Perfecting analysis implementation to improve the internal audit’s effectiveness in construction companies

MINISTRY OF EDUCATION NATIONAL ECONOMICS UNIVERSITY NGUYEN THI DAO PERFECTING ANALYSIS IMPLEMENTATION TO IMPROVE THE INTERAL AUDITING’S EFFECTIVENESS IN CÓNTRUCTION COMPANIES MAJOR: ACCOUNTING (ACCOUNTING, AUDITING AND ANALYSIS) CODE: 62343001 ABSTRACT OF DOCTORAL THESIS ECONOMICS HA NOI, 2014 RESEARCH IS FINALIZED AT NATIONAL ECONOMICS UNIVERSITY INSTRUCSTOR: PROF.DR NGUYEN QUANG QUYNH DR LE THI XUAN APPRAISAL 1: APPRAISAL 2: APPRAISAL 3: THE THESIS IS PROTECTED ANH MARK AT THE COUNCIL OF THE STATEAT NATIONAL ECONOMICS UNIVERSITY RESPONSE TO …… DAY………MONTH…….YEAR THESIS CAN BE FOUN AT NATIONAL LIBRARY LIBRARY OF THE NATION ECONOMICS UNIVERSITY INTRODUCTION While internal audit (IA) was established and developed a long time ago in the world, this type of audit appeared relatively late in our country Not until 1997 did internal audit officially come into existence and get accepted in legal documents During the process of development, although internal audit partly contributed to the development of regulation in common, it has revealed problems influencing the efficiency of auditing This has been shown in the internal audit activities of various businesses including construction - which is among those with developed internal audit activities and also a sophisticated business In Viet Nam, internal audit exists in large construction companies which are regularly corporations Despite major contributions in management, internal audit has revealed problems influencing the efficiency of auditing, for instance, a confining performance of auditing functions; the failure to meet manager’s expectations This has raised a matter of recognizing and solving issues deriving during the auditing process Analysis is considered an instrument to help internal audit solve these issues Thus, the author chooses the topic “Enhancing the organization of analysis activities along with improving the efficiency of internal audit in construction corporations” In the world and in Viet Nam, there have been several research projects relating to designing and applying the process of analysis in auditing as a whole, particularly in association with the type of financial audit undertaken mainly by independent auditors Yet there has been no study, theoretical or practical, to investigate the analytical organization associating with improving the efficiency of internal audit, particularly in Vietnamese construction corporations Therefore, the research objective of this PhD thesis is to discover how analytical organization influences the efficiency of internal audit in Vietnamese construction corporations Distinctively, the author will establish an analytical model in order to increase the efficiency of international audit in Vietnamese construction corporations Given that purpose, the research object of this thesis is the organization of analyzing process in auditing which is undertaken by internal auditors The thesis considers only matters occurring during the activity of analytical organization in the process of internal audit in large Vietnamese construction corporations during the period from 2008 to 2012 The author applies the thesis approach by using a process of conducting a complete internal audit with stages in Figure 1.A below: APPLYING THE ANALYTICAL METHOD Planning and designing the auditing program Conducting the auditing plan Finishing the audit process and making report Examining the conduction of auditors’ proposals FACTORS COMPOSING THE AUDITING EFFICIENCY INFLUENCED BY THE ANALYZING PROCESS CONCLUSION OF AUDITING EFFICIENCY IN RELATION WITH EMPLOYING ANALYZING PROCESS Figure 1.A: Research approach method of the thesis The thesis uses descriptive statistics, comparative and evaluative methods, based on a model applying the analyzing process in auditing, with data collected The author develops the concept of one analytical organization model applied in the internal audit process to achieve the audit efficiency CHAPTER 1: GENERAL THEORY OF ANALYTICAL ORGANIZATION THE ANALYSIS WITH THE EFFICIENCY OF INTERNAL AUDIT IN CONSTRUCTION CORPORATIONS 1.1 Overview of analytical organization 1.1.1 The nature of analysis Economic analysis is an instrument of economic management to “dissect”, summarize and evaluate economic and social events to establish reliable and effective solutions with the purpose of improving the operation of numerous management systems in the national economy 1.1.2 Contents and method of analysis in the corporation The major contents of economic analysis are events, business processes that did or will occur in units, components and corporations under affection of subjective and objective factors These events and business processes are expressed by a specific business outcome revealed through figures Analytical method is the combination of necessary methods used to study the analytical object, allows performing specific analytical objectives Analytical methods in Economics are those that study generally and comprehensively economic activities, their processes and outcomes in order to evaluate appropriately and objectively the operation efficiency, and to discover available reserves 1.1.3 Analytical organization in the corporation Analytical organization seeks to establish an optimal relation on the bases of science and art in analysis that are correspondent with each specifically analytical object Analytical organization in the corporation is often dependent on business specific features, types of business and characteristics of each corporation 1.2 Organization of internal audit and the role of analysis In the world, internal audit developed quite early, since the 1900s [86] The popular opinion is that “…the internal audit is an independent activity, ensures the objects and consultative activities, is established to increase the value and improves the activities of an organization The internal audit assists organization in performing its objectives with the systematic and regular approach in order to evaluate and enhance the effect in risk management, supervision and regulatory processes” [[89, p.725] The internal audit organizing order of in a corporation is according to Figure 1.1: Step 1: Making a plan for internal audit Step 2: Performing the plan of internal audit Step 3: Making a report of internal audit Step 4: Examining the implementation of the internal audit proposal Figure 1.1 Process of an internal audit The analysis or the process of analysis is one of the basic auditing procedures The procedure of analysis in internal audit assists auditor in making plan, performing an effective audit Analytical organization through the process or the procedure of analysis is used in the internal audit with contents, methods, performing scopes… as being generalized in Figure 1.2 below: Step Developing an analytical model Step Considering the independence and reliance of data Step Estimating values and comparing with book values Step Analyzing reasons of divergences Step Examining discoveries Figure 1.2: The procedure/process of analysis 1.3 Organization of analyzing influences on the efficiency of internal audit in corporations 1.3.1 The relation between analytical organization and internal audit efficiency Different researches conducted on the efficiency of internal audit majorly concentrate on processes, outcomes and objectives of internal audit The relation between the efficiency of the audit and the analytical procedure is described in figure 1.3: The process of analysis Achieving the efficiency of audit Making audit plans Making plans to target risks Conducting the audit plan Conducting the overall audit Making an audit report Evaluating eventually Making an audit report for users How to apply analytical procedure in different stages? - Analyze to recognize the risks of auditing objects - Analyze to identify the risk in association with specific objects - Associate with other procedures - Analyze the overall reasonableness - c before giving opinions - Analyze to assert opinions sufficiently and appropriately Figure 1.3 Influence of analysis on the efficiency of internal audit 1.3.2 Developing the model of analytical organization aiming to increase the efficiency of internal audit in corporations The first: Analysis in making strategic plan for risks is described generally in Figure 1.4 below Charters/regulati ons of audit Organization’s objectives Management demands Uses of resources Resources for priviledged sectors Evaluating risk preferences Audit policy Strategic plans for internal audit Annual audit plans Audit Estimation Corporation risk examination Quarterly audit plans Business plans Reporting anticipated objectives Primitive examinations Audit Reporting Specific plans process Figure 1.4 General model of making plan for internal audit based on risk estimation Making a risk-oriented audit plan needs to be developed following a model going from strategic planning to overall planning and to audit programming – Figure 1.5 Organization’s objectives Organization’s strategies Evaluating sectional risks Audit results as required - Objectives Available resources Available procedures Analysis according to PESTL and SWOT models Strategic gaps Required strategic plans Performing Evaluating Figure 1.5 Process of making strategic audit plan The relation of specifying the objectives is described generally in Figure 1.6 Organization’s objectives Objectives of each audit section Objectives of each audit service Audit objectives for each auditor Figure 1.6 Levels of audit objective Applying the approach to analyze according to the top down analytical model is generalized in Figure 1.7 Business models of organization Processes Analyzing strategic risks Business strategic risks Risk Evaluation Analyzing process risks Business process risks Risk Evaluation Analyzing remaining risks Analyzing exterior threats Analyzing internal threats Risks need to be considered and applied Figure 1.7 Strategic analytical model specifying audit objectives (1) In terms of analyzing strategic risks of each section: Analysis aims at assisting auditor in specifying the position of organization in relation with external sections/organizations, including corporation’s shareholders, and at the same time specifying external threats or risk towards the organization’s success In order to analyze strategic risks, auditors need to initiate from the economic system’s factors in an organization Auditors will apply the five-competitive-force strategic analytical model (Five forces) and PESTL model to identify and evaluate strategic risks – Figure 1.8 Political factors New entrants Economic factors Suppliers Rivals Buyers Social factors Substitutes Technological factors Figure 1.8 Analyzing threats towards the business of an organization (2) In terms of analyzing business risk from internal processes: Analysis aims to indentify and then evaluate business risks upon given internal processes – Figure 1.9 Leader risk Integrity risk Compliance risk Information risk Operational risk Technological risk Financial plan making risk Labor resource risk Process risk Figure 1.9.Analyzing risk of processes Table 1.1 below describes analytical ratios used to indentify, measure and evaluate risks in internal processes Table 1.1 Analyzing internal threats Risks in processes Inferior strategy Management activities relating to risks Ratios of risk analysis and evaluation - Relating to the initiative of managers - Practicing making strategy plan - Market share - Customer’s pleasure - Maintaining customers Failure in coordinating strategies - Briefing task, strategy and business plan - Training - Market share - Customers’ record - Employee’s behavior Failure to coordinate strategy with internal resource allocation - Regularly making plan and estimating - Initiative of Board of directors - Management according to operation - Estimating - Applying operating cost and analysis the movement - Customers’ attitudes Missing opportunities - Market research - Customer surveying - Process of developing products - Market share - Comparing with rivals - Customers’ attitudes Failure in preventing threats - Active supervision of Board of directors - Supervising rivals - Supervising the external environment - Changes in market shares - Comparing with rivals - Changes in revenues and costs - Appropriate structure of encouragement - Training - Changing management - Cycle of time in terms of changes in products or processes - Replacement costs - Employee’s attitudes Lack of coordination of processes and functions - Establishing the open information exchange - Basing on information system on the basis of technology - Cycle of time in terms of reporting process - Reflections and proposals of employees - Employee’s attitudes Inappropriate value for shareholders - Providing analysis with information - Planning to repurchase shares - Market value of the equity - Price to Earning ratio - Ratio analysis Lack of flexibility Audit plan having specific time often establishes audits which are performed in a period This is considered as a basic task of internal audit function – Figure 1.10 Analysis is used in specific audit plans or in audit instruction in association with specific Business plan Audit strategy Resources Methods Audit plan with specific time Figure 1.10 The time specific relation between strategy and audit plan sections (in step of making plan) If dividing according to specifically audited object/section/operation in association with tasks and with making plans, the analytical procedure is applied on the basis of trend, rate and model analysis The second: Analysis in carrying out systematic audit Analyses need to be specific towards risk-based system auditing – Figure 1.11: (1) Examine activities such as systems, factors of one system, componential systems, parallel systems and parental systems, (2) carry out the systematic approach with carrying out specific auditing contents Specific audit plan Enquiring systems and risks Evaluating controlling activities Strong Weak Appropriate with? Controlling actvities No Yes Limited basic tests (Report) Analyzing discoveries of remaining risks Extended basic test Generating guarantees Generating proposals Report Final checking step Figure 1.11 Process of auditing risk-based systems Basic analytical techniques such as financial statement analysis according to time series, relative financial statement analysis, ratio analysis, cash flow analysis, nonfinancial 10 some of the corporations were transformed into company models which are Limited Company and Parent-Child Company Before 1996, Vietnam did not have any official legal documents about the internal supervision and the internal audit system At the end of 1996, based on National Budget Law, the Government released Decree 199/2004/NĐ-CP on 03/12/2004 “Promulgating Regulation of managing state-owned company’s finance and managing state-owned capital invested in other companies” [13] to create a legal corridor for organization and operation of internal audit Based on Decree 59/1996/ND-CP[14], the Ministry of Finance released Decree 832/TC/QD/CDKT (28/10/1997) which promulgated “Internal audit regulation” [6], a partial internal audit organization model[4], [5] After 1997, internal audit was organized in numerous large corporations, including Vietnamese construction corporations In construction corporations of Vietnam, internal audit is organized majorly in Corp.90 Initial survey results before profound research showed that there were corporations organizing internal audit Changes in business environment required that the management needed to change and internal audit appeared Continuous changes of construction corporations have required changes of internal audit to meet new demands 2.1.2 Characteristics of the construction industry having influences on the analytical organization in internal audit of construction corporations in Viet Nam Operating characteristics of construction corporations in Viet Nam have influences on internal audit organization according to groups of characteristic: (I) Regarding features of the construction industry, we need to concern specific characteristics, for example: Firstly, diversified organizational models; Secondly, competitions among construction corporations continuously increase while the number of projects tends to decline due to impacts of the government and macro economy’s policies not yet having escaped from the worldwide economic crisis; Thirdly, the construction industry is generally sensitive with changes in economic conditions; Fourthly, reflections of construction corporation against negative situations; Fifthly, The Government’s regulations and policies; Sixthly, impacts of financial and real estate markets; Seventhly, the issue of extending operations abroad; Eighthly, the trend of merger and acquisition; Ninthly, the issue of decreasing cost and improving operation (II) Regarding construction corporations in Viet Nam, we need to concern about specific characteristics, for example: Firstly, dispersive production activities; Secondly, construction corporation’s products are often special; Thirdly, construction must comply strictly the system of standards and processes; Fourthly, construction generally needs to be invested largely in terms of capital; Fifthly, the issue of using resources wastefully, and pollution…When analyzing characteristics of construction and its products, managers have to take care of different factors of internal audit organization in order to achieve an efficient audit in Vietnamese construction corporations, including: (1) Internal audit is a necessary managing method to assist manager in identify the problems influencing objectives of the corporation; (2) The complication, 11 diversification and fluctuation in construction corporations in our country give internal audit new requirements; internal audit has to face more problems 2.1.3 Characteristics of organizing business management having influences on analytical organization in internal audit of Vietnamese construction corporations In terms of business management in construction corporation of Viet Nam, we can describe generally following basic characteristics which have influences on requirements for internal audit and its capacity of meeting as well as issues being placed: The first is organization models of construction corporations; The second is that construction corporation is managed by various ministries; The third is that the way of management in Vietnamese construction corporations is the lump sum based on the amount of work Identifying risks in the internal process in general and in the process of lump sum in construction corporations in particular is the managers’ preference Furthermore, internal audit can assist superior managers in improving the current process in order to increase the efficiency and the effectiveness of the business This is also the expectation of corporation managers for internal audit 2.2 The situation of analytical organization in the internal audit of Vietnamese construction corporations 2.2.1 Overview of organizing internal audit in Vietnamese construction corporations Step 1, Planning for an internal audit: The implementation of this exercise in construction corporations is normally set in internal audit regulations even with corporations having internal audit sections but have yet to establish their own regulations However, in practice, plan-making only covers some general activities Auditing programs for financial statements are generally performed by internal auditors based on their experience regarding individual account checking However, making plans and designing programs reveal several limitations Step 2, Performing internal audit plan: At this stage, auditors perform tasks based on the plans and the programs that have already been established, internal audit sections who are not involved in establishing programs may rely on experience alongside with information from previous audit records and initial collections The implementation process has several common points: First, audit process is associated with contents of financial audit such as fixed asset, revenue, cost, etc Second, audit process relies on experience; Third, this process mainly reviews previous auditing and accounting documents and does not apply methods which are undiversified, inappropriate to audit objects Fourth, the process is repeated and inflexible Step 3, Summarizing and generating internal audit report: An internal audit report executed by internal auditors is based on detailed description and auditor’s summary according to the procedure of accounts in the financial statement 12 Step 4, Examining the implementation of internal audit conclusions: Low outcomes from surveys have revealed that the proposal was not implemented or implemented unsystematically 2.2.2 The reality of analytical organization in internal audit of Vietnamese construction corporations Analyses are conducted on different stages: Firstly: Analysis in the planning stage In the auditing plan established in construction corporations, this type of analysis has been already conducted However, there are some key features in this stage: First, analysis barely contributes to defining objectives of different auditing plans, from strategic plans, general to detailed audit plans; Second, analysis ignores the identification and allocation of resources for audit program with regards to time and audit staff Third, the appearance of analysis in detailed audit plans is simple, methodologies and application scopes are limited to several accounts in financial statements such as fixed assets, revenues, labor costs, costs of project/part of project; Fourth, the failure to identify priorities in internal audit The above analysis also shows that internal audit does not target issues that managers require Therefore, this problem influences the possibility of reaching internal audit’s objectives and the expectation of managers Secondly: Analysis in the stage of plan execution Internal audit is associated with two main fields: verifying the confidence level of financial information, auditing regulatory tracking which includes accounting variations First, in terms of financial accounting: auditors verify accounts in financial statement Analysis is applied but at a limit level, for example, applying comparisons between periods, calculating deviations, estimating and comparing with market values of specific items Evidences collected from surveys have proved that the process of audit is heavily based on experience and is strongly influenced by accounting verification techniques Second, compliance audit and operation audit: In auditing official documents and decisions, several construction corporations evaluate compliance audit and operation audit Outcomes from auditing documents prove that these activities have low completion levels and most audit sections fail to perform these activities, particularly operation audit Compliance audit is executed via the verification process, comparing regulations in construction, industry standards; following with State laws in the construction field, meeting technical requirements in construction products such as houses, roads, bridges, cellars… with the construction process in practice, even material norm in execution However, internal audit in construction corporations is restricted in regulatory tracking and evaluating and does not facilitate firm’s managers in promulgating regulation, more detailed process While analysis has been applied in execution stage, analytical process has several limitations: objectives of analysis are inexplicit, analysis method is applied at a limit of scope; analysis is not complied with identification and audit concerns of managers This is the main reason leading to the inefficiency of audit 13 Thirdly: Analysis in final audit stage and examining the implementation of internal audit’s proposal in Vietnamese construction corporations In the typical process of internal audit, termination stage is associated with making a proposal and internal auditing report In terms of financial audit, auditors establish forms on data deviations to sum up the mistakes associating with audited norms and examined technical tasks The content in these entry sheets are rough data of before-auditing-stage and during-auditing-stage (which have been adjusted or reclassified) and deviations (calculated based on accounting or internal auditing database) according to individual account in financial statement This is a basic analysis to evaluate auditing results and adjustments related with accounts Generally, if this table system is established in execution stage, these tables often have identical structure and reporting method, etc, and does not differentiate between auditing objectives, sectors or line of execution Analysis is applied at a simple level, facilitating internal auditors in specifying differences, performing adjustment and releasing final outcome about financial statement In terms of operation audit and compliance audit: Analyses of related data and interviewed outcomes prove that these kinds of audit reveal numerous limitations Analytical content and outcomes are applied at a simple level such as calculation of proportion, comparison with plan, evaluation of completion level, net income per revenue ratio to evaluate efficiency… In terms of compliance, analyses are not executed In practice, general analyses before conclusion about control, procedure,… which needs to be verified generally are not concerned profoundly Analysis is established in different stages of internal audit programs in Vietnamese construction corporations Analysis is applied and partly influence on detailed internal audit stage and outcomes of audit However, there are limited positive impacts, even in auditing sector in which analysis procedure play an important role This fact affects outcome of internal audit and impact of outcome on audited unit’s operation 2.2.3 Influences of analytical organization on the efficiency of internal audit in Vietnamese construction corporations In the construction sector, as a result of differences in operational characteristics and backgrounds of Vietnamese construction corporations, the execution and organization of internal audit in these corporation are diversified The implementation process of internal audit varies between different corporations and depends on characteristics of individual objects in each corporation Table 2.1 shows the outcomes of a manager survey which includes deputy vice managers, general managers, chairmen of the boards, chairmen of members (of both corporations with or without internal audit) about their expectations/desires towards internal audit activities 14 Table 2.1 Overall expectations of senior managers on functions of internal audit Concerned issues Reliable financial information Valid internal control Cooperation between sectors Corporate’s information system Business procedures (Investment, construction,…) Risk Identification and evaluation of business Potential problems Other issues Very Not Concerned concerned concerned 26/28 2/28 0/28 5/28 19/28 4/28 Notes Control department owned – 3/28 6/28 19/28 Not covered in the mandate of an internal audit 8/28 14/28 6/28 22/28 1/28 5/28 3/28 5/28 20/28 Not covered in the mandate of an internal audit 3/28 10/28 15/28 Depend on defined situations 0/28 4/28 n/a 24 cases without answers (Sources:  Collection  from  the  author’s  survey  –  Appendix)   Survey indicates that senior managers are concerned about the functions of internal audit However, their different expectations are based on different opinions about the role of internal audit in enterprises Results also show that senior managers expect internal audit to concentrate on verifying financial information, internal control, information system, potential detailed problems, business procedures However, plan analysis based on plan documents and auditing decision of corporation shows that the auditting field of internal audit is financial audit, other types of audit are at a limit of quatity or quality With respect to other auditing types, analysis performance is restricted Sorting out contents and auditing objects is based on experience This problem affects auditing discoveries and proposals of internal audit – Table 2.2 15 Table 2.2 Evaluation of senior managers towards functions of internal audit Investigated Issues Good Normal Bad Overall outcomes of audit tasks 3/16 8/16 5/16 Task completion time and timely report 4/16 5/16 7/16 Selection of appropriate issues 1/16 3/16 12/16 Notes Level of solving problem in the planning In the mandate of the monitoring board 5/16 9/16 Not covered in the 2/16 mandate of an internal audit Level of solving problems in making plans 2/16 4/16 8/16 Auditing 1/16 5/16 10/16 process discoveries and auditors’ proposals Level of appropriateness of proposals Performing proposals of internal audit 2/16 6/16 1/16 2/16 Not covered in the 8/16 mandate of an internal audit 13/16 undefined (Sources: Collection of the author based on objects and investigated indicators) Outcomes released by auditors in Vietnamese construction corporations with internal audit have shown that the rate of plan completion is at a medium level Analysis on auditing outcomes, appropriateness of proposals, proposal performances,… prove an dissatisfaction of senior managers about internal audit Definitely, the validity of internal audit in Vietnamese construction corporations is at a low level Analysis proves there are several problems resulting in this inefficiency of audit 2.3 General evaluation about the status of analytical organization in internal audit of Vietnamese construction corporations 2.3.1 Achievements and limitations of analytical organization in internal audit of Vietnamese construction corporations Achievements of analytical organization are summarized: Firstly, analysis is carried out in every stage of an internal audit in construction corporations Secondly, analysis is applied by auditors in practice in almost all internal audit tasks Thirdly, analytical analysis assists auditors in explaining discovered issues and then suggesting proposals for these discoveries associated with specified internal audit Fourthly, auditors have diversified analytical techniques to facilitate auditing tasks The fifth point is the diversification of content in analysis, including financial information and non-financial 16 information Sixthly, analytical objects, especially financial statements, are intensively analyzed and to some extents supportive for auditors in commenting on financial statements Besides such achievements, analytical organization reveals several limitations: First, in the planning stage, analysis has failed to assist auditors to sort out, identify critical points and classify priorities; limitations of analysis have influences on specifying orientations, appropriate concentrations/ allocations of resources to successfully perform auditing tasks under restricted conditions Second, in the performing stage: simple techniques in analysis which mainly focus on financial auditing in every accounts lead to deviation of auditors, concentrating on familiar accounts and following experience; Third, in terminating and reporting stages: analysis does not identify essential findings and assist internal auditors in examining and solving problems generated from overall auditing tasks Therefore, auditing proposal is at a limited level of application due to the failure in integration in the environment of common corporate management Fourth, in the stage of examining proposal implementation: analysis is discontinuous or not executed 2.3.2 Reasons for limitations of analytical organization of internal audit in Vietnamese construction corporations Firstly, administrative factors in planning and identifying audited contents of internal audit in Vietnamese construction corporations; Secondly, reasons belonging to auditors and the organization of internal audit in Vietnamese construction corporations; Thirdly, the lack of general ideas in internal audit in Vietnamese construction corporations; Fourthly, limitations on practical infrastructures of internal audit in Vietnamese construction corporations; Fifthly, impacts of organization models of internal audit in Vietnamese construction corporations ; Sixthly, the perception of senior managers in Vietnamese construction corporations CHAPTER 3: SOLUTIONS AND ORIENTATIONS TO COMPLETE THE ORGANIZATION OF ANALYSIS ASSOCIATED WITH ENHANCING THE INTERNAL AUDIT’S EFFECTIVENESS OF VIETNAMESE CONSTRUCTION CORPORATIONS Solutions and Orientations to complete the organization of analysis associated with enhancing the internal audit’s effectiveness of Vietnamese Construction corporations 3.1 Organization of analysis in the internal audit of Vietnamese Construction Corporations: inevitabilities and approaches There are five factors that make the completion of analyzing organization in internal audit inevitable, originating from the operating environment, circumstances of construction firms, and findings from the audit process Firstly, because of the analysis of internal audit of Vietnamese construction firms and their ineffectiveness of audit internal firms; Secondly, because of research results from the analyzing process in Vietnamese 17 constructions companies; Thirdly, changes in the business environment and requirements with analyzing in internal audit of Vietnamese constructions enterprises; Fourthly, requirements of law makers that have affected the analysis of current requirements and the development of expectations on internal audit along with internal controlling effectiveness at Vietnamese construction firms; Fifthly, the requirements of analysis in the relationship with the development and complement of a system of approaches for internal audit in the audit system of the country There are some approaches to complete the organization of analysis in internal audit of constructions enterprises: Firstly, organization of analysis must be oriented towards achieving the effectiveness of audit enhancement of Vietnamese construction companies; Secondly, organization of analysis must be familiar with an audit orientation based on a system of approaches that focus on risks in relation with overall mindset changes of internal audit; Thirdly, organization of analysis must connect with an internal audit that keeps connections with various types of audit; Fourthly, organization of analysis must conform to the characteristics of business operation and organization, requirements of management as well as the ability and level of management of Vietnamese construction corporations; Fifthly, organization of analysis must be oriented to targets respective with each period of audit operation of Vietnamese constructions firms; Seventhly, the completion of organization of analysis must be oriented to the professional development of internal auditors in construction corporations of Vietnam 3.2 Solutions to complete the organization of analysis with the enhancement of effectiveness in internal audit in Vietnamese construction corporations 3.2.1 Completing the specific process of internal audit in Vietnamese construction enterprises Figure 3.1 shows the common strategies for implementing the process of analysis Step 1: Identifying the analysis objects Step 2: Information collecting Step 3: Approaches of measurement determination Step 4: Data collection and calculation Step 5: Modeling Step 6: Analyzing Step 7: Conclusion Figure 3: Overall strategic of analyzing process 18 3.2.2 The combination of organization analysis and business determination to identify risks and assess processes at Vietnamese construction corporations Figure 3.2 shows the model of combination that has been created based on the operation approach according to the measurement of balanced scores: Financial operation Market operation Market share Attitude of customers On time activities Operating of major processes Quality Duration Cost Activities of resource managing processes Skills Technology Suppliers Vehicles Figure 3.2 Combined model based on approach operating measurement of balanced scores Starting with resource management, auditors can analyze some resource management operation ratios The example is presented in table 3.1 Table 3.1 Analyzing some resource management operation ratios in process Number Major processes Duration • Period of market supply • Operating cycle • Revenues Cost of process • Criteria of allocation • Cost allocation • Cost per activity Related processes of Resources management Human resources: • Productivity of staff • Attitude of staff • Revenues per person • Capacity of staff Information Technology: • Reliability of information • On time information • System developing 19 Quality of process Assets: • Refurbished products on total projects ratio • Productivity • Recycled value on wasted resources ratio • Rejected Products/Projects • Cost of warranty projects/products • Procurement of vehicles • Use of vehicles optimization • Maintenance of vehicles • Reliability of vehicles Supply chain: • Activity of handover projects • Services activity • Quality • Related costs Finance: • • • • • Cost of capital Reserved money Cash flow Taxes and others payables Cost of processing Figure 3.3 presents the relationship between major measurements of market success Market share Customer maintenance Customers receiving Customers’ profitability Customers’ satisfaction Figure 3.3 Measurement of customers’ market shares Other market operating measurements might be profitable to companies, including branches, successes of new products and growths of revenues The highest level of finance in figure 3.2 is presented in figure 3.4 below ROE ROA Total asset turnover ratio Leverage ratio Profitability Figure 3.4 Financial measurements 20 Table 3.2 is a brief of major analysis procedures Table 3.2: Results of analysis procedures in internal audit and applications Number Process/range Potential problems and risks Overall Financial • Sharply fall of P/E assessment Market operation • Statistics attitudes/reactions decreased customers Product design Sales transfers of of • Delays launched new products • Reduces success ability of new products • Increases of repaired/refurbish products Applying for internal audit • Shows the problems in return calculations as one of the market share efforts of improvement • Market could realized internal problems limiting future development of companies • Process of corporation could catch on the customers’ development and not interested in customers’ utility • This problem could affect the information processing system • Quality controlling and cost of warranty recording • Inventory management including finished goods and finished down goods • Strategies of firm based on quality, reduced reputation affect the success and • Handover of projects on • Failure at handover projects on time time and data on the could lead to loss of customer declining number of confidence and market share to projects competitions Sales and • Rapid decline in selling • Controlling activities have been able transfers expenses to reduce risks on the basis of specifying risks Sales and • Profitability ratios not in • Profitability ratios not in line with transfers line with interests of interests of business-oriented quality, business-oriented quality which might show the ineffective of company’s strategies Human resources • Increasing of staff resigning • Human problems could rise from from work circumstances poor skills, lack of experience and statistics on turnover • Results of breaking the process conducted on person frequently Resources of • Average depreciation ratio • Risk of errors in related items in assets could be the sight of lacking financial statements accurate data and • Could affect the strategies of price calculation of costs Financial • The unaccepted accounting • Announced information might be management methods were used to ineffective, uncategorized or 21 Financial management Financial management examine from joint ventures misrepresented of construction corporations • Large securities investment • Wrong in presenting related items balances • Developing management plans with conservative views • Interest rates recorded are • Methods of accounting records in inconsistent with the accordance with the accrual basis obligations cannot be properly applied 3.2.3 Develop analytical models under the condition of developing internal audit to become guarantee services in construction corporations of Vietnam Figure 3.5 shows different fields of modern internal audit Consultation projects System accessing Due diligence Improvement of Solutions of Risks projects, problems management and study of VFM systems Fraudulent, Conclusions of incompliant risk management behaviors and and control compliant operating Guarantee questions Table 3.3 shows an Overview of services and methods of comparison activities with application standards Figure 3.5: Categories of internal audit Table 3.3 Applying analysis model – Model to compare with standards Number Compare Types with applied standards Major questions How to compare within industry? • Compare with competitors How to compare Branches or member • companies or staff? Internal comparison How to compare with other industries? Compare functions • Table 3.4 shows some examples of criteria or indices applied for effectiveness and efficiency evaluation 22 Table 3.4 Standards for effectiveness evaluation of operations Number Evaluating criteria/indicators Applying for Analysis Real/standard Compare to standards value examination Product capability Completed construction compared to norms, plans of product capacity (in number or percentage) Resource uses Compare the real costs of resources such as machinery, equipment of construction, financial resources, human resources to project or plan of resources usage (number or percentage) Quality Compare the actual quality to industry standards, standards of Vietnam Number of warranty projects/total projects Construction time Compare the actual time of production, construction to norms or plan of completion or company’s ability (number of percentage) Percentage of Lack time to norms, plan Other equipment Compare the actual capacity of machinery, financial or resources resources, human resources to design capabilities, manufacturing capabilities (number or percentage) 3.2.4 Applying analytical procedures to determine detailed supervising dimensions and collect credible audit evidences in practical internal audit in Vietnamese construction corporations Analytical procedure is flexible It can be placed in different periods of internal audit, in deferent services provided by internal audit department within an organization or unit Analytical procedure is also considered on of the basic auditing techniques to support internal auditors to collect suitable audit evidences There are some techniques that should be used in internal analysis of auditors which come from current limitations of implementing analytical procedure: (1) – trend analysis; (2) – ratios analysis 23 3.2.5 Designing of paper work and system audit records for analysis support in internal audit Paper work should include contents below: (1) – related to target; (2) – condense detailed issues; (4) – Accuracy; (5) – normative sample paper work A normative sample paper work often includes: title, organization of factors on paper work, scientific and easy to read, indexes for comparison A sample of paper work is shown in table 3.5 Table 3.5: A sample of suggested paper work in construction corporation Internal audit of … Auditing of: …… (audit tasks) … In: …………; at: … Code The implementer Time … Summary of implemented steps and methods Description of operation Summary of test Interpretation of symbols on paper work Conclusions about the findings or suggestions on how to collate, additional test (if any) Internal auditors must focus on building an audit handbook in addition to a good paper work This has a significant role in organization of analysis, especially strategic analysis and internal process analysis 3.2.6 Improving the quality of internal auditors regard to ensure the quality of analysis in Vietnamese construction corporations This includes the affect of number and quality of auditors The author introduces requirements to internal auditors in order to improve the quality of analysis, standard to examine the suitable auditors in Vietnam constructions corporation 3.3 Proposals to implement solutions for improve organization of analysis to enhance effectiveness of internal audit of Vietnamese constructions enterprises Vietnamse firms must: improve the organization of analysis must follow the process of auditing in Vietnamese constructions corporations Vietnamese officials: Ministry of 24 Finance must support construction corporations in building and issue suitable rule of audit and professionally practical rules issueing To organizations of Accounting and Auditing: the author concludes that it is crucial to run a organization of internal audit for a better quality of internal audit, for educating and managing internal auditors, for assisting the official agency in document of auditin rules Last but not least, is to serve the develop professionally of internal audit of Vietnamese construction companies CONCLUSION The thesis systemizes theoretical issues related to organization of analysis associated with stages of internal audit within corporations, and expands understandings on organizing internal audit Most importantly, for the first time the theoretical issues of analysis organization towards the efficiency of internal audit and developing analysis under a general approach for internal audit at construction corporations of Vietnam are given out by the author The thesis systematically studies the actual states of organizing analysis in the internal audit at construction corporations of Vietnam Surveying conclusions suggest: The current activity of internal audit is not yet appropriate, not yet efficient, not yet up to its position and role in management Thus improving analysis organization is the beginning step in the process of seeking systematic solutions to improve the effectiveness of internal audit at Vietnamese construction corporations On the basis of studying theoretical models on analysis, studying the actual state of analysis organization in internal audit at Vietnamese construction corporations, taking into account characteristics of the industry and its business entities, at the same time studying possibilities of applying the theoretical basic and realistic experience of the international into Vietnamese entities’ actual states, the thesis discusses systematic and general solutions in order to improve the effectiveness of analysis organization towards improving the efficiency of internal audit Within which, suggestions are systematically explained in association with a general thinking and a model to link the contents of internal audit at Vietnamese construction corporations ... recognizing and solving issues deriving during the auditing process Analysis is considered an instrument to help internal audit solve these issues Thus, the author chooses the topic “Enhancing the. .. below: APPLYING THE ANALYTICAL METHOD Planning and designing the auditing program Conducting the auditing plan Finishing the audit process and making report Examining the conduction of auditors’ proposals... of an internal audit The analysis or the process of analysis is one of the basic auditing procedures The procedure of analysis in internal audit assists auditor in making plan, performing an