Rationale for the study
The globalization trend and evolving socio-economic factors in Vietnam have increased the importance of financial information for both internal and external users, especially investors To attract domestic and foreign investment, companies must ensure the transparency of their financial information, which is often validated through independent audits Consequently, audited financial statements are essential to assure stakeholders that management has accurately represented the company's financial performance and position.
Accounts payable to suppliers is a crucial element that directly impacts a business's financial health and operational viability In today's economic climate, where companies require substantial financial resources for growth, credit purchases have gained popularity Sellers can attract customers through favorable credit terms, while buyers can access external financial resources Effective management of accounts payable allows businesses to seize supplier opportunities while minimizing losses The accuracy of accounts payable is vital, as it influences profitability, solvency, and operational ratios, which must be reported truthfully Given the prevalence of fraud and errors associated with accounts payable, it significantly affects an entity's liquidity, inventory, and equity, making it a focal point during financial statement audits.
At KPMG Vietnam, accounts payable audits are one of the most important procedures in financial audits Although the KPMG auditors comply with professional standards
The graduation thesis from the Banking Academy highlights the limitations encountered in auditing financial statements, with a specific focus on accounts payable Recognizing the significance of this issue during the internship, the author has chosen to explore "Accounts Payable Auditing in Financial Audits Conducted by KPMG Company Limited" as the topic for their bachelor's thesis.
Literature review
Accounts payable is a vital element of financial statements due to its connections with various other items, making it essential for the auditing process Consequently, this topic has garnered significant attention from researchers and authors over the years.
There are several theories by authors referencing the elements of accounts payable audit in particular and financial statements audit in general throughout the world Alvin Arens
In their 2017 study, the authors addressed essential and intricate issues related to the nature, process, and techniques of financial auditing, emphasizing that the audit of liabilities adheres to International Auditing Standards (ISAs) Furthermore, the International Federation of Accountants (IFAC) reviews and disseminates specific ISAs to guide the auditing of financial statements, ensuring high audit quality from the viewpoint of professional organizations.
The Vietnam Association of Certified Public Accountants (VACPA) has released a Sample Audit Program that serves as a valuable resource for auditing accounts payable Additionally, universities like the National Economics University, the Banking Academy, and the Academy of Finance provide a systematic presentation of auditing theories related to accounts payable in their curricula These theoretical and practical guidelines are essential references for the BTC audit, particularly in the context of accounts payable auditing.
Mai Thuy Dung's 2021 research is a significant contribution to the field of accounts payable auditing in Vietnam, showcasing a comprehensive presentation at ATC Firm Co., Ltd on the practical application of accounts payable audit theory.
In the Banking Academy Graduation Thesis, the author developed a comprehensive audit program for accounts payable by employing dialectical materialism methodology alongside various techniques, including client interviews, current accounting and auditing standards guidance, and analysis of previous audit files After thoroughly processing the gathered data, the author offered targeted solutions for each of the three phases of the auditing process, drawing conclusions from the research on the existing situation presented in the thesis.
Tran Thi Anh Thu (2019) explored the auditing of payables using a dialectical materialism approach to bridge the gap between theory and practice, specifically focusing on auditing payables to sellers in unique circumstances The findings highlighted an effective auditing method and a comprehensive evaluation of the internal control system, even in cases involving long-standing customers However, the study's proposed solutions for analytical procedures lacked the necessary detail to address the identified issues in real-world scenarios, which this thesis aims to rectify.
In contrast to Hoang Thuy Linh's 2021 study, the author introduced targeted strategies addressing the identified weaknesses revealed during the KPMG audit for a specific client By generalizing theories related to accounts payable audits, the author employed various research methods, including synthesizing background information, analyzing legal frameworks, and collecting data through direct observation and participation in audit processes This approach aimed to elucidate the overarching research objective and deepen the understanding of theoretical issues associated with auditing accounts payable for creditors in the context of independent financial statement audits.
This research focuses on auditing accounts payable using a risk-based approach, distinct from the audits conducted by KPMG Limited for the year ending December 31, 2022 The aim is to develop sufficient and suitable audit procedures that address concerns and uncertainties regarding potential material misstatements.
Objective of the research
Implementation of theoretical and practical principles to the payable accounts item in the audit of ABC JSC's financial statements conducted by KPMG Limited Company
The research has been conducted to achieve the following specific objectives:
- Systematize the theoretical basis guiding the auditing of accounts payable in financial audits
- Analyze and assess the application audit procedures for accounts payable in financial statements for a particular client at KPMG Limited Company
- Propose recommendations in order to complete accounts payable audit procedures conducted by KPMG Limited Company
Object and scope of the research
Object: Accounts payable audit procedures in financial statements audits conducted by independent audit firms
- Time: from 01/Dec/2022 to 31/Mar/2023
- Content: Research accounts payable audit procedures in a company's financial statements in three stages: planning, implementing, and completing
Research is conducted to answer the questions:
- What is the theoretical basis related to accounts payable?
- How to audit accounts payable at KPMG Company Limited? What are the advantages and disadvantages of this process?
- What is the recommendations given to complete the accounts payable audit procedure at KPMG limited company?
Research method
This research explores the application of dialectical materialist methodology to examine the relationship between theoretical frameworks and the practical execution of the accounts payable audit process, ensuring that it is systematic and tailored to specific circumstances.
- Observations: To ensure smooth operation when performing on-field work at the client's location, pay attention to the superiors' instructions
- References: Refer documents on auditing, accounting and auditing standards, current accounting regime, prior audit files of KPMG Limited Company
- Make an overview of the data obtained and choose the information needed to analysis and evaluation
- Use the Excel spreadsheet tool to calculate data and document working papers
- Compare data and analysis of variance between years then gathering the information to make objective conclusions
- Secondary data: Export from their software; documents provided by client such as general ledger, sub ledger, invoices; prior audit files; financial statements for the fiscal year ended December 31, 2022.
Structure of the thesis
My bachelor thesis contains three main chapters which are structured as follows:
THEORETICAL BASIS FOR AUDITING ACCOUNTS PAYABLE IN
Characteristics of account payable of clients affecting financial audits
1.1.1 Definition and nature of accounts payable
Businesses play a crucial role in securing essential input factors like raw materials, machinery, and services needed for efficient manufacturing processes Recently, the market economy has evolved to incorporate commercial credit activities alongside direct cash transactions for goods and services, leading to an accumulation of accounts payable to vendors.
Accounts payable, as defined by VAS 01, refers to a business's current obligations arising from past transactions and events that require the use of resources for settlement This term encompasses the liabilities incurred during regular business operations related to the purchase of goods, supplies, and services that remain unpaid, either partially or fully, to the suppliers.
Accounts payable (AP) is a crucial element that connects various components of the income statement and balance sheet Defined in Article 50 of Circular 200/2014/TT-BTC, accounts payable, or trade payable, refers to the commercial payments owed for the purchase of goods, services, or assets, where the supplier is separate from the buyer This financial obligation arises when a business acquires products or services from its suppliers on credit.
Accounts payable is an obligation that appears on the balance sheet under current liabilities since it involves money owing to creditors Short-term liabilities, often less
Current liabilities, defined as obligations due within 90 days, include payments to suppliers based on agreed credit terms such as 2/25 or 1/30 The standard credit period is usually 30 days, though it can vary depending on the business type and supplier relationships When these liabilities are settled, they contribute to negative cash flow for the company, as reflected on the balance sheet.
Accounts payable to suppliers represent a company's current obligations incurred when receiving assets or entering agreements This includes debts for supplies, goods, fixed assets, tools, equipment, utilities, and maintenance services However, accounts payable do not encompass interest on payables, penalties, bond debt, debt receipts, or other forms of debt.
Businesses have a responsibility to their suppliers that significantly influences their solvency, capital turnover, and fair value adjustments Accounts payable professionals provide accurate and timely financial information, reflecting the company's current financial health, which can impact investment advisors' decisions on costs To positively affect the net income statement, strategists must be aware of the company's upcoming obligations and repayment debts.
Accounts payable (AP) is a crucial component in determining a company's total assets, reflecting its ability to expand and its reliance on suppliers This financial metric plays a significant role in audits and influences the overall operating report of the business Due to variations in firm size, business characteristics, and the volume of purchasing transactions, the accounts payable balance and its ratio to total liabilities can vary widely among audited clients.
Manufacturing companies are characterized by their need to procure various inputs, including machinery and raw materials, from a limited number of reputable suppliers to meet the high demand for quality products in large volumes Typically, total debt accounts for 40–50% of total capital, although this percentage can vary based on individual capital utilization strategies.
Commercial enterprises primarily focus on purchasing and reselling products from major suppliers, distributing them through agents, retail distributors, or directly to customers to profit from price differentials The diverse range of suppliers and products leads to a significant balance of accounts payable, which constitutes 60% to 80% of the company's total capital This substantial presence of trade payables is crucial in the auditing of financial accounts.
1.1.2.1 Accounting rules and legal framework
Accounts payable at businesses must be recorded in line with general accounting principles, accounting standards and frameworks established by the Ministry of Finance, and relevant legal documents
The following guidelines are listed in Article 51 of Circular No 200/2014/TT-BTC regarding payables accounting:
This account is designated for tracking payments owed by an enterprise to sellers of materials, goods, or services, as well as for fixed assets, investment properties, and financial investments under established business contracts It also records payments to main contractors and subcontractors, while cash purchases are excluded from this account.
Liabilities to sellers, providers, or contractors must be meticulously documented for each entity This account also captures prepayments made to these parties, even when the corresponding goods, services, or constructions have not yet been received.
Trade payables in foreign currencies should be monitored in their original currency and converted to VND using the designated exchange rate Additionally, it's essential to reassess the exchange rate at the end of the period when preparing the annual accounting report.
When supplies, goods, and services are received or stored in warehouses but no invoice has been issued by the end of the month, a provisional price should be recorded in the books This provisional price will later be adjusted to reflect the historical cost upon receipt of the invoice.
- The import trustor shall record the trade payables for imported goods to the import trustee to this account similarly to ordinary trade payables
When detailing accounts, it is essential to accurately record any payment discounts, trade discounts, or sales rebates from the seller or supplier that are not reflected in the sales invoices Proper documentation of these financial adjustments is crucial for maintaining clear and precise records.
Accountants must ensure that adequate documentation is maintained when recording accounts payable to validate the legitimacy, accurate valuation, and approval of debts Essential documents include invoices, purchase orders, and receipts.
CURRENT STATUS OF THE ACCOUNTS PAYABLE AUDITING IN
Overview of KPMG Company Limited
2.1.1 The establishment and growth process
KPMG Company Limited, known as KPMG Vietnam, is a limited liability company based in Vietnam and a member of the KPMG International Limited network, which is incorporated in the UK KPMG International serves as the coordinating entity for the benefit of its member firms, while professional services are exclusively delivered by these member companies.
Since 1992, KPMG has operated a representative office in Vietnam, officially established as KPMG Limited Liability Company under Investment License No 863/GP on May 17, 1994 This 100% foreign-owned corporation initially invested 1 million USD, which was increased to 4 million USD in April 1998 to support its expanding business operations in the country.
In Vietnam, KPMG has one headquarter in Hanoi and 2 branches in Ho Chi Minh and
Da Nang is home to a company that prioritizes not only delivering value and benefits to its customers but also ensuring exceptional working conditions and employee welfare This commitment has positioned the company as a leader in Asia, recognized for having one of the best working environments globally KPMG stands at the forefront of innovation, embracing new methodologies and integrating technology to enhance its services.
KPMG stands as a leading professional service provider in Vietnam, employing over 2,000 professionals and catering to a diverse range of domestic and international clients The Ministry of Finance and VACPA have acknowledged KPMG's excellence by ranking it among the top auditing firms in the country.
Vietnam, ranking first top among terms of revenue, clients supplied, and qualified auditors worked
KPMG Vietnam is committed to delivering service excellence through a professional work ethic, continually striving for improvement Over its 28 years of establishment, the firm has experienced significant growth and has established itself as a leading auditing firm in Vietnam KPMG Vietnam takes pride in being recognized as a high-quality enterprise, receiving numerous accolades from various ministries, departments, and reputable service quality assessment organizations.
KPMG proudly received multiple prestigious awards at the International Tax Journal's annual ceremony, including "Excellent Tax Consulting Enterprise of the Year" and "Excellent Transfer Pricing Consulting Enterprise of the Year" in Vietnam, as well as "Excellent Tax Consultant of the Year" and "Tax Compliance and Reporting Consultant of the Year" in Asia.
- Approved name: KPMG Limited Company
- Head office address: 46th Floor, Keangnam Landmark 72, E6 Pham Hung Road, Me Tri Ward, South Tu Liem District, Hanoi
Email: kpmghanoi@kpmg.com.vn
- Legal representative and chairman: Mr Warrick Antony Cleine
- Ho Chi Minh Branch: Level 10, Sun Wah Tower, 115 Nguyen Hue District 1, Ho Chi Minh City
- Da Nang Branch: Unit D3, 5th Floor, Indochina Riverside Towers, 74 Bach Dang Street, Hai Chau I Ward, Hai Chau District, Da Nang
2.1.2 Main business areas of KPMG
KPMG offers a comprehensive suite of services, including audit, tax, consulting, and legal consulting, with a strong emphasis on audit and tax services in the Vietnamese market The following is a list of services provided by KPMG.
KPMG is one of the few firms authorized by the Ministry of Finance to audit listed companies in Vietnam, presenting a significant opportunity amid the country's stock market launch and new Securities Law Investors can trust their business decisions with KPMG's audit services, which enhance transparency in the stock market KPMG adheres to statutory requirements and employs a robust Audit Methodology that surpasses both national and international standards The audit services offered include financial statement services, accounting advisory services, and assurance services, ensuring comprehensive support for clients.
Audit of financial statements prepared to International Financial Reporting Standards (IFRS) or local generally accepted accounting principles (GAAP)
Review of IFRS and local GAAP financial statements
Agreed upon procedures performed to comply with management or regulatory requirements
Advisory on accounting impact of contracts, restructuring and transactions under IFRS and local GAAP
Training in local GAAP, IFRS and special topics such as Business Combination and Financial Instruments
Comfort letter and other assurance requirements on debt or equity issuance
Assurance on Financial and Non-Financial Information for management reporting or compliance with rules and regulations
Assurance on Internal Control Over Financial Reporting
Complying with tax obligations in Vietnam can be challenging for foreign investors due to the complexities of the legal system KPMG offers essential support by leveraging their extensive tax expertise and understanding of the broader business context to assist clients in fulfilling their compliance responsibilities while identifying planning opportunities Their comprehensive services are designed to help foreign businesses navigate the intricacies of the Vietnamese tax landscape effectively.
Dispute Resolution and Controversy Services
Businesses are increasingly seeking a diverse range of consulting services to navigate the challenges and opportunities of a volatile economic landscape KPMG’s consulting experts address various aspects of corporate wellness, focusing on profitability, transformation, technology, risk management, growth strategies, organizational structure, and operational efficiency.
KPMG Law is a premier legal service provider in Vietnam, boasting a team of 100 professionals across key financial and commercial hubs in Vietnam and Cambodia This extensive network allows KPMG to deliver timely and effective legal support to clients, leveraging a wealth of experience to meet diverse needs Their comprehensive range of legal services ensures that clients receive expert assistance tailored to their specific requirements.
Market entry and business set-up
Figure 2.1: Organization structure of KPMG Vietnam
The effectiveness of KPMG's operations is significantly influenced by its management structure, which is consistently implemented worldwide while allowing for necessary local adaptations.
The Board of Directors consists of the General Director, Deputy General Director, and other board members The General Director oversees all company operations in Vietnam, directly managing the Ho Chi Minh City office while indirectly supervising the Hanoi office through the Deputy General Director The Deputy General Director is accountable for the Hanoi office's operations, ensuring alignment with the company's overall development strategy, coordinating service implementation, and reporting on the office's performance and growth potential to the General Director.
The remaining members of the Company's Board of Directors are all shareholders who play a crucial role in the audit process They directly evaluate audit risks, make decisions regarding audit contracts, conduct the final review of the complete audit file, and serve as the company's representative to sign and issue both the audit report and the management letter.
- Service Department: has 3 departments which are audit department, consulting room and tax department
The audit department, which employs the largest workforce, offers comprehensive audit services to a diverse range of clients across various sectors, including finance, banking, insurance, real estate, hospitality, construction, oil and gas, shipbuilding, and telecommunications Additionally, KPMG engages in auditing projects for international organizations from countries such as the UK, Sweden, and the Netherlands, as well as for international donor funds that support initiatives in poverty reduction, environmental management, and cultural development and conservation.
Accounts payable auditing in financial audits conducted by KPMG Company Limited
2.2.1 Overview of process of auditing account payable of KPMG
The audit of accounts payable adheres to KPMG's standard audit procedures This article will outline the process of auditing accounts payables within the financial statements at KPMG Vietnam.
Effective audit planning involves several critical steps: assessing the audit's acceptability and associated contract risks, selecting a qualified audit team, and preparing the audit engagement It is essential to gain a comprehensive understanding of the client and their business environment, including business cycles and accounting policies A preliminary analysis of financial statements and an assessment of internal controls and risks are also crucial Determining materiality and developing a tailored audit program are key components of this process These activities align closely with the initial stages of KPMG's financial statement audit methodology.
The auditor needs to carefully evaluate his or her clients whether to accept new clients or maintain contracts with existing clients, in order to ensure profitability and credibility
Head of quality and risk management
Banking Academy Graduation Thesis for audit firms as well as auditors Some factors can be considered such as professional capacity, independence, integrity of the leadership
KPMG adheres to global regulations and guidelines during the audit process, particularly in the acceptance of new clients and the re-engagement of existing ones The table below summarizes KPMG's comprehensive global policies regarding the acceptance of audit clients.
Table 2.1: Client acceptance process of KPMG
Content Acceptance of new clients
Continuance of current clients Requirements overview In accordance with global
Before bidding or making an offer to a potential customer, KPMG regulations mandate that the contract manager or deputy director conduct essential risk assessment procedures This includes evaluating general customer information, researching online and media sources, analyzing industry activities, gathering insights from member companies and third parties, and reviewing relevant data.
To effectively identify new risks, it is essential to review and evaluate potential risks regularly In cases where there are significant changes to contract terms, the re-engagement of a previous customer is treated as an acceptance of a new customer, necessitating adherence to regulations governing the acceptance of new clients.
Banking Academy Graduation Thesis financial statements and other information provided by customers
Gather financial statements and customer information, including their business activities, produced goods, and organizational structure Additionally, compile details on the Board of Directors, the company's financial position over the years, authority assessment reports, annual audit reports, and evaluations of the integrity of both the Board of Directors and the client's accounting system.
Check and confirm the independence of the auditor and the audit firm related to this potential client
Liaise with predecessor auditors to collect audit-
To ensure accurate financial reporting, it is essential to update customer information and assess any significant changes in their activities, business sectors, organizational structure, or capital structure Additionally, reviewing the audit report from the previous year and its impact on the current year's financial statements is crucial It is also important to reconfirm the independence of the auditors and KPMG concerning this client.
Preliminary analysis of the current year's financial situation, assessment and
Banking Academy Graduation Thesis related issues Preliminary analysis of the financial situation, assessment and classification of the risk level of the contract (low, medium, high)
Evaluate the contract performance capacity of auditors and KPMG classification of contract risks (low, medium, high) Assess the contract performance capacity of auditors and KPMG
The director or deputy director responsible for client management will assess the contract's risk level and seek approval from a partner, typically the general director of the department.
In high-risk situations, it is essential to obtain approval from the Vice President of Risk, the Managing Director, and the Deputy General Manager of Risk for Southeast Asia.
The process for approving the resumption of an audit engagement mirrors that of onboarding a new client It involves an assessment and approval of contract risk by the director or deputy director responsible for clients Additionally, a review by another member, typically the partner-deputy general director, is necessary, along with approval from the Vice President of Risk, Managing Director, or Vice President of Risk for Southeast Asia.
Banking Academy Graduation Thesis b Select an audit team and preparing the audit engagement
The auditor proceeds by accepting the audit contract, subsequently drafting the agreement and selecting the audit team, while carefully evaluating contractual risks and considering assessment methods.
At KPMG, the manager responsible evaluates the complexity of the audit by understanding the client's audit rationale The engagement partner or manager in charge (MIC) leads the selection process for the audit team, considering the required number of personnel, their qualifications, and adherence to professional and technical standards Key factors influencing the choice of professionals for the audit include their expertise and experience.
The independence of the engagement team
Members of the engagement team should be able to efficiently supervise the less experienced staff
The audit team for new clients often consists of many highly qualified personnel to identify risks and efficiently deal with them
For years, there has been reluctance to change the audit team assigned to a client, as long-term involvement allows auditors to acquire deep knowledge and understanding of the client's operations.
Care should be taken to choose auditors who are knowledgeable about and experienced in the client's business when assigning them to do the audit
For first-year audit clients, it is essential to fully understand every clause in the contract to effectively address any potential legal issues that may arise in the future.
At least two copies of the audit contract are required; each party preserves one copy, which must include both parties' signatures and seals Setting up an audit contract will
Graduating from the Banking Academy signifies a pivotal moment for long-term clients, emphasizing the importance of mutual agreement on any contract modifications It's essential that both parties consent to changes, with the contract requiring annual renewal to ensure continued compliance and alignment.
The two parties will next meet in person to negotiate the details of the contract and sign an audit contract The audit contract contains the following crucial information:
The goal and scope of the audit
The duties of the BOD of the clients and auditors
The format in which the results of the audit will be communicated
The date and time on which the audit will be conducted
The bases for determining the audit fees and the methods of payment
The requirements, duties, and other obligations that must be met
The seals and signatures of both parties c Understand clients and business environment
RECOMMENDATIONS FOR IMPROVING THE AUDIT OF ACCOUNTS
Oriented development of the company
KPMG is committed to advancing the Sustainable Development Goals (SDGs) to create a more prosperous, inclusive, sustainable, and resilient world This commitment focuses on three key areas: building trust with the public and clients, fostering extraordinary talent, and minimizing environmental impact.
KPMG is a reliable partner dedicated to helping clients and the public achieve their full potential through exceptional services The firm has launched KPMG On Demand, offering affordable courses that provide immediate guidance on legal documents, tax laws, and accounting standards, each lasting three to five hours and enriched with practical examples Additionally, KPMG's publications equip business leaders across various industries with a comprehensive understanding of both national and international economies.
To meet increasing capacity demands, the company has implemented human resource development programs, recognizing that the quality of its workforce is crucial for both organizational growth and the advancement of the auditing profession.
KPMG is dedicated to providing a safe and equitable work environment for employees and stakeholders, fostering opportunities for both professional and personal growth, ultimately enabling them to make meaningful contributions to society.
KPMG is dedicated to enhancing its internal training programs to equip staff with the essential skills and knowledge required to meet customer demands effectively The establishment of the KPMG Business School (KBS) is a key initiative, offering specialized training in areas such as soft skills, management, and business knowledge This approach enables auditors and employees to swiftly and easily update their expertise, ensuring they can effectively respond to evolving work requirements.
KPMG prioritizes impactful environmental actions through its comprehensive program, focusing on economically viable, socially responsible, and ecologically sound practices The initiative emphasizes long-term improvements in environmental impact, including significant reductions in CO2 emissions that contribute to climate change Additionally, KPMG offers sustainability consulting services to clients, enhancing their understanding and implementation of sustainable practices.
KPMG fosters environmental awareness among its employees, leading to a transformative perspective on sustainability Through various environmental initiatives, the company highlights the importance of resource and energy management, empowering each individual to play a crucial role in improving overall environmental performance.
The requirement for improving the accounts payable auditing procedures
Independent audits play a crucial role in today's economy by providing stakeholders and state management organizations with insights into a company's operational patterns and asset fluctuations, enabling informed decision-making These audits validate the accuracy and reliability of financial statements, instilling confidence in users regarding the company's financial health However, recent audits have fallen short of established quality standards, highlighting the need for improvement in the auditing process.
The graduation thesis from the Banking Academy examines auditing activities in Vietnam, highlighting the frequent discrepancies between the findings of financial organizations, like tax authorities, and audit results This lack of recognition and acceptance of audit outcomes has created significant challenges for businesses in the country.
Accounts payable is a vital line item on financial statements, significantly affecting financial ratios and reflecting the overall financial situation in relation to cash, inventory, fixed assets, and expenses Errors in this area can lead to inaccuracies in other financial statement items and create misunderstandings about the business's financial health Misreporting debts to suppliers can distort perceptions of the business's solvency, as debt is often viewed as a financing source for operations and production.
KPMG Vietnam must implement swift and comprehensive solutions to resolve the issues identified during the auditing process This audit plays a crucial role in uncovering vulnerabilities that require attention within the internal controls of the acquisition and payment cycle, as well as enhancing the overall business operations of the enterprise.
The limitations in the accounts payable audit process at KPMG Limited Company can elevate audit risk, potentially compromising the accuracy of the auditor's opinion To enhance audit efficiency and deliver superior services to clients, it is crucial for the company to implement solutions that address these limitations This improvement will help maintain KPMG's reputation and market share in Vietnam.
To enhance KPMG's audit process and specifically improve the accounts payable audit procedures, it is essential to formulate targeted recommendations that address identified deficiencies.
Recommendations for improving the audit of accounts payable in financial audits process
To minimize risks and reduce unnecessary audit procedures, the company should create tailored questionnaires for each type of enterprise and continuously improve these questionnaires in subsequent audit years.
To enhance the internal control of accounts payable, the company should establish clear evaluation criteria Implementing a scoring system for each question, categorized into levels of weak, moderate, good, or excellent, will streamline the auditors' assessment process This approach not only aids in the consistent evaluation of the internal control system but also improves the overall effectiveness of the auditing process.
Auditors should integrate questionnaires and flowcharts to effectively describe a client's internal control system Flowcharts provide a clearer and more accurate representation of internal controls, simplifying the assessment process By utilizing an internal control flowchart, auditors can easily identify applicable control procedures and determine any necessary additions An example of this is illustrated in Appendix 3.1, which features an acquisition-payment cycle flowchart.
Analytical techniques are crucial at the implementation stage of any audit since they have a significant impact on the accuracy of the auditor's evaluation
Auditors must compare a company's financial indicators with average industry benchmarks to evaluate its performance and growth potential By analyzing these comparisons, auditors can gauge the firm's efforts and capacity for future expansion, offering insights into its competitive standing and prospects for development within the industry.
ABC JSC, a company in the construction sector, faces challenges in short-term debt repayment, as evidenced by its current ratio of 1.279, which falls short of the industry average of 2.68 Additionally, ABC's quick ratio of 0.33 is significantly lower than the industry's 2.18, indicating the company's struggle to utilize liquid assets effectively for timely debt repayment.
To enhance audit quality, auditors must send confirmation letters to all suppliers, including those with discrepancies Initiating this process early in the audit allows for timely responses from third parties If a response is not received within the specified timeframe, a follow-up confirmation letter should be issued.
When selecting test samples for financial statements, particularly trade payables, auditors should integrate computer-generated random number sampling with professional judgment to ensure representativeness For transactions with fewer occurrences, random sampling is recommended, while statistical sampling is more suitable for larger or exceptional internal laboratory debts Despite the subjectivity in assessing low-frequency transactions, auditors can still utilize various sampling techniques to enhance the reliability of their findings.
The Banking Academy Graduation Thesis emphasizes that utilizing diverse sampling methods allows auditors to select transactions with small amounts, regardless of personal biases This approach enhances the specificity of the sample while simultaneously minimizing audit risk.
After completing their audit, auditors should reference related issues in their working papers to facilitate a swift follow-up for future audits of the same client.
Auditors must consider the impact of events occurring after the accounts payable cut-off date on financial statements and their reports It is crucial for businesses to evaluate the significance of these events related to current liabilities and to stay informed about any developments that may affect the audit report, whether it has already been issued or is forthcoming.
Conditions for implementation of recommendations
Enterprise accountants and auditors often struggle to apply business and enterprise laws effectively due to the absence of comprehensive guidance documents To address these challenges, it is crucial for the State and the Ministry of Finance (MOF) to promptly issue clear instructions on the application and implementation of the Accounting Law Additionally, they should provide support to businesses in navigating the law's requirements, particularly during times of innovation and change.
To ensure stability and consistency in accounting records, it is essential for Circulars, Decrees, and Laws within the accounting system to be thoroughly researched before issuance Moreover, the Ministry of Finance (MOF) must expedite the finalization of audit standards and accounting policies, ensuring that these policies are supported by clear guiding circulars Currently, there is a lack of consensus within the MOF regarding these matters.
The Banking Academy Graduation Thesis addresses new controversial scenarios that have led to conflicts in accounting treatment and audit conclusions To create a more uniform approach to economic and financial transactions, the Ministry of Finance (MOF) must implement updated policies A revised set of auditing standards has been introduced in response to economic changes and global integration, marking a shift from previous standards while still aligning with international norms Additionally, the MOF needs to finalize the documentation and circulars necessary for the adoption of these new auditing standards in the near future.
The rapid growth of both large and small auditing firms in Vietnam has led to an increase in the demand for audit and professional services However, the lack of guaranteed audit quality from certain firms has raised concerns, prompting the Ministry of Finance (MOF) to establish standards for auditing services and create an assessment body to evaluate the quality of these firms This situation has resulted in some organizations delivering subpar audits, undermining trust in the industry and adversely affecting other businesses that provide audit and assurance services.
Auditors must consistently enhance their technical skills and stay informed about both the economic landscape in Vietnam and global trends to fulfill professional career demands Upholding professional ethics is essential, representing one of the core standards in the auditing field, making it imperative for auditors to prioritize continuous learning and ethical integrity.
Accurate and thorough implementation of audit procedures is essential to maintain audit risk at an acceptable level A professional and serious approach from the auditor is only possible after a comprehensive understanding of the relevant processes Regular communication and flexible collaboration among auditors enhance efficiency, reduce costs, and ensure the effectiveness and quality of the audit.
To improve audit quality, businesses should focus on attracting and retaining ethically responsible employees, while also investing in regular training sessions and updating auditors' knowledge This commitment to professional development not only enhances the qualifications of auditors but also contributes to the overall effectiveness of the organization’s auditing processes.
Chapter 3 will discuss KPMG's strategic development directions for the future, addressing the strengths and weaknesses of the accounts payable auditing process It will also suggest solutions to overcome existing limitations and provide recommendations for relevant stakeholders aimed at enhancing the overall quality of audits, with a specific focus on the accounts payable auditing process.
An accounts payable audit is a crucial element of financial statement audits, significantly enhancing the accuracy and quality of the overall audit process Effective implementation of this audit for suppliers is vital for audit firms, particularly those focused on continuous improvement, such as KPMG Recognizing the importance of accounts payable is essential for a comprehensive audit, making its completion a valuable activity for all audit firms.
During my internship at KPMG Vietnam, I was able to apply theoretical knowledge from my studies to real-world situations This experience provided me with a solid understanding of the audit process, with a particular focus on auditing accounts payable at KPMG Co Ltd.
Despite my best efforts, my graduation thesis remains incomplete due to time constraints and limited theoretical and practical knowledge I am eager to receive feedback from my teachers to enhance this work I sincerely thank the Board of Directors at KPMG Co Ltd and the senior members of the audit department for their valuable advice and support during my internship Additionally, I am grateful to my supervisor, PhD Pham Thi Tuyet Minh, for her enthusiastic encouragement and guidance throughout my research.
1 Audit program of KPMG Company Limited
4 Audit documents of KPMG Vietnam Co., Ltd for ABC JSC
5 Circular No 200/2014/TT-BTC guiding the corporate accounting regime
6 Alvin A Arens, Randal J Elder, Chris E Hogan & Mark S Beasley (2017),
Auditing and Assurance Services, An Integrated Approach (14th edition),
7 Hoang Thuy Linh (2021), “Auditing accounts payable for trade creditors in financial statements by KPMG Company Limited”, graduate thesis, Banking Academy
8 Mai Thuy Dung (2021), “Audit process of payables to sellers in the audit of financial statements performed by ATC Firm Co., Ltd”, master thesis, Academy if Finance
9 Nguyen Thi Thanh Hoai, (2017), “Completing the audit for liabilities to suppliers during the audit of the financial statements carried out by ACC Vietnam Auditing and Consulting Co., Ltd current”, graduate thesis, Academy of Finance
10 Tran Thi Anh Thu (2019), “Research the process of auditing payables to sellers in the audit of financial statements performed by AFA Auditing and Valuation Co., Ltd.”, Academy of Finance
Appendix 2.1: Annual Client Reevaluation Form
Annual Client and Engagement Continuance -
Services provided Financial Statements Audit
Risk grading from previous formal evaluation (Low/Medium/High)
Consider if any of the matters below has arisen since our last formal evaluation
Factors to be considered Presence (Y/N) and description of issues
1 Are there any significant changes in the nature, size or structure of the client’s business?
2 Has the client been involved in any major acquisitions or disposals?
3 Have there been adverse changes in the client’s financial performance?
4 Are there any significant changes in management, directors, principal owners or other key personnel?
5 Are there any significant changes in the legal, regulatory or professional requirements that impact KPMG’s reporting responsibilities or the nature of the service provided?
6 Are there any changes in our assessment of management’s or owners’ integrity?
7 Are there any significant recurring audit issues? N
8 Are there any factors other than the above that may affect the risk profile of the client or the engagement?
9 Was the latest formal evaluation of the client done more than five years ago?
If any of the above factors is present, a formal re-evaluation is required
Risk grading after Client and Engagement Continuance assessment
Risk grading (Low/Medium/High) Low
Annual Client and Engagement Continuance conclusion
When assessing the engagement partner, consider the following options: a) continue with the existing client without the need for formal re-evaluation; b) conduct a formal re-evaluation of the existing client; or c) discontinue the existing client relationship.
Appendix 2.2: Audit Planning at ABC JSC
46 floor, Keangnam Tower E6 Pham Hung Street Nam Tu Liem District, Hanoi
Tel: +(844) 3946 1600 Fax: +(844) 3946 1601 www.kpmg.com/vn No.: xx/20xx/DTT-KHKT
About: Personnel plan and engagement schedule to financial statements audit for the year ended 31 December 2022 of ABC Company
Dear: Chief Accountant/Financial Director of ABC JSC
In accordance with Audit Contract No xxx/2021/DTT-HDKT dated XX October 2022 between ABC Company and KPMG Co Ltd., we are pleased to present the personnel plan and audit schedule for the audit and assurance services of financial statements for the fiscal year ending 31 December 2022.
1 Mr T.D.V Partner General direction and quality review
2 Mr N.V H Manager in-charge General direction and quality review
4 Mr L.T.T.T Senior in-charge Direct audit implementation
5 Ms T.N.T.D Assistant Direct audit implementation
6 Ms N.T.H.N Assistant Direct audit implementation
7 Ms T.N.L Assistant Direct audit implementation
8 Ms D.T.N Assistant Direct audit implementation
The audit will be carried out from 04 January 2023 to 20 February 2023 directly at the office of ABC Company
We will conduct an audit of ABC Company's financial statements for the fiscal year ending December 31, 2022, and will also evaluate the effectiveness of your internal control system.