A comparative analysis of the impact of the international standards on auditing adoption on the quality of the audit report in common law and code law countries

BANKING ACADEMY FALCULTY OF ACCOUNTING – AUDITING GRADUATION THESIS A COMPARATIVE ANALYSIS OF THE IMPACT OF THE INTERNATIONAL STANDARDS ON AUDITING ADOPTION ON THE QUALITY OF THE AUDIT REPORT IN COMMONLAW AND CODE-LAW COUNTRIES Lecturer Ph.D Le Thi Thu Ha Student Dang Thanh Tung Class K20CLCH Student Code 20A4050410 Tai ngay!!! Ban co the xoa dong chu nay!!! 17014125809971000000 STATEMENT OF ORIGINALITY OF THE THESIS I declare that this written submission represents my ideas in my own words, and where others' ideas or words have been included, I have adequately cited and referenced the sources It has not been applied for any degree or previously submitted anywhere for any award I also declare that I have adhered to all honesty and integrity principles and have not misrepresented or fabricated, falsified any ideas, data, and sources in my submission I understand that any violation of the above will result in disciplinary actions by Banking Academy and from whom proper permission has not been taken when needed Signature Dang Thanh Tung i ACKNOWLEDGEMENTS First of all, I would like to express my deep sense of gratitude and sincere thanks to my supervisor, Ph.D Le Thi Thu Ha, the Vice Dean of the Faculty of Accounting and Auditing, for her enthusiasm and constructive guidance throughout my graduation thesis Her encouragement and helpful advice had significantly enriched and improved my work Without her motivation and instructions, this paper would have been impossible to be done I want to express my tremendous appreciation to lectures of the Banking Academy of Vietnam in general and of the Faculty of Accounting and Auditing in particular for imparting comprehensive knowledge to me My graduate experience deviated from subjects that the seasoned lectures organized Last but not least, I would like to extend my heartfelt thanks to my entire family and friends They are always a great source of unceasing encouragement and support during my whole journey ii TABLE OF CONTENTS STATEMENT OF ORIGINALITY OF THE THESIS i ACKNOWLEDGEMENTS ii TABLE OF CONTENTS iii LIST OF ABBREVIATIONS v LIST OF TABLES AND FIGURES vii ABSTRACT .1 INTRODUCTION .2 CHAPTER 1: THEORETICAL BACKGROUND ON AUDITING STANDARDS AND AUDIT REPORTS 1.1 Overview of common-law and code-law systems 1.1.1 Characteristics of common-law system .5 1.1.2 Characteristics of code-law system 1.2 Overview of International Standards on Auditing 1.2.1 Introduction to International Auditing and Assurance Standards Board 1.2.2 Introduction to International Standards on Auditing 1.2.3 Auditing Standards on Audit Disclosure 13 1.2.4 International Standards on Auditing adoption 21 1.3 Theoretical background of the audit report 22 1.3.1 Definition 22 1.3.2 Contents of an audit report .23 1.3.3 Audit opinion 24 1.3.4 Stakeholders approach to the audit report 25 1.3.5 How is an audit report considered to be quality? .26 CHAPTER SUMMARY 27 CHAPTER 2: A COMPARATIVE ANALYSIS OF THE IMPACT OF THE INTERNATIONAL STANDARDS ON AUDITING ADOPTION ON THE QUALITY OF THE AUDIT REPORT IN COMMON-LAW AND CODELAW COUNTRIES 28 iii 2.1 Financial statements audit process 28 2.2 Impacts of common-law and code-law system to accounting and auditing practices 30 2.3 The quality of audit report in common - law countries 33 2.3.1 The United Kingdom 33 2.3.2 The United States of America 44 2.3.3 Singapore 53 2.4 The quality of audit report in some code - law countries .57 2.4.1 France .57 2.4.2 Denmark 61 2.4.3 Vietnam 65 2.5 Conclusion on the impact of the International Standards on Auditing adoption in common-law and code-law countries 69 CHAPTER SUMMARY 71 CHAPTER 3: RECOMMENDATIONS FOR IMPROVING THE QUALITY OF THE AUDIT REPORTS IN VIETNAM 72 3.1 The adoption of the International Financial Reporting Standards 72 3.2 Improving the Vietnamese Standards on Auditing 73 CHAPTER SUMMARY 76 CONCLUSION 77 REFERENCES iv LIST OF ABBREVIATIONS No Abbreviations Explanation AASC Auditing and Assurance Standards Committee AICPA American Institute of Certified Public Accountants APB The Auditing Practices Board BGB Bürgerliches Gesetzbuch CAM Critical Audit Matter CNCC The Compagnie Nationale des Commissaires aux Comptes DBA Danish Business Authority E.C The European Commission E.U The European Union 10 FRC The Financial Reporting Council 11 GAAP Generally Accepted Accounting Principles 12 GAAS Generally Accepted Auditing Standards 13 IAASB The International Auditing and Assurance Standards Board 14 IAG The International Auditing Guidelines 15 IAPC The International Auditing Practices Committee 16 IAPN The International Auditing Practice Notes 17 IASC The International Auditing Standards Committee 18 ICAEW 19 ICPAS The Institute of Certified Public Accountants of Singapore 20 IESBA The International Ethics Standards Board for Accountants 21 IFAC The International Federation of Accountants 22 IFRS The International Financial Reporting Standards 23 ISA The International Standards on Auditing 24 ISCA Institute of Singapore Chartered Accountants 25 ISQC The International Standards on Quality Control 26 KAM Key Audit Matter The Institute of Chartered Accountants in England and Wales v 27 MOF Ministry of Finance 28 PCAOB 29 PLC Public Limited Company 30 QA Quality Affirmation 31 ROSC 32 SEC Securities and Exchange Commission 33 SSA Singapore Standards on Auditing 34 The U.K The United Kingdom 35 The U.S The United States 36 VACPA Vietnam Association of Certified Public Accountants 37 VAS The Vietnamese Accounting Standards 38 VFRS Vietnamese Financial Reporting Standards 39 VSA Vietnamese Standards on Auditing Public Company Accounting Oversight Board Report on the Observance of Standards and Codes vi LIST OF TABLES AND FIGURES Table 1.2: Basis of ISA Adoption by Jurisdiction 22 Table 2.1: Key differences between ISAs and the United State Auditing Standards on Reporting 46 Table 2.2: Form of the audit report under standards 66 Figure 2.1: Burberry Group PLC - Audit report .35 Figure 2.2: Burberry Group PLC - Audit report .36 Figure 2.3: Burberry Group PLC - Audit report .37 Figure 2.4: Burberry Group PLC - Audit report .38 Figure 2.5: Burberry Group PLC - Audit report .39 Figure 2.6: Burberry Group PLC - Audit report .40 Figure 2.7: Burberry Group PLC - Audit report .41 Figure 2.8: Burberry Group PLC - Audit report .42 Figure 2.9: Burberry Group PLC - Audit report .43 Figure 2.10: American Psychological Association, Inc - Audit report 51 Figure 2.11: American Psychological Association, Inc - Audit report 52 Figure 2.12: CFA Society Singapore - Audit report 54 Figure 2.13: CFA Society Singapore - Audit report 55 Figure 2.14: CFA Society Singapore - Audit report 56 Figure 2.15: Sartorius Stedim Biotech S.A - Audit report 59 Figure 2.16: Sartorius Stedim Biotech S.A - Audit report 60 Figure 2.17: Sergel A/S - Audit report 62 Figure 2.18: Sergel A/S - Audit report 63 Figure 2.20: Sergel A/S - Audit report 64 Figure 2.21: Phu Nhuan Jewelry JSC, - Audit report .68 Figure 2.22: Phu Nhuan Jewelry JSC, - Audit report .69 Figure 3.1: Roadmap of IFRS adoption in Vietnam 73 vii ABSTRACT In the market economy, an independent audit has become an indispensable need Auditing has the role of providing reliable information for the decisionmaking of investors, credit institutions, banks, state agencies Over the past 30 years of development, Vietnam's independent audit field has made significant progress in the number of independent auditing firms and an outstanding contribution to making financial information more transparent Independent Audit is an essential factor in ensuring the truthfulness of financial information published by enterprises, becoming an indispensable service industry for developing the stock market in particular and Vietnam's economy in general The transparency of financial information of listed companies and non-listed ones becomes an urgent need for investors in the stock market, which is the basis for investors to make investment decisions The audit report is the final product of an independent audit, representing the auditor's conclusion on the examined financial statements Accordingly, the opinion on the audit report is the conclusion about the truthfulness and reasonableness of the financial statements Audit opinion plays an essential role in evaluating a company's financial statements, helping the financial statements' users make the right decisions and views about the audited company However, the question is: "Are the audit reports relevant for users’ decision-making?" due to several cases where the auditor gave inappropriate opinions There must have been both objective and subjective factors affecting the audit opinion Once the auditor discloses an unreasonable view in the auditor's report, this will lead to erroneous decisions for investors and users of the company's financial statements As a result, the topic: "A comparative analysis of the impact of the International Standards on Auditing adoption on the quality of the audit report in common-law and code-law countries" is chosen for my Graduation Thesis INTRODUCTION Rationale for the study Financial audits are increasingly proving their practical effects and gradually becoming an indispensable need in the economy globally in general, and in Vietnam in particular The auditing field officially marks its arrival in Vietnam in the 1990s, when the first audit firm in Vietnam was established Since then, along with the development of the economy and the advent of legal documents, auditing subjects have been moderately expanded If in the past, the object of the Audit was only foreign-owned enterprises, state-owned businesses, banks, credit institutions, listed joint-stock companies, and public shares, nowadays, enterprises, corporations have State capital of 20% or more, auditing firms, branches of foreign auditing firms in Vietnam have all become the subject of the Audit The increase in both the number of auditing and audited firms is a testament to the benefits that auditing activities bring to the economy through the services that audit firms provide Assisting enterprises in promptly grasping financial and accounting policies, disclosing financial information transparency, preventing and detecting financial mistakes are required conditions for an economy to attract foreign sources As a result, auditing firms are required to provide such quality services to their clients It not only develops the reputation of the auditing field in general and that firm in specific, but it also raises the trust of intended users towards audit reports and is a safeguard for investors' decision–making Various aspects are attributed to the condition of an audit For illustration, the auditors directly participate in the Audit, their ethics, proficiency; the sufficient appropriate audit evidence; audit process All of those would contribute to a quality audit report, where the auditor gives an opinion about the truthfulness and fair presentation of the financial statements There would be greater detail in the report in each country which bases national standards on auditing on common disclosure and quality control However, the auditor all sets the same objective of giving a fair opinion and