 Key requirements for accounting for cash & cash equivalent 1.1.3 Internal control over cash and cash equivalents Table 1.1: Internal control over cash payment 1.2 Cash & cash equivalents in Financial Statement audit 1.2.1 Audit objective in auditing cash and cash equivalent 1.2.2 Risk of material misstatement in cash and cash equivalents .9 1.2.3 Source of audit evidence for cash and cash equivalents audit10 1.3 Cash & cash equivalents in financial statement audit 11 1.3.1 Audit planning .11 1.3.2 Audit implementation 16 1.3.3 Audit finalization .20 CHAPTER 2: CASH AND CASH EQUIVALENTS AUDIT IN FINANCIAL STATEMENT AUDIT PERFORMED BY ERNST AND YOUNG VIETNAM 23 Student: Nguyễn Thu Huyền Class: CQ54/21CL.02 Academy of Finance Graduation thesis 2.1 Overview about EY Vietnam Limited Company .23 2.1.1 Introduction 23 2.2 Introduction to financial statement audit performed by EY Vietnam 27 2.2.1 Feature of organizing audit team 27 2.2.2 Feature of organizing audit documentations .28 2.2.3 Financial statement audit process in EY Vietnam 29 2.3 Cash and cash equivalents audit in financial statement audit client AAA performed by EY Vietnam .33 2.3.1 Audit planning 33 2.3.2 Audit implementation 44 2.3.3 Audit finalization 61 2.4 Assessments on audit of cash in financial audits conducted by EY auditing firm .62 2.4.1 Strengths .62 2.4.2 Weakness .64 2.4.3 Reasons for weaknesses .65 CHAPTER 3: SOLUTION FOR IMPROVING CASH AND CASH EQUIVALENTSAUDIT IN FINANCIAL STATEMENT AUDIT IN FINANCIAL STATEMENT AUDIT PERFORMED BY EY VIET NAM 67 3.1 Solution for improving cash and cash equivalents audit in financial statement audit in financial statement audit performed by Ernst & Young Vietnam 67 3.1.1 Audit planning 67 3.2.2 Audit implementation 68 3.2.3 Audit finalization stage 69 Student: Nguyễn Thu Huyền Class: CQ54/21CL.02 Academy of Finance Graduation thesis 3.2 Conditions for improving cash and cash equivalents audit in Financial statement audit performed by EY Vietnam Limited Company 69 3.2.1 Government 69 3.2.2 Accounting professional association 70 3.2.3 EY Vietnam Limited Company 71 CONCLUSION 74 LIST OF REFERENCE DOCUMENTS 76 Student: Nguyễn Thu Huyền Class: CQ54/21CL.02 Academy of Finance Graduation thesis LIST OF ABBREVIATIONS GL TB EY EYVN Student: Nguyễn Thu Huyền General ledger Trial Balance Ernst & Young Ernst & Young Vietnam Class: CQ54/21CL.02 Academy of Finance Graduation thesis LIST OF TABLES, FIGURE Table 1.1: Internal control over cash payment Table 1.2 Internal control over cash receipts Table 1.2 : Cash on hand .18 Table 1.3: Cash in bank 19 Table 2.1: Risk assessment 37 Table 2.2 : Guide materiality at Ernst & Young Vietnam 38 Table 2.3: Set materiality for cash and cash equivalents of AAA company .39 Table 2.4: Audit program for cash and cash equivalents .41 Figure 2.1 EYVN structure 23 Figure 2.2 Customer network of Ernst & Young Vietnam 26 Figure 2.3 An Audit team 27 Figure 2.4 The EY Global Audit Methodology (EY GAM) 29 Figure 2.5: Analysis of cash and cash equivalents variances 46 Figure 2.6: Working paper of cash on hand 47 Figure 2.7: Working papers of cash in bank 49 Figure 2.8: Working paper of investor deposit 51 Figure 2.9: XTR File received from client 54 Figure 2.10: Working paper of interest income .57 Student: Nguyễn Thu Huyền Class: CQ54/21CL.02 Academy of Finance Graduation thesis PROPOSAL Rationale Nowadays, economies in the world have been developed rapidly and the relationship between enterprises is more complicated Information plays an essential role in this situation for many people, especially business ones before making any important decisions For enterprises, financial information is used for different reasons therefore, it need to be honesty and faithful However, it is difficult for people to evaluate information in financial statements whether it is presented faithfully or not Therefore, distinctiveness of the financial statement is required auditing in general and auditing organization conducting audits in particular must operate effectively to meet the demand of society Moreover, auditing financial statement helps enterprises improve their performance and it is also a means for the government to administrate the macroeconomy Financial statement includes variety of crucial items and division However, cash and cash equivalents are divisions which should be concentrated because of frauds and errors Cash and cash equivalents are current assets that will have potential risks Besides, this item has an intimate relationship with business process of each company With all experiences and knowledge gained during internship period in Ernst & Young Vietnam and learning at Academy of Finance, I realized the importance of auditing cash and cash equivalents, which have directly effect on people using financial information In conclusion, I decided to write “Improving the audit process of cash and cash equivalent in financial statement audit performed by Ernst & Young Vietnam Limited Company” Student: Nguyễn Thu Huyền Class: CQ54/21CL.02 Academy of Finance Graduation thesis Research Objectives: - Research general theory relating to Auditing - Research practical audit cash and cash equivalents performed by Ernst & Young Viet Nam - Evaluate and give solutions relating to auditing cash and cash equivalents Research questions: - What are key requirements of cash and cash equivanlents in financial statement audit? - How cash and cash equivalents audit process is performed by EYVN? - How effectiveness in the audit of cash and cash equivalents performed by EYVN? Scope of the research: Auditing cash and cash equivalents in financial statement from 1st January 2019 to 31st December 2019 performed by Ernst & Young Vietnam Research approach: Methodology: The method is performed based on dialectical materialism, historical materialism combined with logical thinking Technical methods: The research uses different method such as interview method, direct observations, comparison and detailed results are as following: - Interview method: To collect document and information about the process of auditing cash and cash equivalents in Ernst & Young Vietnam in general - Comparison method: To compare data and other financial information in financial statement and others books to ensure accuracy - Observation method: To observe and learn the audit files stored in Ernst & Young Vietnam’s software to get an overview about the client and evaluation information about customers based on audit files of previous Student: Nguyễn Thu Huyền Class: CQ54/21CL.02 Academy of Finance Graduation thesis accurate audit evidence In each procedure evidences are gathered from various sources Besides, confirmation letter is considered as an effective audit evidence obtained by the auditor to ensure about the existence, valuation and right and obligation of Cash account c) In completing process: - Audit quality control: It is always one of the outstanding strengthes of audit service at Ernst & Young Vietnam There are always three levels of review in financial statement audit at EYVN to ensure effectiveness and efficiency of the audit and appropriateness and sufficiency of audit evidences obtained by auditors In – charge senior reviews all working papers of audit team members to ensure that procedures are completely implemented and audited figures are correct in relation to the various cycles before submitting the report and working papers for review by the manager and partner Audit manager reviews working papaers the second and make clearer procedures performed by junior staffs and solve pending issues.The manager may visist the client’s office to review the audit progress and have meeting with client on the first day or the last day of the fieldwork The partner has the ultimate responsibility for the performance of the audit The partner’s knowledge of the client’s business provides an informed basis for assessing risk, appraising the adequacy of audit procedures and the adherence to proper accounting principles The partner will review for the last time and unify and bring out decision of issuing report - Preparation and issuance of audit report: There is a compulsory procedure before audit report is issued at EYVN called “casting” This step is to check accuracy or mathematical errors of the figures on the report and check for grammatical errors, spelling errors presented (font, font size, format…) Although this last step is simple, it is Student: Nguyễn Thu Huyền 63 Class: CQ54/21CL.02 Academy of Finance Graduation thesis extremely important and requires seriousness attitude and carefulness of auditors - Audit file preservation: Related audit documents are scanned and then attached in audit software The firm also stores and maintains audit files after classifying by clients and year therefore it is easy to search the information needed 2.4.2 Weakness Regardless of diverse strengthes, EYVN still has several limitations, which is necessary to find out solutions These limitation preven firm from achieving the highest effectiveness and efficiency of the process of auditing cash and cash equivalents as well as financial audit in general a) In planning process: - Preparing an audit: There is only discusstion between audit partner, audit manager and in – charge senior to capture major issus, scopes and key sectors that need to be focused It might cause limitation in understanding client and audit objectives of other members b) In implementation process: - Analytical procedure: The deep analysis was not done much yet, so auditors can not detect abnormal points for entities At EYVN, analysis procedures have not been applied thoroughly for cash and cash equivalents, the auditors mainly perform analytical procedures with overall analysis However, the combination of tests of detail and analytical procedure will help auditors collect evidences but it will take time and cost of the audit In some cases, it is not necessary for that combination - Process of sending bank confirmations: Client send bank confirmation to banks rather than EYVN perform this task Eventhough this process are approved, the client are not allow to send bank confirmation because this Student: Nguyễn Thu Huyền 64 Class: CQ54/21CL.02 Academy of Finance Graduation thesis would reduce indepence and might increase risk due to concllusion between banks and client 2.4.3 Reasons for weaknesses 2.4.3.1 The government - The State does not manage and control well audit activities and audit system with a clear orientation for the development of audit firm - The governement has less cooperation with professional associations to manage auditing companies and auditors They not have many training program or exchange program in short – term for auditors to learn from other local and international auditors - The State not identify the functions, tasks and establish the relationship between the audit system and the system of inspection and examination agencies 2.4.3.2 - Accounting professional association The professional association which is directly Vietnam Association of Certified Public Accountants (VACPA) not have enough training programs to improve the level of auditors and hold many exchanges so that domestic and internal auditors have opportunities to meet and exchange business experiences - The professional association not have conferences or events for Vietnamese auditors to communicate and discuss with international auditors relating to international accounting and auditing standards which will apply in Vietnam in the future CONCLUSION CHAPTER Student: Nguyễn Thu Huyền 65 Class: CQ54/21CL.02 Academy of Finance Graduation thesis Through the study and researching, Chapter has presented the actual audit of the cash and cash equivalents carried out by EYVN with specific example is the AAA company Auditing of financial statemet in general and cash and cash equivalents in particular by EYVN, all have a common template for all audit All fo them are flexible, suitable for each customer Especially, the process of auditing cash and cash equivalents items of EYVN despite many advantages, still have some limitations to overcome CHAPTER 3: SOLUTION FOR IMPROVING CASH AND CASH EQUIVALENTSAUDIT IN FINANCIAL STATEMENT AUDIT IN FINANCIAL STATEMENT AUDIT PERFORMED BY EY VIET NAM Student: Nguyễn Thu Huyền 66 Class: CQ54/21CL.02 Academy of Finance Graduation thesis 3.1 Solution for improving cash and cash equivalents audit in financial statement audit in financial statement audit performed by Ernst & Young Vietnam Completing the procedure of auditing cash and cash equivalents is complicated It requires the cooperation from many parties such as the organization, the audit company and the government The suggestion of the thesis focus on how to improve the quality of the audit For each of the weakness f the three processes: audit planning, audit implementation and audit completion, there is a corresponding solution below There are numbered so that it is easier t collate: 3.1.1 Audit planning - Preparing an audit: It is compulsory to have a meeting between team members before fieldwork to meet the objective of understanding clients in the most effective way In the meeting, auditors should discuss about the most outstanding mattersreferring to specific audit segments of the clients This meeting may last in short time but it will save time in the planning stage as well as the implementation stage and help auditors obtain sufficient view about the business activities and operation activities of clients Furthermore, in planning stage, auditor should set specific objectives for each cycle rather than just set overall objective for audit - Allocation of maturity for items: This allocation is necessary because the audit evidences are collected by mamy items rather than the whole of financial statement With a reasonable allocation of materiality, auditor can determine the appropriate amount of evidences which are required to collect for certain items For example, for cash and cash equivalents, it depends on each entity, but generally risk of this area is defined lower than other accounts Student: Nguyễn Thu Huyền 67 Class: CQ54/21CL.02 Academy of Finance Graduation thesis as revenue, cost of goods sold So it should be allocated with a lower materiality level When there is a reasonable level of materiality, the amount of evidences is determined in the most effective way to ensure the efficiency of the audit and saving time, cost of audit To implement this, auditors need to devel audit documents of the years, assess risk for each item of this year as the basis for calculating the allocation of materiality and misstatements can be reasonably accepted 3.2.2 Audit implementation - Analytical procedures need to be more emphasized when designing substantive test and performed in the whole audit process To perform analytical procedure effectively, auditors should combine with professional judgement to analyze the movement of the items, determine the cause of the events or identify any significant changes that need to have more investigation Besides, for specific business activities, auditors should compare data from other companies that have the same business area and activities with client’s data to improve analytical process more effectively Moreover, auditors should use both rate analysis and current trend analysis to have better overview of financial performance of client The advantage in analyzing financial situation through financial ratios is relative stability over periods Any changes in management policies, accounting policies can be recognized by analyzing the financial ratios - Audit software Canvas – Information security: All working papers prepared by audit team members and documents relating to the audit are uploaded in Canvas Therefore, security should be especially focused, avoiding data loss of theft by viruses, trojans,… In addition, the audit software should be upgraded often to overcome the limitations Student: Nguyễn Thu Huyền 68 Class: CQ54/21CL.02 Academy of Finance Graduation thesis - Bank confirmation should be prepared and sent by audit firm to ensure the accuracy Bank confirmations often provide reliable audit evidence therefore if client sends them, the level of reliable information would reduce 3.2.3 Audit finalization stage The company should design the strict access system to computer program and audit files The authority to access the audit document should be written to the policy of company And the authority should be set up due to different levels With particular authority to can read only the file or can take it (can copy or correct document) 3.2 Conditions for improving cash and cash equivalents audit in Financial statement audit performed by EY Vietnam Limited Company 3.2.1 Government - The State needs to strengthen the management and control of the quality of audit activities, strengthen the management of the audit system, with a clear orientation for the development of auditing organizations Effective measures should be taken to control the quality of the audit and to limit negative competition in the provision of audit services Develop management regulations for internal audit of agencies, organizations managing and using state budget, money and assets On the other hand, the accounting and auditing regimes are changed from day to day more appropriately, so the authorities need to present those changes in a flexible, scientific, understandable and policy-based manner help and train accountants and auditors on the content of the regime, current and newly issued standards - The State should coordinate with professional associations to manage auditing companies and auditors Student: Nguyễn Thu Huyền 69 Class: CQ54/21CL.02 Academy of Finance Graduation thesis Professional associations should strengthen the activities of professional audit guidance, take the initiative in developing training and retraining programs for auditors, organize examinations and issue certificates of independent auditors, giving the Effective measures to monitor the implementation of professional ethical standards as well as improve the quality of audits - The State should identify the functions, tasks and establish the relationship between the audit system and the system of inspection and examination agencies, in order to improve the efficiency of each system and avoid wasting public resources in these systems It is necessary to strengthen the relationship and coordination mechanism between the state audit, the Financial Inspectorate, the Tax Audit and the Independent Auditor, especially the work of planning and information exchange, to avoid overlapping in the process and process results Auditors need to use effectively inspection and examination results to reduce costs and improve audit quality 3.2.2 Accounting professional association - The professional association which is directly Vietnam Association of Certified Public Accountants (VACPA) where the concentration of experienced and highly qualified auditors is the basis for accounting and auditing in the countries in which they operate In Vietnam, the Vietnam Association of Occupations since its inception has always been the place where experienced auditors gather, exchange knowledge and update new documents and documents relted to operations, accounting and auditing in and outside the country - Professional association should continue to organize many training programs to improve the level of auditors and hold many exchanges so that Student: Nguyễn Thu Huyền 70 Class: CQ54/21CL.02 Academy of Finance Graduation thesis domestic and internal auditors have opportunities to meet and exchange business experiences Especially when Vietnamese Accounting and Auditing Standards have many changes and will combine with some Internation Accounting and Auditing Standards, associations play an important role in helping companies to understand and comply with new standrads 3.2.3 EY Vietnam Limited Company The quality of human resources in auditing companies is a decisive factor in auditing quality Therefore, in order to implement solutions to complete the financial statements audit process related to personnel, work assignment, audit time, the Company needs to develop a reasonable and scientific personnel policy The effectiveness of personnel policies depends on the recruitment process, remuneration policies and employee training policies of the Company Auditing firms support the coordination with the State and the Audit Association to develop an innovation program to improve the quality of audits, such as the development of a standardized and consistent model audit program General quality assessment for auditing business 3.2.3.1 Audited Companies: Enterprises should build up an effective accounting and internal control system to prevent frauds in the preparation of financial statements in general and salary and personnel in particular This also contributes to making the financial health of the business healthy The accounting department of the enterprise needs professional knowledge of the current accounting regime On the other hand, businesses need to actively cooperate with auditors, provide adequate papers, documents, true explanations when necessary Student: Nguyễn Thu Huyền 71 Class: CQ54/21CL.02 Academy of Finance Graduation thesis 3.2.3.2 Auditors: Auditors need to cultivate their professional accounting and auditing skills and have certain knowledge about Vietnamese law in order to perform the audit as best they can Professional ethics for any profession is important but especially for the Audit profession, this issue is even more of a priority because the audit results will affect the decisions of many ordinary users believe A false result can lead to unpredictable consequences for businesses, suppliers, customers, banks, securities investors Therefore, the equipping the auditor's professional knowledge needs go hand in hand with respect and practice professional ethics Student: Nguyễn Thu Huyền 72 Class: CQ54/21CL.02 Academy of Finance Graduation thesis CONCLUSION CHAPTER Chapter presented general assessments of the process of auditing financial statements in general and the audit process of cash and cash equivalents in particular by Ernst & Young Vietnam In addition, Chapter has made recommendations and some solutions to improve the audit process, contributing to improve the quality of the audit at Ernst & Young Vietnam Student: Nguyễn Thu Huyền 73 Class: CQ54/21CL.02 Academy of Finance Graduation thesis CONCLUSION The integration process with the world economy has helped open many opportunities as well as challenges for businesses of economic units Under the current conditions, enterprises have the right to financial autonomy and business activities as well as fulfill their obligations to the state budget One of the basic factors to decide the evaluation of work efficiency as well as a basis for enterprises to fulfill their obligations to the state is accounting work Therefore, accounting work must be done in a way that is scientific and honest In order for the state to control the operational efficiency of economic units, it is necessary to have auditing experts verifying the objective truthfulness of enterprise financial information Auditing activity is still new, but is an extremely important activity in our country's economy today Auditing has contributed to making the financial health of businesses more healthy Financial auditing is on the path of strong development and increasingly asserting its position It can be said that the development of auditing represents the development of the economy There are many types of auditing services, but the audit of financial statements is a basic one The process of auditing cash and cash equivalents is one of the important audit processes in verifying the truthfulness of the financial statements At Ernst & Young Vietnam Co., Ltd, the cash and cash equivalents audit process is very focused The company has built a scientific audit program, which is coherent, clear and convincing but still ensures the interests of customers Through this thesis, I have provided an overview of the current practice of applying the auditing process of cash and cash equivalents in EYVN as well as some recommendations to improve the audit procedures Student: Nguyễn Thu Huyền 74 Class: CQ54/21CL.02 Academy of Finance Graduation thesis Finally, I would like to give my sincere thanks to Mr Ngo Nhu Vinh for his support during the research process to complete this thesis Besides, I would like to receive more opinion from other lectures for further improvements Hanoi, May 21st 2020 Student Nguyen Thu Huyen Student: Nguyễn Thu Huyền 75 Class: CQ54/21CL.02 Academy of Finance Graduation thesis LIST OF REFERENCE DOCUMENTS Vietnamese Standards on Auditing International Standards on Auditing ACCA, Paper F8 – Audit and Assurance, BPP Learning Media Ltd Internal documents of Ernst & Young Vietnam The audit files of AAA company Student: Nguyễn Thu Huyền 76 Class: CQ54/21CL.02 Academy of Finance Graduation thesis APPENDIX List of Appendices: Student: Nguyễn Thu Huyền 77 Class: CQ54/21CL.02 ... auditing cash and cash equivalents, objective and bases of auditing cash and cash equivalents In particular, Chapter of the thesis gives and overview of the process of auditing cash and cash equivalents... STATEMENT AUDIT 1.1 Overview of cash and cash equivalents in financial statement 1.1.1 Overview of cash and cash equivalents in financial statement * Definition of cash and cash equivalents The IAS... of cash and cash equivanlents in financial statement audit? - How cash and cash equivalents audit process is performed by EYVN? - How effectiveness in the audit of cash and cash equivalents performed