UNIVERSITY OF ECONOMICS AND LAW FACULTY OF ACCOUNTING AND AUDITING _______________ THESIS AUDIT PROCEDURES FOR INVENTORY BY KPMG AT NITTO DENKO LIMITED COMPANY LECTURER : Ms. Nguyen Thi Thu Thuy AUTHOR : Lương Nguyễn Thanh Trúc STUDENT ID : K184050699 CLASS : K18405CA HCMC, MAR/2021 UNIVERSITY OF ECONOMICS AND LAW FACULTY OF ACCOUNTING AND AUDITING _______________ THESIS AUDIT PROCEDURES FOR INVENTORY BY KPMG AT NITTO DENKO LIMTED COMPANY LECTURER : Ms. Nguyen Thi Thu Thuy AUTHOR : Lương Nguyễn Thanh Trúc STUDENT ID : K184050699 CLASS : K18405CA HCMC, MAR/2021 i COMMENTS OF INSTRUCTORS. ii ACKNOWLEDGEMENTS To accomplish the Graduation Thesis on the topic “Audit procedures for inventory by KPMG at Nitto Denko Limited Company”, with my own efforts and learning spirit, I received a great deal of support and advice from the lecturers of the Faculty of Accounting - Auditing, especially Ms.
Nguyen Thi Thu Thuy and Ms. Nguyen Thanh Thuy Ngoc, who facilitated me throughout the research and topic selection process. Furthermore, KPMG Vietnam Company Limited – HCMC Branch has provided me with the chance to work, study, and do research in a professional auditing environment. First and foremost, I would like to extend my deepest gratitude to the Faculty of Accounting - Auditing in particular, and the University of Economics - Law (National University of HCMC) in general, for their resources in the form of knowledge, skills, and practical suggestions.
I would also like to express my heartfelt gratitude to the faculty professors of the Faculty of Accounting - Auditing, specifically Ms. Nguyen Thi Thu Thuy and Ms. Nguyen Thanh Thuy Ngoc, the supervisor in charge of the graduation thesis, who already has always accompanied and advised me throughout the process. The success of my thesis would not have been possible without the support and nurturing of the Board of Directors and team at KPMG Vietnam Company Limited for their enthusiastic assistance in gathering legislation and policies, as well as audit documentations, for the purpose of the graduation thesis.
Moreover, the professionals' direction and guided practice in the working process allow me to approach the reality of the business with confidence and better comprehend the process of executing the audit of the appointed components. Finally, owing to limits in knowledge, experience, professional skills, and internship duration, the graduation thesis cannot be error-free. Consequently, I am looking forward to obtaining comments from instructors and auditors in addition to enhancing the topic. I sincerely thank you! HCMC, 09/05/2022.
Student Lương Nguyễn Thanh Trúc iii ABBREVIATION A Accuracy AA Assistant Audit AM Assistant Manager AMPT Audit misstatement posting threshold AP Account Payable BS Balance sheet C Completeness CAP Current Audit File C/B Closing balance CIP Cost Insurance and Freight COGS Cost of goods sold Div. Division DL Direct labour cost E Existence eAudit KPMG audit software FAS Financial Advisory Solutions FG Finished goods FIFO First in, first out FOH Fixed overhead cost FS Financial statement GL General ledger HCMC Ho Chi Minh City ISA International Standards on Auditing KAM KPMG Audit Methodology KPS KPMG Sampling Plan LIFO Last in, first out KPMG MUS KPMG Monetary Unit Sampling NRV Net realisable value O Right and Obligation O/B Opening balance iv OH Overhead PAF Permanent Audit File PBT Profit before tax PM Performance materiality RAS Risk Advisory Solutions RM Raw materials SA Senior Audit TB Trial balance TOC Test of control V Valuation VSA Vietnamese Standards on Auditing WIP Work-in-progress v TABLE OF CONTENTS COMMENTS OF INSTRUCTORS. iii TABLE OF CONTENTS .v LIST OF FIGURE. vii LIST OF TABLE .1 CHAPTER 1: INTRODUCTION TO KPMG VIETNAM LIMITED COMPANY.
History of establishment and development of KPMG. KPMG in Vietnam. Organizational structure of KPMG Vietnam Co, Ltd. Operational objectives and services provided .11 CHAPTER 2: GENERAL INFORMATION ABOUT NITTO DENKO VIETNAM LIMITED COMPANY.
History of establishment and development of Nitto Denko. Organizational structure of Nitto Denko Vietnam Co, Ltd. Organization of accounting work in Nitto Denko Vietnam Co, Ltd. Accounting department structure .16 CHAPTER 3: AUDIT PROCEDURES FOR INVENTORY BY KPMG AT NITTO DENKO VIETNAM CO, LTD.
Determining the materiality level. Performance Materiality - usually 75% of total materiality. Audit misstatement posting threshold – usually 5% of total materiality. Determining the importance of elements.
Assessing risks and designing the audit implementation plan. Assessing the internal control system. Performing substantive test. Test of details .29 CHAPTER 4: COMMENTS AND RECOMMENDATIONS.
Limitations and recommendations .45 vii LIST OF FIGURE Figure 1.1: The process of development of KPMG .2: Total revenue in 2021 and 2020 and revenue by regions in 2021 .3: KPMG's revenue in key services .4: General organizational structure of KPMG in Vietnam .5: Organizational structure of Audit and Assurance Department .6: The purpose of KPMG .1: Organizational structure of Nitto Denko Vietnam Co, Ltd.2: Accounting department structure of Nitto Denko Vietnam Co, Ltd.15 viii LIST OF TABLE Table 1.1: Information about KPMG Vietnam .2: Branch of KPMG in HCMC, Vietnam .3: Branch of KPMG in Da Nang, Vietnam .1: Information about Nitto Denko Vietnam .2: Identify key accounts of the inventory auditing process.12: Directives for items payable to sellers .3: Leadsheet for inventory .4: Checking the annuity of purchase transactions .5: Checking the purchase price of raw materials .7: Flow of COGS .8: Direct production overheads .10: Net Realizable Value (excerpt) .15: Assessment of exchange rate differences for trade payables .9: Checking unit cost .11: Checking for slow-moving goods .13: Checking and comparing the confirmation letter of payables to the seller 49 Table 3.14: Alternative test procedures for inventory audit. Research rationales In the past, there have been many large companies that were bankrupted, and most of them were linked to fraudulent financial statements, such as Enron, WorldCom, and companies that have faced fines of up to billions of US dollars, like Toshiba (Japan). In Vietnam, there are some cases where financial statements provided to related parties, especially for investors, are not guaranteed to be true and fair. In other examples, management provided poor-quality financial statements to users for personal gain.
That is why it is necessary for a third party to give an opinion on the truthfulness and reasonableness of the information in the FSs so that users can make their own investment decisions. Because of this, independent audit firms were also established and developed. For trading and manufacturing businesses, the inventory serves as an intermediary in the process of converting resources into profits. As a result, inventory is involved in the majority of the lifecycles of a business, especially the sales-collection process, purchase- pay process, and payroll.
In addition, inventory may also contain risks which will lead to inaccurate financial statements. - Inventories are often of significant value and account for a large proportion of the entity's current assets. - Inventory errors can affect both the Balance Sheet and the Income Statement. - Inventory issues are often very complex such as costing, assessment of work-in- progress, provision, etc.
- Inventory is an item that is sensitive to fraud (embezzlement, theft, etc.) and subject to many risks due to devaluation, obsolescence, loss, etc. In other words, inventory is a key process of a company. Due to the important nature of this process, the topic would be chosen "Audit Procedures for Inventory by KPMG at Nitto Denko Vietnam Co, Ltd." as a practical thematic report. The purpose of this report is to deepen understanding of the inventory auditing process systematically, from both theoretical and practical perspectives, and comments are given to help improve the process.
Research subjects • Inventory auditing process at KPMG Vietnam Co. • Illustration of audit procedures for inventory at Nitto Denko Vietnam Co, Ltd. Research objectives • Inspection, observation, description of the inventory auditing process at KPMG Vietnam Co. • Illustrated inventory auditing process at Nitto Denko Vietnam Co, Ltd.
• Make some comments and recommendations on the inventory auditing process at KPMG to improve process quality. Research methods • Observing how to work at the client's companies, combined with observing the audit procedures performed by the auditors. • Collecting the necessary information through an inquiry of employees in the client's company or a conversation with the auditors in the audit team about related issues. • Collecting data from directly participating in the audit at the client's company, reading the client's file and studying the company's audit file.
• Referring to KPMG's documents on inventory auditing process. Research scope and limitations 5. Scope This research concentrates on the inventory auditing process at KPMG, in particular at Nitto Denko electronic component manufacturing company, during the financial statement audit period ending December 31, 2020. Limitations This research indicates for a type of business in the period except for 2021, so it is not comprehensive or up to date.
Moreover, KPMG is bound by confidentiality agreements with customers regarding data protection, so the processed figures is for illustrative purposes only and may not accurately reflect the actual data provided by customer. Research structure The structure of this procedure is as follows: Introduction. Chapter 1: Introduction to KPMG Vietnam Limited Company. Chapter 2: General information about Nitto Denko Vietnam Limited Company.
Chapter 3: Audit procedures for inventory by KPMG at Nitto Denko Vietnam Co, Ltd. Chapter 4: Comments and Recommendations Conclusion 4 CHAPTER 1: INTRODUCTION TO KPMG VIETNAM LIMITED COMPANY 1. History of establishment and development of KPMG KPMG International is a legal entity incorporated under Swiss law, consisting of affiliated member companies. KPMG is formed by four individuals who have left historical imprints in the process of formation and development of KPMG Global.1: The process of development of KPMG The KPMG network was formed in 1987 when Peat Marwick International and Klynveld Main Goerdeler merge along with their respective member firms.
The company's headquarters are located in Amstelveen, Netherlands. KPMG has more than 236,000 employees worldwide and provides career services in 145 countries and territories. Recently, KPMG has three main service channels: Audit & Assurance, Tax & Legal, and Advisory. The organizational structure of the KPMG network is designed to promote consistent quality of service and unite member firms regardless of the country in which they operate in accordance with KPMG values.
KPMG International establishes and promotes the implementation and maintenance of consistent policies and service standards across all member firms, protecting and promoting KPMG's image and brand name. Each member firm may have more than one legal entity. Unless the parties agree otherwise, each party is legally obligated to fulfill its responsibilities and obligations. KPMG has quickly established itself as one of the leading auditing firms in the world, in the field of audit, tax and advisory services.
Achievement With more than 236,000 employees in member firms in 145 countries, KPMG has always maintained its position among the world's leading auditing firms. KPMG ranked in the top two overall in Consultancy Rankings 2009 by OpRisk & Compliance in recognition of KPMG's experience in risk management. In 2011, the company was ranked 2nd on the World's Best Outsourcing Advisors in recognition of the firm's depth of experience, global reach and holistic approach. KPMG was ranked 13th in the Consulting Magazine's Best Firms to Work for in 2016.
In 2017, KPMG was ranked 29th in Fortune's list of the best companies to work for. That same year, KPMG was one of the 22 leading United Kingdom companies, along with PNG, Deloitte, and RA Consulting Group. In 2021, KPMG's global revenue was $32.13 billion compared with $29.22 billion for the previous fiscal year, up by 10% in USD terms. The EMA area is the place with the highest growth rate of 13%.
Besides, Vietnam and Cambodia have high growth rates compared to 2020.13 44% FY21 Asia Pacific 29 28 29.2: Total revenue in 2021 and 2020 and revenue by regions in 2021 16 14 12 U. $ Billions 10 FY21 FY21 8 FY20 36% 6 11.48 Tax and Legal services 7.02 Advisory 2 22% 0 Audit Tax and Legal Advisory services Figure 1.3: KPMG's revenue in key services 6 1.