BANKING ACADEMY OF VIETNAM FACULTY OF ACCOUNTING AND AUDITING GRADUATION THESIS TOPIC: IMPROVING THE AUDIT PROCESS OF LOAN TO CUSTOMER ACCOUNT IN FINANCIAL STATEMENTS AUDIT FOR COMMERC
The neccessity of the topic
Lending operations, also known as credit activities, are one of the core activities and have the most important role of commercial banks in today's social economy For a business, loans from commercial banks are one of the important forms of capital supply to help businesses ensure their investment needs and build production and business when the business lacks a certain amount of capital to operate while the amount of equity capital is not enough to compensate Furthermore, in addition to helping businesses save equity capital, using loans also helps businesses gain high economic leverage in production and business, so borrowing from banks today seems to be An extremely necessary need for any business For individuals and organizations in the economy, banks' credit activities help individuals and organizations have abundant resources to promote consumption and production of the economy For commercial banks themselves, credit activities are also business activities that account for a high proportion in bringing profits to the bank
Because of the importance of credit activities for commercial banks, Deloitte Vietnam Auditing Company Limited determines that customer loans are a key item and contain many risks during the auditing process of the FS of commercial banks
During my internship at Deloitte Vietnam, I participated in the audit process and got the most general and brief overview of this practice Realizing the importance of customer loans in auditing financial statements of commercial banks,
I chose the topic "Improving the audit process of loan to customer account in audit of FS commercial banking conducted by Deloitte Vietnam Auditing Company Limited".
Literature review
Studies on improving the audit process of customer loans of commercial banks in recent years have also attracted the attention of many researchers and scholars Some related studies include:
Master's thesis "Completing the audit of financial statements of state-owned commercial banks" in 2017 by Mr Nguyen Hung Minh - University of Economics gave a general overview of some points that need to be completed Improvement in auditing financial statements of 4 state-owned commercial banks in Vietnam
The master's thesis of Mr Giang Luong Kien - University of Labor and Social Affairs with the topic "Improving internal audit at Bao Viet Joint Stock Commercial Bank" in 2019 delved deeply into the internal audit process of non- commercial banks state capital, a brief overview of customer loans and contributions to perfect and strengthen the bank's internal control
The article on "Some measures to improve the quality of auditing financial statements of Vietnamese commercial banks" was published in 2023 by the Journal of Economics and Forecasting and attracted a lot of attention, debate and express the views of readers The article has provided a perspective on the limitations in the process of auditing financial statements at commercial banks such as: limitations in audit approaches, limitations in information technology audits, limitations in audit quality control
The above articles have provided general comments on the audit process of financial statements of commercial banks as well as the internal audit of commercial banks and clearly illustrated the group of 4 large joint stock commercial banks There is state capital in auditing However, there are no articles that clearly describe and portray the process of auditing customer loans of commercial banks and suggestions to improve and optimize this process
Through referring to the above research projects, I realize that each topic is researched from different angles and offers specialized solutions for each bank and each customer studied The contents and results of the above topics are valuable documents in both theory and practice for you to learn, inherit and develop in the process of researching your thesis topic
Therefore, with the topic "Improving the audit process of customer loan items in the audit of commercial bank financial statements conducted by Deloitte Auditing Company Limited", through analysis, evaluation, and comparison of Auditing this item in theory and practice, the thesis will provide practical solutions to improve audit quality for customer loan items at commercial banks
3.The objectives of the sudy
This thesis focuses on researching procedures for auditing customer loans of commercial banks in auditing financial statements at Deloitte Vietnam The specific objectives of the thesis include:
• Systematize the theoretical basis for customer loans at commercial banks (including 2 types of customers: KHCN, DN) and actual customer lending activities at Joint Stock Commercial Banks
• Evaluate the auditor's independence before, during and after the audit
• Analyze and evaluate the current status of auditing customer loan accounts of commercial banks conducted by Deloitte Auditing Company Limited, thereby providing assessments on the advantages, limitations and causes of the current situation
• Propose solutions to improve the quality of the audit process of commercial bank customer loans at Deloitte Vietnam.
Research object and scope
The thesis focuses on researching the theoretical basis and practical application of issues on the audit process of customer loan items of commercial banks in auditing financial statements at Deloitte Vietnam Auditing Company Limited In addition, the topic also references a number of research documents, scientific articles and other documents from official sources by authors and organizations with experience on this issue in Vietnam
The topic focuses on researching the current status of the customer loan audit process of commercial banks at Deloitte Vietnam Auditing Company Limited:
- Research period: From December 18, 2023 to April 20, 2024
- Space scope: Deloitte Vietnam Auditing Company Limited
- Research content: The topic focuses on auditing customer loan accounts of commercial banks at Deloitte Vietnam Auditing Company Limited based on information provided by customers and average data in the banking industry , along with the guidelines and policies proposed by the State Bank.
Research methodologies
The research was conducted based on the following methods:
- Comparison method: the topic compares the process of auditing customer loan items in auditing financial statements in terms of theory and reality
- Methods of observation, investigation and general analysis to be able to evaluate and analyze more objectively and accurately to contribute to improving the quality of auditing customer loan items, supporting the improvement of quality credit review process of commercial banks
- According to Vietnam Auditing Standard No 200, audited customer information needs to be kept confidential, so the real name of the audited enterprise in this thesis is called ABC Commercial Joint Stock Bank
- Qualitative research: Secondary data collection and analysis methods are provided by the internship unit through documents, records, vouchers as well as financial reports provided by the bank Discuss and analyze in detail and specifically each aspect of the problem, then synthesize and summarize the things to keep in mind when auditing customer loans The research data of the topic is secondary data collected and extracted from system software, working papers stored in audit records of Deloitte Vietnam Auditing Company Limited and audit reports of customers in the period from 2022 - 2023.
Research questions
The thesis is built on three main questions:
Theoretical basis of the audit process of customer loans of commercial banks?
Current status of the customer loan audit process of commercial banks applied by Deloitte Vietnam?
Advantages and disadvantages of the customer loan audit process of commercial banks at Deloitte Vietnam and the causes and proposed solutions to improve this process?
Overall structure of the graduation thesis
Besides the introduction and conclusion, the graduation thesis includes 3 main parts:
Chapter 1: Theoretical basis for the audit process of customer loan items in auditing commercial bank financial statements
Chapter 2: Current status of auditing customer loan items in the financial statement audit process performed by Deloitte Vietnam Auditing Company Limited at commercial bank customer ABC
Chapter 3: Solutions to complete the audit process of customer loan items in commercial bank financial statement audits performed by Deloitte Auditing Company Limited.
THEORETICAL BASIS OF AUDIT PROCESS OF LOAN TO
Characteristics of auditing bank loan to customers that affect the audit of
1.1 Characteristics of auditing bank loan to customers that affect the audit of financial statements performed by Deloitte Auditing Company Limited
1.1.1 Concept, nature and characteristics of loan to customer items in CB’s financial statements
Lending activities are transaction activities between the borrower (individual, business) and the lender, which is a commercial bank, in which the lender transfers assets to the borrower for use within a certain period of time According to the contractual agreement, the borrower is responsible for repaying principal and interest to the lender upon maturity
Normally, when providing loans to individuals and businesses, banks always carefully review the loans to avoid unrecoverable bad debts, so at banks, supervision and control are required Check procedures before borrowing as well as during the borrowing process according to a strict process Borrowing individuals and businesses are responsible for paying loan principal, interest as well as related legal obligations according to the signed contract When individuals and businesses borrow capital from banks, they often have to secure it with assets in the following ways:
- Pledge or mortgage your own assets such as houses, machinery and equipment, land use rights
- Secured by assets formed from loan capital
In addition to reviewing and considering the ability to recover capital from loans before lending as well as requiring the borrower to mortgage collateral when borrowing capital, according to the regulations of the State Bank and the principles of According to current accounting standards, businesses also need to make provisions for customer loans The value of this credit risk provision depends on the quality of the loans and the provision rate according to the regulations of the State
Bank This value also directly affects the cost of credit risk provisions use and business results of the bank
1.1.2 Accounting for loan to customers
The accounting regime in banks in particular and of credit institutions in general has certain differences compared to the accounting regime in normal businesses, so instead of using the accounting account system according to the Convention, Circular No 133/2016/TT-BTC and Circular No 200/2014/TT-BTC, the bank uses the accounting account system according to Circular No 49/2004/TT- NHNN, Circular No 10/2014/ TT-NHNN
Circular No 10/2014/TT-NHNN has specific regulations on the accounting account system applicable to credit institutions, which regulates the accounting account for customer loans as Appendix I attached according to
The system of accounting documents in loan operations can be divided into original documents and bookkeeping documents as follows:
- Loan request letter: a document prepared by the customer to request a loan from the Bank, which clearly includes information about the purpose and loan amount
- Credit contract: is the legal basis to resolve disputes, if any, between customers and the Bank
- Loan contract and debt maturity table: Documents of debt collection time schedule with specific amount of money from the Bank
- Other documents: Mortgage contract, appraisal record/deed,
- Cash application form if lending in cash
- Non-cash payment documents such as payment orders, payment cards in case the bank lends by direct transfer to the borrower's account
- In case the borrower agrees to pay debt and interest by authorizing the bank to proactively deduct the borrower's deposit account to collect due debt and interest, the book-recording documents are the transfer slip and calculation sheet monthly interest
1.1.3 Some common violations in loan to customer
Common errors and violations encountered in bank customer loans that affect the audit of financial statements are as follows:
Loans to customers may be recorded as unrealistic because: o Customer loan transactions may be invalid or approved by inappropriate management levels o Loans to customers were recorded incorrectly at the end of the period, when the loan had not actually been provided to the customer
Loans to customers may be recorded incompletely, because: o Some loans provided to customers may not have been accounted for o Some loan provisions have been provided to customers but have not been recorded at the end of the period o The loan is recorded on the balance sheet even though the recognition criteria are not met
Loans to customers were not properly described and presented in the financial statements, including disclosures consistent with accounting principles and current regulations
Loan balances are erroneous because credit disbursements or debt repayments are recorded incorrectly in the system
Loans with overdue principal or interest have not been recorded as bad debts for full provisioning as well as causing the provision interest balance to be over recorded due to incorrect debt classification
Provision expenses may not be fully recognized during the year because the Bank may not be able to properly monitor both the amounts written off and any changes in events after November 30 when providing debt is carried out according to Circular No 02 until the end of the year
Provision accounts include disclosures that may not be presented accurately in the financial statements, or presented inconsistently with current accounting principles and regulations
Income from loan interest may be over-recorded due to interest accrual for settled debts or interest accumulation for debt groups that do not accumulate interest (Group 2 to Group 5) due to wrong debt classification
Interest income may be calculated incorrectly because the customer is not accurately calculating the interest And cause the interest rate is incorrectly entered into the system or the underlying formulas in the system are incorrect
Interest income may be over-recorded due to some underlying transactions and quoted interest rates may not comply with regulations
1.1.4 Internal control over customer loans
Customer loans are often an item that accounts for a large proportion of a bank's asset structure, so commercial banks often pay great attention to internal control over this item
The internal control process for loan items includes many steps such as checking loan requests, loan approval, disbursement, debt management and classification, and customer payments , resolution, etc This process also involves the participation of different departments at the bank's branches and headquarters such as customer relations department, credit department, risk management department, management department,…
In particular, the bank has an internal credit rating system for customers as well as debt group classification for all customer loans
For commercial banks in Vietnam, all credit activities are required to register information at the Credit Information Center - CIC This is an organization of the State Bank of Vietnam which has the function of receiving, storing, analyzing, processing, and forecasting credit information of individuals and organizations to serve the bank's operations banks, credit institutions
Specifically, the internal control process for loan items includes the following steps:
Step 1: Customers submit their loan needs through the "Loan Proposal Minutes", credit officers will conduct an appraisal, evaluate the customer's loan needs, and consider the customer's cash flow Once the initial criteria assessment is complete, the credit officer will send the loan needs appraisal to the head of the
Corporate Banking Department or the Head of the Science and Technology Department
Step 2: The department head conducts reviews based on documents provided by credit officers and other internal assessments of borrowers If approved, the department head will transfer the loan demand "Credit proposal appraisal report" to the competent authorities for approval
If the loan limit is small, within the limit, the Branch Director will approve it at the branch level
Audit process for loan to customer items in commercial bank financial
1.2.1 Objectives and basis for auditing customer loan items
The audit is conducted starting from a risk-based approach The goal of auditing customer loan items is for the auditor to collect all appropriate evidence, thereby providing confirmation about the reliability of relevant financial information At the same time, it also provides relevant document information as a reference when auditing other related operations To achieve such general goals, auditors must achieve specific goals of lending to customers The specific goal of customer lending is that the auditors must collect sufficient evidence to prove that the audit assertions related to economic operations and customer loan account balances are honest, reasonable, and reflect accurately the economic nature and in accordance with the business characteristics of the enterprise
Table 1.1: Objectives of auditing customer loan accounts at commercial banks
1 Existence − Loans must be accounted for in reality with what is available at the Bank at the date of preparing the financial statements
2 Completeness − Loans must be fully accounted for compared to reality at the date of financial statements
− The Bank has the right to collect these loans in the future, and at the same time consider whether these loans are truly receivable rights of the Bank
− Operations affecting customer loan balances such as loan disbursement or customer debt collection are recorded fully and accurately with reality
− Loans should be properly classified according to the nature of the loan and presented in the financial statements, including notes to the financial statements, and in accordance with current accounting principles and rules.
− In particular, the classification of loans by debt group needs to be accurate and comply with the regulations of the State Bank, because the classification of loans by debt group directly affects the provision for the risk of Bank credit
− Loans, exchange rate conversions, and credit risk reserve calculations need to be accurately accounted for based on relevant documents At the same time, during the book transfer process, reporting needs to be done accurately and consistently
Basis for auditing customer loan items of commercial banks:
To be able to conduct an audit as well as provide comments on financial information related to customer loans at commercial banks, the auditor must rely on the following information and documents:
Firstly, documents related to customer loan audits at commercial banks:
- FS: Indicators of customer loan balances, provisioning balances, loan classification according to each customer group, on the statements of financial position, summary and detailed results reports of related accounts such as: Reports on loan increases and decreases each month, quarter and year, loan contracts, debt receipts, post-loan inspection records,
- Accounting vouchers, documents that are the legal basis for businesses: Debt receipt, loan disbursement statement, asset handover record, mortgage contract,
- Other documents: Minutes of revaluation of secured assets, internal customer credit assessment, and estimate documents Internal audit regulations and regulations related to lending and funding approval processes
Second, types of documents and books include: General and detailed accounting books of related accounts such as general books of loans for each subject are monitored separately at each branch, ledgers are saved on the system at Head Office and the accounts are summarized with relevant clause
When finding an audit client, the Board of Directors will send a bidding letter to the audit client to invite the audit If accepted by the customer after review and comparison with other auditing companies offering the same bid For first-time audit clients, the audit company needs to prepare personnel to learn specific information about the client such as type of business, type of business, business format, structure organization, internal control, etc At the same time, the auditor will evaluate the level of risk, balance benefits and costs to decide whether to accept the audit of this customer or not This is the stage of surveying and evaluating the acceptability of the audit contract based on the information collected
1.2.2.2 Signing contracts and audit service agreements
As with any audit, the first step to get started will be to sign the audit contract or decide to accept the audit contract If the audit client is a new client in the first year of auditing, there needs to be strict agreement in the contract on each content and term to serve as a basis for resolving arising legal issues The audit contract will need to consist of at least 2 copies, each party will keep 1 copy and must have the signatures and seals of both parties For long-term customers, making an audit contract is simple and still very important In case there is a change in the terms of the contract, the consent of both parties is required and the contract needs to be re-signed annually
For first-time audit clients, accepting the audit must be based on the client's risk of potentially negatively affecting the audit firm's image and reputation Therefore, the assessment of audit acceptance is often carried out strictly step by step by experienced auditors according to the process from reviewing and assessing the integrity of the client company's management board and business risks The review based on the quality control system as well as contact the previous auditor to determine the reason why the client must change auditing companies If changing the audit firm is required to increase the independence of the audit or due to fee differences, the audit firm will consider it However, if it is found that the client changes auditing firms because the old auditing firm does not accept to continue the audit, it is necessary to interview the previous auditor about the cause and assess the risks to see if it is necessary to stop providing services or not
For former clients who have audited, rotated to another audit firm and returned, the client review process is equivalent to that of a new client For previous customers (specifically, signing a contract once a year), the audit acceptance review process will simplify some steps This process will be implemented and decided by the audit manager In addition to assessing customer risk based on information available from previous years' audits, the audit company combines with customer information published on the market to assess risk
After identifying the audit client, the two parties will directly meet, agree on terms and sign an audit contract Audit contracts usually include the following contents:
- Purpose and scope of the audit
- Responsibilities of the client's board of directors and auditors
- Form of notification of audit results
- Time to conduct the audit
- Basis for calculating audit fees and payment methods
- Other requirements, responsibilities and obligations that need to be complied with
- Seals and signatures of representatives of both parties
After signing the audit contract with the client, the auditor will begin collecting client information about the client's business lines, evaluating internal control, accounting systems and related parties to assess risks as well as audit planning
For familiar customers who have audited for many years, the auditor can use documents in previous years' audit records However, if you are a client in your first year of audit, to understand the client's operating situation and business lines, the auditor will collect information mainly related to the client's legal obligations to help the auditor have understanded the legal processes that directly affect the business operations of the enterprise Important information that needs to be collected includes:
The company establishment license and company charter help grasp the company's internal issues, the business fields in which the business has registered and is allowed to operate, and the organizational structure of the ministry The company's human resources, capital structure, composition of the board of directors, shareholders of the company,
Financial statements, audit reports of recent years For old clients, auditing companies often store both hard and soft copies of audit reports and working papers from previous years, so collecting these documents is relatively easy However, for customers who are auditing for the first time, auditor will have difficulty collecting These financial statements provide important data about the financial situation and business results of the unit, helping auditors have an overview of the problem and based on that, apply analytical procedures to know trends and customer development direction In fact, for the Customer Loans section of commercial banks, usually before the audit of the financial statements for the fiscal year ending December 31, the bank often signs a contract with an auditing compan that year to conduct a credit review at branches in the second and third quarters of the previous year to ensure the correctness, honesty, and reasonableness of these items on the quarterly financial statements
Overview of Deloitte Vietnam Auditing Company Limited
Deloitte Vietnam, with more than 30 years of experience, has affirmed its position as a pioneer company in the field of Consulting and Auditing in Vietnam
As part of the Deloitte Global network, the organization not only contributes to the growth of the professional services industry but also exemplifies international collaboration and integration DTT becoming a member of Deloitte Southeast Asia in 2007 was an important turning point, marking its transformation from a local company to part of a larger organization with broader vision and resources By
2020, the merger into Deloitte Asia-Pacific will not only expand opportunities and challenges for DTT but also an opportunity to strengthen Deloitte's presence and influence in this region Deloitte Global's new strategic plan for the Asia-Pacific market demonstrates a deep awareness of the region's growth potential and dynamics, as well as a strong commitment to service delivery high quality and create sustainable value for customers and the community This is a testament to Deloitte Vietnam's flexibility and adaptability in the constantly changing global business landscape, and is also a sign of the company's continuous development in meeting the needs of customers Increasing demand and diversity of the market
- Company name: Deloitte Vietnam Auditing Company Limited
- English name: Deloitte Vietnam Audit Company Limited
- Head office address: 15th Floor, Vinaconex Building, 34 Lang Ha, Lang Ha Ward, Dong Da District, Hanoi City
- Type of business: LLC with two or more members
Pham Van Thinh - General Director Tran Dinh Nghi Ha - General Director
- Branch name: Deloitte Vietnam Co., Ltd Branch
- Address: 18th Floor, Times Square Building, 57-69F Dong Khoi Street, Ben Nghe Ward, District 1, Ho Chi Minh City
- Legal representative: Vo Thai Hoa
2.1.1 The process of formation and development
Established in 1991, formerly known as Vietnam Auditing Company - VACO according to Decision No 165 TC/QD/TCCB dated May 13, 1991 of the Minister of Finance to meet the requirements of the market economy socialist- oriented school in the early years of the innovation process According to Decision
No 1927/QD-BTC dated June 30, 2003 of the Minister of Finance, Vietnam Auditing Company (VACO) was converted into a one-member LLC Business registration certificate of One Member Limited Liability Company No 0104000112 dated January 19, 2004 issued by Hanoi Department of Planning and Investment Charter capital at the time of company establishment was 9,077,000,000 VND
Since 1992, the joint venture between VACO and Deloitte Touche Tohmatsu (DTT) - one of the world's four leading auditing and consulting companies was formed In April 1994, VACO - DTT was officially established With the representation of the International Services Department (ISD), in October 1997, VACO was officially recognized as a member of the international auditing firm Deloitte Touche Tohmatsu The company has completed the ownership transformation process from a one-member LLC under the Ministry of Finance to become a LLC with two or more members in accordance with the State's regulations on independent audit on May 7 /2007 According to the business registration certificate No 0102030181 issued by the Department of Planning and Investment of
Hanoi City on October 18, 2007, the Company officially changed its name from
"Vietnam Auditing Company Limited" to "Company" Deloitte Vietnam Limited” from November 1, 2007
After more than 3 decades of establishment and development, Deloitte Vietnam deserves to be the flagship and pioneer of the Vietnamese Audit industry by always excellently completing plans in business and many other fields With those achievements, Deloitte Vietnam has been awarded many noble titles by the Party and State such as:
- Certificate of Merit from the Prime Minister (1999 and 2006)
In 2023, despite facing economic recession and a gloomy market, Deloitte Vietnam will always maintain audit quality and achieve the highest sales in the entire independent audit industry in Vietnam
Table 2.1 - Some of the most recent 3-year business results indicators of Deloitte
Source: Deloitte Vietnam's transparency report for three years 2021-2023
In a challenging global economic context, Deloitte Vietnam's revenue decline of 48.8% in 2023 compared to the previous year is notable This decrease reflects the
Chỉ tiêu Năm tài chính
NSNN 7.894 17.524 23.052 general economic situation and the impact of factors such as previous epidemics and market fluctuations Despite this, Deloitte Vietnam still maintains its leading position in the independent audit industry in our country, which is not only shown through revenue but also through contributions to the state budget through taxes This shows that, even in difficult times, Deloitte Vietnam still strives continuously to ensure stability and sustainable development, while contributing to the recovery and growth of the economy This also partly reflects the common efforts of businesses to adapt and overcome challenges posed by the global economic situation
2.1.2 Functions, duties and business lines
DTT is committed to providing the top and best professional service to customers row Currently, DTT operates in 5 main service areas:
Auditing and assurance services: Auditing according to international and statutory standards; Financial appraisal; IFRS conversion service; Services according to contractual agreements; Audit and review of accounting and internal control systems; Audit and assurance services; Accounting consulting services; Secure computer systems
Deloitte provides audit services in Vietnam with a commitment to quality and strict compliance with international standards and local regulations Deloitte's auditors not only have high professional qualifications, but also adhere to a strict code of professional ethics, ensuring the transparency and reliability of financial information By applying advanced and continuously updated auditing methods, Deloitte ensures that their services are always in line with the latest auditing trends and standards in the world
Tax and law: Tax consulting and tax planning; International tax structure; Corporate income tax consulting services; Transfer pricing consulting services; Customs and indirect tax consulting services; Services for global customers; Tax compliance checking service; Tax dispute resolution service
Financial consulting: Corporate finance; Mergers and acquisitions;
Valuation services; Building business models; Merger consulting integrated with legal services and dispute resolution; Corporate restructuring
Risk consulting: Strategic risks (Corporate governance, Strategic risks, Sustainable development and corporate responsibility ); Risks related to regulation and legality (Regulatory strategy, legal compliance, ); Financial risks (Market and credit risks, Capital management, Liquidity and treasury risks, ); Operational risks (Internal audit, Operational and transformation risks, technology and data, ); Cyber risk (Cyber security and strategy )
Training services: Audit training program; Management training program business Finance; Corporate risk and corporate governance training program; Tax training program; Training program on leadership skills and human resource management
Deloitte Vietnam serves a diverse range of clients, from state-owned enterprises to foreign investment (FDI) companies, from investment projects to banks and credit institutions The company's services are not limited to statutory financial statement audits, but also include audits for special purposes, comprehensive reviews of financial situations, and conversion of financial statements according to standards international standards, and evaluate the internal control system Furthermore, Deloitte also provides services to check financial information based on pre-agreed procedures and assess risks related to information technology systems, helping businesses identify and manage risks quickly effectively
Deloitte's professionalism and long-term experience in the field of auditing and consulting help the company become a reliable partner for businesses in Vietnam This is not only shown through service quality but also through customer satisfaction, contributing to the sustainable development of Vietnam's financial market and economy Deloitte is committed to continuing to enhance the value it brings to clients through continuous improvement of audit and consulting services, while expanding its understanding of the local business environment to deliver optimal and most suitable solution
DTT is organizing its management apparatus according to an online - functional model Deloitte as well as the Big 4 auditing companies - the group of 4 largest auditing companies in the world - are all famous for providing financial statement auditing services worldwide However, in reality, these businesses provide a variety of financial-related services Besides auditing services, Deloitte Vietnam is also known for its reputation in other services including: tax consulting services, enterprise risk management consulting services (ERS), financial consulting services (FAS), training services All services are committed to being performed by Deloitte Vietnam with the best quality and always satisfying customers, even the most demanding customers
Diagram 2.1: Deloitte Vietnam organizational model
Source: Deloitte Vietnam Transparency Report 2023 Board of Management: DTT's Board of Management (BOM) plays an important role in shaping the company's future They not only decide on strategic issues but also oversee increases or decreases in charter capital and develop business plans Their powers also include the appointment or dismissal of senior personnel, ensuring that DTT can adapt to changing markets and maintain management flexibility
Current status of the audit process for customer loan items in the audit of
2.2.1 Audit process for customer loan items of ABC Bank in the audit of commercial bank financial statements conducted by Deloitte Auditing Company Limited
2.2.1.1 Objectives and basis for auditing customer loan items
The audit objective is based on ensuring that the assertions during the audit are not violated and errors occur
Table 2.3: Objectives of auditing customer loan items
In order to ensure efficiency, economy, and collect sufficient audit evidence to give an honest and reasonable audit opinion on the financial situation of the enterprise, the auditor will conduct the audit in three stages stage in auditing customer loans Specifically:
Diagram 2.3: Main stages of auditing loans in auditing financial statements
Source: Deloitte Vietnam Training material 2023
The audit basis for auditing customer loan items is the documents directly provided by customers, general lending regulations of the State Bank, circulars, decrees, and amendment documents Additional changes issued by the government such as Circular 02/2013/TT-NHNN, Circular 14/2021/TT-NHNN, Circular
01/2020/TT-NHNN, Circular 49/2018/TT-NHNN, Circular 11/2021/ TT-NHNN,…
2.2.1.2 Prepare an audit plan for customer loan accounts a Customer surveys and reviews
When finding an audit client, the Board of Directors will send a bidding letter to the audit client to invite the audit If accepted by the client, if it is a first-time audit client, Deloitte will begin preparing personnel to learn specific client information such as type of business, type of business, type of business, etc business knowledge, organizational structure, internal control, at the same time, the auditor will evaluate the level of risk, balance benefits and costs to decide whether to accept the audit of this customer or not This is the stage of surveying and evaluating the acceptability of the audit contract based on the information collected
Receiving the consent of ABC Commercial Bank to bid, the Board of
Directors of Deloitte Vietnam will allocate personnel to begin finding out specific customer information at ABC Commercial Bank as follows:
Form of capital ownership and operational information
ABC Commercial Bank was established under the Establishment and Operation License No xx/GP-NHNN year 20xx issued by the State Bank of Vietnam (amended according to Decisions: (i) Decision No xxx/ Decision-NHNN in 20xx) and Business Registration Certificate No 0100xxxxxx, registered for the 13th change issued by Hanoi Department of Planning and Investment in 20xx
As of December 31, 2023, ABC Bank's charter capital structure is as follows: State capital accounts for 64.46%, strategic shareholder XXX Company's capital accounts for 19.73%
ABC Commercial Bank is headquartered in Hoan Kiem District, Hanoi City, Vietnam ABC Bank's total network points as of December 31, 2023 are 157 domestic branches and 956 transaction offices
The total number of employees of ABC Bank as of December 31, 2023 is 24,642 people (As of December 31, 2022, there are 25,119 people)
Accounting policy of ABC Bank
ABC Bank's financial statements are presented in Vietnam Dong (VND), according to the principle of historical cost, VAT is accounted for by the deduction method and in accordance with Vietnamese Accounting Standards and Accounting Regime Vietnamese accounting and relevant current regulations in Vietnam In particular, because ABC Bank regularly transacts with foreign countries and is listed, the bank complies and prepares financial reports according to IFRS International Accounting Standards ABC Bank's accounting period begins on January 1 of every year and ends on December 31 of the same year b Service contract signing
After both parties accept the audit, the two parties will agree on the audit fee and audit implementation time, then sign the audit contract The contract will clearly stipulate the rights and obligations of both parties
After signing the contract, ABC Commercial Bank will announce information to the Board of Shareholders about signing the contract with Deloitte as follows:
Contract number: xxx/2023/ABC-DTT-HDKT dated September 1, 2023 Auditor: Deloitte Vietnam Company Limited
- Audit of ABC Commercial Bank's separate financial statements for the fiscal year ending December 31, 2023
On Deloitte's side, after signing the contract, the audit manager needs to inform the audit client about the personnel plan as well as the time to perform the audit Personnel planning needs to ensure professional qualifications and ensure the independence of auditors towards audit clients during the audit process Specifically, the audit team leader will have to rely on questionnaires about the auditor's independence, the questionnaire sample is as follows:
Table 2.4: Questionnaire on auditor independence
Source: Internal material of Deloitte Vietnam 2023
Working Papers 01: Financial Statement Audit Plan
Document source: Deloitte Vietnam 2023 internal documents c Preliminary analysis
With the approval of the senior in charge, the audit assistants are seen the preliminary analysis report of the FS of the ABC CB with the detail and multi- dimensional perspectives for all the items and accounts in the FS The team leader analyzed in detail and clearly the proportion of each item and component of the financial report After reading the analysis and considering customer confidentiality,
I have come to a few comments specifically for the customer loan section
During the audit preparation stage, the auditor only analyzed changes in customer loan balances at two points in time Auditor compares the difference in customer loan balances and customer loan loss provisions between 2023 and 2022
Document source: Deloitte Vietnam 2023 internal documents
Compared to 2022, customer loan balance has increased by more than 198 trillion VND (equivalent to 15.57%), customer loan risk provisioning has also increased by 1.6 trillion VND (about 5.91%) The volatility level is consistent with the bank's strategy and is equivalent to the banking industry average d Learn about internal controls for customer loans
Auditors perform the following tasks of understanding internal control:
• Interview accounting and related departments to collect information, learn about internal control and describe internal control in detail on working papers
• Initial assessment of control risk to plan items on the financial statements
At ABC commercial bank, internal control for customer loans is designed through many control procedures implemented by many different departments and divisions The results of learning about internal control of ABC bank are shown as follows:
Diagram 2.4: Internal control of CB for loan to customer e Evaluate materiality and audit risk
Assess the risk of material misstatement
Overall materiality (OM), performance materiality (PM), and tolerable misstatement threshold (CTT)
The auditor will estimate the following materiality levels: Overall materiality (OM), performance materiality (PM) and clearly trivial threshold (CTT) The initial estimate of materiality will help the auditor collect the appropriate amount of audit evidence
Deloitte Vietnam provides guidance on selecting criteria to determine materiality according to a number of industries as follows:
Table 2.5: Criteria for determining materiality by industry
Source: Training materials Deloitte Vietnam 2023
Deloitte Vietnam also provides guidance on determining materiality as follows:
Table 2.6: Instructions for determining materiality
Source: Deloitte Vietnam training materials (2023)
Based on his professional assessment, the auditor in charge makes an assessment of the risk of material misstatement Specifically, for customer loan items at ABC commercial bank, auditor assesses the risk of the item as follows:
Table 2.7: Risk assessment of customer loan items
Source: Deloitte Vietnam’s internal document 2023
Determine the level of materiality
Materiality is assessed and approved by the audit manager when conducting the audit Determining audit materiality is based on the auditor's risk assessment and the results of collecting audit evidence at the time of the audit The auditor has determined that evaluating the Company's performance can be based on a number of financial and non-financial indicators, but pre-tax profit is an important indicator for a commercial bank such as ABC
Auditor evaluates materiality and risks for customer A (unit: VND):
Evaluate materiality for customers: based on professional judgment and work experience, auditor evaluates and determines materiality based on the total pre-tax profit of the entire company
ABC Bank's total pre-tax profit in 2023 is 24,989,525,000,000 VND
Materiality is determined by 5% of profit before tax, M (Materiality) 1,249,476,250,000 VND (Based on the professional judgment of the auditor, choose 5% of profit before tax to determine materiality)
Acceptable error level in 2023 based on professional judgment chooses 20% Materiality level, Anticipated uncorrected misstatements = 1,249,476,250,000
Performance materiality is determined by 80% of materiality, PM (Performance materiality) = 1,249,476,250,000 * 80% = 999,581,000,000 VND
Besides, the auditor also determines the tolerable error level for each operation by 5% PM, CTM (Clear trivial materiality) = 999,581,000,000 * 5% 49,979,050,000 VND f Design and draft the audit process for customer loans
Regarding the audit personnel participating in the audit of ABC commercial bank customers, the audit team consists of 11 people Including the audit team leader who is an auditor with 6 years of experience, 3 auditors and 7 audit assistants The loan item is assigned to an auditor with 5 years of experience with the support of audit assistants
Comments and assessments on the audit status of bank customer loans in the
During the process of actually working at Deloitte as an official employee of the company, I realized that loan auditing has the following advantages:
For the general situation of performing audit work
- Audit work for all clients is carried out strictly according to Deloitte's global procedures, personnel are allocated and recruited strictly to meet the needs of the audit, processes and compliance methods according to current Vietnamese Auditing Standards
- The company applies modern auditing software well, making auditing quick, convenient and highly effective
For auditing customer loan items
- Control over customer loan items is carried out strictly The company not only set up a questionnaire for the entire internal control system of the company but also set up a separate questionnaire to evaluate the internal control system for customer loans Supports the assessment of control risks for items more accurately and effectively
- The loan audit program is researched and properly implemented by the company and applies to all customers; However, the company has flexibly applied the audit of this item for each specific customer to minimize unnecessary audit work to focus on highly important items Implementation tasks can be simplified
- How to organize and store audit records, the company has established strict and thorough storage of audit records Customer documents as well as audit evidence are stored by the company in audit records The references of the documents are specifically recorded by the auditor, making it easy for inspection by the Board of Directors, inspectors, Deloitte SEA, and auditors performing work for the following audit year Based on audit records, it is also possible to evaluate the audit work and the reliability of the evidence collection work performed by the auditor
- How to organize working papers, working papers are the place to store the results and steps of the auditor's work Through the auditor's working papers, we can see the business's loan beneficiaries, detailed account balances at the end of the period as well as the classification method and accounting entries that the business makes for accounting and adjustments Through the documents summarizing the loans, we can see the accounting work for this item in the accounting period, at the end of the year Thereby, the auditor can assess the limitations of the enterprise in managing, recording, and accounting this item
2.3.2 Limitations and causes of limitations
- Collecting evidence: The work of collecting evidence for customer loans is usually documents sent to the audit team from the focal lending branches, including credit proposal minutes and reports credit risk appraisal, credit contract, collateral mortgage contract, internal credit rating report, and other payment documents, etc All of these documents are sent from branches Branches back to the audit team, so there is a certain delay in collecting audit evidence, which can affect the progress of the audit On the other hand, to confirm the loan balance of customers at the bank, most confirmation letters must go through the bank to be sent to the borrower, so there is also a risk of digital collusion The data between the two sides is difficult for auditor to control This affects the reliability of the evidence collected
- Carrying out analytical procedures for loans: Analytical procedures are necessary work that is performed at all stages, planning the audit, performing the audit and reviewing the audit work Although the analytical criteria performed during the audit planning stage also contain criteria related to customer loan items, these criteria are only general Most procedures only analyze the structure of customer loans and compare between financial years This analysis cannot fully assess the level of risk of loans for each borrower as well as risks to loan recovery plans, timely loan interest recovery, and solvency, customers or accounting for accrued interest and setting up provisions for credit risks
- Allocation of materiality level for customer loan items: The materiality level for each item on the financial statements is different For each different enterprise, the materiality of items is also assessed differently For manufacturing enterprises, fixed assets can be assessed as material, but for commercial enterprises, the material item is usually inventory, and for banks, it is the customer loan item Goods are often assessed as important For each different item, the audit requirements are also different The auditor's allocation of the overall materiality level into an equal performance materiality level for all items based on the auditor's experience and judgment will The accuracy of this allocation cannot be guaranteed
- Limitations in control testing for customer loans: Because internal control for loans is designed to be relatively complex, with the participation of both branches and headquarters of the bank, moreover, each of the loan is managed at a focal branch The number of bank branches is large, so performing control testing is difficult The auditor only gives a relatively general assessment Mostly due to the limited time to perform the audit, control tests on customer loans are often not carried out fully and effectively The control tests that auditor performed were only at a relative level, causing the quality of working papers to not meet expectations In addition, control tests have mainly focused on testing effectiveness and not focused much on whether internal control procedures for customer loans have been appropriately designed or not
Due to the large workload, especially during the busy season, overtime is common, but employees rarely clock overtime partly because the general situation is the same in auditing companies, partly because The audit manager may not approve it Fieldwork time usually only helps the auditor carry out procedures and detect key issues, presenting and completing files takes a lot of time, especially following confirmation letters and documents related to third parties Many auditors who cannot stand the pressure have had to leave their jobs, even taking breaks in the middle of the busy season to control backlogs that need to be transferred to new people, reducing overall efficiency
The audit quality control process is sometimes not taken seriously by some long-standing customers as well as small customers Implementing control during peak periods is sometimes only a formality due to time pressure time and large amount of work
Because it is also a service providing industry, sometimes to please customers, we ensure the progress of releasing audited financial statements along with financial statements and monitoring processes to ensure timely progress
Chapter 2 presented the current status of the audit process in the audit of financial statements of Deloitte Vietnam Auditing Company Limited in general and the current status of auditing customer loans of commercial banks in particular Chapter 2 provides an overall and detailed view of the customer loan audit process performed by Deloitte Vietnam Auditing Company Limited, specifically the customer ABC Commercial Joint Stock Bank However, the customer loan audit procedures performed by Deloitte Vietnam still have limitations in addition to outstanding advantages This issue will be discussed and presented in detail in chapter 3 of the topic.
SOLUTIONS TO COMPLETE THE AUDIT PROCESS OF
Development orientation of Deloitte Vietnam Auditing Company Limited
3.1.1 Orientation to innovation and technology application
Delivering superior value from audit through process, people and transformation innovation With The Deloitte Way, Deloitte puts standardization, consistency and quality-driven performance at the core of its audit practice: with automation that improves day-to-day tasks and analytics that support Assists in performing audits – providing a deeper and more meaningful perspective on available data Thereby, improving the quality of audit service delivery, while providing diverse work experiences for employees and customers as well as providing a streamlined digital audit experience to enhance greater transparency and insight
Deloitte Vietnam Audit & Assurance auditors are increasing their productivity by making greater use of data analytics, as well as cognitive and cloud- based technologies Because of the automation and efficiency these technologies bring, however, the firm also needs to stay ahead of the technological advancements used by audit clients
Deloitte's global audit platforms, Deloitte Omnia and Deloitte Levvia are enabled and powered for high-quality digital audits of all sizes and levels of complexity Deloitte Omnia is a comprehensive cloud-based audit platform used for large and complex audits, while Deloitte Levvia is a digital audit platform suitable for at-risk audits lower and less complicated Development, enhancement and deployment of both platforms will continue over the next several years Deloitte is also developing and deploying cutting-edge global data and analytics solutions and integrated technology suites that support innovation, all connected in the cloud
In addition, DAP and DTT always organize seminars and training sessions on the application of software and applications in auditing such as Deloitte I-Count, Exel Data Analysis, Cura, for all employees Always updated promptly, keeping pace with digital transformation EMS audit software is also continuously upgraded and developed to maintain and create customer data, analyze sampling, collect evidence, assess risks and verify the appropriateness of evidence provided by customers supplies
3.1.2 Orientation for future market and service expansion
Deloitte's superior multi-disciplinary business model includes audit and assurance activities, tax consulting, corporate strategy consulting, etc and is increasingly expanding its scale Financial reporting and disclosures by businesses will become increasingly complex due to environmental, social and governance (ESG) considerations as well as other issues (AI, personal data, …) Therefore, the multi-specialty model (MDM) was born to provide these specialized services
Deloitte Vietnam aims to expand Assurance services to meet the increasing demand, especially for current ESG reporting The company has actively implemented:
• Participate in shaping the capital market infrastructure that aligns sustainability reporting with corporate value through collaboration on the development of ESG and climate standards as well as assurance services initiatives, such as the IFRS Foundation, the International Auditing and Assurance Standards Board and the International Ethical Standards Board for Accountants
• Actively participate in various global platforms such as the World Economic Forum and the United Nations Framework Convention on Climate Change 2022 (COP27)
• Implement in-depth guidance for use in providing sound assurance for ESG performance through Deloitte's global approach to sustainability-related assurance Build capacity through global and local learning focused on ESG
• Develop technology-enabled tools, including tools to evaluate corporate sustainability disclosures against common ESG standards
To help the world achieve the goals of the Paris Agreement, Deloitte launched WorldClimate, a strategy to promote responsible climate choices across the Deloitte network and its members
3.1.3 Orientation for human resource development and training
Deloitte continuously develops training, career development and performance management programs The company is committed to providing a positive work experience, professional development and career development by creating a lifelong learning environment Continuously creating learning initiatives and optimal applications, employees regularly participate in training courses and online training courses directly linked with employees at Deloitte members around the world to work together exchange and study In addition to the necessary expertise in auditing, auditors are also equipped with skills in data analysis, project management, critical thinking, etc
For students in years 2, 3, and 4, they have the opportunity to experience the
"Deloitte Passport" recruitment process and become interns of the company After finishing the internship, students can gain the opportunity to officially work at the company
3.2 Solutions to complete the audit of customer loan items in commercial bank financial statement audits implemented by Deloitte Auditing Company Limited
For collecting evidence for customer loans, to overcome delays due to time spent waiting for focal branches, auditor can make a list of loans or collateral Ensure you choose a sample, then send the list to branches in advance before performing the audit at the customer to save time sending and receiving documents
In addition, the auditor can review samples of selected loans and collateral assets and compare them with the list of samples checked during the mid-year review For duplicate samples, the auditor only needs to request the branches Provide additional documents and vouchers arising from the mid-year review to the end of the year instead of requesting all documents for this loan To increase the effectiveness of this method, auditor can store and manage records of the mid-year review according to the branch code and customer code provided by the bank
As usual, between bank, branches and the audit firm have an exchange channel which is internally generated by the bank This channel supports the auditors to chat and communicate with the officer at any branches of the bank And the officer will send the required materials through this internal email for the auditors to ensure about confidentiality In fact, there are so many credit officer are not interested in providing documents on time and ignores calls from auditors After resending several times of email for the credit officers with attaching both branch director and head manager of their department for reminder, they send back Recommendation for this case is that the audit firm should negotiate with the client to create a general system same as the Google form platform that only updates the requirements of the auditor about provided materials to each branch Everyday, the person in the branch who incharges with controling and sending materials to the auditors will check the requirements in the system and prepare the suitable documents uploading on the space for the audit team
As for evidence of third-party confirmation letters, due to the characteristics of the bank's credit operations, the number of confirmation letters for customer loans is often relatively large Therefore, the auditor should make a list and send a balance confirmation letter to the third party before fieldwork so that the third party can respond on time The auditor should also request the third party to send the confirmation letter back directly to the auditor's address, not through the bank At the same time, before sending, it is necessary to scan the confirmation letter and send it to the email address of the senior in charge This not only ensures increased reliability of the confirmation letter, but also helps auditor save time collecting evidence and avoid losing confirmation letters Besides that, DTT can consider to create an department which specialize only jobs related to confirmation letter from making, sending, controling and receiving This department will relief bunch of work and reduce stress for the auditors that they can only concentrate on completing files and working papers For example, at KPMG, they have KDC Department (KPMG Delivery to Customer) to be responsible for confirmation letter
- Allocating materiality levels to customer loan items
In any audit, determining the overall materiality and allocation to items is important and an indispensable step in an audit Auditing Standard No 320 “When planning an audit, the auditor must determine an acceptable level of materiality as a standard for detecting quantitatively material errors However, to evaluate errors that are considered material, auditors must also consider both quantitative and qualitative aspects of errors Determining materiality is a job of professional judgment for the auditor Allocating materiality levels to items helps auditors identify important and high-risk items, thereby creating a plan for collecting appropriate and highly reliable audit evidence
Currently, in Vietnam, almost all companies determine the overall scale and then allocate the same level of materiality to each item Some audit companies evaluate and allocate materiality by choosing a percentage, which can be more accurate than choosing coefficients 1, 2, 3 because the percentage has larger oscillation range (from 0% to 100%) However, these percentages are mostly only used at specific values such as 20%, 40%, 80% and do not take into account odd percentage coefficients This cannot accurately assess the materiality of items because for each item, depending on the business, the level of risk is different Deloitte Auditing Company Limited also evaluates the materiality of each item equally The allocation of materiality depends on factors such as, overall materiality; nature and scale of items; Potential risk level and control risk for each item, auditor's experience in which the auditor's experience factor is the main factor but the company cannot evaluate this factor
To accurately assess the relative materiality of items on the balance sheet in general, and loans in particular, it is necessary to allocate materiality to the items The steps to evaluate and allocate materiality can be carried out in many ways Specifically, an allocation plan is as follows:
Step 1: Calculate the materiality of the entire population
Step 2: Allocate materiality to items
Materiality is temporarily allocated to item A
Balance of item A Total balance of allocated items
Step 3: Create a table summarizing the materiality level of the initial allocation to the items
Accounts for customer loans
APPENDIX I: Accounts for customer loans
21 Loans to domestic economic organizations and individuals
211 Short-term loans in Vietnamese Dong
212 Medium-term loans in Vietnamese Dong
213 Long-term loans in Vietnamese Dong
214 Short-term loans in foreign currency and gold
215 Medium-term loans in foreign currency and gold
216 Long-term loans in foreign currency and gold
Discounts on negotiable instruments and valuable papers for domestic economic organizations and individuals
221 Discounts on negotiable instruments and valuable papers in Vietnamese Dong
222 Discount negotiable instruments and valuable papers in foreign currency
241 Payments on behalf of customers are in Vietnamese
242 Payments on behalf of customers in foreign currency
26 Credit to foreign organizations and individuals
261 Short-term loans in Vietnamese Dong
262 Medium-term loans in Vietnamese Dong
263 Long-term loans in Vietnamese Dong
264 Short-term loans in foreign currency and gold
265 Medium-term loans in foreign currency and gold
266 Long-term loans in foreign currency and gold
267 Other credit in Vietnamese Dong
268 Other credit in foreign currency and gold