MINISTRY OF EDUCATION NATIONAL ECONOMIC UNIVERSITY ‐‐‐‐‐‐‐‐*‐‐‐‐‐‐‐‐ Nguyen thi my  Thesis topic: Improving the audit of financial statements of listed firms in the Vietnam Stock Market  Major in Accounting (Accounting, Auditing and Analysis) Code: 62.34.30.01   HA NOI, NAM 2012  RESEARCHISFINALIZEDAT NATIONALECONOMICUNIVERSITY  INSTRUCTOR: 1. Prof. Dr. Nguyen Quang Quynh  2. Dr. Nguyen Thi Phuong Hoa Appraisal1: Prof. Dr. DOAN XUAN TIEN STATE AUDIT OFFICE OF VIETNAM  Appraisal2: DR. NGUYEN HUU ANH NATIONAL ECONOMICS UNIVERSITY  Appraisal3: dr. LUU DUC TUYEN FINANCI AL OF ACADEMY ThethesisisprotectedandmarkattheCounciloftheStateat NationalEconomicsUniversity  Response to day month year 2012  Thesiscanbefoundat: ‐NationalLibrary ‐LibraryoftheNationalEconomicsUniversity   1 INTRODUCTION 1. The Urgency of the Topic: Nowadays, many companies choose to expand the capital market through the Stock Exchange (stock market) which is a channel to attract capital potentially and effectively with the participation of both domestic and foreign investors. Among the information provided on the stock market, accounting information is offered in the forms of financial statements (FS) which supply information and particularly play an important role: they have a great influence on the relationship between supply and demand of securities, are the motivation for the investors’ decision to buy or sell on the market after analyzing published financial statements. One of the factors contributing to investors’ trust in published information of listed companies is financial auditing activities of these companies. According to Vietnam’s Securities Law, financial statements of listed companies on stock market have to be audited annually by independent auditors in order to enhance honesty, rationality and legitimacy of public information of the organizations listed on the stock market. The stock market is still at the starting point and there are a lot of complicated changes: The rise in the number of listed companies has resulted in the diversification, abundance and complexities of commodity on the stock market. In addition, listed companies also have to face the fact that the attraction and expansion of capital markets is now very difficult because of both objective and subjective reasons. This circumstance, along with the trend of world economic integration in general and audit in particular requires to specify arguments for auditing financial statements the listed companies and improve the quality of audit operation. Recognizing the urgency mentioned above, the author confidently went into a research thesis with the topic "Improving the audit of financial statements of listed firms in the Vietnam Stock Market". 2. The Research Objectives: This research specified the general theory of the stock market, activities of the listed companies on the stock market. It researched and developed the theory of the financial audit for listed companies from other countries and the similar international experience that maybe applied to Vietnam. On that basis, the thesis analyzed the current status of the financial audit of listed companies on the stock market, assessed the achievements, the existence and the cause of the limitations in the audit of the financial statements from companies listed on Vietnam’s stock  2 market. From the theoretical and practical study, the authors pointed out the solutions and recommendations to improve financial audit of listed companies on the stock market. 3. The Object and Scope of the Study: In terms of the object researched, the thesis topic focused on researching financial auditing theory of the companies, and then deeply going into the audit of the financial statements of listed companies on the stock market. The scope of research topics focuses on the financial auditing operations of the joint stock companies listed on the stock market conducted by the independent auditing company. 4. Research Methodology On the basis of the methodology of dialectical materialism, the thread applied the common methods such as acquisition of information, synthesis, analysis, statistics, thereby making the basic case of audited financial statements from listed companies on the stock market. More specifically, on the basis of the accumulated knowledge in combination with the reference materials at home country and abroad in this field, the author analyzed and synthesized to complete general theory of auditing the financial statements of the listed companies on the stock market. In practical study, topical application of specific methods are used such as do surveys, aggregate and analyze the situation of the audited financial statements of the companies listed on the Vietnam’s stock market. 5. The Structure of the Thesis Besides the Introduction and Conclusion, the thesis consists of three chapters: Chapter I: General Theory of the audit the financial statements of companies listed on the stock market; Chapter II: Current situations of audit the financial statements of companies listed on the Vietnamese stock market; Chapter III: The direction and complete solution for audit the financial statements of companies listed on the stock market in Vietnam.  3 CHAPTER I: GENERAL THEORY OF THE AUDIT OF FINANCIAL STATEMENTS OF THE COMPANIES LISTED ON THE STOCK MARKET 1.1. Stock market and those companies listed on the stock market with the management: 1.1.1. Overview about the stock exchanges: Securities market plays an important role in capital market to raise the funds from each social saving capital to large capital long-term financing for enterprises, investment projects, economic organizations and the State to develop the production, strengthen the economy. The stock market is the place that securities are issued and exchanged. 1.1.2. The Company listed on the stock market: Listed companies are issuers of securities on the stock market. Thus, the characteristics of the listed companies’ impact on the audit are reviewed on a number of main aspects: Firstly, listed companies are joint stock companies. Secondly, listed companies may issue securities under the two types of stocks and bonds to the public; the number of Shareholders in listed companies are quite complex and change from time to time, it is therefore difficult to control and manage; Thirdly, the capital raise of listed companies may be conducted under a variety of forms and highly effective: through bank loans and the stock market; Fourthly, to the publicized information in general and financial information in particular from listed companies, it must comply with strict regulations on the financial and accounting regulations of the stock market; Fifthly, when the securities listed on the stock market, the number and qualifications of people interested in the financial information of the Listed companies are quite large and complicated; Sixthly, the listed companies' operations will be managed closely from many legal systems that inside and outside the company; Finally, business characteristics of the listed companies are complex and diverse. Listed companies can participate in a variety of business activities (groups, corporations) lead to high risks in business and management.  4 1.2. General theory of the audit of financial statements of companies listed on the stock market 1.2.1. The common features of the audit of financial statements of companies listed on the stock market 1.2.1.1. Overviews of the audit of financial statements: “The audit of financial statements is to verify and express opinions on the financial statements of the unit by qualified auditors who have adequate expertise to follow the effective legal system." 1.2.1.2. Audit objects in the audit of financial statements of listed firms in the stock market: Financial statements of the listed companies must still meet the basic requirements of normal financial statements businesses about compliance guidelines, on how to establish, on the basis of forms, the type of report, about the time of filing the report In addition, the operation characteristics of the listed companies lead to the specific characteristics of the financial statements of the listed companies: First, the number and qualifications of those who are interested in information on the financial statements of the listed companies are diverse and complex; Second, the complexity of preparing and presenting the financial statements of the listed companies with many industries and business areas; Third, due to the number of shareholders of the listed companies which are large and continuously variable. Therefore, the professional track and report of the details of equity according to the specific object on the accounting books are very difficult; Fourth, a number of financial indicators appear only on the accounting books and financial statements of joint stock companies in general and Listed companies in particular; Fifth, the Listed companies with many shareholders and constantly changing, it will affect the operation of the company (for example, when changing strategic shareholder or shareholders), and at the same time the distribution of profits therefore meets complicated; Sixth, those listed companies always exist in many complex financial relationships, then to track and identify the stakeholders or to consolidate financial statements is very difficult;  5 Seventh, the number and qualifications who are interested in information on the financial statements of the listed companies. The characteristics of the financial statements of the listed companies in the stock market above greatly impact on the audit of financial statements of listed firms in the stock market Specifically: First, affect the planning of the audit; Second, impact the auditing operation; Third, affect the synthesis and report of audits (audit statement); Fourth, influence to the responsibility of the auditors; Fifth, the auditors have to conduct and review the semi-annual or quarter financial statements of those companies listed on the security exchange. The Approach method to the audit of financial statements of listed firms in the stock market 1.2.1.3. for the companies listed on the stock market: The audit approach to audit financial statements of the listed companies is risk-based approach (business risk of listed companies) and system-based approach (internal control system of listed companies). 1.2.1.4. The object of the audit of financial statements for the listed companies: The overall objective of auditing the financial statements of the listed companies is to express a confirming opinion to the preparation and presentation of the financial statements of those listed companies on the basis of standards, the current or accepted accounting regime, the provisions of the Securities Commission and the relevant compliance with the true and fair view in all aspects of the information reflected on the financial statements. 1.2.2. The process of auditing financial statements of companies listed on the stock market: • Step 1: The preparation stage of audits: First: Prepare the audit plan. Second: Collect baseline information. Third: Crawl legal obligations. Fourth: Perform analytical procedures. Fifth: Assess significance and audit risk.  6 Sixth: Find out and evaluate internal control system. • Step 2: The period of performing audit. First: Implement the control experiment. Second: Perform analytical procedures. Third: Check the balance and the number of the incurred items in detail. • Step 3: The end of audit period. 1.2.3. Auditing a number of features in the audit of financial statements of listed companies: First, audit the owner’s equity and funds. Second, audit the profits sharing. Third, audit the consolidated financial statements. The selection of the audit comes from the complexity and risk seriousness of the need for information of those interested to the content of the financial statements of the listed companies. 1.3. International experience in the audit of financial statements of companies listed on the stock market: About regulations for listed companies on the stock market. Requirements for financial statements of the listed companies on the stock market. Approach to the audit of the financial statements of the listed companies on the stock market. Procedures of the audit of the financial statements of the listed companies on the stock market. Regarding the selection of auditing companies for the audit of the financial statements of the listed companies on the stock market.  7 Chart 1.3: The process of auditing the financial statements - The World Experience [50, page 62] 1. The risk assessment and the evaluation of potential customers Acceptance to the customer Seeking completed and giving commitment to audit 2. Implementation of the overall analysis of the company, strategy, environment 3. The risk assessment of client companies 4. Evaluation for control systems and related processes to identify risks 9. Forming opinions, assessing the job quality and announcing reviews for customers and users. 8. Designing direct tests of the balance to reduce the risk of omitted significant influence information. 7. Risk assessment on the existence of the ability to ignore critical information 6. Checking the operation of the control system in places that control systems reduce the ability to ignore critical information 5. Performing analyticalprocedures to determine the ability of the accountbalance withinthelimits defined Small account balance or non-risk on possibility of omitted key information The account balance level of risk on possibility of omitted significant influence information  8 Lesson learned for the audit of financial statements of the listed companies on the stock market in Vietnam First, establish the Quality Supervision Committee for Audit to audit of financial statements companies for listed companies. Second, construct the cross-checking mechanism between the auditing firms when auditing listed companies. With quality control mechanism from the auditing companies (self-test, self-control) and external auditing companies (Supervision Committee, professional associations and other auditing firms); Third, improve the legal basis for audit of financial statements of the listed companies. Fourth, thoroughly apply the approach to audit of financial statements of the listed companies in the direction of risk. Fifth, complete the financial statements of the listed companies. [...]... THE STOCK MARKET IN VIETNAM 3.1 The necessity and direction of complement audit the financial statements of companies listed on the stock market in Vietnam 3.1.1 The necessity complete audit the financial statements of companies listed on the stock market Vietnam The development and social - economic integration in general and the stock market in particular Improve the quality of audit financial statements... THE FINANCIAL STATEMENTS OF COMPANIES LISTED ON THE VIETNAMESE STOCK MARKET NOWADAYS 2.1 The Characteristics of the Vietnam’s securities market and the companies listed on the Vietnam’s Stock market in relationship with the audit of financial statements: 2.1.1 The overview of Vietnam’s Securities market: 2.1.2 The companies listed on the Vietnam’s Stock market: The foundation, development and specific... development of Audit field in Vietnam; Third, it should continue to promulgate adequate system of accounting and auditing standards in Vietnam, shorten the gap between the standards of Vietnam compared to international standards, and guide the application of standard match the reality Recommendations to the auditing firm: The auditing firms have to improve the quality of auditor team Furthermore, this... financial statements of the specific audit program 3.2.4 Improve the audit quality control and building the company's audit corporate culture First, strengthen the quality control of each audit Second, create brand and business culture for the Vietnamese auditing company in the integration process 3.2.5 Improve the quality of auditors to meet the requirements of economy integration First, raise the... of equity is just a part of the notes to the financial statements, not separated as an independent report in financial statements); Secondly, the content of establishment and presentation of financial statements in accordance with the State of Vietnam (Accounting Law, Accounting Standards and other legal documents of Vietnam); Thirdly, the financial statements of the listed companies in Vietnamese... Accounting Standards of Vietnam - Accounting Regime of Vietnam - The decrees and circular guiding to the accounting regime ‐ Decree No. 14/2007/ND‐ CP stipulates a number of  articles of the Law on  Securities  ‐ Circular 09/2010/TT‐BTC  guidance to publish  information on the stock  market  ‐ International  Standards on  Auditing  ‐ Standard on  Auditing System of  Vietnam  ‐ Decision  89/2007/QD‐BTC ... items of equity (capital owners and investment funds) Audited profit and profit distribution Audited consolidated financial statements 2.2.3.1 Audit items of equity: * Group audit firms belonging BIG FOUR For Ernst & Young Vietnam For DELOITTE Vietnam * Those audit companies not in the BIG FOUR For audit company AASC For audit company A & C 2.2.3.2 Audited profit and profit distribution:   15 * Group audit... of auditing the consolidated financial statements is illustrated in Appendix No 8 2.3 General assessment of reality of the audited financial statements of companies listed on the Vietnam’s stock market: 2.3.1 The achievement of the audited financial statements of companies listed on the Vietnam’s stock market today: First, auditing activities are more professional; Second, issue samples of audit program;... integration to auditing activities in the world Sixth, the legal system has been basically completed and still improving Seventh, quantity and quality of auditing company increasingly strengthened 2.3.2 The limitations of the audit financial statements of companies listed on the Vietnam’s stock market today   16 2.3.2.1 The restrictions on the financial statement audit process of the listed companies First,... stage in Vietnam The advancement of the independent audit will be shown in Table 2.3 2.2.1.2 Characteristics of financial statements of listed companies compared to the audit of financial statements of companies listed on the Vietnamese stock market: About the characteristics of financial statements of listed companies:   10 Basically, the financial statements of those companies listed on Vietnamese stock . STOCK MARKET IN VIETNAM 3.1. The necessity and direction of complement audit the financial statements of companies listed on the stock market in Vietnam 3.1.1. The necessity complete audit. According to Vietnam’s Securities Law, financial statements of listed companies on stock market have to be audited annually by independent auditors in order to enhance honesty, rationality and legitimacy. the ability of the accountbalance withinthelimits defined Small account balance or non-risk on possibility of omitted key information The account balance level of risk on possibility of