THE STATE BANK OF VIETNAM BANKING ACADEMYADVANCED PROGRAM ---***--- GRADUATION THESIS TOPIC IMPROVING THE AUDIT PROCEDURE OF DEPOSITS IN THE AUDIT OF FINANCIAL STATEMENTS PERFORMED B
The necessity of the topic
An external audit has become an intensive activity, a specialized science in the operation process of an economy While internal auditors will examine issues related to company business practices and risks, external auditors will examine the financial records and give an opinion regarding the company's financial statements Moreover, there are no concerns over repercussions for the external auditor if the organization is unhappy with its report This absence of bias is essential for reinforcing the credibility of a company's financial statements and financial health
The credibility that an external audit covers is particularly important to small entities, start-up companies, and companies that are not transparent and are working to improve their reputation and restore confidence in their customers, shareholders, and the public In particular, deposits affect the profitability of a company and its potential value, as presented in its financial statements If a business misrepresents, it will significantly impact its balance sheet, income statement, and cash flow statement
An external audit provides transparent and reliable sources for users to make important decisions in investing, cooperating, and lending; not bound by any rules, the independent auditor is flexible with each enterprise and protected by the state through standards such as the Vietnamese Accounting Standards, which provide and explain business information
Deposit sections are essential among the items on the financial statements of credit institutions In addition, this item has many potential risks It is often easily used as a fraud tool for businesses because deposits mainly generate revenue and expenses for credit institutions
In an audit, the section on deposits is mainly performed by interns Therefore, during my internship at Ernst & Young Auditing Company Limited, I had the opportunity to approach and conduct audits of deposit items From there, carefully study the auditing activities of this item That's why I chose "Improving The Audit Procedure Of Deposits
In The Audit Of Financial Statements Performed By Ernst & Young Auditing Co., Ltd"
Literature review
Deposited audit procedures play a crucial role in the overall audit of the financial statements; therefore, they must be examined thoroughly However, when approaching the topic, most research focuses on the whole content of these items audit, improving their management or measures to enhance the internal control
The study “Audit of Deposit Accounts” by Richard Tardif (2016) gave opportunities for improvements in the audit procedure of deposits
At Banking Academy, “Completing the audit process of cash and cash equivalents is quite a popular topic, but there have been almost no reports on "The audit process of deposits" reported by other students
Therefore, this research focusing on improving audit procedures for deposits is needed The author wants to evaluate the audit process at EY based on a comparison between audit methods and theoretical frameworks to make some recommendations to improve the audit of deposits in the FS audit at EY.
Study objectives
The thesis focuses on researching the current audit procedures of deposits in an audit of FSs at Ernst & Young Vietnam The thesis comprised of some specific objects:
Firstly, the thesis explores the theoretical backgrounds of audit procedures for deposits in FS audits
Secondly, the situation of deposits, auditing performed by EY, and analyses of the current audit procedures for these items at Ernst & Young Vietnam Limited
Based on the analyzed results, the thesis suggests and provides several recommendations for improvements in the audit procedures of Deposits in the FSs audit at Ernst & Young Vietnam Limited.
Subject and scope of the study
Study’s subject: The thesis studies the general theoretical basis and practice of the Deposits audit process in the FSs audit by EY Viet Nam Company Limited From
Nguyễn Hải Ly 2024 there, analyze and make recommendations to contribute to completing the audit process of Deposits
Scope of the study: The audit process of deposits in FSs was performed by EY Viet Nam - Hanoi Branch.
Research question
The research aims to answer the questions:
1 What is the general theoretical basis for the Deposits section in the FSs audit process?
2 What is the current status of the audit process for Deposits in the audit of FSs at
EY Viet Nam Co., Ltd., Hanoi branch?
3 In the process of auditing financial statements in general and auditing deposits and in particular, what problems still exist at EY Viet Nam Co., Ltd.?
4 Solutions and recommendations for remaining problems?
Research methodology
The thesis employs the following research methods:
Data collection method : The thesis collects secondary data, including data in the curriculum, other research, magazines, and another working document at Ernst & Young Vietnam Limited; primary data is collected through observation, interviews, and practical situations
Data processing and analysing : The thesis uses summarisation, reasoning, and comparison methods regarding audit procedures of Deposits of an audit of FSs.
Structure of the thesis
Excluding the introduction, conclusion, and references, the thesis includes three chapters:
CHAPTER I: THEORETICAL BACKGROUNDS ON THE AUDIT
PROCEDURES OF DEPOSITS IN AN AUDIT OF FINANCIAL STATEMENTS
CHAPTER II: PRACTICE OF AUDIT PROCEDURES OF DEPOSITS ITEMS
IN FINANCIAL STATEMENTS AUDIT AT ERNST & YOUNG VIETNAM LIMITED
CHAPTER III: RECOMMENDATIONS FOR IMPROVEMENTS OF AUDIT
PROCEDURES OF DEPOSITS IN AN AUDIT OF FINANCIAL STATEMENTS AT ERNST & YOUNG VIETNAM CO., LTD
Theoretical backgrounds on the audit procedures of deposits in an audit of Financial Statements
Practice of audit procedures of deposits items in Financial Statements audit at Ernst
& Young Viet Nam Limited Company
Recommendations for improvements of audit procedures of deposits in an audit of Financial Statements at Ernst & Young Viet Nam co., ltd
THEORETICAL BACKGROUNDS ON THE AUDIT
Overview and Accountings for Deposit
1.1.1 Definitions, characteristics, and impacts of deposit on financial statements
According to the Law on Credit Institutions No 47/2010/QH12 dated June 16, 2010, credit institution means “an enterprise conducting one, some, or all King operations”
In particular, banking activities are defined as "regular business and provision one or some services" belonging to two main activities: deposit taking and credit extension (Law on Credit Institutions 47/2010 /QH12) Deposit-taking means “receiving money from an organization or individual as a demand or term deposit, savings deposit, issuing deposit certificates, bills or treasury bills, and other forms of receiving deposits on the principles of full payment of principals and interests to depositors under the agreement” Credit extension means “an agreement allowing an organization or individual to use a sum of money or a commitment allowing the use of a sum of money on the repayment principle by such professional operations as lending, discount, financial leasing, factoring, bank guarantee, and other credit extension operations”
Cash is a part of short-term assets that exist in the form of currency, the type of asset with the highest liquidity, and an important indicator of the solvency of a business It can be seen that Deposits are important items on the FSs of CIs in general and of CIs in particular
Specifically, for XYZ Finance Company Limited, Deposits are items on the FSs that reflect the deposit or deposit-receiving activities of XYZ Finance Company Limited with respect to other credit institutions in the interbank market That means this item includes two-way transactions: XYZ deposits at other CIs and deposits from other CIs and customers at XYZ Accordingly, credit institutions “include banks, non-bank credit institutions, microfinance institutions, and people's credit funds” (Law on Credit Institutions No 47/2010/QH12)
Deposits affect a group of key indicators on the financial statements Specifically, on the FSs, this item affects indicators on the Asset and indicators on the Liabilities:
+ Balance at the State Bank of Vietnam (“SBV”)
+ Placement with other credit institutions (“CIs”)
Figure 1.1: Indicators related to the Deposit item on the Financial Statement
Source: Financial statements of XYZ Finance Company in 2023
So, the Deposits section is understood to include 2 contents:
Firstly, Deposits at other CIs This is the deposit that XYZ deposits at other CIs (SBV or other banks, other financial companies, etc.)
Secondly, deposits from other CIs and customers These are deposits that XYZ receives from other CIs (SBV or other banks, other financial companies, ) or XYZ’s customers
Conclusion on the characteristics of this item that generally affect the FSs audit process: because this item reflects the main activities of CIs, therefore, the audit of the item Deposits is extremely necessary Additionally, this is one of the items that affect key indicators on the FSs, so auditors need to carefully carry out procedures to come up with accurate and appropriate audit conclusions
1.1.2.1 The accounting document system used:
The batch of accounting documents related to Deposits depends on each usage need Because transactions between CIs in the interbank market are often through electronic channels, internet banking Therefore, documents verifying successful money transfers are basic and important for this item Specifically, each type of transaction with other credit institutions requires different documents
Transaction deposit/ demand deposit transactions: Application with a contract for opening and using accounts and registering for services, Application for opening additional accounts, Swift electronic form (applicable to customers which are foreign financial institutions), Notice of blockade/release of account, Request for settlement and account closure, Bank statements (confirming balance at the end of the period),
Term deposit transactions: Term deposit contract/Appendix, Request for early payment of term deposit, Confirmation of term deposit balance information, Money transfer, List of order matching transactions, Accounting slips,
According to the "Accounting account system for credit institutions" issued together with Decision No 479/2004/QD-NHNN dated April 29, 2004, accounting accounts related to Deposits include accounts detailed below
The accounts representing deposits of XYZ at other CIs and of other CIs and customers at XYZ have different natures Therefore, these accounts' structure and reflection nature are also different from the assets and liabilities accounts on the financial statements
Diagram 1.1 General diagram of the Deposit account system
Details of accounting accounts related to Deposits:
- Accounts showing balances of XYZ's deposits at other credit institutions:
Debit: Amount deposited at other credit institutions in VND/foreign currency
Credit: Amount taken out in VND/foreign currency
Debit Balance: Reflects the amount of money deposited at other credit institutions in VND/foreign currency
- The accounts represent the balance of deposits from other CIs and customers at XYZ + 41 - Deposits from other CIs
Credit: Amount deposited by other credit institutions in VND/foreign currency Debit: Amount taken out by other credit institutions in VND/foreign currency
Credit balance: Reflects the amount of money other credit institutions are depositing in VND/foreign currency
Accounts of Deposits to other CIs
Accounts of Deposits from other CIs and customers
Diagram 1.2 Detailed diagram about account system of deposit at other CIs
A ccounts of D eposi ts to other C Is
Diagram 1.3 Detailed diagram of the Deposit account system of other CIs
Detail of Account 11 – Deposits at the SBV
Account 111, 112 – Deposits at the SBV in VND/foreign currency
This account reflects the amount of VND/ foreign currency deposited by a CIs at the State Bank
- Accounting for this account must comply with the following regulations:
+ The basis for accounting into this account is credit notes, debit notes, or statements of the SBV accompanied by original documents (payment order, collection mandate, cheque )
Dep os it s fr om ot he rs
Escrow deposit in foreign currency
4111, 4121, 4131, 4141: Demand deposits of other CIs
+ When receiving documents sent from the SBV, the accountant must check and compare them with the attached original documents If there is a difference between the data on accounting books, the data in the original documents, and the data on the SBV's documents, the State Bank must be notified for comparison and verification And handled promptly If the cause of the difference still needs to be clarified by the end of the month, the accountant will record it according to the data in the notice or statement of the State Bank The difference is recorded in the Debit of account 359 - Other receivables (if the accountant's data is greater than the SBV's data) or recorded in the Credit of account 4599 - Other pending payments ( if the accountant's data is smaller than the SBV's data) Next month, continue to check and compare to find the cause of the difference to adjust the recorded data
- Accounts 111 and 112 have the following level III accounts:
+ 1111, 1121 - Blockade deposits: reflects the number of blockade deposits in VND /foreign currency of credit institutions or other organizations (if permitted) deposited at the SBV during the period of inactivity
+ 1113, 1123 - Current deposits: reflect the amount of VND /foreign currency credit institutions have on-demand deposits at the State Bank
+ 1116, 1126 - Guarantee deposit: reflects the amount of guarantee deposit in VND /foreign currency deposited by the guarantee CIs at the State Bank
Detaile of Account 13 – Deposits at other credit institutions
Account 131, 132 – Deposits at other domestic CIs in VND/foreign currency
Accounting for this account must comply with the following regulations:
1- The basis for accounting into this account is credit notes, debit notes or statements of other credit institutions accompanied by original documents (payment order, collection mandate, cheque )
2- When receiving documents sent from another CIs, the accountant must check and compare them with the attached original documents In case there is a difference between the data on accounting books, the data in the original
Nguyễn Hải Ly 2024 documents, and the data on the documents of another CIs, the other CIs must be notified for comparison, verification, and timely handling If by the end of the month, the cause of the difference is still unclear, the accountant will record it according to the data in the notice or statement of another CIs The difference is recorded in the Debit of account 359 - Other accounts receivable (if the accountant's data is greater than the data of other CIs) or recorded in the Credit of account 4599 - Other pending payments (if the amount is The accountant's data is smaller than the data of other CIs) Next month, continue to check and compare to find the cause of the difference to adjust the recorded data
Accounts 131 and 132 have the following level III accounts:
+ 1311, 1321: reflects the CIs’ demand deposits in VND /foreign currency at other CIs
+ 1312, 1322: reflects the CIs’ term deposits in VND /foreign currency at other CIs Account 133 has the following level III accounts:
+ 1331: reflects the demand deposit amount of a CI in foreign currency at another foreign CIs
+ 1332: reflects the demand deposit amount of a credit institution in foreign currency at another foreign CIs
+ 1333: reflects the specialized deposit amount of a credit institution in foreign currency at another foreign CIs
Detail of Account 41 – Debts to other CIs
Accounts 411, 412 – Deposits of domestic CIs in VND /foreign currencies: reflect the amount of Vietnam dong/foreign currencies deposited at credit institutions by other domestic CIs
Accounts 411, 412 have the following level III accounts:
+ 4111, 4121: demand deposits of domestic CIs in VND
+ 4112, 4122: term deposits of domestic CIs in foreign currency
Account 413, 414 - Deposits of foreign CIs in VND /foreign currency: reflects the amount of VND /foreign currency deposited by foreign CIs at CIs
Accounts 413 and 414 have the following level III accounts:
+ 4131, 4141: demand deposits of foreign CIs in VND /foreign currency
+ 4132, 4142: term deposits of foreign CIs in VND /foreign currency
Detail of Account 42 – Deposits of customers
- Account 421 and 422 – Deposits from domestic customers in VND/ foreign currency: reflects the amount of VND/ foreign currency that customers deposit money at CIs
Account 421 and 422 has the following level III accounts:
Account 423 and 424 – Saved money in VND: This account reflects customers' saved deposits at CIs in VND/ foreign currency or gold
Account 423 and 424 has the following level III accounts:
Account 425 and 426 – Deposits from foreign customers in VND: This account reflects foreign customer' deposits at CIs in VND/ foreign currency
Account 425 and 426 has the following level III accounts:
Account 427 and 428 – Escrow deposit in VND/ foreign currency
Account 427 and 428 has the following level III accounts:
+ 4271, 4281 - Escrow deposit to secure payment of cheque
+ 4273, 4283 – Escrow deposit to secure card payment
+ 4277, 4287 - Escrow deposit to ensure financial lease
+ 4279, 4289 – Escrow deposit to secure other payment
1.1.2.3 About the bookkeeping system and usage reports
For accounting of deposits, customer XYZ uses a system of detailed account books (detailed statements) and general ledgers (including account ledgers)
The items Deposits are shown on the FSs, specifically the target "Balance with the State Bank of Vietnam", "Placements with other credit institutions" on the Assets, and
"Due to banks", "Deposits of customers" in Liabilities and notes No 5, 6, 11, 12 in the Notes to the FSs
Some principles when accounting for deposits
When accounting for this item, accountants are required to pay attention to basic accounting requirements and principles in recording transactions to ensure that FS are presented true and fair Some accounting principles to pay special attention to are:
• Accrual principle: Accounting and financial operations related to assets and liabilities, such as deposits, need to be recorded at the time they arise Especially with transactions in foreign currency, the recorded exchange rate is the exchange rate at the time the transaction occurred
• Historical cost: The value of deposit transactions is determined by the amount of money or value equivalent to the disbursed amount
• Prudence principle: Accountants need to consider carefully to make accounting estimates under conditions of uncertainty For example, for provisioning, a provision cannot be made greater than the value of deposits to other CIs
• Principle of materiality: Information is considered material in cases where the lack of information or inaccuracy of that information can significantly distort the FS, affecting the economic decisions of investors when using financial reports Materiality depends on the magnitude and nature of the information or errors assessed in the specific circumstances The materiality of information must be considered in both quantitative and qualitative aspects
Conclusion on the characteristics of the accounting organisation for Deposits that affect the audit process of FSs: Auditors need to check the accuracy and completeness of accounting as well as document storage relating to Accordingly, the auditor needs to ensure that the arising transactions are recorded in the correct accounting accounts, the accompanying documents need to be complete and accurately reflect the arising transactions and the operations are recorded in the accounting books in correct order,
1.1.3 Common errors and risks related to Deposits
Existence Intentionally accounting for deposits that do not arise by falsifying documents such as deposit contracts, and money transfers
Accidentally mistakenly accounting for deposits, that did not actually arise at the enterprise
Completeness Intentionally, we need to fully account for deposits, especially deposits from other credit institutions that have arisen during
Accidentally not accounting for deposits arising at the enterprise
Nguyễn Hải Ly 2024 the enterprise's period (For example, not accounting for deposit from other CIs to reduce liabilities during the period)
Audit procedures of Deposits in a financial statement audit
1.2.1 Objectives, basis for an audit of Deposits in a financial statement audit
According to Vietnam Auditing Standards No 200, "The overall objective of auditors and audit enterprises upon conducting audit according to the Vietnam audit standards." (issued together with Circular No 214/2012/TT-BTC December 6, 2002 of the Ministry of Finance): “The goal of auditing financial statements is to help auditors and auditing companies give their opinions to confirm whether the financial statements are prepared on the basis of current Accounting Standards and Regimes (or accepted), does it comply with relevant laws and reflect true and fair in all material
Nguyễn Hải Ly 2024 respects The goal of auditing financial statements is also to help the audited unit clearly see the shortcomings and errors to overcome in order to improve the quality of the unit's financial information."
The general audit objective is to identify and evaluate whether the total amounts recognised in the items are presented true and fair in the FSs with all information obtained through actual work with customers
From the general audit objective, the auditor will specifically list audit objectives to suit each item and the nature of the audit
Audit objectives for deposits are determined based on specific audit objectives and general objectives according to the nature of the items monitored in the enterprise's accounting and internal control system
General audit object Specific audit object
Existence XYZ or other credit institutions must own deposits on the FSs based on appropriate, valid documents
Cut off Transactions related to deposits that arise are accounted for in the correct accounting period
Accuracy Deposits must be reflected at their actual value, especially noting that foreign currency transactions need to be recorded at the exchange rate at the time the transaction occurs
Deposits must be accounted for in the correct account and presented appropriately according to current accounting practices
Completeness Deposits are fully recorded in accounting books and financial reports
Right and obligation Deposits are accounted for in the books must be incurred at the enterprise
At the audit planning step, according to VSA 300 "Audit planning", an audit plan must be prepared for every audit The audit plan must be appropriately prepared to ensure coverage of all material aspects of the audit, detect fraud, risks, and potential problems, and ensure the audit is completed on time The audit plan helps auditors assign work to audit assistants and coordinate with auditors and other experts on audit work For the audit of Deposits, the audit plan includes the overall plan and audit program Overview of audit planning work steps includes:
Preparing the audit plan is the first step in the audit process In this step, the auditor collects information about customers to consider their needs, the purpose of using audit services, the business results In addition, the audit company needs to check the independence of audit team members, the integrity of the BoD and the client's management At this time, the audit company also needs to consider the scale of the audit to see whether it meets the client's needs or not After thoroughly researching and reviewing the customer, if all conditions are satisfied, the auditing company will negotiate and sign a contract with the customer Before signing the contract, the auditing company discussed the main terms with the client, including audit scope, audit time, audit fee
- Understanding the business and its environment relating to deposits
+ Obtain understanding about the client’s objectives and strategies and review of deposit
+ Understanding policies and regulations related to deposit such as how to record, control and provision, etc
+ Obtain data of the client’s industry and other businesses operating in the same industry
+ Accounting documentation related to deposit
+ Accounting policies related to deposit and provision
The auditor performs preliminary analysis procedures to gain an overview of the amount of deposit of the client and detect any unusual fluctuations compared to the previous year
- Internal control assessment and risk identification
The auditor uses the questionnaire on internal control for deposits and enquires with client Based on the answer of the client, the auditor assesses internal control for deposits, then determines inherent risk and control risk
- Determine the materiality for deposits
+ Determine the benchmark and range of benchmark
+ Based on the risks of material misstatements, determine materiality for group account individual’s balances under two groups: assets income accounts and liabilities expenses accounts As deposit are both the asset items and liabilities items, so the materiality applied for this account is for the assets and liabilities account
Based on the framework of audit programs, the program for is designed by the manager and senior in charged which will be review and approved by engagement partner
Obtain documents from client such as GL and sub-ledgers: Listing 131, 421, … Customer' statement reconciliations Obtain the FSs prepare by client and supporting working for it
The auditor prepares the lead sheet to present all procedures will be performed for deposit section, including compare changes between the current and previous year, the result of overall analytical review procedures, adjustment entries and note to FS
The auditor considers whether accounting policies applied for deposits in accordance with an applicable financial reporting framework, and the applied accounting policies are consistent to last year
The auditor will perform test of control to verify whether auditors can rely on the internal control of the entity or not Besides the questionnaire, the auditor continues to perform a walkthrough of the overall management of deposits The walkthrough paper present control points and describe the critical path for the significant class of transactions (SCOTS)
In the planning stage, the auditor has performed preliminary analysis procedures for deposits to observe the changes This procedure will be continued and performed in more detail about each line of production in the entity and explain for each shift
Obtain GL and Listing from clients then reconcile GL with the movement during the year, reconcile the amount of each account which express in the lead sheet with the Listing of each account
- Checking documents of contracts during the period
The auditor will process the GL provide by the entity and using tools to select samples based on threshold Then the auditor follows the process of receiving supporting documents and check where it matches with the amount in GL
The auditor chooses samples based on threshold and sends confirmations Then, the auditor follows the process of receiving confirmations and updates them to the confirmation control sheet
The auditor chooses transactions more than threshold before and after some certain days to test cut-off and explain the basis of cut-off test time
- Total review and presentations and disclosures
After performing and reviewing all procedures conducted for deposit, the auditor presents notes of deposit to FS
The auditor summarizes audit results, reviews events after reporting date and gives audit opinion about the client's deposit items
Chapter 1 of the study gave a general overview of the Deposit item from concept, accounting, and characteristics of this item that affect the audit of FSs and internal control for this item It also summarizes the audit objectives, audit bases and common errors in auditing Deposit items, and outlines the general process of a financial statement audit From there, we go deeper into the audit process of the Deposit item in the audit of the Financial Statements With the basic theories mentioned in chapter
1, it will help us have a basis for further research about current situation of the audit process of the Deposit item in the audit of the FSs conducted by the Hanoi Branch of
EY Co., Ltd in chapter 2 and provide some solutions to complete the Deposit account audit process in chapter 3
THE PRACTICE OF AUDIT PROCEDURES OF DEPOSITS
Overview of Ernst & Young
Ernst & Young (EY) is a multinational professional services firm headquartered in London, United Kingdom EY is ranked as one of the top four audit firms in the world
EY operates under a network model of member firms, in which each member firm is a separate legal entity in each country Currently, EY has about 270,000 employees in more than 700 offices in 150 countries around the world, providing assurance, tax and consulting services
EY Vietnam has its headquarters at Bitexco Financial Tower, 28th Floor 2 Hai Trieu Street, District 1, Ho Chi Minh City and one branch at 16 P Phan Chu Trinh, Phan Chu Trinh, Hoan Kiem, Hanoi City, under the leadership of Mr Tran Dinh Cuong, Chairman of the Board of Members
2.1.1 The process of formation and development of EY
EY is the result of a series of mergers of predecessor organisations, the oldest of which was founded in 1849 in England, called Harding & Pullein That same year, Frederick Whinney joined the company and became a senior employee in 1859 The company was later renamed Whinney Smith & Whinney in 1894 In 1903, Ernst & Ernst was established in Cleveland by Alwin C Ernst and Theodore and in 1906, Arthur Young & Co was founded by Arthur Young in Chicago In 1979, Ernst & Ernst and Whinney Smith & Whinney formed Ernst & Whinney, the fourth largest accounting firm in the world at that time That same year, Arthur Young's European offices merged with many large European companies, which then became member companies of Arthur Young International In 1989, the 4th largest company, Ernst & Whinney, merged with the 5th largest company, Arthur Young, creating the strong Ernst & Young it is today Also, this year, EY opened its first representative office in
Vietnam But on November 3, 1992, Ernst & Young Vietnam Company was officially established under investment license No 448/GP issued by the Ministry of Planning and Investment, becoming an organisation providing consulting services and being the first 100% foreign investment audit in Vietnam In 2013, Ernst & Young Company changed its trade name to EY, and the company's logo was also changed from black and white to grey-yellow, creating a unique feature
2.1.2 The main business lines, clients and business results in three recent years
The services provided by EY are very diverse and highly competitive, such as Auditing services (Assurance), Tax services (Tax), Financial and risk consulting services (Advisory), Transfer pricing and transaction consulting services (SaT), Other special services such as separate services for Japanese businesses, family businesses, (Specialty Services)
EY Vietnam has created a great reputation and success in the market based on providing professional, high-quality auditing services with the working style of a team of highly qualified, serious, and objective personnel, always maintaining an attitude of professional scepticism and maximum compliance with professional, ethical standards issued by the Ministry of Finance
In addition, Ernst & Young Vietnam Co., Ltd is a member of the Asia-Pacific region, Southeast Asia sub-region (ASEAN) of EY Global Within EY Global, the ASEAN Sub-Region Governing Body is the ultimate decision-making body, responsible for the implementation of governance strategies, including quality control and risk management, market development, ensuring growth goals and high-quality human resources for local companies
EY creates prestige and success in the market by providing professional and high-quality audit services with an independent, objective way of working, maintaining professional scepticism and maximum compliance with professional ethics standards issued by the Ministry of Finance In addition, EY has comprehensively designed and implemented global audit quality control policies and practices These policies and practices will meet all the requirements of the ISQC1
International Standards and Quality Control, published by the International Auditing and Assurance Standards Board (IAASB), as well as the Control Standards Vietnam Quality - VSQC1 to meet specific business needs
Every year, EY's Global Audit Quality Review (AQR) Program is implemented and evaluated to see if the company's audit quality control system is operating effectively and appropriately with the economic situation in the host country These results are analysed and evaluated internally to create the basis for continuous improvement of audit quality, which is in line with the highest professional standards
Table 2.1: EY Vietnam's revenue in the last 3 years
Revenue of EY Viet Nam in the last 3 years
Revenue from auditing the FSs of public interest entitiesRevenue from auditing the FSs of other entitiesRevenue from other services
Diagram 2.1: Organizational structure of Ernst & Young Vietnam Co., Ltd
The organisational structure of EY is divided into 4 main parts: General Director, Partner, Administration Department, and Operation Department In details:
- General Director: The present General Director in Vietnam is Mr Tran Dinh Cuong, currently working at EY Ho Chi Minh He directly manages and takes responsibility for all activities of EY Ho Chi Minh and indirectly manages the activities of EY Hanoi through Partners He is also in charge of developing the plans and strategies of EY in Vietnam
- Partners: There are 27 Partners in Vietnam who are responsible for three main tasks Firstly, they implement plans and strategies and guide and supervise the implementation of the employees Secondly, they are responsible for seeking new
Nguyễn Hải Ly 2024 contracts Finally, they directly assess the risk and results of each job, final review, and sign on reports and management letters
Accounting Department: Record transactions and report financial information to partners
IT Department: responsible for building and managing the intranet system for the company, ensuring customers’ information security, and providing and repairing working devices such as laptops and printers
Administration - office: in charge of administrative activities such as document storage, organising conferences and events, providing stationery, arranging meeting rooms, allocating work schedules, etc
Human resources department: preparing for recruitment, designing programs for training sessions, being responsible for policies related to employees, and organising seminars and student contests
This is a core department of EY because it earns revenue for the company through its services Basically, the ranks of these four services from low to high are Interns - Assistant - Senior - Manager - Partners The senior is a leader for each job, leading the assistants and interns in the audit The manager supervises the process and results of each job through a senior who also signs on the report
Depending on the size and complexity of each audit, the number of members in an audit group is different from each other However, the audit team of each audit is arranged as follows (This is also the career advancement path for company employees in the assurance department):
Diagram 2.2: Audit team structure of Ernst and Young Vietnam Co., Ltd
- Staff: They are audit assistants performing tasks assigned by higher-level auditors Currently, to encourage employees, audit assistants only have two levels: level 1 audit assistant and level 2 audit assistant (previously, there were also level 3 audit assistants)
- Seniors: These are employees who have worked for at least 2 years at the Company and are responsible for instructing audit assistants to complete their work along with checking and reviewing the work results of subordinate employees When the final results are available, the Senior must report back to the higher-level audit manager (Manager/Senior Manager)
The practice of audit procedures of Deposit in a Financial Statement
2.2.1 The practice of audit procedures of Deposit in a Financial Statement audit at Ernst & Young Viet Nam
The audit process at Ernst & Young Vietnam Co., Ltd includes similar stages according to VACPA's sample audit program and is divided into 3 main stages:
According to Auditing Standard No 300: “Audit planning includes developing: (1) Overall audit strategy and (2) Audit plan for the audit.” However, to have a clearer view of the audit process of Deposits performed by EY Vietnam, the audit planning stage will include assessing the ability to accept customers, preparing a general audit plan and developing an audit plan
Client acceptability is given to make a general assessment of the client and is the basis for determining whether the audit firm accepts the client Auditors need to evaluate the following factors fully:
Information presented on customers' financial statements affects the decision-making of stakeholders and users of FSs Therefore, financial statements need to be reflected true and fair Therefore, the auditing company must ensure independence for customers to give opinions on the most objective and honest financial statements
The results of the audit, as well as the audit conclusions that the auditor makes, have a great impact on the economy Therefore, auditors must be responsible before the
Nguyễn Hải Ly 2024 law for the opinions they give Therefore, EY Vietnam always carefully considers the customer's ability to respond
Integrity of the Management Board
The integrity of the Board of Management is the foundation that creates the elements in the internal control system and is a priority risk factor in assessing fraud on FSs Auditors can only rely on an explanation of the Board of Management or accounting books to form an audit opinion if the Board of Management of a credit institution is believed to have acted with integrity
For customers using first-year audit services, collecting basic information is considered important Therefore, some sources from which auditors can collect information are the media or related parties such as legal consultants, banks or parties with financial relationships In addition, for new customers whom another auditing company has audited, the auditor can completely contact the previous auditor to get a brief overview of the company's customers and learn about the company's customers Information that needs attention or reasons why clients change audit firms
Find out the reasons for using audit services
The purpose of using audited financial statements greatly impacts the scale and level of audit evidence collection, as well as being the basis for auditors to plan personnel, time and time to develop audit methods
Select a team of auditors and audit assistants
Based on the above factors, the team leader and audit manager will build the audit team Normally, an audit team will consist of 4 - 6 people, including an Auditor who is the team leader responsible for the audit and assistants or interns who are responsible for supporting the team leader
After completing the steps above, which will lead to the decision to perform an audit to ensure benefits, both parties will establish an audit contract to clarify work and obligations before conducting the audit
Audit planning is one of the most important tasks that determines the direction of the audit This helps the audit to be conducted effectively, saves time and costs for the audit, and helps to collect complete and quality audit evidence
- Understand customers and the business environment
- Evaluate materiality and audit risk
Step 1: Learn about customers and the business environment
Deposits items depend on the characteristics of each company, even the characteristics of credit institutions that are partners of the customer Therefore, auditors need to have knowledge and learn carefully about each customer's characteristics and fields of operation In addition, auditors also need to know about the current regulations of the Ministry of Finance related to Deposits as well as policies and guiding legal documents that have been issued and updated
In addition, auditors need to have an understanding of factors affecting the internal environment of a credit institution that directly affect the audit:
- Refer to the working papers of the audit of the Deposits section of the previous year's credit institution or directly contact the previous auditor to understand the core issues
- Consult information from relevant parties such as customers, main partner credit institutions or the Customer's own employees to understand personnel policies or transactions during the period (valid long-term deposits, deposits with major partners, large-value foreign currency transactions with foreign partners, )
Step 2: Understand about accounting information systems
According to EY Global, auditors need to find out the following information related to Deposits:
- Accounting process and document circulation of Deposit management
- Estimates or accounting policies, accounting bookkeeping forms, and customer accounts are being used for deposits
- Internal regulations of credit institutions in accounting for deposits, such as Regulations on opening, using and managing payment accounts, regulations on monetary business (deposit/receiving deposits, etc.), Regulations on debt classification, setting up and use of provisions to handle credit risks, etc Step 3: Understand internal control related to Deposits
Having an initial look at the client's internal control system will help the auditor answer the question of whether the design of the internal control system is capable of preventing possible errors In addition, the auditor needs to describe the internal control process for Interbank Transactions in general and Deposits in particular in working papers
The information that the auditor has related to this process must be proven by audit evidence provided by the customer, such as regulations that the customer implements and accounting for XYZ.Co's deposits at other CIs, and deposits of other CIs and customer at XYZ
Step 4: Perform preliminary analytical procedures
Vietnam Auditing Standards No 520 “Analytical Procedures”, audit experts must conduct analytical procedures when planning and checking the reasonableness of the entire FSs"
At EY, this analysis is approached in two ways:
Trend analysis (horizontal analysis technique): Compare the ending balance of each monthly account with the previous year in the same period of time and from there make comments and find out major differences (if any)
Ratio analysis (Vertical analysis technique): This is a technique for analyzing the correlation between different indicators on the financial statements For the Deposits,
EY Vietnam often uses a number of financial ratios such as:
Interest income from customer deposit on deposit balance
Comments on the audit practice of Deposits in the audit process of
Financial Statements performed by EY Viet Nam
About learning about customers and the business environment
In the process of learning about the client's environment, thanks to the careful and scientific collection and storage of audit records, the auditor is able to learn about the audited information and data of the client in previous years From there, auditors can easily use optimal audit procedures for items during the year
About learning the internal control process
EY Vietnam has developed a questionnaire to evaluate the internal control system quite completely and rigorously to evaluate the effectiveness of the internal control system at customer XYZ for Deposits items The questionnaire mainly focuses on assessing the level of application of accounting regimes From there, it helps the auditor to make comprehensive assessments of the Company's control environment related to this item This is an important and highly effective step to help auditors reduce the workload and scope of performing subtantive procedure at the audit stage
On performing preliminary analysis and determining materiality
At the planning stage, EY performs a preliminary analysis of accounts 13xx, 42xx, 41xx These are accounting accounts related to Deposits for preliminary analysis to help with a preliminary assessment of fluctuations, an overview of the customer's business situation and direction for detailed testing procedures
During this stage, EY company designs a model to estimate the materiality of the overall financial situation Based on the general fluctuating characteristics of the economy, the industry market in general as well as changes in the policies of customer XYZ in particular, this model is estimated quite accurately Accordingly, different levels of materiality help auditors determine which items are more important and need to focus resources on, helping auditors save time and cost during the period of audit planning stage
About designing the audit program
EY has built an audit program for accounts 13xx, 40xx, 41xx of EY Global The detailed and relatively complete audit program has helped the auditor cover and control basic procedures that are guaranteed to be fully implemented and not overlooked Not only that, the audit program is also considered a Table of Contents for sections, helping people read/view working papers more easily and understandably
The Deposits item is an item that has a significant impact on key indicators of the FSs Therefore, performing TOC helps auditors accurately assess the existence and effectiveness of internal control for this item From there, the auditor has a basis to adjust the detailed test design for the audit, saving resources while still ensuring the highest quality of the audit
Detailed analytical and testing procedures are fully performed and presented on separate working papers to ensure the collection of appropriate audit evidence as a basis for providing an audit opinion for deposits
Analysis procedures are performed for both trend analysis (comparing data fluctuations between years) and rate analysis This job step helps auditors have a comprehensive view of the financial situation of deposits, identify abnormalities and find errors, reducing audit risks to a low level
Besides, during the audit process, although each assistant auditor is assigned to be in charge of different audit activities when performing the audit, the auditors always have close communication and coordination Furthermore, each auditor always self- evaluates whether his or her work meets the requirements and is subject to inspection and supervision by the team leader and higher levels Through such inspection and supervision, errors can be detected early in the implementation process so that timely corrective measures can be taken
Before conducting training to discuss with the client about the general results of the audit, the audit team leader will review the findings that the team members have reported is reasonable to get the best advice for customers on overcoming remaining problems on the financial statements as well as in the area of deposits before the issuer releases it to the outside world During the period of completion of the audit, the auditor is also always interested and examines events that occurred after the date of incorporation of the financial statements that may affect accounts 11xx, 13xx, 40xx, 41xx to find out errors (if any)
Before issuance, the Audit Committee of EY Company always goes through 3 levels of review as follows:
● Level 1 control: Audit team leader In order to ensure that the procedures have been fully implemented and the data are correct, the audit team leader reviews and leaves comments on the missing procedures, then the audit assistant is in charge of this part have the responsibility to answer fully and clearly about these parts In fact, throughout the audit, the Audit Team Leader always monitors work progress to ensure that questions are answered clearly while working at the client
● Level 2 control: Audit managers They will secondly review and clarify the audit procedures performed by junior auditors and request resolution of these issues
● Level 3 control: performed by the Audit Parners, then agreed and released audit report
This is the basis to ensure the quality of inspection products before releasing them to the outside world Thanks to that, the EY Viet Nam is increasingly growing and has a reputation in the audit market in Viet Nam today
Besides the above advantages, in each stage of the audit of Deposits item and the overall audit, there are still some following limitations:
Analytical procedures are performed throughout the stages At the planning stage, the auditor only compared the targets related to this item last year and this year of customer XYZ but did not compare with other credit institutions This limitation leads to auditors needing to be able to accurately assess the financial and business performance of customers throughout the industry The reason for this limitation is due to time constraints, data limitations and especially audit costs
Due to the general perception that the internal control process of businesses (here, credit institutions) in Viet Nam still needs to be developed, auditors often do not trust the internal control of CIs, leading to an increase in workload of subtantive procedure Specifically for the process of performing TOC at XYZ Co, because this year is the second year EY auditors have audited this client Therefore, procedures related to evaluating the internal control system need to be comprehensively implemented To save time, auditor will only focus on updating changes taking place in 2023 instead of evaluating the entire internal control system at the customer Although this saves time in the phase of learning about the customer's internal control process, it can ignore errors such as processes that have no changes in the internal control system but are not implemented effectively
During the audit process, if there is a lack of communication and discussion between audit assistants, costs may not be checked or duplicated between sections/items This leads to incomplete and inaccurate information or wastes time in the audit
RECOMMENDATIONS AND SOLUTIONS TO IMPROVE
Recommendation to complete the process of auditing Deposits items in
The process of auditing Deposits in particular and auditing financial statements in general at EY Vietnam is a scientific and effective process However, certain limitations still exist The following are some suggestions to help improve the audit process of Deposits:
Auditors must collect information about customers carefully and carefully to assess the risk of accepting new customers or maintaining old customers according to the instructions and requirements given by the company to make an assessment which closing to the risks of audit contracts
When performing a preliminary analysis of the Deposits items at customers, auditors should compare indicators related to this item with data from other credit institutions in the same industry to be able to accurately assess the financial and business performance of customers throughout the industry In addition, auditors should use additional non-financial indicators to evaluate the initial overview of financial activities, customer business and Deposits
For example: The impact of the economic recession on the main services provided by customers, the quality of employees, the satisfaction of workers with the management department
Auditors should be concerned with performing comprehensive TOC of the client's entire internal control system Instead of just focusing on new changes and updates during the year, auditors also need to check all processes that have stayed the same to evaluate whether the internal control system is operating effectively or not This ensures maximum objectivity and decisions regarding the overall basis for baseline testing are determined more accurately and reliably
The procedure for sending a confirmation letter, through the direct implementation process, the author realized that this is the procedure that needs the most experience Client XYZ and auditor EY need to discuss and agree to improve the process of implementing this procedure Accordingly, confirmation letters sent to XYZ for confirmation stamp before being sent to third parties encounter delays This leads to confirmation letters not being sent simultaneously but very sporadically, making it difficult to control Auditors need to discuss with customers to learn from experience and make changes in the process of pushing confirmation letters That makes the procedure for sending confirmation letters more effective, receiving more feedback, and the evidence collected is more reliable
When performing analysis during the audit period, auditors also need to expand the analysis over many financial years, expand comparisons with industry average data or credit institutions in the same industry, analyze relevant financial ratios in relation to Deposits section, combining the use of both financial and non-financial information Such a comprehensive analysis will help auditors make accurate, objective assessments and make important findings about Deposits items From there, we will guide the detailed inspection procedures in the following section
Auditors need to regularly discuss questionable issues to find solutions, and above all, make references between related items so that the audit can take place most effectively Auditors can refer to other sections such as Cash, Accounts Receivable/Interest Payable from Deposits, Borrowings, Revenues /Expenses from
Interest on Deposits to evaluate properly Comprehensive, clearer analysis of fluctuations, to consider whether those fluctuations are reasonable or not
Auditors need to allocate reasonable time between procedures, need to collect all documents, and request customers to provide enough documents so that the audit can take place smoothly to ensure appropriate audit evidence as a basis for audit opinions on Deposits items Auditors can send requests for accounting books and documents the client needs to provide to the client in advance so that they are ready to provide full auditing during their time working at the client
After performing the audit, the audit team will work with the client to prepare audit minutes and agree on all issues as a basis for issuing the audit report Auditors should be more serious and responsible in raising all discovered issues arising during the audit process to discuss with the client company's BOD and come to an agreement between both parties, in order to have unity and save time in issuing audit reports
In addition, the company needs to allocate time and personnel to ensure quality for the audit, fully update working papers immediately after the end of the audit to serve the review work to ensur the review of Deposits in particular and the entire audit in general
In case the Client is required to send additional documents as audit evidence to serve the archiving of audit records, the auditor needs to have a separate working paper to track this work, avoiding loss or confusion or missing important evidence.
Conditions for implementing the solution
3.2.1 On the part of the Ministry of Finance and other relevant State agencies
Currently, auditing is one of the professions that cannot be separated from the economy Therefore, in order to create favorable conditions for the development of the audit field, the Ministry of Finance and other relevant State agencies need to: First, continuously change, update and supplement regulations, circulars, accounting standards and auditing standards Vietnam is increasingly integrating with
Nguyễn Hải Ly 2024 international standards and in accordance with international standards as well as the rapid changes of the current economy
Second, the Ministry of Finance and other relevant State agencies need to pay special attention when promulgating and changing regulations, these regulations must be logical and easy to understand along with specific instructions and regulations so that units can apply it in practice more easily
Third, the Ministry of Finance should regularly send delegations of officials to inspect and supervise companies to see if their actual operations have met regulations, circulars, accounting standards and auditing standards? This also helps the Organizing Committee to promptly grasp the operating situation of the auditing units as well as detect limitations and promptly handle them At the same time, it is also necessary to update and supplement regulations to suit reality
3.2.2 About Ernst & Young Vietnam Co., Ltd a, About the company
Firstly, continuously improve the construction of a system of specific regulations and instructions for auditors At the same time, constantly update changes in policies and regulations related to auditing to keep up with changes in standards and regulations
Second, regularly organize training sessions to ensure that auditors are updated with changes in the current system of regulations, circulars, and standards At the same time, increase support and incentives in policies to support personnel in completing international auditing certificates such as ACCA, CPA, etc
Third, auditors are encouraged to flexibly apply audit procedures to suit each client and cases of unexpected elements appearing in the audit
Fourth, special attention should be paid to improving remuneration for accountants such as salary increase, bonus increase, other support such as meals, parking fees, especially during the busy season This partly helps auditors reduce pressure, gain more motivation to actively work and contribute to the development of EY
Nguyễn Hải Ly 2024 b.On the auditor's side
Firstly, KTVs need to ensure a thorough grasp of circulars, standards and regulations to ensure professional capacity At the same time, constantly train and improve professional ethics as well as ensure the independence of KTV
Second, actively improve the necessary knowledge and skills, constantly accumulate more experience to improve your career as well as improve the quality of audits and keep up with the market's audit requirements Through seriously participating in accounting and auditing courses, conquering professional certificates such as ACCA, CPA, or proactively exploring, researching, creating as well as updating economic fluctuations
3.2.3 On the audit client side
Firstly, audit clients need to build an accounting system that is scientific and logical as well as prepare and present financial statements appropriately according to current regulations on preparing and presenting financial statements
Second, it is necessary to actively and honestly coordinate with the auditor in the process of providing information, accounting documents, and answering the auditor's questions so that the auditor can grasp timely and complete information At the same time, quickly respond to the adjustments and recommendations that the auditor proposes to limit unfortunate errors and risks during the audit and ensure the report release schedule as planned
Third, actively improve internal control to ensure that all processes and policies related to internal control are designed to cover all activities of the company, consistent with the actual situation of the business and industry characteristics, business areas At the same time, actively consult auditors' suggestions when building internal control to improve the effectiveness and efficiency of internal control
3.2.4 On the part of associations and professional organizations
Firstly, constantly build and improve the system of documents regulating accounting standards and auditing standards so that they are increasingly closer to international standards as well as economic fluctuations
Second, actively coordinate with the BTC and management units to develop more and more perfect regulations on audit quality control
Third, regularly organize exchange sessions, popularize and answer questions for auditors and businesses
Firstly, training institutions such as universities, academies and vocational training units are places to educate students about knowledge, skills and ethics to become a KTV Therefore, these educational and training establishments need to develop an appropriate and highly practical education and training program as well as continuously updating changes in policies, regulations, standards and professional requirements so that after graduation, students can initially meet the basic standards of an accountant and employer requirements
Second, invite auditing companies and professional organizations to discuss practical issues of the industry in seminars, discussions or organize competitions related to the field of accounting and auditing so that students have the opportunity to learn, Improve your knowledge and soft skills
Chapter 3 of the thesis evaluated the current status of the audit process of the Deposit item in the audit of financial statements performed by EY Viet Nam Co., Ltd Hanoi Branch as well as the development orientations of EY Viet Nam, the solution to complete the Deposit account audit process
The company's deposit audit process is built effectively, contributing to reducing audit risk and increasing the quality of the audit In addition to designing a suitable, strict and effective audit process, auditors of EY Viet Nam Co., Ltd., Hanoi branch need to regularly discuss and allocate time appropriately to improve further on the audit process, to improve service quality and meet customer requires