Trang 1 THE STATE BANK OF VIETNAM BANKING ACADEMY ~~~~~~*~~~~~~ GRADUATION THESIS IMPROVING AUDIT PLANNING IN FINANCIAL STATEMENT AUDITS PERFORMED BY PWC VIETNAM LIMITED Lecturer : ASSO
The necessity of the topic
Over the past two decades, Vietnam's shift to a market economy has led to the significant growth of independent auditing, becoming crucial for evaluating and verifying businesses in the market As the economy, particularly the stock market, continues to expand, the demand for auditing services among enterprises is rising, intensifying competition between both Vietnamese and foreign auditing firms.
To enhance market competitiveness, auditing firms are continually exploring strategies to boost quality while reducing costs Among all audit processes, the one that significantly impacts both "cost" and quality is crucial for achieving these objectives.
Effective audit planning is crucial for ensuring compliance and maintaining audit quality By accurately assessing audit risk, auditors can create an optimal plan that saves time and costs while meeting all necessary standards This planning process is essential not only for establishing the foundational requirements of the audit but also for adhering to established audit standards that mandate high-quality and efficient auditing practices.
Improving the quality of audit planning is crucial for enterprises to develop effective solutions and allocate resources efficiently, ultimately enhancing organizational performance This focus on refining audit planning in financial statement audits is a priority for auditors, regulatory bodies, and other stakeholders in today's competitive market.
Recognizing the significant impact of audit planning on both quality and efficiency during my time at PwC Vietnam Limited, I selected the topic "Enhancing Audit Planning in Financial Statement Audits Conducted by PwC Vietnam Limited" for my graduation thesis.
Literature review
Audit planning plays a crucial role in shaping the auditor's opinion on financial statements, as evidenced by numerous studies and articles This stage is essential for ensuring a thorough and effective audit process.
“Model audit program” under the project “Strengthening training capacity of
Vietnam Association of the audit practitioners” implemented by VACPA in 2011 with funding from the World Bank (WB): The audit methodology of this Model Audit
Program is risk-based audit method whereby the identification and design of audit procedures to address audit risk throughout the audit process
The master's thesis by Dinh Van Giao (2003) emphasizes the crucial role of analytical procedures in enhancing risk assessment during the audit planning phase at AASC Auditing and Financial Consulting Services Co., Ltd.
In her 2016 study, Ngo Kim Anh evaluated the internal control system of enterprises during the planning stage of financial statement audits at Accounting and Auditing Co., Ltd This research not only assessed the effectiveness of these internal controls in practice but also proposed comprehensive solutions derived from a synthesis of theoretical and practical insights.
Master's thesis in Economics with the topic "Solutions to improve the audit planning process in auditing financial statements at Vietnamese auditing firms" by
In 2019, Nguyen Hoang Van emphasized the need to enhance Vietnamese auditing standards by addressing key areas such as audit planning, the risk assessment process, the application of materiality, and the implementation of analytical procedures within the audit planning framework.
Graduation thesis with the topic "Main measurements to improve planning for auditing financial statements at AASC" by author Nguyen Thu Huong, defended in 2016
The topic focuses on theoretical research and practical understanding of audit planning to identify the existing problems and provide solutions at AASC auditing company
The graduation thesis titled "Planning an Audit of Financial Statements at Vietnamese Auditing Company Deloitte," authored by Vu Minh Nguyet and defended in 2018, aims to explore the audit planning process at Deloitte Vietnam Co., Ltd It also seeks to offer solutions for enhancing this process.
Despite the absence of systematic research on comprehensive audit planning, existing studies have failed to provide effective solutions for key stakeholders, including the state, associations, and audit firms This thesis aims to address these significant research gaps.
The objectives of the study
- Synthesizing the general theory of audit planning in audits of financial statements
- Studying the practice of audit planning in financial statement audits performed by PwC Vietnam Limited
- Drawing comments and suggesting some solutions to improve the audit planning process in the audit of financial statements.
Research object and scope
- The object of study of the thesis is the practice of audit planning in financial statement audits performed by PwC Vietnam Limited
- The scope of the study is auditing planning in financial statements performed by PwC Vietnam Limited, Hanoi branch, and the practice of audit planning at the audited entity.
Research questions
- What are the contents of the audit planning stage in the financial statement audit?
- What is the current status of the audit planning stage in the financial statement audits at PwC Vietnam Limited?
- What are the solutions for PwC Vietnam Limited to improve the audit planning in the financial statement audits?
Research methodologies
In Chapter 1, the theoretical analysis and synthesis method is employed by referencing International and Vietnamese Auditing Standards, along with relevant legal regulations and previous graduation theses This approach systematically organizes essential theories to establish a robust research foundation, ultimately leading to a coherent and comprehensive theoretical framework for audit planning.
The combined method of observation, interviews, and comparative analysis effectively bridges theory and reality, as demonstrated in chapter two By juxtaposing the actual status of an entity with its regulations and policies, auditors can identify weaknesses and gaps during the audit planning phase, enabling them to detect material misstatements and potential fraud in financial statements For auditing firms, this approach serves as a valuable tool for the Board of Directors to evaluate the thoroughness, accuracy, and effectiveness of the audits conducted, ensuring compliance with promulgated regulations and Auditing Standards Consequently, this method provides a solid foundation for analyzing the strengths and weaknesses of the audit firm.
- Collecting audit files and working papers of PwC Vietnam
- Collecting general ledgers and accounting data of the client: K Company
- Collecting documents and vouchers when conducting the audit at K Company from auditors.
Overall structure of graduation thesis
The structure of the thesis includes three main chapters, in addition to essential components such as the declaration, acknowledgments, table of contents, list of abbreviations, tables, introduction, conclusion, list of references, and appendix.
Chapter 1: The theories of auditing planning in financial statement audits performed by independent auditors
Chapter 2: The practice of auditing planning in financial statement audits performed by PwC Vietnam Limited
Chapter 3: Measures to improve the practice of audit planning in financial statement audits performed by PwC Vietnam Limited.
Overview of financial statement audits performed by independent auditors
1.1.1 The concept of financial statement audits performed by independent auditors
According to ISA 200, an audit of financial statements serves as an assurance engagement, where the auditor's primary role is to express an opinion that increases the confidence of intended users in the financial statements To formulate this opinion, the auditor seeks reasonable assurance that the financial statements are free from material misstatements, whether caused by fraud or error.
ISA 200 defines "reasonable assurance" as a high, yet not absolute, level of assurance achieved when auditors gather sufficient appropriate audit evidence This process aims to minimize the risk of unidentified material misstatements in financial statements, thereby reducing audit risk to an acceptably low level.
An audit cannot guarantee that financial statements are free from material misstatements caused by fraud or error, as there are inherent limitations that impact the auditor's ability to detect such misstatements.
1.1.2 The roles of financial statement audits performed by independent auditors
ISA 200 outlines that the primary objective of a financial statement audit is to allow the auditor to provide an opinion on whether the financial statements are presented fairly, in all material respects, in accordance with the relevant financial reporting framework.
The primary goal of an independent auditor is to obtain reasonable assurance that the financial statements are free from material misstatements, whether arising from fraud or error The auditor then reports on these financial statements based on their findings.
To fulfill the objective of an audit, the auditor must achieve their overall goal When this overall objective is unattainable, the International Standards on Auditing (ISAs) mandate that the auditor must either adjust their opinion or withdraw from the engagement.
Overview of audit planning in financial statemetn audits performed by
1.2.1 The concept of audit planning
Effective planning is the essential first step for auditors in every audit, establishing the legal and necessary conditions for the process This planning is driven by the fundamental requirements of the audit and is grounded in established standards, significantly influencing the overall quality and effectiveness of the audit.
The International Auditing Practices Committee (IPAC), part of the International Federation of Accountants (IFAC), emphasizes the importance of an effective audit plan According to their guidelines, auditors are required to develop a comprehensive audit plan that is tailored to the unique characteristics of the client's business, ensuring that the audit process is conducted efficiently and within the designated timeframe.
Furthermore, ISA 300 “Planning an audit of financial statements” mentions that the auditor should plan the audit so that the engagement will be performed in an effective manner
Vietnam Auditing Standard VSA 300 emphasizes the necessity for auditors and audit firms to develop a comprehensive plan to ensure effective auditing This planning process primarily involves gaining a thorough understanding of the client's business performance Prior to conducting the audit, auditors must familiarize themselves with the client's operational context to accurately evaluate and analyze the events, transactions, and practices that influence the client's financial standing.
1.2.2 The role of audit planning in financial statement audits performed by independent auditors
Audit planning is the foundational step in every audit, particularly for financial statements In Vietnam, where the audit profession is relatively young, having developed over the past thirty years amidst an evolving legal framework, the significance of a well-structured audit plan is heightened This planning not only establishes essential prerequisites for conducting audits but also aligns with mandatory legal requirements, such as the Law on Independent Audit 2011 and Vietnamese Standards.
Auditing, governed by various Circulars, Decrees, and International Standards on Auditing (ISA), is essential due to the stringent compliance requirements of financial statement audits The impact of independent auditors on the outcomes of these audits is particularly significant for entities with public interest, highlighting the importance of adherence to established auditing standards.
Effective audit planning is crucial for achieving the objectives of efficiency, effectiveness, and economics in each audit It also ensures the collection of sufficient and appropriate audit evidence to form a reliable opinion The planning activities will differ based on the entity's size and complexity, the auditor's prior experience, and any changes during the audit engagement Overall, audit planning plays a significant role in the financial statement audit process.
To ensure that appropriate attention is devoted to important areas of the audit
To ensure that potential problems are identified and resolved on a timely basis
To ensure that audit work is organized and completed expeditiously
To enable appropriate audit staff to be selected and for work to be properly assigned to them
To facilitate the direction, supervision of engagement team members and review of audit work performed
Coordinate work done by experts and auditors of components.
The content of audit planning in financial statements audits performed by
ISA 300 outlines four essential steps for planning an audit of financial statements, ensuring a structured approach to the audit process.
Understanding the entity and its environment
Identifying the appropriate audit approach based on audit risk assessment
ISA 220 “Quality management for an audit of the financial statement” defined
Independence refers to the capacity to act with integrity and objectivity, both in practice and perception This concept encompasses two key aspects: "Independence of mind" and "Independence of appearance," as outlined in the International Code of Ethics for Professional Accountants by the International Ethics Standards Board for Accountants (IESBA).
The International Code of Ethics for Professional Accountants outlines five fundamental principles that all professional accountants must adhere to, in addition to maintaining independence Each of these principles is clearly defined to ensure ethical conduct in the profession.
Integrity: Members should be straightforward and honest in all professional respect and business relationships
Objectivity: Members should not allow bias, conflicts of interest or undue influence of others to override professional or business judgments
Members must consistently uphold their professional competence and due care, ensuring they maintain the necessary knowledge and skills to deliver competent services to clients or employers This involves staying updated on current developments in practice, legislation, and techniques Additionally, members are required to act diligently and adhere to relevant technical and professional standards while providing their services.
Members must prioritize confidentiality by safeguarding sensitive information obtained through professional and business relationships Disclosure to third parties is prohibited unless authorized or required by legal or professional obligations.
Professional behavior: Members should comply with relevant laws and regulations and should avoid any action that discredits the profession
Auditors must uphold fundamental principles of independence, both in mindset and appearance, ensuring they are not swayed by any interests linked to the audited entity This includes avoiding close emotional ties with the entity's management or owners and adhering to limits on the maximum number of consecutive years auditing a client.
According to ISA 220, "Quality Management for an Audit of Financial Statements," the engagement partner must ensure that the firm's policies for accepting and continuing client relationships and audit engagements are adhered to, and that the conclusions drawn are appropriate This involves considering information gathered during the acceptance and continuance process when planning and executing the audit in line with ISAs If the engagement team discovers information that could have led to a decline of the audit engagement had it been known earlier, the engagement partner must promptly communicate this to the firm to facilitate necessary actions.
During the acceptance and continuance process, information gathered can aid the engagement partner in adhering to ISA requirements and making informed decisions regarding suitable actions This information may encompass various relevant factors.
Information about the size, complexity and nature of the entity, including whether it is a group audit, the industry in which it operates and the applicable financial reporting framework;
The entity’s timetable for reporting, such as at interim and final stages;
In relation to group audits, the nature of the control relationships between the parent and its components; and
Since the last audit engagement, it is essential to assess any changes within the entity or its industry that could influence the resources needed and the oversight of the engagement team's work, including its direction, supervision, and review processes.
Upon identifying the aforementioned issues, the audit firm must decide whether to proceed with the audit for the client, taking into account whether the client is new or existing.
When onboarding new clients who have previously undergone audits by another firm, it is crucial for the new auditor to reach out to the predecessor auditor to gather valuable insights According to International Standards on Auditing, the successor auditor must communicate with the predecessor to determine if there are any reasons to decline the appointment and must obtain the client's permission to contact the former auditor However, due to confidentiality provisions in the Code of Ethics, consent from the audit client is essential before initiating such contact, and the predecessor auditor has the right to refuse this communication Consequently, the successor auditor must explore alternative methods to acquire information about the client.
For clients facing their first audit, auditors can gather essential information through various sources, including financial records, online resources, local attorneys, banks, and related businesses If necessary, they may also employ investigators to research the client's management board This approach is particularly useful when clients refuse to connect with their previous auditor or when the former auditor declines to participate.
After completing the audit for existing clients, auditors must thoroughly update the information to assess the client's situation, enabling them to make informed decisions about whether to proceed with the audit.
ISA 220 and ISQC 1 require the engagement partner to ensure that adequate resources are allocated to the audit team in a timely manner, considering the specifics of the audit, the firm's policies, and any changes during the engagement The engagement partner must also confirm that the team, including external experts and internal auditors assisting directly, possess the necessary competence and capabilities, along with sufficient time, to effectively conduct the audit Factors such as the team's qualifications and experience are essential in this assessment.
Understanding of, and practical experience with, audit engagements of a similar nature and complexity through appropriate training and participation
Understanding of professional standards and applicable legal and regulatory requirements
Expertise in specialized areas of accounting or auditing
Expertise in IT used by the entity or automated tools or techniques that are to be used by the engagement team in planning and performing the audit engagement
Knowledge of relevant industries in which the entity being audited operates
Ability to exercise professional skepticism and professional judgment
Understanding of the firm’s policies or procedures
An audit contract, as outlined in VSA 210, is a formal written agreement between an audit firm and its client This contract specifies the terms and conditions for conducting the audit, including the objectives, scope, and responsibilities of both parties It also details the format of the audit report, the timeline for execution, and the procedures for resolving any contractual disputes.
Overview of PwC Vietnam Limited
2.1.1 The process of formation and development
Company name: PwC Vietnam Limited Company
PwC Vietnam is located in Ho Chi Minh City and Hanoi
Nearly 30 years of establishment and development is also the time that PwC
Vietnam has established a strong reputation in the financial, accounting, and auditing sectors, recognized by prestigious awards from both the Vietnamese government and international professional organizations Notably, PwC Vietnam has achieved significant accolades that underscore its excellence in these fields.
In 2016, PwC Vietnam received prestigious accolades, including "Auditing Company of the Year" from Acquisition International magazine and recognition as "The Best Tax Consultant for Enterprises in Vietnam." Most recently, on December 18, 2022, PwC Vietnam was celebrated as one of the "Top" firms in its field, reinforcing its commitment to excellence in auditing and tax consulting services.
In 2022, PwC was honored with the "10 Quality Services" award for ESG Consulting and Assurance Services at a ceremony organized by the Institute of Economics and Culture in partnership with the Consumer Protection Center Additionally, PwC has been recognized as a “Great Place To Work” in Vietnam for the period from December 2022 to December 2023, highlighting the firm's esteemed reputation and significant contributions to the auditing industry.
PwC Vietnam delivers high-quality assurance, tax, and advisory services to organizations and individuals, supporting complex systems like financial markets and tax systems to foster long-term societal benefits The company aims to ensure these systems are functional and adaptable in an increasingly complex world According to the "PwC Vietnam Brochure," PwC Vietnam offers six business lines designed to provide significant advantages to clients.
Audit and Assurance Services enhance your business's financial performance and operational transparency They assist in improving external financial reporting and ensuring compliance with regulatory standards, including the Vietnamese Accounting System, Vietnamese Accounting Standards, and International Financial Reporting Standards (IFRS) Additionally, these services support organizations in reporting non-financial information and bolstering corporate governance practices.
PwC Vietnam is recognized for its expertise in mergers and acquisitions (M&A), offering comprehensive support throughout the deal continuum Their services encompass strategy development, post-deal integration, and thorough due diligence in financial, tax, legal, market, and operational aspects Additionally, PwC assists clients in accessing capital markets, as well as valuing, negotiating, and structuring deals effectively.
Consulting services: helps clients attain increased levels of performance by improving the efficiency and effectiveness of key business processes
Tax services in Vietnam encompass advisory and compliance assistance related to local tax regulations These services ensure clients stay informed about the latest changes in Vietnamese tax laws, offering strategic advice on optimizing their operational structures Additionally, they provide proactive alerts and guidance to help clients navigate emerging risks effectively.
Legal services: PwC Legal Vietnam is a foreign law company established in
2000, and licensed in Vietnam by the Ministry of Justice, with its head office in
PwC operates in Ho Chi Minh City and has a branch office in Hanoi, positioning itself uniquely within the Vietnamese market As part of the PwC global network, it provides clients with comprehensive legal advisory services, complementing the assurance, tax, and advisory services available through its associated PwC offices.
At PwC Vietnam, we offer a comprehensive suite of People Services that integrate consulting, legal, and tax expertise to enhance organizational value Our team comprises both local and international professionals who collaborate to deliver a diverse array of skills and experiences This includes specialists in Human Resource and transformational change consulting, as well as qualified lawyers well-versed in labor and employment laws, alongside tax experts.
2.1.3 The management structure of PwC Vietnam
Organization chart of the company's management system according to the online
- functional model (Appendix I — Organization chart of the management apparatus of
PwC Vietnam Limited.) The company is divided into four divisions based on operating functions:
The Assurance department is led by a Partner, the highest authority in expertise, followed by a Director, Senior Manager, Manager, Supervisor, and Associate This team includes IT auditors who specialize in evaluating clients' computer systems and software, offering insights on the effectiveness and efficiency of internal controls Their assessments serve as a foundation for the audit department's approach to account balances and transactions in clients' financial statements.
Tax and Legal are consulting services
The Advisory department offers two key services: financial consulting and risk consulting By identifying weaknesses in organizational structures and internal processes, they provide businesses with tailored recommendations for improvement.
IFS: The support department includes functional departments including human resources, accounting and secretarial
2.1.4 The process of financial statement audits performed by PwC Vietnam Limited
PwC Vietnam utilizes the Aura auditing software system to efficiently manage audit engagements and activities This software is designed to provide essential functions and stages tailored to the unique needs of each client By implementing the Aura system, PwC Vietnam enhances the audit process, ensuring it is comprehensive and well-coordinated, which minimizes overlaps and time wastage while allowing auditors to gather sufficient and appropriate audit evidence.
According to PwC Global Guides, the audit process at PwC involves three key stages: first, audit planning, which focuses on exploring and assessing risks; second, performing the audit, where evidence is collected; and finally, finalizing the audit, which includes a thorough review and conclusion.
Figure 2.1: Auditing process of financial statement at PwC Co., Ltd
- Customer acceptance review Find out the client's field of activity and business line
- Expect to use external experts
- Learn and evaluate the internal control system in general
- Preliminary analysis of financial statements
Assess risk and determine materiality OLD
- Prepare audit report and outline management letter
- Review and test quality control of the audit
- Issue the audit report and management letter
Audit planning is a crucial step in the financial statement audit process, serving as the foundation for subsequent audit activities Key steps in audit planning involve assessing risks, defining the scope, and establishing a timeline for the audit.
At PwC Vietnam, evaluation for clients is conducted carefully and rigorously, especially for new clients This assessment will be carried out by the partner or director
During the audit process, the auditor gathers essential information about the client, including their business lines and associated audit risks, by evaluating management integrity and the company's going concern This assessment forms the foundation for decision-making PwC Vietnam also takes into account its internal resources, such as personnel qualifications and experience in the client's industry If the audit requirements cannot be fulfilled, PwC will decline the audit contract.
Find out the client's field of operation and business line
The practice of audit planning in financial statement audits performed by
2.2.1 The content of audit planning in financial statements audits performed by PwC Vietnam Limited
The preliminary engagement procedures at PwC Vietnam are designed to evaluate the suitability of new clients or the continuation of existing ones, establishing the legal foundation and essential conditions for developing the audit strategy and plan In alignment with the International Standards on Auditing (ISA), PwC adheres to guidelines outlined in the PwC Global Guide for effective audit planning.
Guidelines for carrying out an independent assessment in the PwC Global Guide include:
Auditors involved in the audit must uphold independence in both thought and appearance, ensuring they are not influenced by any interests—whether physical or mental—related to the audit subject They should avoid close emotional ties with the management or owners of the audit entity and adhere to regulations that limit the maximum number of consecutive years they can conduct audits for a single client.
The Authorization for Services (AFS) system at PwC Global primarily focuses on corporate audits Non-audit services offered by PwC to branches, subsidiaries, or group member companies, whether in the same country or abroad, must undergo scrutiny and evaluation by the lead audit partner This process is essential to maintain independence and uphold the integrity of the audit.
Central Entity Services (CES) is essential for recording and storing comprehensive information about PwC's audit clients, including their unique independence requirements, service provision restrictions, and relevant host country regulations For new clients, PwC must gather necessary information on CES and ensure it is updated annually if services are ongoing This data aids the Engagement Partner in evaluating independence, which is crucial for determining the acceptability or continuation of the audit.
The acceptance and continuance process (A&C) at PwC Vietnam is designed to ensure compliance with the International Standard on Quality Control 1 (ISQC 1) and ISA 220, specifically paragraphs 12 and 13, which emphasize quality management in financial statement audits This process prioritizes the identification of risks, the determination of mitigating actions, and the integration of these actions into the audit planning process.
- Accept and continue to serve only those clients that represent a manageable level of business risk
- Meet expectations with respect to our professional performance
- Minimize our litigation risk and protect our reputation
In situations where conflicts arise regarding audit opinions for existing clients, particularly concerning non-audit indications or limitations in obtaining audit evidence, PwC Vietnam may reassess its relationship and potentially cease services If a client is retained, the audit contract will proceed, and the auditor will implement a comprehensive audit plan tailored to that client.
At PwC Vietnam, the engagement team is carefully selected to adhere to the standards set by ISQC 1 and ISA 220 The engagement leader oversees the entire process, ensuring the audit is performed effectively and is responsible for the audit report issued on behalf of the firm The typical structure of the engagement team includes an Engagement Partner, a Manager, a Senior in charge, and associates, all working collaboratively to deliver high-quality audit services.
The audit leader, who must hold the position of Partner or Director, bears the ultimate responsibility for overseeing the audit process This individual collaborates closely with the manager to address and communicate significant issues with the client, ensuring that all material concerns are resolved Additionally, the audit leader reviews the final report prior to its public release, ensuring accuracy and compliance.
- The Senior Manager or Manager is considered the general manager of the engagement team, then reports related issues to Engagement Partner A Manager may oversee many different audit teams
During the audit, the Senior serves as a vital link between the client and the Manager and Engagement Partner, addressing any issues that arise in the workflow Additionally, the Senior directly oversees the work of Associates, ensuring effective communication and management throughout the process.
In specialized sectors like gold, silver, gemstones, geological mining, and petroleum, audit teams may seek external experts if they lack sufficient in-house knowledge and expertise This approach ensures that they receive informed opinions and advice from qualified professionals with relevant experience beyond the auditing field.
2.2.1.2 Understanding the entity and its environment
General understanding about the entity
To provide auditors with a comprehensive understanding of an audit entity, PwC must conduct thorough research and analysis on various factors, including industry trends, legal considerations, and the entity's operational nature and accounting policies This involves evaluating the entity's objectives, strategies, and financial standing while also comparing its position within the industry against competitors through discussions with management Maintaining professional skepticism, auditors should critically assess management's perspectives to gain an accurate understanding, identify material risks linked to the entity's objectives and business strategies, and determine the processes in place to mitigate those risks.
Understanding and evaluating internal control
Understanding an entity's internal control is crucial for auditors as it helps identify risks of material misstatement, which in turn aids in designing an effective audit program that outlines the appropriate nature, timing, and scope of the audit.
According to ISA 315, which focuses on identifying and assessing the risk of material misstatements related to internal controls, the PwC Guide outlines six essential steps for evaluating the segregation of duties within an entity.
Step 1: Learn about the control environment of the entity and the segregation of duties related to each segment
Step 2: Collect audit evidence to determine whether the work was performed by the person responsible for the assignment
Step 3: Learn about the entity's handling of regulations, segregation of access rights, and individual access to systems, software, data, documents and assets Assess whether such access is appropriate to ensure the effectiveness of the design of controls
Step 4: Check the effectiveness of general IT controls and related controls This step is necessary if the auditor intends to rely on the segregation of duties for automatic or manual controls using system data
Comments on the practice of audit planning financial statements audits
PwC Vietnam demonstrates strict adherence to Vietnamese and International Standards on Auditing, as well as the Code of Ethics The company customizes its planning process for each client, considering their unique characteristics to enhance audit effectiveness.
PwC's global Central Entity Services (CES) enhances client understanding and boosts the efficiency of independent assessments through statistical insights from its worldwide network The Engagement Leader meticulously conducts independence assessment procedures in accordance with Auditing Standards, the Code of Ethics, and applicable legal regulations.
Structure of engagement audit team
The audit team selection process considers various factors, leveraging the knowledge and experience of members from the previous year's audit for existing clients This team is composed of full members at all levels and fosters a culture of collaboration and mutual support.
2.3.1.2 Understanding the audit entity and its environment
Understanding the general information about audit entity
Auditors conduct thorough audit procedures to gain insights into clients, their industry, legal frameworks, and external factors influencing their operations Utilizing sample working papers that outline essential issues ensures auditors capture all critical information during the audit process.
Understanding the client’s internal control systems
PwC Vietnam emphasizes the importance of understanding and evaluating internal control through the use of questionnaires, enabling auditors to gather essential information about the client via inquiries and consultations This thorough understanding, particularly through discussions with the Board of Directors and other key individuals, equips auditors with critical insights for subsequent audit phases By obtaining comprehensive client information, auditors can effectively identify and select relevant controls, enhancing the efficiency and effectiveness of their control testing procedures.
2.3.1.3 Assessing audit risk and selecting the appropriate audit procedures
The auditor conducts a risk assessment by analyzing information and insights gathered from prior processes, with a focus on identifying potential fraud risks This assessment informs the development of the audit strategy and plan, ensuring a risk-based approach that aligns with standards and regulations Additionally, a comprehensive audit program is created, featuring detailed instructions for tests of controls and substantive tests, which guide auditors in identifying processes, collecting necessary documents, and evaluating results effectively.
While audit planning for financial statement audits at PwC Vietnam offers numerous benefits, it also uncovers specific limitations stemming from the company's system and the improper application of these plans in the client's actual conditions.
Depending much on the results of the previous working paper
To assess a client's ability to continue with an audit, auditors primarily rely on the previous year's working papers and often do not invest significant time in updating current events that may impact the audit's continuation While the audit's viability typically remains unchanged, any legal issues can severely damage the company's reputation.
Overload for auditors in peak season
PwC Vietnam faces a challenge in managing its human resources effectively, as the high volume of clients during the peak season from January to March results in an overload for auditors This situation often leads to auditors neglecting or inadequately fulfilling certain requirements outlined by PwC Global.
2.3.2.2 Understanding the entity and its environment
The dependence on the inquiry procedure
A key limitation in the audit process is the heavy reliance on inquiry procedures with the Board of Directors and relevant personnel within the entity While auditors conduct these inquiries meticulously, they often neglect to seek information from external sources due to time constraints and the limited availability of industry data Consequently, the verbal evidence obtained from clients is generally less reliable than evidence sourced externally or gathered directly by the auditors.
The vague presentation of the working paper to understand client’s internal control system
Auditors frequently document their understanding of internal control and client operations in working papers using narrative descriptions in English However, varying levels of English proficiency among auditors can lead to inconsistent quality and clarity in these documents, resulting in confusion for reviewers While auditors may reuse previous year's working papers for long-standing clients without significant changes in control processes, personnel changes at the client can hinder the auditors' ability to fully incorporate updated information into the current year's documents.
Assessing internal control is typically straightforward, often relying on general overviews and interviews Auditors primarily utilize questionnaires during audits, neglecting the benefits of narratives and flowcharts While the questionnaire questions are designed based on an optimal control model, they may not always align with the client's specific practical circumstances.
In addition, the answers to questions may be subjective The assessment results are only based on the experience and judgment of the auditors without standard regulations
The understanding and assessment of the IT environment
In Vietnam's current IT landscape, many PwC clients lack modern IT systems capable of automated controls, often employing only one or two IT staff As a result, auditors frequently overlook the assessment of the IT environment and general IT controls However, for specific clients, a thorough examination of these systems can enhance audit efficiency and minimize the need for extensive substantive testing later on.
The determination of overall materiality and performance materiality
Overall Materiality and Performance Materiality are established for all account balances and transactions in a financial statement audit, rather than on an individual account basis This approach can result in heightened detection risks during the audit process.
2.3.2.3 Assessing audit risk and selecting the appropriate audit procedures
Inappropriate audit procedures in some cases
Assessments of audit risk rely heavily on the auditor's professional judgment, which can sometimes lead to inappropriate conclusions and inadequate audit procedures For instance, inherent risks associated with related party transactions may be assessed as low, despite ISA 550 highlighting factors that could lead to material misstatements Legal regulations also stress the importance of accurately determining transaction prices to prevent tax evasion and profit shifting among group companies Consequently, auditors may only implement basic procedures, such as sending confirmation letters regarding balances and transactions with related parties, which may not adequately address the risk of collusion or "window dressing"—the manipulation of financial data to mislead investors.
The limitation of applying analytical procedures
Future development orientation of PwC Vietnam Limited
PwC Vietnam aims to become the leading external auditing firm in the country by enhancing service quality and efficiency for clients To achieve this, the company has shifted its business model to focus on investment and development in major cities like Hanoi and Ho Chi Minh City while also expanding into promising regions PwC Vietnam is at the forefront of integrating modern technology into its audit processes, utilizing tools such as PwC Audit Guides, Aura audit software, and Connect software to boost employee productivity and adapt to the digital age Looking ahead, PwC Vietnam has outlined strategic development goals to maintain its competitive edge and broaden its service offerings.
PwC Vietnam upholds the principles of independence, integrity, objectivity, and confidentiality while adhering to both Vietnamese and international accounting and auditing standards, as well as regulations set forth by the Vietnamese government.
PwC Vietnam prioritizes the legitimate interests of clients, investors, and society by delivering high-quality professional services with utmost assurance In the coming years, the firm aims to broaden its client base across all economic sectors, enhancing its value to support and advance economic and social development.
PwC Vietnam prioritizes the training and development of human resources, viewing it as essential for delivering top-quality services to clients With a skilled Board of Directors and a dedicated staff committed to ethical standards, PwC is confident in cultivating high-quality talent for future success.
Fourthly, PwC Vietnam aims to build a cultural value bearing the company's own identity of being friendly and cooperative, whether in relationships between PwC Network, clients, or society as a whole
PwC Vietnam is committed to enhancing service quality by refining its audit processes in accordance with both Vietnamese and International accounting and auditing standards, as well as relevant state regulations The firm leverages advanced technology and employs cutting-edge auditing techniques to boost the quality and efficiency of its audit services.
At PwC Vietnam, the emphasis on human capital is essential for the company's growth, leveraging personnel with international qualifications and relevant experience Auditors face significant challenges in detecting intentional fraud, particularly from authorized individuals, as the demand for high-quality audits continues to rise amidst limited human resources and time This heightened detection risk, coupled with the pressure to maintain reliability, can result in increased workloads, complicating long-term employee retention.
Measures to improve the audit planning in the financial statement audits
Obtaining information about clients from other sources
Auditors must thoroughly evaluate the implications of new and unusual events that could influence the continuation of audits for existing clients, utilizing a variety of information sources, including their own expertise and external data The responsibility for gathering innovative and evolving client information during the interim audit will be entrusted to qualified and experienced auditors.
When auditing K Co, the auditor must evaluate whether the company plans to expand its production or introduce new products this year, as well as any significant factors within the internal control system that could impact the audit's effectiveness It is essential for auditors to employ diverse information-gathering methods, including insights from similar businesses, industry articles, press releases, newsletters, and expert consultations Although these thorough approaches may increase the time and cost of the audit, they ultimately yield more objective information and enhance the accuracy of evaluations.
Arranging appropriate audit team members
Engagement Leaders and Team Managers must strategically allocate personnel for audits to prevent auditor overload, particularly for those working directly with clients Selecting the most suitable audit team based on the size and nature of each audit is essential, with priority given to auditors who worked with the client in the previous year Additionally, evaluating each auditor's capacity facilitates the formation of a competent team for new clients To ensure all team members are well-prepared, training sessions tailored to different client types should be conducted prior to audits Furthermore, audit assistants should engage in earlier training programs and participate in low-pressure interim audits to acclimate themselves to the client environment.
3.2.2 Understanding the entity and its environment
Increasing the use of expert opinions to understand the entity and its environment
ISA 620 outlines the circumstances under which an auditor should engage an expert outside of accounting or auditing to gather sufficient and appropriate audit evidence If specialized knowledge is required, the auditor must assess the necessity of utilizing the work of an auditor's expert to enhance the audit process.
ISA 620 emphasizes the importance of determining the necessary expertise during the audit planning process Auditors must assess whether specialized skills are needed to gather sufficient and appropriate audit evidence Additionally, it is crucial that the team members involved in the engagement collectively possess the required expertise to ensure a thorough audit.
Auditors should diversify their information sources to enhance the reliability of audit evidence, rather than solely relying on inquiries with the client's management The trend of incorporating experts into the audit process is gaining traction among auditing firms globally, including in Vietnam In specialized areas where auditors may lack the necessary expertise, consulting with professionals is essential for gathering sufficient and appropriate audit evidence Common fields where expert input is crucial include estimating oil and gas reserves, assessing site clearance costs, and valuing complex financial assets like real estate, particularly in construction investment, which is increasingly influenced by advanced foreign technologies This complexity makes it challenging for auditors to effectively learn, analyze, and obtain the required audit evidence.
During the audit planning stage, auditors must assess the complexity and characteristics of each account and transaction, which may necessitate hiring external experts An estimated fee for these experts is essential to determine reasonable audit costs It is crucial for auditors to evaluate the expertise, objectivity, and experience of these professionals, as their opinions and documents serve as specialized audit evidence Ultimately, the auditor bears the responsibility for the audit's outcome.
Using other methods to record client’s internal control system
ISA 315 focuses on identifying and assessing the risk of material misstatement, highlighting the importance of evaluating a client's internal control system for auditors This assessment enables auditors to adjust their workload, minimizing costs and unnecessary efforts while maintaining the quality of account balances and transactions At PwC, this evaluation typically involves the use of auditor questionnaires based on the client's history and audit records, reviewing pertinent documents provided by the client, and observing business processes.
Auditors must enhance their proficiency in English to effectively articulate clients' accounting information systems and internal control processes, thereby elevating the quality of their working papers Utilizing flowcharts can significantly aid in depicting the company's business processes and internal controls in a clear and precise manner Narrative descriptions should be reserved for elaborating on complex points that require additional clarification.
To enhance clarity, information should be structured according to the key elements of internal control, particularly when the client's system is complex This narrative method becomes more effective when integrated with other approaches, especially for businesses with extensive operations, allowing auditors to succinctly summarize the primary objectives of the client's internal control system.
The questionnaire method is tailored to specific client groups, such as Japanese and Chinese businesses, with distinct questionnaires designed for various industries, including production, trade-in services, and information technology Effectiveness hinges on creating detailed questionnaires that align with the unique nature of each business Auditors must develop a comprehensive questionnaire system based on standardized criteria to classify clients effectively When implemented by PwC, these questionnaires enhance the value of internal control assessments for clients.
The flowchart method is a complex technique that requires extensive training for auditors at PwC Vietnam to master To ensure proficiency, the company should conduct annual training sessions focused on flowchart utilization As this method becomes integrated into the system, employees will gain familiarity and expertise Mastery of the flowchart method necessitates a thorough understanding of the client's business operations and the document circulation processes within the organization.
When internal control systems are overly complex and dispersed, auditors should combine various methods to effectively present the gathered information.
The understanding and assessment of the IT environment
To enhance audit effectiveness for clients utilizing advanced IT systems, such as insurance companies and banks, auditors may require financial information or specialized software for managing, processing, storing, and securing data In such cases, auditors can seek support to ensure a thorough and efficient audit process.
IT Assurance Department to perform audits for automated controls and general controls about IT, which helps to reduce the number of substantive tests that auditors have to perform later
Improving of materiality determination for each account balance and transaction on the financial statement
ISA 320, "Materiality in Planning and Performing an Audit," mandates that auditors establish materiality at the overall financial statement level during the planning phase It emphasizes that even lower amounts can significantly influence user decisions regarding specific transactions, balances, and disclosures Additionally, ISA 320 requires the determination of performance materiality to assess the risks of material misstatement and to guide the nature, timing, and extent of further audit procedures Auditors must also revise materiality or set lower thresholds as necessary throughout any stage of the audit process.
Conditions for the implementation of the proposal
3.3.1 On the side of the State and management agencies
Establishing a comprehensive legal framework for audit activities is essential in today's context, as a stable legal environment significantly mitigates audit risks Recently, the introduction of new accounting and auditing standards has contributed to the gradual enhancement and refinement of the legal landscape governing audit practices However, as this framework is still being finalized, there remains a lack of alignment between accounting and auditing standards, highlighting the need for further integration.
The Vietnamese auditing standards are currently nearing completion, but the legal framework remains incomplete, leading to inconsistencies and limitations in quality The lack of synchronization between accounting and auditing regimes undermines the legal validity of audit reports.
To enhance the legal environment, it is essential to improve the accounting and auditing policies The government should foster a favorable atmosphere for auditing by broadening the scope and subjects of external audits, thereby promoting healthy competition that allows auditing firms to leverage their strengths Additionally, allowing foreign-invested auditing firms to operate in Vietnam will incentivize local firms to elevate their performance to effectively compete with international counterparts.
The introduction of the Law on Independent Audit, effective from January 1 st ,
In 2012, significant advancements in the auditing industry are anticipated to address longstanding limitations, fostering a healthier investment climate in Vietnam This progress will enhance the transparency of the nation's financial system, aligning with the country's rapid growth and integration into the global economy.
3.3.2 On the side of Vietnam Association of Accountants and Auditors
Accounting and auditing associations play a crucial role in managing, supervising, and evaluating the quality of accounting and auditing services They serve as key resources for the latest documents and guidelines in the field Particularly during the audit planning stage, these associations share professional experiences and provide training for auditors, though current training on auditing procedures remains limited To address this gap, it is essential for associations to organize training sessions that enhance auditors' knowledge and skills, particularly in financial statement audits and audit planning Additionally, the Association of Accountants and Auditors should collaborate with the Ministry of Finance to develop and refine accounting policies and standards Expanding knowledge exchange between domestic and foreign auditing firms, as well as partnering with organizations like ACCA, will further enrich auditors' expertise and professional development.
3.3.3 On the side of PwC Vietnam Limited
The company must prioritize the design of financial statement audit programs and focus on effective audit planning Proposed regulations should be clear, specific, and consistent to ensure proper implementation It's essential to recognize that programs and guidelines serve as general frameworks that require flexible application in individual audits Additionally, developing a process to implement analytical procedures from the initial understanding stage through various clients is crucial for effective auditing.
To attract and retain highly qualified employees, the company must prioritize the recruitment and training of quality human resources Continuous training programs are essential for auditors to enhance their knowledge and stay updated on current standards and regulations Recognizing and rewarding high-performing employees is crucial, while openly discussing areas for improvement fosters a culture of growth and development.
To enhance the initiative and flexibility of auditors, it is essential to view the guidelines from PwC Vietnam and PwC Global as a framework that can be adapted to the specific needs of each client, rather than merely a checklist of tasks for auditors to complete.
Engage actively with professional associations and collaborate with other auditing firms to enhance your experience and knowledge in training Maintain strong relationships with clients and peers in the industry Additionally, consistently leverage science and technology by updating and improving audit software and control systems to align with established auditing methods.
Enhancing the quality of Aura audit software is essential for optimizing the auditing process While the software significantly aids auditors, there are notable limitations that require attention To address these issues, the company should offer comprehensive training on the software's features and integrate advanced scientific and technological innovations to strengthen the platform's capabilities.
Enterprises today are the primary beneficiaries of audit activities, making it essential for them to proactively engage in these processes rather than waiting for state mandates When selecting an auditing firm, businesses should prioritize the reputation and quality of services over low-cost options This is crucial, as some audit firms may compromise on standards to retain clients by reducing audit costs.
To minimize audit risks, enterprises must establish a robust accounting cycle and internal control system that meets regulatory standards During audits, effective collaboration with auditors is essential; businesses should be prepared to present accurate documents and vouchers promptly, avoiding any provision of false information This cooperation not only fosters a positive relationship with the auditing firm but also contributes to significant time and cost savings during the audit process.
Auditors play a crucial role in conducting audits and are accountable for the outcomes To effectively fulfill their responsibilities, auditors must adhere to specific guidelines that enable them to complete their tasks efficiently and promptly.
Auditors need to strictly comply with the regulations and standards of the Code of Ethics, continuously train, and update their knowledge and responsibilities
Self-equipped with a solid foundation on legal documents, regulations, circulars, decrees, and guidelines related to accounting and auditing
Always constantly improve the professional level, knowledge, information, legal documents, and current policies, willing to take responsibility for the mistakes, set standards to complete the work
Actively give suggestions to the Auditing Guidelines, so that these guidelines be not only in compliance with current regulations but also flexibly and applied in practice with high practicality
Effective audit planning is crucial in the financial statement audit process, as it enables auditors to gain a comprehensive understanding of the entity being audited and ensures that all material aspects are addressed This planning phase also aids in the preliminary assessment of potential fraud and audit risks The quality of the audit plan is influenced by various factors, including the policies of state agencies, professional associations, and specific procedures like risk assessment and materiality determination By integrating these factors with the current practices in auditing financial statements in Vietnam, recommendations can be formulated to enhance the audit planning process and improve the overall quality of audit services.
PwC Vietnam Limited consistently ranks among the top audit firms evaluated by the Ministry of Finance, recognized for delivering high-quality audit and assurance services The company's audit planning for financial statement audits adheres to ISA 300 and incorporates various other audit standards related to internal control, risk assessment, and materiality determination, alongside compliance with Vietnamese legal requirements Despite some existing challenges, PwC's leadership and staff are dedicated to enhancing the quality of their audit planning, which is crucial for successful financial statement audits.