VIETNAM NATIONAL UNIVERSITY INTERNATIONAL SCHOOL DISSERTATION RESEARCH ON FACTORS AFFECTING | AUDIT QUALITY OF FINANCIAL STATEMENTS OF LISTED COMPANIES IN VIETNAM INSTRUCTOR: Ass.Prof Pham Duc Hieu STUDENT: Khuat Thai Tai STUDENT ID: 11071154 CLASS: IB2011-A PROGRAM: International Business ĐẠI HỌC QUỐC GIÁ HÀ NỘI KHOA QUOC TẾ THỰ VIÊN số:,Ez1.204 Hanoi ~ Year 2015 Declaration of Originality and Compliance of Academic ethics I hereby declare that the dissertation entitled “Research on factors affecting audit quality of financial statements of listed companies in Vietnam” contains literature survey and original research work done by the undersigned candidate. The dissertation has never been published or presented in any other research by other researcher. During the process of working on the dissertation, I have followed academic rules and ethical conducts. The research results presented in the dissertation is done by myself.
I also declare that, as required by these rules and conduct, I have fully cited and referenced all material and results that are not original to this work. I will be totally responsible for the transparency and integrity of data and content presented in the dissertation. year 2015 Dissertation author Khuat Thai Tai ACKNOWLEDGEMENT I would like to express my sincere gratitude to the International School- Vietnam National University for letting me fulfill my dream of being a student here. I would also thank Ms.
Van and Ms. Trang for thesis formation sharing and thesis facilitation. To my friends and family who help me to survive from all the stress, and provide me the assistance and suggestions when I needed them the most. Most of all, I am fully indebted to Ass.
Pham Duc Hieu, my advisor and instructor, for his understanding, encouragement, valuable guidance and for his non-stop belief in me. Student Khuat Thai Tai CONTENT INTRODUCTION.scsssssssssssssesscssscssassssssssessesseorssnsnenensnonegesnsssscacnsasensuscassceseones 1 CHAPTER 1 THEORETICAL FRAMEWORK FOR RESEARCH ON FACTORS AFFECTING AUDIT QUALITY OF FINANCIAL STATEMENTS. Stock market and listed companies on the stock market:. Deflinition of stock markK€t:.
Funections ofthe stock markef:. Listed companies on stock markKf:. Definition of listed cornpaii€s. Audit of financial statements ofisted compaHies.
Concept and classification of auditing. Audit quality from viewpoint of ability to đetect and report material misstatements on fñnancial statemenfS.cerierriererrirerie 21 CHAPTER 2 DEVELOPING AND IDENTIFYING FACTORS AFFECTING AUDIT QUALITY OF FINANCIAL STATEMENTS OF LISTED COMPANIES IN VIETNAM P. Vietnam stock market and listed compani©s. Development of Vietnam stock market.
Characteristics of listeđ companies in the Vietnam stock market. Audit of financial reports of listed companies in Vietnam.1, Characteristics of inđependent auditors qualified to-audit listed. The legal framework for independent audit on financial statements of lisfed COipaniie§. The facts of audit quality evaluation of financial reports of Vietnam listed COMPAMICS es ssceseceseceseeeseeneseneeeneeessesacneesensscnsareneensnereevenereasensenesecnsaaensenegs 38 2.
Identifying factors affecting audit quality of financial statements of listed companies on Vietnam stock ma Kef.e«««eeesesesesnsseseeeeeeseee 42 CHAPTER 3 RESEARCH RESULTS ON FACTORS AFFECTING AUDIT QUALITY OF FINANCIAL STATEMENTS OF LISTED COMPANIES ON VIETNAM STOCK MARKET. Data collection and methodologies. Ðesign of questiOnAÌT€S. Survey object selectiOn.
Survey methods and collection of questionnalf€S. Description of steps for producing search data 3. Analyze results of impact level of factors affecting audit quality of listed companies on Vietnam stock mar ket .-ceceeeeeeeeseeiiriiiiieeiereee 52 KÝ Na 6c nh. Factors relating to audifors/auđit team.
Factors relating to auditing firm.c«ceehhhhrdrrdrddrrrrrrrirrrrrrir 56 CHAPTER 4 RECOMMENDATIONS AND PROPOSALS TO IMPROVE AUDIT QUALITY OF FINANCIAL STATEMENTS OF LISTED COMPANIES IN VIETNAM.cc S025 SĂ SH HH 4100810 110301030040000018100100000040001030100108 61 4. Solutions for improving audit quality of financial statements of listed companies on the Vietnam stock marKef.1 For auditors/ auditing †€41.2 For auditing firms 4. For government authorities ‹.2, Notes of caution to investors while using auditor’s reports on financial SỈAÍ{CHCHIỂN. co HH HH HH 0086100400000184000010402404041200000100800000004011908 Bibliography.
Appendix 1: INTERVIEW QUESTIONS FOR AUDHFORS.e 71 Appendix 2: List of audifOFS.--- sằn nen HỲ HH Hới nhe vi. 73 Appendix 3: Questionnaires on auditors in auditing firms which are approved to audit Histed companies. se*eheeereeer «- rrrnienrreiee eeeee 74 Appendix 4: 43 qualified auditing fñirms in 2014.sse«eeeeereeee 78 LIST OF TABLES, GRAPHS AND DIAGRAMS Diagram 1. cà sàn hhhhhhhhhrrnhehderrdetrrreee 7 Diagram 1.2: Enterprise mođeÏs.- cà sànnhhehhhhhHnhheenrdrrrrrneeeerere 10 Table 1.3: Differences between public company and lisied company.4: Classification of audit regarding to fnctiOnS.---- «cà eeeh 13 Diagram 1.5: Users of financial statemenfs.7: Factors affecting audit quality of ñnancial statemenfs.1: Development of Vietnam stock market.2: Vietnam’s Financial Market Supervision Sysfem.3: Conditions for companies to be listed Vietnam stock market (Decree No SB/2012/ND-CR).
cece cece cece ee eee nee EEE EEE ch in nà te 31 Graph 2.4: Top 10 auditing firms with biggest number of certified auditors in 2Ô Ồ. 0n HH TK Hà HT nen nh Tà Ki t8 8 9 16 kh ng 10 34 Graph 2.5: Top 10 auditing firms with biggest number of staffs in 2013.6: Top 10 auditing firms with greatest revenue in 2013.7: Qualified auditing firms in groups based on firm size in Vietnam in DOA cece cece cece nee nee TT n2 KT TH TT cà H22. 09k nh nà nọ chon và 9g 35 Table 2.8: Conditions for qualified auditing firms to audit listed companies according to Decision No 89/2007/QD-BTC.csccsse tnnneeet ee naesns 37 seeneeseeeee Table 2.9: Number of qualified auditing ñrms from 2008-2015.cà iiằe 37 Table 2.10: Results on annual direct quality control toward auditing firms.11: Selected factors affecting audit quality of financial statements of 1isted COmDAHÍS. cu nh nhì nh nh hen EEE nề ch th ghen 46 Table 3.1: Summary on impact level of 3 groups OŸ ÍaC[OFS.
cà nhằ 52 Table 3.2: Impact level of evaluation criteria of Extemal facloFS.3: Impact level of factors relating to auditors/auditing team.4: Impact level of evaluation criteria of factors relating to auditors/auditing 70.5: Impact level of evaluation criteria of factors relating to auditing firms.6: Survey results on impact level of 3 groups of factors affecting audit quality. of financial statements of listed companies in Vietnam.7: Survey results on real situations affecting audit quality under auditors’ Đề TP na dan 58 Diagram 4.1: Groups of solution for improving audit quaHly. The necessity of the thesis In the world and in Vietnam, the accounting and auditing professions have been under the public spotlight for many years now, and as a results of certain events, many changes have occurred in relation to audit and assurance engagement. In the world, as a result of the stock market bubble of the late 1990s and speculation over the future of ‘dotcom’ companies, many countries experienced huge corporate financial scandals and frauds.
The bubble burst in 2000, followed by a revelation that senior management at Enron, a US energy company, had been deceiving investors by fraudulently overstating profitability. Its auditors, Arthur Andersen, were found to have lacked objectivity in evaluating Enron’s accounting figures. This led to the demise of Arthur Andersen in 2002. Other companies that were also involved in corporate frauds included Worldcom, Parmalat, Cable & Wireless and Xerox, to name but a few.
The subsequent fallout of these frauds resulted in a lack of confidence on the way companies were run and audited. In the USA, this resulted in the Sarbanes-Oxley Act 2002 which has not only radically changed the regulation of the accounting profession in the USA but also influenced such issues worldwide. In September 2008 Lehman Brothers, a global financial services firm, filed for bankruptcy in the US triggering a severe world-wide financial crisis. Lehman had expanded aggressively into property-related investments, including so called sub-prime mortgages (loans to people on low incomes or with poor credit histories).
In subsequent reports it was claimed that Lehman Brothers covered up the extent of their irrecoverable debts using an accounting maneuvers known as ‘Repo 105’, which involves loaning ‘bad’ assets to other firms in exchange for short-term financing. Lehman’s auditors had issued a clean auditor’s report on the accounts to 30 November 2007 and the Accountancy and Actuarial Discipline Board (AADB), an independent investigative and disciplinary body in the UK, commenced an investigation in 2010 into the conduct of the auditors of Lehman Brothers International Europe. Following the collapse of Lehman Brothers, other banks failed worldwide and many needed government support to continue. There was a knock on effect in the wider economy in many countries in 2008 and 2009 with many business-struggling or failing altogether.
The global economy has never really recovered from this and 2010 and 2011/2012 has seen nations in danger of defaulting on their debts necessitating numerous restructurings of borrowing arrangements. And the roles and responsibility of the auditors and which factors affecting audit quality are questioned. In light of this global financial crisis, regulators have again been considering the effectiveness of the audit and the auditor’s role to prevent, or at least provide warning of, corporate and financial institution collapses in the future. Whether those frauds and errors in financial statements involving the responsibilities of auditors/ auditing firms or not remains questionable.
In the US, KPMG is facing trial relating JP Morgan and Bank of New York by “letting”. Bernard Madoff conducted his schemes (Anon. In June 2013, advisory service. of Deloitte had been.10 million USD_and_forced.into suspension for one year for not fulfill its independent advisory role with Standard Chartered bank (Anon.
In Vietnam, the incident of Bach Tuyet Cotton Corporation in 2008 became a focal point for Vietnamese stock market when disputes arose concerning audited business results in 2005 (audited by A&C) and 2006 (audited by AISC). This resulted in operation suspension and removal from stock exchanges for 3-year continual loss. The fraud also caused financial loss to 1500 investors of Bach Tuyet Cotton. Vietnam State Securities Commission penalized two auditing firms and suspended audit certificates of four auditors in two years (Anon.
Other cases relating to the reliability of information on financial statements such as: GMD, VCG, DVD also created losses to investors and shareholders. The questions about the audit quality and which factors affecting the audit quality of the financial statements of listed companies have been raised. There are two groups that have significant roles in the audit quality of the audited financial statements: the group of company managers and financial report preparers; and auditors who are responsible for ensuring the reliability of financial reports, which displays audit quality. Only when corporate managers and auditing firms fully understand and control the factors affecting audit quality do they find the solutions to enhance the audit quality.
Those factors might be internal, external, from corporations (audit clients) who prepare and present financial statements or from auditors and auditing firms to detect material frauds and errors or other factors. However, it is not easy to evaluate or recognize audit quality. Evaluation criteria for audit. quality but they do.
which factors resulting in such quality and, more importantly, basing on what base can audit quality be improved. Therefore, the thesis’s topic, namely: “Research on factors affecting audit quality of financial statements of listed companies in Vietnam”. Research objectives and questions 2. Research objectives The overall objective is to identify factors affecting audit quality and evaluate the influence of each factor to audit quality of financial statements of listed companies in the Vietnamese stock market at present, which serves as the basis for proposing solutions.
The research objectives include: - Identify factors/ group of factors associating with measurable criteria on audit quality. - Analyze level of impacts of factors to audit quality via survey and questionnaire sent to auditors certified to audit listed companies. - Propose solutions for enhancing audit quality on financial statements of listed companies on Vietnam Stock Market based on survey results and personal interview with experts and representatives of stakeholders concerning audit quality. Research questions In order to acquire all objectives listed above, research questions are presented accordingly, including: Question 1: Which factors and measurable criteria are identified to cause major influence on audit quality of financial statements of Vietnam listed companies? Question 2: Which factor is considered to affect the most, as well as the level of influence each factors has on audit quality of financial statements of Vietnam listed companies?