Auditing accounts payable in a financial audit at UHY ACA limited company

NATIONAL ECONOMIC UNIVERSITY EXCELLENT EDUCATIONAL PROGRAM BACHELOR THESIS Major: Auditing Topic: Auditing accounts payable in a financial audit at UHY ACA Limited Company NGUYEN TUNG LAM HANOI, 2016 NATIONAL ECONOMIC UNIVERSITY EXCELLENT EDUCATIONAL PROGRAM BACHELOR THESIS Topic: Auditing accounts payable in a financial audit at UHY ACA Limited Company Student: Nguyen Tung Lam Speciality: Auditing Class: Excellent Auditing K54 Student’s ID: 11122073 Supervisor: Dr To Van Nhat HANOI, 2016 TABLE OF CONTENTS ACKNOWLEDGEMENTS This Internship report consumed huge amount of work, research and dedication Still, implementation would not have been possible if i did not have a support of many individuals and organizations Therefore, i would like to extend our sincere gratitude to all of them Foremost, I would like to express my sincere gratitude to my instructor Dr To Van Nhat for the continuous support of my research, for his patience, motivation, enthusiasm, and immense knowledge His guidance has helped me in all the time of research and writing of this thesis Without his superior knowledge and experience, the Internship report would not like in this quality of outcomes, and thus his support has been essential My sincere thanks also goes to my manager – Mrs Ha, my seniors – Mr Thang, Mr Giang and Ms Ngoc and staffs working in Korean Desk of UHY ACA Co., Ltd for offering me the summer internship opportunities in their groups and leading me working on diverse exciting projects Nevertheless, I express my gratitude toward our families and friends for their kind cooperation and encouragement which help me in completion of this Internship report Hanoi, 24/ 04 / 2016 Nguyen Tung Lam Signature STATUTORY DECLARATION I herewith formally declare that I myself have written the submitted Bachelor Thesis independently I did not use any outside support except for the quoted literature and other sources mentioned at the end of this paper I clearly marked and separately listed all the literature and all other sources which I employed producing this academic work, either literally or in content Hanoi, 24/ 04 / 2016 Nguyen Tung Lam Signature ABBREVIATION In short In long Co., Ltd Limited Company JSC Joint Stock Company ISA International Standard on Auditing VSA Viet Nam Standard on Auditing VAS Viet Nam Accounting Standard PM Planning materiality TE Tolerable Errors SAD Summary of Differences GL General Ledger HOM Hand-over minute GRN Good receipt note SCOT Significant class of transactions PO Purchase Order BOM Board of Manager BOD Board of Director CRA Combined risk assessment BD Balance sheet date AEC ASEAN Economic Community TPP Trans-Pacific Strategic Economic Partnership Bachelor Thesis National Economics University PREFACE Rationale Our country is developing day by day in almost all fields from culture to economic and politics In accompany with the integration trend of worldwide economy, there are more and more entities established in both governance and private section expanding in most of areas as manufacturing, services, importing, exporting, real estate and construction As a result, the competition in the stock market is now increasingly strong and drastic Therefore, it is required that the companies must provide people with more transparent financial reporting to reflect fairly about the financial position of the companies in the market Besides, successfully joined ASEAN Economic Community (AEC) and Trans-Pacific Strategic Economic Partnership (TPP) have also created many developing opportunities When Vietnam took part in these two organization, it allows all of the members to freely exchange goods, freely invest and even free from skilled labor movement Therefore, it is necessary for labor in every sections, especially for students who just graduated to enhance their major not also in knowledge but also technical The external users of the companies’ financial statement are usually interested in the ratios of profitability, solvency and operating of the business Among the financial statements’ indicators, trade payables have affected directly and significantly to those above ratios because these ratios can only be reasonably when accounts payables are stated honestly In fact, the accounting for trade payables often occurs frauds and errors Therefore, auditors always need to pay attention when they conduct this cycle of auditing financial statement I had opportunity to work for UHY ACA Limited Company - one of top ten auditing firms as an internee in months I have gained a lot of experiences through by the practical financial audits For these reasons I would like to choose the subject for my thesis: “Auditing accounts payable in a financial audit at UHY ACA Company Limited” Objectives Nguyen Tung Lam 54 Excellent Auditing Class Intake Bachelor Thesis National Economics University The objectives of this thesis are not only to learn about auditing accounts payable in financial audits performed by UHY ACA but also to find out the strengths and weaknesses in audit procedures of the Company Based on that basis, I will also would like to give recommendations in order to improve audit of accounts payable in financial audits performed by UHY ACA Co., Ltd Scope The scope of this thesis is about audit of accounts payable in financial audits conducted by UHY ACA Limited Company Research structure Excluding the introduction and conclusion part, my thesis consists of chapters as the following: Chapter 1: Theoretical framework on audit of accounts payable in financial audits by auditing firms Chapter 2: Audit of accounts payables in financial audits conducted by UHY ACA Limited Company Chapter 3: Assessment and recommendations in order to improve Audit of accounts payables in financial audits conducted by UHY ACA Limited Company Finally, I would like to give my sincere thanks for seniors and staffs in UHY ACA Limited Company for supporting me by coaching and providing useful documents In addition, I am very appreciated Dr To Van Nhat for his willing to instructing and recommending to help me finish this thesis Sincerely, Nguyen Tung Lam Nguyen Tung Lam 54 Excellent Auditing Class Intake Bachelor Thesis National Economics University CHAPTER I THEORETICAL FRAMEWORK ON AUDIT OF ACCOUNTS PAYABLE IN FINANCIAL AUDITS BY AUDITING FIRMS 1.1 Feature of accounts payable 1.1.1 Definition and classification of accounts payable Accounts payable obtain obligations of the firm, money which a firm owes to vendors for purchased of goods and services on credit This item appear in firm balance sheet under current liability section, represent negative cash flow for the firm when its paid, sometimes accounts payable happen when a firm wants to get a discount by purchased of a good and services paying in term like, 2/25 and 1/30, and by this, it helps to firm cash flow There are two category of accounts payable: Trade payable and Non-trade payable Accounts payable trade are attached or related directly to the company’s primary operations It is an amount billed to a company by its suppliers for goods delivered to or services consumed by the company in the ordinary course of business In the case of construction business, this account shows payables to contractors For example, purchase of raw materials used to production (items that related to company operation) In the accounting system, trade payables are recorded in a separate accounts payable account, with a credit to the accounts payable account and a debit to whichever account most closely represents the nature of the payment, such as an expense or an asset Accounts payable non-trade are payable not related directly to the core operating business of the company such as accrued expenses, dividends payable, or payroll and they are recorded in other accounts in order to more easily identify them Trade payables belong to capital source of business and are significant items in the acquisition and payment cycle of every business, directly related to other significant items such as cash, property, plant and equipment, material purchases, inventories, prepaid expenses… We typically classify trade payables as a significant account due to either of two reasons: Nguyen Tung Lam Excellent Auditing Class Intake 54 Bachelor Thesis National Economics University  High volume of transactions  Materiality of the balance to the financial statements (e.g., trade payables as a percent of total liabilities) 1.1.2 Accounting for trade payables 1.1.2.1 Policies to record trade payables According to Article 51 of Circular No 200/2014/TT-BTC issued by Ministry of Finance on December 22nd, 2014, accounting for trade payables must be complied with the following principles: a) This account is used to reflect the payment of the liabilities of the business by suppliers for materials, goods, services, fixed assets, investment real estate, financial investments followed by signed contracts This account is also used to reflect the payment of the liabilities for contractors of main and extra construction This account is not used to reflect purchase transactions that are immediately paid b) Payables for sellers, suppliers, contractors should be recorded in detail for each creditor In detail of each creditor, this account reflects the amount of advance for sellers, suppliers, contractors that have not received products, goods, services or volume of constructions that are completed and handed over c) The enterprise must keep track in detail of trade payables for each currency For trade payables in foreign currencies, the company must comply with the following principles: - When incurs the payables to the suppliers (credit side of account 331) in foreign currency, the accountant must convert into Vietnam dong at the actual exchange rate at the date of transaction (the selling rate of commercial bank which has regular transactions) Particularly for the advance to the contractors or suppliers, when there have enough conditions to recognize assets and expenses, the accountant must credit account 331 at the specific identification rate for amount of advance - When pays for the payables to the suppliers (Debit side of account 331) in foreign currency, the accountant must convert into Vietnam dong at the specific identification rate for each creditor (in case creditor has a lot of transactions, the specific identification rate is determined by name on the basis of roving weighted average of Nguyen Tung Lam 54 Excellent Auditing Class Intake Bachelor Thesis National Economics University those transactions) Particularly in case of advance transaction for the suppliers and contractors, the Debit side of account 331 is applied by actual exchange rate (the selling rate of bank which has regular transactions) at the time of advance; - Enterprises must re-evaluate payables to suppliers denominated in foreign currencies at the time of financial statements in accordance with law Actual exchange rate for reevaluating trade payables is selling foreign currency rates of commercial bank which regularly traded with the company at the date of the financial statements The units in a Group apply a general rate specified by the parent company (to ensure close to the actual exchange rates) to re-evaluate payables to suppliers denominated in foreign currencies arising from inter-company transactions d) The import trustor recorded in this account amounts payable to suppliers of imported goods through the import trustee as usual trade payables e) Supplies, goods or services received, warehoused, but the company is not received invoices by the end of the month, the accountant use temporary unit price for bookkeeping and to adjust to actual price when receiving invoices or official quotation from suppliers f) When accounting in detail this account, the accountant must record clearly, coherent trade discounts, cash discount of suppliers if these amounts are not reflected in invoices 1.1.2.2 Source documents and records to recognize trade payables There are two main transactions involved in trade payables: Firstly, when the acquisition of goods or services occurred Second is when the payment for those goods or services occurred Respective to these transactions, these below documents and records are used to recognize trade payables:  Purchase Requisition: A purchase requisition is used to request goods and services by an authorized employee This may take the form of a request for such acquisitions as materials by production staff or the storeroom supervisor, outside repairs by office or plant personnel, or insurance by the vice president in charge of property and equipment  Purchase Order: A purchase order is a document to order goods and services from suppliers It includes the description, quantity, and related information for goods 10 Nguyen Tung Lam 54 Excellent Auditing Class Intake Bachelor Thesis National Economics University Audit Program: Trade Payables For period of 31/12/2015 No Procedure Ref I General procedure Check on accounting policy for consistency with the one of previous E210 year and for compliance with policy of presentation and disclosure Prepare a lead sheet Reconcile balance between lead sheet and E210 General ledger, sub-ledger and working paper from last year auditing II Analytical Procedure Reconcile, fluctuation analysis of balance from last year with current E210 year, calculate proportion of trade payable in total payables in order to determine unusual chance and give judgement on appropriate of chance in business operation of client III Test of Detail Collect Summary Table of payables which were stated in each E241 supplier: - Reconcile balance with relate document (GL, sub-ledger, FSs, etc) - Check on Summary Table in order to find out unusual item (large amount, related parties, etc) - With payables which were due date => estimate interest payable then compare with recorded amount Skimming general ledger to determine unusual transactions (content, N/A value, off-set account), find out reasons and conduct appropriate procedures Procedure for audit beginning balance: E242 - Sampling test book to floor with transaction have huge value E245 - Subsequent payment test to prove beginning balance - Send confirmation letter (if necessary) - Check on valuation with balance in foreign currency - Check on provision for doubtful debt (with advances for supplier) on beginning date Prepare and send confirmation letter Summary received letter, E242 reconcile with amount in sub-ledger 64 Nguyen Tung Lam 54 Excellent Auditing Class Intake Bachelor Thesis National Economics University In case not received confirmation letter back: Send second confirmation letter if necessary Applying alternative procedures: Collect and reconcile amount in subledger with debt reconciliation report, subsequent payment test, document test to prove transaction has occurred In case of the client not allow to send confirmation letter: Collect and disclosure by document reasons about restriction then conduct alternative procedures Test on advancement to supplier E245 - Check whether or not conditions for advancement in contract - Judgement on percentage of completed job at balance sheet date; judge about reasonably of huge amount of advancement - Check on aging of debt and liquidation terms, guarantee that make provision for receivable which are due date Search for unrecorded transactions N/A - Compare unpaid invoices at balance sheet date with payable amount recorded at the end of fiscal year - Check on unpaid transaction after the end of audit - Check on source documents, check between date that transaction took place with recorded date to make sure about cut-off Test on off-set liability transactions: Reconcile contract, agreement, N/A report that stated about off-set in liability between parties 10 With suppliers who are related parties: Check on recording, N/A authorizing, price, quantity, etc 11 With transaction have balance in foreign currency: Check on N/A applied foreign exchange rate, whether or not client has conduct revaluate those balance at balance sheet date 12 Check about classification, presentation and disclosure trade payables on FSs Conclusion: Base on acquired documents from conduct above procedures, it shows that planed objectives have achieved and there was no due date advancement 65 Nguyen Tung Lam 54 Excellent Auditing Class Intake Bachelor Thesis National Economics University 2.3.2.1 Establish a lead sheet Figure 2.10: Lead Sheet of XYZ Company As we can see, at the beginning of 2015 the balance was on credit side but at the end of the fiscal year it was on debit side which mean client have advance payment in order to receive goods in the next year There was large change during the year of 2015, the reasons was client have paid in advance to some of its familiar supplier in order to take material as fast as possible at the beginning of the next year It is notice that client should not that in order to save their resource for other project 2.3.2.2 Analyze balance of accounts payable - Objective: Check on obligations which have huge and small differences during fiscal year - Source of information: List of payables, client inquiry, contract, etc The auditor compare ending payables balance of each creditor with the one in beginning, inquiry client or require them give explanation for significant differences The following figure is sheet No 5142 which use for analyze in detail accounts payables 66 Nguyen Tung Lam 54 Excellent Auditing Class Intake Bachelor Thesis National Economics University 1 M a r c h Figure 2.11: Analyze in detail trade payables of ABC Co., Ltd As we can see in figure aboveFOR that AUDIT in 2015 the Company has performed huge amount CONFIRMATION LETTER of paid in advancePURPOSES transaction while there was small amount of unpaid transactions It Sirs/Madam, wasDear the reason why there was significant chance in balance of accounts payables Our auditors, UHY Audit and Advisory 2.3.2.2 Sending confirmation and control confirmation received Services Company Limited, are conducting Thean auditor chose the balance of trade over Threshold of VND 79 million to audit of our financial statements for payables the sendyear confirmation There were2015 22 confirmations to send to 22 suppliers The ended letter 31 December confirmation control that Accordingly, pleasesheet sendshows directly to 100% our of confirmation letter were received and it wasauditors stated (at amount the address) same with one in sub-ledger The following is one of the the below the amount confirmation supplier of31,client receivable letter from sent you to as the at December 2015 is: VND 120,000,000 Figure 2.12: Confirmation letter for payables If you disagree with the above balance, please provide fully the differences for our auditors Prompt compliance with this request by sending directly to our auditors through the following address: UHY AUDIT AND ADVISORY SERVICES LIMITED Address: 9th Floor, HL Building, 82 Duy Tan Lane, Dich Vong Hau, Cau Giay District, Hanoi To: Ms D – Auditor67 Tel: Tung Lam (84).04.37557 446 Nguyen 54 Fax: (84).04.37557 448 Excellent Auditing Class Intake Bachelor Thesis National Economics University 2.3.2.3 Test for unrecorded liabilities a) Test subsequent payment Auditor would chose payment transactions which occurred after balance sheet date 20 days and those transactions would have amount of over Threshold (VND 79 million) for subsequent payment testing After that, the auditor reconciled the date in payment invoice to date in Hand of minute to see whether those transactions to be recorded properly As we can see, all the transactions tested by the auditor were properly recorded The figure as following shows tested payments: 68 Nguyen Tung Lam 54 Excellent Auditing Class Intake Bachelor Thesis National Economics University Figure 2.12: Subsequent payment testing of trade payables at XYZ Company 2.3.2.4 Cut-off test Auditor continuously chose transactions which larger than amount of VND 79 million in January and February for cut-off testing Auditor found out there are some improper record transaction at the end of February Therefore, he/she give notice to client that they need to make those adjustment entries Adjustment Entry 1: Record for partial completion of Project X Dr 154 Cr 331 2,428,497,341 2,428,497,341 Adjustment Entry 2: Record for hiring cost on construction machines Dr 6235 Cr 331 600,000,000 600,000,000 Adjustment Entry 4: Record for buying concrete mixer Dr 2112 Cr 331 540,000,000 540,000,000 69 Nguyen Tung Lam 54 Excellent Auditing Class Intake Bachelor Thesis National Economics University 2.3.3 Completing the audit and drawing audit opinion Finally, member in charge for trade payables section considered the entire procedures which just have performed After conclude that all performed procedures were complied with UHY ACA audit program and make sure that the team has cover all of the possible risk Adjusted entries should be brought to the team leader for reviewing before announce to accountant of the client Finally, team leader summarized these adjusted transactions into the Summary table of audit differences and prepare audit report and management letter then send them all to managers of XYZ JSC 70 Nguyen Tung Lam 54 Excellent Auditing Class Intake Bachelor Thesis National Economics University Part III ASSESSMENTS AND RECOMMENDATIONS TO IMPROVE AUDIT OF ACCOUNTS PAYABLE IN FINANCIAL AUDITS CONDUCTED BY UHY ACA 3.1 Assessments on audit of accounts payable in financial audits conducted by UHY ACA Limited Company 3.1.1 Strengths Overall, in UHY ACA audit of trade payables is performed fully and scientifically and in compliance with Vietnam and International auditing standards Creating an effective audit process is a big advantage with any auditing firm because it helps to reduce audit risk, cut down time and costs and create credibility on the financial market In UHY ACA Audit process for trade payables will be divided into phases: Planning, Implementing and Completing 3.1.1.1 Planning phase - - In this phase, the firm will obtain clearly understanding of nature of the client The auditor in UHY ACA investigates information about client in many aspects such as nature of the entity, characteristic of field which client operate in, operating activities, ownership, governance structure, macroeconomic, investment, accounting policy, external factors, regulation framework, objectives and strategy, IT environment for accounting Particular for auditing of trade payables, the auditor will acquire information about suppliers, products, competitors, documents process which relate to acquisition and payment cycle of the enterprise After obtain knowledge about client, the auditor will evaluate internal control system of the entity by conducting procedure such as: observing process of document flow, inspecting samples of vouchers or inquiring accounting department about purchase and payment process This work is carried out by auditor who have professional experience at client’s field and competence Therefore, result of evaluation of internal control is very reasonably and exact Furthermore, because of the reasonable assessment of internal control the auditor can reduce significant 71 Nguyen Tung Lam 54 Excellent Auditing Class Intake Bachelor Thesis - - - National Economics University amount of procedures or samples in the next phase of audit and more importantly reduce in maximum possible audit There are criteria when auditor assessing materiality: Planning Materiality (PM) for financial statement level, Tolerable Error (TE) and Summary of audit difference (SAD) The calculation of PM, TE and SAD is based on asset, revenue or profit of the entity The base will be selected by professional judgement of Board of Manager In order to control combined risk, UHY ACA uses threshold method to cover this risk Threshold also be determined by professional judgement of BOM, they will decide what level of combined risk they willing to suffer Before implementing the audit, based on the assessment of internal control, materiality and combined risks the auditor will conduct necessary tests of controls and substantives tests In Test of control, the auditor will test on some main control points and selects trade payables transactions over Threshold and to working paper This instrument help auditor to reduce work load in implementing phase which is the most complex and spend much time 3.1.1.2 Implementing phase - - - In TOC, the auditor will follow the design of TOC in planning phase to conduct testing by: Inquiring accounting department to provide documents related to selected transaction in acquisition and payment cycle then checking whether the all of the main control point were met This work is always performed quickly and effectively due to planned designing For substantives test, the audit of UHY ACA concentrates on performing audit procedures in order to cover all possible risk of account at assertion level The auditor often base on working paper and experience from previous audit to perform most effective procedure Nevertheless, with transaction have amount over than threshold level, auditor always conduct necessary procedure to cover it In general, UHY ACA has performed fully of mandatory procedures for auditing of trade payables such as: reconcile sub-ledger and general ledger, reconcile listing and general ledger, send confirmation letter, re-evaluation, cut-off testing, researching unrecorded payables, etc At begin of an audit, auditor always performs analytical procedures This helps the auditor have an overview about acquisition and payment cycle of the client, and 72 Nguyen Tung Lam 54 Excellent Auditing Class Intake Bachelor Thesis National Economics University then identify fraud and errors possibly occurred Therefore, the audit work can performed smoothly and it also help reducing time and cost of the audit Confirmation letter is an essential evidence from a third party which can able to - ensure the fairness of this account Therefore, UHY ACA’s auditor also concentrates on sending confirmation letters Even though confirmation are usually considered as an increasing-cost procedure of an audit 3.1.1.3 Completing phase - - Completing audit is most important phase because of if there is still a material misstatement but reviewer cannot able to find it, this will be the risk to auditor who issue audit report Therefore, after the member in charge of this cycle review work done by himself, this working paper will be move to review by another four levels: Senior in charge, Manager in charge, Partner and other independent Partner The cross-checking of independent partners will ensure the objective of audit opinion and create the confidence of users of audit report Working paper and audit evidences are stored both in hard-state and soft-state Therefore, the auditor of an audit can easily access working paper of previous audit in order to understand nature, level of risk and misstatement may be occurred It helps auditor to cut down timing and increase the effectiveness of audit 3.1.2 Weaknesses 3.1.2.1 Planning phase - - - In progress of obtaining understanding about client’s nature and internal control, UHY ACA still use documents with plenty of words to describe It would cost much time and sometime lead to misunderstand which will might cause risk to auditor Level of TE is determined based on type of entity instead of relying on professional assessment of the auditor which are 50% for listed companies and 75% for unlisted public company This is standard of world therefore it will not suitable to apply for situation of Vietnam When getting to know about flows of source documents those are still described in words which is too long and complicated Therefore, it is also too complex for the auditor to gain an overview about business cycle In addition, not every client has 73 Nguyen Tung Lam 54 Excellent Auditing Class Intake Bachelor Thesis National Economics University clear written description about documents and transactions flow This will be very waste of time when they need to spend a lot of time to read in order to get familiar with client’s internal control 3.1.2.1 Implementing phase - Auditor just apply normal procedure when analyze through using times series instead of comparing with statistic of other enterprise and of section Sampling is an essential procedure in order to collect evidence for issue audit opinion According to VSA No.53 “Sampling and other procedures”, it requires that all of selected items have to represent for population In UHY ACA, sampling procedure will just base on professional judgement which base on TE and threshold level This method will help auditor narrow down scope of risk area then decline work load as well as expense, they can also focus on material area Nevertheless, random method of sampling was not applied can cause some audit risk when total amount of unselected item is over level of materiality that has set up - 3.1.2.3 Completing phase - At the end of an audit, due to shortage of human resource, especially in busy season, the auditor have to in charge of more than two job This may cause risk due to the auditor cannot concentrate in reviewing phase which is the last one to cover audit risk, auditor are also overloaded and stressed which can cause some mistake to occurred 3.2 Recommendations to improve audit of accounts payables in financial audit conducted by UHY ACA Limited Company 3.2.1 Planning phase - In addition, the auditor should consider to gather more information such as statistic from enterprises which have operation in the same field with client, statistics and developing trend of whole industry This will help auditor have an overview of whole industry which client have operation in, therefore they will able to see which area are likely to have risk then have appropriate procedure to deal with it In addition, these information are really helpful when the Company sign contract with other customer who are also in same field 74 Nguyen Tung Lam 54 Excellent Auditing Class Intake Bachelor Thesis - - - - National Economics University Now, in progress of obtaining understanding about business of client are still disclosed in huge amount of words, this will cost much time and sometime might cause misunderstanding when an auditor read file of previous year In order to save time and avoid of misunderstanding, the company should use flowchart to describe about client such as when study about client’s flow of documents Besides, the company can also use audit software which can draw flow chart, and summary information in effective way After determine planning materiality and tolerable errors level of each account, the Company should divide all accounts into types: material and immaterial account Auditor then will use professional judgment to determine in detail appropriate material level for each account and therefore perform further procedure to cover that additional risk Tests of controls should be designed to be more flexibly Amount of samples should be selected based on the nature and extent of business not just by amount of transaction Finally, the auditor should perform more thorough analysis procedures The calculation of variances between periods is not sufficient The auditor can perform additional analysis procedures such as ratio analysis, trend analysis, cooperation to competitors, average industry, etc 3.2.2 Implementing phase - The Company should use an audit program in order to have more appropriate audit program as well as more convenience and logically in storing audit file On the other hand, the Company should enhance effective when perform sampling procedure by using flexibly sampling methods because each of them have itself advantages For example, when there is small number of items which have large amount, auditor should base on professional judgement, select them into sampling instead of still following random method of sampling This will help to save time for auditor but still cover the risk Applying sampling method base on specific circumstance will help auditor select items which are truly represent for whole population, avoid systematic errors as well as selecting items according to habit of auditor Therefore, it will create more confident to users of audited financial statements 75 Nguyen Tung Lam 54 Excellent Auditing Class Intake Bachelor Thesis - National Economics University The performance of analytical procedures also need paying more attention The auditor should not only base on the variances between opening and closing balances of accounts but also use other indicators For example of analytical procedure for trade payables, the auditor can use other indicators such as payable turnover, supplier payable time Table 3.1: Example of calculating ratios Criteria 31/12/2015 31/3/2014 31/3/2013 Opening 43,998,364,729 43,132,287,473 Closing 79,410,185,624 Average 61,704,275,177 Difference Amount % 46,203,898,811 (3,071,611,338) -6.65% 40,190,041,343 43,132,287,473 (2,942,246,130) -6.82% 41,661,164,408 44,668,093,142 (3,006,928,734) -6.73% Trade payable - In addition, the auditor can use a combination of financial and non-financial indicators, such as debt payment period to suppliers or relationships with suppliers Finally, the auditor should consider about relationship of trade payable with other accounts such as cash, inventory, expense then use this relationship with other accounts to detect risks of misstatements 3.2.3 Completing phase - The Company should arrange human resources more reasonably, especially in the end of financial quarters This is difficult not only in UHY ACA but also in many other audit firms Therefore, it raises a requirement for board of director of the company to have solutions in long term Arrangement should be made consistently to avoid shortage of employee, overload of work load and ensure audit quality The company can take advantage and use employee in other Department which are still not assigned new job and establish suitable recruitment and training policies to help reduce the pressure of work load Also, the human resource department should have an appropriate plan for booking personnel to each engagement 76 Nguyen Tung Lam 54 Excellent Auditing Class Intake Bachelor Thesis National Economics University CONCLUSION During the internship at UHY ACA, I had opportunity to perform some practices of audit work at company’s client and be aware of the audit procedures applied by UHY ACA at specific clients This internship has helped me explore further understanding in auditing and acquire experience in real field as well as edge my technical and soft skills Therefore, I am able to shorten the gap between theoretical knowledge that I has obtained at university and practical Through the actual participation in the audit of clients, I noticed that trade payables have a very important role in the financial statements because they reflects solvency, liquidity as well as operation ratio of the business which are interested by users Furthermore, trade payables occupy a big proportion in total liabilities and raise a lot of misstatement related to fraud and error Therefore, I choose the thesis: “Auditing accounts payable in a financial audit at UHY ACA Limited Company” The thesis include theoretical framework of auditing trade payables and procedures to audit accounts payable conducted by UHY ACA Limited Company In my opinion, I also give assessment on weaknesses and strengths and recommend solutions to improve audit of accounts payable in financial audit performed by UHY ACA By virtue of restricted knowledge and limited of time, there are still some shortcoming from my report about content which require to study more deeply on auditing of UHY ACA Limited Company Therefore, I hope to receive more assessments and comments from my supervisor in order to get better report At last, I would like to express my faithfully gratitude to employees in Korean Desk of UHY ACA Limited Company Furthermore, I would like to give a special thanks to Dr To Van Nhat who enthusiastically supported me for completing this report 77 Nguyen Tung Lam 54 Excellent Auditing Class Intake Bachelor Thesis National Economics University REFERENCES • • • • • • • • • • • • • • • • • • ACCA F8 – Audit and Assurance ( International ), Chapter 8,9,10,16 Working papers from UHY ACA Financial Audit provided by National Economic University International Standard on Auditing 200 – “Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with International Standards on Auditing” ISA 300, “Planning an Audit of Financial Statements” ISA 315, “Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment” Vietnam Account Standard Vietnam Standard on Auditing Circular No 200 by Ministry of Finance Thesis written by students Intake 53 of National Economic University Thesis written by students Intake 50 of Academy of Finance Substantive tests of trade payables coaching document by UHY ACA http://secretacademus.blogspot.com/2011/08/accounts-payable.html http://help.wavelet.biz/faq/howtoseparatetradeandnontradecreditorsinaccountspayable https://www.legislation.gov.au/Details/F2009L04080 http://www.accountingtools.com/management-representation-lett http://www.accountingtools.com/trade-payable http://blink.ucsd.edu/finance/accountability/controls/practices/accountspayable.html 78 Nguyen Tung Lam 54 Excellent Auditing Class Intake [...]... affect liquidation ratios of the business and mislead compensation of payables among suppliers 1.2.3 Assertions of trade payables in an audit of financial statements As stated by ACCA – F8 Audit and Assurance: Audit tests are designed to obtain evidence about the financial statement assertions Assertions relate to classes of transactions and events, account balances at the period-end, and presentation... (ISA 320) indicated that from a financial reporting framework perspective, materiality means information, individually or in aggregate, that if misstated or omitted from a financial report may adversely affect decisions about the allocation of scare resources made by users of the financial report According to point 10 of ISA 320, it requires that, when establish the overall audit strategy, the auditor... accordance with International Standards on Auditing , the overall objectives as well as objectives of the audit of trade payables perspective as stated as following: 'To obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, thereby enabling the auditor to express an opinion on whether the financial statements are... and Performing an audit , “Performance materiality means the amount or amounts set by the auditor at less than materiality for the financial statements as a whole to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole If applicable, performance materiality also refers to the amount... are prepared, in all material respects, in accordance with an applicable financial reporting framework; and to report on the financial statements, and communicate as required by the ISAs, in accordance with the auditor's findings.' 1.2.1 Inherent risk of misstatements when audit trade payables Inherent risk is the susceptibility of an assertion to a misstatement that could be material individually or... sheet date and are not secured by liens on assets, security interest, or other collateral unless otherwise indicated Presentation and Disclosure: Trade payables are properly classified, described, and disclosed in the financial statements, including notes, in conformity with prescribed accounting principles 1.3 Sequence in auditing trade payables in financial audits 1.3.1 Audit Planning 1.3.1.1 Evaluate... publishing 29 Nguyen Tung Lam 54 Excellent Auditing Class Intake Bachelor Thesis National Economics University CHAPTER II PRACTICE OF AUDIT TRADE PAYABLES IN FINANCIAL AUDITS CONDUCTED BY UHY ACA 2.1 Overview of 2 clients of UHY ACA Limited Company 2.1.1 Overview of ABC ABC Co., Ltd is a 100% foreign capital company which was establish on 30 th March 2012 It has official office at Hoa Hanh Hamlet, An Hai... regulations of the Company The auditor included that the internal control of the Company was effective 2.2.1.4 Calculating Planning materiality, Tolerable Error and Summary of audit differences Based on the ground of information from the previous step, the auditor must determine materiality level in both levels of whole financial statements and accounts, including trade payables: On the level of financial. .. Excellent Auditing Class Intake Bachelor Thesis National Economics University In essence, the letter states that all of the information submitted is accurate, and that all material information has been disclosed to the auditors The auditors use this letter as part of their audit evidence The letter also shifts some blame to management, if it turns out that some elements of the audited financial statements... Predictability and stability Equity 1-2 Stability ISA 320 desires that the auditor consider materiality at both the financial report level and in relation to individual account balances including trade payables, classes of transactions and disclosures However, ISA does not mandate the specific step that an auditor should take to achieve that goal In practice, some auditors use rules of thumb to explicitly relate