RECOMMENDATIONS TO CONTRIBUTE TO THE
THEORETICAL FRAMEWORK ON PURCHASING AND
Overview of purchasing and payment cycle in financial statement
1.1 Overview of purchasing and payment cycle in financial statement
1.1.1 Overview of purchasing and payment cycle in financial statement
Purchasing and payment cycle consists mainly of two classes of transactions The first class is the purchase class The typical journal entry for this class of transactions is a debit to inventory or an expense and a credit to account payables The classification assertion is highly important in this scenario because there are many possible debits that can fulfill the journal entry.
The purchase cycle includes activities related to the procurement and payment process for goods and services for production and business activities of the unit (including the procurement of fixed assets for production and business activities and leasing activities, staff recruitment) The main activities in the cycle include: Purchasing materials, goods and services –Purchase operations; make payments - Payment operations Purchasing and payment activities affect many items on the financial statements of the business.
Debit or Credit Account Payable
Cash on hand Cash at bank Merchandise and materials (return to suppliers)
Payment discounts Merchandise and materials (Trade discounts)
In any enterprise, especially production and business enterprises, in order to survive and maintain its production and business activities, the business process of the enterprise must be continuous and repetitive, forming business cycles The business process consists of continuous cycles in which the payment purchase cycle is located at the second stage of the process, which is an important part of providing important inputs for the production of products and for the process of stockpiling goods before putting goods into circulation.The good implementation of this process will ensure that businesses can lower input costs with stable quality Under the current Vietnamese accounting regime, this process begins with making an order for the supplier and ends with the payment of goods and services received This is an important part of the business chain of companies It provides important inputs that contribute in no small part to the results obtained The effective implementation of this process will help the company save input costs as well as use high-quality products From an audit perspective, the payment purchase cycle involves a number of indicators on the balance sheet on the asset side, the source of capital affects the ability, rights and obligations of the business as well as showing the ability of the business to operate in the future. The audit of the payment purchase cycle involves many external parties as well as the conclusion of this cycle can affect the rights and obligations of the company thus obtaining the most accurate conclusions.
1.1.2 Main accounting requirements for purchasing and payment cycle
Purchase request form: This paper is prepared by departments wishing to use supplies, goods and services, This proposal is sent to superiors (head, board of directors, head of department) for approval.
Purchase order (purchase order): After the purchase offer is approved, it is converted into an order by the purchasing department and sent to the supplier.
Delivery slip (minutes of delivery of goods or acceptance of services): This document is prepared by the supplier and transferred to the buyer (purchasing department) of the enterprise to prove the actual transfer of goods and services.
Receipt slip: prepared by the receiving department after receiving the goods and checking the goods
Sales invoice: prepared by the supplier to prove that the goods and services have been transferred ownership to the buyer and are the basis for the buyer to pay for the goods and services they have provided.
Purchasing and payment cycle consists of two types of operations: the purchase of goods and services and the payment to suppliers To record and reflect the fluctuations of information in this cycle accountants use a large number of the following accounts:
1.1.3 Internal control over purchasing and payment cycle
Internal control of the payment purchase cycle includes all policies, control information and control steps developed by business managers to control information about supplier liabilities, purchased goods to ensure that they can prevent and detect possible material violations.
To understand the process of internal control of purchasing and payment cycle, it is necessary to gather design and operational insights
The internal control system of each unit is built to control and ensure that the activities of the enterprise always comply with the provisions of law, comply with regulations, and procedures set by the unit For payable to suppliers, the internal control process aims to meet requirements such as:
Enterprises have issued specific policies, regimes and regulations to manage and track purchasing and payment cycle
Enterprises must have a complete bookkeeping system to track operations related to the payable to suppliers: general ledger, vouchers,purchase logs, purchase reports, goods statements, protection logbooks,warehouse cards are well documented and timely Besides, they must show signs of internal control over all records, vouchers and books related to the sales of relevant people and there is a reconciliation of debt with suppliers.
Through assignment, instructions for performing work, checking the performance of approval works, ensure the strict and effective implementation of the internal control regulations developed above.
The objectives of the internal control Contents and control procedures
Ensure that purchases and payments are reasonably grounded
- Numbering of documents, commercial contracts, sequence numbers of sales invoices.
- The content and responsibilities for approving sales
- There are documents proving the purchase and payment (warehousing, transportation )
Ensure that the accounts payable to the suppliers are properly approved
- Purchasing and payment operations must be approved in accordance with commercial contracts and in accordance with the authority Control procedure: Review records related to the supplier and order procedures
Ensure a proper and reasonable assessment of accounts payable to suppliers
The basis used to calculate the purchase amount, the payment amount must be correct and reasonable Control procedure:
- Check and compare the data on the invoice with the data on the receipt book, shipping documents, commercial contracts
- Check the purchase price and the conversion of foreign currency prices (if buying in foreign currencies)
Ensure the proper classification and accounting of purchasing and payment operations
The classification and bookkeeping are guaranteed according to the group of goods and suppliers Control procedure:
- Check the notes on the sales invoice
- Check the accounting records to ensure the correct reciprocal relationship account and the amount
Ensure full and timely accounting of purchase and payment operations
Arising operations must be fully recorded, not redundant, missing or duplicated. Control procedure:
- Compare the number of invoices with the number of entries recording purchases and payments Check the continuity of the document number
- Check the conformity of the date of operations arising with the date of operations recorded
Ensure the proper accumulation of purchases and payments
Figures must be calculated in full and accurate aggregates Control procedure:
- Check the results of calculations
- Compare aggregated data from subledger with general ledger
Purchasing and payment cycle audit in financial statement audit
The audit objectives in auditing purchasing and payment cycle audit: In general, the objectives of auditing the purchase and payment cycle is to assess whether the balances of the relevant accounts are presented truthfully and in accordance with applicable or recognized accounting principles.
The specific audit objectives of purchasing and payment cycle are:
Assertions The objectives of auditing
The recorded payment ensured by the goods or services received The recorded payment operation must be ensured that it has been performed.
Payables are recorded, presenting and reflecting the amount payable to the seller on the balance sheet
The payments that occurred during the period are fully recorded.
Payables to suppliers have been presented, including all those payables to suppliers on the balance sheet
Companies are responsible for payables arising from the purchase of goods and/or services
Payables reflect the entity's obligations on the balance sheet
Payments are evaluated in accordance with GAAP, record, balance, and correct transfer.
Payables are properly reflected in the correct value
Specific purchases and guaranteed payments are presented in the financial statements including classification and disclosure of related matters
Payables and related expense items are properly identified and classified on the financial statements The appropriate disclosure is made in relation to the commitments, those payable which cannot be paid, and those payable to the third parties
The above specific audit objectives are the basis of reference when auditing other relevant cycles (inventory, selling, ) Therefore, to achieve that ultimate target, during the audit process, auditors must do surveys and reassess the actual effectiveness of internal control activities for this cycle to serve as a basis for designing and implementing basic surveys.
1.2.2 Risk of material misstatements in purchasing and payment cycle audit
Goods and services have not been received from the seller, but have been recorded Many businesses which make high profits often increase costs to reduce profits by buying vouchers, purchase invoices, without receiving goods.
Companies create fictitious sellers, these suppliers are usually new suppliers The purpose of creating purchase orders from these sellers is to increase the value of inventory, the assets of enterprises, costs and reduce profits.
Enterprises that buy goods in foreign currencies are usually exchanged for a higher exchange rate than prescribed for the purpose of increasing the deducted input tax.
Some businesses often buy goods at a higher purchase price than the actual price This situation often occurs in enterprises run by the state due to many reasons such as the buyer asking the seller to write an increase in the amount on the sales documents.
1.2.3 Sources of audit evidence in purchasing and payment cycle audit
The specific sources for auditing are diverse in form, origin, content It is possible to generalize about the main sources including:
The policies, regulations on relevant internal control such as regulations on functions, rights and obligations of persons or departments that approve purchase orders and suppliers, regulations on the order process and procedures for approving purchase orders;
Financial statements (the part related to goods, assets purchased and payments to the seller) and the balance sheet of the entity.
Related accounting books such as general ledger, subledger of related accounts such as 331, 133, 151, 152, 153, and related books such as warehouse books, shipping logs,
Other related documents: purchase invoice, payment order, good receipts note, VAT invoices, shipping documentations,…
Contracts for sale, lease of property, houses, land, orders, minutes of liquidation of sales contracts, lease contracts, production and business plans,
Purchasing and payment cycle audit in financial statement audit
The process of auditing the purchase and payment cycle in the financial statements audit also complies with 3 steps as prescribed in the financial statement audit:
1.3.1.1 Understanding the situation of the audited company
Understanding the client's industry and business activities:
Understanding the business lines of clients and activities helps auditors identify different types of goods that enterprises buy as well as the payment method and purpose of use for each type of goods in accordance with the purpose committed in writing documentation In addition, understanding the client's business line also tells auditors how to organize the accounting system and the specific accounting principles of the payment purchase cycle in particular and the industry in general In addition, auditors need to review the results of the previous year's audit report and audit records to identify high- risk items in cycle, steps where internal control systems are weak For instance, the client can not carefully record debts with infrequent small suppliers and these weaknesses can not be overcome in a short time An initial understanding of the client's industry gives the auditor a general understanding of the business lines, the specifics of the line of business, and anticipates the need for the use of outside experts for specific business lines.
1.3.1.2 Understanding the internal control of the entity
Auditors should learn about the accounting policies that the audited entity applies and the changes in that policy, the impact of the new accounting and auditing policies, the specific information about the accounting system,the internal control system and the important points that auditors intend to implement in control testing and mechanical testing It is necessary for auditors to consider, what is the purchasing process of the business, and whether the purchase invoice will be immediately submitted to the accounting department Does the accountant have timely records in the general ledger, and sub - ledger In addition, auditors have to pay attention to whether debts are regularly checked with sellers, there is an approval for each type of debt, there are strict regulations on the use of foreign currency rates in accordance with regulations to account for payable.
1.3.1.3 Assessment of materiality and audit risks
In order to assess the level of materiality, auditors first need to estimate the materiality level for the entire financial statements, and then allocate this assessment level to each item on the financial statements.
For the purchase-payment cycle, the essence of the items in the cycle is:
-Purchases account for a large proportion of the total business costs of the entity
-The purchase transactions themselves involve many assets such as fixed assets, inventory, and most of them are important.
The steps for assessing materiality can be summarized in the following manner:
Step 1: Initial estimation of materiality
Step 2: Allocate initial estimates of materiality
Step 3: Estimate the number of violations in the department
Step 4: Estimate the aggregated error
Step 5: Compare the estimated aggregated error with the original estimate
There are 3 types of audit risk: inherent risk, control risk and detection risk, the audit risk can be divided into 2 main components: partly depends on the business: inherent risk, control risk and partly depends on auditors: detection risks Auditors can not control two types of risks, which are inherent risks and control risks because it exists from the nature of business, but they can still reduce audit risks based on the assessment of two types of inherent risks and control risks, and then adjust detection risk Therefore, in the planning stage of an audit, auditors often assigns the desired level of audit risk, and assesses inherent risks and control risks based on the situation of the enterprise, corporate governance, the nature of the business, the field of business activities and the characteristics of the entity from which to identify detection risks, as a basis for the design of audit tests The relationship between the three types of audit risk is reflected in the quantitative audit risk and the qualitative audit risk.
AR = IR x CR x DRAR: Audit riskIR: Inherent riskCR: Control riskDR: Detection risk
1.3.2.1 The major internal control procedures of the purchase and payment cycle
The specific and primary objective of the internal control survey for the purchase and payment cycle is to understand the internal control structure for the purchase and payment cycle; assess the level of control risk On the basis of the results of the internal control survey, auditors will determine the scope of the audit and design appropriate basic surveys (business surveys, balance surveys).
The following is a table that illustrates the internal control survey objectives and procedures for the purchase and payment cycle:
The purchase of goods, assets and payments is real (actually occurring and properly approved).
- Review purchase documents and invoices in relation to shipping documentations, contracts, purchase orders, and contract liquidation minutes.
- Consider the approval authority and independence of the purchasing department.
- Check on the approval process and signs of internal inspection
- Check questionable documents and documents with weak internal control process.
The purchase of goods, assets and payments are calculated and evaluated correctly.
- Check for questionable documents and documents with a weak internal control processes in terms of amount and calculation.
The purchases of goods, assets and payments are fully booked.
- Check the continuous numbering of purchase documents such as purchase orders, warehouse receipts, test minutes, shipping documents,
- Check the continuity in recording purchase logs, purchase reports, protection logs when goods arrive at enterprises and general and detailed accounting books,
Purchase and payment operations are - Check the record date and date on recorded in a timely manner invoice documents, test minutes and warehouse receipts
The purchases of goods, assets and payments are recorded on time.
- Check the dates on the warehouse receipts, test minutes, purchase invoices and book dates with divergence dates.
- Check the internal control for purchase documents such as: purchase orders, purchase petitions, test minutes, warehouse receipts,
The purchases of goods, assets and payments are recorded in accordance with the classification and the right methods.
- Survey some account diagrams for some typical cases.
- Check for violations of the internal control statute on proper methodical and correct classification on some questionable documents.
The purchases of goods, assets and payments are accumulated and presented correctly.
- Check and compare basic operations, general data.
- Check for violations of the internal control regulations
1.3.2.2 Perform basic surveys on the purchase and payment cycle
In auditing the cycle of purchase of goods, assets and payments, auditors often use the following general assessment analysis techniques to consider the rationality and logic of purchased goods, assets, and supplies. Thereby, identifying abnormal properties, information discrepancies about assets, supplies and goods purchased, thereby orienting the audit.
The techniques that auditors often use are:
Compare goods, assets and supplies purchased in this period with the previous period and the previous year according to each separate type.
This comparison allows the auditor to know the fluctuations of materials, assets, goods purchased in general and by type of goods in particular For more accurate results, auditors must compare for each type and thing separately The auditor should compare this period with the previous period, and when comparing the auditor must pay attention to the actual comparison of this period of this year with this period of the previous year At the same time, it must be related to the actual production and business conditions of the enterprise and must be placed in relation to the purchase plan, with output, with price, with the structure of purchased goods, with the scale and business plan of the enterprise in each period If there are fluctuations, even if there are no fluctuations, it is necessary to collect sufficient information and documents as evidence to prove and explain this difference.
Compare supplies, assets and goods purchased between actual and budget both in quantity and amount.
This comparison must be made for each type of assets, goods and supplies purchased in both quantity and amount, the comparison results will be more accurate Whether this comparison results in evidence of high or low reliability depends on the accuracy and science of the plan In comparison, the auditor needs to know the analysis in relation to actual fluctuations with the plan of the previous period, the previous year Any discrepancies detected will help auditors orient the audit and it is necessary to gather sufficient appropriate evidence for clarification.
Compare the actual payables this period, this year with the previous period, the previous year by total and by each client, each buyer to detect and find evidence that clarifies any changes.
Compare the ratio of materials, assets and goods purchased in the period compared to the total number of supplies, assets and goods that enterprises use between this period, this year and the previous period and the previous year This comparison aims to find out the fluctuations of the type of materials, assets and goods produced by the enterprise itself used in the period In some cases, the total number of materials, assets and goods used does not change, but if the number of materials and assets produced by the enterprise is large, the number of purchases will be less and vice versa This comparison should always be placed in relation to the production and business plan, the purchase plan, the size, price and actual conditions of the business, in order to detect abnormal fluctuations to find the cause and evidence to clarify the difference.
Compare the number of accounts purchased in the middle of this period, this year with the previous period, the previous year to assess the actual number of purchases used with the previous period, the previous year to assess the actual number of purchases used in this mid-period, this year with the previous period, whether the previous year made sense or not.
Procedures for detailed inspection of purchasing operations:
Check the entries on the general ledger, whether the details are guaranteed and proven by documents, purchase invoices and warehouse receipts Then compare these documents, purchase invoices and warehouse receipts with contracts, purchase orders, test minutes, shipping documents (if any), and liquidation minutes of sales and transportation contracts, noting the legality and logic of documents.
Check the approval for the purchase operation: Does the approver have the right authority and regulations on internal control of the enterprise Is the order of approval reasonable The contents of approval must be in accordance with the contract, purchase order, purchase request with reality, in accordance with the test minutes and regulations of the enterprise.
In addition, the auditor selects typical samples of some purchases and payments that have been reflected on the general accounting book, the details of which consider them have been reflected in the purchase log, purchase report, warehouse card,…
The auditor may conduct other supporting audit procedures such as: Obtaining confirmation of the seller, checking the bookkeeping of reciprocal accounts, checking the records on the protection logbook, shipping log, warehouse card,
PURCHASING AND PAYMENT CYCLE AUDIT IN
Overview about Ernst & Young Vietnam Ltd company
2.1.1 The introduction about EY Vietnam
In 1989, two auditing firms, Ernst & Whinney and Arthur Young & Co, merged and created Ernst & Young (E&Y) This is a well-known merger in the accounting industry and has a great influence in the financial world.
In 2013, to facilitate the attraction of human resources, investment and business, the group adopted the name E&Y as a trade name and changed its logo to yellow-gray, and continues to operate today.
In 1992, Ernst & Young was present in Vietnam as the first company to provide audit services with 100% foreign investment with a branch in Vietnam Global EY network member companies in Vietnam include Ernst & Young Vietnam (EY Vietnam), Ernst & Young Vietnam Law Firm Limited (EY Law Vietnam), EY Consulting VN, EY Vietnam Cybersecurity In 2017,
EY Vietnam just celebrated its 25th anniversary In 2022, EY Vietnam will celebrate its 30th anniversary.
Audit services are the cornerstone of EY with clients and EY's largest service EY provides high-quality, innovative audits to deliver trust, value, transparency, and provides superior client service through multidisciplinary teams across the globe EY provides consistent auditing services by bringing together the right multidisciplinary teams to solve the most complex problems, using a globally proven audit methodology, and applying the most up-to-date and high-quality audit tools and technologies.
2.1.2 Organization structure of EY Vietnam
Ernst & Young Vietnam is a member of Ernst & Young Global, so the organization and business structure of the Company is also applied according to the global model, which is decentralized and geographically divided, but has changed in accordance with the characteristics and conditions in Vietnam. The organization structure of Ernst & Young Vietnam auditing company: General Director, Deputy General Director, Administrative Department and Professional Department As follows:
General director: As this is divided into 4 main parts manager and fully responsible for all activities of the company in Vietnam, directly managing the affairs of the office in Ho Chi Minh City and indirectly managing the affairs of the Hanoi office through the Deputy General Director in Hanoi The general director is also in charge of developing short- and long-term development plans and strategies of the company.
Deputy general director: is the person who manages on behalf of the
General Director and is responsible for all activities of the company's office in Hanoi The Deputy General Director has the role of managing the work at the office, urging the implementation of the strategic business plans set forth by the Board of Directors, and regularly reporting on the implementation of service provision to the General Director.
All members of the Board of Directors are shareholders of EY Vietnam and are responsible for directly assessing audit risks, evaluating clients, making decisions and representing the company to sign service contracts with clients, at the same time, they are also the ones who carry out the final reviews of the audit records and are the signatories to the audit reports and management letters to provide to the client.
The administrative department of the company includes the accounting department, the information technology department and the office department.
Accounting Department: Performs the task of managing and monitoring the financial and accounting situation, performing the process of accounting for costs and revenues, promptly notifying the board of directors of financial issues of the company.
Information technology department: Has the function of providing hardware equipment, software to help the company's employees perform work At the same time, this department is also responsible for building and managing the internal network system for the company, especially to ensure information security for clients as well as for the company Whenever employees have difficulty using computers or computer software, they can contact this department for assistance to make the work smoother.
Office Department: This is a department dedicated to incoming dispatches, outgoing dispatches, storing and providing document files for each employee when required, providing the employees of the company with the necessary stationery for the job In this department, there is also a driving department to serve the travel needs of jobs in the company to ensure work progress However, in Ernst & Young Vietnam, the most important part, bringing revenue and profit to the company is the operations department This department currently consists of 3 main departments: Audit Department, Consulting Department and Tax Department.
2.1.3 Operating activities features of EY Vietnam
EY audits provide business organizations with a wide range of services to provide growth opportunities, promote financial performance and enhance risk management for clients The purpose of Ernst & Young Vietnam as well as EY global is to help economic organizations develop whether they are new or old, large or small, Vietnamese or foreign, private or state because of the insights and wise solutions that EY provides to clients. Currently, EY offers key service areas such as:
- Growth Markets: Organizing events such as entrepreneur of the year, entrepreneurial winning women
- Specialty Services: Climate change programs, private services for Japanese businesses, family businesses
In which, audit and assurance services still account for the highest proportion of revenue for companies with revenue from auditing on financial
EY Vietnam is located in Asia Pacific with its head office in Hanoi and offices in Ho Chi Minh City In addition, EY has expanded into Laos and Cambodia Starting with an extremely modest number of employees (10 in
1992 and 15 in 1995), after more than 20 years of operation EY Vietnam has expanded to nearly 1,000 employees Including nearly 70 practicing auditors accredited by VACPA and the Ministry of Finance.
EY Vietnam has also provided audit services to a number of major partners such as ANZ Bank, Hoang Anh Gia Lai Group, Daiichi Insurance Company, Vietcombank, VinGroup,…
EY is well known for its slogan "Building a better working world" A professional working environment, mutual trust, stable development,nurturing talent across sectors and collaboration among employees is something EY has always wanted to build A good and productive working environment will make the world a better place.
EY Vietnam also focuses on employee-specific activities After 31/03 – the end of an auditor's busy season, everyone in the Audit department will be able to participate in the "End of busy season" program This is a fun and picnic activity for employees to recharge their energy after a stressful busy season In addition, EY also organizes many picnics to bond with the members of the company.
EY always puts human resources first in providing professional and quality audit and consulting services Qualifications, experience, and attitude to serve our clients are prerequisites for EY's success
Purchasing and payment cycle audit in financial statements audit client
Introducing about the client company
ABC joint stock company operates under business registration certificate
No 010302831768, dated 05/09/2010, issued by Hanoi Business Registration Office.
Head office of the company:
Address: YH Ward, CG District, Hanoi City
Email: ABC@vn.hn.com
The main activities of the company are manufacturing transformers, spacers
Board of Directors of the Company
Leadership members and important positions of the Company in 2022 are:
2.3.1.1 Finding out about ABC company
Finding out about client and its environment
Senior Nguyen Manh Lam is responsible for planning the audit.
This is a former client, so the company relies on the information about the client in the previous year's audit file, combined with the information that auditors collected through communication with the Board of Directors of ABC Co., Ltd will help auditors have a preliminary understanding of the client.
The company's payables are very large, and they continuously incurred, receivables are extremely diverse including domestic and foreign clients.
EY understands about the client through form 800 as follows:
Photo 3: Form 800 to understand about the client’s environment
Learning about the internal control systems of the client
ABC Company is a recurring client of EY, so the records related to the internal control system are kept in the general audit file Therefore, when conducting the audit of 2022, auditors did not interview according to the questionnaire However, auditors still find out if in 2022 the company has made any major changes in the management apparatus, as well as changes related to the payment purchase cycle.
Photo 4: Form 800 to survey on the internal control
2.3.1.2 Carry out general analysis procedures
This is one of the evidence-gathering techniques used by the auditor during most phases of the audit to get an overview of the Company's financial position The implementation of general analysis steps is carried out through the preliminary analysis of the financial statements of Company ABC based on the fluctuations of the account balances on the balance sheet of this year compared to the previous year (horizontal analysis) and the calculation of ratios (vertical analysis).
Preliminary analysis of ABC company's balance sheet
Preliminary analysis of the company's balance sheet
Ending balance Beginning balance Variance %
Long-term assets in progress
Total liabilities and owner’s equity
Through the above preliminary analysis, total assets increased by more than 654 billion, of which cash increased by 144 billion VND or 94%, indicating that the ability of businesses to pay quickly has increased Besides, inventories accounted for the majority of the increase in total assets (367 billion VND).
An increase in merchant payables of 655 billion indicates that businesses need to proactively pay suppliers and stakeholders early.
2.3.1.3 Determine the level of risk
The auditor evaluates the materiality to estimate the acceptable level of errors of the final indicators on the financial statements The criteria auditors usually choose are: Pre-tax income, Accounting profit before tax, net revenue or total assets The auditor multiplies the value of those expenditures by the corresponding ratios For ABC company, based on the calculation of indicators, the auditor chooses the pre-tax income as the basis for determining the performance materiality for the overall financial statements.
Photo 5: Form 800 to determine PM, TE, SAD
In EY, auditors use form 280 (R) SCOT form to understand about the company and then test of control by testing 25 samples over total population to ensure that the client has performed control over account payables
List of control point that the client has to perform:
Auditors in EY perform a test of detail by running EY smart sampling to choose key and representative items to test on invoices, contracts, and delivery notes.
Auditors in EY will test 25 samples as follow to check whether the client performs control over account payables:
Photo 8: Samples for test of control Perform substantive tests:
Photo 9: Samples for test of detail Perform the procedure for sending a confirmation letter:
For the procedure of sending a letter confirming the supplier's payable, auditors will send a closing confirmation letter, which means that auditors will write down the number and the supplier only needs to confirm whether it is correct This choice of confirmation method is due to the risk to this account of being often written lower than it actually is The auditors will select accounts payable with a balance that is higher than threshold and a movement of debit balance that is higher than tolerable error.
After completing the above detailed inspection procedures, auditors summarize the working results from the previous working papers to summarize the results of the purchase and payment cycle audit.
After collecting the client's management letter and compiling the audit results, the auditors prepare a draft audit report This draft report will be sent to the client for review to come to a consensus on the data and adjustment entries Finally, based on the results agreed with the client and the results of the final review by the Board of Directors, the auditors shall prepare an appropriate audit report to be issued to the client.
There is also one last thing that the audit team must do is to evaluate the results and quality of the audit, including reassessing the risks of the audit, reviewing the effectiveness of the performance of the service to the client, assessing the quality of the employee's work At the same time, auditors also maintain regular relationships with clients, keeping abreast of major changes of clients that may affect next year's audit plan.
Assessment of auditing purchasing and payment cycle in financial
EY's audit process, especially the audit of the purchase and payment cycle, always strictly complies with Vietnamese auditing standards and the provisions of law Auditing the purchase and payment cycle conducted by the company is considered quite effective, ensuring the general audit objectives and specific audit objectives of this cycle However, the purchase and payment cycle audit process still has a lot to fix The advantages and disadvantages of the purchase and payment cycle audit process performed by
EY can be summarized as follows:
The company always strictly implements the contents in the audit planning process With their experience and professional manners, EY Board of Directors members always conduct face-to-face meetings with clients quickly, always reaching agreements to satisfy clients to facilitate the signing of contracts to take place quickly in accordance with the law In particular,
EY places great attention on assessing contract risk before accepting an audit contract The main method applied is to conduct research about clients (business field, organizational structure, operating style of client management, ) For the purchase and payment cycle, the auditor conducted a preliminary understanding and assessment of the internal control system and expected control risk to assess audit risks and have direction in obtaining audit evidence The auditor also conducts a material assessment of both the report and the omission threshold for the payable and thereby serves as the basis for designing an audit program for purchasing and payment cycle.
This is the stage where the auditor conducts a direct audit at the client unit Successful implementation of this stage will ensure the full success of the audit Therefore, EY performs work assignments in a clear, scientific way, so the implementation of audits is quite effective Items have their own audit program and procedures and are carefully executed step by step After the auditor who is responsible for the audit performs a general understanding and risk assessment, the new auditors perform a detailed analysis and examination procedure.
For the purchasing and payment cycle, based on the specific audit program for the pre-built item, the auditor implements the procedures in a complete and rigorous manner Depending on the specific case, the auditor selects the appropriate audit procedure in the sample audit program to perform the audit.
Although the detailed inspection procedure is timely, laborious and costly, the auditor performs quite fully, especially the detailed inspection of purchases and payments This procedure is usually carried out through the sampling of operations to check the occurrence, correctness, completeness, classification and correct accounting If the number of operations is not too much, the auditor can perform 100% detailed inspection of the operations.
The end of the audit is the final stage of an audit aimed at compiling the audit work and issuing the Audit Report In order for the issuer's audit report to comply with Vietnamese Auditing Standard No 700 – Audit report on financial statements, EY's Board of Directors directs a very thorough review of the results performed by auditors and assistant auditors at the client's unit In order to give a final audit opinion, it must be reviewed by three levels, namely the partner and the manager, the senior This is a step to evaluate the quality of the audit of the Board of Directors.
After the official audit report is released, the company's auditors continue to monitor events after the date of the report release that affect the Audit Report.
Firstly, evaluate the internal control system for the purchase and payment cycle with an emphasis on interviewing and reading documents By doing this, auditors can save time but the quality is not high and sometimes inappropriate The auditor is also not interested in directly observing the purchasing work at the client’s company to evaluate the implementation of the entity's control procedures for the client's purchase and payment process. Secondly, the assessment of risks to the purchase and payment cycle is important but still has many limitations The limitation is that the risk assessment opinion, mainly assigned to the auditor in charge of the audit, so it is inevitable that there is a lack of objectivity and accuracy When an error is detected, the auditor will make an estimate based on his experience to decide whether to adjust or not.
Thirdly, the audit program at EY is designed generally for most audits and for the purchase and payment cycle, although in the process of implementation there is a change accordingly, but because the type of activities and services provided by the company is quite diverse, the audit under such a general program will reveal a lot of limitations in detecting material misstatements of the entire financial statements and of the purchase and payment cycle.
The conduct of the audit is mainly the selection of the audit sample.Today's audits are conducted on a sample basis and the auditor must accept certain uncertain conditions during the test because the auditor cannot 100% check the operations that arise in an entire accounting year of the client In economic terms, a comprehensive audit will take too much effort, cost and time Sampling by auditors is still conducted based on professional experience and judgment The inspection is based on selecting large or unusual operations that do not show the nature of the whole to be checked, not representative Therefore, choosing a sample may ignore some small errors,but when accumulating these errors, it can lead to materiality.
Firstly, often businesses have to prepare reports before 31/03/2023, so it gives auditors a time pressure Auditors during the audit season are quite busy, some procedures may be cut to match the schedule, which may affect the quality of the audit, especially the late march audits.
Secondly, the company's limitations are from the client: such as delay in providing documents, relevant information, These are objective limitations of the company, but these limitations may affect the company's delay in issuing financial statements and sometimes inappropriate issuance of financial statements
This chapter introduced the company's formation and development process, business activities, financial statement audit process performed by
EY Vietnam Co., Ltd., especially the current state of the audit process, and purchasing and payment cycle audit methods at EY Vietnam Co., Ltd In order to promote the advantages gained and limit the disadvantages in auditing, Chapter 3 will offer some solutions to complete the audit for purchasing and payment cycle at EY Vietnam Co., Ltd.
SOLUTIONS FOR IMPROVING PURCHASING AND
Requirements and necessary of improving purchasing and payment cycle
3.1 Requirements and necessary of improving purchasing and payment cycle audit in financial statement audit performed by EY VIET NAM
3.1.1 Necessary of improving purchasing and payment cycle audit
Throughout the formation and development, as one of the four largest auditing firms in the world, EY has always strived to develop and improve the quality of its audits in all aspects For that reason, it is essential for EY to improve the audit of the purchase and payment cycle.
Firstly, stemming from the general requirements of the purchase and payment cycle audit in the financial statement audit at EY:
The purchase and payment cycle plays an important role for production and business enterprises The results of this cycle directly affect the production stage and the costs due to purchasing activities account for a large proportion of the total production cost, directly affecting the net profit of the enterprise Therefore, from the perspective of management, this cycle is very important.
From the auditor's point of view, the purchase and payment cycle is subject to an audit when auditing financial statements The results of the audit of the cycle affect the overall results of the audit Therefore, it is necessary to audit the purchase and payment cycle not only to detect errors but to provide consulting opinions to businesses on a management level This is the goal that managers want from auditors With such an important role, it can be seen that the completion of the purchase and payment cycle audit program cannot be ignored The financial statement audit program implemented by EY is quite effective, providing a highly effective working method which is a strength of the company.
Secondly, stemming from the current state of the company:
In order to provide audit services with constantly improved quality and meet the needs of clients, EY must always improve the audit for each part and the entire financial statements to meet the increasing demands from clients and users of financial statements.
The completion of the audit of financial statements as well as the audit process of the purchase and payment cycle is an inevitable requirement from the practice as well as the reasoning of the audit activity itself Therefore, it requires attention from the government, regulators and other subjects in the economy.
Human resources are the core factor in the audit activity, it determines the survival of the auditing company Therefore, the company continues to foster staff to have higher professional qualifications, deeper understanding of the system of auditing standards, accounting in Vietnam and internationally, on taxation, and other areas of activity that bring great revenue to the company as well as enhance the company's position in the market and must have a worthy remuneration regime for employees.
Quality control: EY needs to develop and strictly implement auditing regulations and quality control procedures and ensure that the services it provides are of high quality and adequately monitored, complying with the principles of independence, integrity, objectivity, confidentiality, general regulations and professional status.
Solutions for improving purchasing and payment cycle audit in financial
Firstly, assessment of the internal control system and control risks:
According to Vietnamese Auditing Standard No 400 – Risk Assessment and Internal Control: "The auditor must have a full understanding of the client's accounting system and internal control system to formulate an overall audit plan and an appropriate audit program."
This assessment should be carried out by a variety of people with expertise and experience, using a variety of methods of client engagement.
EY may also use computer software to calculate audit risks.
Implementing the above solutions, EY will have an effective system of risk and material assessment methods, meeting the quality assurance requirements of audit work, especially for purchase and payment cycle audits.
At the same time, auditors use two ways of assessing audit risks as reminders of the relationship of risk types with each other and their relationship to the amount of evidence to collect.
In order to apply these risk-critical pricing methods, EY needs to systematize the above methods into an indispensable procedure in the general audit planning phase in general and for the purchase and payment cycle in particular.
According to Vietnamese Auditing Standard No 520 – Analytical procedures, "Analytical procedure is the analysis of important data, information, and ratios, thereby finding trends, fluctuations and finding relationships that contradict other relevant information or have a large difference from the expected value" In particular, during the implementation phase, "in order to reduce the detection risks related to the database of the financial statements, auditors must carry out a detailed analysis or examination process or a combination of both".
The company should strengthen the implementation of analytical procedures to limit detailed inspection procedures, save time but still ensure audit quality During the audit of the purchase and payment cycle, the auditor should perform an analysis, compare both industry indicators, compare the planned number and the actual number so that there can be a more solid basis in the direction of implementing detailed procedures with this cycle The auditor must also pay attention to the differences in the size, financial policies and operational characteristics of each entity in order to apply analytical procedures accordingly The auditor may use the estimated value to conduct an analysis by making an estimate independent of the client's calculation and comparing it to the value on the book to assess reasonable and unreasonable differences.
Analysis procedures are low-cost audit procedures that save audit time but have high audit efficiency, providing auditors with a broad view of financial statements, general synchronization and also reasonableness of accounting data Implementing analytical procedures will help auditors identify abnormal fluctuations, focus on detailed audit procedures that are necessary to collect effective and accurate audit evidence.
Applying the procedure of analysis and audit of auditors must pay attention to the following issues:
The purpose of the analysis procedure and the degree of reliability of the results of the analysis;
Client characteristics, the level of information obtained for analysis, especially financial and non-financial information;
Reliability and relevance of information;
The insights and information obtained when reviewing the previous year's audit records on the analyses performed as well as the understanding of the effectiveness of the accounting system and the internal control system, the material violations corrected in the previous period.
“The audit program is a whole set of guidances for auditors and assistant auditors to participate in audit work and is a means of recording and checking the performance of audits The audit program specifies the objectives of the audit of each administrative part, the content, schedule and scope of specific audit procedures and the estimated time required for each administrative part”(Paragraph 6 VAS 300 – Audit planning) The design of an appropriate audit program will help the auditor perform well in the audit and improve the quality of the audit.
The company should design general purchase and payment cycle audit programs and adjust them to suit each audit according to the nature and characteristics of the audit such as auditing financial statements at production business units, service business units, credit and securities business units, And the company should also design a general audit program and for each specific item according to a common process for each type of business.
Establishing a purchase and payment cycle audit program specific to each type of business will help auditors more specifically grasp the audit tasks and procedures that need to be applied to audit the purchase and payment cycles in each case Thereby, the auditor can collect a full range of appropriate audit evidence at a reasonable cost and audit time The audit program is also a means of monitoring the work steps that the auditor performs during the audit.
The general process of preparing an audit program must be uniformly implemented in all audits and for each item of audit of financial statements. The design and implementation of a separate and specific audit program in accordance with the characteristics and nature of each audit client's activities must be based on insights, collecting background information and information about the client's legal obligations, combined with analysis, material and risk assessment methodology recommended above.
Firstly, test of control is the examination to collect audit evidence of the effective operation of internal control statutes and control steps conducted as the basis for the design of basic survey procedures Performing control tests on the purchase and payment cycle will help the auditor assess whether the internal control statutes for this cycle are regularly and continuously implemented, and are capable of preventing frauds and errors. From there, the auditor decides whether to expand or narrow the scope of the basic tests.
If the control risk during the planning phase is assessed as low or the auditor finds it possible to reduce the control risk at the level that was preliminarily assessed when planning the audit to a lower level, the auditor should conduct control survey procedures.
Performing tests of control for evaluation can reduce the volume of basic survey procedures, saving the auditor's cost, time and effort.
The implementation of these tests of control is carried out when the auditor preliminarily assesses the control risk at the planning stage as low or the auditor finds it possible to reduce the control risk to a lower level than the risk assessed at the planning stage If the control risk during the planning phase is appreciated, then the auditor does not carry out this procedure, but immediately moves on to carrying out basic surveys.
Secondly, completing the method of selecting an audit sample