Trình bày tương đối đầy đủ các thủ tục kiểm toán, có sự liên hệ với mục tiêu kiểm toán và các nội dung lý thuyết đã trình bày nhưng còn thiếu logic ở một vài điểm.. Trình bày đầy đủ các
INTRODUCTION OF ERNST & YOUNG VIETNAM LIMITED 3 1.1 History and development
Organizational Structure of EY Vietnam
The organizational structure of the company is divided into the following divisions:
Table 1 Organizational Structure of EY Vietnam
Table 2 Organizational Structure of Core Assurance department of EY Vietnam
Service lines
EY teams provide trust, help clients grow, transform and operate through four main integrated service lines – Assurance, Consulting, Strategy and Transactions, and Tax
EY Assurance services, which include Audit, Financial Accounting Advisory Services (FAAS), and Forensic & Integrity Services, play a crucial role in fostering trust and confidence in businesses and capital markets By delivering these services, EY Assurance helps safeguard and enhance sustainable, long-term value for stakeholders, ultimately serving the public interest.
EY's consulting services drive business transformation by leveraging the strengths of people, technology, and innovation They provide expert advisory in areas such as cybersecurity, strategy, risk management, compliance, and resilience, alongside specialized transformation services like digital and technology transformation.
Manager Manager Senior Staff Internee
EY SaT enables clients to manage the crisis and stabilize their businesses in the short term
It can also help navigate the downturn and position businesses themselves for recovery or look beyond to enable business transformation through corporate strategy and transactions, M&A, and divestments
EY's tax experts provide comprehensive services across various tax disciplines, enabling businesses to succeed in a rapidly evolving landscape With expertise in business tax, international tax, transaction tax, and tax-related matters concerning people, compliance, reporting, and legal issues, EY is well-equipped to address the diverse needs of organizations.
Scope of EY Vietnam intern
At EY Vietnam, interns in the audit department (Core Assurance) receive comprehensive training on the profession, working environment, and essential professional skills Each week, under the guidance of the audit team leader, interns engage in evaluating the internal control systems of various enterprises and conducting control tests They also participate in low-risk basic operations, assisting audit assistants and team leaders in reviewing audit report information Over the course of a three-month internship, interns typically work on the audit processes of around 10 clients, help witness inventory counts, and support the audit team in managing confirmation letters and document organization.
THE AUDIT PROCEDURES FOR INVENTORIES & COGS BY
Theoretical review
Existence (E) Inventory balances reported on financial statements actually exist at the reporting date
Completeness (C) Inventories reported on the balance sheet include all inventory transactions that have occurred during the accounting period Rights and obligations (R&O)
All inventories reported on the financial statements as of the reporting date really belong to the company
Valuation (V) Inventory balances truly reflect their economic value
Inventory is properly classified and sufficiently disclosed in the notes to the financial statements
In inventory audits, auditors prioritize the existence and valuation of items, ensuring they are accurately accounted for according to relevant accounting standards For real estate companies, verifying the completeness of inventory is crucial and presents unique risks, as these items differ significantly from those found in manufacturing and service industries.
All year-end balances for all the respective components of COGS should be accurately valued and categorized as per accounting principles
Relevant purchases reported on the balance sheet include all inventory transactions that have occurred during the accounting period
All the declarations reported on the financial statements as of the reporting date really belong to the company
Cut-off COGS balances should be included in the balance sheet that is relevant to the current year
Audit procedures for Cost of Goods Sold (COGS) involve examining all elements of the COGS formula, including opening inventories, purchase costs, and closing inventories Auditors should specifically verify purchase details, conduct inventory reconciliations, and ensure the accuracy and completeness of COGS balances at the end of the reporting period.
2.1.2 Key areas of fraud risk when auditing inventories and cost of goods sold 2.1.2.1 Fraud risk when auditing inventories
Inventories are valuable assets that carry considerable inherent risks, primarily stemming from business challenges faced by management These risks include potential losses from poor product quality, obsolescence, and theft Additionally, various factors contribute to the likelihood of material misstatement in inventory valuation.
1 Inventories often constitute a large current asset of an enterprise and are very susceptible to major errors and fraud
2 The accounting profession allows numerous alternative methods for valuation of inventories, and different methods may be used for various classes of inventories
3 The determination of inventories value directly affects the cost of goods sold and has a major impact on net income for the year Therefore, if management is inclined to engage in fraudulent financial reporting, the fraud will likely involve overstating of inventories
4 The determination of an inventory’s quality, condition, and value is inherently a more complex and difficult task than is the case with most other elements of financial position Many items, such as precious gems, sophisticated electronic parts, and construction in progress, present significant problems of identification and valuation
When auditors detect a fraud risk related to inventories, they will assess the management's established programs and controls to mitigate that risk They will verify the implementation of these controls and subsequently develop suitable procedures to address the identified risk effectively.
2.1.2.2 Fraud risk when auditing the cost of goods sold
The cost of goods sold is a crucial financial metric that necessitates a rigorous accuracy testing process It carries inherent risks that must be acknowledged, including control risk and the potential for material misstatement These associated risks are elaborated upon in the sections that follow.
Inherent risk in the cost of goods sold arises primarily from potential misstatements related to inventories This risk necessitates that auditors carefully assess and address these factors to ensure accurate financial reporting and representation Miscalculations or omissions of inventory on financial statements significantly contribute to this inherent risk, highlighting the importance of thorough auditing practices.
Effective internal control is crucial for inventory management, as it significantly reduces the risk of inventory miscalculation Conversely, the absence of internal controls leads to a substantially higher risk profile for organizations, making it essential to implement robust internal control measures.
Auditors must recognize the risk of material misstatements in purchase audits, which are equally important as revenue audits To ensure accuracy, audit procedures should be tailored to reconcile purchases with inventory figures, validating the declared cost of goods sold.
Audit procedures of inventories and cost of goods sold by EY Vietnam Limited
At EY, the audit of inventories and cost of goods sold is conducted simultaneously, with auditors utilizing a worksheet to reconcile the effects between these two financial elements.
Moreover, for two types of enterprises - manufacturing or service businesses and real estate companies, they have different audit procedures for inventories and cost of goods sold
2.2.1 The most comprehensive process of inventories and cost of goods sold for manufacturing or service businesses audited by EY Vietnam
According to Accounting Standard No 2 on inventories, established by Decision No 149/2001/QD-BTC on December 31, 2001, by the Minister of Finance, the "Inventories" target must be recorded on the enterprise's balance sheet at the conclusion of each month, quarter, and year.
For manufacturing and trading companies, the "inventory" section on the balance sheet encompasses various categories such as raw materials, work-in-progress items, finished goods, and merchandise Auditors must implement suitable procedures tailored to the different inventory types and the corresponding cost of goods sold for each category.
2.2.1.1 Audit procedures of inventories for manufacturing or service businesses audited by EY Vietnam.
Observation of physical inventories & inventory counts
- Evaluate management’s instructions and procedures
- Observe the performance of the entity’s counting procedures and perform test counts
- Trace test counts to the entity’s inventories compilation and determine
Trace confirmed quantities to the inventory compilation or consider observing these physical inventories as well
Reconciliation of inventories compilation or final inventories listing with general ledger
To ensure accuracy and reliability, it's essential to reconcile physical inventory compilation values with general ledger account balances and perpetual inventory records This process involves investigating any unusual or discrepancies found during the reconciliation and testing other reconciling items based on a predetermined testing threshold to verify their validity.
F-04-GL: Roll forward procedures - inventory
- Update lead sheet and compare balances
- Test reconciliation of SL to GL
- Test key items, sample items selected
Valuation in accordance with accounting policies
- Compare accounting policies and balances
- Select and test key items
- Determine, select & test representative samples
F-07-GL: Net realizable value and obsolescence testing
- Test NRV by Obtaining provision
Whether the entity’s policies and processes result in cycle counting programs that are sufficiently reliable to produce results substantially the same as
11 those that would be obtained by a count of all items each period
Table 5 Audit procedures of inventories for manufacturing or service businesses
2.2.1.2 Audit procedures of cost of goods sold for manufacturing or service businesses audited by EY Vietnam.
The primary substantive procedures applicable to the cost of sales focus on the comparison of the cost of sales and gross margins with the prior period
Comparison of cost of sales and gross margins with the prior period
- Obtain detail on the cost of sales accounts in comparison with the prior period Explain unusual or significant fluctuations, including the lack of expected fluctuations
- Review gross margin percentages (e.g., by product line, geographical area or segment) in comparison with the prior year
- Investigate unusual or significant changes in gross margin percentages based on the established testing threshold
- Perform tests of transactions based on the combined risk assessment, when required
Table 6 Audit procedures of cost of goods sold for manufacturing or service businesses
EY GAM offers Payment Service Providers (PSPs) the option to utilize traditional audit techniques or data analytics HxPSPs present a valuable alternative for gathering sufficient and appropriate evidence to address the identified risks of material misstatement in significant accounts and certain disclosures, leveraging EY’s advanced data analytic tools.
These hxPSPs replace the need to perform the traditional PSPs discussed in this COGS Section:
• VA.hx-F.01: Analyze gross margin to verify cost of goods sold
• VA.hx-F.02: Evaluate the relationship between cost of goods sold and inventories (optional)
• VA.hx-F.03: Perform journal entry postings between payables, inventories and cost of goods sold (optional)
• VA.hx-F.04: Compare the composition of cost of goods sold to inventories (optional)
• VA.hx-G.01: Perform other cost of goods sold procedures, as necessary (optional rollforward)
2.2.2 The most comprehensive process of inventories and cost of goods sold for real estate companies audited by EY Vietnam
In real estate companies, particularly in construction and hospitality, "inventory" on the balance sheet encompasses two key components: finished goods, such as completed apartments and houses, and work in progress, which includes the value of land use rights, capitalized interest expenses, design costs, and construction costs for ongoing projects Finished goods are recorded when a project is completed and ready for use but not yet sold, while work in progress captures costs incurred during the project's implementation phase, including site clearance, design, supervision, and construction expenses Auditors play a crucial role in this process by gathering relevant documentation, monitoring the tangible assets and project stages, and ensuring proper classification of inventory items.
2.2.2.1 Audit procedures of inventories for real estate companies audited by EY Vietnam
Obtain and understand about general
- Perform to understand the nature of the project
- Monitor, check and compare the progress of projects
F-02-GL: Roll forward procedures - inventories
- Update lead sheet and compare balances
- Test reconciliation of SL to GL
- Obtain breakdown of work in progress
- Break detail nature by project or expense
- Summary WIP and review unusual transaction
- Test of details for WIP and FG
- Test NRV for merchandised goods
- Test cut-off for WIP and FG
Table 7 Audit procedures of inventories for real estate companies
2.2.2.2 Audit procedures of cost of goods soldfor real estate companies audited by
Verification of contract costs incurred
- Verify that contract costs incurred to date have been properly recorded
- Test, in a manner consistent with our combined risk assessment, whether contract costs include identifiable direct and indirect costs and an acceptable and consistent allocation of costs to specific contracts
- Perform tests of transactions based on the combined risk assessment, when required
- Evaluate (e.g., through analytical procedures, review of subcontracts and purchase orders for materials
14 and equipment, or a combination thereof) whether the entity’s estimate of costs to complete the projects is reasonable
Table 8 Audit procedures of cost of goods sold for real estate companies
EY auditors develop Other Substantive Procedures (OSPs) to address the Completion of Relevant Assertions (CRA) for significant accounts and disclosures when sufficient appropriate audit evidence cannot be obtained solely from the Planned Substantive Procedures (PSPs) This approach ensures a thorough response to each relevant assertion.
When the Control Risk Assessment (CRA) is low, auditors expand the scope of their Planned Substantive Procedures (PSPs) and assess the necessity to create tailored Overall Substantive Procedures (OSPs) to mitigate specific risks of material misstatement at the assertion level This approach is essential to address the elevated inherent risk assessment and effectively respond to significant risks.
CRA is moderate, auditors increase the extent of the PSPs and determine the need to design OSPs to address any risks associated with not testing controls
When the Control Risk Assessment (CRA) is elevated, auditors develop tailored Overall Audit Strategies (OSP) to mitigate the specific risks of material misstatement at the assertion level This approach not only responds to significant risks but also addresses any potential risks linked to the absence of control testing.
Illustrating the audit procedures for inventories and cost of goods sold at
Effective engagement planning allows auditors to define the service scope and collaborate with governance and management to clarify expectations and service requirements This process helps establish clear engagement terms, minimizing potential misunderstandings with clients Additionally, auditors assemble a specialized audit team to ensure comprehensive expertise is applied throughout the engagement.
To effectively prepare the audit plan, the Senior in Charge (SIC) must engage with the client to establish mutual requirements and finalize an audit contract Given that ABC is a longstanding entity, this initial agreement is crucial for a successful audit process.
15 client of the company, the auditors only need to perform a risk assessment and consider continuing to maintain the old client
The audit team is formed based on the company's size and workload, typically consisting of one Senior Auditor, one Assistant, and one Intern.
Auditors evaluate the risks of material misstatement by gaining a comprehensive understanding of the entity, which encompasses its business nature, environmental factors, and the specific risks it encounters.
ABC Joint Stock Company is a shareholding entity established under Vietnam's Law on Enterprise, with Business Registration Certificate No 0303104343 issued by the Ho Chi Minh City Department of Planning and Investment on November 23, 2007, and has undergone subsequent amendments.
The Company was officially listed on the Ho Chi Minh City Stock Exchange (HOSE) on December 14, 2009, under Decision No 161/QD-SGDHCM Its primary operations include offering construction services, trading real estate properties, and providing real estate brokerage along with other related services As per the Certificate of Business Registration No 0303104343, dated December 1, 2022, the Company's charter capital amounts to VND 6,117,790,020,000.
ABC Company utilizes an internal accounting system to streamline its daily business operations, effectively managing fixed assets, accounting functions, and purchasing processes.
Accounting practices and reporting obligations: Accounting practices starting on
January 1st and ending on December 31st, yearly
Accounting book form: The Company uses a computerized general journal accounting
ABC JSC is preparing its financial statements in accordance with Vietnam Accounting Standards (VAS) and the requirements set by the Vietnam Tax Authority Recently, there have been no major changes in the audit requirements from the Vietnam Tax Authority, aside from the impacts of Circular No 200/2014/TT-BTC, which was issued by the Ministry of Finance on December 22.
2014, providing guidance to the enterprise accounting system
2.3.2.2 Understanding and evaluating the internal control system related to inventories and cost of goods sold
Design tests of control – understand the internal control system of Inventories & Costing
EY auditors prioritize comprehending Significant Classes of Transactions (SCOTs) and the company's established processes to identify risks of material misstatements stemming from fraud or error They assess these risks in relation to the overall financial statements and specific assertions for significant accounts and disclosures Utilizing the What Can Go Wrong (WCGWs) methodology, auditors raise critical questions to enhance their understanding of internal controls.
Figure 3 TOC of Inventories & Costing
EY conducts audits of Inventories and COGS for ABC, a real estate company, where the associated risks are significant, particularly concerning the recording system As a result, auditors typically implement thorough tests of control (TOC) to ensure accuracy and reliability in the financial reporting process.
As of December 31, 2022, ABC JSC's inventory comprises finished goods (FGs) and works in progress (WIP) The finished goods include completed projects such as SV 12, OR, LC, and primarily LG, which have not yet been handed over to customers Meanwhile, the works in progress reflect ongoing construction efforts, with their value primarily derived from accumulated expenses related to infrastructure and development costs, including the OG project.
The company offers a diverse range of products, including office supplies and tools, as well as promotional merchandise such as clocks, teacups, electric cookers, iPads, and helmets These items are designed to enhance the office and sales department experience while also serving as thoughtful gifts for customers.
In correspondence with the revenue of ABC JSC, there are four types of COGS:
1 COGS and inventories of finished goods (apartment) In general, COGS of apartments include expenses for infrastructure development (project transfer value) and construction works (construction for sub-contractors, capitalized interest expense, consultant, design, etc.)
2 COGS - Commission for brokerage service - The BCC contract signed with ABC’s subsidiaries will share net income without COGS For the self-brokerage service, COGS include commissions paid to ABC’s sales staff and commissions paid to the sub-broker
3 COGS - Management Service - Record mainly expenses paid for supplier- rendered services such as telephone, electricity, water, garbage fee, cleaning, security, and management fee for the project management board
4 COGS - Investment properties COGS is the depreciation expense of investment properties for leasing and the transfer of the net book value of investment properties for sale
Auditors will focus on a comprehensive analysis of the Cost of Goods Sold (COGS) and finished goods inventories, which represent approximately 95% of the total cost records, while the remaining costs primarily consist of actual expenses incurred during the period.
Recording and Processing of TOC
Evaluation of audit results
At ABC JSC, the auditors have completed the audit procedures for inventories and cost of goods sold, confirming that all sections were thoroughly conducted They have collected all necessary documents and year-end inventory minutes, which are accurately recorded and presented The auditors assert that all assertions have been satisfied, concluding that the inventory items are recorded and presented in a true and fair manner.
In the audit process at EY, readers can identify both the similarities and differences in approaches for various business types The purpose of EY's process classification is clearly outlined, particularly in relation to a real estate company and the description of audit procedures for inventories and cost of goods sold for a service enterprise, as detailed in Appendix 1 This analysis underscores the significance of tailored audit strategies for different sectors.
58 auditing inventories and COGS operations is more difficult for auditors because of their complexity
The primary objective of an audit is to validate the account balances at the end of a reporting period, particularly focusing on inventory assertions such as existence, completeness, valuation, and cut-off Given the distinct inventory characteristics of manufacturing and trading businesses, audit procedures will vary accordingly For these enterprises, "inventory" encompasses raw materials, work-in-progress (WIP), finished products, and merchandise, necessitating a heightened emphasis on completeness, valuation, and cut-off assertions due to the constant fluctuations in inventory quality Additionally, the diversity of inventory models often leads to a relative assurance of existence.
In real estate businesses, inventory is categorized into two main items: finished goods, such as apartments and houses, and the costs associated with unfinished products, including land use rights, capitalized interest, design, and construction expenses for ongoing projects This distinction necessitates the presence of inventory in auditors' working papers, alongside completeness and cut-off assertions The substantial balances of inventory and the lengthy, complex process of completing real estate products highlight the importance of accurate documentation Furthermore, legal documents for projects are crucial, as any inaccuracies in recording can significantly impact the financial statements of real estate companies.
In conclusion, auditors must adhere strictly to regulations and procedures while also demonstrating flexibility to adapt these guidelines to the unique circumstances of each business.
COMMENTARY AND RECOMMENDATION
Commentary on the general audit process at Ernst & Young Vietnam
A complete and specific theoretical basis system – EY GAM, EY Atlas
EY Vietnam's audit process is meticulously structured, following the comprehensive EY Global template, which is clearly illustrated through detailed procedures and tasks via the EY GAM application The global information system, EY Atlas, supports auditors by providing a robust framework for executing audit procedures that align with International Standards on Auditing These guidelines, informed by the extensive experience of EY's elite auditors worldwide, are regularly updated to remain compliant with auditing standards and local regulations.
Information is stored, presented scientifically – EY Canvas
At EY Vietnam, the transition from manual to electronic storage of working papers and audit evidence has streamlined the audit process All relevant data, including audit evidence, client information, and contract details, has been successfully migrated to the EY Canvas system This enhancement allows the audit team to efficiently access previous years' working papers for comparison and reference, facilitating the quick updating of current period documents This system significantly aids team members, particularly those new to the audit process, in gaining a comprehensive understanding of the client's company profile.
Scientific and detailed audit process
All audit work is meticulously planned and assigned, ensuring adherence to standard procedures aligned with the Vietnam Association of Certified Public Accountants (VSCPA) and relevant regulations Throughout the audit process, auditors engage in reciprocal comparisons with team members possessing pertinent information Additionally, during both the planning and implementation stages, auditors develop various analytical procedures, providing them with a comprehensive understanding of the business's performance.
60 in the audit year Performing the procedure at this stage helps the auditors focus more on what they perceive to be high risk
EY prioritizes employee development by organizing regular training sessions and sponsoring international professional certification studies Each year, employees reaffirm their commitment to auditor independence EY's auditors possess extensive expertise and industry knowledge, fostering a culture of skepticism and responsibility to mitigate the risk of material misstatement.
Commentary on the inventoires and cost of goods sold audit process at
Auditing inventory and Cost of Goods Sold (COGS) is one of the most challenging aspects of the audit process, requiring auditors with significant experience and expertise Senior auditors are well aware of the complexities in this area and provide essential support to audit assistants EY has developed comprehensive audit procedures for inventory and COGS, adhering to International Accounting Standard No 02 - Inventories To maintain high-quality standards, most audit assistants receive extensive training, given the sensitivity of inventory and COGS, which are vulnerable to fraud, embezzlement, and theft.
Auditors invest considerable time analyzing inventories and cost of goods sold (COGS) due to their importance in financial statements However, many audit procedures at this stage often fall short because of time constraints and the pressure to complete all tasks efficiently.
Different industries exhibit unique COGS and inventory structures, making the audit process challenging The effectiveness of audits relies heavily on the auditor's experience and understanding of specific business sectors Inexperienced auditors often apply a mechanical approach to testing, which is unsuitable for the profession, leading to inefficient use of time and failing to meet audit objectives.
In the absence of control testing, auditors are required to conduct additional substantive testing, which can significantly extend the time needed during the implementation phase This shift from control testing to more substantive processes is essential for ensuring thorough audits.
Experience learned through internship
During my three-month internship at EY Vietnam, I gained invaluable experience in actual audit processes, thanks to the enthusiastic guidance of my colleagues in the audit teams The practical knowledge I acquired at school significantly enhanced my understanding of the audit procedures and their objectives during this internship.
During the training at EY Vietnam, the writer enhanced valuable Excel skills and improved computer proficiency through practical audits Working as an audit assistant allowed for interaction with diverse clients nationwide and collaboration with various audit teams, significantly boosting professional development This experience also facilitated the establishment of numerous beneficial relationships throughout the internship.
Through working with EY's diverse audit clients across various industries, the writer gained valuable insights into different operational processes This knowledge was acquired by reviewing client documents and engaging with the audit team leader, who shared their expertise and experiences.
Through conducting audits and observing inventories across various businesses, the writer gained valuable insights into effective sampling methods tailored to specific requirements This experience enhanced professional judgment and personal expertise, ensuring that no unusual items were overlooked.
Vietnam's audit industry, particularly EY Vietnam, has experienced significant growth alongside the country's economic development, enhancing its quality and solidifying its market reputation During my internship at Ernst & Young Vietnam Co., Ltd., I gained insights into the company's history, organizational structure, and key business areas, while also experiencing the realities of audit work Participating in the audit team allowed me to engage in basic audit practices and acquire valuable knowledge, soft skills, and experiences from team members, all of which are essential for my future career.
Participating in client company audits has provided me with practical insights that complement my theoretical knowledge from school By comparing these experiences with the auditing processes of large firms, I have developed a comprehensive understanding of inventory auditing in the financial statement audits conducted by Ernst & Young Vietnam Co., Ltd.
This article provides an overview of the audit process, exemplified by a typical customer scenario, and encourages readers to share their thoughts and evaluations Acknowledging its limitations due to the author's limited qualifications, minimal practical experience, and brief internship, the article invites feedback from teachers and auditors to enhance its content.
I would like to extend my heartfelt thanks to Mr Bui Anh Thanh and my colleagues at Ernst & Young Vietnam Co., Ltd for their invaluable support and guidance throughout my internship, which greatly contributed to the successful completion of my graduation thesis.
1 Arens, A A., Elder, R J., Beasley, M S., & Hogan, C E (2016) Auditing and assurance services Auditing and Assurance Services
2 B (2019, December 31) Audit Inventories | Assertions | Procedures - Accountinguide In Accountinguide
3 EY Atlas Website: live.atlas.ey.com
4 EY Internal working papers Website: eycanvas.ey.net
5 Ho Chi Minh City National University - Department of accounting and auditing
(2008), Thực hành kiểm toán, Vietnam National University Publishing House, HCMC
6 Ministry of Finance (2014), Circular No.200/2014/TT-BTC, Guidance on corporate accounting regime, Hanoi
7 Ministry of Finance, Vietnam Auditing Standards System, Finance Publishing House, Hanoi
8 The Institute of Chartered Accountants in England and Wales (2022) Assurance London: United Kingdom
9 Sinra, S (2021, April 28) Auditing cost of goods sold - risks, assertions, and procedures AUDITHOW
Illustrating the audit procedures for inventories and cost of goods sold by at XYZ Company by EYVietnam Limited
To effectively prepare the audit plan, the Senior in Charge (SIC) must engage with the client to establish mutual requirements and finalize an audit contract Given that XYZ is a long-standing client, the auditors will conduct a risk assessment to determine whether to continue the relationship Subsequently, the audit team is formed, consisting of one Senior, one Assistant, and one Intern, with team size varying based on the client's scale and the workload involved.
Auditors evaluate the risks of material misstatement by gaining a comprehensive understanding of the entity, which includes its business nature, operational environment, and the specific risks it encounters.
XYZ Inc is a fully foreign-owned enterprise established under Vietnam's Law on Enterprise, operating with Investment License No 2535/GP issued by the Ministry of Planning and Investment on December 28, 2005, and an amended Investment License No 2535/GCNĐC1/41/1 granted by the People's Committee of Ho Chi Minh City on January 13, 2014.
The Company is focused on developing a comprehensive solid waste management solution that includes the classification, collection, recycling, and reuse of waste This initiative aims to convert organic waste into fertilizer and safely dispose of residual garbage in landfills.
IT process and system: XYZ Company is currently using the Bravo system in their daily business activities, which could help to manage fixed assets, accounting systems, and purchasing processes
- Accounting practices and reporting obligations:
• Accounting period: Starting on January 1st and ending on December 31st, yearly
• The Company records accounting numbers in VND
• Applicable accounting book form: The Company uses computerized general journal accounting
XYZ Inc is in the process of preparing financial statements in accordance with Vietnam Accounting Standards (VAS) and the requirements set by the Vietnam Tax Authority Notably, there have been no significant changes in the client's business that could impact the audit, apart from the implications of Circular No 200/2014/TT-BTC issued by the Ministry of Finance on December 22.
2014, providing guidance to the enterprise accounting system o Understanding and evaluating the internal control system related to inventories and cost of goods sold
Here is the comprehensive process of inventories and cost of goods sold auditing at XYZ Company by EY Vietnam
Design tests of control – understand the internal control system of Inventories
EY auditors prioritize understanding Significant Classes of Transactions (SCOTs) and the company's standard processes during audits They aim to identify and assess risks of material misstatements due to fraud or error, as well as related risks to overall financial statements and pertinent assertions for significant accounts and disclosures Utilizing the What Can Go Wrong (WCGWs) methodology, they pose critical questions to gain insights into internal controls.
EY typically conducts audits of Inventories and Cost of Goods Sold (COGS) concurrently Given that XYZ is a service company, the associated risks with these items are notably elevated, particularly concerning the purchasing system As a result, auditors often implement thorough tests of control (TOC) to ensure accuracy and compliance.