Auditing Sales and Collection cycle in the auditing financial statements in AVINA – IAFC

Auditing financial reports is the synthesis of the audit results of separate economic profession cycle. Hence, it is to make conclusions on the financial statements which are presented honestly and reasonably and suffer no serious errors on critical aspects. The auditing financial statements is a basis for making objective and honest opinion on the financial statements and providing investors, suppliers, customers and interested persons and States agents reliable information. Thereby it contributes to enhancing the reputation, quality of services and increasing competitiveness with other auditing companies. Sales and Collection cycle has an important role in a business cycle, which is the final stage to assess the outcome of a full cycle of business operations. In fact, according to the judgment of professional auditor, the result of Sales and Collection cycle indicates the important items which has crtical function on the financial statements and the nature of this cycle demonstrates complex relationships of many parties. Hence, the results of the Sales and Collection Cycle is the primary subject that receive cocern of the financial statements’ users. Thus, performing Sales and Collection cycle in the auditing financial statements allows companies to save time, costs, and improve audit efficiency. It helps enterprise to see the flaws and weaknesses in the accounting and management to improve business production efficiency, to contribute to ensuring the legitimate of two parties and to determine the responsibility of enterprises in the implementation of their obligations to the State. Recognizing this importance, while studying at National Economics University and practical time in AVINA – IAFC, I have chosen the topic: “Auditing Sales and Collection cycle in the auditing financial statements in AVINA – IAFC”. Through the topic study, I want to have an in-depth understanding about nature as well as the implementation of audit work on both theoretical and practical perspectives based on my knowledge at the university and internship. The content of the thesis is as follows:

TABLE OF CONTENTS LIST OF DIAGRAM iii LIST OF TABLE iv INTRODUCTION 1 CHAPTER 1: THEORETICAL FRAMEWORK ON AUDIT OF SALES AND COLLECTION CYCLE IN FINANCIAL AUDITS CONDUCTED BY AVINA - IAFC 3 1.1. Features of sales and collection cycle 3 1.2. Accounting for Sales and Collection 4 1.3. Fraud and errors in accounting information of Sales and collection 6 1.3.1. Fraud 6 1.3.2. Errors 6 1.3.3. The potential frauds and errors in accounting information reflecting Sales and Collection 6 1.4. Internal controls over Sales and collection cycle 6 1.5. Objectives in auditing the Sales and collection cycle 7 1.6. The necessity of auditing Sales and collection cycle in financial audits 9 1.7. Sequence in auditing the Sales and collection cycle in financial audits 9 1.7.1. Audit planning 10 1.7.2. Audit implementation 13 1.7.3. Completing the Sales and Collection cycle audit 19 CHAPTER 2: PRACTICE OF AUDIT SALES AND COLLECTION CYCLE IN FINANCIAL AUDITS CONDUCTED BY AVINA – IAFC 20 2.2. Objectives in auditing the Sales and collection cycle of AVINA – IAFC 22 2.3. Sequence in auditing Sales and collection cycle in financial audits conducted by AVINA – IAFC 24 2.3.1. Audit planning 24 2.3.2. Audit implementation 32 2.3.3. Audit Completion 57 CHAPTER 3 ASSESSMENTS AND RECOMMENDATIONS TO IMPROVE AUDIT OF SALES AND COLLECTION CYCLE IN FINANCIAL AUDITS CONDUCTED BY AVINA – IAFC 59 3.1 Assessment on audit of Sales and collection cycle in financial audits conducted by AVINA – IAFC 59 3.1.1 Strengths 59 3.1.2 Weaknesses 60 3.2 Recommendations 62 3.2.1. The necessity of accomplishing Sales and Collection cycle 62 i 3.2.2 Solutions to improve the audit of Sales and Collection cycle in financial audits by AVINA – IAFC 63 CONCLUSION 65 REFERENCES 66 ii LIST OF DIAGRAM Diagram 1.1. The cycle of production and business operations of manufacturing commercial enterprises 3 Diagram 1.2.1. Process of vouchers circulated in the Sales and Collection cycle 4 Diagram 1.2.2. Accounting process of sales and collection cycle 4 Diagram 1.5. Steps to implement the objectives of the audit 8 Diagram 1.7. The process of auditing the sales and collection cycle 9 2.1. Features of Sales and Collection of customers that affect financial audits conducted by AVINA - IAFC 20 Diagram 2.1: Function of the sales and collection cycle 20 Diagram 2.3.1. The company accounting system 29 Diagram 2.3.2.1. Reconcilation process 37 Diagram 2.3.2.2. The process of confirmation letter of receivables 38 iii LIST OF TABLE Table 1.7.2.1. Tests of control with sales transactions 13 Table 1.7.2.2. Tests of control with collection cycle 14 Table 1.7.2.3. Test of details of of sales transactions 16 Table 1.7.2.4. Test of details in Cash Collection 17 Table 1.7.2.5. Audit procedures on customer receivables 18 Table 2.2. Auditing objectives for the sales and collection cycle specified by AVINA - IAFC 22 Table 2.3.1.1. Balance Sheet (31/12/2014) 26 Table 2.3.1.2. Income Statement (31/12/2014) 27 Table 2.3.2.3 The procession of inspecting customer receivable items in detail 56 iv INTRODUCTION Auditing financial reports is the synthesis of the audit results of separate economic profession cycle. Hence, it is to make conclusions on the financial statements which are presented honestly and reasonably and suffer no serious errors on critical aspects. The auditing financial statements is a basis for making objective and honest opinion on the financial statements and providing investors, suppliers, customers and interested persons and States agents reliable information. Thereby it contributes to enhancing the reputation, quality of services and increasing competitiveness with other auditing companies. Sales and Collection cycle has an important role in a business cycle, which is the final stage to assess the outcome of a full cycle of business operations. In fact, according to the judgment of professional auditor, the result of Sales and Collection cycle indicates the important items which has crtical function on the financial statements and the nature of this cycle demonstrates complex relationships of many parties. Hence, the results of the Sales and Collection Cycle is the primary subject that receive cocern of the financial statements’ users. Thus, performing Sales and Collection cycle in the auditing financial statements allows companies to save time, costs, and improve audit efficiency. It helps enterprise to see the flaws and weaknesses in the accounting and management to improve business production efficiency, to contribute to ensuring the legitimate of two parties and to determine the responsibility of enterprises in the implementation of their obligations to the State. Recognizing this importance, while studying at National Economics University and practical time in AVINA – IAFC, I have chosen the topic: “Auditing Sales and Collection cycle in the auditing financial statements in AVINA – IAFC”. Through the topic study, I want to have an in-depth understanding about nature as well as the implementation of audit work on both theoretical and practical perspectives based on my knowledge at the university and internship. The content of the thesis is as follows: 1 Chapter 1: Theoretical framework on auditing Sales and Collection cycle in financial audits conducted by auditing firms Chapter 2: Practice of auditing Sales and Collection cycle in financial audits conducted by AVINA - IAFC Chapter 3: Assessments and Recommendations to improve auditing Sales and collection cycle in Financial audits Conducted by AVINA - IAFC Due to limited internship time and knowledge, my thesis inevitably has shortcomings. Therefore, I am looking forward to receiving my teacher’s advices and suggestions to improve my thesis. I would like to express my most sincere thanks to Assoc. Prof. Dr. Nguyen Thi Phuong Hoa, the staff from AVINA – IAFC and my teachers from Auditing Department of National Economics University who help me to complete this thesis. 2 CHAPTER 1: THEORETICAL FRAMEWORK ON AUDIT OF SALES AND COLLECTION CYCLE IN FINANCIAL AUDITS CONDUCTED BY AVINA - IAFC 1.1. Features of sales and collection cycle Diagram 1.1. The cycle of production and business operations of manufacturing commercial enterprises The Sales and collection cycle is the last cycle in the capital circulation. This cycle is extremely important in companies, especially manufacturing business or commercial services. The outcome of this cycle is used to evaluate the effectiveness of the previous cycles and results of the whole process of production and business. The Sales and collection cycle is the ownership transfer of goods and services through goods – money transfer and only ends when the money is obtained or customer payments are accepted. An efficient cycle means that the funds are mobilized properly, cash flow is distributed seamlessly to set the stage for the next production and business cycle. The Sales and collection cycle is the cycle shows most clearly the result of the continuous operation of production and business systems as well as the performance of the company. 3 Capital in cash Sales and Collection Receiving and Returning Purchasing Payment Salaries and Employees Inventory 1.2. Accounting for Sales and Collection During the Sales and Collection cycle, vouchers and invoices are rotated through the various functional units. Diagram 1.2.1. Process of vouchers circulated in the Sales and Collection cycle All accounting information will be reflected on the account system, including: 1. Discount, sales returns 2. Revenue deductions 3. Cash sales 4. Revenue 5. Deferred Revenue 6. Credit Sales 7. Write-off uncollectible receivables 8. Reserve provision for bad receivables 9. Provision for bad debts Diagram 1.2.2. Accounting process of sales and collection cycle. 4 Customer Marketing room Manager Marketing room Demand for buying Purchase orders - Approving the sale - Making Sales invoices - Making the delivery bills Storekeepers Marketing room Accountants Stock out - Carriage - Prepare shipping documents Recording and making the report Storing and preserving vouchers Accounts used in the accounting process of the sales and collection cycle: Ac 531, 532: Reduced cost of goods sold and returned goods Ac 511: Revenue for sales Ac 3387: Deferred revenue Ac 131, 136: Receivables Ac 642: General and administration expenses Ac 139: Provision for bad debts Ac 721: Other income Ac 811: Financial expenses 5 Ac 111, 112 Ac 811, 531,532 Ac 511, 512 Ac 111, 112 Ac 3387 Ac 131, 136 Ac 642 Ac 139 Ac 721 Ac 004 (1) (2) (3) (4) (5) (6) (7) (8) (9) - Bad debts written off - Bad debts had been written off now collecting 1.3. Fraud and errors in accounting information of Sales and collection 1.3.1. Fraud Fraud is deliberate deception to falsify economic, financial data made by any people of Board of Directors, staff, etc. that affects financial statements. Fraud may present in the form like erroes but it is deliberate (falsify documents, modify documents, falsify financial reports, etc.) 1.3.2. Errors Based on VAS 29, errors may arise from the recognition, valuation, presentation of the items in financial statements. Therefore, the causes of errors include: • Due to calculation • Due to misapplication of accounting policies • Due to ignoration, misunderstanding or incorrect interpretation • Due to frauds 1.3.3. The potential frauds and errors in accounting information reflecting Sales and Collection • In terms of listed companies, revenue can be overstated, opposed to non- listed enterprises, revenue can be omitted to pay less tax. • Confusion between different tariffs, of taxable goods according to the tax rate 0%, 5%, 10% or not taxable. Enterprises are able to push commodities with higher tax rate to low tax rates to limit the amount of tax paid to the State. • Accounting year is misstated • Books and accounting vouchers is recorded dishonestly, violate the regulation of Accounting Law • Lack of invoices when economic transactions arise • Lack of signatures of authorized person on receipts, etc. 1.4. Internal controls over Sales and collection cycle The internal control system is different from a company to another, depending on characteristics and size of the business and attitude awareness of managers towards internal controls. The general purpose of enterprises is to build 6 [...]... Besides the assertions of the administrator of the enterprise, the general objectives and specific objectives of the audit should be considered Sales and collection cycle is a component of the financial statements Therefore, when conducting audit sales and collection cycle must comply with the general process of financial statements auditing to ensure consistency 1.6 The necessity of auditing Sales and collection. .. receivable of the company and have been recorded on time Approving Timeliness 2.3 Sequence in auditing Sales and collection cycle in financial audits conducted by AVINA – IAFC 2.3.1 Audit planning Audit planning is to collect the necessary information about their customers and has the following steps: • Find out business activities customers Find out business activities of our customers is an indispensable... consider the materiality of errors and frauds that auditors will give qualified opinion Finally make the report, write a letter to the management 19 CHAPTER 2: PRACTICE OF AUDIT SALES AND COLLECTION CYCLE IN FINANCIAL AUDITS CONDUCTED BY AVINA – IAFC 2.1 Features of Sales and Collection of customers that affect financial audits conducted by AVINA - IAFC Diagram 2.1: Function of the sales and collection cycle. .. About internal audit activities, the company X under the corporation M, internal audit of the Corporation conducts auditing of financial statements of X according to the Corporation's plans While auditing, auditors of AVINA - Hanoi allowed unlimitedly to access to relevant information as well as to consider and examine the books and documents is the company On the other hand, auditing team of the AVINA. .. of problems and errors can be handled • Preventing and detecting fraud, errors in time • Protecting asset and organization information • Performing the accounting and reporting The system of internal control makes an important role for the company's operations Likewise, for the sales and collection cycle, the internal control system helps to monitor and complete the activities of the cycle Internal control... The information system, including the related business processes, relevant to financial reporting, and communication; - Control activities; and - Monitoring of controls  Design auditing program for the sales and collection cycle Based on the results of the work was done above, the sales and collection cycle consists with the specific conditions of the client company 1.7.2 Audit implementation During... main components: • Environmental Control • Information and Communication system • The control procedures 1.5 Objectives in auditing the Sales and collection cycle According to Vietnam Auditing Standards No 200 (objectives and general principles governing an audit of financial statements) or Statement on auditing standards of Australia No.10 (SAS - AU 10), The objective of an audit of financial statements, ... make their financial situation to be transparent Auditors in this case considered if the basis and method of provision was in accordance with the current regulations or not 2.2 Objectives in auditing the Sales and collection cycle of AVINA – IAFC Although sales and collection of money have close relations, each transaction has its own requirements Table 2.2 Auditing objectives for the sales and collection. .. statements, as aimed at by the auditor and the audit firm, is to express an opinion as to the fairness of the financial statement on the basis of the general principle governing an audit of financial statements The audit objectives set out with closely related to the assertions of the business management about the financial information presented in the financial statements Normally the objective of an audit... assertions in audit of the sales and collection cycle included + The existence : Revenue on the income statement reflects the exchange of goods and services actually happened, the receivables in the balance sheet is made on the date of recording in the balance sheet + Completeness: All sales of services, goods and receivables are collected including recording in financial statements + Ownership: goods and . reflecting Sales and Collection 6 1.4. Internal controls over Sales and collection cycle 6 1.5. Objectives in auditing the Sales and collection cycle 7 1.6. The necessity of auditing Sales and collection. topic: Auditing Sales and Collection cycle in the auditing financial statements in AVINA – IAFC . Through the topic study, I want to have an in- depth understanding about nature as well as the. Sales and Collection cycle audit 19 CHAPTER 2: PRACTICE OF AUDIT SALES AND COLLECTION CYCLE IN FINANCIAL AUDITS CONDUCTED BY AVINA – IAFC 20 2.2. Objectives in auditing the Sales and collection cycle