ENGLISH FOR FINANCE accounting and auditing from the general to the specific

HO CHI MINH CITY UNIVERSITY OF TECHNOLOGY & EDUCATION FACULTY OF FOREIGN LANGUAGE ENGLISH FOR FINANCE ACCOUNTING AND AUDITING CLASS ENFI330437 LECTURER: MA ĐẶNG THỊ LOAN Group: 08 Name Class ID Nguyễn Hoài Nam Thái Hồ Thảo Ngân Võ Lan Như Lý Trần Thanh Thương 18131BE2 18131BE3 18131BE2 18131BE3 18131069 18131070 18131090 18131117 Ho Chi Minh City, December 2020 ENGLISH FOR FINANCE ACCOUNTING AND AUDITING LECTURER: ĐẶNG THỊ LOAN Class: ENFI330437 Group: 08 GROUP MEMBERS No NAME CLASS ID Nguyễn Hoài Nam 18131BE2 18131069 Thái Hồ Thảo Ngân 18131BE3 18131070 Võ Lan Như 18131BE2 18131090 Lý Trần Thanh Thương 18131BE3 18131117 TABLE OF CONTENTS Page Introduction Chapter 1: Accounting and Auditing from the general to the specific 1.1 An overview of Accounting and Auditing 1.1.1 Basic ideas about Accounting 1.1.2 Basic ideas about Auditing 1.2 The details of Accounting and Auditing .2 1.2.1 Accounting in detail 1.2.1.1 Financial Accounting 1.2.1.2 Managerial Accounting 1.2.1.3 Cost Accounting .3 1.2.1.4 Accounting Information System .3 1.2.1.5 Tax Accounting 1.2.1.6 Forensic Accounting .4 1.2.1.7 Fiduciary Accounting .4 1.2.2 Auditing in detail .4 1.2.2.1 Internal Auditing .4 1.2.2.2 External Auditing Chapter 2: The process of Accounting 2.1 Identifying and analyzing Business Transactions 2.2 Recording in the Journals .5 2.3 Transferring all transactions from the Journals to the General Ledger 2.4 Preparing the unadjusted Trial Balance 2.5 Recording adjusting entries 2.6 Preparing the Adjusted Trial Balance 2.7 Preparing Financial Statements 2.8 Recording Closing Entries 2.9 Preparing a Closing Trial Balance 2.10 Recording Reversing Entries Chapter 3: The process of Auditing 3.1 Notification 3.2 Planning Process 3.3 Initial Meeting 3.4 Fieldwork 3.5 Communication 3.6 Draft Audit 3.7 Management Response 3.8 Exit Meeting 10 3.9 Distribution of Audit Report 10 3.10 Feedback 10 Chapter 4: The relationship between Accounting and Auditing 11 4.1 Similarities 11 4.2 Differences 11 Conclusion 14 INTRODUCTION Accounting and Auditing are essential aspects of a business They are known as “Language of business” because they predict and measure the upcoming profit and loss of a company Moreover, Accounting and Auditing give details of financial information to the managers and accounting professionals to make appropriate business decisions There are seven main types of Accounting including Financial Accounting, Cost Accounting, Managerial Accounting, Accounting Information Systems, Tax Accounting, Forensic Accounting, Fiduciary Accounting Meanwhile, Auditing has two common types which are Internal Auditing and External Auditing Generally, all types of Accounting and Auditing play vital roles in every single company nowadays They assist in planning Financial Stability, evaluate Business Performance, and discover and prevent Financial Fraud, which is a critical factor for the development of an organization and surviving in competitive business environments Thus, we have learned about Accounting and Auditing to cultivate the business skills and information CHAPTER 1: ACCOUNTING AND AUDITING FROM THE GENERAL TO THE SPECIFIC 1.1 An overview of Accounting and Auditing 1.1.1 Basic ideas about Accounting Accounting is the significant language of business, which refers to the method of recording, classifying, summarizing, reviewing and presenting financial transactions, documents, reports, profitability and financial status of an individual or company Accounting is performed by the members of a company continuously Accounting is divided into different branches including Financial Accounting, Cost Accounting, Managerial Accounting (known as Management Accounting), Accounting Information Systems, Tax Accounting, Forensic Accounting, Fiduciary Accounting 1.1.2 Basic ideas about Auditing Auditing refers to the process of analyzing a company or organization's financial reports or statements Therefore, it is compulsory for all separate legal entities Auditing is performed after the final preparation of the financial statements and accounts Auditing includes carrying out an examination and legal audit of the financial statements and providing an accurate and neutral opinion on whether the financial statements and reports are a true and fair representation of the firm's present financial situation Auditing has two main categories: Internal Auditing and External Auditing Internal Auditing is managed by an internal auditor who is appointed by the management or an employee of the company External Auditing is conducted by an external auditor who is appointed by the shareholders’ vote 1.2 The details of Accounting and Auditing 1.2.1 Accounting in detail 1.2.1.1 Financial Accounting Financial Accounting involves recording and categorizing transactions for business, so that internal management and external stakeholders, such as suppliers, investors and owners, are able to have an overview of the next financial year It also involves making financial statements based on these transactions According to the Generally Accepting Accounting Principles (GAAP), all financial statements including balance sheet, income statement, cash flow statement and the statement of retained earnings must be prepared Financial Accounting is carried out to give external parties information about the company’s performance, and it is not for internal employees, to analyze and make financial decisions 1.2.1.2 Managerial Accounting Also known as Management Accounting, this type of accounting provides information about a company’s operations to managers The main task of Managerial Accounting is to provide all the data that managers need to make necessary decisions about a business’s operations Managerial Account is focused on the internal decision making, unlike Financial Accounting, which is mainly concentrated on the reporting of the company’s financial transactions to external users 1.2.1.3 Cost Accounting Cost Accounting is considered as a type of managerial accounting It is popularly occurring in the manufacturing industry which has various resources and costs to manage Cost Accounting is related to recording and analyzing production costs by evaluating the company’s fixed and variable costs 1.2.1.4 Accounting Information System Known as AIS for short, the Accounting Information System includes collecting, storing and processing financial and accounting data which is used by internal users to report information to external users This type of accounting is generally a computerbased method to keep track of accounting activity in combining with information technology resources This type is the harmonious combination of modern information technology resources and traditional accounting practices, such as the use of Generally Accepted Accounting Principles (GAAP) 1.2.1.5 Tax Accounting Tax Accounting is a structure of accounting methods which is focused on taxes Tax Accounting is ruled by Internal Revenue Code (IRC), as a result, companies and individuals must follow when preparing tax returns Internal Revenue Service (IRS) adjusts the Tax Accounting to ensure that all taxpayers adhere to all associated tax laws Tax Accounting helps businesses figure out all categories of taxes and find the way to reduce legally their amount of taxes they are owning Tax Accounting also inspects tax-related business decisions and other kinds of issues related to taxes 1.2.1.6 Forensic Accounting This specialized type of accounting service is becoming popular and trending in accounting Forensic Accounting applies auditing, accounting and investigative skills to carry out an examination into the finances of a company or individual, so that they can discover whether there is a financial fraud or not Forensic Accounting is used to support litigation and investigate crimes It is utilized in litigation when a company needs the quantification of damage which assists in resolving argument by court decisions It is also used to discover whether a crime happened and measure the possibility of criminal intent These crimes include employee theft, identity robbery, securities trickery, insurance fraud, or distortion of financial statement information 1.2.1.7 Fiduciary Accounting Fiduciary Accounting consists of estate accounting, trust accounting and receivership The executors of Fiduciary Accounting are required to keep detailed financial records of a deceased person’s assets The Fiduciary Accountant controls most of accounts or activities related to the management and protection of property 1.2.2 Auditing in detail 1.2.2.1 Internal auditing Internal Auditing evaluates how a business splits accounting duties, who is authorized to what tasks, and what procedures and policies are applied Internal Auditing helps a business avoid fraud, mismanagement and waste, or identify and manage any types of potential weaknesses in its policies or procedures 1.2.2.2 External auditing In External Auditing, an independent third party reviews the financial statements of a company to make sure the company presented them correctly and obeyed the GAAP Due to the requirement of laws, management, and directors, shareholders, as well as other requirements, external auditors are normally hired by organizations to audit their financial statement annually CHAPTER 2: THE PROCESS OF ACCOUNTING 2.1 Identifying and analyzing Business Transactions The accounting process begins with the identification and analysis of business transactions and events Only transactions and events which are relevant to the business entity are included in the accounting process Identified transactions and events are then analyzed to determine the affected accounts and the amount to be noted down The first step consists of the process of preparing business documents or source documents A business document is considered as the fundamental thing in recording a transaction 2.2 Recording in the Journals Journals are also known as Books of Original Entry Transactions are recorded in a journal, which can be in the form of paper or electronic books The double-entry bookkeeping system is used to record all business transactions These economic actions are recorded in journal entries includes at least two accounts: one debit (abbreviated to “dr”) and one credit (abbreviated to “cr”) To make the recording process simple, some special journals are often utilized to record transactions that happen recurrently like purchases, cash receipts, sales, and cash disbursements Any kinds of transactions that cannot be recorded in special journals will be recorded in a general book Every economic action or transaction has to be recorded in chronological order and as they happen 2.3 Transferring all transactions from the Journals to the General Ledger Also considered as Books of Final Entry, the ledger collects all accounts that show the changes made to each account as an outcome of past economic actions, and their current balances After posting all transactions to the general ledger, the balances of each account can now be verified For example, all journal entry debits and credits made to Sale when selling products would be moved to the Sale account in the ledger We can measure the increases and reduces in sales; from that, the ending balance of Sale can be determined 2.4 Preparing the unadjusted Trial Balance A trial balance is prepared to calculate whether the debits and credits are equal All account balances are derived from the ledger and organized in one report Afterwards, all debit balances and all credit balances are added It will be right when total debits are equal to total credits When any mistakes are discovered, rectifying entries are made to correct them or change their effect However, noting that the objective of a trial balance is to test the equality of total debits and total credits and not to make sure that the accounting records are right Some errors could be made even if total debits are equal to total credits, such as double posting or failure to record a business action 2.5 Recording adjusting entries Adjusting entries are made as an application of the additional basis of accounting At the end of the accounting period, some expenses or even losses may have been incurred but not yet entered in the journals Some income or profits may have been gained but not recorded in the books Adjusting entries are prepared to make accounts up to date before they are summarized in the financial statement Adjusting entries are made for accrual of profits, accrual of losses, bad debts, deferrals (using income method or liability method), prepayments (using asset method or expense method), depreciation, sale return and allowances 2.6 Preparing the Adjusted Trial Balance An adjusted trial balance consists of all the account titles and balances of the general ledger which is made after the adjusting entries for an accounting process have been recorded to the accounts It is considered an internal document and is still not a financial statement This is to determine the equality of the total debits and the total credits after adjusting entries are made It is used to create the income statement and balance sheet and provide adequate information for preparing the cash flow statement 2.7 Preparing Financial Statements When the accounts are already updated and the equality between the total debits and total credits have been verified, the financial statements can now be prepared The financial statements are the last results of an accounting system A full set of financial statements concludes: (1) Statement of Comprehensive Income (Income Statement and Other Comprehensive Income), (2) Statement of Changes in Equity, (3) Statement of Financial Position or Balance Sheet, (4) Statement of Cash Flows, and (5) Notes to Financial Statements 2.8 Recording Closing Entries At the end of an accounting period, closing entries are made to transfer information from the temporary accounts to the permanent balance sheet or income statement accounts Temporary or nominal accounts can be income, expense, and withdrawal accounts These items are tested in the period However, noting that closing entries are used only for temporary accounts Real or permanent accounts, such as balance sheet accounts, are regarded as not closed accounts 2.9 Preparing a Closing Trial Balance In the accounting process, the last stage is to make a post-closing trial balance It is prepared to measure the equality of debits and credits after making the closing entries Since temporary accounts are already closed at this stage, the post-closing trial balance just only consists of real accounts 2.10 Recording Reversing Entries (An optional step at the beginning of a new accounting period) Reversing Entries are not a compulsory step of the accounting process A reversing journal entry is made on the first day of the new accounting cycle in order not to double calculate the amount when the economic action happens in the next process CHAPTER 3: THE PROCESS OF AUDITING 3.1 Notification The first step of auditing begins with the issuance of some kind of notification to the company or organization being audited The notification letter generally will determine the purpose of the audit, when it will be conducted and the date and time of an initial meeting the auditors would like to schedule with the company’s leaders Besides, it is used to track statuses, assignments, due dates, and follow-ups for all internal and external items to guarantee that they are handled punctually Notifications are created to department managers to assign and resolve findings We usually inform the department head at least two weeks in advance The information requests and questionnaire are often due back to us within two weeks The notification will also point out what documents the auditor wants to examine For a corporation, this can consist of articles of incorporation, the recorded minutes of any board meetings, an organizational chart, correspondence, sales records and more 3.2 Planning Process When the notification is committed to the auditor, they will take some time to prepare the audit This step plays a vital role because it describes the auditor's responsibilities for properly planning the audit Founding the general audit strategy for the engagement and developing an audit project consisted in planning the process, which includes planned risk assessment procedures and planned responses to the risks of material misstatement Before meeting with the organizational leadership, the plan must be done This meeting is held in order to craft the conformable strategy for that meeting and the fieldwork that follows It is also necessary to identify the key areas of inquiry and concern and the specific information which they expect to examine in order to analyze those areas This also gives the company time to assemble the requested documents 3.3 Initial Meeting The planning stage usually predisposes the senior management of the company and the auditors to an initial meeting Administrative staff may also be present The meeting's function is to bring the opportunity to the auditor to explain the process, as well as to give the organization a chance to press out any practical, strategic or scheduling concerns they may have For example, if the department head of the area being audited would like the auditor to review a particular process or procedure in their unit, let the auditor know at this meeting and they will try to include it in their audit The department being audited will typically hold this meeting 3.4 Fieldwork The first active auditing stage in this process is Fieldwork The auditor usually compiles a more detailed schedule so that their presence isn’t too disruptive to business Interviews with key employees may take place to investigate business procedures and practices Specimen document checks may be indicated by the auditor, to make sure the company’s document creation and retention practices are resonated Depending on the size and scope of the audit, the fieldwork may be regulated by a few auditors or a larger team For audits other than the Internal Control Assessments (ICAs), an additional scope meeting will be held with the department head in order to talk over the audit scope and to request specific documents This meeting is not held during the ICAs because the audit scope is predetermined 3.5 Communication The fieldwork is carried out by the auditing team on-site at the company’s premises, at the same time, the team should be kept in touch with the corporate auditor regularly in order to clarify procedures and make sure proper access to needed documents 3.6 Draft Audit When the auditing team accomplishes the fieldwork and document review, the auditors prepare a draft audit report This document details the aim of the audit, the procedures the auditors used, the documents reviewed and therefore the audit’s findings It will also likely include a preliminary list of unresolved issues The draft report is mobilized among the team for review and suggested revisions In this step, the management will have an opportunity to comment on the content and discuss any concerns during the Exit Conference There will be an area during this report for departmental responses to be included within the final audit report 3.7 Management Response The ultimate document is given to management for its review and response after the auditing team makes the last revisions to the audit report The audit document usually requires management to reply to each of the audit’s findings and conclusions by stating whether it agrees or they are unconsenting with the problems cited, the plan to correct any observed problems or deficiencies and therefore the expected date by which all issues will have been addressed 3.8 Exit Meeting Subsequent to management response is Exit Meeting, which may be formally attached to the final audit report, a proper exit meeting could also be scheduled with the corporate being audited to shut any existing loose ends or respond questions, discuss the management response and address the scope of the audit 3.9 Distribution of Audit Report The finalized audit report is administered to all or any necessary stakeholders, embracing inside and outside the area audited, if applicable The final report will be distributed to the department head of the area under inspection, his/her immediate supervisor, the division Vice Chancellor, the Vice Chancellor for Administration & Finance, the Chancellor, the Chief Audit Executive at the Mississippi Institutions of Higher Learning, and the Audit Committee 3.10 Feedback Finally, the audited company enforces the changes recommended within the audit report, then the auditors review and test how well those changes solve the identified problems or issues The feedback among the company and the auditors continues until all issues are resolved and the next audit cycle begins CHAPTER 4: THE COMPARISON BETWEEN ACCOUNTING AND AUDITING 4.1 Similarities Accounting and auditing are similar in some of the basic processes Both must have comprehensive knowledge of accounting principles and basics Both use the procedures and the technical elements of bookkeeping, computation, and checks Both have to work on data provided by many different audiences Based on these data, they will analyze and synthesize it into the original financial statements and submit them to the superior They must endeavor to ensure that the balance sheets and records accurately reflect the actual financial situation of an organization Accounting and auditing have a close relationship with each other in the working process Accountants provide working data for Auditors Auditors will check again the accuracy Besides, the Auditor also gave many contributions and comments to the Accountant to complete the job better 4.2 Differences Definition: Accounting is keeping the records of the financial transactions and arranging financial statements; while auditing is inspecting the financial statements to pass judgment on their fairness Timing: Accounting is a daily process, while auditing is usually carried out annually or quarterly Therefore, books and documents of financial transactions will be made and kept by the accountant in charge, while the auditor will check them Start: Accounting is executed when financial transactions of a business take place And auditing begins when accounting finishes Period: Accounting mostly focuses on the current financial transactions and activities; while auditing directs the previous financial statements Coverage: Accounting involves all transactions, records, and statements having financial implications; while auditing includes last financial statements and records for the most part Detail level: Accounting is very detailed and captures all features related to financial transactions, records, and statements; while auditing usually uses financial statements and records on a sample basis Type of checking: Accounting comprises checking and verifying details related to all financial statements and records; while auditing is perhaps done through test checking or sample checking Focus: The main focus of accounting is to precisely record and present all financial transactions and statements; while the main focus of auditing is to verify the accuracy and reliability of the financial statements and to assess the accuracy between the financial statements and the actual financial situation of the company Objective: Accounting targets are to determine the financial position, profitability, and performance; while auditing is aimed at adding credibility to the financial statements and reports of the company Legal status: Accounting is governed by Accounting Standards with some arbitrary degree, but auditing is governed by Standards on Auditing and does not bring much flexibility Executors: Accounting is carried out by accountants; while auditing is carried out normally by qualified auditors Status: Accounting is usually performed by an internal employee of the company, but auditing is performed by an external person or independent agency Appointment: Accountant is appointed by the company's management; while the auditor is appointed by the company's shareholders, or a regulator Qualification: Any specific qualification is not compulsory for an accountant; whereas some specific qualification is compulsory for an auditor Remuneration type: The accountant is paid the salary of company employees; while the auditor is paid a specific auditing fee Remuneration fixation: The remuneration of the accountant is determined by the management; while the remuneration of auditors is determined by the shareholders Scope determination: The scope of accounting is decided by the management of the company; while the scope of auditing is decided by the relevant laws or regulations Necessity: Accounting is necessary for daily activities of all organizations; while auditing is not necessary on a daily basis Deliverables: Financial statements are arranged by accounting, such as Income Statement, Balance Sheet, Cash Flow Statement; while Audit Reports are made by auditing Report submission: Accounts are submitted to the management; while an audit report is submitted to the shareholders Guidance: Accountants may put forward the accounting improvement and related activities to the management; whereas auditors usually not make proposals, except in some cases with specific requirements, e.g improvement in internal controls Liability: Accountant’s liability usually ends with preparing accounts; while auditor’s liability is after preparing and submitting the audit report Shareholders’ meetings: An accountant does not attend the shareholders’ meeting; while an auditor may attend the shareholders’ meeting Professional misconduct: An Accountant is not usually sued for professional misconduct; but an auditor can be accused of professional misconduct according to the applicable legal procedure Removal: Accountants might be removed by the management; while auditors might be removed by the shareholders CONCLUSION Throughout four chapters, we went through the basic details of Accounting and Auditing In the first chapter, we understood the general knowledge and different types of them Although there are various types, some have a relationship and connection with the others In the second and third chapters, we learned about the steps of Accounting and Auditing which are significant processes we must comply with to finish a complete period of Accounting or Auditing In the last chapter, we found out the relationship between Accounting and Auditing They have several similarities and a variety of differences, which pointed out the characteristics of Accounting and Auditing In our opinion, Accounting and Auditing are important for a company to survive in a harsh competitive business environment Without them, the company cannot develop into a big and popular one REFERENCES 1 Difference Between, www.differencebetween.net Fresh Books: Invoice and Accounting Software for Small Business Owners, www.freshbooks.com Study Materials, in one place • iEduNote.com, www.iedunote.com Bizfluent: A Guide to Running Your Small Business, www.bizfluent.com Investopedia: Sharper insight, better investing, www.investopedia.com wiseGEEK: clear answers for common questions, www.wisegeek.com Wikiaccounting, www.wikiaccounting.com MEMBERS’ ASSIGNMENT No NAME CLASS ID ASSIGNMENT Nguyễn Hoài Nam 18131BE 18131069 General ideas of accounting and auditing Thái Hồ Thảo Ngân 18131BE 18131070 The process of auditing Võ Lan Như 18131BE 18131090 The comparison between accounting and auditing Lý Trần Thanh Thương 18131BE 18131117 The process of accounting ... information CHAPTER 1: ACCOUNTING AND AUDITING FROM THE GENERAL TO THE SPECIFIC 1.1 An overview of Accounting and Auditing 1.1.1 Basic ideas about Accounting Accounting is the significant language... Chapter 1: Accounting and Auditing from the general to the specific 1.1 An overview of Accounting and Auditing 1.1.1 Basic ideas about Accounting 1.1.2 Basic ideas about Auditing. .. strategy for that meeting and the fieldwork that follows It is also necessary to identify the key areas of inquiry and concern and the specific information which they expect to examine in order to