4 CHAPTER 1: OVERVIEW ON AUDIT PROCEDURE FOR CASH AND CASH EQUIVALENTS ON AUDITING OF FINANCIAL STATEMENTS.. The research of Nghiem Thu Hien 2021 “Completing audit procedures for cash ac
Rationale of the research
Public audits are increasingly vital in today's fast-paced economy, necessitating accurate and reliable financial statements for stakeholders making investment decisions As the economic landscape evolves, the demand for objective and fair reporting has intensified, highlighting the essential role of auditing in enhancing business operations and management standards across various industries.
Auditing cash accounts is essential for verifying various asset and liability accounts, along with revenue and expenses, since most business transactions are ultimately processed through cash While cash is the most liquid asset within a company, it also poses significant risks due to the potential for misappropriation.
Therefore, there have been quite a few cases that showed fraud and errors in cash and cash equivalents auditing procedures
At TAC Consulting and Auditing Company, Ltd., I recognized the critical role of audit procedures for cash and cash equivalents in financial statements Despite this understanding, I observed ongoing challenges in these auditing processes Consequently, I have chosen to research ways to enhance the auditing procedures for cash and cash equivalents within the firm.
Literature review
There have been a lot of previous researches on cash and cash equivalents audit procedures financial statement accounting at TAC These studies are classified into two main groups
The first group includes studies on the quality of independent audit in the
Vietnamese market of companies, as well as proposals to improve the previously evaluated quality characteristics The second group includes studies on procedural completion audit for a specific account
Nghiem Thu Hien's 2021 research, titled "Completing Audit Procedures for Cash Accounts on Financial Statements at Thang Long – T.D.K Auditing and Valuation Company, Ltd," aims to enhance the auditing process for cash accounts at T.D.K The study identifies existing limitations within the audit procedures and explores the underlying reasons for these shortcomings, ultimately providing actionable suggestions for improvement.
The auditing of financial statements has been explored in various academic works, including Doan Thi Huong Nghiem's 2019 study on enhancing audit procedures for accounts at Thang Long – AFA Auditing and Valuation Company, Ltd, and Dau Thai Bao's 2020 research.
The auditing of capital in cash at VACO Auditing Company involves a comprehensive evaluation of the audit process for specific financial statement items This study compares actual audit practices with established theoretical frameworks to identify solutions and recommendations aimed at enhancing the company's audit procedures and processes.
Recent studies highlight recurring challenges in cash auditing, yet few focus specifically on cash and cash equivalents The suggested measures often fail to align with real-world scenarios, as each company faces unique limitations To address the ongoing issues encountered during the audit process at TAC, I have chosen to explore this topic in greater depth.
Aims and objectives
This research focuses on summarizing the theoretical and practical aspects of auditing cash and cash equivalents at TAC It provides recommendations for enhancing audit procedures related to these financial items, enabling auditors to improve their work quality Additionally, the study aims to mitigate potential risks auditors may encounter during their auditing processes.
Objectives: The following primary goals must be carried out by the research:
- Systematization of fundamental arguments regarding the cash and cash equivalents audit process on FS;
- Research regarding the actual auditing processes for cash and cash equivalents on
FS that were carried out by TAC Auditing and Valuation Company, Ltd
- Evaluating and providing recommendations to complete the audit process for cash and cash equivalents on FS at TAC Auditing and Valuation Company, Ltd.
Scope of the research
- Subject of the research: Audit procedures for cash and cash equivalents on financial statements
- Scope of the research: Audit procedures for cash and cash equivalents on financial statements performed by TAC Auditing and Valuation Company, Ltd in 2022
- Research period: From December 1, 2022 to March 31, 2023
The research data for this study is derived from secondary sources, including system software, working papers archived in TAC Ltd's audit files, and the client's audit report covering the period from 2021 to 2022.
- According to Vietnam Auditing Standard 200, the audited client's information needs to be confidential, so the real name of the audited enterprise is anonymously named ABC Co, Ltd.
Method of research
Base on documents, standards on Accounting and Auditing, accounting regime; using documentations and audit files of at TAC company in order to obtain necessary information served for the thesis
The article references the Accounting Regime Circular 200/2014/TT-BTC, which outlines the guidelines for accounting policies for enterprises, alongside the International Federation of Accountants' auditing standards, including ISA 200, ISA 300, ISA 315, ISA 320, and ISA 520, to establish a foundational framework for the thesis study.
+ Obtain the information of overview of TAC base on documents and website of TAC
+ Obtain the information about audit procedures for cash and cash equivalents for clients at the company through audit files provided by auditors
During my internship at TAC Company, I directly observed the audit performance related to cash and cash equivalents on the financial statements Additionally, I engaged with auditors and audit associates to gather pertinent information that enhanced my understanding of the auditing process.
This article focuses on synthesizing and analyzing the collected information and documentation for evaluating the audit procedures related to cash and cash equivalents at TAC The findings aim to provide objective insights into the strengths and weaknesses of these procedures, identifying underlying causes and offering proposals to enhance the auditing process for cash and cash equivalents at TAC.
Thesis structure
In addition to the introduction, conclusion, list of references, the thesis has all 3 chapters
AUDIT STATUS AT TAC CONSULTING AND AUDITING
PROPOSALS FOR IMPROVEMENT OF THE AUDITING
PROCEDURES AT TAC CONSULTING AND AUDITING, LTD
CHAPTER 1: OVERVIEW ON AUDIT PROCEDURE FOR CASH AND CASH EQUIVALENTS ON AUDITING OF FINANCIAL STATEMENTS 1.1) Overview of auditing of Financial Statements
An audit is an evaluation aimed at expressing an opinion on the fair presentation of a subject matter Various types of audits exist, including financial statement audits, internal control audits, and compliance audits This research specifically concentrates on financial statement audits, which offer an impartial assessment of a company's financial statements.
Businesses prepare their financial statements in accordance with generally accepted accounting principles (GAAP) specific to their country, which are also referred to as accounting or financial reporting standards Independent auditors then assess the fair presentation of these statements using a framework of generally accepted auditing standards (GAAS), which outlines the necessary requirements and guidance for conducting audits.
A key component of confidence in the global financial systems has been the requirement that companies' financial statements1 be audited by an independent external auditor
An audit provides assurance that management has accurately represented the company's financial performance and position, fostering trust between those who manage the company and its stakeholders This process reinforces the responsibility of stewardship, ensuring that all parties have a "true and fair" view of the organization's financial health.
Audits play a crucial role in financial transparency, prompting frequent inquiries about the audit process, the auditors involved, and the stakeholders they serve This article provides essential insights into the nature of financial statement audits and clarifies the responsibilities of auditors, equipping readers with valuable background knowledge.
1.1.3) Purpose of a financial statements audit:
Companies produce financial statements that outline their performance and financial status, which are essential for various stakeholders, including investors, when making financial decisions Since shareholders usually do not manage the company, owners and other interested parties, such as banks, suppliers, and clients, rely on independent verification to ensure that these financial statements accurately represent the company's financial health and performance.
An auditor is engaged to examine the financial statements and accompanying disclosures created by management, offering their expert opinion on whether these documents accurately represent the company's financial performance during a specified period (income statement) and financial position at a particular date (balance sheet) in accordance with accounting standards, often as required by law.
The evolving economic and legal landscape profoundly impacts a company's operations and financial reporting Shifts in business conditions, economic factors, and regulatory frameworks heighten risks that businesses face, necessitating appropriate responses and disclosures in financial statements.
The auditing process is significantly influenced by heightened risks of material misstatement in financial statements, necessitating a scaled approach by auditors In today's dynamic environment, they must navigate evolving factors that introduce additional challenges Companies with multiple entities face further complexities, especially when operating across different countries with varying regulatory requirements, which can complicate the audit process even more.
Auditing evidence refers to the data collected regarding a company's financial transactions, internal control procedures, and other elements essential for the certification of financial statements by an auditor or certified public accountant (CPA) The quantity and variety of auditing evidence considered can vary based on the type of company being audited and the specific audit scope required.
Audit evidence can come from the auditors, customers, or third parties
During an audit, auditors rely on the comprehensive guidelines of GAAP to determine how a company should account for and disclose complex transactions However, many audit challenges, especially those related to valuations and future assumptions, require auditors to apply their professional judgment and experience It's important to recognize that numerous accounting measures are inherently estimates, often based on limited information or contingent on future events.
In the context of multi-location audits, when a company faces legal action, it must estimate the potential resolution amount Similarly, if the company intends to sell an office building, it needs to assess the expected sale price The auditor plays a crucial role in evaluating these scenarios by determining a reasonable range of possible values and assessing whether the company's estimates fall within that range.
In order to collect enough information to base a conclusion on the truthfulness of the financial statements, the auditor needs to develop a specific audit process
Usually, this process consists of 3 steps as follows: Planning, conducting audits, synthesis, and concluding and forming audit opinions
1.1.6.2) Inherent limitations of an audit
An auditor's opinion reflects professional judgment rather than a guarantee of accuracy in financial statements Due to inherent limitations in the audit process, absolute assurance against material misstatement is unattainable Factors such as subjective decisions and uncertainties in accounting estimates contribute to this limitation Therefore, it is important to understand that not every detail in audited financial statements is verified for complete accuracy Auditors provide reasonable assurance by selectively testing financial records to gather evidence.
Fraud undermines the essential trust required for successful business operations, placing the onus on management to effectively prevent and detect fraudulent activities The challenge lies in the covert nature of fraud, often involving collusion among various parties, making it difficult to identify Despite adhering to Generally Accepted Auditing Standards (GAAS), audits may not always uncover significant fraud Nonetheless, auditors must strive to provide reasonable assurance that financial statements are free from material misstatements due to fraud.
When auditors suspect fraud during their work, it significantly alters their risk assessment and the way they communicate with governance This suspicion also impacts the audit procedures they implement and how they evaluate the effectiveness of internal controls Additionally, the awareness of an impending independent external audit typically serves as a strong deterrent against fraudulent activities.
1.1.6.4) The five phases of an audit
Broadly, the audit process can be summarised in five phases:
Effective audit planning begins with the formal acceptance of the client by the audit firm, ensuring compliance with independence requirements This phase involves assembling the audit team and conducting necessary procedures to establish the nature, timing, and extent of the audit activities, ultimately facilitating a thorough and efficient audit process.