Assessments and recommendations for quality control within vietnam audit firm

NATIONAL ECONOMICS UNIVERSITY ADVANCED EDUCATIONAL PROGRAMS AUDITING PROJECT TOPIC: QUALITY CONTROL FOR AN AUDIT OF FINANCIAL STATEMENTS IN VIETNAM AUDIT FIRMS Student : Nguyen Hai Ha ID Code : 11121022 Class : Auditing AEP Intake : 54 Adviser : Ph.D Bui Thi Minh Hai HANOI - 2016 TABLE OF CONTENTS INTRODUCTION CHAPTER 1: THEORETICAL FRAMEWORK OF QUALITY CONTROL OVER FINANCIAL AUDIT IN AUDIT FIRMS .2 1.1 Overview of Quality in performing an audit 1.1.1 Definition of Quality in audit 1.1.2 The criteria for assessing the quality of audit 1.1.3 Factors affecting audit quality 1.2 Overview of Audit Quality Control 1.2.1 Definition of audit quality control 1.2.2 Applicability 1.2.3 Elements of Quality control system 1.3 Process of Quality control for an audit of financial statements 16 1.3.1 In planning stage 16 1.3.2 In the implementation phase of the audit 16 1.3.3 In completing the audit period 16 CHAPTER 2: CURRENT SITUATION OF QUALITY CONTROL OVER FINANCIAL AUDIT IN VIETNAM AUDIT FIRMS 17 2.1 Vietnam Auditing and Evaluation limited company (VAE) 17 2.1.1 Overview of VAE 17 2.1.2 Quality Control Policies and Procedure through elements: 17 CHAPTER 3: ASSESSMENTS AND RECOMMENDATIONS FOR QUALITY CONTROL WITHIN VIETNAM AUDIT FIRM 29 3.1 Assessments for Quality Control in CPA firms .29 3.1.1 Achievement of CPA firms in Vietnam 29 3.1.2 Limitations 29 3.2 Recommendations 30 CONCLUSIONS 31 REFERENCES 32 LIST OF FIGURES/ TABLES Table 2.1: Procedures for accepting a new client 19 Table 2.2: Procedures for a lost client 20 Table 2.3: LIST OF AUDITORS FOR THE CUSTOMER XYZ CO 23 Table 2.4: Procedures for monitoring a firm's quality control system 27 Table 2.5: Procedures when dealing with a client complaint 28 INTRODUCTION Audit is playing an important role in developing and enhancing the global economy and business firms Auditors express an opinion on the fairness of financial statements This is important for the users of financial statements to gain assurance that the data are being reported, properly measured, and fairly presented Auditors must raise their skills in order to increase the probability to rely more on the auditor's report and audited financial statements which are more relevant, unbiased and accurate for the decision makers The foundation for a quality financial statement audit is the audit firm’s system of quality control An audit firm’s leadership is critical in setting the proper “tone at the top,” conveying through words and actions that quality work is of paramount importance An audit firm’s system of quality control consists of all the activities undertaken by the audit firm to promote audit quality and includes: The establishment of firm policies for the implementation of professional standards, personnel management, the establishment of firm policies for acceptance and continuance of clients and engagements, the development, maintenance and deployment of firm-specific methods and tools for conducting audits, monitoring of audit quality, regular review of other elements of the firm’s quality control system These activities are driven by professional standards, the audit firm’s own standards of quality and feedback from external inspections of the auditor’s work by the regulator of public company auditors The project about “Quality control over financial audit in Vietnam audit firms” has chapters, includes: Chapter 1: Theoretical framework of quality control over financial audit in audit firms Chapter 2: Current situation of quality control over financial audit in Vietnam audit firms Chapter 3: Assessment and recommendation for quality control within Vietnam audit firms I would like to thanks teacher PhD Bui Thi Minh Hai for helping me complete this project CHAPTER THEORETICAL FRAMEWORK OF QUALITY CONTROL OVER FINANCIAL AUDIT IN AUDIT FIRMS 1.1 Overview of Quality in performing an audit 1.1.1 Definition of Quality in audit In VSA 220 - quality control audit activities (issued under Decision No 28/2003 / QD-BTC dated 03/14/2003 of the Minister of Finance) has stated: "The quality of audit activities is satisfaction level of the users of audit results for the objectivity and reliability of the audit opinion of the auditors, and also satisfy the wishes of the audited units on the comments of auditor in order to improve business performance, in predetermined time with affordable prices" Another source from ISA, Quality control systems, policies and procedures are the responsibility of the audit firm Under ISQC 1, the firm has an obligation to establish and maintain a system of quality control to provide it with reasonable assurance that: - The firm and its personnel comply with professional standards and applicable legal and regulatory requirements; and - Reports issued by the firm or engagement partners are appropriate in the circumstances This ISA is premised on the basis that the firm is subject to ISQC or to national requirements that are at least as demanding Within the context of the firm’s system of quality control, engagement teams have a responsibility to implement quality control procedures that are applicable to the audit engagement and provide the firm with relevant information to enable the functioning of that part of the firm’s system of quality control relating to independence However, unlike other professional products, product quality audit not easily reviewed or tested Service users need to know what factors make up quality audit so that they can choose and trust the products and services they are using However, for the provision of audit services (audit firms and auditors) also need to know the quality requirements of social auditing to provide consistent service and try narrowing the gap between the expectations of the public with the ability to implement the auditors Besides, how to measure the satisfaction level of users is a very complex issue because it could not be quantified as other professions 1.1.2 The criteria for assessing the quality of audit According to the 220 standards - quality control audit quality, the audit assessed the following three criteria: a Satisfaction of objectivity and reliability of the audit opinion of the users of audit results Objectivity, independence of auditors is prerequisite to ensure meaningful and valuable use of independent audit services Audit opinion given not increase the amount of information for those who use the results of the audit, which is only guaranteed for these audiences about the truthfulness and relevance of audit reports that they offered This guarantee is accepted and valued by: (1) audit opinion given by the experts have sufficient capacity and expertise, (2) the independence and objectivity of opinions accountant Those who use the audit results only really happy when they said that the audit opinion given is based on that basis To assess this indicator people consider adherence to the principles of professional ethics of auditors and audit firms, this is evident in the professionalism of auditors during performing the audit The assessment should cover the following aspects: + The independence, objectivity and integrity + Knowledge, skills, experience of auditors + The method of collection and evaluation of audit evidence + The monitoring and management audit + The review procedures, issuing audit reports b Satisfaction level of the contribution of the auditors in order to improve the efficiency of financial management of the audited units under the regime of the state policy as well as its own policies For the management of the audited firm, detecting and preventing errors in financial and accounting are not always perfect and full control Therefore, the financial statements by an entity established could have a material misstatement due to the limitations of internal control system of the unit The responsibilities of the auditor must ensure that the financial statements that not have material misstatements, if any, they must indicate to the adjustment unit Through the findings and recommendations of the auditors, managers can improve its control system and improve the efficiency of the financial management of the unit Satisfaction of the management unit for the contribution of non-specific audits by the amount of chemical that can only be assessed in the satisfaction and appreciation of business managers on the professionalism and accountability of auditors in the audit process c Audit reports are prepared and issued on time schedule outlined in the audit letter and the cost of audit services at appropriate levels One of the requirements of the financial information that the timeliness, the information is not provided in time would become not worth using, and could cause difficulties in making management decisions physical or missed business opportunities Although the audit is not to provide information channels separately, but it is an appraisal of the system to provide information The financial information was prepared by the client and the auditor, the audit firm inspection and express an opinion on the truthfulness of the information properly before moving to the users Therefore any delay in the audit process by the cause of the organization, supervision and management audit inefficiencies or any other reason from the company audit led to delays not on track both set out to affect the prestige and service value of audit firms Regarding the cost of the audit, this is also an important indicator of quality assessment audits In the market economy, especially the independent audit activities, taking care of the interests of the audited units of paramount importance, it is the social and economic factors of the service Excluding these factors influence the rate or the auditor's work and the cooperation of the audited units with the auditor, the determination and reduce audit time while ensuring collection be sufficient appropriate audit evidence will be conditions to minimize the cost to the customer service 1.1.3 Factors affecting audit quality - Internal a Internal control: In ISA 315, Internal control is defined as “a process, affected by an entity's board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives” Audit quality is obtained by a process of identifying and administering the activities needed to achieve the quality objectives of an SAI Since an entity‟s internal control is under the purview of its audit committee Krishnan, [2005], the relation between audit committee quality and internal control weaknesses is a subject to be investigated The audit committee not only plays an important monitoring role to assure the quality of financial reporting and corporate accountability, Carcello and Neal, [2000], but also serves as an important governance mechanism, because the potential litigation risk and reputation impairment faced by audit committee members ensure that these audit committee members discharge their responsibilities effectively We thus expect that firms with high-quality audit committees are less likely to have internal control weaknesses than firms with low-quality audit committees b Firm size: The difficulty in measuring audit quality has led many researchers to use audit firm size as a surrogate Large audit firms are assumed to perform more powerful tests As a consequence, larger audit firms are more likely to be associated with more precise information than are smaller audit firms, all else being equal Analytical research has suggested that audit firm size and audit quality are positively related For example, DeAngeio (1981) proposes that larger firms provide higher-quality audits because larger audit firms have fewer incentives to compromise their standards to ensure retention of clients in comparison with smaller firms Similarly, Dopuch and Simunic (1980), argue that audit quality is a function of the number and extent of audit procedures performed by the auditor and that larger firms have more resources with which to conduct tests., Moore and Scott, demonstrate analytically that audit firm size and the extent of audit work are positively related Further, if audit firm size and audit quality are positively related, we would expect to find larger differences between forecasted and reported incomes for companies audited by large auditors than for companies audited by small auditors, after controlling for client characteristics such as risk