PERSONAL COMMITMENT I hereby declare that the topic “AUDIT OF ACCOUNTS PAYABLE IN FINANCIAL AUDIT CONDUCTED BY ERNST & YOUNG VIETNAM LTD” is the result of my serious, independent study
LITERATURES REVIEW OF AUDITING ACCOUNTS
Literatures review of accounts payable of client affecting financial audits
An organization requires capital infusion to sustain its regular business activities, necessitating the establishment of connections with external entities such as the government, banks, and other organizations Of particular significance is the correlation between trade payables and suppliers The process stems from the cycle of procurement and disbursement, commencing with the business's purchase of goods, services, machinery, equipment, and raw materials, and concluding with the settlement of payments
The accounts payable is established as a result of the aforementioned cycle The company has obligations resulting from past transactions and events These obligations require future payments to be made using the company's own resources, such as money, finished goods, or net-off debts In cases where the company is both buying and selling products to a single supplier, the two parties may agree to offset the debt to each other
From an economic perspective, Accounts Payable (AP) to suppliers can be seen as a form of business appropriation, providing a low-cost credit source with either low interest rates or no interest at all Suppliers, in order to enhance their competitiveness, have the motivation to offer late payment policies, trade discounts, or settlement discounts Consequently, the company opts to postpone payments and allocate the capital for alternative objectives
Account No 331 is the accounts payable, which presented from an accounting perspective This account is utilized to represent the obligations owed to suppliers for the acquisition of materials, goods, and fixed assets The balance sheet includes assets such as equipment, machinery, buildings, investment properties, and other financial investments This account is also utilized to indicate the payment status of these debts This account also includes the liabilities incurred for construction and installation
4 services provided by contractors Each vendor should provide a detailed breakdown of their liabilities The prepayments made to suppliers prior to receiving the goods or completing the construction project are recorded and monitored in this account
Features of AP in the financial statements
The balance sheet displays the aggregate amount of money owed by a company, known as accounts payable, as of the balance sheet date This information is categorized under the current liabilities section Accounts payable refer to financial obligations that must be settled within a specified timeframe to prevent default AP is a significant entity in a company's financial statement If the accounts payable (AP) increases compared to a previous period, it indicates that the company is acquiring a greater amount of goods or services on credit, rather than making cash payments Alternatively, if a company's accounts payable (AP) decreases, it suggests that the company is settling its outstanding debts from previous periods more rapidly than it is acquiring new items on credit Hence, the accounts payable (AP) is meticulously documented for each supplier to guarantee timely settlement of debts, thereby preventing any negative impact on the company's reputation and financial strategy
Accounts payable is classified as current liabilities on the balance sheet, depending on the maturity of the debts in relation to the business cycle Debts that are due within 12 months are categorized as short-term accounts payable for a business cycle of 12 months or less If the business cycle exceeds 12 months, short- term accounts payable are considered to be those that fall within the normal business cycle, even if they extend beyond 12 months
From the auditing perspective, AP is a significant account balance, which has a great influence on the financial statement, showing the performance of the company In fact, many clients of EY Vietnam have a diverse range of accounts payable ratios due to the varying sizes and unique business characteristics, as well as the identical acquisition and payment cycle as below:
The accounts payable of these companies represent the acquisition of inputs, such as raw materials, machinery and equipment, or services, for the purpose of production For this particular company, it is crucial to ensure both the quantitative and qualitative aspects of their inputs by working with a select few suppliers who have established long-term relationships
Total liabilities of these entities accounts for 40-50% of total assets, depending on their policies
This group primarily engages in the procurement of goods from major suppliers, which are subsequently distributed to agents, retailers, or consumers with the aim of generating profits through price differentials Consequently, there would be a substantial quantity of suppliers, carefully selected in accordance with the company's policies In addition, the wide variety of unique products leads to a significant number of transactions, causing the accounts payable balance to rise to 60%-80% of the total liabilities and equity The significance of the accounts payable is heightened in the audit of financial statements
AP is a crucial component of financial statements, regardless of the type of business, because it reflects differences in size and business characteristics This item also impacts the crucial financial ratios that managers and investors frequently depend on to assess the performance of the entities
Therefore, a specialized audit program would be implemented to verify the accuracy and fairness of the accounts payable figure Many organizations are currently improving their internal control systems for their accounts payable to ensure accurate and unbiased recording of this item The companies implement protocols to identify and mitigate instances of fraud or errors that may arise in the accounts payable process The auditors must possess a comprehensive understanding of the acquisition and payment cycle in order to minimize the risk of financial misstatements in the seller's liabilities This understanding is closely tied to the internal control over the seller's liabilities
Each stage of the acquisition and purchase cycle requires unique types of vouchers and documents
Identify the purchase requests originating from the department in need and forward them to the purchasing department The purchase request comprises essential details such as the name, type, origin, quality, quantity, time, and place It is mandatory for the head of the requesting department to grant approval for the request
Identify the purchase orders made with suppliers, including the suppliers' name, date of order, date of shipment, place of shipment, method of shipment, and purchase details such as quantity and order requirements
After acceptance of the order, the two parties enter into a sales and purchases agreement The sales and purchases agreement is a legally binding document that establishes liability between the two parties
PRACTICE OF AUDIT OF ACCOUNTS PAYABLE IN
Introduction of the audit company
2.1.1 The information and development of the company
EY, formerly known as Ernst & Young, stands as a prominent leader in the realm of professional services worldwide With a rich legacy dating back to the late 19th century, EY was formally established in 1989 through the merger of Ernst & Whinney and Arthur Young & Co Today, the company operates across more than
150 countries, offering a comprehensive array of services including audit and assurance, tax advisory, consulting, transaction advisory, and risk management EY serves clients across diverse sectors, from financial services and technology to healthcare and energy Renowned for its commitment to innovation and technological advancement, EY leverages cutting-edge tools such as data analytics and artificial intelligence to deliver tailored solutions and insights to its clients Beyond its professional endeavors, EY places a strong emphasis on corporate responsibility, sustainability, and fostering an inclusive work culture With its sterling reputation, global reach, and dedication to excellence, EY continues to play a pivotal role in shaping the future of business and finance on a global scale
EY Vietnam is a member firm of EY Global, stands as a leading professional services provider in the dynamic Vietnamese market Established in 1992, EY Vietnam has rapidly grown to become a trusted advisor to both domestic and international clients, offering a comprehensive suite of services tailored to the unique needs of businesses operating in Vietnam Currently, EY Vietnam has offices in Hanoi and City Ho Chi Minh City with a team of more than 3,000 local employees and foreign experts, including 1,600 employees at the Hanoi branch and 1,400 employees at the Ho Chi Minh headquarters With offices in Ho Chi Minh City and Hanoi branch, EY Vietnam's team of experienced professionals delivers a wide range of services, including audit and assurance, tax advisory, consulting, transaction advisory, and risk management
Renowned for its deep industry expertise and commitment to excellence, EY Vietnam plays a vital role in driving innovation, fostering growth, and contributing to the sustainable development of Vietnam's economy EY is very famous for its slogan "Building a better working world" - Building a better working environment
A professional working environment, mutual trust, stable development, nurturing talent in all fields and cooperation among employees is what EY always wants to build A good and effective working environment will create a better world
With its global network and local insight, EY Vietnam is poised to continue supporting clients in navigating the complexities of the Vietnamese business landscape and achieving their strategic objectives
According to information from EY Vietnam's transparency report, the company recorded completion of audits for a total of 314 public interest entities in
2023, included many banks, insurance companies, securities, fund management, real estate and many large funds such as: Vingroup, Bao Viet Insurance, Prudential Insurance, SSI Securities, Hoa Binh Construction, Dat Xanh Group, Techcombank, Vietinbank, MB, HDBank and Manulife Fund, Thien Viet Fund,
It is known that EY Vietnam's revenue in 2023 is VND 1,375.8 billion, an increase of 22.8% compared to 2023 Of which, revenue from financial statement audit services for entities with public interests only 295.8 billion VND (down 7% compared to 2022); Revenue from financial statement auditing services of other units is 833.6 billion VND (an increase of nearly 54% compared to 2022); Other service revenue is 246.3 billion VND (down 5.4% compared to 2022)
Notably, EY recorded costs of up to VND 1,362 billion Of which, the majority is salary and employee bonus costs of 703 billion VND, other costs are nearly 658 billion VND The cost/revenue ratio in 2023 is 99.05%
Figure 2.1: Income Statement in EY Vietnam from 2021 to 2023
Revenue from financial statement auditing services of public interest units 192,454,002,196 318,352,837,029 295,844,667,363 Revenue from auditing services of financial statements of other units 554,034,626,267 541,372,591,166 833,673,117,862 Other service revenue 252,433,400,147 260,522,124,752 246,368,375,046
Employee salary and bonus costs 489,506,094,414 529,733,976,881 703,404,170,254 Cost of purchasing professional liability insurance 1,623,704,660 837,977,232 1,051,929,528
State budget 146,424,734,338 151,982,361,078 199,750,093,220 of which corporate income tax 5,296,507,260 4,873,320,204 4,297,886,068
(Source: EY Vietnam's transparency report)
In Vietnam, EY has two main offices in Hanoi and Ho Chi Minh City
• Head office in Hanoi: 8th Floor, CornerStone Building, 16 Phan Chu Trinh, Hoan Kiem, Hanoi
• Headquartered in Ho Chi Minh City: 28th Floor, Bitexco Financial Tower,
No 2 Hai Trieu, District 1, City Ho Chi Minh
In 2015, Ernst & Young Co., Ltd surpassed the remaining competitors on the Big 4 list in the number of audits involving public companies This list is provided by Accounting Today
In 2017, Fortune magazine released a list of the 100 best companies to work for and EY ranked 29th
In 2016, EY ranked 11th on the list of the largest private organizations in the United States
EY Vietnam ranked 85th in the top 100 best places to work in Vietnam 2016
In 2022, EY holds an event to celebrate its 30th anniversary in Vietnam
2.1.2 Overview of functions, tasks and business lines of EY Vietnam
EY Vietnam auditing company is committed to satisfying all customers with the quality of services provided Customer needs are diverse, abundant and constantly changing Therefore, the company is always expanding and developing new services to meet that trust and need Therefore, the list of services the company provides is not only in the fields of accounting, auditing, and financial consulting but also extends to human resource management
This is the main service that the company provides, and is also the service that brings the main reputation and revenue (70%) to Ernst & Young This includes the following audit areas:
Auditing final settlement reports of capital construction projects
In addition, EY Vietnam also provides other services such as reviewing the possibility of mergers and acquisitions, reviewing quarterly financial statements and consolidating financial statements in international corporations
Taxes include many types, from VAT, corporate income tax, import-export tax with very complicated accounting methods so not every business can do it themselves
Therefore, the demand for tax consulting is increasing and the company has provided tax consulting services to reduce difficulties for businesses and tax authorities
EY Vietnam clearly understands the need for business consulting because of inadequacies in business management and business
With the in-depth understanding of experts and international experience, we ensure the highest efficiency for customers' business operations through services such as:
Accounting consulting services include: recording, book keeping, and preparation
Quarterly financial reports suitable for each type of enterprise, field, and business line according to the law and current accounting regime, building an information system and internal control system to serve internal affairs manage
Financial consulting services: Analyzing customer resources to determine business development direction and strategy, market research, determining capital structure, capital mobilization, business value appraisal, consulting market entry, investment licensing procedures
Business risk control and security services: Information technology risk management, Accounting software audit, Electronic security assessment, internal information technology audit (IT audit)
2.1.3 Introduce of EY Vietnam's management system
General Partner: Is the manager and is fully responsible for all activities of the company in Vietnam, directly managing the work of the offices of the two branches in Hanoi and Ho Chi Minh and indirectly managing other activities The General Director is also the person responsible for building the company's short-term and long-term development plans and strategies
Deputy General Partner: Is the manager and responsible for all operations of the branches on behalf of the General Director The Deputy General Director has the role of managing work at the office, urging the implementation of the strategic business plan proposed by the Board of Directors and regularly reporting the status of service provision to the Board of Directors treat General manager
By the end of 2023, Ernst & Young Vietnam has 1 General Partner, 3 Senior Partner and 30 Deputy Partner Along with that, as of October 16, 2023, Ernst & Young Vietnam only has 58 accepted practicing auditors
Next is the system of departments that directly perform assigned tasks, including 2 departments: Administration Department and Operations Department, of which:
Company Administration Department includes accounting department and information department, technology department and office department In there:
• Accounting Department: Performs tasks of managing and monitoring financial activities and accounting situation, implementing cost and revenue accounting processes, and promptly notifying the board of directors of issues company finances
• Information Technology Department : Has the function of providing hardware and software devices that support company employees in performing their work
• Office department: This is the department responsible for records for EY, and also provides company employees with necessary stationery for work
Professional Department is the most important department that brings revenue and profit to EY Vietnam, included three main departments below:
• Audit Department : includes two main audit groups: Core Assurance with a large number of auditors specializing in many different fields such as production, import-export, FDI projects etc and FSO has expertise in financial investment, banking, etc
• Tax Consulting Department : This is also an important department of the companyto provide knowledge of Vietnamese and international tax laws and regulations to EY’s customers
Practice of audit of account payables in financial statements by EY Vietnam
The general audit procedures applied at EY Vietnam, which includes 3 stages: planning the audit, implementing the audit and completing the audit
Practically, the process might be changed based on the specific audit context and the nature of the audited object Generally, EY Vietnam’s overall audit procedures as below:
2.2.1.a Overview of the audit planning
ABC Joint Stock Company (ABC JSC) used be audited by EY Vietnam, Hanoi Branch
The audit team inclusive of:
- Two audit staffs level 2 (Staff 2)
- Two audit staffs level 1 (Staff 1)
ABC JSC is a joint stock company established in Vietnam
ABC JSC is incorporated under the Law on Enterprise of Vietnam pursuant to the Business Registration Certificate No 01030xxxxx issued by the Hanoi Department of Planning and Investment on DD/MM/200x
ABC JSC is a subsidiary of the XYZ JSC (the Parent Company – the Group) The ABC’s head office is located at xxx Office Tower, xxx Street, xxx Ward, xxx District, Hanoi, Vietnam
The principal activities of the ABC JSC include:
- Develop real estate property for sale
- Render real estate management and related services
- Provide general contractor services, consulting and designing construction services, supervision and construction management services
The business cycle of a real estate company starts from the time of applying for an investment license, site clearance, and provide and perform construction services until completion Therefore, the business cycle of ABC JSC is from the period of 12 to 36 months
Business cycle of other services in the company is within 12 months
The accounting software in use is SAP Business One This software is highly appreciated in the market for its accuracy, convenience and easy-to-use platform Applied accounting book: General Journal
Fiscal year starts on January 1 and ends on December 31 every year
Accounts payables: The ABC JSC has two accounts for this item:
3311110000 - Short-term accounts payable - production and business activities
3312110000 - Long-term accounts - production and business activities The payables are record in detailed listings to each supplier and to each account
ABC JSC, a company specializing in real estate investment, development, and trading, frequently enters into construction contracts with contractors to carry out the construction of real estate projects The projects encompass various amenities such as parking facilities, office spaces available for lease, an observation deck, a culinary establishment, and a convention center Additionally, there are apartments, villas, and shophouses available for lease, all of which are situated throughout the country In addition to construction contracts, contracts for consulting, designing construction services, and purchases of raw materials are also signed to ensure the project is completed efficiently and on schedule
The suppliers of ABC may include construction, consulting, or commercial trading entities These companies can either be external entities or affiliates, which are other subsidiaries within the Group
The audit senior performs the OARP for all items on the financial statements over the years
Figure 2.1: Working papers - OARP for the AP in ABC JSC
Note to FS - OARP for the AP-Advance in ABC JSC
(Source: Internal documentation at EY Vietnam)
According to the depicted in the figure, the ABC JSC solely possesses funds in the short-term accounts payable
According to the OARP, the AP balance in 2023 is 34% more than that of
2022, with an increase of over VND 4,948 billion in absolute value The notable increase in the Accounts Payable (AP) can be attributed to both the incomplete status of ongoing construction projects and the prompt payment of the AP for new projects
Figure 2.2: Note to Financial Statement - NTFS for the AP in ABC JSC
(Source: Internal documentation at EY Vietnam)
Explaining the increase in trade payables figures in 2023 from figure 2.2, the business has generated more expansion construction projects and real estate development investments, leading to a larger increase in the business's costs and liabilities compared to the previous year However, certain suppliers are willing to offset a portion of the upfront payment made by ABC each time a payment is made Once the construction is finished, the advance to suppliers amount will be completely balanced with the accounts payable In 2023, the AP balance of ABC JSC increased significantly
At this stage, the auditors can concentrate on understanding the client's industry and business characteristics such as general knowledge of the economy, organizational structure, production line, capital structure, etc Then, auditor can determine materiality and risks of fraud or errors
Determine materiality and risks of fraud or errors
Based on the PBC (Provided by Client) documents, the audit senior determines the materiality of the audit engagement by selecting the Profit before tax (PBT) as the foundation for PM, TE, threshold, and SAD nominal amount Since ABC is a publicly traded company, the investors primarily focus on the Profit Before Tax (PBT) when evaluating the company's financial performance throughout the year and determining their investment decisions Furthermore, by employing PBT, the influence of taxes, which are an external variable, would be disregarded
Figure 2.3: PM – TE Calculation in ABC JSC
(Source: Internal documentation at EY Vietnam)
In 2023, the PBT of ABC is:
Upon completion of the audit engagement, the auditor conducts a reassessment of the client's profit to determine if there is a significant deviation from the client's profit plan according to Figure 2.10 (the evaluation of PM at EY Vietnam) Additionally, the auditor evaluates whether the preliminary materiality, established during the planning stage, is impacted by this deviation If the level of materiality remains unchanged, the auditor adheres to the audit plan Furthermore, the audit team conducts a review of the materiality and carries out additional audit procedures if there is a deviation of 5% from the client's planned figure and if abnormal changes are identified during the audit engagement
After determining the indicator (PBT in this case), the auditor determines the materiality percentage The percentage is determined at 5% of the PBT based on the
34 auditor's judgment Therefore, the PM - the materiality level on the financial statements as a whole:
The TE percentage ranges from 50-75% of the PM based on the professional judgement With ABC JSC, the audit team prudently chooses TE at 50% of PM:
As account no 331 is a liability account, the threshold range is set for liability and expense accounts as shown in the figure above The audit team prudently chooses the tolarate error amounts to evaluate the risk or material misstatement of AP balance
Evaluate the risk of fraud or errors of the AP balance
After identifying the CRA (Combined Risk Assessments) summary of each audit assertion, the audit team evaluates the Inherent Risk (IR) and the Control Risk (CR) to ascertain the potential risk to ABC JSC's accounts payable under normal business conditions This is the starting point for auditing and sample selection
ABC JSC uses Construction in Progress (CIP), tangible fixed assets, and investment properties as the primary sources of Accounts Payable (AP) due to their core operations centered around investing, developing, and trading real estate properties The complexity of recognizing assets and payables arises from the involvement of suppliers and ABC JSC in accepting, transferring construction work, and agreeing on the criteria for recognizing revenue, expenses, receivables, and payables Invoices, acceptance certificates, handover minutes, and business contracts are all components of intricate document archives that document transactions
Then, auditors face significant challenges in verifying data due to the varying recording policies of each party involved, resulting in data inconsistency Based on the previously mentioned reasons, the audit team gave priority to accounts payable that had a high inherent risk They also ensured to consider the strong likelihood that liabilities will not be completely acknowledged on the balance sheet date, which is known as the completeness assertion
Understand the internal control system
At ABC JSC, the audit of a specific account balance would be approached under a business cycle The risks of material misstatement are, therefore, identified systematically
The Significant Class of Transactions (SCOTs), transactions that materially affect accounts will be identified It is the purchases and payment cycle that mainly affects the AP balance
According to Figure 2.5- UTD & WT of purchases and payment cycle at ABC JSC, if the business has implemented an internal control system for this cycle, the auditor will conduct interviews with the accounting department and the board of directors to ascertain the existence of such a system, its operation, and its efficacy and efficiency
Assessments of the audit of accounts payable conducted by EY Vietnam
When the audit team is formed, the audit task is allocated according to the individual team members' proficiency and capability The AP is interconnected with other components of the engagement, such as cash and cash equivalents, inventory, and fixed assets The audit team always includes members who have previously participated in the audit engagement, possessing a fundamental comprehension of the nature of the business and the risks of significant errors that may occur
Collect the general information of the client
The general information of ABC JSC enables the auditor to acquire the fundamental knowledge about the client, which is an essential factor for the auditor to form the initial professional assessments Furthermore, this is carried out during
48 the interim audit engagement to minimize the workload of the year-end audit, allowing the auditor to promptly execute the audit procedures
The auditor who performs the AP is required to understand the business characteristics as well as the purchases and payment cycle of the client - ABC JSC
Investigate the internal control system of the client
The auditor must comprehend the client's purchases and payment cycle, along with the applicable control points, to assess the dependability of the client's internal control system It serves as a crucial foundation for the development of the substantive procedures
If there are any deficiencies in the internal control system, the auditor makes recommendations to the management of the client
Determine the materiality and risks of fraud or errors
As a result of the absence of a specific policy on materiality level, EY Vietnam allows auditors to exercise flexibility in determining materiality for each client, taking into account the nature of their business and the auditor's professional judgment The determination of materiality is established through a comprehensive financial analysis, as outlined in the EY GAM instructions The procedures are facilitated by the implementation of EY Smart Sampling, which improves the effectiveness of materiality determination
The materiality of the audit plan (AP) is consistent across all clients and is determined by the auditor based on the nature of the client's business The auditor establishes materiality for each class of transactions or account balance The appropriate methodology is unanimously determined by the SIC, the MIC, and the PIC
The auditors adhere to the audit program outlined by EY GAM, while still maintaining the necessary flexibility for each audit engagement and client If the internal control system at the client is functioning effectively and the audit engagement can depend on these controls, the audit approach for the engagement will be a Control Based Approach Alternatively, if the assessments reveal inadequate internal controls, the auditor will opt to expand the substantive test rather than conducting tests of control
Risk - based approach is also concerned by the auditor, focusing on the high risk of fraud or errors items rather than performing procedures for the all balance on the financial statements
There are a variety of ways to collect audit evidence including analysis, document checking, confirmation letter, inquiry, observation Alternative auditing procedures are also flexibly applied by auditors when sending confirmation letters is not enough to ensure the accuracy and completeness of the AP The combination of audit techniques also let any problems to be seen in more detail, making it easier to come to the conclusion
Quality control is highly appreciated During the implementing stage, the audit senior always keep track on the work done by the audit staff, ensuring the progress of the work of team members There is always coordination and support among members in the audit team The senior will continuously check and ask members to report on the progress of work and give the solutions immediately In addition, EY Vietnam also regularly have assistant from international experts from EY branches around the world such as EY Cambodia, EY Laos
The working papers of the AP is submitted to the senior auditor for review and reevaluation the outstanding issues (if any) When these issues is solved, the workdone is reviewed by the MIC The result of the audit procedures performed for all sections audited is reassessed to ensure there is no financial misstatements in all material respect in the FSs
The analytical procedures are performed throughout the audit engagement It is such an important procedure that it brings the overview of the business operation,
50 illustrating the connection between the account balances and classes of transactions and their related risks of financial misstatements
The OARP is performed for the AP although it is not practically useful The vertical and horizontal analysis is performed to identify any unusual changes, then the overall judgement is established The auditors have not used other information including information of the whole industry or business sector or placed the client’s indicators under the circumstance of other companies in the same industry It is clear that the analysis indicators are not fully taken advantage of
The result of substantive procedures performed later can explain for the changes, the identified unusual changes in the planning stage is not that much meaningful
The audit plan, in general, is mostly performed for the audit engagement according to the instructions of EY GAM instead of detailed to each account balance Only some specific companies which have significant risks in such balance have the detailed audit plan for that account
The audit plan for AP balance is mostly related to the offsetting accounts including the fixed assets, construction in progress or the inventory Therefore, the auditors do not make the detailed audit plan for this account
Analytical procedures at the audit implementing stage only perform analysis of balance over the years and only to evaluate the PBC data before the field work This procedure, therefore, is only used for comparison and not that much useful
Audit procedures to ensure the completeness AP balance
This procedure addresses the risks of understatement of the AP However, it has not been implemented effectively If the accounting period is prolonged to record the adjusting entries, it is difficult for the auditors due to the tight deadline of issuance of the financial statements and even the early issuance of FSs
RECOMMENDATIONS FOR IMPROVING THE AUDIT OF
Recommendations for improving orientation of EY Vietnam
To enhance EY Vietnam's operations and position it for sustainable growth, several key recommendations can be implemented Firstly, prioritizing client-centric approaches by deeply understanding client needs and tailoring solutions accordingly fosters long-term relationships and enhances client satisfaction Secondly, investing in advanced technology and data analytics capabilities streamlines processes, improves efficiency, and provides valuable insights for decision-making Thirdly, nurturing a diverse and inclusive workplace culture promotes innovation, fosters creativity, and attracts top talent Fourthly, maintaining rigorous quality control measures ensures the delivery of high-quality services and upholds the firm's reputation for excellence Lastly, fostering collaboration both internally and externally, coupled with continuous learning and development opportunities, cultivates a dynamic and adaptive organizational culture that thrives in today's rapidly evolving business landscape By prioritizing these recommendations, EY Vietnam can solidify its position as a leader in the market and drive sustained success for years to come
In addition, personnel quality is also one of the very important issues, directly related to the quality and reputation of the company In particular, interns at EY Vietnam can later become official members at the company Therefore, being a high- quality intern is also a very important article in the process of developing long-term company orientation Below are some key strategies companies can choose to enhance the experience and effectiveness of interns as they join the audit team at EY Vietnam:
Structured Onboarding: Implement a comprehensive onboarding program that introduces interns to the company culture, values, and expectations Provides an overview of assessment processes, tools and methods to help interns become familiar with their roles and responsibilities
Mentors and guidance: Pair each intern with an experienced mentor who can provide ongoing support, guidance, and feedback throughout their internship Encourage mentors to share experiences, provide career advice, and support interns in overcoming challenges
Hands-on Experience: Provides interns with the opportunity to work on actual audits under the supervision of experienced professionals Assigning meaningful tasks and projects allows interns to apply their knowledge and skills in a real-world setting, contributing to achieving the audit team's goals
Training and Development: Provide ongoing training and development opportunities to enhance interns' technical skills, industry knowledge, and professional competencies Provide online workshops, seminars and resources to support their learning journey
Rotation Program: Undertake a rotation program that exposes interns to different areas of auditing, such as financial statement audits, internal control testing, and risk assessment This allows interns to gain a broader understanding of the audit process and explore areas of interest
Feedback mechanism: Establish a formal feedback mechanism to solicit intern input on their internship experience Conduct regular check-ins and performance reviews to evaluate intern progress, address any concerns, and provide constructive feedback for improvement
Networking opportunities: Facilitate networking events and opportunities for interns to network with company and industry professionals Encourage interns to attend company-wide meetings, social gatherings, and career development events to expand their professional network
Inclusive Environment: Foster an inclusive and supportive work environment where interns feel valued, respected, and included Promote diversity and encourage open communication, collaboration and teamwork among interns and their colleagues
Recognition and appreciation: Recognize and appreciate interns' contributions to the audit team through formal recognitions, awards or appreciation events Celebrate their achievements and milestones to boost morale and motivation
Career Development Support: Provide guidance and support to interns in exploring potential career paths within the company and industry Provide insights into available career opportunities, assist with resume building, and provide career counseling to help interns plan for their future
By implementing these recommendations, EY Vietnam can enhance the internship experience for interns joining the audit team, preparing them for successful careers in audit and beyond.
Recommendations for improving the audit procedures of account payables to EY
Based on the actual weaknesses raised during the audit procedures of the accounts payables section, below are suggestions that can be improved during the audit of the accounts payable procedures such as:
It is important to perform this procedure more carefully In the planning stage of audits at EY Vietnam, conducting preliminary analytical procedures is crucial for gaining insights into the client's business and identifying potential risks Several recommendations can enhance the effectiveness of these procedures such as:
Firstly, leveraging advanced data analytics tools and techniques can facilitate the analysis of large volumes of financial data more efficiently and accurately This enables auditors to identify trends, patterns, and anomalies that may indicate areas of focus for the audit
Secondly, ensuring the relevance and reliability of data sources used in analytical procedures is essential Auditors should verify the integrity of financial data, including completeness, accuracy, and consistency, to enhance the reliability of analytical results The firm can buying services that the audit team can use the financial analysis report from the external researching parties for the big audit engagement with high risks of material misstatements
Thirdly, conducting industry and peer comparisons allows auditors to benchmark the client's financial performance against industry norms and competitors, providing valuable context for analysis
Fourthly, integrating qualitative factors, such as changes in the regulatory environment, economic conditions, or business strategies, into analytical procedures enhances their relevance and effectiveness
Lastly, documenting the results of preliminary analytical procedures and their impact on the audit plan facilitates communication with stakeholders and informs subsequent audit procedures The senior should set the deadlines clearly for the analytical procedures at the planning stage to each team member
By implementing these recommendations, EY Vietnam can enhance the quality of preliminary analytical procedures, improve risk assessment, and lay a solid foundation for the audit engagement
The audit plan should be under careful review for any changes, additions in compared to the audit program In this stage, several recommendations can ensure the development of robust audit plans that effectively address client needs and regulatory requirements
Firstly, thorough understanding of the client's industry, business model, and risk profile is essential This involves conducting comprehensive risk assessments, including identifying key audit risks and understanding internal control environments
Secondly, clear communication with the client is crucial to align audit objectives, scope, and timelines Engaging in open dialogue with key stakeholders allows for a deeper understanding of client expectations and facilitates the identification of critical areas for focus
Thirdly, leveraging advanced technology and data analytics tools can enhance audit efficiency and effectiveness Incorporating data analytics into the audit process enables auditors to identify trends, anomalies, and potential risks more efficiently
Fourthly, fostering a collaborative approach among audit team members promotes knowledge sharing, enhances team cohesion, and ensures consistency in audit execution
Lastly, ongoing monitoring and communication throughout the audit engagement help adapt the audit plan as needed, address emerging risks, and provide timely updates to stakeholders
By prioritizing these recommendations, EY Vietnam can develop audit plans that are tailored to client needs, deliver high-quality audit services, and provide valuable insights to stakeholders
The audit team should combine the use of horizontal and vertical analysis in respect of the accounts payable turnover ratio, accounts payable days or long outstanding liability
Industry statistics is also a good source for the more accurate analysis and explanation for any significant changes The decision on whether to expand or narrow the analytical procedure should be based on the audit planning stage and the professional judgement of the auditors
For example, the balance of the payables this year increases sharply compared to the previous year, there would be a high risk of the violation of the existence and completeness of the account balance as there might be an overstatement of the liability Otherwise, if there is an unusual decline, there is a high chance that the liability is understated Therefore, the auditors can focus on prioritizing procedures to cover those audit assertions In both cases above, the auditor needs to place the changes in relation to the business performance and the client's orientation The fluctuations should be explained properly with the purchasing activities and purchasing policy in the period
When auditing a client's accounts payable, it's essential to analyze various indicators to assess the accuracy, completeness, and reliability of the financial information Here are some key indicators to consider:
During the audit process, when customers provide too much data and are under limited time pressure of an audit, it is clear that analytical indicators are not being fully utilized In addition, the evaluated analytical indicators are often selected by auditors according to EY Global's available EY GAM program For each industry and the economic conditions of different countries, the indicators suggested under the
EY GAM program cannot complete a complete analytical assessment To select data to analyze from customers, usually Senior 3 will be the one to choose indicators to analyze data and sometimes important data may be overlooked When auditing customer accounts payable, it is essential to analyze various indicators to evaluate the accuracy, completeness, and reliability of financial information Here are some key indicators to consider:
Vendor Concentration: Analyze the concentration of payments to vendors High concentration with a few vendors might indicate a dependency or potential related-party transactions that require further scrutiny
Payment Trends: Examine payment trends over time to identify any unusual fluctuations or patterns Sudden increases or decreases in payments could signal financial distress, irregularities, or changes in business operations
Aging of Payables: Review the aging of accounts payable to assess the timeliness of payments Analyze the proportion of payables overdue beyond their terms, which could indicate liquidity issues or potential disputes with vendors
Duplicate Payments: Conduct tests to identify duplicate payments by comparing payment records against invoices and purchase orders Duplicate payments can result from errors in processing or indicate fraudulent activities
Feasibility of recommendations
The recommendations above provided for audit procedures at EY Vietnam are not only feasible but also align well with the firm's capabilities, resources, and commitment to delivering high-quality audit services EY Vietnam is equipped with advanced technology and data analytics tools, making it entirely feasible to leverage these resources for conducting preliminary analytical procedures
The firm has a track record of investing in cutting-edge technologies and methodologies, enabling auditors to efficiently analyze large volumes of financial data and identify relevant trends, patterns, and anomalies Additionally, EY Vietnam has a robust system of internal controls and quality assurance processes in place to ensure the relevance and reliability of data sources used in analytical procedures Auditors are trained to verify the integrity of financial data, including its completeness, accuracy, and consistency, thereby enhancing the reliability of analytical results
Furthermore, EY Vietnam benefits from a wealth of industry knowledge and expertise, making industry and peer comparisons a practical and valuable component of preliminary analytical procedures The firm's deep understanding of the local business environment and regulatory landscape allows auditors to integrate qualitative factors seamlessly into analytical procedures, providing additional insights and context for the audit
Lastly, documenting the results of preliminary analytical procedures is standard practice at EY Vietnam, supported by robust documentation and communication protocols This ensures that the findings are effectively communicated to stakeholders and inform subsequent audit procedures
Overall, the feasibility of these recommendations is underscored by EY Vietnam's technological capabilities, expertise, and commitment to delivering high- quality audit services that meet the needs and expectations of clients and stakeholders
With the growth of the stock market nowadays, many companies are converting into joint stock companies and preparing to be listed on the stock exchange As a result, the more and more transparency of financial information are on demanding by Vietnamese companies The demand for independent audit services has also increased sharply, letting Ernst & Young Vietnam Ltd innovate, improve the quality of services renderred, expanding the business to provide customers with the best services and serve the great demand of the financial market
The research on the practice of the audit of accounts payable in financial audit at Ernst & Young Vietnam Ltd in combination with the theoretical basis learned at the university have taught me a lot and help my eyes wide open to the auditing activities in the economic market Specifically, in this thesis, I chose the topic: "Audit of accounts payable in financial audit conducted by Ernst & Young Vietnam Ltd."
During my internship at the company, I have learned about the characteristics of the audit activity at Ernst & Young Vietnam and was directly involved in the audit,
I realized the difference between theory and reality However, with the limited time, awareness as well as experience, the number of clients to research is not much, the ideas I give are only general and summary with some shortcomings I hope to receive comments from the instructor and the colleagues at EY Vietnam to make my thesis fully complete
Finally, once again I would like to sincerely thank the dedicated instructor, PhD Nguyen Thi Thanh Mai and the colleagues at EY who have wholeheartedly helped me during the internship period as well as in completing this thesis
1 Alvin A Arens, Randal J Elder, Mark S Beasley, Chris E Hogan, 2017, Auditing and Assurance Services – An Integrated Approach (16th edition)
2 New Staff Guidebook – Human Resources Department, Ernst & Young Vietnam Ltd
3 Working paper template – EY Talent Team
4 Internal Documentations, Ernst & Young Vietnam Ltd
6 Website: https://live.atlas.ey.com/ (EY Atlas for staff use only)
7 The source of general information comes from internet sources
FIGURES Figure 1: Income Statement in EY Vietnam from 2021 to 2023
Revenue from financial statement auditing services of public interest units 192,454,002,196 318,352,837,029 295,844,667,363 Revenue from auditing services of financial statements of other units 554,034,626,267 541,372,591,166 833,673,117,862 Other service revenue 252,433,400,147 260,522,124,752 246,368,375,046
Employee salary and bonus costs 489,506,094,414 529,733,976,881 703,404,170,254 Cost of purchasing professional liability insurance 1,623,704,660 837,977,232 1,051,929,528
State budget 146,424,734,338 151,982,361,078 199,750,093,220 of which corporate income tax 5,296,507,260 4,873,320,204 4,297,886,068
(Source: EY Vietnam's transparency report)
Figure 2.2: Note to FS - OARP for the AP-Advance in ABC JSC
Note to Financia Statement Conducted: EYVN
Short-term payables to suppliers
Short-term payables to suppliers
Figure 2.3: PM – TE Calculation in ABC JSC
Figure 2.4: PM-TE setting for the audit of ABC JSC
(Source: Internal Documents at EY Vietnam)
Currency/Unit: VND PM-TE setting
- The Company has been profitable over the past couple of years Pre-tax income is determined based on the normal recurring income FS users focus mainly on profit
- The users of the financial statements of the Company typically focus on operating performance, particularly pretax income
Conclusion Therefore, we use the Profit Before Tax (PBT) to set PM-TE
Figure 2.5: UTD & WT of purchases and payment cycle at ABC JS
(Source: Internal Documents at EY Vietnam)
Threshold for testing of asset and income account
CRA % of TE Amount % of TE Amount
Threshold for testing of liability and expense account
CRA % of TE Amount % of TE Amount
Figure 2.6: Documentation of Internal control system at ABC JSC
(Source: Internal Documents at EY Vietnam)
Figure 2.7: Leadsheet of AP at ABC JSC
Leadsheet of AP at ABC JSC Conducted by EY
GL Account Acc name FS
3311100000 Payable to Leasing in customers 311 - -
3311110000 Short-term payables to sellers - Production and business contracts 311
3311130000 Payable to CSH Leasing in
3311140000 TKTG deducts operating services - GL 311 - -
3311150000 Short-term payables to the seller of production and business activities - TTC 311
3311160000 Short-term payables to sellers of other production and business activities -
3311200000 Short-term payables to sellers - fixed asset investment activities 311
Short-term payables to sellers - financial activities 311 - -
4,948,899,113,475 (Source: Internal Documents at EY Vietnam)
Figure 2.8: Reconciliation procedure of AP at ABC JSC
Reconciliation procedure of AP at ABC JSC Conducted by EY VN
Account Acc name OB Movement per
Total adjustment EB per GL EB per LS Diff
3311100000 Payable to Leasing in customers
Short-term payables to sellers - Production and business contracts
Payable to CSH Leasing in – By subject
3311140000 TKTG deducts operating services - GL
Short-term payables to the seller of production and business activities - TTC
Short-term payables to sellers of other production and business activities - TTC
Short-term payables to sellers - fixed asset investment activities
Short-term payables to sellers - financial activities
(Source: Internal Documents at EY Vietnam)
Figure 2.9: Break down AP by each supplier
(Source: Internal Documents at EY Vietnam)
Figure 2.10: The evaluation of PM at EY Vietnam
Formatted: Font: (Default) Times New Roman, 13 pt,
Figure 2.11: AP confirmation letter at ABC JSC
To: An Thinh Infrastructure Construction Investment Joint Stock Company Address: No 56, Lane 85, Ha Dinh Street, Thanh Xuan Trung Ward, Thanh Xuan District, Hanoi
Re: Confirmation for Audit Purposes
Ernst & Young Vietnam Co., Ltd is in the process of auditing the financial statements for the fiscal year ending December 31, 2023 of ABC Joint Stock Company (“Company”) and requests to confirm the debt between Your company and our Company on December 31,
A Your company's debt to ABC Joint Stock Company (“Company”):
1 Trade payable due from you: xxx,xxx,xxx VND
If the above data is correct with your Company's books, please confirm by checking the
"Agree" box, sign and stamp the confirmation section below of this letter, then send the original confirmation letter to our Company before February 2, 2024, at recipient address:
Ernst & Young Vietnam Co., Ltd – Hanoi Branch
16 Phan Chu Trinh, Hoan Kiem, Hanoi Tel:
(To avoid losing the confirmation letter, we recommend that you send a scanned copy of your reply letter in advance to our Company's Audit Unit at the email address: [Manager's email] and CC [Seniorr's email] )
If your Company disagree with the above balances, please write down in this letter the data according to your Company's books and the reason for disagreement
The above balances may have been paid after the above date, but we still thank you for confirming the balances at the above date
Please mark “Agree” or “Disagree”)
Appendix 1: Samples of audit program for AP balance conducted by EY
Audit program for Trade account Payables
To ensure the existence, completeness, measurement, obligations and disclosures of the AP
- Agreement of accounting policies with the previous ones and the relevance with the applicable accounting principles
- Reconcile and compare the opening balance with the ending balance of the previous period Reconcile the balance on the listing and the trial balance and the previous year working papers
- Understand the internal control system of the client, determine the applied control points, select 25 samples randomly to test the effectiveness of the internal control system
- Compare and analyze the changes in the AP, the AP turnover rate and the percentage of short-term AP over total AP balance in the current year with the last year Identify those changes in compared with the business context
The substantive tests include PSPs (Primary Substantive Procedures) and OSPs (Optional Substantive Procedures)
Appendix 2: Applied audit process at EY Vietnam
Planning and risk identification Strategy and risk assessment Execution Conclusion and reporting
Understand servicerequirements, determine audit scope and establish the team
Identified SCOTs (Significant classes of transactions), significant disclosure process and related IT applications
Team planning event and discuss of frauds and errors Post interim event
Reassess combine risk assessment Wrap up the engagement
Prepare summary of audit differences
SCOTs and significant disclosure process
(Financial statement close process assessment)
Execute tests of journal entries and perform other mandatory fraud procedure
Determine the need for specialized skills on the team
Understand ITGCs (IT general controls)
Perform substantive procedures Prepare overall review and approval Design and execute Tests of ITGCs
ITGCs Prepare and deliver client communication
Identify risks and material misstatement due to frauds and determine response
Determine PM-TE and SAD nominal amount
Design tests of journal entries and other mandatory fraud procedures
Complete documentation and archive engagement
Identify significant accounts and disclosures and relevant assertions
Code Notes 31-Dec-23 31-Dec-22 Variance % Variance
Downpayment from customer for purchases of residential properties
Accrued bond and loan interest
320 10 Short-term loans and borrowings 26 5,530,000,000,000
332 2 Long-term advance from custormers -
Appendix 3: PSPs guidance for AP at EY
Primary substantive procedure (underlined text) and executable procedures (plain text)
Agreement of subledger with general ledger – trade payables
BS: E, C Agree the trade payables subledger to the general ledger control account Investigate any unusual items and test other reconciling items based on the established testing thresholds
Disbursements are recorded in the wrong period
Totals in the cash disbursements register are not correctly posted to the general ledger
Totals in the voucher register are not correctly posted to the general ledger
BS: E, C Obtain from the entity the trade payables subledger and a reconciliation of the subledger to
For guidance on IPE refer to IPE
{Obtain reconciliatio n} [GDS] the general ledger as of the period end date Agree the subledger balance used in the reconciliation to the subledger and the general ledger balance to our lead sheet Evaluate whether the subledger (IPE) is sufficiently reliable for our purpose
Obtain or prepare a lead sheet that lists the trade payables balances Agree each amount to the general ledger Compare the balances as of period end with that at the prior period end