Improving audit planning in financial audit conducted by deloitte vietnam

CHARACTERISTICS OF AUDIT PLANNING IN FINANCIAL AUDIT

Overview of audit planning in financial audit conducted by DELOITTE VIETNAM 3 1 Process of financial statements audit

1.1.1 Process of financial statements audit

Deloitte's financial statement audit service begins with a comprehensive understanding of clients, utilizing a risk-based auditing approach This process is meticulously coordinated and developed by top industry experts.

The audit process at Deloitte consists of 4 stages

Prepare audit plan and design overall audit strategy

Deloitte conducts a preliminary assessment of the risks and benefits associated with signing an audit contract with clients, while simultaneously gathering essential customer information and selecting suitable audit team members The Audit Partner oversees the audit risk assessment and contract signing, while the Audit Manager evaluates business activities and internal controls, playing a key role in selecting the audit team for year-end or periodic audits Following an initial review, the Audit Manager compiles a summary report for the Audit Partner's approval, paving the way for detailed planning procedures as the audit officially begins.

The Audit Senior meticulously plans the audit by considering the number of members and the agreed audit timeframe, following the "Prepare audit plan" stage They gather the client's financial statements and conduct a preliminary analysis to identify potential risks of misstatements Subsequently, control tests are designed to evaluate the effectiveness of internal controls Additionally, the engagement team reviews audited financial statements, state audit reports, and internal inspection documents This process enables the Audit Senior to determine the extent of substantive tests and the sample size required for audit assistants to execute during the audit.

After completing all essential audit preparations, the audit team visits the client to gather data and conduct the audit Initially, auditors test the internal controls to confirm their existence, followed by an evaluation of control points to assess the effectiveness of these internal controls.

Effective internal controls allow auditors to reduce basic tests, leading to lower audit costs and streamlined procedures, while substantive tests will be carried out as originally planned.

In this phase, the Audit Manager and Audit Senior present audit findings to both clients and the Audit Partner They assess and summarize events occurring after the cut-off date, determining whether these should be reflected in the financial statements, disclosed in the notes, or omitted if deemed immaterial Concurrently, auditors gather the board of management's representation letter and issue the audit report along with a management letter to highlight critical issues for the client Finally, the auditor reviews the quality of the audit and reports to the senior management of the company.

This thesis will analyze the initial two stages of the audit process, detailing the specific methods employed at each step Additionally, it will compare these methods with the actual operations I experienced during my recent internship.

The planning process is always closely supervised by the Audit Partner and Audit Manager The organization of audit planning for each position at Deloitte can be summarized as follows:

Figure 1.1: Organizing the audit of financial statements at Deloitte

(Source: Author self-collected from Deloitte Vietnam, 2020)

The Audit Manager plays a crucial role in developing the audit plan following the signing of the audit contract with the client This planning process is consistently evaluated by higher-level positions, ensuring that both the Audit Partner and Audit Manager oversee the activities throughout the audit planning phase.

Review the work of Manager, Senior, Associate

Establish audit contract Review audit plan

Understand the business environemnt of client

Determine materiality Construct audit program

Understand the accounting cycle Associate

1.1.3 The role of audit planning

According to VSA Auditing Standard No 300, as outlined in Circular No 214/2012/TT-BTC from the Ministry of Finance, the audit plan must include the formulation of a comprehensive audit strategy and a detailed audit plan At Deloitte, this process is divided into two key stages: preparing the overall audit strategy and detailed planning of the audit Effective audit planning is crucial as it enhances the quality and reliability of financial statement audits, as emphasized in Auditing Standard VSA 300.

To enhance the efficiency and effectiveness of auditing firms, it is essential to minimize risks and liabilities while maintaining a strong professional reputation A well-structured audit plan serves as a foundation for avoiding potential issues during client audits, ensuring clear responsibilities among all parties involved Selecting competent audit team members and appropriately assigning tasks is crucial for managing anticipated risks Focusing on material items and potential misstatements can significantly improve audit efficiency and reduce costs Additionally, fostering effective coordination among auditors and relevant departments, including internal and external experts, allows for timely direction and oversight of the audit process.

(Source: Vietnam Standards on Auditing VSA 300, 2012)

Order of planning and designing audit methods in the audit of financial

1.2.1 Prepare audit plan and establish overall audit strategy

This stage serves as a foundational period for developing a comprehensive audit plan, focusing on identifying risks and benefits associated with the audit contract It is crucial to gather essential information regarding the audit subject, encompassing six key activities.

1.2.1.1 Assess and respond to risks, decide to accept and continue the audit contract

The Audit Partner at Deloitte plays a crucial role in overseeing audit revenue-generating activities and is accountable for all client services When considering an audit contract, Deloitte follows specific evaluation procedures, which vary for new clients versus returning clients The primary distinction lies in the heightened caution exercised when engaging with new clients The Audit Partner delegates the Audit Manager to investigate the reasons behind a client's decision to switch auditing firms and requires the client's permission to communicate with their previous auditor on significant matters This process is essential for assessing auditing risks and making informed decisions regarding contract signings.

In general, Deloitte's audit contracts are analyzed and finalized in three steps:

Step 1: Assess the risks of audit contracts

The audit manager will perform a risk classification to evaluate the potential for material misstatement due to fraud in both new and existing contracts, aiming to identify and address associated risks Deloitte will explore the criteria outlined in Table 1.1, which consists of multiple-choice questions designed to aid in customer risk assessment.

Table 1.1 Factors determining risks of audit contracts

Indicator Need to understand Evaluation question Yes No

Factors related to fraud in preparation and presentation of financial statements

Auditors may have valid concerns regarding the governance characteristics and management integrity, leading them to question the management's ability to provide clear explanations.

Corresponding risk Interview chief accountant and managers

Assess the risk of fraud from the management

Functions and duties of the Council members, the Board of General

Does the organizational and management structure have incompatibility with the size and nature of the business?

Management mindset and executive style of the Coucil members and the Board of Management Organizational structure, powers and

Control procedures are incompatible with responsibilities of the sections the size and nature of the business or not?

Does the auditor understand the management's supervisory capability, the control performance authorized by others, and the effectiveness of the supervisory effect on management?

Control system of the Board of Management

Business activities Is there any doubt to delve deeper into the business nature of client’s business?

Investment activities Financial structure Business environment

Overview of economic and social situation

Are there any external impacts from the business environment that affect the business performance and the ability of customers to continue as a going concern?

Market overview of business lines

The laws and regulations, including financial mechanisms, accounting regime

Finance Financial goals and Are managers under performance governance risks pressure to disclose positive financial performance?

Related-party and related party transactions

Auditors often lack adequate knowledge regarding the nature of activities and business relationships between the audit subject and related parties This gap is particularly evident when auditors engage with third parties rather than directly with related parties Understanding these dynamics is crucial for ensuring effective auditing practices.

Auditors’ experience Does the firm have a member related to the audit object or are there any major changes that could lead to increased risk?

The audit satisfies quality control requirements

Fraudulent risks Fraudulent assumption relates to management’s override of control

Does auditor recognize fraud risk factors related to frauds resulting from financial disclosure fraud or

Assumptions related to accounting policies misappropriation of assets?

(Source: Author self-collects from Deloitte’s documents, 2020)

During the audit process, auditors evaluate the essential procedures for each element and respond to multiple-choice questions If the answer is affirmative, these elements are classified as customer risks The auditor then summarizes these risks and records them in the Deloitte Risk Management System (DRMS).

Deloitte utilizes this software across all its departments, including Audit, Tax Consulting, Risk Advisory, and Financial Management Developed in 2006, the software was created with specific objectives in mind.

•Accurate and more complete risk assessment of customers and contracts

•Identify issues of independence or conflicts of interest related to current and potential customers and service contracts

•Ensure appropriate people are consulted with the best information in a timely manner before accepting/continuing to sign contracts with customers.

•Facilitate appropriate decisions about accepting or withdrawing from a service contract

•Formalize the risk assessment process for customers

•Support supervising the process of accepting or continuing a service contract

•Improve the efficiency of processes for accepting or continuing a service contract”

The software has significantly aided member companies in adhering to legal requirements and minimizing risks associated with the Professional Ethics Code and Standards of Accounting and Auditing Associations Specific details regarding the DRMS form will be discussed in the context of financial statement auditing.

Step 2: Deal with the risks of signing an audit contract

After evaluating auditing risks, auditors develop a strategic plan to mitigate these risks effectively The DRMS presents various types of risks, including customer, contract, understanding, corruption, independence, information confidentiality, and contract information risks The accompanying figure outlines the risks examined by Deloitte prior to finalizing an audit contract, ensuring comprehensive information assessment, as detailed in Deloitte Vietnam's official documentation.

Client and/or engagement risk for this case have been identified

Know Your Client Check Risk Factors

Anti-Money Laundering Risk Factors

Figure 1.2: Risks classification before signing audit contracts

(Source: Documents from Deloitte Vietnam, 2020)

The figure summarizes the various risks associated with the audit contract at Deloitte, which include nine key categories: Overall risk factors, Client risk factors, Engagement risk factors, Know Your Client (KYC) check risk factors, Anti-Money Laundering (AML) risk factors, Conflict check risk factors, Independence check risk factors, Client information risk factors, and Engagement information risk factors The Audit Manager is responsible for completing questionnaires that address each of these risk factors on the DRMS, with the results presented in Figure 1.2.

Step 3: Decide to accept or continue the audit contract

Before accepting an audit contract, auditors must evaluate various risks, including customer risk, contract risk, and customer understanding risk Deloitte employs multiple-choice tools to assess corruption risks, conflicts of interest, independence risks, and information confidentiality concerns A detailed questionnaire on these risks will be outlined in Chapter 2: Practice of Audit Planning in Financial Audit at ABC Joint Stock Company, conducted by Deloitte Vietnam After thoroughly assessing all related risks, the Audit Partner will decide whether to accept or renew the contract and delegate the preparation of the audit contract to subordinates.

1.2.1.2 Select the engagement team and agree on terms in the audit contract

When choosing an audit team, Deloitte prioritizes delivering professional services through qualified and experienced auditors while avoiding conflicts of interest The integrity and independence of auditors are crucial, as personal interests can compromise these values The audit team comprises members from the Financial Statements Audit Team, Deloitte's Internal and External Experts, as well as the Client’s Internal Auditors, ensuring a comprehensive and professional approach.

Figure 1.3: List of members participating in the audit contract

(Source: Documents from Deloitte Vietnam, 2020)

Specifically, in the capacity position, Deloitte suggests one or more of the following requirements:

 Expertise in accounting standards and presentation of financial statements;

 Valuation experts include intangible / valuables / business valuation experts;

 Forensic experts in fraud investigations;

 Specialist with appropriate audit and training experience;

 Tax experts include indirect / transfer / consolidation and mergers.

Draft and agree on terms

Deloitte determines the audit cost by assessing factors such as audit contract risk, services related to year-end financial statements, the client's business type, the number and expertise of auditors involved, and the estimated audit hours required for each service level This comprehensive evaluation ensures that the proposed audit fee aligns with Deloitte's commitment to quality and the agreed-upon pricing structure.

Deloitte will provide a formal offer to the client, detailing the audit plan and anticipated fees for their financial statement audit services If both parties reach an agreement, a contract will be drafted and signed to formalize the engagement.

The audit contract, governed by the Commercial Code, the Law on Independent Auditing, and Vietnam Standards on Auditing (VSA), outlines key components as agreed upon by Deloitte and the audit entity.

 Information about the two parties to the contract of service;

 Service fees and payment methods;

 Terminate the contract ahead of time

 Limitation of liability and compensation;

 The validity, language and duration of the contract;

 Signatures of representatives of both Parties.

1.2.1.3 Collect customer information about business operations and the accounting cycle

After signing the audit contract, auditors begin collecting the necessary information to plan the overall audit In accordance with VSA Auditing Standard No.

PRACTICE OF AUDIT PLANNING IN FINANCIAL AUDIT CONDUCTED BY

Introduction of the ABC Joint Stock Company

Deloitte offers a wide range of financial statement audit services tailored to various sectors, including state-owned, private, and foreign-invested enterprises Their expertise spans numerous industries such as manufacturing, energy, finance, real estate, telecommunications, healthcare, education, tourism, construction, and transportation.

In this internship, the author focuses on a single enterprise to assess the audit planning status in financial statement audits conducted by Deloitte This involves comparing the actual audit work to Deloitte's standard planning methodology, highlighting the discrepancies between theoretical frameworks and practical application, as well as identifying the strengths and shortcomings of the methodology in real-world use.

During my internship at Deloitte, I gained valuable experience by assisting with year-end audits across various businesses, particularly focusing on former State-owned Joint Stock Companies To exemplify the audit planning process for my thesis, I selected the year-end audit of ABC Joint Stock Company (a pseudonym for confidentiality) to highlight the intricacies involved in auditing financial statements.

ABC is a subsidiary of ABC International Joint Stock Company, established on October 27, 2005, with a commitment to providing clean, natural, and safe energy solutions The company specializes in the manufacturing and trading of energy equipment, including the production of measuring, testing, navigating, and control devices such as insulation tanks, water filters, and solar-powered equipment In addition to its core activities, ABC engages in the wholesale of various machines, electronic telecommunication equipment, and components, as well as architectural services, civil engineering projects, and business support services, making it a comprehensive player in the energy sector.

This year marks the inaugural audit of ABC by Deloitte, necessitating meticulous and comprehensive planning The audit planning for ABC's financial statements highlights distinctive features of Deloitte's methodology, allowing for an analysis and comparison that can yield initial insights into the strengths and weaknesses of the financial statement planning within Deloitte's audit department.

Prepare audit plan and establish overall audit strategy

2.2.1 Assess and respond to risks, decide to accept and continue audit contract 2.2.1.1 Assess the risks of audit contracts

Audit Manager conducts surveys, collects and presents information in Deloitte Vietnam's form on EMS auditing software

Illustration 2.1: Excerpt of working papers "Assessing the risk of audit contracts at

ABC customers for the 2019 audit year"

“Answers to the general questions and consideration factors should be based upon inquiry, analytical procedures and observations and inspections.

If the answer to any of the consideration points is "Yes", consider documenting as a risk in the Risk Detail screen to populate the Risk Strategy View

“Document procedures performed to assess management characteristics and integrity.

Through our direct discussions and interactions with Mr T - GD, along with our overall observations, we have evaluated the management's characteristics and integrity We have thoroughly reviewed all aspects concerning the integrity of the entity's management as outlined in DPM 3210.11 and found no issues or findings.

 Are we aware of reasons to question the characteristics or integrity of one or more members of management or otherwise question our ability to rely on management's representations? No

“Document procedures performed to assess organization and management structure.

In June 2019, a discussion with Mr T revealed that, based on our understanding of the organization's management structure, no issues or findings were identified For more details, please refer to [12100].

 Is the organizational and management structure inappropriate in relation to the size and nature of the business? No

Inappropriate control processes can hinder a business's effectiveness, particularly if they do not align with the size and nature of the organization It is crucial to assess management's capability to supervise, monitor, and maintain control over delegated authority Concerns about the effectiveness of these monitoring practices can significantly impact overall business performance.

“Document procedures performed to assess the nature of the business.

Our investigation into management's fraud inquiries and discussions within our engagement team has revealed no additional issues or findings concerning fraud and error, aside from the items listed below.

- Presume fraud risk related to Revenue recognition

- Risk about cutoff sale, expense and purchasing

- Equity transaction is not recorded appropriately

- Slow-moving of inventory, make provision for doubtful debts

 Is there reason to be concerned about the nature of the entity's business?” No

“Document procedures performed to assess the business environment.”

Inquire Ms H - CA, the Company's management performed assessment of business environment as well its effect to ability of the Company to continue at good position in the market.

Our analysis of the entity and its surrounding environment reveals no significant issues or findings regarding the business landscape, aside from the notable risks outlined below, which do not necessitate an elevated assessment of engagement risk.

 Are there external influences in the business environment that affect the entity's operations and its viability as a going concern?” No

“Document procedures performed to assess financial results.

The Company listed in HNX and has good financial result of operation.

In 2018, the Company's profit was A0 billion dong, based on Inquiry Ms H - CA, in this year, the Company still makes a profit.

 Is management under pressure to report certain financial results?” No

6 Business relationships and related parties

“Document procedures performed to assess business relationships and related parties.

Discussion with Mr T in June 2019 The transaction with related party has update monthly This transaction was performed by accountant and reviewed by Ms H - Chief Accountant.

In current year, the main transactions with related parties are purchasing materials, goods and buying goods, providing some services for HO Company and other related parties

There is no reason to doubt our understanding of the significant transactions and business relationships between the entity and other entities, even when those entities are presented as third parties rather than related parties.

“Document procedures performed to assess prior knowledge and experience.

This year marks the inaugural statutory audit conducted by DTT for ABC The partner and team members bring valuable experience in auditing similar clients, ensuring that no specialized skills are necessary for the audit team.

 Are we in the early years of a member firm association with an entity or are there significant changes in the business which could indicate a heightened client level risk?” No

“Document procedures performed to assess fraud risk.

Our investigation into management fraud and discussions within our engagement team have revealed no new issues or findings related to fraud and error, apart from the items listed below.

- Presume fraud risk related to Revenue recognition – Details in subphase

- Management override of control – Details in subphase 13500.T01

 Is there reason to believe that fraud risk factors exist relating to misstatements arising from fraudulent financial reporting or misappropriation of assets?” No

(Source: Extracted from audit files ABC JSC, 2019 – Working paper 11100.T01 Assess engagement risk)

2.2.1.2 Deal with the risks of signing an audit contract

Auditors will utilize the Deloitte DRMS risk assessment system to document their findings after completing multiple-choice questions They will design strategies to mitigate risks associated with accepting audit contracts, focusing on potential conflicts of interest and information security concerns.

Table 2.1: Multiple-choice questionnaire about risks of conflicts of interest and information security affecting the independence of auditors

Financial interests (typically not applicable for governmental and not-for profit entities)

Do any team members and/or their immediate family members hold any direct financial interest or material indirect financial interest in the restricted entity?

Note: Typically not applicable for governmental and not-for-profit entities.

Do any team members and/or their immediate family members have any other financial relationship with the restricted entity?

Are any partners, professional staff, or others employed by the member firm serving as (1) an officer,

(2) a director on the board or similar management or governing body, or (3) except as provided in DPM Section

1420, the company secretary of a restricted entity?

Are any team members former employees of the restricted entity or are any of their immediate family members currently employed by the restricted entity?

Are there any former team members currently working for the restricted entity, or do any current team members have knowledge or reason to suspect that someone may join the restricted entity in the future?

It is essential to determine whether any immediate family members of team members hold positions as directors, officers, or employees capable of significantly influencing the preparation of accounting records or financial statements for the restricted entity during the relevant engagement periods.

Are any retired partners participating in the engagement? NO

Do any team members and/or their immediate family members have a close business relationship with the restricted entity or its management, which is not clearly insignificant?

It's essential to determine if any team members or their immediate family members hold an interest in a closely held entity that also has ties to a restricted entity, particularly when that interest is not clearly negligible.

Team members and their immediate family members must avoid purchasing goods and services from restricted entities if these transactions exceed the normal course of business or are not conducted on an arm’s length basis.

Do any team members accept gifts or hospitality from the restricted entity, the value of which is not clearly insignificant?

Do team members comply with the applicable independence policies during the engagement period for that restricted entity?

Do total fees generated by the restricted entity represent a large proportion of a member firm’s total fees?

Are there significant overdue fees that might be regarded as being equivalent to a loan to the restricted entity?

Has the member firm accepted the audit engagement at a significantly lower fee level than that charged by the predecessor firm or quoted by other

Issues Yes/No Comments firms?

Has the member firm entered into a contingent fee arrangement with the restricted entity? NO

Has the member firm received or paid commissions to obtain the client? NO

Have the familiarity and self-interest threats that arise from using the same partners and professional staff on the audit over a long period of time been evaluated?

If there is significant litigation, or does litigation appear likely, between a member firm and a restricted entity?

Provision of non-assurance services

Do any team members perform any of the following activities:

 Acting in a capacity equivalent to that of a member of management

 Reporting, in a management role to those charged with governance

 Determining which recommendation of the member firm should be implemented

 Authorizing, executing, or consummating a transaction or otherwise exercising authority on behalf of the restricted or having the authority to do so?

Does the member firm provide non-assurance service to the restricted entity? Such as:

 Litigation support and expert services.

All team members must recognize the importance of respecting and safeguarding client confidentiality, ensuring that sensitive information is not used or disclosed to other clients or third parties, unless specific exceptions apply.

 Disclosure is required by law or regulation.

 A professional duty or a right to disclose exists.

 Consent has been obtained from the Client and there are no restrictions or prohibitions under Local Laws or other contractual arrangements.

(Source: Extracted from audit files ABC JSC, 2019 – Working paper 11200.T02 Independence and confidentiality questionnaire)

Figure 2.1: Summary of risks when accepting an ABC JSC audit and how to respond to risks

(Source: Extracted from audit files ABC JSC, 2019 – Working paper 11200.T04 DRMS ABC Joint Stock Company 2019)

2.2.1.3 Decide to accept or continue the audit contract

As ABC is a first-year client of Deloitte, the decision to proceed with auditing is contingent upon evaluating the previous year's audit firm and the collected survey data This decision received approval from top management, including the Partner in charge and other partners.

Establish detailed audit plan

After outlining the overall audit strategy, auditors will create a detailed audit plan consisting of two key stages: planning tests of controls and planning substantive tests Both stages are meticulously aligned with the work conducted during the overall audit strategy phase.

During the audit at ABC, tests of controls are conducted to assess control risks associated with internal controls Auditors develop control procedures based on their understanding of these risks, which will be evaluated during the year-end audit These tests aim to verify the effectiveness of anticipated control activities that are expected to be designed and operating continuously As ABC operates in manufacturing and trading, auditors perform Design and Implementation (D&I) and Operational Effectiveness (OE) tests, focusing primarily on sales revenue.

The operation will include various control activities, which auditors will compile in the "Summary" sheet This summary will encapsulate control objectives, associated risks, material risk response activities, relevant assertions, and the effectiveness of operations It will also address the Risk of Material Misstatements (ROMM), the Risk Associated with the Control (RAWC), operational frequency, automated controls, and the anticipated number of test samples The expected sample size will be calculated using Deloitte's established methodology.

(Source: Extracted from audit files ABC JSC, 2019 – Working paper 13210.T07 Appendix V - Testing OE sales)

Deloitte's year-end audit plan for ABC Joint Stock Company includes an operational effectiveness (OE) test for the revenue section, which encompasses estimating the sample size and implementing a multiple-choice control test.

Table 2.10: Planning of operational effetiveness revenue section

Summarize the control activities related to sales revenue cycle

Control the Addresses Risk of Material Misstatement

OE testing Strategy ROMM RAWC Frequency occurrence of

Recognition Ensure the validity of revenue

Revenue recognition are not reviewed and signed by the authorized person

==> No guarantee of occurred revenue

ABC primarily serves related parties, specializing in the sale of water and solar water purification equipment, along with machine installation materials The delivery timeline is initiated once the goods or finished products are withdrawn from stock.

To ensure accurate revenue recognition, deliver the goods to the customer and record the revenue based on the delivery note signed by both the customer and the carrier, noting that some self-transport contracts may specify the delivery time to the carrier.

At the end of each day, Ms H, the chief accountant, reconciles delivery notes with inventory data, ensuring accurate records She also documents customer sales in the accounting books and sales diaries.

Occurrence Testing in current period

Significant risk Not higher due to not complex and objectivity, no judgment

1 per days No 45 price of each item with the unit price in the sales contract with the customer in case there is a difference,

Ms H will find out the difference and correct the data on the book, making sure The payment data is correct.

(Source: Extracted from audit files ABC JSC, 2019 – Working paper 13210.T07 Appendix V - Testing OE Sales)

Objective: Test OE for cover Control 1

Workdone: Select the sample and test the control signal in the sales process

Delivery notes and invoices created by the warehouse department Contract created by sales department

Reconciled by Ms Vân - Accountant

Số Ngày Người lập Aprove by Ms

Check Stamp of incharge person on contract/PO? Hợp Check stamp of Warehouse Check stamp of salesman in charge Record Reconlice

PGH3.19.01.003 1/5/2019 Ms Vân Yes yes yes yes Ms Vân Ms Hợp

SHI 6/30/2019 Ms Vân Yes yes yes yes Ms Vân Ms Hợp

Every day, the accountant will check with the invoice, contract, delivery note and minutes of handover to record revenue

Figure 2.9: Example of OE test for sales

Deloitte auditors developed tailored procedures for each risk item identified in the ABC financial statements to verify the related assertions These procedures are documented in the "Risk Strategy View" section of the EMS audit software, which visually represents the risk level and the reliance on internal controls.

During substantive testing, audit associates must align their performed work with the planned procedures, ensuring complete implementation and gathering sufficient, appropriate audit evidence.

In every audit section, the primary goal of the first sheet is to conduct analytical procedures that summarize, break down, and analyze variances between the previous year and the current year This approach enables auditors to identify and focus on abnormal fluctuations, directing their attention to critical areas Additionally, for small and straightforward item balances, it helps minimize the need for extensive detail testing.

Following the analytical procedures, auditors will proceed with the planned procedures established by the Manager and Senior The author highlights the substantive procedures outlined by Deloitte auditors for the year-end 2019 audit at ABC.

1 Management override of control Significant risk

- Interview with the Board of Management about the process of controlling the preparation of the financial statements

- Gathering the minutes of the Board meeting, checking the matching between the plan and the actual business performance

- Test Journal entries, test unusual transactions and accounting estimate for bias

(SR) To test occurrence of revenue, beside DI testing related to control procedure of the Company, auditor perform substantive test procedures as below :

- Select a sample of revenue transactions from GL

- Trace to sales invoice (taking note of date) and other supporting document (handover minutes, sales contract) and ensure that the sale recorded actually incurred

Inquiry and Investigate any differences might arise.

3 Inventory is misstated Higher risk

To ensure accurate unit costs of inventories, verify the selected items from the final inventory compilation by tracing their prices back to the most recent purchase invoices used to calculate the average cost.

2 Test and assess the reasonableness of production overheads to the cost of inventory and whether any standard costs used are reasonable.

3 For costs affected by exchange rates, agree a selection of these rates to independent published records.

Inventory misstatements occur when necessary adjustments from inventory counts are inaccurately recorded, leading to discrepancies between the general ledger and actual inventory records This can also happen if the reconciliation process includes invalid items, ultimately resulting in incorrect inventory figures.

Higher risk (HR) 1 Obtain the final costed inventory compilation, and test the reconciliation to the general ledger as well as to the quantities tested during the inventory count.

2 Test cut-off of inventories by using the cut-off documents obtained during the inventory count.

3 Perform tests of details to test items from the final inventory compilation by tracing quantities of items test counted or confirmed by us on the physical observation date to the compilation.

4 Test quantities of inventories from the final inventory compilation by making a selection of items from the final inventory compilation and tracing the quantities to the original count documents.

5 Equity may be misstated because the Company Lower risk

(LR) - Obtain BOD meeting related to distrubition of retain earnings end other funds of the Company

- Reconcile between BOD meeting with recorded entries in GL

Financial statements often lack the necessary disclosures regarding operating expenses, selling expenses, and general and administrative expenses Additionally, the amounts presented may be inaccurate or improperly classified Furthermore, the disclosed events, transactions, and management assertions may either not have occurred or may not be relevant to the entity in question.

Higher risk (HR) Test disclosures, if applicable, related to OPEX/SGA to confirm they have been disclosed in line with the applicable accounting standards.

Request disclosure information and evaluate whether the disclosures are in line with the applicable accounting standards and reporting requirements using relevant disclosure checklists or other available tools.

7 PPE balances are not appropriately classified in the financial statements.

Lower risk (LR) At year-end - Test disclosures of Property, Plant and Equipment to confirm they have been disclosed in line with the applicable accounting standards.

- Request disclosure information and evaluate whether the disclosures are in line with the applicable accounting standards and reporting requirements, using relevant disclosure checklists or other available tools.

8 Inventory may be overstated or understated Higher risk

ASSESSMENTS AND RECOMMENDATIONS TO IMPROVE AUDIT

Assessments on the audit planning in financial audit conducted by Deloitte Vietnam

3.1.1.1 Audit preparation stage and overall audit strategy

Evaluate the acceptance or continuance of the audit engagement

Deloitte auditors gather preliminary customer information from diverse sources, including audit records, experienced firm auditors, and online resources This information undergoes thorough verification through interviews and observations For ongoing clients, auditors ensure timely updates and diligently investigate significant business risks for the current financial year using surveys and questionnaires This meticulous approach enables Deloitte to effectively screen clients, reducing risks associated with reputation and high audit fees.

Key members of the audit engagement are chosen for their industry-specific expertise, ensuring efficiency and reducing training costs This selection allows audit associates to learn from experienced colleagues The Audit Partner and Audit Manager can oversee the audit team in real-time through EMS software synchronization Careful planning in team selection is essential to maintain professionalism in the services provided to Deloitte clients.

Drafting and signing audit contracts

The audit agreement prepared by Deloitte complies with international standards and adheres to the 2011 Independent Auditing Law and Vietnam Auditing Standard No 210 It clearly outlines the responsibilities and obligations of the audit service provider, ensuring independence and ethical standards to prevent potential disputes with clients.

To facilitate a smooth mid-year or year-end review, customer inquiries are addressed promptly by mid-year Deloitte offers multiple-choice questionnaires related to internal control and accounting processes, allowing auditors to adapt their approach based on client needs, thereby streamlining and enhancing the data collection process.

Deloitte employs scientific and logical standards for calculating materiality, tailoring its approach based on the type of client and the auditors' professional judgment This process involves identifying the key information that financial statement users prioritize, allowing for an objective assessment to effectively quantify materiality.

Auditors take a flexible approach to assessing material risks by considering both quantitative values and qualitative factors in financial and non-financial information during the audit process.

Preliminary analytical procedure and risk assessment on the items

At Deloitte Vietnam Co., Ltd., auditors effectively utilize preliminary analytical procedures alongside detailed testing to enhance their audit processes The implementation of these preliminary procedures significantly decreases the need for extensive detailed testing while simultaneously gathering additional evidence to validate the findings from the analytical procedures This strategic combination not only streamlines the auditing process but also mitigates inherent risks associated with auditing various items.

Deloitte Vietnam employs preliminary analytical procedures in auditing that align with widely accepted standards used by other firms However, their approaches to calculating overall materiality and defining trivial thresholds significantly differ from those of other companies.

Utilizing preliminary analytical procedures in audits at Deloitte Vietnam enables auditors to deepen their understanding and improve their professional experience By gathering information, auditors can develop accurate estimation models that provide valuable insights into various customer aspects These insights, combined with data from similar clients, empower auditors to offer more effective advice to their clients.

At Deloitte Vietnam, auditors meticulously evaluate the use of analytical procedures, opting for them only when they prove more effective than alternative methods This approach is contingent upon the independent collection of highly reliable financial and non-financial data.

Preliminary analytical procedures are essential for evaluating all items on the Balance Sheet and Income Statement, as well as financial ratios, utilizing various analytical methods such as horizontal, vertical, and rationality analysis This comprehensive approach allows auditors to selectively analyze a reasonable number of items based on the specific engagement and actual conditions At Deloitte Vietnam Co., Ltd., auditors enhance their analysis by incorporating not only client-provided accounting data but also information from external sources Additionally, leveraging industry insights during the preliminary analytical procedure contributes to more accurate and sharper conclusions.

At Deloitte, risk assessment involves analyzing client-provided financial information alongside insights from industry experts and the auditors' own expertise This comprehensive approach establishes a foundational understanding for the audit team and associates, preparing them for subsequent tests of controls and substantive testing.

Plan tests of controls and substantive tests

Deloitte's test of controls emphasizes critical control points tied to core business activities that drive profitability, ensuring efficient material testing to optimize audit time The testing procedures leverage in-depth knowledge of internal controls, with sample sizes strategically allocated across branches and departments This approach fosters consistency and enables auditors to effectively adhere to the objectives and procedures of the testing process.

Substantive tests are customized for each assertion database relevant to specific operational areas, focusing on material risks and thorough planning, regardless of the validity and effectiveness of controls The Audit Senior incorporates these tests into auditing software, facilitating comprehension for audit associates Coupled with the initiative and adaptability of Deloitte auditors, this approach yields highly effective audit outcomes.

The selection of the engagement team is not reasonable enough

In theory, all audits will be adequately staffed and given enough time for employees to work under small pressure to ensure quality work

The demanding nature of the job places significant time pressure on employees, particularly auditors To stay on schedule, employees often find themselves working overtime Typically, an audit team consists of just three members who have five working days (Monday to Friday) to conduct audits for small and medium-sized companies If the firm has the assistance of its accountant, the auditors can complete their tasks more efficiently; otherwise, they may face extended hours and overlapping audits This situation intensifies the stress experienced by auditors within the team.

Recommendations to improve the audit planning in financial audit process

Assign audit personnel appropriately with the size and nature of the audit

To effectively address the issue, the firm needs to allocate additional time and resources to each audit At the onset of the audit process, it is crucial for the company to develop a detailed plan that establishes a balanced relationship between the duration of each audit and the personnel involved in its execution.

Detailed guidelines for the implementation of audit procedures

To enhance the effectiveness of audits, control and substantive tests must be meticulously designed It is crucial for the audit team’s Senior In-Charge (SIC) to thoroughly understand the client's internal control and accounting processes, clearly outlining the necessary procedures, documents, and resources in the audit strategy Providing detailed instructions instills confidence in associates, enabling them to perform their tasks proficiently and demonstrate professionalism in delivering financial statement auditing services during fieldwork.

Keeping the audit file Planning complying to the audit approach

Deloitte stores its audit files on EMS software and in hard copy at its offices, ensuring that they are clearly organized according to the company's audit approach This structured presentation aids internal employees in adhering to Deloitte's audit methods Additionally, in cases of litigation or disputes with clients, these audit files can be made public, serving as crucial evidence of the auditors' responsibilities, which must be arranged in a systematic and accessible manner.

Deloitte Vietnam offers robust training programs for employees, including onboarding courses, online training, and annual skill development sessions However, there is a need to enhance these initiatives, particularly the newly launched online training program, to elevate the overall quality of auditing and improve audit preparation specifically.

Modern audit technology is continuously evolving to adapt to changes in the economic landscape Deloitte, a leader in financial statement auditing, consistently pioneers technological advancements, embracing optimal trends These trends are evident in the audit planning process, where a meticulously prepared audit plan ensures a smooth operation and delivers enhanced value to clients.

After nearly four months as an audit associate at Deloitte, I have gained valuable insights into the practical responsibilities of an auditor and the critical role of the audit planning phase in year-end financial statement audits.

Adhering to audit plans significantly enhances the effectiveness of my role as an assistant, ensuring the proper execution of assigned audit procedures Deloitte’s meticulous and scientific planning approach offers numerous advantages, effectively reducing risks associated with profitability and the company’s reputation.

This thesis, titled "Improving Audit Planning in Financial Audit Conducted by Deloitte Vietnam," focuses on enhancing the audit planning process for financial statements It aims to summarize effective audit planning methods, emphasize practical work, and propose individual solutions The goal is to strengthen the audit planning process at Deloitte, maximizing its effectiveness while addressing existing shortcomings.

After dedicating four months to studying and practicing, the author acknowledges that the thesis has certain limitations due to their limited professional knowledge and practical experience Constructive feedback from experts and readers is highly welcomed to enhance the thesis's theoretical relevance and practical applicability.

Tiêu đề	Improving Audit Planning In Financial Audit Conducted By Deloitte Vietnam
Tác giả	Vu Tien Dat
Trường học	National Economics University
Chuyên ngành	Auditing
Thể loại	Bachelor Thesis
Năm xuất bản	2020
Thành phố	Hanoi

Định dạng
Số trang	110
Dung lượng	1,14 MB