Audit of selling and administrative expenses in financial audit conducted by thang long auditing and valuation co , ltd

TABLE OF CONTENTS CHAPTER 1: CHARACTERISTICS OF AUDIT OF SELLING AND ADMINISTRATIVE EXPENSES IN FINANCIAL AUDITS CONDUCTED BY THANG LONG AUDIT AN VALUATION COMPANY LIMITED 1.1 Characteristics of selling and administrative expenses of clients affecting financial audits 1.1.1 Features of selling and administrative expenses on financial statements 1.1.2 Accounting for selling and administrative expenses 1.1.3 Common misstatements related to selling and administrative expenses 1.1.4 Internal controls over selling and administrative expenses 11 1.2 Audit objectives of auditing selling and administrative expenses in financial audits conducted by Thang Long Audit and Valuation Company Limited 12 1.3 Audit of selling and administrative expenses in financial audits process conducted by Thang Long Audit and Valuation Company Limited 15 1.3.1 Planning the audit 15 1.3.2 Implementing the audit 18 1.3.3 Completing the audit 22 CHAPTER 2: PRACTICE OF AUDIT OF SELLING AND ADMINISTRATIVE EXPENSES IN FINANCIAL AUDITS CONDUCTED BY THANG LONG AUDIT AND VALUATION COMPANY LIMITED .23 2.1 Planning the audit 23 2.1.1 Company A 23 2.2.1 Performing tests of controls 41 2.2.2 Performing analytical procedure 41 2.2.2.1 Company A .41 2.2.2.1 Company B .46 2.2.3 Performing tests of details 50 2.2.3.1 Company A .50 2.4 Compare the operational cost audit process between companies A and B.70 CHAPTER 3: ASSESSMENTS AND RECOMMENDATIONS FOR IMPROVING THE AUDIT OF SELLING AND ADMINISTRATIVE EXPENSES IN FINANCIAL AUDITS CONDUCTED BY THANG LONG AUDIT AND VALUATION COMPANY LIMITED .72 3.1 Assessments of the audit of selling and administrative expenses in financial audits process conducted by Thang Long Audit and Valuation Company Limited 72 3.1.1 Strengths 72 3.1.2 Weaknesses and causes 73 3.2 Recommendations for improving the audit of selling and administrative expenses in financial audits process conducted by Thang Long Audit and Valuation Company Limited 74 LIST OF TABLES Table 1: Sub accounts of account 641 (Selling expenses) Table 1.2 : Sub-account of account 642 (Administrative expenses) Table 1.3 : Specific objective of auditing selling and administration expenses 12 Table 2.1 Working paper A511 - Preliminary analysis the financial statement (Company A) 25 Table 2.2 Working paper A710 - Determining materialiry (Company A) 26 Table 2.3 : Working paper A 330 - Audit program (Selling expenses Company A) 27 Table 2.4 : Working paper A430 - Audit program (Administrative expenses Company A) 30 Table 2.5 Working paper A510 - Internal control of operating expenses (Company B) 33 Table : Working paper A511 - Preliminary analysis (Company B) 36 Table 2.7 Working paper A710 - Determining materiality (Company B) .37 Table 2.8 Working paper A330 - Audit program (Selling expenses - Company B) 38 Table 2.9 Working paper G430 - Audit program (Administrative expenses) 40 Table 2.10 Working paper G340.2 - Summary of selling expenses (Company A) 42 Table 2.11 Working paper G440.2 - Summary of administrative expenses (Company A) 43 Table 2.12 Working paper G341.2 - Compare the fluctuation of selling expenses (Company A) 44 Table 2.13 Working paper 440.3 - Compare the fluctuation of administrative expenses (Company A) 45 Table 2.14 Working paper G340.2 - Summary of selling expenses (Company B) 46 Table 2.15 Working paper G440.2 - Summary of administrative expenses (Company B) 47 Table 2.16 Working paper G341.2 - Analysis of changes in selling expenses by month (Company B) 48 Table 2.17 Working paper G440.3 - Analysis of changes in administrative expenses by month (Company B) 49 Table 2.18 Working paper G341.5 - TOD ( Selling expense -Company A) .50 Table 2.19 Working paper G341.4 - Tests of details (Selling expense Company A) 51 Table 2.20 Working paper G341.5 - Tests of details (Selling expense Company A) 52 Table 2.21 Working paper G441.1 - Tests of details (Administrative expenses - Company A) 53 Table 2.22 Working paper G441.3 - Tests of details (Administrative expenses - Company A) 54 Table 2.23 Working paper G341.5 - Tests of details (Administrative expenses -Company A) 55 Table 2.24 Working paper G340.2 - Tests of details (Company B) 58 Table 2.25 Working paper G341.4 - Tests of details (Selling expense Company B) 59 Table 2.26 Working paper G341.5 - Tests of details ( Selling expense Company B) 61 Table 2.27 Working paper G441.1 - Tests of details ( Administrative expenses - Company B) 62 Table 2.28 Working paper G441.3 - Tests of details (Administrative expenses - Company B) 63 Table 2.29 Working paper G441.4 - Tests of details (Administrative expenses - Company B) 64 Table 2.30 Working paper G441.4 - Tests of details (Administrative expense Company B) 66 Table 2.31 Working paper G441.5 - Tests of details (Administrative expense Company B) 67 Table 3.1 Questions to assess the internal control system .75 Table 3.2 Questionnaire for risk assessment 77 Table 3.3 Tests of controls 78 INTRODUCTION Financial statements reflect the entire situation of assets, liabilities, capital sources, capital use situation and results of a business Financial statements serve as a basis for the State to manage the macro economy, managers, owners, investors, creditors, and workers to evaluate the current state of the economy The main reason is that the financial statements of enterprises must help them make the right decisions, suitable for management, investment, credit, etc., so the honesty and rationality of financial statements always need to be ensured Therefore, auditing financial statements is extremely necessary for businesses During my internship at Thang Long Auditing and Evaluation Co., Ltd, from the fact of auditing, I found that auditing of selling and administrative expenses was an important part of auditing on Financial statements Because these are the targets in the income statement directly related to the determination of accounting profit and corporate income tax payable Tax has always been a sensitive issue and paid attention to by businesses, the exact determination of tax calculation elements always needs to be guaranteed, therefore, auditing the Selling and Administration expenses is urgent Realizing the importance of selling and administrative expenses, during the internship, I chose the topic: “Audit of selling and administrative expenses in financial audit conducted by Thang Long Auditing and Valuation Co., Ltd " The audit report consists of three chapters: Chapter 1: Characteristics of audit of selling and administrative expenses in financial audits conducted by Thang Long Audit and Valuation Company Limited Chapter 2: Practice of audit off selling and administrative expense in financial audits conducted by Thang Long Audit and Valuation Company Limited Chapter 3: Assessments and recommendations for improving the audit of selling and administrative expenses in financial audits conducted by Thang Long Audit and Valuation Company Limited CHAPTER 1: CHARACTERISTICS OF AUDIT OF SELLING AND ADMINISTRATIVE EXPENSES IN FINANCIAL AUDITS CONDUCTED BY THANG LONG AUDIT AN VALUATION COMPANY LIMITED 1.1 Characteristics of selling and administrative expenses of clients affecting financial audits 1.1.1 Features of selling and administrative expenses on financial statements  Natural: Selling expenses are expenses paid by the enterprise in connection with the consumption of products, goods, labor and services in the period such as expenses of sales staff, advertising expenses, selling commission expenses, shipping expenses related to sales activities, depreciation of assets, equipment related to sales, etc Administrative expenses are expenses incurred in common with the whole enterprise’s operation, which cannot be separated for any specific activity Administration expenses include salary for management and staff, office expenses, expenses administration fees, depreciation of factory and office equipment, etc  The general characteristics of selling and administrative expenses are as follows: - These expenses are indirect expenses, these are not directly related to the production process to create products - The basis for recognizing these types of expenses is based on policies and regulations of the State as well as of the units, including the regulations on payment of commissions in sales transactions; regulations on working-trip allowances for salespeople; regulations on guest reception, advertising, etc - Operating expenses are one of the basis for determining profit targets and other taxes, so they are very sensitive to frauds arising in the process of determining profits and corporate income tax payable 1.1.2 Accounting for selling and administrative expenses  Accounting selling and administrative expenses The accounting of these two types of expenses is described according to diagram 1.1 and diagram 1.2: Diagram 1.1: Diagram of accounting selling expenses 111, 112, 152, 153, 242 641 - Selling expenses Expenses of materials, tools 111, 112 133 334, 338 Payroll expenses and insurance expenses The revenues that reduce expenses 214 Depreciation expenses of fixed assets 911 152, 153, 155, 156 Finished productions, promotion services, gifts for enterprise’s customers Transferring administrative expenses 331, 131 Expenses of outsourced service, other expenses, commission expenses 133 VAT If the value added tax is not deductible 338 Amount payable to the unit entrusted for export 133 VAT 352 Provisions cover the expenses of warranty for goods and products 352 Reversal of provision Diagram 1.2: Diagram of accounting administrative expenses 111, 112, 152, 642 - Administrative expenses 153, 331 Expenses of materials, tools 133 The revenues 334, 338 that reduce Payroll expenses and insurance expenses expenses 111, 112 214 Depreciation expenses of fixed assets 911 242, 335 Pre-paid expenses allocation, accrual 111, 112, 153, 141, 331, 335 Transferring administrative expenses Expenses of outsourced service, other expenses 133 VAT 352 If the value added tax is not deductible 352 Reversal of provision Provisions for restructuring of businesses, risk contracts, other provisions that have to pay 2293 Allowance for doubtful debts 2293 333 License tax and land rent must be remitted to the state budget 155, 156 Goods and services used for internal consumption, and administrative purposes Reversing the difference between the provision for doubtful debts in previous year and this year  Documents used Documents used for accounting selling and administrative expenses related to many different operating parts - Documents about money: Receipt, payment slip, debit note, credit note, confirmation record, the accompanying decisions, etc - Document about pre-paid expenses allocation: Policy of pre-paid expenses allocation, allocation spreadsheet, other documents related to the formation of expenses - Documents about inventory: delivery notes, import notes, purchase lists - Documents about fixed assets: Documents and procurement decisions related to fixed assets, depreciation allocation spreadsheet, handover minutes, minutes of liquidation, etc - Documents about employee salaries: time sheets, payroll and salary deductions, etc  Account system: ● Selling expenses (Account 641) According to circular No 200/2014/TT-BTC dated December 22, 2014, the selling expenses are reflected in account 641 "Selling expenses" - Structure of Account 641: Debit side: The actual selling expenses incurred in the period Credit side: Items decreases selling expenses in period, transferring selling expenses to account 911 “Income Summary” This account has no ending balance ● Sub accounts: According to Circular No 200/2014/TT-BTC dated December 22, 2014, selling expenses (account 641) has seven sub-account as the following table: Table 1.1: Sub accounts of account 641 (Selling expenses) Account Sub account Sub account’s name 641 6411 Payroll expenses 6412 Expenses of materials, package 6413 Expenses of tools, supplies 6414 Depreciation expenses of fixed assets 6415 Warranty expenses 6417 expenses of outsourcing service 6418 Other cash expenses Account 6411 - payroll expenses: recording accounts payable to sales personnel, package personnel, transportation and maintenance personnel of products, goods, including salaries, inter shift meal expenses, wages and appropriation of social insurance, medical insurance and labor union fees, unemployment insurance Account 6412 - expenses of materials, package: recording expenses of materials and package delivered for protection, consumption of products, goods, services, such as expenses of package materials of products, goods, expenses of materials, fuels used for protecting, loading, transporting products, goods used for repairing, maintenance of fixed assets, used for sales department Account 6413 - expenses of tools, supplies: recording instruments, tools served for consumption process of products, goods, such as measurement tools, computing devices, working facilities Account 6414 - Depreciation expenses of Fixed assets: recording depreciation expenses of fixed assets in maintenance department, sales department, such as