BASIC THEORIES ON THE PROCESS AND METHOD
Overviews of account payable to suppliers in financial statement
Account payable to suppliers or so called “Trade payables” is a part of Liabilities which is according to Circular_200_2014_TT-BTC:
Article 50 Accounting rules for liabilities
1 Liabilities of an enterprise must be kept records in details according to payment schedule, creditor, type of currency and other factors according to requirements of the enterprise.
2 Liabilities shall be classified into trade payables, intra-company payables and other payables according to following rules: a) Trade payables include commercial amounts payable arisen from purchase of goods, services or asset and the seller is independent with the buyer, including amounts payables between parent company and subsidiaries, joint ventures or associates) Amounts payable include amounts payable when importing through the trustee (in the import trust transaction); b) Intra-company payables include amounts payable between parent company and dependent accounting subsidiaries having no legal status; c) Other payables include non-commercial amounts payable, or amounts payable relating to trading in goods or services:
- Payables relating to financial expenses, such as: interests payable, dividends payable and profits payable, financial investment expenses payable;
- Payables paid by another party; payables which the trustor receives from relevant entities to pay for import-export trust transactions;
- Non-commercial payables, such as: borrowings payable, fines payable, compensation payable, assets in surplus awaiting resolution, payables related to social insurance, health insurance, unemployment insurance, or union funds, etc
3 When preparing a financial statement, the amounts payable shall be classified into long-term payables or short-term payables according to their remaining terms.
4 If it is evident that there is an unavoidable loss, an amount payable shall be recorded according to cautious rules.
5 When preparing the financial statement, these amounts payable meeting definition of accounts derived from foreign currencies (refer to account 413 – Exchange rate differences) for re-valuation at the ending of accounting period.
So account payable to suppliers (Trade payables) is the account which
Commercial amounts payable arise from the purchase of goods, services, or assets, where the seller operates independently from the buyer This includes payables between parent companies and their subsidiaries, as well as joint ventures or associates Additionally, amounts payable encompass those incurred during imports via a trustee in import trust transactions.
Accounts payable to suppliers represent the company's current obligations arising from past transactions and events These obligations occur when the company acquires assets, enters into commitments, or incurs legal liabilities, necessitating payment from its resources.
1.1.2 The features of account payable to suppliers that affect the audit process and audit method.
Trade payables, or accounts payable to suppliers, play a crucial role in determining a company's credit rating, as assessed by external evaluators like banks High trade payable balances can lead to lower credit ratings, negatively impacting the company’s perceived financial stability.
Accounts payable specialists deliver crucial, real-time financial insights that reflect an organization's financial status, significantly impacting financial planners' decisions regarding expenses By grasping the company's future obligations and debt repayment schedules, strategists can formulate informed inquiries aimed at enhancing the company's net income statement.
1.1.3 Accounting principle on recognition of account payable to suppliers
In the production and business operations of enterprises, maintaining ongoing productivity requires securing essential inputs such as goods, equipment, assets, and services through external purchases With the evolving economic landscape, the traditional "Purchase" and "Pay immediately" model is increasingly complemented by the growing trend of "Purchase on credit." According to Circular 200/2014/TT-BTC, Article 51 outlines that trade payables to suppliers are recognized as accounts payable, highlighting the importance of credit transactions in modern business practices.
1 Rules for accounting. a) This account is used to record payment of liabilities of an enterprise to the sellers of materials, goods or suppliers of services, sellers of fixed assets, investment properties or financial investment under concluded business contracts. This account is used to record the payment of liabilities to main contractors or sub contractors The buy in cash shall not be recorded to this account. b) Liabilities to sellers, providers or contractors shall be kept records in details for every entity This account also records prepayment to the sellers, providers or contractors but the goods, services or constructions have not been received. c) The enterprise must keep records of trade payables in details for each type of currency With regard to trade payables in foreign currencies, the rules below shall be followed:
When incurring trade payables in foreign currencies, these amounts must be converted to VND using the actual exchange rate at the time of the transaction, specifically the selling exchange rate of the commercial bank that the enterprise frequently uses For prepayments made to contractors or sellers that qualify for asset or expense recording, the specific identification bookkeeping rate should be applied to the amounts recorded under Cr 331.
When settling trade payables (Cr 331) in foreign currencies, these payables must be converted into VND using specific identification bookkeeping rates for each creditor If a creditor has multiple transactions, the conversion rate will be based on the mobile weighted average of those transactions For prepayments made to contractors or sellers, the Dr 331 account should reflect the actual exchange rates, specifically the selling rates from the commercial bank that the enterprise regularly uses, at the time the prepayment is made.
Enterprises must reassess trade payables in foreign currencies at the time of financial statement preparation, using the selling rates from their regular commercial bank Group units should adopt a common rate set by the parent company, closely aligned with actual exchange rates, for internal transactions Import trustors must record trade payables for imported goods similarly to standard trade payables If invoices for received materials, goods, or services are not available by month-end, provisional prices can be used for bookkeeping; however, adjustments must be made upon receipt of invoices, and sellers should be notified of official prices Additionally, any payment discounts, trade discounts, or sales rebates not reflected in sales invoices must be meticulously recorded.
2 Structure and contents of account 331 – Trade payables
- Amounts paid to sellers, suppliers or contractors;
- Prepayment to sellers, suppliers, contractors but materials, goods, services and constructions are not received;
- Amounts of sales approved by sellers;
- Payment discounts and trade discounts which the sellers approve for enterprises to deduct from trade payables;
- Value of materials or goods in shortage or inferior quality which are received back by the sellers.
- Re-evaluation of trade payables in foreign currencies (if the foreign currency rate falls against VND).
- Amounts payable to sellers, suppliers or contractors;
- Adjustment of negative difference between provisional price and actual price of amount of materials, goods and services when the invoice or notification of official price is received.
- Re-evaluation of trade payables in foreign currencies (if the foreign currency rate rises against VND).
Credit balance: Outstanding balance payable to sellers, suppliers or contractors.
A debit balance may exist in this account, indicating prepayments to sellers or payments exceeding the amounts owed to them When compiling the balance sheet, the detailed balances associated with each specific subject in this account will be recorded under "Assets" and "Capital."
3 Method of accounting for several major transactions
3.1 When purchasing materials or goods without payment for inventory using perpetual inventory method or purchasing fixed assets: a) Domestic purchase:
- If the input VAT is deductible, the following accounts shall be recorded:
Cr 331 – Trade payables (total payment).
- If the input VAT is not deductible, the value of materials, goods or fixed assets shall include VAT (total payment). b) Import:
- Value of imported goods, including special excise tax, export duty or environmental protection tax (if any) shall be recorded as follows:
Cr 3332 – Special excise tax (if any)
Cr 3333 – Import – export duty (in details, if any)
- If the input VAT is deductible, the following accounts shall be recorded:
3.2 When purchasing materials or goods without payment for inventory using periodical inventory method: a) Domestic purchase:
- If the input VAT is deductible, the following accounts shall be recorded:
Dr 611 – Purchase (VAT-exclusive prices)
Cr 331 – Trade payables (total payment).
- If the input VAT is not deductible, the value of materials or goods shall include VAT (total payment) b Import:
- Value of imported goods, including special excise tax, export duty or environmental protection tax (if any) shall be recorded as follows:
Cr 3332 – Special excise tax (if any)
Cr 3333 – Import – export duty (in details, if any)
- If the input VAT is deductible, the following accounts shall be recorded:
3.3 If the enterprise carries out capital investment under contract awarding and receives completed construction from the contractor, according to awarding contract and transfer note of completed construction:
- If the input VAT is deductible, the following accounts shall be recorded:
Dr 241 – Construction in progress (VAT-exclusive prices)
Cr 331 – Trade payables (total payment).
- If the input VAT is not deductible, the value of capital investment shall include VAT (total payment)
3.4 When paying advance or paying trade payables to sellers, providers or contractors, the following accounts shall be recorded:
When making payments to contractors in foreign currencies, it is essential to convert these payables into VND based on the actual exchange rates at the time of the transaction, specifically using the selling exchange rate from the commercial bank that the enterprise typically conducts business with.
When making an advance payment to a contractor in foreign currency, the capital investment value must be recorded based on the actual exchange rates at the time of the payment Additionally, the remaining balance of the capital investment, after deducting the advance, should be recorded using the exchange rates applicable at the time the expense is incurred.
Dr 331 – Trade payables (actual exchange rates)
Dr 635 – Financial expenses (if the actual exchange rate is smaller than bookkeeping rate of the cash account)
Cr 515 – Financial income (if the actual exchange rate is greater than bookkeeping rate of the cash account)
3.5 When receiving back the advance from the seller because the seller fails to sell goods or provide services, the following accounts shall be recorded:
3.6 When receiving services rendered (expenses incurred from goods transportation, electricity, water, telephone, auditing, consultancy, advertisement and other services) from suppliers:
- If the input VAT is deductible, the following accounts shall be recorded:
Dr 133 – Deductible VAT (1331) (if any)
Cr 331 – Trade payables (total payment).
- If the input VAT is not deductible, the value of services shall include VAT (total payment)
3.7 When receiving payment discounts on sale of materials or goods due to prepayment and deducting trade payables, the following accounts shall be recorded:
3.8 When purchased materials and goods are returned or eligible for sales rebates because they do not meet specification and quality, they shall be deducted from trade payables and the following accounts shall be recorded:
Cr 133 – Deductible VAT (1331) (if any)
The process and method of account payable to suppliers (Trade payables)
Auditors gather data on clients to gain insights into their operations, accounting practices, and internal control systems, which helps identify potential issues and assess the significance of the entity and various components of the audit.
To effectively audit accounts payable to suppliers, it is essential to gather pertinent legal documents and records, including purchase invoices, goods received notes, and credit notes, to ensure compliance with customer legal obligations.
To effectively assess a customer's business situation and market share, it is crucial to possess comprehensive industrial knowledge, including insights into the economy and the specific sector in which the company operates This understanding encompasses various organizational elements such as the company's structure, product lines, export activities, and capital structure When auditing accounts payable to suppliers, it is essential for the auditing firm to focus on relevant information that reflects these aspects.
Understanding the client's business activities and results is essential for auditors to assess the significance of trade payables and their impact on the client's financial statements.
Factors outside that affect customers such as economic trend, law and obligation,…
(2)Understanding the account payable to suppliers (Trade payables).
The objective is to identify and comprehend transactions and events associated with accounts payable to suppliers (trade payables) This involves designing and evaluating key controls related to these transactions, followed by a decision on whether to conduct tests of controls and develop suitable and effective substantive testing procedures.
Understanding mainly about account payable to suppliers (Trade payables) and their ages: The auditors learn the type of Trade payables, Authority to approve; Regulations and methods; Regulations on controlling.
Describe the ages of account payable to suppliers (Trade payables): Use narrative or diagrammatic methods to describe account payable to suppliers (Trade payables).
The auditor reviews the design and implementation of key controls.
Horizontal analysis allows auditors to compare trade payables data from the previous year with the current year's figures, enabling them to identify fluctuations and their underlying causes Additionally, auditors can assess customer events alongside the data from the system for a comprehensive evaluation.
Vertical analysis: An analysis-based work to compare the valid ratios of objectives and items on the financial statements.
(4)Understanding internal control system and control risk assessment
Analyzing the client's internal control system and evaluating control risk enables auditors to develop suitable audit procedures for trade payables This assessment aids in understanding the volume and complexity of the audit, allowing auditors to estimate the required time and focus for the audit effectively.
The company employs control survey procedures for accounts payable to suppliers, focusing on verifying compliance with relevant documents and regulations related to system construction and operation This includes interviewing personnel responsible for system development and maintenance, as well as reviewing documentation and evidence to ensure that internal control procedures are effectively implemented.
After performing the above work, the auditor should assess the initial risk of controls and design tests of controls This work step is performed as follows:
- Identify possible types of fraud and errors in the account payable to suppliers (Trade payables).
- Assess the existence of the internal control system in detecting and preventing such frauds and errors
When the assessed control risk is not deemed high, and the auditor believes it can be lowered further, they will identify the required tests of controls to achieve this reduction.
(5)Assessment of materiality and audit risk
The auditor's primary responsibility is to assess the financial statements for any material misstatements and form an appropriate opinion This process begins with the auditor establishing a level of materiality for the overall financial statements, which then guides the allocation of an initial materiality estimate to specific items, including trade payables to suppliers.
Materiality serves as a fundamental criterion for auditors to assess the actual error level in accounts payable to suppliers (trade payables) against the predetermined acceptable error level of fixed assets This evaluation enables auditors to provide an informed opinion, whether it be acceptable, qualified, or a refusal to express an opinion.
Basic testing to a reasonable extent.
Auditors frequently broaden the audit's scope and implement additional procedures beyond the initial plan to ensure prudence and mitigate risks to an acceptable level.
According to the data about the client, the materiality and the audit risk identified in the above steps, the auditor develops an audit program.
An audit program is a list of detailed audit procedures that correspond to the audit objectives of specific audits arranged in a certain order.
The audit program outlines the objectives for each component, detailing the nature, timing, and extent of specific audit procedures along with the estimated time needed for completion Additionally, it serves as a comprehensive guide for auditors and assistants, facilitating their participation in the audit process while providing a framework for recording, monitoring, and assessing the progress of the audit implementation.
- Check details of increase and decrease of account payable to suppliers(Trade payables).
- Auditing the balance of account payable to suppliers(Trade payables).
*Objective of assessment of internal control system
The internal control system for trade payables to suppliers is essential for ensuring its existence, effectiveness, and continuity Based on survey results regarding internal controls, auditors will assess the audit scope and develop suitable substantive testing procedures.
*Steps to conduct an assessment of the internal control system
Research on internal control systems focuses on two key aspects: assessing the appropriateness of system design to ensure effective controllability, and evaluating the implementation process to guarantee the continuity and effectiveness of the system throughout the unit's operations.
ACTUAL STATUS OF THE PROCESS AND METHOD
Overview of the company
2.1.1 History of establishment and development of Ha Thanh audit company limited.
Ha Thanh Audit Company Limited, based in Hanoi, is a relatively new player in the auditing industry, dedicated to enhancing the development of both the audit and financial sectors Originally established as the ACC Viet Nam Auditing-Valuation Consultancy Company branch, Ha Thanh Audit aims to make a significant contribution to the field.
Ha Thanh The company was given liscense by Department of Planning and
Investment of Ha Noi from 2020 It is also given audit business liscense by
Main office: Room 308A, Vinhomes Greenbay, 07 Thang Long Hall, Me Tri Ward, Nam Tu Liem District, Ha Noi, Viet Nam.
Email: hathanh.kiemtoan@gmail.com.
Ha Thanh Audit Company Limited is committed to growth and excellence in the Vietnamese audit sector Our dedication to providing professional, high-quality services has established trust and value among our clients Since our inception, we have expanded significantly, enhancing our market share and effectively addressing the needs of our Board of Directors.
2.1.2 Company’s organizational and management system
The company's key members are highly trained in accounting, auditing, tax, finance, and construction economics from prestigious universities, bringing years of industry experience Employee professional development is prioritized, ensuring that staff members continuously enhance their skills and knowledge through specialized training programs and regular updates on legal documents.
The organizational chart of Ha Thanh Audit Company Limited
Functions and duties of each part in the organizational structure:
Board of Members: Meeting annually once a year, making decisions on strategic issues such as organizational structure, economic development strategy, direction and plan for the coming year of the company,
Board of Directors: run the company's daily operations, are responsible to the Board of members for the implementation of assigned rights and duties.
Financial Statement Auditing Department: Provide consulting, financial, accounting and auditing services or can provide services to other fields to support other departments in the company.
The Capital Construction Auditing Department specializes in delivering comprehensive audit services for final settlement reports related to capital construction investments and completed work items This department is staffed by a team of highly qualified auditors and experienced construction engineers, ensuring thorough and reliable assessments.
The Administrative Department is responsible for shaping the company's organizational structure, overseeing personnel management, safeguarding company assets, and handling incoming and outgoing dispatches Additionally, it plays a crucial role in supporting the Board of Directors in their decision-making processes.
Department operating and managing the company, monitor and account for arising economic transactions, provide accounting reports, pay salaries and advance payments to employees, etc.
2.1.3 Characteristic of Ha Thanh Audit Company Limited
Company serves audit services for abundant of company in Viet Nam:
The company, structured as a Group or Joint Stock Company, emphasizes high staff accountability and superior financial reporting quality, which fosters long-term contracts with clients Currently, the company's focus is on two key areas: auditing financial statements and capital auditing.
The financial statement audit team offers essential services, including annual and period financial statement audits, as well as consulting for mergers, acquisitions, and bankruptcy The company prioritizes customer diversity and renewal, leveraging a highly skilled and trustworthy staff to deliver exceptional quality and foster client confidence.
2.1.4 Characteristic of audit organization at Ha Thanh Audit
2.1.4.1 Organizational characteristic of the audit team of Ha
Auditors, including those at management levels, play a crucial role in delivering valuable services through their audit activities The auditing process involves the collection and evaluation of evidence to form an informed opinion, which relies significantly on the auditor's subjective judgment.
The quality of an audit is significantly influenced by the competence of the auditing team, including both staff and management At Ha Thanh Audit Company Limited, we prioritize the human element, emphasizing the importance of personnel training and development Our commitment is to cultivate a team of auditors who are knowledgeable, professional, experienced, and possess strong ethical standards.
The Board of Directors is responsible for assigning personnel to the client unit's audit, aiming to optimize the efficiency of experienced auditors while incorporating young audit assistants to build the capabilities of future leaders This strategic organization of the audit team ensures the delivery of exceptional service to clients.
+ Head of audit: usually the General Director.
+ Audit team leader: usually a highly qualified and experienced auditor. + Auditor's assistant.
The organization and assignment of audit personnel are based on the audit risk assessment results and the auditor's qualifications and understanding of the client unit By assigning specific tasks to each audit team member, the audit process can be conducted efficiently, ensuring clarity in responsibilities and enhancing overall effectiveness.
During the audit, Ha Thanh Audit Co., Ltd not only assessed the accuracy and fairness of the financial statements but also provided recommendations for enhancing the accounting and internal control systems across various units By analyzing the existing internal control framework, the company leverages its extensive experience and access to a wealth of international data to offer informed consulting insights tailored to current best practices.
2.1.4.2 Ha Thanh Audit Company Limited’ Audit Method.
In general, the audit work includes the following tasks:
- Review the recording, archiving and maintenance of accounting records;
- Assess the company's operational compliance on the basis of internal control principles and current auditing regulations of Vietnam;
- Review and evaluate the adequacy of existing internal control systems;
- Examining on a sample basis the accounting records and evidence related to the accounting figures presented in the financial statements including invoices, contracts and other relevant original documents;
- Review and evaluate the existence, ownership, and control of fixed assets;
- Issuing a management letter with recommendations on weaknesses in the internal accounting and control systems as well as practical measures to overcome those weaknesses.
2.1.4.3 Sample audit process and method.
Ha Thanh Audit Co., Ltd prioritizes client needs while adhering to financial regulations through independent examinations of business activities By meticulously reviewing transactions and account balances, the firm identifies misstatements and risks within internal controls and the client’s accounting processes To ensure effective assessments, Ha Thanh Audit Co., Ltd has established a tailored audit process that aligns with the unique operations of each client.
In auditing financial statements, it is essential for auditors to gather sufficient and relevant evidence to support their conclusions regarding the accuracy and appropriateness of the financial information presented To achieve efficiency, cost-effectiveness, and effectiveness in the audit, auditors must establish a well-defined process Typically, this audit process is divided into three key steps.
• Planning audit, risk assessment and treatment measures for assessed risks
• Synthesize, conclude and form the audit opinion
The Auditor and the Auditing Firm are required to develop a comprehensive audit plan that outlines the scope and methodology of the audit work This detailed plan serves as the foundation for the audit program Initially, upon receiving the audit invitation, the auditor familiarizes themselves with the client to establish a contract or formulate a general plan It is essential for auditors to gather specific client information and assess internal control systems effectively.
Besides, while planning, the audit firm must also prepare means and staff for the implementation of the built program.
Actual status of audit process of account payable to suppliers in Financial
This thesis examines the audit process and methods used for accounts payable to suppliers at Ha Thanh Audit Company Limited, illustrated through a case study of a customer who utilized their services.
Financial Statement Audit performed by Ha Thanh Audit Company Limited
To maintain the confidentiality of our clients while adhering to ethical standards, we will refer to the client company as YW Co., Ltd.
2.2.1.1 Consider contract acceptance and contract risk.
Contract risk identification and assessment aim to evaluate the risk of material misstatement due to errors in both new and prior-year contracts, facilitating the identification and resolution of potential issues while effectively managing risks.
The audit firm will evaluate significant risks and potential misstatements by gaining insights into the client's entity and its operating environment, leading to a decision regarding the signing of the audit contract.
YW Co., Ltd., a former client of Ha Thanh Audit Company Limited, utilized a customer acceptance assessment questionnaire tailored for existing customers This questionnaire shares notable similarities and differences with the one designed for new customers, as detailed in the accompanying table.
Table 1: Questionnaire for identifying and assessing the risk of a client audit contract
*Making audit contract and setting up audit team.
Ha Thanh Audit Company Limited will draft an audit contract for YW Co., Ltd following a thorough evaluation of client and contract risks, which includes conducting an audit of YW Co., Ltd.'s financial statements.
Personnel of the audit include:
Vice president in charge NMH
Witness the inventory count NTQ
Witness the inventory count LTM
Table 2: Personnel of the audit include and work zone
Implementation time at the customer's office 28/02/2021 - 02/03/2021
Time to complete working papers at
Send draft to customers No later than 07/03/2021
2.2.1.2 Understanding customer and working environment.
YW Co., Ltd is a non-stated limited liability company which established
12 years ago That makes it stand a strong foothold in the market.
The company is a shareholding company established under the Law on
Enterprises, applying the accounting system.
The Management Board applies Vietnamese accounting standards, the corporate accounting regime issued in accordance with Circular No 200/2014/TT- BTC dated December 22, 2014 of the Ministry of Finance and Circular No
53/2016 /TT-BTC dated March 21, 2016 of the Ministry of Finance amending and supplementing a number of articles of Circular No 200/2014/TT-BTC dated December 22, 2014 guiding the enterprise accounting regime.
Circular No 155/2015/TT-BTC dated October 6, 2015 of the Ministry of Finance guiding information disclosure on the stock market.
YW Co., Ltd are now operating in the following fields:
-Buy and sell real estate, land property, land lease.
-Import and export electrical goods.
The main activities during the year is selling heatsink components.
*The outside factors that are affecting the company’s business activities. -The general condition of economy.
-The fluctuation of interests, inflation.
2.2.1.3 Accounting policies and business cycle at YW Co., Ltd. Applying standards for financial reporting:
Financial statements are prepared and presented in compliance with Vietnamese accounting standards, adhering to the current regulatory framework for enterprises and relevant legal requirements governing financial reporting.
The Company applies the Vietnamese corporate accounting system issued together with Circular 200/2014/TT-BTC.
The audited financial statements will be widely published on the mass media by us The company has been listed on the Hanoi Stock Exchange.
Apply accounting form: General journal.
Customers use accounting software to record transactions and set up financial statements.
How customers can control business activities: Customer's business activities are always based on the annual production and business plan assigned by the
The Company adheres to the plan approved by the General Meeting of shareholders, ensuring compliance with both the Group's regulations and its own internal policies.
Accounting policy: Apply accounting policies based on Vietnamese Accounting Standards (VAS).
2.2.1.5 Determine the level of materiality.
The audit plan establishes a materiality level of VND 309,303,219 for the financial statements, calculated as 10% of pre-tax profit Performance materiality is set at VND 2,319,774,145, representing 75% of the overall materiality Additionally, a tolerable error threshold of VND 92,790,965 is determined, accounting for 4% of the performance materiality Any identified misstatements exceeding the tolerable error will be documented in the Summary of Adjusted Entries.
2.2.1.6 Summarize audit plan *Auditing approach
The audit was conducted in accordance with Vietnamese Standards on
Auditing to obtain reasonable assurance that the financial statements are presented with a true and fair view, in accordance with Vietnamese Accounting Standards. *Audit plan
The audit team uses the audit program of the Ha Thanh Audit Company
Limited This audit program is the most specific guide for each item, operation and performance requirements to conduct an audit of account payable to suppliers( Trade payables).
The auditors at Ha Thanh Audit Company Limited will sequentially carry out the necessary procedures, synthesizing their findings into organized working papers stored in the audit file This systematic approach ensures that all main steps outlined in the audit program are followed meticulously, facilitating a comprehensive presentation of the working papers.
2.2.2.1 Evaluation of the internal control system.
Table 5: Evaluation of the internal control system
2.2.2.2 Verified the detail of any increases or decreases in account payable to suppliers.
(1) Make a summary of account payable to suppliers (Trade payables).
The auditor reviews the overall account payable to suppliers, known as trade payables, in the financial statements Additionally, the auditor compares this data with the accounting records, including ledgers and detailed books, and analyzes this year's financial statements against the previous year's audit records to assess the trends and changes in this area.
Table 6: Summary of Trade payables
(2) Conduct analysis from the summary of account payable to suppliers (Trade payables).
(3)Make a table of increase and decrease of account payable to suppliers (Trade payables) and classify account payable to suppliers (Trade payables).
Purpose: To evaluate the existence, completeness and classification of transactions arising in the period
Check in detail the increase in account payable to suppliers(Trade payables) during the period.
- Documents to be provided: Ledger, detailed book, related documents.
(4) Check the details of the increase and decrease of account payable to suppliers (Trade payables) during the period.
Using the sampling method, the audit team will select different samples and test the accuracy of the increase in account payable to suppliers (Trade payables) during the period.
The audit team leader compiles the audit findings, which involves collecting post-audit data to finalize the audited financial statements This process identifies the client's existing issues and necessary adjustment entries Subsequently, these findings and adjustments are discussed with the client to facilitate their review and ensure appropriate modifications are made.
For the process of auditing account payable to suppliers(Trade payables), after performing detailed inspection procedures and making an estimate, the auditor found that:
Any increase/decrease in account payable to suppliers(Trade payables) has been fully recorded by the Company in the accounting books and documents No adjustment entries are made.
Therefore, the auditor concludes: account payable to suppliers(Trade payables) are presented honestly and fairly in all material auditor gives a fully accepted opinion
All pertinent records and documents are gathered in the quality control room, where the board of directors and quality control department conduct a thorough review before approving the release of the preliminary report.
Actual status of audit method of account payable to suppliers in Financial
Ha Thanh Audit Company Limited conduct Substantive analytical procedure and Test of detail to gather audit evidence to detect material misstatement.
Completeneѕѕ Review of items at year-end ;Check for correctness
Periodic check Out analytical procedures ;Send letter of confirmation; Reconcile with control account
Rightѕ and obligationѕ Review the invoice to prove that the property belongs to the Company; Send a letter of confirmation to a 3rd party
Valuation and allocation Check Invoices match Amounts;Recalculate; Confirm accounting policies are applied consistently and appropriately; Review payments and year-end invoices; Review expert valuations
Eхiѕtence Physical Verification; 3rd Party Verification; Periodic
Verification involves checking relevant documents, obtaining confirmation from the Board of Directors that the transaction pertains to the enterprise, and examining the purchased assets and inventory Accuracy is ensured through recalculation, third-party confirmations, and a review of analytical procedures Proper classification is essential for maintaining organized records and supporting accurate financial reporting.
Confirm compliance with laws and accounting standards and disclose disclosures to understand classification.
Cut-off Periodicity Check; Review Analytical Procedures
Substantive analytical procedures involve comparing and analyzing fluctuations in financial data and items within financial statements This process helps identify and assess risks during the audit, ultimately streamlining the selection of samples for detailed inspection and enhancing overall audit effectiveness.
Similar to Test of Details (TOD), Substantive Analytical Procedures (SAP) assist auditors in evaluating various assertions in financial statements, with the exception of the Rights and Obligations assertion This is because SAP focuses on assessing changes in balances and ratios, while verifying Rights and Obligations requires the auditor to gather additional relevant documents to comprehend the transaction's nature.
Ha Thạnh Audit Company conducted a walk-through test on YW Co., Ltd.’s accounting system to assess its reliability This method involves tracing a transaction step-by-step from its origin to its final outcome While walk-through tests are not mandatory for accountants, they play a crucial role in identifying weaknesses and resolving issues within the accounting system.
Ha Thạnh Audit Company conducts tests of controls to assess the effectiveness of a client's control measures in preventing or detecting material misstatements Based on the outcomes of these tests, auditors may decide to rely on the client's control system during their audit If errors are identified, auditors will increase the sample size for further testing Should additional errors arise, they will evaluate whether these indicate a systematic issue with the controls or if they are isolated incidents If the auditors determine that the controls are inadequate, they will intensify their substantive testing, which typically raises the overall audit costs.
Chapter 2 of this thesis examines the accounting practices related to trade payables in the financial statement audit of YW Co., Ltd., conducted by Ha Thanh Audit Company Limited This analysis serves as a foundation for proposing enhancements to the auditing processes and methodologies for trade payables, which will be detailed in Chapter 3 of the thesis.
IMPROVEMENTS TO ACCOUNT PAYABLE TO
General reviews and evaluations about Ha Thanh Audit Company Limited
3.1.1 Reviews and evaluations about Ha Thanh Audit Company
With the huge global impact of Covid-19 pandemic, a newly-established audit company like Ha Thanh Audit Company Limited meets many drawbacks
Ha Thanh Audit Company Limited is committed to enhancing customer satisfaction through continuous improvement and staff development This dedication has earned the trust of existing clients and bolstered the company's reputation, making it an attractive choice for potential customers.
Ha Thanh Audit Company has developed a robust management model that continues to evolve and improve over time This model enhances work management and strengthens the internal control system, ensuring it meets the specific needs of newly-established companies All management levels and staff are dedicated and collaborative, working diligently to provide timely and accurate decisions.
Ha Thanh Audit Company prides itself on recruiting skilled professionals and experienced managers who provide dedicated training to its employees The firm boasts a team of highly qualified auditors with significant expertise and seniority Discipline and a serious work environment are prioritized, fostering a strong work ethic among staff The Board of Directors and employees demonstrate a high level of responsibility in their audit processes and methodologies.
Audit assistants are actively engaging with various audit practices to enhance their skills and expand their professional network This initiative not only benefits junior auditors with 1-3 years of experience by providing them with valuable knowledge and expertise but also prepares them to attain professional qualifications As a result, these auditors can work towards becoming certified professionals, such as obtaining their CPA.
Ha Thanh Audit Company Limited specializes in two key services: Capital Construction Audit and Financial Statement Audit By focusing exclusively on these areas, the company is dedicated to delivering exceptional service to its clients while also allowing for the potential to broaden its customer base within these specific fields.
3.1.2 Actual status of audit of operating parts.
Ha Thanh Audit Company Limited has developed a customized audit program that enhances the efficiency and adaptability of various sections within the organization Each section is equipped with specific instructions, documentation, and auditing methodologies, allowing staff and audit assistants to produce clearer and more precise working papers Furthermore, all audit records, evidence, comments, and conclusions undergo a thorough review process by multiple management levels prior to receiving approval from the Board of Directors for client release.
The audit process is meticulously assigned and conducted with a focus on productivity and professionalism Auditors collaborate effectively to gather necessary evidence and documentation, engaging in detailed discussions to address any challenges and develop effective solutions Strict quality control measures are implemented before, during, and after the audit in compliance with regulations Additionally, members of the Board of Directors are actively involved in executing and finalizing the audit contract to guarantee the accuracy of the report provided to clients For sensitive companies, a secondary review by another board member is conducted to ensure the integrity of the audit process and eliminate any potential errors.
Development orientation and the need to improve the audit process and
Ha Thanh Audit Company Limited is committed to maintaining independence, honesty, confidentiality, and objectivity in its audit services, ensuring customer satisfaction and a competitive edge in the market This commitment serves as a guiding principle for all managers and staff, leading the Board of Directors to strictly adhere to professional regulations and auditing standards, particularly those related to ethics To support its mission, the company aims to continually refine and standardize its auditing processes and methods for financial statements and capital construction Additionally, Ha Thanh Co., LTD prioritizes the enhancement of learning experiences and professional skills for its staff and audit assistants.
3.2.2 The need to improve the audit process and audit method of account payable to suppliers in Financial Statement Audit.
As Vietnam embraces the 4.0 industrial revolution and deepens its global business ties, the auditing sector is evolving to align with international integration trends The entry of renowned global auditing firms into Vietnam's financial market presents both opportunities and challenges While it offers valuable learning experiences and the chance to connect with the global audit market, it also intensifies competition against more experienced firms To navigate these challenges, Vietnamese auditors, particularly at Ha Thanh Audit Company Limited, must enhance their audit programs and methodologies while improving overall audit quality This commitment to refining audit processes is essential for all aspects of auditing, not just trade payables.
Principles and requirements for completing the audit process and audit
3.3.1 Principles for completing the audit process and audit method for account payable to suppliers.
To ensure the feasibility of the audit process and methods for accounts payable to suppliers (trade payables) in financial statement audits, it is essential that the proposed content adheres to specific principles.
• Must be in line with the management requirements of the State, which is directly the Ministry of Finance, for current auditing activities.
• Must be consistent with the State’s current economic management policies and regimes, promulgated accounting and auditing standards, and popular international accounting and auditing practices.
• Must be in line with the strong integration trend that is taking place, which requires auditing firms to have a process and method to approach foreign companies.
• Must be suitable with the characteristics of each audit firm and have a positive effect on improving the quality of audit services of the companies.
• Must be clear, easy to understand, easy to check and control.
• Must be economical, efficient and practical.
3.3.2 Requirements for completing the audit process and audit method of account payable to suppliers.
To enhance the audit process and methods for managing trade payables at Ha Thanh Audit Company Limited, it is essential to align solutions with the company's management requirements and current economic trends Implementing these strategies will ensure a more efficient and effective auditing framework that meets both organizational needs and industry standards.
• Solutions to complete the audit process and audit method must be consistent with the business characteristics of Ha Thanh Audit Company Limited.
Ha Thanh Audit Company Limited offers comprehensive and user-friendly solutions for the audit process and methods related to trade payables Our approach ensures that the auditing of accounts payable to suppliers is straightforward, easy to implement, and effective, facilitating a seamless experience for our clients.
Assessing the actual status of the audit of account payable to suppliers in
Ha Thanh Audit Company Limited is committed to upholding independence, honesty, confidentiality, and objectivity in its audit services, ensuring effective operations and customer satisfaction, which distinguishes it from competitors This commitment serves as a guiding principle for all managers and staff, leading the Board of Directors to strictly follow regulations related to professional activities and auditing standards, particularly those concerning professional ethics The company aims to continuously improve and standardize its auditing processes and methodologies for financial statements and capital construction, while also focusing on enhancing the professional skills and learning experiences of its staff and audit assistants.
Through the method of researching, mastering and without delay experiencing the constant asset audit process and method of Ha Thanh Audit
Company Limited has successfully completed its internship period, during which it developed a stringent and adaptable audit program designed for enhanced efficiency and reliability This program was uniquely tailored by the company, drawing on the audit framework of Ha Thanh Audit Company Limited, and is implemented in alignment with the company's policies and government regulations, ensuring compliance and flexibility in its application.
More specifically, account payable to suppliers (Trade payable) audit program was built and achieve some advantages as follow:
Ha Thanh Audit Company Limited employs a structured and flexible audit process tailored to effectively meet the needs of its clients, particularly in the area of accounts payable to suppliers (trade payables) Each phase of the audit is designed to cater to various client groups, ensuring a comprehensive understanding of the audit steps involved A well-defined audit program enables auditors to efficiently gather necessary data and evidence while maintaining quality control throughout the process The audit methodology for accounts payable is aligned with established auditing standards in Vietnam, ensuring compliance and reliability in the audit outcomes.
Ha Thanh Audit Company Limited actively reaches out to potential clients by sending letters that showcase its capabilities These introduction letters provide a comprehensive and accurate overview of the company's strengths and potential Additionally, they detail the audit services offered, the company's experience, the qualifications of its professional team, and a history of previous audits conducted.
Capability recommendation letters facilitate potential customers understand the company additionally as its name and dealing capacity Thereby attracting new customers and transferral profits to the company.
Upon receiving an audit request, the skilled auditors at Ha Thanh Audit Company Limited engage in discussions with clients to understand their needs With extensive expertise demonstrated in previous audits, these professionals ensure a high level of accuracy in audit risk assessment, ultimately enhancing the overall quality of the audit process.
Ha Thanh Audit Company Limited prioritizes the selection of its audit team personnel based on risk assessment, client conditions, and the working environment The audit team leader is typically a certified auditor with expertise in the specific area being audited, while other team members, including auditors and assistants, are chosen based on their qualifications, capabilities, and experience Additionally, the company evaluates team members for their professional ethics in line with company regulations A member of the management team is also involved in the initiation and conclusion stages of the audit, further enhancing the overall quality of the audit process.
Auditors do not rely too much on client’ internal control system They gather evidences directly from reviewing related parties, observing the work performance or indirectly from third parties
The audit procedures were conducted meticulously and under stringent controls, ensuring clarity and precision The selection of sample audit evidence and procedures for accounts payable to suppliers (trade payables) was approached with flexibility and intelligence to enhance effectiveness By integrating three types of audit procedures—preliminary analysis and detailed examination—synergy was achieved, allowing each method to complement and support the others.
Auditors enhance the effectiveness of the audit by comparing and contrasting related components, ensuring that the audit process and methods are not duplicated This approach minimizes working time and optimizes resource utilization.
Professional auditors utilize audit techniques effectively by following a sample audit program When certain audit procedures cannot be completed to gather sufficient reliable evidence, auditors may explore alternative additional audit procedures to enhance their findings.
Therefore, auditors can absorb reliable evidences as the support for the assessment.
Professional auditors are required to supervise and support junior auditors and audit assistants, ensuring compliance with regulations This oversight is essential for enhancing the audit process and methodology, leading to more accurate and effective audits.
Utilizing modern technologies is essential for the proper storage of evidence and documents Ensuring that these materials are organized within the correct client files enables an accurate and precise quality control process.
After done stage 2, the audit team leader, a member of Board of directors
If a client is deemed high risk or is a public interest company, another board member must review the documents before the draft report is released This process ensures that the final audit report is both accurate and of high quality.
Before accepting audit engagements, it is crucial for Ha Thanh Audit Company Limited to thoroughly gather information about potential clients, particularly for small companies, as this practice has not been consistently enforced This step is essential to ensure the integrity and quality of the audit process.
The assessment of materiality and the determination of audit risks mainly still depends on the qualifications, experience and judgment of the auditors.
Using sampling method that just focused on large amount transactions Therefore, sometimes it may ignore transactions that are considered less important but it may cause errors which affect materiality.
Audit method is not built and used carefully and clearly so sometimes it can not be used or can not support the audit process effectively.
Ha Thanh Audit Company Limited, a newly-established and small audit firm, faces challenges in developing a comprehensive organizational system akin to larger firms As a result, it lacks a dedicated quality control department and has not fully focused on creating effective audit method samples.
In addition, they do not have enough sources and attraction to make strict recruitment test and cannot meet the demand of audit market and high-quality auditors
The company has yet to fully fulfill its responsibilities in supporting the Ministry of Finance with the development and implementation of accounting and auditing standards, as well as in overseeing the quality and ethical conduct of auditors.
Solution to complete the audit system of account payable to suppliers in
Auditors must gather essential information about clients, including their business activities, environment, and legal obligations For previously audited clients, it is crucial to update this information before starting the audit to ensure accuracy This process enables auditors to effectively assess potential risks and design a relevant audit strategy.
Auditors must conduct a thorough review of the internal control system, particularly focusing on trade payables to suppliers Utilizing effective audit methods is essential to assess the internal control mechanisms governing accounts payable, enabling auditors to gain a clearer understanding of the client's internal controls This evaluation helps in accurately identifying strengths, weaknesses, and control risks Additionally, employing procedures such as retesting, interviews, and observations is crucial for gathering necessary evidence, thereby enhancing the reliability of the internal control assessment.
Audit sampling, as defined by VSA 530 “Audit Sampling,” involves applying audit procedures to a subset of an audit population, rather than examining every single element This method ensures that each unit in the sample has a chance of being selected, allowing auditors to draw reasonable conclusions about the entire population During the audit process, auditors typically rely on their professional judgment, guided by the principles of large numbers and the identification of unusual fluctuations, to perform sampling effectively.
This selection method focuses solely on larger clients, which may elevate the risk of overlooking small-scale misstatements To mitigate this risk, it is essential to implement a broader sampling approach that encompasses a wider range of clients.
To avoid that client may disagree and confuse with the working papers of the auditors, working papers have to be done at the end of the audit period
Besides, a record keeping process is needed to store and preserve audit records to prevent them from losing or be damaged.
Condition for conducting the solutions
Employees should be give chances for studying and participating in training course such as course for gaining some certificates: CPA Viet Nam,
Enhancing professional skills and knowledge through organizations like ACCA and ICAEW significantly improves the quality of a company's audit team Additionally, developing specific audit methodologies and hiring qualified personnel are crucial steps in elevating audit quality These improvements not only strengthen the audit team's capabilities but also help the company secure long-term contracts with clients.
Customers should recognize the significance of audits, particularly for companies listed on the stock exchange, as this appreciation enables auditors to optimize their time and resources, ultimately enhancing the effectiveness of the audit process.
Vietnam is actively enhancing its financial regulations and accounting standards to align with global demands and compete with leading nations Consequently, companies and employees must stay informed about general finance and specific auditing practices.
Accounting and auditing organizations and associations in Vietnam should promote their supporting role to the Ministry of Finance in drafting and promulgating accounting and auditing standards.
Chapter 3 addresses the essential principles, requirements, and methodologies for conducting audits on trade payables to suppliers It also presents practical solutions aimed at enhancing the auditing process and methods specifically for Ha Thanh Audit Company Limited These proposed solutions are designed for real-world application, ensuring a more efficient and effective audit of trade payables.
Ha Thanh Audit Company Limited specializes in financial statement audits and capital construction, operating in a competitive market where independent audit services must continually evolve Facing challenges in the expanding audit sector, the company is poised to seize opportunities as the economy recovers rapidly from the Covid-19 pandemic With a dynamic and experienced team that stays updated on the latest accounting and auditing developments, Ha Thanh Audit Company Limited is steadily enhancing its growth and diversifying its client base.
During my internship at Ha Thanh Audit Company Limited, I gained valuable insights into the financial statement audit process, with a particular focus on auditing accounts payable to suppliers (trade payables) I also completed my thesis aimed at systematizing the theoretical framework of the audit process and methods for trade payables in financial statement audits Additionally, I analyzed the current practices employed by Ha Thanh Audit Company Limited in auditing trade payables for client units and proposed solutions to enhance their auditing processes and methodologies.
I would like to express my heartfelt gratitude to Assoc Prof PhD Nguyen Trong Co and Assoc Prof PhD Chuc Anh Tu for their enthusiastic guidance in completing my graduation thesis Additionally, I extend my sincere thanks to the Board for their support throughout this journey.
Directors of Ha Thanh Audit Company Limited for creating maximum conditions for my internship at your company.
LIST OF REFERENCES AND APPENDIXS
Assoc Dr Nguyen Trong Co, Assoc Dr Thinh Van Vinh (co-editor)
(2017), “Giáo trình Kiểm toán căn bản”, Finance Publishing House.
MSc Dau Ngoc Chau (editor), Dr Nguyen Viet Loi (co-editor) (2011),
“Giáo trình Kiểm toán Báo cáo tài chính”, Financial Publishing House.
System of Vietnamese auditing standards
System of Vietnamese accounting standards
Auditing Program of Ha Thanh Audit Company Limited
System of working papers, audit records of Ha Thanh Audit Company Limited
Law on Independent Audit No 67/2011/QH12.
Refer to the dissertations of previous thesis.