BANKING ACADEMY FACULTY OF ACCOUNTING - AUDITING GRADUATION THESIS ACCOUNTS PAYABLE AUDITING IN FINANCIAL AUDITS CONDUCTED BY KPMG COMPANY LIMITED Student: Do Thi Nhan Class: K22CLCE Course: 2019-2023 Student ID: 22A4020052 Supervisor: PhD. Pham Thi Tuyet Minh Ha Noi, May 2023 BANKING ACADEMY FACULTY OF ACCOUNTING - AUDITING GRADUATION THESIS ACCOUNTS PAYABLE AUDITING IN FINANCIAL AUDITS CONDUCTED BY KPMG COMPANY LIMITED Student: Do Thi Nhan Class: K22CLCE Course: 2019-2023 Student ID: 22A4020052 Supervisor: PhD. Pham Thi Tuyet Minh Ha Noi, May 2023 Banking Academy Graduation Thesis STATUTORY DECLERATION I hereby confirm that the submitted Bachelor Graduation Thesis was independently written by me. This is my own research.
Except for the literature that I referenced and the other references included at the end of this paper, I did not rely on any outside sources. 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, May 2023 Student Do Thi Nhan i Do Thi Nhan 2023 Banking Academy Graduation Thesis ACKNOWLEDGEMENT In the process of completing this bachelor thesis, I have received a great deal of kindly support, guidance, and encouragement from dedicated lecturers over the course of my four years of study at Banking Academy, as well as helpful advice from mentors and other colleagues during my four-month internship at KPMG Vietnam Limited. First of all, I want to express my sincere gratitude to my supervisor, PhD.
Pham Thi Tuyet Minh, who gave me valuable advice on how to approach the research and assisted me in completing my thesis on time and efficiently. She also gives me valuable advice, helpful comments as well as correction to my paper. Secondly, I would like to express my gratitude to all lecturers in the Faculty of Accounting and Auditing for their lectures of many courses that help me much in shaping a solid knowledge foundation of accounting and auditing for completing this thesis specifically. Last but not least, I would like to thank my friends, my seniors who have supported and encouraged me throughout the completion of this graduation thesis.
Hanoi, May 2023 Student Do Thi Nhan ii Do Thi Nhan 2023 Banking Academy Graduation Thesis TABLE OF CONTENT STATUTORY DECLERATION. ii TABLE OF CONTENT. iii LIST OF ABBREVIATIONS. vi LIST OF DIAGRAMS.
viii LIST OF TABLES. ix LIST OF FIGURES. Rationale for the study. Objective of the research.
Object and scope of the research. Structure of the thesis .5 CHAPTER 1: THEORETICAL BASIS FOR AUDITING ACCOUNTS PAYABLE IN FINANCIAL STATEMENTS. Characteristics of account payable of clients affecting financial audits. Definition and nature of accounts payable.
Accounting for accounts payable. Common misstatement related to accounts payable. Internal control over accounts payable. Audit procedures of accounts payable in auditing financial statements.
Audit objectives of auditing accounts payable in financial audits. Planning the audit. Implementing the audit. 24 iii Do Thi Nhan 2023 Banking Academy Graduation Thesis 1.
Completing the audit. 30 CONCLUSION OF CHAPTER 1. 34 CHAPTER 2: CURRENT STATUS OF THE ACCOUNTS PAYABLE AUDITING IN FINANCIAL AUDITS CONDUCTED BY KPMG VIETNAM. Overview of KPMG Company Limited.
The establishment and growth process. Main business areas of KPMG. Mechanism of organization structure. Audit procedures of financial statements conducted by KPMG.
Accounts payable auditing in financial audits conducted by KPMG Company Limited. Overview of process of auditing account payable of KPMG. Process of auditing account payable for ABC company conducted by KPMG. Assessment of the audit of accounts payable in financial audits conducted by KPMG Limited.
82 CONCLUSION OF CHAPTER 2. 86 CHAPTER 3: RECOMMENDATIONS FOR IMPROVING THE AUDIT OF ACCOUNTS PAYABLE IN FINANCIAL AUDITS CONDUCTED BY KPMG VIETNAM. Oriented development of the company. The requirement for improving the accounts payable auditing procedures.
Recommendations for improving the audit of accounts payable in financial audits process conducted by KPMG Limited. Planning the audit. Implementing the audit. Completing the audit.
92 iv Do Thi Nhan 2023 Banking Academy Graduation Thesis 3. Conditions for implementation of recommendations. 92 CONCLUSION OF CHAPTER 3. 97 v Do Thi Nhan 2023 Banking Academy Graduation Thesis LIST OF ABBREVIATIONS AMPT Audit Misstatement Posting Threshold AFD Accounting and Finance Department AP Accounts payable BOD Board of Director CA Chief Accountant Company Limited Co., Ltd GRN Good receipt note HOM Hand-over minute IAS International Accounting Standard IFAC International Federation of Accountant ISA International Standard on Auditing IT Information Technology JSC Joint Stock Company KAEG KPMG Audit Execution Guide KCw KPMG Clara workflow KPMG KPMG Company Limited M Materiality MIC Manager in-charge MOF Ministry of Finance OM Operating Manager PBC Provided by Client PBTCO Profit before Tax from Continuing Operations PM Performance Materiality PO Purchase Order SIC Senior in-charge TOC Test of Control vi Do Thi Nhan 2023 Banking Academy Graduation Thesis TOD Test of Details VACPA Vietnam Association of Certified Public Accountants VAS Viet Nam Accounting Standard VSA Viet Nam Standard on Auditing vii Do Thi Nhan 2023 Banking Academy Graduation Thesis LIST OF DIAGRAMS Diagram Page Diagram 1.1: Bookkeeping of Accounts payable 12 Diagram 2.1: Audit procedure at KPMG Vietnam 43 Diagram 2.2: Quality control process at KPMG Vietnam Company Limited 46 viii Do Thi Nhan 2023 Banking Academy Graduation Thesis LIST OF TABLES Table Page Table 1.1: Audit objectives of Accounts payable 17 Table 1.2: TOC of Accounts payable 26 Table 1.3: TOD of Accounts payable 29 Table 2.1: Client acceptance process of KPMG 48 Table 2.2: Materiality base selection 54 Table 2.3: Guidance on determining materiality ratio according to KAEG 55 Table 2.4: Ratio of Performance Materiality 56 Table 2.5: TOD of ABC JSC accounts payable 57 Table 2.6: Audit team in the audit of ABC JSC 60 Table 2.7: Preliminary analytical procedures of ABC JSC 63 Table 2.8: Key financial indicators of client 66 Table 2.9: Assessed materiality for client 67 Table 2.10: Substantive analytical procedures- Trend analysis 69 Table 2.11: Substantive analytical procedures- Ratio analysis 70 Table 2.12: Lead sheet of Accounts payable ABC JSC 71 Table 2.13: Side accounts of Account 331 72 Table 2.14: Breakdown of Account 331 73 Table 2.15: List of sending confirmation letters 74 Table 2.16: Search for Unrecorded liabilities 75 Table 2.17: Revaluation of foreign payable amount 76 Table 2.18: Purchase cut-off testing 76 ix Do Thi Nhan 2023 Banking Academy Graduation Thesis LIST OF FIGURES Figure Page Figure 1.1: Business functions in the acquisition and payment cycle 15 Figure 2.1: Organization structure of KPMG Vietnam 39 x Do Thi Nhan 2023 Banking Academy Graduation Thesis INTRODUCTION 1.
Rationale for the study The development of social-economic factors and the trend toward globalization, particularly in Vietnam, have led to the financial information of companies being used not only for the management of government organizations and internal users but also by other external users, particularly investors from both domestic and foreign markets. In order to attract investment capital from both domestic and foreign investors, entities must ensure the transparency of financial information through the opinion of independent auditors. As a result, financial statements are required to be audited to ensure that they provide assurance that management has presented a true and fair view of a company’s financial performance and position. One of the most significant components is accounts payable to suppliers because it immediately affects the business's financial status and ability to continue operating.
Especially in the context of current economic development, when companies need a lot of financial resources to expand their businesses, the form of credit purchase becomes popular. Sellers have the tools to attract more customers with credit terms, while buyers can leverage financial resources outside the company. Businesses need to have good control over accounts payable to take advantage of opportunities from suppliers and, at the same time, avoid unnecessary losses. The ratios of profitability, solvency, and the operation of the firm have all been directly and significantly affected by accounts payables because these ratios can only be proper when accounts payables are stated honestly.
On the financial statements, accounts payable is a frequent item with many frauds and errors. Accounts payable errors are often directly related to the liquidity of the entity, in addition to affecting inventory, equity, and some other information on the financial statements. Therefore, the audit of accounts payable is often interested in and focused on the audit of financial statements. At KPMG Vietnam, accounts payable audits are one of the most important procedures in financial audits.
Although the KPMG auditors comply with professional standards 1 Do Thi Nhan 2023 Banking Academy Graduation Thesis when conducting audits, the process of auditing financial statements in general and accounts payable in particular has some limitations. During the internship period, realizing the importance of this issue, the author decided to choose the topic "Accounts payable auditing in financial audits conducted by KPMG Company Limited" for the bachelor's thesis. Literature review Due to its relation to many other items, accounts payable is a crucial item on the financial statements. Therefore, accounts payable is a crucial component of the audit of financial statements.
As a result, numerous authors have done research and focused on this topic for many years. There are several theories by authors referencing the elements of accounts payable audit in particular and financial statements audit in general throughout the world. Alvin Arens & his colleagues (2017) presented fundamental to complex concerns regarding the nature, procedure, and methods of financial audit, where the audit of liabilities complies with international auditing standards (ISAs). Additionally, the International Federation of Accountants (IFAC) examines and publishes particular ISAs to direct the audit of financial statements in both professional practice and to monitor audit quality from a perspective of professional bodies.
In our country, Vietnam Association of Certified Public Accountants (VACPA) published a Sample Audit Program, which is a useful reference for accounts payable auditing. In addition, the theories on auditing accounts payable are presented quite systematically through the auditing syllabus of universities such as the National Economics University, the Banking Academy, the Academy of Finance. The guidelines for both theory and practice mentioned above are useful references for the BTC audit in general and accounts payable in particular. The research of Mai Thuy Dung (2021) stands out among the group of research about accounts payable auditing in Vietnam.
This author gave a very thorough presentation at ATC Firm Co., Ltd on the implementation of the theory of accounts payable audit in 2 Do Thi Nhan 2023 Banking Academy Graduation Thesis practice. In order to create a detailed audit program of accounts payable, the author not only used dialectical materialism methodology, but also used other techniques such as obtaining information from client interviews, referring guidance on current accounting and auditing standards, reviewing of the audit files from the previous year and processing all collected data to a conclusion. In order to complete the process of auditing accounts payable, the author provided particular solutions for each of the three phases after coming to conclusions from the research on the existing situation in the thesis. Tran Thi Anh Thu (2019) also researched the audit of payables, but she used the dialectical materialism technique to understand the relationship between theory and reality, and to perform the process of auditing payables paid to the seller to suit the particular circumstances.
The research results showed an effective audit approach as well as an assessment of the internal control system that was fully implemented even though it was an old customer. However, the author's solution for analytical procedures was not detailed and specific enough to solve the problem raised in the actual situation. It would be resolved in this thesis. Compared with Hoang Thuy Linh (2021), the author presented specific measures corresponding to the highlighted weaknesses during the audit at KPMG for a specific client.