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PREFACE 1. The urgency of the study In the current situation, our country is in the process of economic development and integration according to the development of the world and the trend of the times. Economic integration and development is an opportunity and also a great challenge for the countrys economy in general and in particular domestic enterprises in particular. This requires each enterprise to make efforts, maximize its advantages, as well as overcome the weaknesses that still exist in order to integrate with the world economy. In the era where science and technology are advancing and upgrading by hour, a single decision can decide the fate of an entire business entity. To be able to make a right decision, the leaders must have information about company’s current status presented clearly and faithfully, so that no items shall be mistaken. Having a good accounting information system also allows director to manage the company’s operation so that if any problem arises, they can interfere and solve the problem in no time. But the accounting information system is too complicated for users such as creditors, lendors, and employees… to understand, so a need for a compact but fully and clearly –presented occurred, and financial statements was made. Financial statements are written records that convey the business activities and the financial performance of a company. Financial statements are often audited by government agencies, accountants, firms, etc. to ensure accuracy and for tax, financing, or investing purposes. Investors and financial analysts rely on financial data to analyze the performance of a company and make predictions about its future direction of the companys stock price. Financial statements are the main source of financial information for most decision makers. On the base of practicing thesis and theories of preparing and analysing financial statements which had been studied at the academy and understanding practical situation at the company, under guidance and support of supervisor, MSc Nguyen Ba Linh and the company’s employees, I had achieved some success in researching company’s practical operation. This is also an opportunity given to us by the academy to strenghthen the knowledge, as well as develops suitable skills. Based on that, I decided to choose the topic of “The preparation and analysis of financial statements in DUYENHAI Trading and Manufacturer, Ltd” to make my graduation thesis.
i MINISTRY OF FINANCE ACADEMY OF FINANCE Student: Lương Thanh Tùng Class: CQ54/21CL.02 Topic: “The preparation and analysis of financial statements in DUYENHAI Trading and Manufacturer, Ltd” GRADUATION THESIS Major: Business Accounting Supervisor: MSc Nguyễn Bá Linh HÀ NỘI, Year 2020 Lương Thanh Tùng – CQ54/21CL.02 ii LETTER OF DECLARATION I hereby declare that this thesis the results of my own research and has never been published in any work of others During the process of making this thesis, I have seriously taken research ethics; all findings of this project are results of my own research and surveys; all references in this project are clearly cited according to regulations I bear full responsibility to the fidelity of the number and data and other contents of my work Hanoi,(day)… … (month)… … … (year) 20… Student (Signature and Full name) Lương Thanh Tùng – CQ54/21CL.02 iii ACKNOWLEDGEMENT Firstly, I am deeply indebted to my supervisor MSc Nguyen Ba Linh whose help, stimulating suggestions and encouragement helped me all the time of research for and writing of this thesis I also want to thank Duyehai Trading and Manufacturer, Ltd for giving me permission to commence this thesis in the first instance, to the necessary research work and to use departmental data I have furthermore to thank the Vice Director and Chief Accountant as well as all seniors at Duyenhai Trading and Manufacturer, Ltd who gave and confirmed this permission and encourage me to go ahead with my thesis Friends from Accounting Faculty also supported me in my thesis; I want to thank them for all their support, interest and valuable conversations Especially, I would like to give my special thanks to my family whose patient love enabled me to complete this work Finally, because of limitation of time and knowledge, mistakes are unuavoidable, so I wish to have more opportunities I also wish to receive more contribution and suggestions to make my thesis better Lương Thanh Tùng – CQ54/21CL.02 iv ABSTRACT In the modern economic, Viet Nam business organizations face not only opportunities but also great chanllenges In order to catch up with the progress and avoid being “eliminated”, all organizations are expected to always perfecting and developing their managing system, especially on the aspect of accounting, for having a good accounting system plays an important role in making decisions and policies If by any chance a certain item on the reports (including balance sheet, cash flow statement, income statement) was mispresented, any decisions based on that result may become unsuitable, which will lead to failure Therefore, my thesis with the topic “The preparation and analysis of financial statements in Duyenhai Trading and Manufacturer, Ltd” will point out the importance of financial statements, components of financial statements and analysis of financial statements The main content is reflected in three chapters The first chapter is about the general theory of financial statements preparation and analysis in enterprises In chapter 2, by taking a scenario in Duyenhai Trading and Manufacturer, Ltd, the thesis focuses on a real practice of preparing and analyzing their financial statements From that, chapter points out some of company’s strength and weaknesses and suggests some solutions to improve the preparation and analysis of company’s financial statements In conclusion, the thesis has already been complete in comparison wiith proposed objectives and targets in the introduction Lương Thanh Tùng – CQ54/21CL.02 v LIST OF DIAGRAMS No 2.1 2.2 Content of diagram Pages Management mechanism in Duyenhai Trading and 70 Manufacturer Company, Ltd Accounting system in Duyenhai Trading and Manufacturer 72 Company, Ltd LIST OF TABLES No Content of table Pages 2.1 Main indicators reflects business results of the company 68 in 2019 2.2 Main indicators reflects financial position of the 69 company in 2019 2.3 Analysis of business results of the company in 2019 83 2.4 Overall assessment of company’s performance 85 2.5 Company’s financial structure 87 2.6 The asssets structure of the Company 89 2.7 Overview of company’s liquidity 91 2.8 Overall assessment of company’s debt ratio 93 TABLE OF CONTENT PREFACE Sincerely thanks! CHAPTER I Lương Thanh Tùng – CQ54/21CL.02 vi GENERAL THEORY OF FINANCIAL STATEMENTS PREPARATION AND ANALYSIS IN ENTERPRISES 1.1 General overview of financial statements and financial statements analysis in enterprises 1.1.1 The basics of financial statements 1.1.1.1 Financial accounting information Accounting is the process of identifying, measuring, and communicating economic information to permit informed judments and decisions by the users of the information, as defined by The American Accounting Association This information is primalily financial−stated in money terms Accounting, then, is a measuring and communicating tool used to reflect on the activities of profit−seeking business organizations and not−for−profit organizations As measurement and communication process for business, accounting supplies information that permits informed judments and decisions by users of the data .4 Accounting information is the information that arises from business transactions Once identified, the information is then classified and recorded, and it eventually finds its way into various reports .4 The process of providing information .4 1) Identify stakeholders (users of accounting information): usually, the users of accounting information are divided into two factions: Internal users: includes owners, managers, employees External users: includes customers, creditors, government .4 2) Assess stakeholders’s informational needs: each kind of user has a different motives and objectives, therefore holds different needs of accounting information Owners: need to assess how well their business is performing They are also interested in knowing how risky their business is and can be Managers: need accounting information to plan, monitor and make business decisions Employees: need accounting information to get a better understanding of the company’s business, so that they may have proper plans for future development .5 Investors: need accounting information to know how well their investment is performing, therefore decide should they keep investing or stop Lendors: need accounting information to assess their credit worthiness, their ability to pay back loan .5 Suppliers: need accounting information to assess the credit-worthiness of its customers before offering goods and services on credit Lương Thanh Tùng – CQ54/21CL.02 vii Tax Authorities: need accounting information of suppliers and consumers in order to identify potential tax evaders Occasionally, tax authorities conduct audits of the tax returns filed by businesses in order to verify the information with the underlying accounting records 3) Design the accounting information system to meet stakeholders’s needs .5 An accounting information system (AIS) is a structure that a business uses to collect, store, manage, process, retrieve and report its financial data so it can be used by accountants, consultants, business analysts, managers, chief financial officers (CFOs), auditors, regulators, and tax agencies 4) Record economic data about business activities and events 5) Prepare accounting report for stakeholders 1.1.1.2 Definition and objectives of financial reporting a) Definition Financial reporting is the financial results of an organization that are released to its stakeholders and the public This reporting is a key function of the controller, who may be assisted by the investor relations officer if an organization is publicly held Financial reporting typically encompasses the following documents and postings: Financial statements, which include the income statement, balance sheet, and statement of cash flows Accompanying footnote disclosures, which include more detail on certain topics, as prescribed by the relevant accounting framework Any financial information that the company chooses to post about itself on its website Annual reports issued to shareholders Any prospectus issued to potential investors concerning the issuance of securities by the organization Financial statements are written records that convey the business activities and the financial performance of a company Financial statements are often audited by government agencies, accountants, firms, etc to ensure accuracy and for tax, financing, or investing purposes .6 b) Objectives Financial reportings provide information about the reporting entity that is useful to existing and potential investors, lendors and other creditors in making decisions about providing resources to the entity The information provided about financial performance helps existing and potential investors, lenders and other creditors to understand the return the entity has produced on its economic resources Decisions by invetors are about buying, selling or holding euity and debt instruments depend on the returns that they expect from an investment in those instruments, eg dividends, principal and interest payments or market price increase Lương Thanh Tùng – CQ54/21CL.02 viii Decisions by ledors are about providing or selling loans and other forms of credit depend on the principal and interest payments of other returns that they expect The information must reflect the effect on performance of changes in market prices and/or interest rates 1.1.1.3 Requirements of financial statements presentation .7 According to Article 101 of circular 200/2014/TT-BTC about “Requirements for information presented in financial statements”, the following are requirements for information presented in financial statements: Information presented in the financial statements must be recorded honestly and reasonably the financial situation, trading situation and income of enterprises To ensure honesty, the information must be complete, objective, unmistaken .7 - Information is only complete when including all the necessary information to help users of financial statements to understand the nature, forms and risks of transactions and events For some items, the full presentation must also describe more information about the quality, the factors and circumstances that may affect the quality and nature of the items - Objective presentation is unbiased selection or description on financial information Objective presentation must ensure neutrality which not focus, emphasis or reduce as well as perform other acts to alter the impact of the financial information to become beneficial or unbeneficial for users of financial statements .8 - No errors mean no omissions in the description of the phenomenon and no errors in the process of providing reporting information selected and applied No errors not mean complete accuracy in all respects, for example, estimating unobservable cost and value is difficult to determine to be correct or incorrect The presentation of an estimate is considered to be honest, if the estimated value is described clearly, and the nature and limitation of the estimating process is explained and there is no error in the selection of appropriate figures in the estimate Financial information must be appropriate to help users of financial statements to predict, analyze and make economic decisions Financial information must be presented fully in all important respects Information is considered to be important in case information is not sufficient or inaccurate information may affect the decisions of users of financial information of the reporting unit Materiality shall be based on the nature and magnitude, or both, of the relevant items presented in the financial statements of a particular unit .8 Information must be verifiable, timely and understandable Financial information must be presented consistently and must be comparable among the accounting periods and enterprises .8 1.1.2 Types of financial statements 1.1.2.1 Balance sheet * Definition of balance sheet .9 Lương Thanh Tùng – CQ54/21CL.02 ix Balance sheet is a statement of the assets, liabilities, and capital of a business or other organization at a particular point in time, detailing the balance of income and expenditure over the preceding period * Nature and purpose of balance sheet The purpose of the balance is to set out the financial position of a business at a particular point in time It gives a snap shot of the assets, liabilities and equity position of the entity at a particular point in time It sets out the assets of the entity on the one hand, and the claims against it on the other * Format of balance sheet There are two formats of presenting assets, liabilities and owners’ equity in the balance sheet – account format and report format In account format, the balance sheet is divided into left and right sides like a T account The assets are listed on the left hand side whereas both liabilities and owners’ equity are listed on the right hand side of the balance sheet If all the elements of the balance sheet are correctly listed, the total of asset side (i.e., left side) must be equal to the total of liabilities and owners’ equity side (i.e., right side) 10 Picture 1: Example of account format .10 The report format (vertical format) is used more frequently In vertical format, the balance sheet elements are presented vertically i.e., assets section is presented at the top and liabilities and owners equity sections are presented below the assets section 10 Lương Thanh Tùng – CQ54/21CL.02 x 11 11 Lương Thanh Tùng – CQ54/21CL.02 105 creating more jobs for workers, raising incomes and fulfilling all obligations to the State, as well as taking part in implementing social policies The top goal in the near future is to maintain profit as previous years while trying best in reducing other expenses After the pandemic had been dealt with, the company will applied policies that helps it adapt to the industry as fast as possible, while looking for opportunities to breakthrough Regarding of finance Maintain stable finance; quick and effective capital recovery Tighten the management of expenses Regarding of staff Ensuring enough jobs for employees, striving for an average monthly income from VND 4,800,000 to 5,000,000 / person / month; Improve working conditions of employees, increase social welfare Maintain the regime of encouraging good labor, formulate wage unit prices and set norms to ensure social justice and stimulate production development Take care of health for employees, organize periodic health examinations, buy social insurance, health insurance, unemployment insurance, and comprehensive insurance 24/24 3.2 Requirements for improving the preparation and analysis of financial statements In order to improve the preparation and analysis of financial statements, the company is expected to apply the following requirements: Ensuring compliance with policies and regimes The preparing of financial statements in this period was built on the basis of Vietnamese Accounting Law system and accounting standards, which directly was VAS 21”Financial statements presentation” According to standard No 21 of VAS, it is stated that: Lương Thanh Tùng – CQ54/21CL.02 106 Financial statements should present fairly the financial position, financial performance and cash flows of an enterprise To achieve a fair presentation, financial statements should be prepared and presented in compliance with prevailing accounting standards, accounting policies and related regulations An enterprise whose financial statements comply with Vietnamese accounting standards and accounting policies should disclose that fact in the notes to the financial statements Financial statements should not be described as complying with Vietnamese accounting standards and accounting policies unless they comply with all the requirements of each applicable standard and policy and each applicable regulations of the Ministry of Finance guiding the implementation of the Vietnamese Accounting Standards Ensuring to be consistent with the production and business activities of the enterprise When preparing financial statements, the Director (or leader) of an enterprise should make an assessment of the enterprise’s ability to continue as a going concern Financial statements should be prepared on a going concern basis unless the enterprise either intends to liquidate the enterprise or to cease trading, or has no realistic alternative but to so When the Director (or leader) of the enterprise is aware, in making its assessment, of material uncertainties related to events or conditions which may cast significant doubt upon the enterprise’s ability to continue as a going concern, those uncertainties should be disclosed When the financial statements are not prepared on a going concern basis, that fact should be disclosed, together with the basis on which the financial statements are prepared and the reason why the enterprise is not considered to be a going concern Ensuring the feasibility As the director making decision to operate activity, or to improve preparing and analyzing financial statements, it is expected that the decision is feasible Feasibility is the possibility that can be made, done, or achieved, or Lương Thanh Tùng – CQ54/21CL.02 107 is reasonable An unfeasible decision will make no use, or even may bring harm to the operation of the company Ensuring the thrift and efficiency To ensure the thrift and efficiency, the accounting information that the company collected should be understandable, comparable, and reliable Representational faithfulness, also known as reliability, is the extent to which information accurately reflects a company’s resources, obligatory claims, transactions, etc To help, think of a pictorial depiction of something in real life – how accurately does the picture represent what you see in real life? For accounting information to possess representational faithfulness, it must be: Complete – Financial statements should not exclude any transaction Neutral – The degree to which information is free from bias Note that there are subjectivity and estimation involved in financial statements, therefore information cannot be truly “neutral.” However, if a company polled 1,000 accountants and took the average of their answers, that would be considered neutral and free from bias Free from error – The degree to which information is free from errors Understandability is the degree to which information is easily understood In today’s society, corporate annual reports are in excess of 100 pages, with significant qualitative information Information that is understandable to the average user of financial statements is highly desirable It is common for poorly performing companies to use a lot of jargon and difficult phrasing in its annual report in an attempt to disguise the underperformance Comparability is the degree to which accounting standards and policies are consistently applied from one period to another Financial statements that are comparable, with consistent accounting standards and policies applied throughout each accounting period, enable users to draw insightful Lương Thanh Tùng – CQ54/21CL.02 108 conclusions about the trends and performance of the company over time In addition, comparability also refers to the ability to easily compare a company’s financial statements with those of other companies Ensuring that the information is timely provided Timeliness is how quickly information is available to users of accounting information The less timely (thus resulting in older information), the less useful information is for decision-making As timlineness is one of the qualitative characteristics of accounting information, the company is expected to ensure that the information is timely provided Timeliness matters for accounting information because it competes with other information For example, if a company issues its financial statements a year after its accounting period, users of financial statements would find it difficult to determine how well the company is doing in the present 3.3 Some solutions to improve the preparation and analysis of financial statements * Regarding of contents of financial statements: Firstly, complete the analytical process and complete the evaluation method to analyze the financial situation Plan and carry out all the steps and analysis in detail, clearly, completely and systematically Plan and conduct more focused analysis through the development of a system of analytical criteria In addition, the company could make analysis of the following: Cash flow statement: Cash flow statement is the main document to money creation and cash flow situation of enterprises provide information to users assessing changes in structure, and ability to generate cash flows during business analyze the level of Cash flow statements net assets, financial the operation of the Sources and usages of capital: Through the analysis of changes in capital sources and capital use, we will see the changes of capital sources and capital use of the enterprises in a Lương Thanh Tùng – CQ54/21CL.02 109 given time From there, there is a basis to guide the capital mobilization and use of capital of the next period The analysis of changes in capital sources and capital use is performed as follows: - Determining changes in capital sources and capital use This determination is made by: comparing end-to-end figures with the beginning of each period to find out the change of each item Each change of each item will be reviewed and reflected in one of two capital use columns or capital changes in the following manner: Using capital will correspond to increasing assets or decreasing capital Capital movements will correspond to increasing capital or decreasing assets - Making analysis table Arrange items related to the use of capital and change of capital in the form of a balance sheet Through this table, it is possible to review and generally review what the increase or decrease of the capital of the enterprise in the period has been used for and the arising sources of capital increase or decrease Based on that analysis, it is possible to orient the capital mobilization for subsequent periods * Regarding the quality of employees: The workforce, especially accountant is a decisive factor to the efficient of preparing and analyzing financial statements because this is a vital factor that affects directly to the results on financial statements Therefore, in order to improve the efficiency of production and business, the company needs to have a plan for training and retraining employees There should be a specific plan in training, improving and updating new professional knowledge for employees; plan to train capable and professional young cadres, raise their responsibility and work spirit, be enthusiastic with the enterprise The company should have a separation between the finance department and the accounting department Lương Thanh Tùng – CQ54/21CL.02 110 Firstly, the company needs to raise the labor recruitment standards, ensure the quality of additional recruiting workers At the same time consolidate and improve skills for available labor resources Secondly, employees can only effectively promote their abilities and qualifications when encouraged and properly assessed so the company needs to pay attention to the distribution of labor remuneration and income true to the ability and effort of the employee Doing so will create motivation to motivate employees to improve their qualifications and capacity to conduct quality and effective work In a nutshell: the training of the company's staff can be extremely effective for improving the production and business efficiency of the company To so, the company needs: - Appropriation of funds to serve the training and retraining of the labor force Adopting policies to encourage and support officials and employees who have conditions to train themselves to improve their professional qualifications - Adopting a policy of rational use of trained and improved employees, such as promotion of salary grades, transfer of working positions to suitable places with higher qualifications Lương Thanh Tùng – CQ54/21CL.02 111 CONCLUSION OF CHAPTER Chapter of the thesis has mentioned the industry scenario and orientation business of the company to adapt such condition The thesis has also pointed out requirements for improving the preparation and analysis of financial statements at Duyenhai Trading and Manufacturer Company Limited including ensuring the thrift and efficiency, ensuring compliance with policies and regimes, ensuring to be consistent with the production and business activities of the enterprises, ensuring that information is timely provided and ensuring feasibility From the disadvantages that were mentioned in chapter 2, the author suggests some solutions to improve the preparation and analysis of financial statements Lương Thanh Tùng – CQ54/21CL.02 112 CONCLUSION In the current situation, our country is in the process of economic development and integration according to the development of the world and the trend of the times Economic integration and development is an opportunity and also a great challenge for the country's economy in general and in particular domestic enterprises in particular This requires each enterprise to make efforts, maximize its advantages, as well as overcome the weaknesses that still exist in order to integrate with the world economy In the era where science and technology are advancing and upgrading by hour, a single decision can decide the fate of an entire business entity To be able to make a right decision, the leaders must have information about company’s current status presented clearly and faithfully, so that no items shall be mistaken Having a good accounting information system also allows director to manage the company’s operation so that if any problem arises, they can interfere and solve the problem in no time But the accounting information system is too complicated for users such as creditors, lendors, and employees… to understand, so a need for a compact but fully and clearly – presented occurred, and financial statements was made Financial statements are written records that convey the business activities and the financial performance of a company This thesis has showed systematicly general theoretical issues about financial statements such as: Definition, Classification, Preparation of financial statements, and Analysis of financial statements On the basis of actual practice and research on preparation and analysis of financial statements at Duyenhai Trading and Manufacturer, Ltd, the dissertation gave comments and assessments on advantages and limitations The company has constantly strived to improve its business management mechanism The preparation of accounting informations was excecuted precisely and speedly The financial statements were presented faithfully, reliably, understandable and it was fully according to the standard and accounting regimes The analysis of financial statements had reached a certain Lương Thanh Tùng – CQ54/21CL.02 113 point of effectiveness; indentify some basic indicators of financial statements Besides, the company also has some shortcomings that need to be overcome such as the content of ananlysis, the methods use for analysis and the ratios system Based on the above advantages and limitations, the dissertation offers a number of solutions to improve preparation and analysis of financial statements at Duyenhai Trading and Manufacturer, Ltd such as: complete the analytical process, complete the evaluation method to analyze the financial situation, train the accountant Above is the whole content of the thesis with the topic "Preparation and analysis at Duyenhai Trarding and Manufacturer, LTd" that the author has implemented recently Through a three-month internship at the Company, the enthusiastic assistant from the staff of the departments, especially the accounting department, and the dedicated guidance of MSc Nguyen Ba Linh, the author have actively studied, researched and strengthened my knowledge and applied it to reality, learned the advantages that need to be promoted and the problems that need to be overcome Due to the limited time of practice and understanding of reality, plus the experience is not much, this thesis will not avoid errors I look forward to receiving comments and advice from teachers and accountants of the company to further improve both theoretical and practical, helping me to fulfill my tasks later Once again, I would like to express my sincere thanks to MSc Nguyen Ba Linh and the staff in Duyenhai Trading and Manufacturer, Ltd, especially Mrs Bui Thi Thi for facilitating and helping me during my internship and completing my graduation thesis Lương Thanh Tùng – CQ54/21CL.02 114 LIST OF REFERENCES Financial Accounting textbook - Academy of Finance - Financial Publisher Lead author: GS.TS.NGND Ngo The Chi PGS.TS Truong Thi Thuy Textbook of organization of accounting in enterprises - Academy of Finance Financial Publisher Lead author: TS Luu Duc Tuyen TS Ngo Thi Thu Hong Management Accounting textbook - Academy of Finance - Financial Publisher Lead author: PGS TS Vuong Dinh Hue TS Doan Xuan Tien Textbook of Corporate Finance Analysis - Academy of Finance - Financial Publisher Lead author: GS.TS.NGND Ngo The Chi PGS.TS Nguyen Trong Co Enterprise accounting regime under Circular No.200/2014/TT-BTC - Thong Ke Publishing House HaRold Q Langenderfer - Accounting The main part System of Vietnamese accounting standards, circulars (TT 120/2003, TT 53/2006 ), Decisions (Decision 15/2006 / QD-BTC ) of the Ministry of Finance Accounting Principles: A Business Perspective, Financial Accounting Writer and publisher: Hermanson, Edwards & Maher IMF articles named “The Great Lockdowm” https://www.imf.org/en/Publications/WEO/Issues/2020/04/14/weo-april-2020 10 “Definition of balance sheet” https://www.lexico.com/en/definition/balance_sheet 11 “Definition of cash flow statement” https://www.investopedia.com/terms/c/cashflowstatement.asp Lương Thanh Tùng – CQ54/21CL.02 ... of financial and non- financial matters Preparation of adopted principles of accounting The basis of preparation of financial statements The accounting principles adopted in the preparation of. .. failure Therefore, my thesis with the topic ? ?The preparation and analysis of financial statements in Duyenhai Trading and Manufacturer, Ltd? ?? will point out the importance of financial statements, ... choose the topic of ? ?The preparation and analysis of financial statements in DUYENHAI Trading and Manufacturer, Ltd? ?? to make my graduation thesis The purpose of the study Based on the theoretical