FRAUD AND ERRORS IN AUDITING FINANCIAL STATEMENTS BY CAN MAI HUONG E0700241 BACHELOR OF BUSINESS (ACCOUNTING) HONS HELP UNIVERSITY COLLEGE OCTOBER, 2011 FRAUD AND ERRORS IN AUDITING FINANCIAL STATEMENTS BY CAN MAI HUONG E0700241 Graduation Project Submitted to the Department of Business Studies, HELP University College, in Partial Fulfilment of the Requirements for the Degree of Bachelor of Business (Accounting) Hons OCTOBER, 2011 - Page II - Declaration of Originality and Word count DECLARATION I here by declare that this graduation project is based on my original work except for quotations and citation that have been duly acknowledged. I also declare that it has not been previously or concurrently submitted for any other courses/degrees at HELP University College or other institutions. The word Count is words. Can Mai Huong October, 2011 - Page III - Acknowledgements This project would not have been made possible without the assistance, support and encouragement of many people. I wish to take this opportunity to thank all the people who have helped me during the time of completing the dissertation. Firstly, I would like to express my deep gratitude to my supervisor at the International School – Vietnam National University Ha Noi (ISVNU). He has kindly helped me and supported me all the way through. For that, I am very grateful. I also would like to express my thank to and at Help University College, who initiated the project and give so much instruction and support. In addition, a huge thank for all managers, accountants, personnel who sacrificed theirs time to answers my questionnaire. CAN MAI HUONG - Page IV - ABSTRACT FRAUD AND ERRORS IN AUDITING FINANCIAL STATEMENTS BY CAN MAI HUONG OCTOBER, 2011 Supervisor: PHAM DUC HIEU During the audit, there are always fraud and errors which are not detected and falsify financial statements. To reduce the risk of undetected fraud affecting seriously the financial statements and to express a right opinion on financial statements, auditors need to concern about fraud problem and the possibility of fraud during the audit. In fact, there is always a difference between the expectations of users of financial statements expected from auditors and what auditors can meet. Because the user thinks that auditors absolutely ensure honest and reasonable financial statements while it is very difficult for auditors to do this. To narrow this gap, auditors have to not only explain the limitations and scope of the auditing industry to users of financial statements but also continuously improve the professional capacity of individuals to find out our fraud and errors falsifying financial statements seriously. - Page V - Table of Contents Declaration of Originality and Word count II Acknowledgements III ABSTRACT IV Table of Figures VIII List of Abbreviations IX Chapter 1: INTRODUCTION 1 1.1 Research background 1 1.2 Problem statement 2 1.3 Research question 3 1.3.1 Fraud and Errors in the worlds 3 1.3.2 Fraud and Errors in Vietnam 5 1.3.3 Research statement 6 1.4 Thesis structure 7 Chapter 2: LITERATURE REVIEW 9 2.1 Definition of Fraud and Errors 9 2.1.1 Definition of Fraud 9 2.1.2 Definition of Errors 10 2.1.3 Compare Fraud and errors 10 2.2 The Forms of Fraud 11 2.2.1 Forms of fraud 11 2.2.2 Forms of errors 11 2.3 Factors affecting the fraud and errors 11 2.4 Related Theory 13 2.4.1 The Control Fraud Theory 13 2.4.2 The ―Fraud Created the Market‖ Theory 15 2.5 The common method to fraud in auditing financial statements 18 2.5.1 High declaration (or perjury) revenue 18 2.5.1 High declaration (or perjury) revenue 19 2.5.2 Note the year wrong 19 2.5.3 Conceal liabilities and expenses 19 2.5.4 Declare not enough information 19 - Page VI - 2.5.5 Apply underestimated method 19 2.6 Motive for fraud and errors in financial statements of enterprises. 20 Chapter 3 : RESEARCH METHODOLOGY 22 3.1 Research method 22 3.1.1 Quantitative methodology 22 3.1.2 Qualitative methodology 22 3.2 Data source 23 3.2.1 Secondary data 23 3.2.2 Primary data 23 3.3 Research tool 23 3.3.1 Internet tool 23 3.3.2 Questionnaire 24 Chapter 4: FINDING AND DISCUSSION 25 4.1 Questionnaire Results 25 4.1.1 Question 1: Among the following errors, please indicate types of errors that you often see in auditing the Financial Statements? 25 4.1.2 Question 2: In your opinion, for which of the following reasons lead to act of embezzlement? 26 4.1.3 Question 3: In your opinion, for which of the following reasons lead to fraud on the Financial Statements? 27 4.1.4 Question 4: In your opinion, which sectors or fields often occur high risk fraud: 27 4.1.5 Question 5: You tell me about the person who implements fraud often holds which position at the Company: 28 4.1.6 Question 6: In your opinion, in two age groups which groups often implement fraud: 28 4.1.7 Question 7: During forms of revenue fraud, which the following form you often face up to: 29 4.1.8 Question 8: In terms of business management, in your opinion, which factor plays a decisive role in preventing the frauds in the financial statements? 30 4.2 Interview results 30 Chapter 5 : CONCLUSION AND RECOMMENDATION 35 5.1 Lessons for Vietnam 35 5.1.1 Enhance responsibilities of auditor for fraud and errors: 35 - Page VII - 5.1.2 Regularly update auditing standards including standards related to fraud and errors: 35 5.1.3 Should release guidance on procedures for fraud detection 35 5.2 To raise the responsibility of auditors for fraud and errors in the audit of financial statements 36 5.2.1 Ministry of Finance still performs a key role in releasing auditing standards: 37 5.2.2 Take legal proceedings against the whole organizations of Vietnam association of accounting and auditing 38 5.2.3 Always update released auditing standards: 38 5.2.4 Should release detailed guidance 38 5.2.5 Attach special importance to human resource training to the regional level 39 5.3 Solutions for auditing companies 40 5.3.1 Strengthen controlling the internal quality of auditing companies 40 5.3.2 Strengthen procedures for detecting fraud in auditing program 40 5.3.3 Improve the training quality of auditors 40 5.4 Conclusion 41 APPENDICES 44 - Page VIII - Table of Figures Figure 1: compare between Fraud and Errors Figure 2: Types of errors Figure 3: Reasons lead to act of embezzlement Figure 4: Reasons lead to fraud on the Financial Statements Figure 5: Fields often occur high risk fraud Figure 6: Person who implements fraud Figure 7: Age groups often implement fraud Figure 8: Forms of revenue fraud Figure 9: Factor plays a decisive role in preventing the frauds - Page IX - List of Abbreviations WTO: World Trading Organization U.S: United Stated BTCC: Bach Tuyet Cotton Corporation A&C: Auditing and Consulting ACCA: Association of Characted Certified Accountant CEO: Chief Executive Officer CFO: Chief Financial Officer ACFE: Association of Certified Fraud Examiners VACPA : Vietnam Association of Certified Public Accountants ISA: International Standards on Auditing KPMG: Klynveld Peat Marwick Goerdeler E&Y: Ernst & Young PwC: Price waterhouse Coopers [...]... and auditing On the other hand, knowledge and skills of the course also help me to improve professionalism in my job So why are fraud and errors important in auditing financial statements? Influences of fraud and errors in auditing financial statements for Vietnam’s enterprises? In order to understand more about fraud and errors, this study will focus on fraud and errors in auditing financial statements. .. to make fraud, namely: appropriation, defrauding and embezzlement In accounting aspect, according to international accounting standard No 10, fraud and errors are defined as errors in calculation, in application of accounting policies, unreal explanation, fraud or intentionally missing out In auditing aspect, according to international auditing standard No 240 in 2004, fraud and errors are defined as... and auditing To better understand such fraud and errors, I will present about the topic FRAUD AND ERRORS IN AUDITING FINANCIAL STATEMENTS 1.2 Problem statement In order to better understand fraud and errors in auditing financial statements of recent companies, we need to answer some following questions: What is fraud and errors? In broad sense, fraud is illegal behaviors to cheat then to gain benefits... The third question: Influences of fraud and errors in auditing financial statements for enterprises in Vietnam? In the market economy, demand of giving and receiving information, especially financial information plays a highly important role in making business decisions Transparency and honesty of financial information has great importance in stabilizing securities market and society In recent years,... 2.1.2 Definition of Errors Errors are non-intentional mistakes influencing on financial statements such as missing out an amount of money or not declaring information in financial statements Common examples about errors are ones in data collection and processing and its presence in financial statements, errors in estimations or application of underestimated accounting principles Errors can be very serious... defined as follows: Errors are non-intentional mistakes which affect financial statements such as missing out an amount of money or not declaring information in financial statements Common examples about errors are errors during data collection and processing and presenting it in financial statements, errors in accounting estimations, or application of underestimated accounting principles The second... following errors, please indicate types of errors that you often see in auditing the Financial Statements? Results: Contents Votes Ratio Fraud on the Financial Statements 45 78% Corruption 6 11% Embezzlement 6 11% Others 0% Total 57 100% Figure 2: Types of errors In this situation, 78% of the auditors answered: the most common error in auditing the Financial Statements is fraud on the Financial Statements, ... company, in recent years there have emerged new forms of fraud which are fraud in financial statements People making fraud are not one person or some people but a group of people including Board of Directors, Board of Management and Auditing Companies Adverse impacts of fraud are much greater and on many people in the society 1.3.2 Fraud and Errors in Vietnam In recent years in Vietnam, a series of fraud in. .. development in Vietnam The represents interviewed are ones, whose enterprises already have made or showed interest in detecting Fraud and errors behaviour in auditing financial statements Companies were questioned on their current involvement in detecting Fraud and errors as well as their expectations of the importance of limited Fraud and errors in the future - Page 22 - Moreover, after having received... still inadequate Hence, improve the quality of independent auditing activities, strengthen the responsibility of auditor in respect of detecting fraud and errors on the Financial Statements is still a topical question with a view of enhancing the transparency, reliability of financial data in making economic decisions - Page 1 - Therefore we should incessantly study fraud and errors in accounting and auditing . professionalism in my job. So why are fraud and errors important in auditing financial statements? Influences of fraud and errors in auditing financial statements. FRAUD AND ERRORS IN AUDITING FINANCIAL STATEMENTS . 1.2 Problem statement In order to better understand fraud and errors in auditing financial statements