A field research on auditing of borrowing and cost of borrowing items in auditing companies in vietnam

Auditing process for the borrowing and cost of borrowing item in the audit of financial statements .... Survey results on audit procedures for audit of borrowing and cost of borrowing it

BANKING ACADEMY FACULTY OF ACCOUNTING AND AUDITING GRADUATION THESIS TITLE: “A FIELD RESEARCH ON AUDIT OF BORROWING AND COST OF BORROWING ITEMS IN AUDITING COMPANIES IN VIETNAM” Student name : Nguyen Thi Van Anh Class : K22CLCG Academic year : 2019 - 2023 Student ID : 22A4050010 Instructor : Ph.D Dao Nam Giang Hanoi, 2023 Banking Academy Graduation Thesis DECLARATION I hereby declare that the graduation thesis entitled: “A FIELD RESEARCH ON AUDITING OF BORROWING AND COST OF BORROWING ITEMS IN AUDITING COMPANIES IN VIETNAM” is carried out by myself and submitted to Accounting and Auditing Faculty of Banking Academy of Vietnam I further declare that the data in this research is presented truthfully, and all of the secondary data used in the research is cited and referenced fully and correctly according to the regulations of Banking Academy I ensure that I have not copied any other authors ‘s work, or used any material from other sources without acknowledgement Nguyen Thi Van Anh i Class: K22CLCG Banking Academy Graduation Thesis ACKNOWLEDGEMENT My journey as a student in the Accounting and Auditing Faculty at the Advanced Program of the Banking Academy of Vietnam has been an incredible experience, filled with cherished memories I am immensely grateful for the assistance and encouragement I have received from my teachers, colleagues, and family, without whom I would not have been able to complete this graduation thesis First of all, I would like to express my sincere and deepest thanks to Prof Dr Dao Nam Giang, Deputy Head of Accounting and Auditing Faculty who always inspired, urged and guided me wholeheartedly during the course of the research thesis Her detailed guidance and valueable suggestions have a significant contribution to the completion of this thesis Moreover, I would also like to express my gratitude to all the teachers at the Banking Academy, particularly those in the Accounting and Auditing Faculty, for imparting their invaluable knowledge, readily addressing my questions, and providing assistance whenever needed The companionship and guidance of these teachers have made my four-year university journey memorable, enriching my understanding and broadening my horizons Furthermore, I would like to sincerely thank Deloitte Vietnam Audit Company Limited, as well as all my colleagues and seniors, for creating a conducive environment for me to work and gain practical experience in the field of auditing Their guidance has enabled me to apply the knowledge I have acquired and fostered my creativity They have also helped me identify my weaknesses, allowing me to overcome them and improve throughout the process of completing this thesis Lastly, I want to acknowledge the unwavering support of my parents, grandparents, family, and friends Without their encouragement and strength, I would not have reached the point I am at today Their love and support mean the world to me, and I am truly grateful for their presence in my life Nguyen Thi Van Anh iii Class: K22CLCG Banking Academy Graduation Thesis TABLE OF CONTENTS DECLARATION i ACKNOWLEDGEMENT iii LIST OF ABBREVIATIONS vi LIST OF FIGURES vii LIST OF TABLES viii INTRODUCTION 1 Rationale Aim of the study Research questions Object and Range of the study Research methods CHAPTER 1: THEORETICAL BASIS AND LITERATURE REVIEW Theoretical basis on audit of borrowing and cost of borrowing in audit of Financial Statement 1.1 Characteristics of Borrowing and Cost of borrowing account in audit of financial statement 1.1.1 The concept and nature of borrowing and cost of borrowing 1.1.2 Accounting for borrowing and cost of borrowing item 1.1.3 Common mistakes for borrowing and cost of borrowing items 1.1.4 Internal control for borrowing and cost of borrowing items 1.2 Auditing process for the borrowing and cost of borrowing item in the audit of financial statements 1.2.1 Objectives for auditing borrowing and cost of borrowing items Nguyen Thi Van Anh iii Class: K22CLCG Banking Academy Graduation Thesis 1.2.2 Audit planning 12 1.2.3 Perform an audit of the borrowing and cost of borrowing items 19 1.2.4 Finish the audit 21 Literature review 25 CHAPTER 2: RESEARCH METHODOLOGY 28 2.1 Research procedure 28 2.2 Sample: 32 2.2.1 Overview of big4 companies 33 2.2.2 Overview of other non-big4 companies: 34 CHAPTER 3: FINDING AND RESULTS 36 3.1 Survey results on audit procedures for audit of borrowing and cost of borrowing items in big companies in Vietnam 36 3.1.1 Audit procedure for borrowing items implemented by big companies in Vietnam 36 3.1.2 Audit procedure for cost of borrowing items implemented by big companies in Vietnam 47 3.2 Survey results on audit procedures for audit of borrowing and cost of borrowing items in non - big companies in Vietnam 51 3.2.1 Audit procedure for borrowing items implemented by non - big companies in Vietnam 51 3.2.2 Audit procedure for cost of borrowing borrowing items implemented by non - big companies in Vietnam 55 3.3 Conclusion on auditing of borrowing and cost of borrowing items in various independent audit companies 57 3.3.1 Similarities 57 3.3.2 Variances 58 Nguyen Thi Van Anh iv Class: K22CLCG Banking Academy Graduation Thesis CHAPTER 4: DISCUSSIONS AND RECOMMENDATIONS 60 4.1 Discussion on cause and effect of variances in audit procedure on auditing of borrowing and cost of borrowing items in big and non - big independent audit companies in Vietnam 60 4.1.1 Causes of variances in audit procedure on auditing of borrowing and cost of borrowing items in big and non - big companies in Vietnam 60 4.1.2 Effects on the variances in audit procedures on auditing of borrowing and cost of borrowing items in big and non - big companies in Vietnam 62 4.2.Recommendations for auditors and companies to improve audit procedures for debt items 63 4.2.1.For independent audit companies: 63 4.2.2 For policymaker: 64 4.2.3 For related personnel: 65 4.3 Implications of the study's findings for audit practice 66 4.4.Limitations of the study and directions for future research 67 4.4.1.Limitations: 67 4.4.2 Direction for future research 68 CONCLUSION 70 REFERENCES 71 Nguyen Thi Van Anh v Class: K22CLCG Banking Academy Graduation Thesis LIST OF ABBREVIATIONS Abbreviation Meaning DVN/ Deloitte Co.,Ltd Deloitte Vietnam Audit Company Limited KPMG Co., Ltd KPMG Vietnam Company Limited PwC Co., Ltd PricewaterhouseCoopers Vietnam Company Limited EY Co., Ltd Ernst & Young Vietnam Company Limited KTV Auditor(s) FS Financial Statements IAS International Accounting Standard VAS Vietnamese Accounting Standard ISA International Standard of Auditing VSA Vietnamese Standard of Auditing Nguyen Thi Van Anh vi Class: K22CLCG Banking Academy Graduation Thesis LIST OF FIGURES Figures Pages Figure 3.1: Debt roll forward schedule by Deloitte Vietnam 37 Figure 3.2: Lead schedule paper implemented by PwC Vietnam 38 Figure 3.3: Working paper movement by PwC Vietnam 39 Figure 3.4: Leadsheet and movement in KPMG’s working paper 39 Figure 3.5: Loan summary in working paper of KPMG 41 Figure 3.6: Detail testing of addition and repayment of loan by EY 41 Vietnam Figure 3.7: Test of addition and repayment of debt by PwC 43 Vietnam Figure 3.8: Questions list to review debt covenant by PwC 44 Vietnam Figure 3.9: Documentation in working paper of KPMG Vietnam 46 Figure 3.10 Audit review workflow 47 Figure 3.11: Loan Contract Summary in Working paper of PwC 49 Vietnam Figure 3.12: Cost of borrowing recalculation table by Deloitte 50 Vietnam Figure 3.13: Cost of borrowing recalculation table by KPMG 50 Vietnam Figure 3.14: Unusual transaction checked by APS Audit Co 53 Figure 3.15: Unusual transactions checked by AASC 53 Figure 3.16: Ending balance confirmation checked by AASC 54 Figure 3.17 Recalcualtion table of cost of borrowing by AASC 56 Figure 3.18 Recalculation table of cost of borrowing by SCS 56 Global Nguyen Thi Van Anh vii Class: K22CLCG Banking Academy Graduation Thesis LIST OF TABLES Tables Pages Table 1.1: Borrowing audit objective 11 Table 1.2: Cost of borrowing audit objective 12 Table 2.1: Survey samples information 31 Nguyen Thi Van Anh viii Class: K22CLCG Banking Academy Graduation Thesis INTRODUCTION Rationale In the current era of a highly developed and interconnected society, the Vietnamese economy is bustling more than ever This is evidenced by the continuous operation of businesses in synchronization with the world's development The auditing industry is also clearly developing during this time, expanding its market and increasing business reputation in the eyes of the public and customers In the past, auditing was simply viewed as a tool to assess the accuracy of financial statements However, with the growth of auditing, firms now provide customers with audit services tailored to their specific needs and requirements To meet the expectations and objectives of clients, audit firms must establish specific directions and plans to ensure a smooth and efficient audit process that meets the expected quality standards The cash flow of a company is comparable to the blood vessels in a human body, as it facilitates the continuous circulation of production and business activities.In order to gain the attention of investors and other stakeholders, some companies' management may resort to fraudulent activities and accounting irregularities in order to manipulate financial statements With the development of financial markets and trade agreements, enterprises have been engaged in a variety of loan mobilization operations with complex contract structures, ranging from shortterm to long-term loans, fixed and floating interest rate regulations, credit line constraints, and loan or collateral purposes etc This has led to increased complexity, diversity, and error-proneness in accounting for loans and interest expenses Therefore, it is crucial to conduct audits of borrowing and cost of borrowing items to improve the overall quality of the audit process, detect possible accounting irregularities, and enhance loan management In the current scenario where a large number of audit firms are emerging with different ways of designing and operating audit procedures, it has become crucial to understand and analyze the current state of auditing loan items and interest expenses implemented by various firms to ensure quality consistency among the audit market It will provide a basis for recommending measures to improve audit quality for firms Nguyen Thi Van Anh Class: K22CLCG Banking Academy Graduation Thesis 4.1.2 Effects on the variances in audit procedures on auditing of borrowing and cost of borrowing items in big and non - big companies in Vietnam The variances in audit procedures for auditing borrowing and cost of borrowing items among big companies and non-big companies can have several effects: Audit Quality: Different audit procedures may result in variations in the quality of audits conducted by big companies and non-big companies Big companies, due to their resources and expertise, may employ more comprehensive and rigorous procedures, potentially leading to higher quality audits Non-big companies may have more limited resources and industry specialization, which can impact the depth and thoroughness of their audit procedures Risk Mitigation: Differences in audit procedures can affect the effectiveness of risk identification and mitigation Big companies may have more robust risk assessment frameworks and methodologies, allowing for a more comprehensive identification of risks associated with borrowing and cost of borrowing items This can lead to better risk mitigation strategies and enhanced financial reporting reliability Non-big companies may face challenges in identifying and addressing all relevant risks, potentially affecting the accuracy and reliability of financial statements Compliance with Regulations and Standards: Audit procedures are designed to ensure compliance with relevant regulations and auditing standards Differences in audit procedures between big and non-big companies may result in variations in compliance levels Big companies, with their emphasis on adherence to standards and regulations, may have more robust procedures in place, reducing the risk of noncompliance Non-big companies may need to ensure they have appropriate procedures in place to meet regulatory requirements and comply with auditing standards Business Opportunities and Market Perception: The differences in audit procedures can influence business opportunities and the market perception of audit firms Big companies, with their reputation and perceived higher audit quality, may Nguyen Thi Van Anh 62 Class: K22CLCG Banking Academy Graduation Thesis attract larger clients and more complex engagements The perception of more rigorous audit procedures can enhance market confidence in the financial statements audited by big firms Non-big companies may need to demonstrate their capabilities and the effectiveness of their audit procedures to compete for business opportunities and improve market perception 4.2.Recommendations for auditors and companies to improve audit procedures for debt items After researching the detail audit procedures of various audit companies, by clarifying the similarities and differences in performing audit procedures for auditing borrowing and cost of borrowing items Some of recommendations was made in order to narrow down the differences in audit and improve the quality of audit among audit companies operating in Vietnam as follow: 4.2.1.For independent audit companies: First, standardizing audit procedures: Companies could work towards establishing a set of standard procedures for auditing borrowing and cost of borrowing items, so that there is more consistency across the industry By learning audit procedures of borrowing and cost of borrowing from both big4 and non-big companies, audit procedures of big4 companies are considered to be effective and standard and can be a reference audit workflow for medium and small audit companies to follow In detail: - With audit procedure for borrowing  Consider testing addition and deduction of borrowing during the year, by choosing sample and test of detail all the supporting documents to verify that information was true and fair in the accounting book  Adding procedure to check debt covenant: as borrowing conditions become more and more complex, procedures to check debt covenant are essential in the audit of borrowing items Small and medium sized companies can learn from big4 companies this procedure to review the condition of debt by table of question as PwC or flow and ratio from Deloitte way… - With audit procedure for cost of borrowing Nguyen Thi Van Anh 63 Class: K22CLCG Banking Academy Graduation Thesis  Audit procedure for cost of borrowing currently did not show much differences in actual implementation between big and non - big4 companies As the future comes with more and more complicated conditions in borrowing contracts and more unusual transactions relating to borrowing cost incurred, audit companies need to work on research, analysis and developments of audit procedure up to the changes in cost of borrowing nature Second,Improving training and education: Audit firms could invest in training and educating their auditors on best practices for auditing borrowing and cost of borrowing items, and ensure that all auditors are up to date on the latest regulations and guidelines Companies can collaborate with others and with big4 companies with some sharing conference on audit matters for borrowing and cost of borrowing in order to share experience and learn from other audit procedures to improve the quality of audit financial statements Third, Enhancing transparency: Companies could work on improving transparency in their audit procedures, by providing more information about the steps involved in the audit process, and making it easier for stakeholders to understand the results of the audit Forth, Working with policymakers: Companies could work with policymakers to develop regulations and guidelines that encourage more consistent and effective audit procedures, and that promote transparency and accuracy in financial reporting Companies also need to join conferences or forums… with policymakers in order to share practical working experiences or discuss current status of audit borrowing and cost of borrowing items with some unusual and difficult cases so that policymakers can have detailed information on working aspects and can propose relevant solutions for that matter 4.2.2 For policymaker: Establish clearer and more standardized audit procedures: Policymakers should establish clearer and more standardized audit procedures for auditing borrowing and cost of borrowing items This will help to ensure that all audit firms, regardless of their size or experience, are adhering to a consistent set of standards Nguyen Thi Van Anh 64 Class: K22CLCG Banking Academy Graduation Thesis Increase transparency and disclosure requirements: Policymakers can help to increase transparency and disclosure requirements for companies that borrow money This can include requiring companies to disclose their borrowing and interest expenses in a more detailed manner, and mandating that audit reports include more information on the audit procedures that were performed Provide more guidance and training for auditors: Policymakers can provide more guidance and training for auditors to help them improve their knowledge and skills in auditing borrowing and cost of borrowing items This can include offering workshops, seminars, and other training programs, as well as providing access to more resources and information on best practices in auditing Increase oversight and monitoring of audit firms: Policymakers can increase oversight and monitoring of audit firms to ensure that they are adhering to established audit procedures and standards This can include conducting more frequent audits of audit firms, as well as imposing penalties for firms that not meet established standards Encourage collaboration between audit firms: Policymakers can encourage collaboration between audit firms to share best practices and improve the overall quality of audits This can include establishing forums for firms to exchange information and ideas, as well as encouraging joint audits and other collaborative efforts 4.2.3 For related personnel: Familiarize with industry standards: Gain a thorough understanding of relevant auditing standards and guidelines related to borrowing and cost of borrowing items Stay updated with any revisions or updates to ensure compliance with the latest requirements Conduct comprehensive literature review: Conduct a comprehensive literature review to identify existing research, best practices, and insights on auditing borrowing and cost of borrowing items This will help auditors build a strong theoretical foundation for your study and gain valuable insights from prior work Nguyen Thi Van Anh 65 Class: K22CLCG Banking Academy Graduation Thesis Maintain independence and objectivity: Uphold the principles of independence and objectivity throughout the research process Ensure that your judgments, conclusions, and recommendations are unbiased and free from any external influences Collaborate with audit firms: Establish relationships and collaborate with staff in audit firms, both big and non-big4, to gain access to their audit procedures and practices This collaboration will provide valuable insights and enhance the credibility of your research 4.3 Implications of the study's findings for audit practice The implications of the study's findings for audit practice are significant The study can serve as a reference for audit firms in designing and implementing their audit procedures related to borrowing and cost of borrowing items The findings can also help audit firms identify areas for improvement in their current audit procedures, particularly in areas where differences were observed between the Big and non-Big firms For instance, the study might suggest that non-Big firms could improve their audit procedures related to loan covenants or collateral agreements, which were found to be more comprehensive in the Big firms Additionally, the study may encourage audit firms to develop standardized audit procedures for auditing borrowing and cost of borrowing items to minimize the differences among firms and improve the overall quality of audits Based on the study's findings, audit firms should strive to improve their audit procedures for auditing borrowing and cost of borrowing items, particularly in areas where differences were observed between the Big and non-Big firms This may include enhancing training programs for auditors and increasing the use of technology in the audit process Audit firms may also consider collaborating with policymakers and industry associations to develop standardized audit procedures for auditing borrowing and cost of borrowing items This can help ensure that audits are conducted consistently across different firms and improve the overall quality of financial reporting Additionally, audit firms should be transparent about their audit procedures and the results of their audits to build trust and credibility Nguyen Thi Van Anh 66 Class: K22CLCG Banking Academy Graduation Thesis with stakeholders This can help enhance the perceived value of the audit and encourage greater reliance on audited financial statements This study has significant implications for students of the Accounting and Auditing Faculty and other relating majors, as it provides valuable references for their learning and preparation to become audit assistants in auditing firms in Vietnam The research presents a concise overview of the audit procedures employed by various audit firms It is highly beneficial for students to familiarize themselves with these audit procedures and develop a solid understanding of the necessary steps to effectively conduct audits for specific items in practical scenarios Being well-versed in the audit procedures during busy seasons can greatly enhance the performance of audit assistants and positively impact their personal assessment evaluations Overall, the study's findings can be used to inform and improve audit practice, leading to more accurate and reliable financial statements for stakeholders 4.4.Limitations of the study and directions for future research 4.4.1.Limitations: a Time constraints: As the thesis was completed within a short span of two months, the writer faced limitations in collecting a comprehensive and diverse sample to make generalizations for all independent auditing firms operating in Vietnam Moreover, the survey results were collected non-randomly and are personal, which could lead to some audit procedures being omitted in the practical application Due to the small sample size, any differences may be exaggerated, and representative for the whole, which does not mean comparisons among companies Nguyen Thi Van Anh 67 Class: K22CLCG Banking Academy Graduation Thesis b Confidentiality: Due to the information confidentiality requirements of the audit company, the author cannot access the entire audit cycle from phase (1) Planning the audit to phase (2) Perform the audit procedures and (3) Ending of the audit Research thesis only focuses on phase (2) Perform the audit procedures to analyse comparison among those audit companies, then the (1) phase and (3) phase have not been exposed to analytical research Audit planning in phase (1) can give understanding customer about borrowing and cost of borrowing items and define the risk relating to those From which KTV can design and implement later audit procedures Phase (3) End of the audit is the summarize and conclude after performing all audit procedure to cover the risk of audited line item (here are borrowing and cost of borrowing items) then if any deficiencies or fraud are detected, KTV can raise adjustment or opinion for the audit Moreover, confidentiality also requires KTV to keep restricted to further information and data relevant to customers and borrowing detail in working paper This leads to the shortage of detail to gain in depth understanding about borrowing items specific for each customer 4.4.2 Direction for future research This thesis only takes into consideration the audit procedure for borrowing and cost of borrowing items for big companies and non-randomly chosen audit companies (other than big4) For future research, it can be expand to a greater assess to other audit companies from different background, for example: international audit companies, and carried out research on variety of audit procedure for borrowing and cost of borrowing specific on more companies Moreover, based on this thesis, future research can use comparative analysis of audit procedures in different countries Students could conduct a similar study in other countries and compare the results with the findings of this study in Vietnam This will provide a broader understanding of how audit procedures differ across different countries Nguyen Thi Van Anh 68 Class: K22CLCG Banking Academy Graduation Thesis Also, Analysis of the impact of audit procedures on financial reporting quality is another potential direction developed from this research Research could examine how the differences in audit procedures impact the quality of financial reporting for firms This could be done by analyzing the financial statements of firms audited by the big and non-big4 companies and comparing them based on factors such as accuracy, completeness, and reliability CHAPTER CONCLUSION Chapter mainly focus on discussion causes and effects of the differences and similarities in audit practices regarding borrowing and cost of borrowing items among auditing companies in Vietnam Moreover, based on research findings, the writer proposed some recommendations for auditing firms, for policymakers and for related personnel to improve audit qualities among auditing companies Nguyen Thi Van Anh 69 Class: K22CLCG Banking Academy Graduation Thesis CONCLUSION In this thesis, the researcher aimed to investigate the audit procedures for auditing borrowing and cost of borrowing items among audit firms in two groups: the big companies and non-big companies in Vietnam The thesis is divided into four chapters that collectively provide a comprehensive understanding of the topic Chapter serves as an introduction, offering a basic understanding of accounting for borrowing and cost of borrowing items, as well as an overview of the audit process This chapter lays the foundation by providing context and general insights into the audit procedures associated with the researched items Chapter outlined the research process, starting with a comprehensive review of background knowledge and practical experience gained from auditing borrowing and cost of borrowing items at Deloitte Vietnam The research scope was then expanded to include interviews and access to working papers from seven additional auditing firms in Vietnam Chapter focused on conducting a content analysis and interviews to examine the audit procedures for borrowing and cost of borrowing items in the big and nonbig companies The chapter highlighted both the similarities and variances observed within each group, providing valuable insights into their respective practices Chapter discussed the causes and effects of the variances and similarities in audit practices among auditing companies in Vietnam The findings of the research were used to propose recommendations for auditing firms and policymakers to improve audit quality within the industry Overall, this thesis contributes to the understanding of audit procedures for borrowing and cost of borrowing items and provides insights for auditing firms, policymakers, and other related personnel to enhance the effectiveness and consistency of audit practices among audit companies in Vietnam It serves as a valuable resource for students, professionals, and researchers interested in the field of auditing and financial statement analysis Nguyen Thi Van Anh 70 Class: K22CLCG Banking Academy Graduation Thesis REFERENCES [1] Ministry of Finance (2013) Circular No 200/2014/TT-BTC: Circular on guidelines for accounting policies for enterprise [2] Institute of Chartered Accountants in England and Wales (2022): Assurance [3] Le Thi Tuyet (2020) Graduation thesis “Hoàn thiện thủ tục kiểm kê hàng tồn kho kiểm tốn báo cáo tài Cơng ty Kiểm tốn độc lập Việt Nam thực hiện” [4] Nguyen Thi Thanh Hoai (2020) Graduation thesis “Nghiên cứu nhân tố ảnh hưởng đến việc xác định thủ tục kiểm toán cho khoản mục doanh thu kiểm tốn báo cáo tài Cơng ty Kiểm toán độc lập Việt Nam thực hiện” [5] Pham Ngoc Dung (2022) Graduation thesis “Hoàn thiện thủ tục kiểm tốn vay chi phí lãi vay kiểm tốn báo cáo tài KPMG Việt Nam” [6] Nguyen Dinh Anh Tu (2022) Graduation Thesis “Improve the audit of fixed assets in the audit of financial statements performed by Deloitte Vietnam Co., Ltd” Nguyen Thi Van Anh 71 Class: K22CLCG Banking Academy Nguyen Thi Van Anh Graduation Thesis 72 Class: K22CLCG Banking Academy Nguyen Thi Van Anh Graduation Thesis 73 Class: K22CLCG Banking Academy Nguyen Thi Van Anh Graduation Thesis 74 Class: K22CLCG Banking Academy Nguyen Thi Van Anh Graduation Thesis 75 Class: K22CLCG Banking Academy Nguyen Thi Van Anh Graduation Thesis 76 Class: K22CLCG