BANKING ACADEMY FACULTY OF ACCOUNTING AND AUDITING GRADUATION DISSERTATION TOPIC:AUDIT OF ACCOUNTS PAYABLE IN FINANCIAL AUDIT CONDUCTED BY ERNST & YOUNG VIETNAM LTD -------------------- Lecturer : PhD.Nguyen Thi Thanh Mai Class : K23CLC-KTA Student Name : Tran Thao Ngan Student ID : 23A4020270 Ha Noi, 8th April 2024 PERSONAL COMMITMENT I hereby declare that the topic “AUDIT OF ACCOUNTS PAYABLE IN FINANCIAL AUDIT CONDUCTED BY ERNST & YOUNG VIETNAM LTD” is the result of my serious, independent study and research process under the guidance of the instructor, Ph. Nguyen Thi Thanh Mai, Auditing and Accoungting Department of Banking Acdemy. All content in the essay is free of any bias, cheating or copying from others. This is a product that I have achieved myself after studying at school as well as combining research from Ernst & Young Vietnam Co., Ltd during my internship.
The data and evidence presented in the report are completely true. If any problems or problems arise, I will be responsible before the disciplinary council of the faculty and academy. i TABLE OF CONTENTS INTRODUCTION .1 CHAPTER 1: LITERATURES REVIEW OF AUDITING ACCOUNTS PAYABLE IN FINANCIAL AUDITS IN VIETNAM. Literatures review of accounts payable of client affecting financial audits .1 Features of accounts payable on financial statement .1 Accounting policy for accounts payable .2 Common misstatements related to accounts payable .3 Internal controls over accounts payable .2 Audit objectives of auditing accounts payable in financial audits conducted in EY Vietnam .13 CHAPTER 2: PRACTICE OF AUDIT OF ACCOUNTS PAYABLE IN FINANCIAL STATEMENT CONDUCTED BY EY VIETNAM .1 Introduction of the audit company .1 The information and development of the company .2 Overview of functions, tasks and business lines of EY Vietnam .3 Introduce of EY Vietnam's management system .4 Auditing procedures in financial audits process conducted by EY Vietnam.a Planning the audit .b Implementing the audit .c Completing the audit .2 Practice of audit of account payables in financial statements by EY Vietnam.1 Planning the audit.a Overview of the audit planning .b Design the audit procedures for the AP .2 Implementing the audit .a Performing test of controls .b Performing analytical procedures .c Performing test of details .3 Completing the audit .3 Assessments of the audit of accounts payable conducted by EY Vietnam.
Weakness and causes .49 CHAPTER 3: RECOMMENDATIONS FOR IMPROVING THE AUDIT OF ACCOUNTS PAYABLE IN FINANCIAL AUDITS CONDUCTED BY EY VIETNAM .1 Recommendations for improving orientation of EY Vietnam .2 Recommendations for improving the audit procedures of account payables to EY Vietnam .3 Feasibility of recommendations .73 iii LIST OF ABBREVIATIONS Ltd Limited EY Ernst & Young FSs Financial statements A/c Account AP Accounts Payable CIT Corporate income tax FS Financial statement TOD Test of details CRA Combined risk assessments PT Primary team CT Component team GL General ledger SAD Summary of Audit Differences BOM Board of Management BOD Board of directors OARP Overall Analytical Review Procedure IR Inherent Risk CR Control Risk SCOTs Significant Class of Transactions WCGWs What Can Go Wrong iv List of figures Figure 1: Income Statement in EY Vietnam from 2021 to 2023 Figure 2.1: Income Statement in EY Vietnam from 2021 to 2023 Figure 2.2: Note to Financial Statement - NTFS for the AP in ABC JSC Figure 2.3: PM – TE Calculation in ABC JSC Figure 2.4: Documentation of Internal control system at ABC JSC Figure 2.5: Break down AP by each supplier Figure 2.6: Documentation of Internal control system at ABC JSC Figure 2.7: Leadsheet of AP at ABC JSC Figure 2.8: Reconciliation procedure of AP at ABC JSC Figure 2.9: Break down AP by each supplier Figure 2.10: The evaluation of PM at EY Vietnam Figure 2.11: AP confirmation letter at ABC JSC List of appendixs Appendix 1: Samples of audit program for AP balance conducted by EY Vietnam Appendix 2: Applied audit process at EY Vietnam Appendix 3: PSPs guidance for AP at EY Appendix 4: OSPs guidance for AP at EY Appendix 5: Control points of the purchases - payment cycle at ABC JSC v INTRODUCTION With the recent development as a startup hub in Southeast Asia, Vietnam has a significant increase in the number of newly established companies, resulting in a large influx of financial information. The users of financial information require reliable financial resources, which are supplied by accounting firms. Consequently, there has been a significant rise in the provision of assurance services, specifically the audit of financial statements. The primary objective of conducting an audit, particularly the audit of financial statements, is to provide investors with an accurate and unbiased assessment of the information contained in the financial statements.
This enables investors to make informed decisions based on a comprehensive understanding of the financial data. Audit services provide the management with a significant amount of information, not only from external users but also from internal users. In order to sustain operations and foster growth, businesses must mobilize a substantial amount of capital. This capital can be sourced from investors, shareholders, or obtained through external borrowing.
Managers must meticulously evaluate the costs associated with capital mobilization in order to make informed decisions. Accounts payable is a common source of capital for most businesses. It is significant because this credit source does not entail any fees. Nevertheless, without stringent control and effective management, businesses will encounter numerous payment risks.
This factor can potentially lead to fraud and errors as investors are generally averse to businesses with excessive debt in their capital structure. This indicates a lack of confidence and stability in the company's operations. Consequently, this is regarded as a significant error in the financial statements. Regarding the significance of accounts payable in an audit engagement, I have selected the topic for my thesis after completing an internship at Ernst & Young Vietnam Ltd.
and conducting extensive research and practice as: 1 "AUDIT OF ACCOUNTS PAYABLE IN FINANCIAL AUDIT CONDUCTED BY ERNST & YOUNG VIETNAM LTD. The structure of this thesis includes 3 chapters: Chapter 1: Literature reviews of auditing accounts payable in financial audits Chapter 2: Practice of audit of accounts payable in financial audits conducted by EY Vietnam Chapter 3: Assessments and recommendations for improving the audit of accounts payable in financial audits conducted by EY Vietnam During the internship and completion of the graduation thesis, I have received the help of all the colleagues at EY Vietnam and especially the dedicated guidance from the instructor, Ph. Nguyen Thi Thanh Mai. I would like to express my thankfulness to her and all the colleagues in the company for their enthusiasm to help me during the internship period.
I sincerely look forward to receiving the comments of teachers to make my topic more complete. Thank you so much! 2 CHAPTER 1: LITERATURES REVIEW OF AUDITING ACCOUNTS PAYABLE IN FINANCIAL AUDITS IN VIETNAM 1. Literatures review of accounts payable of client affecting financial audits 1.1 Features of accounts payable on financial statement An organization requires capital infusion to sustain its regular business activities, necessitating the establishment of connections with external entities such as the government, banks, and other organizations. Of particular significance is the correlation between trade payables and suppliers.
The process stems from the cycle of procurement and disbursement, commencing with the business's purchase of goods, services, machinery, equipment, and raw materials, and concluding with the settlement of payments. The accounts payable is established as a result of the aforementioned cycle. The company has obligations resulting from past transactions and events. These obligations require future payments to be made using the company's own resources, such as money, finished goods, or net-off debts.
In cases where the company is both buying and selling products to a single supplier, the two parties may agree to offset the debt to each other. From an economic perspective, Accounts Payable (AP) to suppliers can be seen as a form of business appropriation, providing a low-cost credit source with either low interest rates or no interest at all. Suppliers, in order to enhance their competitiveness, have the motivation to offer late payment policies, trade discounts, or settlement discounts. Consequently, the company opts to postpone payments and allocate the capital for alternative objectives.
331 is the accounts payable, which presented from an accounting perspective. This account is utilized to represent the obligations owed to suppliers for the acquisition of materials, goods, and fixed assets. The balance sheet includes assets such as equipment, machinery, buildings, investment properties, and other financial investments. This account is also utilized to indicate the payment status of these debts.
This account also includes the liabilities incurred for construction and installation 3 services provided by contractors. Each vendor should provide a detailed breakdown of their liabilities. The prepayments made to suppliers prior to receiving the goods or completing the construction project are recorded and monitored in this account. Features of AP in the financial statements The balance sheet displays the aggregate amount of money owed by a company, known as accounts payable, as of the balance sheet date.
This information is categorized under the current liabilities section. Accounts payable refer to financial obligations that must be settled within a specified timeframe to prevent default. AP is a significant entity in a company's financial statement. If the accounts payable (AP) increases compared to a previous period, it indicates that the company is acquiring a greater amount of goods or services on credit, rather than making cash payments.
Alternatively, if a company's accounts payable (AP) decreases, it suggests that the company is settling its outstanding debts from previous periods more rapidly than it is acquiring new items on credit. Hence, the accounts payable (AP) is meticulously documented for each supplier to guarantee timely settlement of debts, thereby preventing any negative impact on the company's reputation and financial strategy. Accounts payable is classified as current liabilities on the balance sheet, depending on the maturity of the debts in relation to the business cycle. Debts that are due within 12 months are categorized as short-term accounts payable for a business cycle of 12 months or less.
If the business cycle exceeds 12 months, short- term accounts payable are considered to be those that fall within the normal business cycle, even if they extend beyond 12 months. From the auditing perspective, AP is a significant account balance, which has a great influence on the financial statement, showing the performance of the company. In fact, many clients of EY Vietnam have a diverse range of accounts payable ratios due to the varying sizes and unique business characteristics, as well as the identical acquisition and payment cycle as below: 4 Manufacturing and services companies The accounts payable of these companies represent the acquisition of inputs, such as raw materials, machinery and equipment, or services, for the purpose of production. For this particular company, it is crucial to ensure both the quantitative and qualitative aspects of their inputs by working with a select few suppliers who have established long-term relationships.
Total liabilities of these entities accounts for 40-50% of total assets, depending on their policies. Trading companies This group primarily engages in the procurement of goods from major suppliers, which are subsequently distributed to agents, retailers, or consumers with the aim of generating profits through price differentials. Consequently, there would be a substantial quantity of suppliers, carefully selected in accordance with the company's policies. In addition, the wide variety of unique products leads to a significant number of transactions, causing the accounts payable balance to rise to 60%-80% of the total liabilities and equity.
The significance of the accounts payable is heightened in the audit of financial statements. AP is a crucial component of financial statements, regardless of the type of business, because it reflects differences in size and business characteristics. This item also impacts the crucial financial ratios that managers and investors frequently depend on to assess the performance of the entities. Therefore, a specialized audit program would be implemented to verify the accuracy and fairness of the accounts payable figure.