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GROUP ASSIGNMENT
SUBJECT: FINANCIAL AUDIT 1
INTAKE: 58
CLASS: AUDIT A
Members:
8. Audit program for short term and long term payable account (suppliers) . . . . . . . . . . . . . . . . 12
9. Audit report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Retail market of electronic products in Vietnam is full of excitement and competition is fierce. The participation of
foreign corporations has opened up opportunities for Vietnamese customers to have more access to good quality
products, affordable prices and that also increases a great pressure which alrealdy exists for retailors in Vietnam.
Vietnam retail market continues to be considered an attractive market because the size of this market continues to
achieve positive growth for some product groups. According to GfK Temax's research, the retail sales of consumer
electronics products in 2018 were 9.5 billion USD and achieved a growth rate of nearly 300% compared to 2017. In
the previous period, from 2013 - 2017, revenue in 2013 was only USD 1.8 billion, in 2014 reached USD 2.2 billion,
in 2015 reached USD 2.55 billion and in 2016, 2017 reached USD 3.27 billion and USD 3.63 billion respectively.
The year of 2018 showed a very clear statement: The market for electronic products - electronics is really "hot".
Not affect much the retail industry for electronic products since most of them doen’t depend on environmental
factors.
As a consequence of cutting edge technology, cellphone’s production technology changes rapidly. The cycle life of
product, as the result, is very short, which means that they are more likely to be obsolete.
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The technological challenges involved in retailing include the planning of strategies to produce efficiency,
effectiveness, advantage and profitability. How resources fit these strategies, the people involved etc. ultimately
decide the successful implementation of technology.
Technology has evolved into cheaper, more accessible applications. Still, the capital outlay required will result in
making cost/benefit analysis essential. The capabilities of staff, as regards technology, are of utmost importance to
successful implementation.
The size of the business is also has considerable consequences. The advantages offered by technology include
business process re-engineering, just in time ordering, electronic shelf labels, point of sale systems etc. These
advantages offer greater efficiency, effectiveness, and advantage, as well as cost reduction, improvements in quality
etc
The technology product’s price is very high, even though it really slight. A cellphone may range from 1 million to
about 40 millions, depend on its segments.
2. Legal envỉonment
(b) Laws and regulations applicable to the Binh Anh which has a significant influence on the operation of the
enterprise
Corporate law, retail law, stock market regulations, currency regulations, foreign exchange rate, incentives,
government financial support, tariff, trade barriers, etc.
Value added tax (VAT), Coporate income tax (CIT), import tax.
1. Retail
(a) Revenue sources; products, services and markets; sales methods, sales policy
Products: Cell phones, accessories of cell phones, computers, etc. Other information is unavailable
Binh Anh has many stores in big cities over the country. In 2018, Binh Anh has opened more stores in small cities.
2. Type of ownership
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(a) Reporting system required
Management still made decision to open some new stores in small cities without considering shareholders’ protest.
(b) Use of IT
5. Other issues
- Current ratio remained at the same level in 2017 and 2016 but decreases suddenly in 2018. As 2018 draft FS, both
current liabilities increased at significantly higher percentage, compare to current assets.
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- Inventory turnover decreasing from 1.133 to less than 1 indicates that more inventory is being hold by company
assume cost of goods sold does not fluctuate.
Since inventory accouts for a large amount of current assets for Binh Anh as a reailer and assume other current
assets usually remain at the same amount (since we do not have enough data), we preliminary suspect that current
liabilities significant increasing was due to finanicial fraudulent. In addition, we had found in April and Dec 2018,
payable account made payment to suppliers approved by Chief accountant; suppliers’ statement reconciliations
have not always been performed by the client; invoices were often not approved before payment; and Payable leger
and the individual accounts of suppliers making up the trade payables balances. Therefore, This is the first riskiest
area we would focus on.
Also, since Inventory is not classified reasonably according to descriptions of each type of categories;
camera system not works for months, some employees can enter warehouse without any restriction; due to
lack of personel, sometimes goods are not examined fully by receiving department and a large portion in
inventory may be obsolete, we had a great cercern on inventory account. Therefore, Inventory would be
the second riskiest area we want to focus on.
A. Objective
The assessment of internal control at the enterprise level helps auditor to determine the risks of material
misstatements (especially risks due to fraud), from which, plan the audit and determine the content, schedule and
scope of next audit procedures.
B. Main content
Internal control at the enterprise level often has a wide impact on business activities. Therefore, internal control at
the enterprise level sets the standard for other components of internal control. Good understanding of internal
control at the enterprise level will provide an important basis for evaluating internal control for important business
cycles. The auditor uses his/her professional judgments to evaluate internal control at the enterprise level by
interviewing, observing or examining documents. In this table, the assessment was carried out for five components
of the Internal Control: (1) Control environment; (2) Risk assessment process; (3) Information system; (4) Control
activities; (5) Monitoring controls activities.
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- Does the company specify/describe the requirements for qualifications
and skills for each staff position? □ □ □
- Does company pay attention to the qualifications and competance of
employees? □ □ □ Inspection
Inquiry
- Does the company have timely measures to deal with employees who do
not have the competence? □ □ □
1.3 Participation of the Board of Management
- Are the BOM members independent of the Board of Directors? □ □ □ Inspection
Inspection
- Does the BOM include experienced people, position? □ □ □ Inquiry
Obervation
- Does the BOM regularly participate in important activities of company? □ □ □ Inquiry
Inspection
- Are important issues and errors reported promptly to the BOM? □ □ □ Inquiry
- Does the company have a secured information channel to report violations
of rules and regulations on professional ethics which are discovered? □ □ □ Inquiry
Observation
Inspection
- Does the BOM meet regularly or periodically and Is the meeting minutes
prepared in a timely manner? □ □ □ Inquiry
Observation
1.4 Management style and philosophy of the Board of Directors
- The attitude of the BOD for internal control (for example: is there any
concern and respect for the design and implementation of effective internal
audit)?
□ □ □ Inquiry
Observation
- Do the supervisors have enough time to carry out their monitoring work? □ □ □ Inquiry
Observation
Inspection
- Is the segregation of duty principle implemented appropriately in the
company? (e.g. separate accounting and asset procurement jobs) □ □ □ Inquiry
Observation
1.7 Human resources policies and practices
- Does the company have policies and standards for recruitment, training,
evaluation, promotion, and dismissal of employees? □ □ □ Inspection
book entries / Controls are made for book entries and other adjustments /
□ □ □
(Auditor's assessment of the risks of material errors due to frauds related to Inquiry
contents, schedules and violations micro check the book entries and other
adjustments)
3. INFORMATION SYSTEM
3.1 Understand information system related to the preparation and presentation of financial
statements
- Identify groups of transactions in the unit's activities that are important for
- - - -
financial statements
- Procedures implemented in the IT or manual system, to create, record,
process, edit transactions, record into accounting books and present - - - -
financial statements
- Relevant accounting documents, supporting information and specific
items on the financial statements are used to create, record, process and
- - - -
report transactions, including correcting inaccurate information. and how
data is reflected in the ledger.
- The way of information system receives events and situations of important
- - - -
nature for financial statements.
- Process of making and presenting the financial statements of the unit,
- - - -
including important accounting estimates and explanatory information.
- Controls for entries, including book entries, are not common to record
- - - -
irregular transactions, unusual transactions or adjustments.
3.2 Learn how units exchange information about roles, responsibilities and other important issues
related to financial statements
3.3. Evaluation of the internal control measures of information system
- Does company have a process to collect important information to achieve Inquiry
the financial statements objectives, prepare and present financial
statements?
□ □ □ Observation
Inspection
- Is IT system appropriate or not? IT personnels are appropriate or not? IT
□ □ □
processes, for example: data processing or ensuring the safety of data, etc.
is it appropriate?
Inquiry
Observation
- Are relevant positions such as finance, accounting, IT and functional
departments clearly communicated on important issues regarding financial
statements and internal audit?
□ □ □ Inquiry
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- Are IT team members of the company guided, trained and knowledgeable
about key issues? □ □ □ Inquiry
- Is control measures related to access to the information system
appropriate? □ □ □ Observation
- Is there any control over access to data, updating data into accounting
books and printing data? □ □ □ Inquiry
Observation
- Are the data checked before updating to the accounting books? □ □ □ Inspection
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Summary
Items 2018
Overall financial statement materiality $277,270
Performance materiality $138,635
Trivial $4,159
A. Objective
Ensure that inventories items are existing, owned by the enterprise; be recorded fully, accurately, in the right
accounting period, calculated consistently and recorded according to net realizable value value; presented on the
financial statements in accordance with the VAS for preparing and presenting the applied financial statements.
C. Audit procedures
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Collect reportsof entry and exit for all types of cooperatives (monthly and yearly / period):
- Reconciliation of data with related documents (ledger, detailed book, arised balance sheet,
financial statements), explain the difference (if any).
2.1
- Review monthly reportsentry and exit, review the close balance of present year to identify
unusual items (large balances, negative balances, fluctuations in many periods, or long-term ...)
Proceed with the corresponding inspection procedure.
Collect summary of inventory results of units:
- Make sure all inventory records are included in this summary.
- Reconciliation of data with related documents (counting sheets of enterprises, documents of
2.2 observations and inventory results of auditor [D531-D533], confirmation of third parties (if any)
...) . Explain the difference (if any).
- Reconciliation selects the actual number of samples from the summary of inventory results with
report of entry and exit and vice versa. Ensure enterprises have compared and adjusted accounting
data according to actual inventory data.
In case of witnessing an inventory before or after the end of the accounting period:
Proceed to select the check form for warehousing / ex-warehousing operations arising after or
Tracing,
3 before the inventory time, carry out the reverse / reverse comparison to the actual inventory
Vouching
balance on the ledger / stock card at the closing date by adjusting the corresponding arising I / O
operations. Find out the cause of the difference (if any).
Skim the ledger to identify unusual transactions (content, value, reciprocal account ...). Find out
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the cause and perform the corresponding test procedure (if necessary).
Auditing the balance at the beginning of the period:
- Collect minutes and records of inventory at the end of last year of the unit. Review and evaluate
the reliability of the internal control of the unit for the inventory process.
- Reconcile the number of year-end cooperatives with inventory minutes;
5 Inspection
- Find out and check the method of calculating inventory price applied for the previous fiscal
year;
- Check the correctness of inventory;
- Check the balance of provision for devaluation of inventory at the beginning of the period.
Checking the purchase operations in the period: Checking and selecting the operations of
purchasing goods in stock during the period, comparing professional records recorded in the
6 Inspection ledger with relevant documents. (Note that in case of purchasing inventory if it is included with
products, goods, equipment, spare parts (in case of failure), whether accountant recorded in
accordance with regulations of TT200 / 2014 / TT-BTC or not)
Check the balance of sold goods, goods being held by 3rd party, buying goods on the way:
Inspection, Compare or send receive and exit to the receiver to send inventory (if necessary) or check
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Confirmation shipping documents, contracts or borders delivery receipt after the end of the accounting period to
ensure the reasonableness of the receipt.
8 Revaluation Check and set up inventory devaluation provisions:
8.1 Learn and evaluate the reasonableness of the provisional calculation methods (if any).
Review items of inventory that are slow, outdated or damaged.
Select the completeness test form and check the detailed tracking table inventory (date of
8.2 warehousing, goods status, expiry date, ...) before using this information to make a backup. It is
recommended to combine inspection of these samples when conducting inventory (see status of
goods during inventory counting).
Check that inventory account have large fluctuations in cost or price or technology or market
8.3
demand to consider the possibility of making provision for devaluation
Analyze gross profit to see if inventory has a higher cost than the net realizable value to determine
8.4
the need for provision.
Checking events arising after the end of the accounting period, affecting the operations of the year
8.5
and the value of inventory.
Considering the provisioning of returned goods due to damage, poor quality in the year and after
8.6
the year
8.7 Evaluate the tax treatment method for deducted provisions
Timing: Selecting samples of warehouse import / export operations before and after the end of the
accounting period and checking to the original documents to ensure the transactions are recorded
9 Inspection in the correct accounting period (combined with the related practice).
Select the form of warehousing / ex-warehousing bills before and after the end of the accounting
period and compare with the books to ensure the transactions are recorded on time.
10 Inspection For purchases by foreign currency: Check the application of exchange rate to record inventory
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(in conjunction with the related part).
Checking the classification and presentation of inventory amounts on financial statements.
11 Inspection Considering the time to complete unfinished products for short / long term classification
according to TT200 / 2014 / TT-BTC
D. Conclusion
In my opinion, based on the evidence gathered from the implementation of the above procedures, the audit
objectives presented at the beginning of the audit program have been achieved, except for the following issues:
8. AUDIT PROGRAM FOR SHORT TERM AND LONG TERM PAYABLE ACCOUNT (SUPPLIERS)
A. Objectives
Ensure that short-term and long-term payables actually exist, under the payment obligations of the enterprise; was
recorded accurately and completely; are evaluated and presented in accordance with VAS for preparing and
presenting the applied financial statements.
C. Audit procedures
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- Check the balance of provision for bad debts (for prepaid suppliers) at the beginning of the
period.
Prepare and send confirmation letter for balance of account payable and prepaid balance to
suppliers.
3 Confỉmation
Summarize the results received; compare them with the balance in the details book. Explain the
differences (if any).
In case suppliers do not reply: Send confirmation letter for the second time, or:
Implementation of replacement procedures: Collect and compare detailed book data with debt
4 Inspection reconciliation records of the unit (if any). Check payments arising after the end of the accounting
period or check documents to examine the existence of purchase transactions (contracts, invoices,
delivery notes, etc) in the year.
In case the company does not allow auditor to send confỉmation letter: Collect written explanation
5 Inspection of the Board of Directors / Board of Management on the reasons for not allowing doing so and
implementing other replacement procedures.
Check prepaid amounts for suppliers:
- Reconcile with prepaid terms specified in the contract;
- Check payment documents;
- Check if the prepayments for suppliers are at risk of not receiving the goods / not refunding
6 Inspection money?
- Consider the level of transaction completion at the end of the accounting period and assess the
reasonableness of large prepaid balances for suppliers;
- Considering the debt age and payment terms, ensuring the provision for overdue receivables for
prepayment to suppliers is sufficient and accurate.
Looking for unrecorded debts:
- Reconcile of unpaid invoices at the audit date with the outstanding liabilities recorded at the
balance sheet date;
- Check the payments made in 60 days after the end of the accounting period;
Inspection
7 - Checking the original documents, comparing the dates of professional development with the date
Inquiry
recorded in the books to ensure proper calculation;
- Inquiry or work with departments related to cost cycle (such as import department, purchasing
department, marketing department) to collect and check additional purchase/expense documents
arising but not promptly transferred to the accounting department for recognition.
Check the classification and presentation of suppliers’ payables on financial statements.
Inspection
8 Check if there are overdue debts, interview customers about overdue debt issues. Check the
presentation of overdue debt on financial statements.
Contingent liabilities:
Inspection Consider commitments to purchase if any and the implementation of these commitments. In case
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Inquiry the company violates the commitments, the arising debts should be considered, acknowledged for
the payable liabilities and published in the financial statement notes.
D. Conclusion
In my opinion, based on the evidence gathered from the implementation of the above procedures, the audit
objectives presented at the beginning of the audit program have been achieved, except for the following issues:
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9. AUDIT REPORT
To:
We have audited the accompanying Financial Statements Binh Anh Joint stock Company for the year ending 31
December 2018 including Statement of Financial Position on 31 Dec 2018, Statement of Profit and Loss,
Statements of Changes in Stockholders’ Equity, Statement of Cash flows and the Notes to the General Financial
Statements as set out on the pages 07 to 28. The Financial Statements have been prepared on 17 February 2019.
Board of Directors of the Company are responsible for the preparation and true and fair representation of Financial
stements of the Company in accordance with the accountign standards, corporate accounting regulations in Vietnam
and the legal provisions relating to the preparation and presantation of financial statements and is responsible for
the internal controls that the Board of Directors determines to be necessary to ensure the preparation and
presentation of financial statements did not have material misstatements due to fraud or confusion.
Responsibility of Auditor
We have conducted our audit in compliance with the Vietnamese Standards on Auditing and the current
Vietnamese Regulations on Independent Auditing. These Standards require that we plan and perform our audit to
obtain a reasonable assurance that the Financial Statements are material misstatement – free.
An audit includes implementing procedures to gather audit evidence about the amounts and disclosures in the
financial statements. The audit procedures depend on the auditor’s judment, including the assessment of the risks of
material misstatement may in the financial statements dur to fraud or error. When performing this risk assessment,
the auditor has to consider internal control relevant to the Company’s preparation and fair presentation of the
Financial Statements truthful and appropriate in order to design audit procedures that are appropriate with the actual
situation, but not for the purpose of expressing an opinion on the effectiveness of internal control of the Company.
An audit also includes evaluating the appropriateness of accouting policies used and the reasonableness of
accounting estimates made by management, as well as evaluating the overall presentation of the general financial
statements.
We believe that our audit provides a reasonable basis for our opinions.
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Audited financial statements are reflecting a large amount of obsolete inventories at too high prices for XXX VND.
We did require Binh Anh to make appropriate adjusting entries to record devaluation of stock but managers of the
company did not agree with us. According to our assessment, this issue has material impact to many items in
Financial Statement, specifically Cost of goods sold, income before tax, XXX2 VND; tax, XXX3 NVD
Adverse Opinion
In our opinion, because of the significance of the matter discussed in the Basis for Adverse Opinion paragraph, the
financial statements do not present fairly on all material levels the financial position of Binh Anh Company as at
December, 31, 2018, and their financial performance and their cash flows for the year then ended in conformity
with accounting standards, corporate accounting regulations in Vietnam and legal provisions relating to the
preparation and fair presentation financial statements.
MANAGEMENT LETTER
To:
Dear Sir,
We have audited in accordance with Vietnamese Standards on auditing the financial statements of Binh Anh Joint
Stock Company (“the Company”) for the year ended 31 December 2018, and have issued our report thereon dated 1
March 2019. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks
of material misstatement of the financial statements, whether due to fraud or error.
During our audit we noted certain matters involving internal control and other operational matters that are presented
for your consideration. These comments and recommendations, all of which have been discussed with the
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appropriate members of management, are intended to improve internal control or result in other operating
efficiencies and are summarised in the enclosed report.
Our audit procedures are designed primarilly to enable us to form an opinion on the statements, and therefore may
not bring to light all weaknesses in policies or procedures that may exist. We aim, however, to use our knowledge
of the Company gained during our work to make comments and suggestions that we hope will be useful to you.
The Company’s written response to our comments and recommendations has not been subjected to the auditing
procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it.
This communication is intended solely for the information and use of the Company management and others within
the Company and should not be distributed to or used by any other parties.
Contents:
Observations
- Recent years, inventory has been slow moving due to competition of rivals
- Camera system not works for months, some employees can enter warehouse without any restriction
- Inventory is counted and compared to perpeptual records and the differences are recorded as operating expense
Implications
- These examples indicate that the control over the inventory managing system is inappropriate
- Company could not make enough provision and over value inventory which overstated cost of goods sold and
understate net income
- Warehouse manager must take long time to find the right product for customer; reduce reputation, delay other
activities in the sale cycle, and negatively impact revenue in long term.
- The inactive camera system can lead to the opportunity for employee to steal inventory
- Company could not apply accounting stand properly. There is maximum level of difference allowed to be
recognized as operating expense. This could be an error or financial frauduent enable to understate the company's
business performance to decrease tax expenses
- The omission of inventory can lead to the misstatement of year end inventory figure. This could be a chance for
financial fraudulent
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Recommendations
- Promote different sales channels, like email, facebook ads, and television ads
- Put the items on sales or include slow moving products as “bonus” items in customer orders.
- Improvements should be made to the system of control to facilitate a review of the dispatches at the year end to
ensure that a proper cutoff is achieved.
- A simple system of perpetual inventory should be implemented at each location. This should be used to check for
the dispatch and receipt of inventory and would provide good overall control to enable a comparison of expected
use to actual by comparison with orders, and book inventory to actual after regular inventory checks
- The difference between period and perpetual records should be recorded as other expense or other revenue,
instead of operating expense
Observations
- Management of BinhAnh still made decision to open some new store in small cities without considering some
shareholders’ protest
- In April and Dec 2018, payable account made payment to suppliers approved by Chief accountant
Implications
- Assets, especially inventory, are difficult to control quality, quantity, and physical existance.
- The expansion of business will increase costs.In the context of difficult business; this may make the financial
situation bleaker because of rising costs and slow-moving condition of inventory.
- The approvement is not full secured by segregation of duty. The chief account being responsible for recording but
also being able to approve payment could lead to fraud of collusion to take money for personal purposes.
Recommendations
- Management of Binh Anh should consider some shareholders’ protest before making decision to open new store.
- Segragarion of duty is necessary: Company policies should clearly states that Chief account is not allowed to
authorize payments. The same should be applied for other situations.
Observations
- Due to lack of personel, sometimes goods are not examined fully by receiving department
Implications
- The quantity and quality are not fully assured; company may sell low quality product to customers which damages
to its reputation. In addition, the emloyees in receive department can steal goods in receiving process.
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- Business performance will be adversely impacted because of the unrecorded devaluation of stock. This could be a
financial fraudulent enable to overstate the company’s assets.
Recommendations
- HR department should recruit more employees for receiving department to examining goods
- The managers should record devaluation of stock to accurately reflect financial statements.
Manager’s response
- The managers of the company did not agree to make appropriately adjustng entries to record devaluation of stock.
They explained if they did that the business performance would be adversely impacted
Observations
- Suppliers’ statement reconciliations have not always been performed by the client
- Error in the payable ledger and the individual accounts of suppliers making up the trade payables balances
Implications
- The client does not use payable listing, so that it is difficult for them to detect the difference between bank
reconciliation and their payable. This problem can lead to risk of frauds
- Reconciliation monthly, annually with suppliers is compulsory, but the client does not. It can lead to the the
different payable account and cash outflow
- Invoices which aren't being approved are unavailable, so that the disapproval of invoices can lead to the omission
of assets, or even frauds
- Because the total of trade payable is material to the statement of financial position, error in the payable ledger and
the individual accounts can lead to the deviation of financial statements. Even though it is an error, but it can results
in risk of frauds
Recommendations
- A monthly account payable listing should be introduced. Payments should be marked off. This would provide
control over unpaid invoices and a means for regular control account reconciliation.
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